<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO __________
COMMISSION FILE NUMBER 1-8007
FREMONT GENERAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)
<TABLE>
<S> <C>
NEVADA 95-2815260
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
2020 SANTA MONICA BLVD.
SANTA MONICA, CALIFORNIA 90404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(310) 315-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15 (d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), 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:
<TABLE>
<CAPTION>
SHARES OUTSTANDING
CLASS AUGUST 8, 1996
- --------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $1.00 par value 26,127,081
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE> 2
FREMONT GENERAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.....................................................
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995....................................
Consolidated Statements of Income
Six Months Ended June 30, 1996 and 1995................................
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995................................
Notes to Consolidated Financial Statements on Form 10-Q..................
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................
PART II -- OTHER INFORMATION
Items 1-3 Not applicable...........................................................
Item 4. Submission of Matters to a Vote of Security Holders......................
Item 5. Not applicable...........................................................
Item 6. Exhibits and Reports on Form 8-K.........................................
</TABLE>
Signature
2
<PAGE> 3
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Securities available for sale at fair value:
Fixed maturity investments (cost: 1996 -- $1,074,768;
1995 -- $1,255,434)........................................... $1,053,690 $ 1,296,550
Non-redeemable preferred stock (cost: 1996 -- $381,629;
1995 -- $285,337)............................................. 373,125 277,451
---------- ------------
Total securities available for sale...................... 1,426,815 1,574,001
Loans receivable................................................... 1,531,088 1,499,043
Short-term investments............................................. 181,346 362,163
Other investments.................................................. 3,223 1,726
---------- ------------
Total Investments and Loans.............................. 3,142,472 3,436,933
Cash............................................................... 33,909 39,559
Accrued investment income.......................................... 29,173 30,396
Premiums receivable and agents' balances........................... 98,601 107,973
Reinsurance recoverable on paid losses............................. 13,701 9,422
Reinsurance recoverable on unpaid losses........................... 623,992 289,461
Deferred policy acquisition costs.................................. 25,788 76,638
Costs in excess of net assets acquired............................. 68,294 70,656
Deferred income taxes.............................................. 89,272 78,619
Other assets....................................................... 80,006 75,240
Assets held for discontinued operations............................ 267,332 262,502
---------- ------------
Total Assets............................................. $4,472,540 $ 4,477,399
========= ==========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses.............................. $1,365,509 $ 1,455,692
Life insurance benefits and liabilities.......................... 372,849 374,724
Unearned premiums................................................ 90,580 100,481
Dividends to policyholders....................................... 37,003 40,822
---------- ------------
Total Claims and Policy Liabilities...................... 1,865,941 1,971,719
Reinsurance premiums payable and funds withheld.................... 5,041 5,452
Other liabilities.................................................. 49,683 81,371
Thrift deposits.................................................... 958,974 926,312
Short-term debt.................................................... 93,082 72,191
Long-term debt..................................................... 698,339 693,276
Liabilities of discontinued operations............................. 233,818 228,988
---------- ------------
Total Liabilities........................................ 3,904,878 3,979,309
Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of
subsidiary Trust holding solely Company junior subordinated
debentures....................................................... 100,000 --
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 49,500,000
shares; issued and outstanding: (1996 -- 26,075,000 and
1995 -- 25,393,000).............................................. 26,075 25,393
Additional paid-in capital......................................... 121,855 110,103
Retained earnings.................................................. 380,913 347,607
Deferred compensation.............................................. (41,953) (6,612)
Net unrealized gain (loss) on investments, net of deferred taxes... (19,228) 21,599
---------- ------------
Total Stockholders' Equity............................... 467,662 498,090
---------- ------------
Total Liabilities and Stockholders' Equity............... $4,472,540 $ 4,477,399
========= ==========
</TABLE>
See notes to consolidated financial statements on Form 10-Q.
3
<PAGE> 4
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
REVENUES:
Property and casualty premiums earned............... $125,561 $175,146 $252,238 $298,569
Net investment income............................... 31,292 31,518 65,069 53,892
Loan interest....................................... 39,018 41,227 77,054 80,440
Realized investment gains (losses).................. (863) 71 (1,524) 77
Other revenue....................................... 4,700 5,033 10,504 19,174
-------- -------- -------- --------
Total Revenues................................. 199,708 252,995 403,341 452,152
EXPENSES:
Losses and loss adjustment expenses................. 85,828 137,037 179,505 230,554
Policy acquisition costs............................ 23,995 36,336 49,515 60,046
Provision for loan losses........................... 2,330 4,001 5,848 8,358
Other operating costs and expenses.................. 26,427 25,639 51,960 59,783
Interest expense.................................... 27,815 24,807 55,969 47,421
-------- -------- -------- --------
Total Expenses................................. 166,395 227,820 342,797 406,162
-------- -------- -------- --------
Income before taxes................................. 33,313 25,175 60,544 45,990
Income tax expense.................................. 10,887 8,308 19,601 14,917
-------- -------- -------- --------
Net Income................................ $ 22,426 $ 16,867 $ 40,943 $ 31,073
======== ======== ======== ========
PER SHARE DATA:
Net income:
Primary........................................... $ 0.85 $ 0.65 $ 1.57 $ 1.20
Fully diluted..................................... 0.71 0.54 1.30 1.00
Cash dividends...................................... 0.15 0.13 0.30 0.25
Weighted average shares:
Primary........................................... 26,266 25,950 26,034 25,886
Fully diluted..................................... 33,495 33,258 33,242 33,144
</TABLE>
See notes to consolidated financial statements on Form 10-Q.
4
<PAGE> 5
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.......................................................... $ 40,943 $ 31,073
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in premiums receivable and agents' balances and
reinsurance recoverable on paid losses........................ 4,318 5,092
Change in accrued investment income............................ 1,223 (7,369)
Change in claims and policy liabilities........................ (112,122) (24,355)
Amortization of policy acquisition costs....................... 49,515 51,801
Policy acquisition costs deferred.............................. (47,603) (64,386)
Provision for deferred income taxes............................ 11,331 11,389
Provision for loan losses...................................... 5,848 8,358
Provision for depreciation and amortization.................... 11,860 8,894
Net amortization on fixed maturity investments................. (11,910) (2,656)
Realized investment (gains) losses............................. 1,524 (77)
Change in other assets and liabilities......................... (39,241) (4,128)
----------- -----------
Net Cash Provided by (Used in) Operating Activities....... (84,314) 13,636
INVESTING ACTIVITIES:
Securities available for sale:
Purchases of securities........................................... (1,170,579) (1,550,911)
Sales of securities............................................... 1,220,690 901,091
Securities matured or called...................................... 44,650 15,567
Securities held to maturity:
Purchases of securities........................................... -- (117,660)
Sales of securities............................................... -- --
Securities matured or called...................................... -- 5,464
Decrease in short-term and other investments........................ 179,320 796,889
Loan originations and bulk purchases funded......................... (250,282) (189,180)
Receipts from repayments of loans................................... 211,693 129,789
Purchase of subsidiaries, less cash acquired........................ -- (249,305)
Purchase of property and equipment.................................. (5,576) (4,015)
----------- -----------
Net Cash Provided by (Used in) Investing Activities....... 229,916 (262,271)
FINANCING ACTIVITIES:
Proceeds from short-term debt....................................... 91,115 34,337
Repayments of short-term debt....................................... (72,191) (24,377)
Proceeds from long-term debt........................................ 74,058 105,000
Repayments of long-term debt........................................ (71,004) (12,808)
Net increase in thrift deposits..................................... 32,662 40,840
Annuity contract receipts........................................... 108,231 93,278
Annuity contract withdrawals........................................ (18,142) (7,692)
Proceeds from sale of Preferred Securities.......................... 100,000 --
Dividends paid...................................................... (7,112) (5,848)
Stock options exercised............................................. 996 12
Settlement under life insurance reinsurance agreement............... (363,415) --
Net (increase) decrease in deferred compensation plans.............. (26,450) 4,375
----------- -----------
Net Cash Provided by (Used in) Financing Activities....... (151,252) 227,117
----------- -----------
Decrease in Cash.................................................... (5,650) (21,518)
Cash at beginning of year........................................... 39,559 31,058
----------- -----------
Cash at June 30,.................................................... $ 33,909 $ 9,540
========== ==========
</TABLE>
See notes to consolidated financial statements on Form 10-Q.
