<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1995
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 1-8993
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2708455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
THE 1820 HOUSE, MAIN STREET, NORWICH, VERMONT 05055-0850
(Address of principal executive offices including zip code)
(802) 649-3633
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (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
----- ------
As of August 11, 1995, 7,662,208 shares of Common Stock with a par value of
$1.00 per share were outstanding.
<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets,
June 30, 1995 (Unaudited), and December 31, 1994 3
Condensed Consolidated Income Statements (Unaudited),
Three Months and Six Months Ended June 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows (Unaudited),
Six Months Ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7-10
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6 11
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FFINANCIAL STATEMENTS
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Common equity securities, at market value (cost: $210.$ 245.4 $ 245.4 $ 332.4
Other investments (cost: $198.0 and $163.6) 197.7 157.3
Short-term investments, at amortized cost (which approx 164.5 164.5 119.2
--------- ---------
Total investments 607.6 608.9
Cash 6.5 1.5
Capitalized mortgage servicing, net of accumulated amor 363.8 363.8 530.5
Mortgage loans held for sale 354.1 210.5
Other mortgage origination and servicing assets 216.2 213.7
Investments in unconsolidated affiliates 87.6 69.7
Other assets 187.5 172.5
--------- ---------
TOTAL ASSETS $ 1,823.3 $ 1,807.3
========= =========
LIABILITIES
Short-term debt $ 328.5 $ 254.1
Long-term debt 456.4 547.0
Accounts payable and other liabilities 208.3 245.1
--------- ---------
Total liabilities 993.2 1,046.2
--------- ---------
MINORITY INTEREST - PREFERRED STOCK OF SUBSIDIARY 100.0 100.0
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock - authorized 10,000,000 shares:
Series D - voting preferred stock; $1 par value per share -
20,833 shares outstanding 75.0 75.0
Common stock at $1 par value per share - authorized 125,000,000 shares;
issued 32,847,147 and 33,597,147 shares 32.8 33.6
Common paid-in surplus 376.8 338.1
Retained earnings 1,123.8 1,098.2
Net unrealized gains on investment securities 25.4 19.7
Common stock in treasury, at cost - 25,184,939 and 25,1 (878.4) (878.5)
Loan for common stock issued (25.3) (25.0)
--------- ---------
Total shareholders' equity 730.1 661.1
--------- ---------
TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY $ 1,823.3 $ 1,807.3
========= =========
</TABLE>
See Notes to Condensed Consolidated
3
<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
UNAUDITED
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------- -------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Mortgage servicing revenue $ 34.2 $ 40.9 $ 75.4 $ 84.6
Amortization of capitalized servicing 10.8 19.2 24.5 45.8
------- -------- ------- -------
Net servicing revenue 23.4 21.7 50.9 38.8
Net gain (loss) on sales of mortgages (2.5) 16.6 (3.8) 28.8
Gain on sale of mortgage servicing - - 28.2 -
Other mortgage operations revenue 3.5 6.9 7.0 14.8
Equity in earnings of unconsolidated affiliates 2.4 .7 4.0 .7
Investment income 14.3 25.8 27.2 59.6
Other revenue 9.7 - 9.7 -
------- -------- ------- -------
Total revenues 50.8 71.7 123.2 142.7
------- -------- ------- -------
EXPENSES:
Interest expense 10.1 21.8 22.1 47.2
Compensation and benefits 62.9 19.8 80.7 33.0
General expenses 13.8 18.0 27.4 37.0
------- -------- ------- -------
Total expenses 86.8 59.6 130.2 117.2
------- -------- ------- -------
PRETAX OPERATING EARNINGS (LOSS) (36.0) 12.1 (7.0) 25.5
Net realized investment gains 10.4 20.9 27.4 22.4
------- -------- ------- -------
Pretax earnings (loss) 25.6 33.0 20.4 47.9
Income tax provision (benefit) (8.0) 13.0 8.9 18.9
------- -------- ------- -------
AFTER TAX EARNINGS (LOSS) (17.6) 20.0 11.5 29.0
Tax benefit from sale of discontinued operations 66.0 - 66.0 -
Loss on early extinguishment of debt, after tax (.2) - (.4) -
Cumulative effect of accounting change-
purchased mortgage servicing, after tax - - - (44.3)
------- -------- ------- -------
NET INCOME (LOSS) 48.2 20.0 77.1 (15.3)
Less dividends on preferred stock 1.7 3.1 3.3 6.1
------- -------- ------- -------