5
<PAGE> 6
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These statements have been prepared in accordance with generally accepted
accounting principles and, accordingly, adjustments (consisting of normal
accruals) have been made as management considers necessary for fair
presentations. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. Certain 1995 amounts have been
reclassified to conform to the 1996 presentation.
NOTE B -- PUBLIC OFFERING
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The $100
million Junior Subordinated Debentures are the sole asset of the Trust.
The Preferred Securities will be redeemed upon maturity of the Junior
Subordinated Debentures in 2026, subject to the election available to the
Company to extend the maturity up to 2045, and they may be redeemed, in whole or
in part, at any time on or after March 31, 2001 and under certain specified
circumstances.
The Junior Subordinated Debentures rank pari passu with the Company's $374
million aggregate principal amount at maturity of Liquid Yield Option Notes due
2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company. The Company has provided for back-up undertakings
that, considered together, constitute a full and unconditional guarantee by the
Company of the Trust's obligations under the Preferred Securities.
NOTE C -- REINSURANCE
On January 1, 1996, the Company entered into a reinsurance and assumption
agreement with a reinsurer whereby assets and liabilities related to certain
life and annuity insurance polices, primarily investment-type contracts and
credit life and accident and health, were ceded to the reinsurer. This
reinsurance agreement is part of several other agreements which collectively act
to significantly reduce the Company's life insurance operations. In the second
quarter ended June 30, 1996 these agreements settled, which resulted in the
transfer of $363 million in securities and cash to the reinsurer in support of
the liabilities ceded. The effect on net income from these agreements was not
material.
NOTE D -- STOCKHOLDERS' EQUITY AND PER SHARE DATA
The three-for-two Common Stock split declared on December 4, 1995 was
distributed on February 7, 1996 to stockholders of record on January 8, 1996.
Per share data have been computed based on the weighted average number of
shares outstanding adjusted retroactively for this stock split.
During the first six months of 1996, the Company purchased an aggregate
1,297,097 shares at an aggregate cost of approximately $31 million and issued
681,000 shares with a fair value of $16 million to fund stock-based management
and employee benefit programs.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements as a
result of certain of the factors set forth elsewhere in this Quarterly Report on
Form 10-Q.
RESULTS OF OPERATIONS
Fremont General Corporation (the "Company"), a nationwide property and
casualty insurance and financial services holding company, operates through its
wholly-owned subsidiaries in select businesses in niche markets. The three core
operating lines of business are workers' compensation insurance, real estate
lending and commercial finance lending. Additionally, on a smaller scale, the
Company is involved in underwriting various other insurance products.
The following table presents information for the three and six months ended
June 30, 1996 and 1995 with respect to the Company's primary business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues:
Workers' compensation............................. $144,461 $193,368 $292,123 $326,946
Professional medical liability, corporate and
other.......................................... 8,140 9,554 16,482 19,226
------- ------- ------- -------
Total property and casualty............... 152,601 202,922 308,605 346,172
Financial services................................ 46,482 49,873 93,708 105,586
Corporate......................................... 625 200 1,028 394
------- ------- ------- -------
Total..................................... $199,708 $252,995 $403,341 $452,152
======= ======= ======= =======
Income (Loss) Before Taxes:
Workers' compensation............................. $ 31,082 $ 21,490 $ 56,528 $ 38,240
Professional medical liability, corporate and
other.......................................... (640) (748) (1,123) (1,128)
------- ------- ------- -------
Total property and casualty............... 30,442 20,742 55,405 37,112
Financial services................................ 8,873 8,593 16,388 16,320
Corporate......................................... (6,002) (4,160) (11,249) (7,442)
------- ------- ------- -------
Total..................................... $ 33,313 $ 25,175 $ 60,544 $ 45,990
======= ======= ======= =======
</TABLE>
The Company generated revenues of approximately $200 million and $403
million in the three and six month periods ended June 30, 1996, as compared to
$253 million and $452 million for the same periods in 1995. Revenues were lower
in the three and six months ended June 30, 1996 as compared to the same periods
of 1995, due primarily to lower workers' compensation insurance premiums and
lower life insurance premiums in the financial services segment. The lower
premiums in the six month period ended June 30, 1996 as compared to the same
prior year period were partially offset by higher net investment income. The
higher net investment income is due primarily to higher invested assets
resulting from the acquisition on February 22, 1995, of Casualty Insurance
Company ("Casualty") from the Buckeye Union Insurance Company. Casualty
underwrites workers' compensation insurance primarily in Illinois and several
other mid-western states. Casualty currently is the largest underwriter of
workers' compensation insurance in Illinois and has provided the Company with a
significant presence in the mid-western region. Workers' compensation insurance
premiums were lower in the six month period ended June 30, 1996 as compared to
the same prior year period, due primarily to lower premiums earned in
California, partially offset by higher premiums earned in the mid-western region
resulting from the acquisition of Casualty. With respect to the three month
period ended June 30, 1996, both the west (primarily California) and mid-west
regions posted lower workers' compensation earned premiums as compared to the
same prior year period. See "Property and Casualty Insurance
Operations -- Premiums." Lower revenues in the financial services segment are
due primarily to lower life
7
<PAGE> 8
insurance premiums as the Company significantly reduced its life insurance
operations effective January 1, 1996 by entering into certain reinsurance and
assumption agreements with a reinsurer. See "Financial Services." Realized
investment gains (losses) in the three and six month periods ended June 30, 1996
were $(863,000) and $(1,524,000), respectively, compared to $71,000 and $77,000,
respectively, for the same periods in 1995.
The Company had net income of $22.4 million or $0.85 per share and $40.9
million or $1.57 per share for the three and six month periods ended June 30,
1996, respectively, as compared to $16.9 million or $0.65 per share and $31.1
million or $1.20 per share, for the same periods in 1995. Income before taxes
for the three and six month periods ended June 30, 1996 was $33.3 million and
$60.5 million as compared to $25.2 million and $46.0 million for the same
periods in 1995, representing increases of 32.3% and 31.6% for the three and six
month periods, respectively.
Workers' compensation insurance operations posted income before taxes of
$31.1 million and $56.5 million for the three and six month periods ended June
30, 1996, respectively, as compared to $21.5 million and $38.2 million for the
same periods in 1995. The increases in income before taxes of 44.6% and 47.8%
for the three and six month periods, respectively, are due primarily to lower
claim frequency and the acquisition of Casualty, offset partially by lower
income on the Company's California business. The combined ratio for the three
and six month periods ended June 30, 1996 was 93.4% and 96.5%, respectively, as
compared to 101.6% and 100.8% for the same periods in 1995.
The Company's professional medical liability, corporate and other segment
is composed principally of revenues and expenses that pertain to the Company's
professional medical liability business ("medical malpractice"), as well as
miscellaneous expenses associated with the Company's downstream property and
casualty insurance holding company, Fremont Insurance Group, Inc., ("Fremont
Insurance Group"). Medical malpractice premiums were down modestly at $6.8
million and $13.7 million for the three and six month periods ended June 30,
1996, respectively, as compared to $7.7 million and $15.4 million for the same
periods in 1995. Income before taxes for the medical malpractice business was
$0.9 million and $1.8 million for the three and six month periods ended June 30,
1996, respectively, as compared to $1.2 million and $2.5 million for the same
periods in 1995. The lower income before taxes is consistent with the lower
premiums earned in the medical malpractice segment. Expenses of Fremont
Insurance Group include interest expense on debt and other obligations of $1.5
million and $3.1 million for the three and six month periods ended June 30,
1996, respectively, as compared to $1.6 million and $3.2 million for the same
periods in 1995. Since the operations of Fremont Insurance Group consist
primarily of interest expense and overhead expenses, management does not expect
it to operate at a profit.
The financial services business segment posted income before taxes for the
three and six month periods ended June 30, 1996 of $8.9 million and $16.4
million, respectively, as compared to $8.6 million and $16.3 million for the
same periods of 1995. Although income before taxes was flat as compared to the
three and six month periods ended June 30, 1995, the six month results in 1996
were negatively impacted by the establishment of a specific loan loss reserve
associated with a particular loan in the commercial finance loan portfolio. The
average loan portfolio in the financial services segment grew to $1.53 billion
in the six month period ended June 30, 1996 from $1.47 billion in the same
period of 1995. Also impacting the financial services segment in 1996 is the
significant reduction in life insurance premiums resulting from certain
reinsurance and assumption agreements entered into between the Company and a
reinsurer which became effective December 31, 1995 and January 1, 1996. Income
before taxes in the life insurance operation was nil in both the three and six
month periods ended June 30, 1996, as compared to $800,000 and $1.1 million for
the same periods in 1995. See "Financial Services."
Corporate revenues during the three and six month periods ended June 30,
1996 and 1995 consisted primarily of investment income, while corporate expenses
consisted primarily of interest expense and general and administrative expense.
The corporate loss before income taxes for the three and six month periods ended
June 30, 1996 was $6.0 million and $11.2 million, respectively, as compared to
$4.2 million and $7.4 million for the same periods of 1995. The increase in the
corporate loss before taxes for the three and six month periods ended June 30,
1996 over the same periods in 1995, was due primarily to increased interest
expense
8
<PAGE> 9
and increased administrative expenses. The increase in interest expense is
principally due to additional debt incurred in the acquisition of Casualty, as
well as to accrued dividends in connection with a public offering on March 1,
1996 of $100 million of 9% Trust Originated Preferred SecuritiesSM (the
"Preferred Securities") sold by a consolidated wholly-owned subsidiary of the
Company. See "Liquidity and Capital Resources." Since the proceeds from this
offering were invested in 9% Junior Subordinated Debentures of the Company, the
accrued dividends on the Preferred Securities have been classified in the
Consolidated Statements of Income as interest expense.
Income tax expense of $10.9 million and $19.6 million for the three and six
month periods ended June 30, 1996, respectively, represents effective tax rates
of 32.7% and 32.4% on pre-tax income of $33.3 million and $60.5 million. The
Company's effective tax rates are flat as compared to effective tax rates of
33.0% and 32.4% for the same periods in 1995. These effective tax rates are
lower than the enacted federal income tax rate of 35%, due primarily to tax
exempt investment income which reduces the Company's taxable income.
Property and Casualty Insurance Operations
The following table represents information for the three and six month
periods ended June 30, 1996 and 1995 with respect to the Company's property and
casualty insurance operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues............................. $152,601 $202,922 $308,605.. $346,172
Expenses............................. 122,159 182,180 253,200 309,060
-------- -------- -------- --------
Income before taxes.................. $ 30,442 $ 20,742 $ 55,405 $ 37,112
======== ======== ======== ========
</TABLE>
Revenues from the property and casualty insurance operations consist
primarily of workers' compensation insurance premiums earned and net investment
income. Expenses consist primarily of loss and loss adjustment expenses, policy
acquisition costs, other operating costs and expenses.
Premiums. Premiums earned from the Company's workers' compensation
insurance operations were $118.5 million and $237.8 million in the three and six
month periods ended June 30, 1996, respectively, as compared to $166.9 million
and $281.9 million for the same periods of 1995. Premiums were lower in the
three and six month periods ended June 30, 1996 as compared to the same periods
of 1995, due primarily to lower premium rates and non-renewals in the west
region. For the three and six month periods ended June 30, 1996, the Company's
workers' compensation insurance premiums earned in its western region,
consisting primarily of California, accounted for $43.8 million and $88.7
million, or 37.0% and 37.3% of the Company's total workers' compensation
insurance premiums earned, respectively. This also represents decreases of $35.2
million and $67.0 million from the same respective periods in 1995. These
decreases were due primarily to the increased price competition resulting from
California's adoption of an open rating system and the repeal of the minimum
rate law. See "Workers' Compensation Regulation." This increased price
competition has led to (i) lower premium rates and (ii) a lower average policy
size due to the Company's shift in focus to smaller employers. Additionally, an
increase in non-renewing polices have contributed to the lower premium volume in
California. The increase in non-renewing polices occurs as a result of certain
premium prices falling below required minimum pricing pursuant to the Company's
underwriting standards. For the three and six month periods ended June 30, 1996,
the Company's workers' compensation insurance premiums earned in its mid-western
region, consisting primarily of Illinois, accounted for $74.6 million and $149.1
million, or 63.0% and 62.7%, respectively, of the Company's total workers'
compensation insurance premiums earned. This is compared to $87.6 million and
$126.2 million in premiums earned in the same respective periods of 1995. The
lower premiums in the second quarter ended June 30, 1996 as compared to the same
period in 1995, are due primarily to price competition in Illinois, where an
overall average decrease of 13.6% in advisory rates, which workers' compensation
insurance companies in Illinois tend to follow, became effective January 1,
1996. See "Variability of Operating Results." With respect to the six month
period ended June 30, 1996, premiums earned are higher than the same period in
1995, due primarily to the fact that the Casualty acquisition settled
9
<PAGE> 10
on February 22, 1996, and therefore, only four months of Casualty's operating
results are included in the Company's results for the six month period ended
June 30, 1995.
Net Investment Income. Net investment income within the property and
casualty insurance operations was $27.9 million and $57.9 million in the three
and six month periods ended June 30, 1996, as compared to $27.7 million and
$47.6 million for the same periods of 1995. Higher net investment income was
earned in the six month period ended June 30, 1996 as compared to the same
period in 1995, due primarily to the fact that only four months of Casualty's
operations are included in the Company's results of operations in the six month
period ended June 30, 1995.
Loss and Loss Adjustment Expense. Workers' compensation loss and loss
adjustment expenses ("LAE") were $80.3 million and $168.3 million for the three
and six month periods ended June 30, 1996, respectively, as compared to $130.3
million and $217.3 million for the same periods in 1995. In addition, the ratio
of these losses and LAE to workers' compensation insurance premiums earned was
67.8% and 70.8% for the three and six month periods ended June 30, 1996,
respectively, as compared to 78.1% and 77.1% for the same periods of 1995. The
decreases in incurred loss and LAE in the three and six month periods ended June
30, 1996 as compared to the same periods of 1995, are due primarily to lower
claim frequency in the Company's mid-west region and to lower incurred losses
and LAE in the Company's west region resulting from lower insurance premiums
earned on California policies which resulted from increased competition. See
"Premiums".
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result in loss reserves being too high or too low. Future
loss development could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
Policy Acquisition Costs and Other Operating Costs and Expenses. The ratio
of policy acquisition costs and other operating costs and expenses to premiums
earned is referred to as the expense ratio, which for the Company's workers'
compensation business was 25.6% and 25.7% in the three and six month periods
ended June 30, 1996, respectively, as compared to 23.5% and 23.7% in the same
periods of 1995. The increase in this ratio in the three and six month periods
ended June 30, 1996 was due primarily to higher operating costs and expenses,
partially offset by lower agents' commission costs.