Net income (loss) applicable to common stock $ 46.5 $ 16.9 $ 73.8 $ (21.4)
======= ======== ======= =======
PRIMARY EARNINGS PER SHARE:
After tax earnings (loss) $ (2.36) $ 1.72 $ .96 $ 2.32
Net income (loss) 5.67 1.72 8.63 (2.17)
FULLY DILUTED EARNINGS PER SHARE:
After tax earnings (loss) (1.91) 1.62 1.19 2.31
Net income (loss) 5.20 1.62 8.03 (2.17)
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(MILLIONS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1995 1994
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss) $ 77.1 $ (15.3)
Charges (credits) to reconcile net income to cash
lows from operations:
Tax benefit from sale of discontinued operations (66.0) -
Loss on early extinguishment of debt, after tax .4 -
Cumulative effect of accounting change - purchased mortgage
servicing, after tax - 44.3
Compensation expense resulting from warrant extension 46.2 -
Net realized investment gains (27.4) (22.4)
(Increase) decrease in mortgage loans held for sale (143.6) 790.3
Gain on sale of mortgage servicing (28.2) -
Depreciation and amortization 26.9 52.1
Capitalized excess mortgage servicing income (2.0) (12.6)
Changes in current income taxes receivable and payable 23.9 5.9
Deferred income tax (benefit) provision (15.3) 7.5
Other, net 43.7 (35.2)
--------- ---------
NET CASH FLOWS (USED FOR) PROVIDED FROM
OPERATING ACTIVITIES (64.3) 814.6
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in short-term investments (45.3) (129.0)
Sales and maturities of common equity securities and
other investments 133.2 160.3
Purchases of common equity securities and other investments (2.9) (75.7)
Investments in unconsolidated affiliates (33.8) (40.6)
Dividends received from affiliates .4 -
Funding of revolving credit agreement (40.0) -
Collections on mortgage origination and servicing assets 80.9 126.8
Additions to capitalized mortgage servicing (28.4) (21.3)
Proceeds from sale of mortgage servicing 169.8 20.0
Additions to other mortgage origination and servicing assets (86.1) (139.0)
Sales (purchases) of fixed assets, net .4 (2.6)
--------- ---------
NET CASH PROVIDED FROM (USED FOR) INVESTING ACTIVITIES 148.2 (101.1)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term debt 74.4 (778.4)
Proceeds from issuances of preferred stock by subsidiary - 96.9
Repayments of long-term debt (93.7) (23.9)
Proceeds from issuances of common stock from treasury .1 -
Purchases of common stock retired (56.4) (10.2)
Cash dividends paid to preferred shareholder (3.3) (6.1)
--------- ---------
NET CASH USED FOR FINANCING ACTIVITIES (78.9) (721.7)
--------- ---------
NET INCREASE (DECREASE) IN CASH DURING PERIOD 5.0 (8.2)
CASH BALANCE AT BEGINNING OF PERIOD 1.5 10.7
--------- ---------
CASH BALANCE AT END OF PERIOD $ 6.5 $ 2.5
--------- ---------
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid $ (24.2) $ (49.0)
Net income tax payments $ (.3) $ (3.9)
Non-cash exchanges of investment securities $ 35.1 $ -
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. BASIS OF PRESENTATION
- ------------------------------
The accompanying condensed consolidated financial statements include the
accounts of Fund American Enterprises Holdings, Inc. (the "Company") and its
subsidiaries (collectively, "Fund American"). Fund American's primary business
is conducted through Source One Mortgage Services Corporation and its
subsidiaries ("Source One"). Source One is one of the nation's largest mortgage
banking companies.
The financial statements have been prepared in accordance with generally
accepted accounting principles and should be read in conjunction with the
Company's 1994 Annual Report to Shareholders. These interim financial
statements may not be indicative of financial results for the full year.
NOTE 2. RECENTLY ISSUED ACCOUNTING STANDARD
- -------------------------------------------
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage
Servicing Rights". SFAS No. 122 requires the total cost of acquiring mortgage
loans, either through loan origination activities or purchase transactions, to
be allocated to the mortgage servicing rights and the loans based on their
relative fair values. The statement requires entities to measure impairment on
a disaggregated basis by stratifying the capitalized mortgage servicing asset
based on one or more predominant risk characteristics of the underlying loans.
Impairment is recognized through a valuation allowance for each individual
stratum.
Fund American intends to adopt in the 1995 third quarter the provisions of SFAS
No. 122 as of January 1, 1995. It is expected that the adoption of SFAS No.
122, as it relates to the capitalization of originated mortgage servicing
rights, will have a moderately favorable impact on Fund American's reported
financial condition and results of operations. However, management is currently
unable to estimate the effects of the impairment provisions of adopting the new
statement.
NOTE 3. EARNINGS PER SHARE
- ---------------------------
Primary earnings per share amounts are based on the weighted average number of
common and dilutive common equivalent shares outstanding of 8,190,455 and
9,824,513 for the three-month periods ended June 30, 1995 and 1994,
respectively, and 8,545,624 and 9,870,291 for the six-month periods ended June
30, 1995 and 1994, respectively. Fully diluted earnings per share amounts are
based on the weighted average number of common shares outstanding, assuming full
dilution, of 9,245,268 and 12,299,519 for the three-month periods ended June 30,
1995 and 1994, respectively, and 9,596,395 and 9,879,436 for the six-month
periods ended June 30, 1995 and 1994, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------
RESULTS OF OPERATIONS -- THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 1995
AND 1994
Fund American ended the second quarter with a book value per common and
equivalent share of $80.96, an increase of $12.01 from the December 31, 1994
book value per share of $68.95, and an increase of $8.67 from the March 31, 1995
book value per share of $72.29.
Net income was $77.1 million for the six month period ended June 30, 1995,
versus a $15.3 million net loss for the comparable prior year period. For the
second quarter Fund American reported net income in 1995 of $48.2 million versus
$20.0 million in 1994. Net income for the second quarter of 1995 includes three
nonrecurring items which are further described herein: (i) a $46.2 million
pretax charge to compensation expense related to outstanding employee stock
warrants; (ii) a $66.0 million favorable tax development relating to the sale of
a former subsidiary; and (iii) the receipt of a $9.7 million breakup fee, net of
expenses, from Home Holdings, Inc. The 1994 net loss includes a $44.3 million
after tax charge in the first quarter related to a change in accounting
methodology adopted by Source One.
In June 1995 Fund American received a $9.7 million breakup fee, plus
reimbursement of certain expenses, which was triggered by the rejection of Fund
American's proposed investment in Home Holdings, Inc. The breakup fee is
included in other revenue.
MORTGAGE ORIGINATION AND SERVICING. A summary of Source One's mortgage loan
- ----------------------------------
production and mortgage servicing portfolio activities follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------------------------------
Millions 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loan servicing portfolio (c):
Beginning balance $ 28,970 $ 38,484 $ 39,568 $ 38,403
Retail originations 332 739 525 2,034
Wholesale originations 278 538 414 1,338
Servicing acquisitions - 1,010 - 2,056
Regular payoffs (479) (1,255) (863) (3,438)
Sale of servicing - - (9,893) -
Servicing released, principal amortization, foreclosures & other (355) (646) (1,005) (1,523)
------------------------------------------------------------
Ending balance $ 28,746 $ 38,870 $ 28,746 $ 38,870
==================================================================================================================================
</TABLE>
Additional information regarding Source One's mortgage loan servicing portfolio
is shown below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31,
1995 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage loan servicing portfolio (a):
Number of loans 442,352 446,489 543,428
Weighted average interest rate 8.29% 8.28% 8.14%
Percent delinquent (b) 4.90% 4.89% 4.84%
==================================================================================================================================
</TABLE>
(a) Excludes $1,651 million of interim servicing as of December 31, 1994.
(b) Includes loans in process of foreclosure.
(c) Includes loans subserviced for others of $4,190, $4,252 million and $4,294
million as June 30, 1995, March 31, 1995 and December 31, 1994,
respectively.
7
<PAGE>
Loan production in the 1995 second quarter improved versus first quarter
production as recent declines in interest rates and a flattening of the yield
curve have sparked fixed rate loan production.
Mortgage servicing revenue, net of amortization of the capitalized servicing
asset, increased $12.1 million to $50.9 million for the six month period ended
June 30, 1995 from $38.8 million for the comparable prior year period. The
improvement is due to slower amortization of the capitalized mortgage servicing
asset resulting from lower prepayments during the first half of 1995 as compared
to the first half of 1994. Net mortgage servicing revenue increased $1.7
million to $23.4 million for the second quarter of 1995.