Dividends to Policyholders. In the three and six month periods ended June
30, 1996 and June 30, 1995, there were no dividends accrued. This is due
primarily to a change in the type of workers' compensation insurance policy
written on and after January 1, 1995. In 1995, the Company's workers'
compensation insurance policies, both in California and those underwritten by
Casualty, were predominately written as non-participating, which does not
include provisions for dividend consideration. Prior to 1995 the Company's
policies were predominately written as participating, thereby obligating the
Company to consider the payment of dividends. This shift in policy type is due
primarily to the increased competition in the California market which has
resulted from the repeal of the minimum rate law, effective January 1, 1995. The
Company anticipates that this shift to non-participating policies will continue
and be a characteristic element of the competitive environment established by
the July 1993 California legislation. See "Workers' Compensation Regulation."
Variability of Operating Results. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, interest rates, regulations, court decisions, the judicial
climate, and general economic conditions and trends, all of which are outside of
the Company's control. These factors have contributed, and in the future could
contribute, to significant variation of results of operations in different
aspects of the Company's business from quarter to quarter and year to year. With
respect to the workers' compensation insurance business, changes in economic
conditions can lead to reduced
10
<PAGE> 11
premium levels due to lower payrolls as well as increased claims due to the
tendency of workers who are laid off to submit workers' compensation claims.
Legislative and regulatory changes can also contribute to variable operating
results for workers' compensation insurance businesses. For example, in 1995 the
Company experienced the negative impact of lower premiums and lower
profitability on the Company's California workers' compensation business due to
increased price competition resulting from legislation enacted in California in
July 1993 which, among other things, repealed the minimum rate law effective
January 1, 1995. See "Workers' Compensation Regulation." Additionally, price
competition in Illinois continues to impact the Company's profitability, where
an overall average decrease of 13.6% in advisory rates, which workers'
compensation insurance companies in Illinois tend to follow, became effective
January 1, 1996. The Company anticipates that its results of operations and
financial condition will continue to be adversely affected by the increased
price competition which has lowered the Company's workers' compensation
insurance premiums earned in California and Illinois. Also, the establishment of
appropriate reserves necessarily involves estimates, and reserve adjustments
have caused significant fluctuations in operating results from year to year.
Workers' Compensation Regulation. Illinois began operating under an open
rating system in 1982 and California began operating under such a system
effective January 1, 1995. In an open rating system, workers' compensation
companies are provided with advisory rates by job classification and each
insurance company determines its own rates based in part upon its particular
operating and loss costs. Although insurance companies are not required to adopt
such advisory rates, companies in Illinois generally follow such rates. Premiums
in Illinois have decreased due, in part, to the 13.6% decrease in overall
average advisory rates which became effective January 1, 1996. However,
insurance companies in California have, since the adoption of an open rating
system, generally set their premium rates below such advisory rates. Before
January 1, 1995, California operated under a minimum rate law, whereby premium
rates established by the California Department of Insurance were the minimum
rates which could be charged by an insurance carrier.
In July 1993, California enacted legislation to reform the workers'
compensation insurance system and to, among other things, (i) reduce workers'
compensation manual premium rates by 7% effective July 16, 1993 and (ii) repeal
the minimum rate law effective January 1, 1995. In addition to the July 1993
legislation, in December 1993, the California Insurance Commissioner reduced
workers' compensation manual premium rates on new and renewal business an
additional 12.7% effective January 1, 1994. In September 1994, California
workers' compensation manual premium rates were further reduced by 16% effective
October 1, 1994 on all business incepting on or after January 1, 1994.
The repeal of the minimum rate law on January 1, 1995 has resulted in lower
premiums and lower profitability in the Company's California workers'
compensation insurance business due to increased price competition. The Company
believes that its acquisition of Casualty, with policies written primarily
outside of California, has lessened the impact of the repeal of the minimum rate
law by providing geographic diversity, which mitigates the impact of economic
and regulatory changes within a regional marketplace.
Financial Services
The Company's financial services operations are principally engaged in
commercial and residential real estate lending through Fremont Investment & Loan
and asset-based lending through Fremont Financial. The Company also has small
premium finance and life insurance operations included in this segment. Revenues
consist principally of interest income and, to a lesser extent, fees and other
income.
The following table presents information with respect to the Company's
financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- ------------------
1996 1995 1996 1995
------- ------- ------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues............................... $46,482 $49,873 $93,708 $105,586
Expenses............................... 37,609 41,280 77,320 89,266
------- ------- ------- --------
Income Before Taxes.................... $ 8,873 $ 8,593 $16,388 $ 16,320
======= ======= ======= ========
</TABLE>
11
<PAGE> 12
Revenues decreased 6.8% and 11.2% in the three and six month periods ended
June 30, 1996, respectively, as compared to the same periods of 1995, due
primarily to lower life insurance revenues. These lower life insurance revenues
resulted from certain reinsurance and assumption agreements which the Company
entered into on December 31, 1995 and January 1, 1996, primarily with one
reinsurer, whereby assets and liabilities related to certain life and annuity
insurance policies, primarily investment-type contracts and credit life and
accident and health, were ceded to the reinsurer. The reinsurance agreements are
part of several other agreements which collectively act to significantly reduce
the Company's life insurance operations. The effect on income before taxes and
net income from these agreements was not material.
Income before taxes in the financial services operations was $8.9 million
and $16.4 million for the three and six month periods ended June 30, 1996,
respectively, as compared to $8.6 million and $16.3 million for the same periods
of 1995. Income before taxes were flat in the financial services segment for the
three and six month periods ended June 30, 1996 as compared to the same periods
of 1995, due primarily to higher income before taxes in the real estate lending
operation as lower loan loss experience resulted in a lower provision for loan
losses. This was offset substantially by lower income in the commercial finance
operation due to a specific loan loss reserve associated with a particular loan
in the commercial loan portfolio. Additionally, lower income was earned in the
life insurance operation due to certain reinsurance agreements which became
effective on December 31, 1995 and January 1, 1996 and which resulted in a
significant reduction in the Company's life insurance operations in 1996.
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's real estate lending and commercial finance subsidiaries:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
1996 1995
------------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
---------- -------- ------- ---------- ------- -------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing assets(2):
Commercial finance and other
assets.......................... $ 637,526 $ 35,183 11.04% $ 597,439 $36,173 12.11%
Real estate lending:
Cash equivalents................ 173,004 4,615 5.34 81,789 2,216 5.42
Investments..................... 26,446 733 5.54 596 7 2.35
Commercial real estate loans.... 707,080 33,864 9.58 680,927 33,330 9.79
Residential real estate loans... 187,657 8,787 9.36 116,086 5,677 9.78
Contract loans.................. 59 -- -- 10,685 705 13.20
Installment loans............... 526 24 9.13 2,826 178 12.60
Finance leases.................. -- -- -- 54 2 7.41
---------- -------- ---------- -------
Total interest bearing assets...... $1,732,298 $ 83,206 9.61 $1,490,402 $78,288 10.51
========= ======== ========= =======
Interest bearing liabilities:
Savings deposits................... $ 259,322 $ 6,486 5.00% $ 86,933 $ 2,209 5.08%
Time deposits...................... 703,507 20,209 5.75 676,263 19,935 5.90
Commercial paper and other......... 3,094 84 5.43 17,928 625 6.97
Securitization obligation.......... 292,823 8,952 6.11 313,333 10,355 6.61
Debt with banks.................... 225,710 7,239 6.41 162,632 5,720 7.03
Debt from affiliates............... 60,440 807 2.67 49,335 1,094 4.43
---------- -------- ---------- -------
Total interest bearing
liabilities..................... $1,544,896 $ 43,777 5.67 $1,306,424 $39,938 6.11
========= ======== ========= =======
Net interest income.................. $ 39,429 $38,350
======== =======
Net yield............................ 4.55% 5.15%
</TABLE>
12
<PAGE> 13
- ---------------
(1) Annualized.
(2) Average loan balances include non-accrual loan balances.