Source One reported net losses on sales of mortgages into the secondary market
of $3.8 million and $2.5 million for the six-month and three-month periods ended
June 30, 1995, respectively, versus net gains of $28.8 million and $16.6 million
for the comparable prior year periods. The 1995 deterioration is primarily
attributable to increased price competition industry wide.
During the first quarter of 1995, Source One recognized a $28.2 million pretax
gain ($18.3 million after tax) resulting from the sale of $9.9 billion of its
mortgage servicing portfolio to a third party (the "Servicing Sale"). The
capitalized mortgage servicing asset declined to $363.8 million at June 30,
1995, from $530.5 million at December 31, 1994, primarily as a result of the
Servicing Sale.
INVESTMENT OPERATIONS. Fund American's investment income is comprised primarily
- ----------------------
of interest income earned on mortgage loans originated by Source One.
Investment income decreased to $27.2 million and $14.3 million for the six-month
and three-month periods ended June 30, 1995, respectively, from $59.6 million
and $25.8 million for the comparable prior year periods. The decrease resulted
from a lower average size of Source One's inventory of mortgage loans held for
sale.
Total net investment gains and losses, before tax, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Six Months
Ended June 30,
-----------------
Millions 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Net realized gains $ 27.4 $ 22.4
Net unrealized gains (losses) 8.7 (37.4)
-----------------
Total net investment gains (losses), before tax $ 36.1 $ (15.0)
====================================================================
</TABLE>
During the first half of 1995, Fund American sold 2,401,000 shares of common
stock of American Express Company for $76.7 million. As of June 30, 1995, Fund
American's largest holdings of common equity securities, at market value, were
The Louisiana Land & Exploration Company ($116.0 million) and San Juan Basin
Royalty Trust ($66.0 million).
EXPENSES. Source One finances its inventory of mortgage loans held for sale
- ---------
primarily with debt. Accordingly, the decrease in mortgage loans held for sale
resulted in a decrease in interest expense for 1995 as compared to 1994.
At Fund American's Annual Meeting on May 24, 1995, shareholders approved a new
five-year employment agreement between Fund American and its Chairman Jack
Byrne. The new employment agreement calls for Mr. Byrne to serve as Chairman
and Chief Executive Officer of Fund American through December 31, 1999 in return
for, among other things, an extension of the expiration date of 1,000,000 of Mr.
Byrne's warrants to purchase shares of Fund American common
8
<PAGE>
stock from January 2, 1996 to January 2, 2002. A $46.2 million pretax charge to
compensation expense was recorded in the second quarter of 1995 as a result of
the warrant extension. The extension of the warrants, which were purchased by
Mr. Byrne in 1985, did not reduce total shareholders' equity or book value per
common and common equivalent share (which already considers the dilutive effects
of all issued and outstanding common stock equivalents such as stock options and
warrants).
Excluding the effects of the $46.2 million pretax charge associated with the
warrant extension, compensation and benefits expense increased 4.3% for the
first half of 1995 and decreased 16.2% for the second quarter of 1995 versus the
comparable prior year periods. Source One nets mortgage loan origination fees,
less certain direct costs, against compensation and benefits expense. The
higher level of originations experienced by Source One during 1994 resulted in
significantly higher origination fees offsetting compensation and benefits for
the year-to-date and quarterly 1994 periods than were experienced during the
comparable 1995 periods. Excluding the effects of the warrant extension and
mortgage loan origination fees, compensation and benefits decreased $13.9
million and $6.8 million for the year-to-date and quarterly periods,
respectively, from 1994 to 1995.
Fund American's general expenses decreased 25.9%, to $27.4 million, and 23.5%,
to $13.8 million, for the six month and quarterly periods ended June 30, 1995,
respectively, versus the comparable prior year periods. The declines were
primarily due to decreases in mortgage loan production expenses resulting from
lower production levels experienced during 1995.
TAX BENEFIT FROM SALE OF SUBSIDIARY. On January 2, 1991, Fund American sold
- ------------------------------------
Fireman's Fund Insurance Company to Allianz of America, Inc. The $1.3 billion
gain from the sale as reported in 1991 included a $75.0 million tax benefit
related to Fund American's estimated tax loss from the sale.
Since 1991 Fund American has carried an estimated reserve related to tax matters
affecting the amount of the deductible tax loss from the sale and other tax
matters.
The recent conclusion of Internal Revenue Service audits of Fund American's
Federal tax returns for taxable periods ending on or prior to October 23, 1985
has resolved certain of the tax matters affecting the amount of Fund American's
deductible tax loss from the sale and Fund American has, therefore, re-estimated
its tax reserve. As a result of the reserve re-estimation, Fund American has
included in its second quarter 1995 income statement an additional $66.0 million
income tax benefit from the sale.
The amount of tax benefit from the sale ultimately realized by Fund American may
be significantly less or more than Fund American's current estimate due to
possible changes in or new interpretations of tax rules, possible amendments to
Fund American's 1990 or prior years' Federal income tax returns, the result of
further Internal Revenue Service audits and other matters affecting the amount
of the deductible tax loss from the sale.
LIQUIDITY AND CAPITAL RESOURCES
PARENT COMPANY. In connection with the Servicing Sale, on April 14, 1995 Source
- ---------------
One transferred $90.0 million in cash and $19.5 million in investment securities
to its parent Fund American Enterprises, Inc. ("FAE", a wholly-owned subsidiary
of the Company) in exchange for shares of Source One common stock held by FAE.
Pursuant to the terms of a credit agreement among the Company and White River
Corporation ("White River"), the Company provided White River with a $50.0
million term loan (the "Term Loan") which becomes due on March 24, 1996 and a
$40.0 million revolving credit facility (the "Revolver").
9
<PAGE>
The credit agreement grants White River the right to use certain of its
investment securities to repay its borrowings under the Term Loan and the
Revolver. On June 29, 1995 White River repaid $35.1 million in principal amount
on the Revolver with: (i) 930,000 shares of common stock of Mid Ocean Limited
("Mid Ocean Shares"); and (ii) options to acquire an additional 388,140 Mid
Ocean Shares through November 2002. On July 3, 1995, White River repaid the
remaining $4.9 million principal balance on the Revolver and $5.0 million in
principal amount on the Term Note in exchange for certain common equity
securities.
On July 31, 1995, the Company redeemed all 20,833 shares of its outstanding
Voting Preferred Stock Series D owned by American Express Company for $75.0
million of cash. The redemption price for the shares of preferred stock
redeemed was equal to the stock's liquidation preference.
As of August 8, 1995 the Company entered into a definitive agreement to acquire
the Valley Insurance Group of Albany, Oregon for $37.8 million in cash, subject
to certain post-closing adjustments, from Skandia America Corporation. Valley
is an "A" rated, Northwest-based, regional property-casualty company, writing
personal and commercial lines through independent agents. In 1994, Valley wrote
approximately $65 million in gross premiums in three states. The Company
expects to effect such acquisition through its wholly-owned subsidiary White
Mountains Holdings, Inc. ("White Mountains"). Concurrent with the acquisition,
White Mountains will contribute from $20 million to $40 million of capital to
the Valley Group to support its future growth and development. As part of the
transaction White Mountains will also acquire The Charter Group for $3.3
million. The Charter Group wrote approximately $60 million of Texas non-
standard automobile insurance in 1994. Completion of the acquisition of the
Valley Group and the Charter Group require regulatory approvals which the
Company expects to obtain in the fourth quarter of 1995.
Prospectively, the primary sources of cash inflows for the Company will be sales
of investment securities, investment income and distributions received from its
operating subsidiaries.
SOURCE ONE. Source One's investments, mortgage loans held for sale and mortgage
- -----------
loan servicing portfolio provide a liquidity reserve since they may be sold to
meet cash needs.
Source One's working capital requirements have historically been funded through
its revolving credit and commercial paper programs. These borrowings are used
to fund mortgage loan production until the sale of such mortgage loans in the
secondary market.
Declines in mortgage loan production have led to a reduction in the balance of
mortgage loans held for sale during 1995, resulting in a decrease in Source
One's short-term borrowings. Source One also repurchased $82.3 million in
principal amount of its long-term debt during the first half of 1995.
At June 30, 1995 Source One had $83.3 million of short-term borrowings
outstanding under committed bank credit agreements and $215.2 million of
outstanding commercial paper.