The margin between the Company's interest income and cost of funds
decreased in the six month period ended June 30, 1996 as compared to the six
month period ended June 30, 1995, due primarily to an increase in lower yielding
cash equivalents and changes in the mix of loans, offset partially by a modest
decrease in the cost of savings and time deposits in the real estate lending
operation. Additionally, there was a slight decrease in the net margins in the
commercial finance lending segment. In the real estate lending operation, the
change in portfolio mix occurred as the Company completed in 1996 its shift away
from high rate, high risk residential real estate loans secured by personal
property or junior liens on real estate, to lower yielding residential first
trust deed real estate loans. The lower yields on the first trust deed loans are
compensated for by the improved underlying collateral and by the improved lien
position on the collateral. The net margins decreased in the commercial finance
segment due primarily to an increase in the competitive environment.
Loans Receivable and Reserve Activity. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------------ ------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ----- ---------- -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance.................................... $ 417,094 27% $ 415,038 27%
Term loans:
Commercial finance.................................... 160,733 10 110,647 7
Real estate lending................................... 924,281 59 888,952 58
Other................................................. 61,468 4 116,187 8
---------- --- ---------- ---
Total term loans................................... 1,146,482 73 1,115,786 73
---------- --- ---------- ---
Total loans........................................ 1,563,576 100 1,530,824 100
Less allowance for possible loan losses 32,488 2 31,781 2
---------- --- ---------- ---
Loans receivable...................................... $1,531,088 98% $1,499,043 98%
========== === ========== ===
</TABLE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT JUNE 30, 1996
---------------------------------------------
1 TO 24 25 TO 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
-------- -------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans --
variable rate................................... $420,917 $ -- $ -- $ 420,917
Term loans -- variable rate....................... 160,691 101,278 685,905 947,874
Term loans -- fixed rate.......................... 99,055 34,530 61,200 194,785
-------- -------- -------- ----------
Total................................... $680,663 $135,808 $747,105 $1,563,576
======== ======== ======== ==========
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
Adverse economic developments can negatively affect the Company's business
and results of operations in a number of ways. Such developments can reduce the
demand for loans, impair the ability of borrowers to pay loans and impair the
value of the underlying collateral.
13
<PAGE> 14
The following table describes the asset classifications, loss experience
and reserve reconciliation of the real estate lending and commercial finance
operations as of or for the periods ended as shown below:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1995
---------- ----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans................................................. $ 26,549 $ 25,436
Accrual loans 90 days past due.................................... 5,010 --
Real estate owned ("REO")......................................... 11,602 10,762
---------- ----------
Total non-performing assets............................. $ 43,161 $ 36,198
========== ==========
Beginning allowance for possible loan losses...................... $ 31,781 $ 27,406
Provision for loan losses......................................... 5,848 8,358
Reserves established with portfolio acquisitions.................. 1,830 --
Charge-offs:
Commercial finance and other loans.............................. 5,439 106
Real estate lending:
Commercial real estate loans................................. 1,884 1,139
Residential real estate loans................................ 63 1,061
Contract and installment loans............................... 94 196
---------- ----------
Total charge-offs....................................... 7,480 2,502
---------- ----------
Recoveries:
Commercial finance and other loans.............................. 25 894
Real estate lending:
Commercial real estate loans................................. 293 587
Residential real estate loans................................ 85 139
Contract and installment loans............................... 97 1
Finance leases............................................... 9 --
---------- ----------
Total recoveries........................................ 509 1,621
---------- ----------
Net charge-offs................................................... 6,971 881
---------- ----------
Ending allowance for possible loan losses......................... $ 32,488 $ 34,883
========== ==========
Allocation of allowance for possible loan losses:
Commercial finance and other loans.............................. $ 13,307 $ 15,058
Real estate lending............................................. 19,181 19,825
---------- ----------
Total allowance for possible loan losses................ $ 32,488 $ 34,883
========== ==========
Total loans receivable............................................ $1,563,576 $1,526,690
Average total loans receivable.................................... 1,525,843 1,474,438
Net charge-offs to average total loans receivable................. 0.91% 0.12%
Non-performing assets to total loans receivable................... 2.76% 2.37%
Allowance for possible loan losses to total loans receivable...... 2.08% 2.28%
Allowance for possible loan losses to non-performing assets....... 75.27% 96.37%
Allowance for possible loan losses to non-accrual loans and
accrual loans 90 days past due.................................. 102.94% 137.14%
</TABLE>
Non-performing assets increased to $43.2 million at June 30, 1996 from
$36.2 million at June 30, 1995. This increase is due primarily to an increase in
accrual loans 90 days past due in the real estate lending operation. This
increase is consistent with the increase in total loans receivable.
The lower provision for loan losses in the six month period ended June 30,
1996 as compared to the same period in 1995, is due primarily to improved loan
loss experience in the real estate lending operation, offset partially by an
additional specific loan loss reserve in the commercial finance operation
associated with one loan in the commercial finance portfolio. Substantially all
of the charge-offs in the commercial finance
14
<PAGE> 15
segment in the six months ended June 30, 1996 were also related to this loan.
This accounts for the increase in net charge-offs to average total loans
receivable to 0.91% at June 30, 1996 from 0.12% at June 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operations must have cash and liquid
assets available to meet their obligations to policyholders in accordance with
contractual obligations, in addition to having the funds available to meet
ordinary operating costs. These operations have several sources of funds to meet
their obligations, including cash flow from operations, recoveries from
reinsurance contracts and investment securities. By statute, the majority of the
cash from these operations is required to be invested in investment grade
securities to provide protection for policyholders. The Company invests in fixed
income and preferred equity securities with an objective of providing a
reasonable return while limiting credit and liquidity risk. The Company's
investment portfolio had an unrealized gain (loss) of $(29.6) million and $33.2
million at June 30, 1996 and December 31, 1995, respectively.
The Company's thrift and loan subsidiary finances its lending activities
primarily through customer deposits, which have grown to $959 million at June
30, 1996 from $926 million at December 31, 1995. In addition, Fremont Investment
& Loan is eligible for financing through the Federal Home Loan Bank of San
Francisco. This financing is available at varying rates and terms. As of June
30, 1996, $218 million was available under the facility and no borrowings were
outstanding.
The Company's commercial finance operation funds its lending activities
primarily through its asset securitization program, an unsecured revolving line
of credit with a syndicated bank group and its capital. The asset securitization
program was established to provide a stable and cost effective source of funds
to facilitate the expansion of this business. The securities issued in this
program have scheduled maturities in 1997 and 2000, but could mature earlier
depending on fluctuations in outstanding balances of loans in the portfolio and
other factors. During April 1995, the Company issued $30 million in subordinated
variable rate asset-backed certificates, which mature in 2000, via a private
placement. In February 1996, $135 million in asset-backed certificates were
issued which mature in 2000. The proceeds were used, in conjunction with
existing cash, to retire $200 million in previously issued variable rate
asset-backed certificates. As of June 30, 1996 there were $265 million in
outstanding variable rate asset-backed certificates. Additionally, up to $365
million in additional publicly offered asset-backed certificates may be issued
pursuant to a shelf registration statement to fund future growth in the
commercial finance loan portfolio. In December 1995, a commercial paper facility
was established as part of the asset securitization program. This facility,
which expires in December 1998, provides for the issuance of up to $150 million
in commercial paper, dependent upon the level of assets within the asset
securitization program. As of June 30, 1996, $31 million was outstanding under
this facility. The commercial finance operation's unsecured revolving line of
credit is with a syndicated bank group that presently permits borrowings of up
to $400 million, of which $223 million was outstanding as of June 30, 1996. This
credit line is primarily used to finance assets which are not included in the
Company's asset securitization program. This credit line expires August 1998.
As a holding company, Fremont General pays its operating expenses, meets
its other obligations and pays stockholders' dividends from its cash on hand,
management fees paid by its subsidiaries and dividends paid by its subsidiaries.