10
<PAGE>
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 BY SECURITY HOLDERS
At the Company's 1995 Annual Meeting of shareholders, which was held on May
24, 1995, shareholders approved proposals (as further described in the Company's
1995 Proxy Statement) calling for the: (i) Election of Directors; (ii) Amendment
of the Incentive Plan; (iii) Approval of the Agreement; and (iv) Appointment of
Independent Auditors. With respect to proposal (i), 6,685,110 votes were cast
in favor of the proposal whereas 35,315 votes were withheld. With respect to
proposal (ii), 5,799,701 votes were cast in favor of the proposal, 250,477 votes
were cast against the proposal and 17,247 votes abstained. With respect to
proposal (iii), 6,012,456 votes were cast in favor of the proposal, 75,663 votes
were cast against the proposal and 19,306 votes abstained. With respect to
proposal (iv), 6,702,060 votes were cast in favor of the proposal, 6,893 votes
were cast against the proposal and 11,472 votes abstained.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 - Statement Re Computation of Per Share Earnings*
(b) Reports on Form 8-K
None.
*Filed herewith.
11
<PAGE>
SIGNATURES
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.
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
----------------------------------------
(Registrant)
Date: August 11, 1995 By: /s/ Michael S. Paquette
--------------------------------
Michael S. Paquette
Vice President and Controller
12
<PAGE>
EXHIBIT 11
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE EARNINGS)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
------- ------ -------- --------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Earnings per share numerator:
After tax earnings (loss) $ (17,660) $ 19,906 $ 11,453 $ 28,950
Preferred stock dividends (1,641) (3,042) (3,281) (6,084)
--------- -------- -------- --------
After tax earnings (loss) applicable to
common stock (19,301) 16,864 8,172 22,866
Tax benefit from sale of discontinued operations 66,000 - 66,000 -
Loss on early extinguishment of debt, after tax (227) - (400) -
Cumulative effect of accounting change -
purchased mortgage servicing, after tax - - - (44,296)
--------- -------- -------- --------
Net income (loss) for per share computation $ 46,472 $ 16,864 $ 73,772 $(21,430)
========= ======== ======== ========
Earnings per share denominator:
Average common shares outstanding 7,662 9,299 8,013 9,326
Dilution options, warrants and performance shares 528 526 532 544
--------- -------- -------- --------
Shares for per share computation 8,190 9,825 8,545 9,870
========= ======== ======== ========
Primary earnings per share:
After tax earnings (loss) $ (2.36) $ 1.72 $ .96 $ 2.32
Net income (loss) 5.67 1.72 8.63 (2.17)
FULLY DILUTED EARNINGS PER SHARE
Earnings per share numerator:
After tax earnings (loss) $ (17,660) $ 19,906 $ 11,453 $ 28,950
Preferred stock dividends, if applicable - - - (6,084)
--------- -------- -------- --------
After tax earnings (loss) applicable to common stock (17,660) 19,906 11,453 22,866
Tax benefit from sale of discontinued operations 66,000 - 66,000 -
Loss on early extinguishment of debt, after tax (227) - (400) -
Cumulative effect of accounting change -
purchased mortgage servicing, after tax - - - (44,296)
--------- -------- -------- --------
Net income (loss) for per share computation $ 48,113 $ 19,906 $ 77,053 $(21,430)
========= ======== ======== ========
Earnings per share denominator:
Average common shares outstanding 7,662 9,299 8,013 9,326
Dilution for options, warrants and performance shares 529 554 532 553
Dilution for preferred stock, if applicable 1,054 2,447 1,051 -
--------- -------- -------- --------
Shares for per share computation 9,245 12,300 9,596 9,879
========= ======== ======== ========
Fully diluted earnings per share:
After tax earnings (loss) $ (1.91) $ 1.62 $ 1.19 $ 2.31
Net income (loss) 5.20 1.62 8.03 (2.17)
</TABLE>
NOTE: The Voting Preferred Stock Series D is not a common stock equivalent.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-01-1995 JAN-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 0 7
<SECURITIES> 0 608
<RECEIVABLES> 0 43
<ALLOWANCES> 0 13
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 1,823
<CURRENT-LIABILITIES> 0 329
<BONDS> 0 456
<COMMON> 0 655
0 75
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 1,823
<SALES> 0 0
<TOTAL-REVENUES> 51 123
<CGS> 0 0
<TOTAL-COSTS> 77 108
<OTHER-EXPENSES> (10) (27)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10 22
<INCOME-PRETAX> (26) 20
<INCOME-TAX> (8) 9
<INCOME-CONTINUING> (18) 12
<DISCONTINUED> 66 66
<EXTRAORDINARY> 0 0
<CHANGES> 48 77
<NET-INCOME> 0 0
<EPS-PRIMARY> 5.67 8.63
<EPS-DILUTED> 5.20 8.03
</TABLE>