Stockholders' dividends declared aggregated $7.6 million and $6.3 million for
the six months ended June 30, 1996 and 1995, respectively. Several of the
Company's subsidiaries are subject to certain statutory and regulatory
restrictions and various agreements, principally loan agreements, that restrict
their ability to distribute dividends to the Company. The Company expects that
during the next few years dividends from its subsidiaries will consist of
dividends from its property and casualty subsidiaries and dividends on preferred
stock of its thrift and loan holding company and commercial finance
subsidiaries. The maximum amount available for payment of dividends by the
property and casualty subsidiaries at December 31, 1995 without prior regulatory
approval is approximately $30 million.
To facilitate general corporate operations, in August 1994 the Company
obtained a revolving line of credit with a syndicated bank group that permitted
borrowings of up to $150 million. In August 1995, the Company negotiated an
increase of this line to $200 million, of which $45 million was outstanding as
of June 30, 1996.
15
<PAGE> 16
In August 1997, this credit line converts to a term loan of up to $100 million,
with scheduled semi-annual payments through August 2001. In addition, in July
1994 the Company replaced its internally financed loan to its Employee Stock
Ownership Plan ("ESOP") with an external bank-financed loan totaling $11
million. The maximum principal amount of this loan was increased to $15 million
in August 1995. The loan is due in seven equal annual installments commencing on
April 1, 1996 and is secured by certain shares of the ESOP. The balance
outstanding at June 30, 1996 was $11.7 million. The interest and principal
payments are guaranteed by the Company.
On February 22, 1995, the Company completed the acquisition of Casualty
which resulted in the disbursement of funds totaling $256.5 million, comprised
of $231.5 million in cash and $25 million in a note payable to the seller. In
September 1995, the note payable to the seller was refinanced using the
Company's existing revolving line of credit. The cash used to fund the
acquisition includes $55 million in borrowings under the Company's existing line
of credit and the remainder from internally generated funds.
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred SecuritiesSM ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The $100
million Junior Subordinated Debentures are the sole asset of the Trust. The
Preferred Securities will be redeemed upon maturity of the Junior Subordinated
Debentures in 2026, subject to the election available to the Company to extend
the maturity up to 2045, and they may be redeemed, in whole or in part, at any
time on or after March 31, 2001 and under certain specified circumstances. The
Junior Subordinated Debentures rank pari passu with the Company's $373,720,000
aggregate principal amount at maturity of Liquid Yield OptionTM Notes due 2013,
and subordinate and junior to all senior indebtedness of the Company. Payment of
distributions out of cash held by the Trust, and payments on liquidation of the
Trust or the redemption of the Preferred Securities are guaranteed by the
Company. The Company has provided for back-up undertakings that, considered
together, constitute a full and unconditional guarantee by the Company of the
Trust's obligations under the Preferred Securities. The Company used the
proceeds from the sale of the Junior Subordinated Debentures to reduce
outstanding debt under the Company's revolving line of credit by approximately
$50 million, and the remaining proceeds have been used for general corporate
purposes. The reduction of $50 million in the Company's revolving line of credit
occurred over several months, with the final reduction paid in May 1996.
Net cash provided by (used in) operating activities of continuing
operations was $(84.3) million and $13.6 million for the six months ended June
30, 1996 and 1995, respectively. Net cash provided by (used in) continuing
operations decreased in the six months ended June 30, 1996 over the same period
of 1995 due primarily to a decrease in claims and policy liabilities and a
decrease in other liabilities due primarily to the settlement of accrued
operating costs. These conditions were partially offset by higher net income and
lower policy acquisition costs deferred. Additionally, decreases in claims and
policy liabilities and policy acquisition costs deferred resulted from lower
premium volume in the Company's workers' compensation insurance business.
Net cash provided by (used in) investing activities increased to $229.9
million from $(262.3) million for the six months ended June 30, 1996 and 1995,
respectively. The increase in net cash provided by (used in) investing
activities is due primarily to a decrease in investment purchases, net of sales,
maturities, and calls, the February 1995 purchase of Casualty for a net cash
disbursement of $249.3 million and an increase in receipts from repayments of
loans. These conditions were partially offset by an increase in loan
originations. The significant decrease in short-term and other investments of
$796.9 million and the significant level of securities purchased in the six
months ended June 30, 1995, was due primarily to the effects of investing the
acquired short-term investment portfolio of Casualty into long-term securities.
Net cash provided by (used in) financing activities was $(151.3) million
and $227.1 million in the six months ended June 30, 1996 and 1995, respectively.
Net cash provided by (used in) financing activities decreased in the six months
ended June 30, 1996 as compared to the same period of 1995, due primarily to the
16
<PAGE> 17
lower long-term debt proceeds, net of repayments, a lower net increase in thrift
deposits, the payment in 1996 of $363.4 million in settlement of certain
reinsurance and assumption agreements within the life insurance operation which
became effective January 1, 1996 between the Company and a reinsurer (see
"Financial Services"), as well as an increase in deferred compensation plans.
These conditions were partially offset by an increase in the proceeds from
short-term debt, net of repayments and the impact of the proceeds from the sale
of 9% Trust Originated Preferred SecuritiesSM on March 1, 1996 in a public
offering by the trust. The increase in deferred compensation plan is due
primarily to the repurchase by the Company of its Common Stock in the first
quarter of 1996 pursuant to certain deferred compensation programs.
The amortized cost of the Company's invested assets were $1.64 billion and
$1.91 billion at June 30, 1996 and December 31, 1995, respectively. Contributing
to the $270 million decrease in the invested assets were $363.4 million in
settlement of certain reinsurance and assumption agreements with a reinsurer
which became effective January 1, 1996 (see "Financial Services"), $84 million
in cash flow used in operating activities, and $26.5 million used to fund
certain deferred compensation plans. These conditions were partially offset by
$100 million in proceeds from the public offering on March 1, 1996 of 9% Trust
Originated Preferred SecuritiesSM by a subsidiary of the Company and a $4.5
million increase in net annuity receipts in the life insurance operation. These
annuity receipts were ultimately remitted to a reinsurer in June 1996, under
certain reinsurance and assumption agreements which became effective January 1,
1996. See "Financial Services".
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1995 was 2.3 to 1, which is within industry guidelines. The
FDIC has established certain capital and liquidity standards for its member
institutions, and Fremont Investment & Loan was in compliance with these
standards as of June 30, 1996.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
The Company's strategy is to expand its business to the extent possible
without adversely impacting its loan portfolio and policyholder base. However,
the Company's strategic model is not dependent on growth as a source of
liquidity. While the level of revenues will obviously affect results of
operations, the Company's liquidity is not dependent on future revenue growth.
CHANGES IN ACCOUNTING PRINCIPLES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121 ("FASB 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ", which requires impairment
losses to be recorded on long-lived assets used in operations, including
intangible assets, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FASB 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted FASB
121 in the first quarter of 1996 and the effect of adoption was not material.
Also, in 1995, the FASB issued Statement 123 ("FASB 123"), "Accounting for
Stock-Based Compensation" that is effective for fiscal years beginning after
December 15, 1995. FASB 123 establishes a method of accounting for stock-based
compensation that is based on the fair value of stock options and similar
instruments and encourages, but does not require, adoption of that method. The
Company has elected to continue following Accounting Principles Board Opinion
No. 25 for measuring compensation cost. Pursuant to FASB 123, the Company will
disclose pro forma net income and earnings per share calculated as if the
recognition and measurement provisions of the new standard had been adopted.
17
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
None.
ITEM 2: CHANGES IN SECURITIES.
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders was held on May 9, 1996.
(b) The following directors were elected to serve until the next Annual
Meeting of Stockholders or until their successors have been elected and
qualified:
<TABLE>
<S> <C>
J.A. McIntyre D.W. Morrisroe
W.R. Bailey L.J. Rampino
H.I. Flournoy D.C. Ross
C.D. Kranwinkle
</TABLE>
(c) The directors named in (b) above were elected. The results of the
voting of the 22,853,284 represented at the meeting are summarized in
the following table:
<TABLE>
<CAPTION>
WITHHELD
FOR AUTHORITY
---------- ---------
<S> <C> <C>
J.A. McIntyre.......... 22,363,902 489,382
W.R. Bailey............ 22,348,313 504,971
H.I. Flournoy.......... 22,714,631 138,684
C.D. Kranwinkle........ 22,725,499 127,785
D.W. Morrisroe......... 22,727,571 125,713
L.J. Rampino........... 22,353,823 499,461
D.C. Ross.............. 22,715,889 137,395
</TABLE>
(d) The appointment of the accounting firm of Ernst & Young LLP as the
Corporation's Independent Auditors was ratified. The results of the
voting of the 22,853,284 shares represented at the meeting are
summarized in the following table:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
- ----------- ------- ---------
<S> <C> <C>
22,645,386 78,520 129,378
</TABLE>
ITEM 5: OTHER INFORMATION
None
18
<PAGE> 19
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
Fremont General Corporation, the Buckeye Union Insurance Company, The
Continental Corporation and Casualty Insurance Company, Dated as of December
16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form 8-K, as of
February 22, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union Insurance
Company, The Continental Corporation and Casualty Insurance Company, Dated as
of December 16, 1994. (Filed as Exhibit No. 2.2 to Current Report on Form
8-K, as of February 22, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General Corporation. (Filed as
Exhibit No. 3.1 to Registration Statement on Form S-3 File No 33-64771 which
was declared effective on March 1, 1996, and incorporated herein by
reference.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation. (Filed as Exhibit 3.2 to Registration Statement on Form S-3 File
No. 33-64771 which was declared effective on March 1, 1996 and herein
incorporated by reference.)
3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as
Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed as
Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File Number
1-8007, and incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the
Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to
Registration Statement on Form S-3 filed on October 1, 1993, and incorporated
herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee. (Filed as Exhibit
No. 4.3 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
4.4 Declaration of Trust among the Registrant, the Regular Trustees and The Chase
Manhattan Bank (USA), a Delaware banking corporation, as Delaware trustee.
(Filed as Exhibit No. 4.4 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
4.5 Amended and Restated Declaration of Trust among the Registrant, the Regular
Trustees, The Chase Manhattan Bank (USA), a Delaware banking corporation, as
Delaware trustee, and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Filed as Exhibit No. 4.5 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
4.6 Preferred Securities Guarantee Agreement between the Registrant and The Chase
Manhattan Bank, N.A., a national banking association, as Preferred Guarantee
Trustee. (Filed as Exhibit No. 4.6 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------------------------------------------------------------------------
<S> <C>
4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as Exhibit
No. 4.7 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as Exhibit
No. 4.8 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3). (Filed
as Exhibit No. 4.9 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended. (Filed
as Exhibit No. 10.1 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.2 Amended and Restated Trust Agreement for Fremont General Corporation Employee
Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.3 Fremont General Corporation and Affiliated Companies Investment Incentive
Program as amended. (Filed as Exhibit No. 10.3 to Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Program. (Filed as Exhibit No.
(10)(xi) to Annual Report on Form 10-K, for the Fiscal Year Ended December
31, 1993, Commission File Number 1-8007, and incorporated herein by
reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Program. (Filed as
Exhibit No. 10.4(b) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.5(a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No. (10)(v) to
Annual Report on Form 10-K, for the Fiscal Year Ended December 31, 1990,
Commission File Number 1-8007, and incorporated herein by reference.)
10.5(b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5(b) to
Annual Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and the
Senior Supplemental Retirement Plan of The Company, as amended. (Filed as
Exhibit No. 10.6 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No. 10.7
to Annual Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.8(a) Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to Annual
Report on Form 10-K, for the Fiscal Year Ended December 31, 1993, Commission
File Number 1-8007, and incorporated herein by reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No.
10.8(b) to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------------------------------------------------------------------------
<S> <C>
10.8(c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8(c) to
Annual Report on Form 10K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.9 Non-Qualified Stock Option Plan of 1989 of the Company. (Filed as Exhibit No.
10.9 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.10 Long-Term Incentive Compensation Plan of the Company. (Filed as Exhibit No.
10.10 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.11 1995 Restricted Stock Award Plan as amended.
10.12 Fremont General Corporation Employee Benefits Trust Agreement ("Grantor
Trust") dated September 7, 1995 between the Company and Merrill Lynch Trust
Company of California. (Filed as Exhibit No. 10. 12 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.13 Employment Agreement between the Company and James A. McIntyre. (Filed as
Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period ended
March 31, 1994, Commission File Number 1-8007, and incorporated herein by
reference.)
10.14(a) Employment Agreement between the Company and Louis J. Rampino. (Filed as
Exhibit No. 10.14(a) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.14(b) Employment Agreement between the Company and Wayne R. Bailey. (Filed as
Exhibit No. 10.14(b) to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.15 Management Continuity Agreement between the Company and Raymond G. Meyers.
(Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.16 1996 Management Incentive Compensation Plan of the Company. (Filed as Exhibit
No. 10.16 to Quarterly Report on Form 10-Q, for the quarter ended March 31,
1996, Commission File Number 1-8007, and incorporated herein by reference.)
10.17 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit No.
10.17 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.18 Non-Employee Directors' Deferred Compensation Plan. (Filed as Exhibit No.
10.18 to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by reference.)
10.19(a) Amended and Restated Credit Agreement among Fremont General Corporation,
Various Lending Institutions and the Chase Manhattan Bank, N.A., As Agent.
(Filed as Exhibit No. (10)(xiii) to Quarterly Report on Form 10-Q for the
period ended September 30, 1995, Commission File Number 1-08007, and
incorporated herein by reference.)
10.19(b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19(b) to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995, Commission
File Number 1-8007, and incorporated herein by reference.)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------- -----------------------------------------------------------------------------
<S> <C>
10.20 Keep Well Agreement, dated as of August 24, 1995 by the Company in connection
with the Credit Agreement among Fremont General Corporation, Various Lending
Institutions and the Chase Manhattan Bank, N.A., As Agent. (Filed as Exhibit
No. 10.20 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.21 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company of
California as trustee for the Fremont General Corporation Employee Stock
Ownership Trust. The Plan Committee (hereinafter described) on behalf of the
Fremont General Corporation Employee Stock Ownership Plan, Fremont General
Corporation, and First Interstate Bank of California August 10, 1995. (Filed
as Exhibit No. (10)(viii) to Quarterly Report on Form 10-Q for the period
ended September 30, 1995, and incorporated herein by reference.)
(11) Statement re: Computation of per share earnings.
(27) Financial Data Schedule
</TABLE>
(b) REPORT ON FORM 8-K.
None filed during the quarter ended June 30, 1996.
22
<PAGE> 23
SIGNATURE
Pursuant to the requirements 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.
FREMONT GENERAL CORPORATION
Date: August 13, 1996 /s/ LOUIS J. RAMPINO
------------------------------------
Louis J. Rampino, President
Chief Operating Officer and Director
Date: August 13, 1996 /s/ JOHN A. DONALDSON
------------------------------------
John A. Donaldson, Controller
and Chief Accounting Officer
23
<PAGE> 1
EXHIBIT 10.11
RESTRICTED STOCK AWARD PLAN
EXECUTIVE COMPENSATION PROGRAM
1995 RESTRICTED STOCK AWARD PLAN, AS AMENDED
1. PURPOSE OF THE PLAN.
The purpose of the Plan is to provide for the award by the Company of
Common Stock to Participants to increase shareholder value and to
promote the success of the Company's business by (a) motivating
Participants to perform to the best of their abilities, and (b)
increasing the desire of such Participants to continue their
employment with the Company. The Plan's goals are to be achieved by
providing such Participants with awards of Restricted Stock.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or its Committee, as
provided in Section 4 of the Plan.
(b) "Applicable Laws" shall mean all applicable laws, including
without limitation Nevada corporate law, the Internal Revenue
Code of 1986, as amended, and applicable federal and state
securities laws.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Committee" shall mean a Committee appointed by the Board as
specified in Section 4(a) of the Plan.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Common Stock" shall mean the Common Stock of the Company.
(g) "Company" shall mean Fremont General Corporation, a Nevada
corporation, or any successor to the Company.
(h) "Employee" shall mean any person, including officers, employed
by the Company or any Parent or Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(j) "Parent" shall mean a "parent corporation," whether now or
hereafter existing.
(k) "Participant" shall mean an employee who is awarded Shares
under the Plan.
(l) "Plan" shall mean this 1995 Restricted Stock Award Plan.
(m) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 9 of the Plan.
<PAGE> 2
RESTRICTED STOCK AWARD PLAN PLAN DOCUMENT PG. 2
(n) "Stock Award Agreement" shall mean an agreement in the form
approved by the Board pursuant to which a Participant may
acquire Common Stock of the Company under the Plan.
(o) "Stock Award" shall mean an award of Shares pursuant to the
Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether
now or hereafter existing.
3. STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares which may be sold under the Plan is
1,481,000 Shares, of which 800,000 Shares shall be reacquired Common
Stock, and 681,000 Shares shall be authorized, but unissued Common
Stock.
If Shares are forfeited to the Company pursuant to a Stock Award
Agreement, such Shares, unless the Plan shall have been terminated,
shall become available for reissuance under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) Procedure. The Plan shall be administered by the Plan
Committee designated by the Board. Once appointed, such
Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the
size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members,
fill vacancies (however caused), and remove all members of the
Committee and thereafter directly administer the Plan.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the
Administrator shall have the authority, in its discretion:
(i) to select Employees to whom Stock Awards may be
granted hereunder;
(ii) to determine whether and to what extent Stock Awards
are granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Stock Award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to construe and interpret the terms of the Plan;
(vi) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(vii) to modify or amend each Stock Award Agreement
(subject to Section 10 of the Plan);
(viii) to authorize any person to execute on behalf of the
Company any instrument required to effect the award
of a Stock Award previously granted by the
Administrator;
<PAGE> 3
RESTRICTED STOCK AWARD PLAN PLAN DOCUMENT PG. 3
(ix) to determine the terms, conditions and restrictions,
not inconsistent with the terms of the Plan,
applicable to Stock Awards and the Shares relating
thereto; and
(x) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall
be final and binding on Participants.
5. ELIGIBILITY.
Stock Awards may be made to Employees, as designated by the
Administrator, who hold executive or key management positions with
the Company or its subsidiaries. Neither the Plan nor any Stock Award
shall confer upon a Participant any right upon any Participant with
respect to continuing such Participant's employment with the Company,
nor shall the Plan or any Stock Award hereunder interfere in any way
with Participant's right or the Company's right to terminate such
employment at any time, with or without cause. In addition, the
Administrator may, in its sole discretion, authorize the issuance of
Shares under the Plan to a trust, or trusts, maintained by the Company
in connection with its compensation and benefit plans.
6. AWARD OF STOCK.
Stock Awards shall be made under the Plan at the discretion of the
Administrator. The Shares underlying Stock Awards shall be evidenced
by a Notice of Grant that together with the Stock Award Agreement,
attached to the Notice of Grant as Exhibit A-1, shall specify the
applicable vesting restrictions, the amount of Restricted Stock
awarded, and such other conditions as the Administrator, in its sole
discretion, shall determine. The awarded Shares shall be held in
escrow pursuant to the Joint Escrow Instructions, attached to the
Notice of Grant as Exhibit A-3, until such time as they are released
from the Company's reacquisition option.
7. TERM OF PLAN.
The Plan shall become effective upon adoption by the Board. The Plan
shall continue in effect for a term of 10 years from such date of
Board adoption unless sooner terminated under Section 10 of the Plan.
8. COMPANY'S RIGHT OF REACQUISITION.
The Company shall have such right of reacquisition as shall be set
forth in the Stock Award Agreement.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
The number of shares of Common Stock which have been authorized for
issuance under the Plan shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other
increase or decrease in
<PAGE> 4
RESTRICTED STOCK AWARD PLAN PLAN DOCUMENT PG. 4
the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration." Such adjustment
shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares of Common Stock subject to the Plan.
10. AMENDMENT AND TERMINATION OF THE PLAN.
(a) Amendment and Termination. The Board may amend, suspend, or
terminate the Plan from time to time in such respects as the
Board may deem advisable.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Shares already
subject to Stock Award Agreements, except as provided in said
Stock Award Agreements.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares shall comply with Applicable Laws, as well as
the requirements of any stock exchange or market system upon which
Shares may then be listed or designated.
12. RESERVATION OF SHARES.
The Company, during the term of the Plan, shall at all times reserve
and keep available, such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
13. GOVERNING LAW.
The Plan shall be governed by the laws of the State of California.
<PAGE> 1
EXHIBIT 11
FREMONT GENERAL CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1996 1995* 1996 1995*
---------- ----------- ---------- ----------
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Weighted average shares outstanding 25,343 25,389 25,090 25,389
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 923 561 944 497
---------- ----------- ---------- ----------
Total 26,266 25,950 26,034 25,886
========== =========== ========== ==========
Net income $22,426 $16,867 $40,943 $31,073
========== =========== ========== ==========
Per share earnings $0.85 $0.65 $1.57 $1.20
========== =========== ========== ==========
Fully Diluted:
Weighted average shares outstanding 25,343 25,389 25,090 25,389
Net effect of dilutive stock options -
based on the treasury stock method
using the quarter-end market price, if
higher than average market price 944 660 944 546
Assumed conversion of LYONs: 7,208 7,209 7,208 7,209
---------- ----------- ---------- ----------
Total 33,495 33,258 33,242 33,144
========== =========== ========== ==========
Net income $22,426 $16,867 $40,943 $31,073
Income adjustments for fully diluted
computation:
Add interest expense and amortization
of prepaid expense, net of federal
income tax, for assumed conversion
of LYONs 1,191 1,143 2,358 2,186
---------- ----------- ---------- ----------
Total $23,617 $18,010 $43,301 $33,259
========== =========== ========== ==========
Per share earnings $0.71 $0.54 $1.30 $1.00
========== =========== ========== ==========
</TABLE>
* Adjusted retroactively for all stock splits and dividends.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 1,053,690
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 373,125
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,142,472<F1>
<CASH> 33,909
<RECOVER-REINSURE> 13,701
<DEFERRED-ACQUISITION> 25,788
<TOTAL-ASSETS> 4,472,540
<POLICY-LOSSES> 1,738,358
<UNEARNED-PREMIUMS> 90,580
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 37,003
<NOTES-PAYABLE> 791,421
100,000
0
<COMMON> 26,075
<OTHER-SE> 441,587<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,472,540
252,238
<INVESTMENT-INCOME> 65,069
<INVESTMENT-GAINS> (1,524)
<OTHER-INCOME> 87,558<F3>
<BENEFITS> 179,505
<UNDERWRITING-AMORTIZATION> 49,515
<UNDERWRITING-OTHER> 14,931
<INCOME-PRETAX> 60,544
<INCOME-TAX> 19,601
<INCOME-CONTINUING> 40,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,943
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.30
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>INCLUDES LOANS RECEIVABLE, SHORT-TERM AND OTHER INVESTMENTS.
<F2>SUM OF ADDITIONAL PAID-IN CAPITAL, RETAINED EARNINGS, DEFERRED COMPENSATION AND
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS, NET OF DEFERRED TAXES.
<F3>INCLUDES LOAN INTEREST AND OTHER REVENUE
</FN>
</TABLE>
