<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 September 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 1-8993
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.)
80 South Main Street, Hanover, New Hampshire 03755-2053
(Address of principal executive offices including zip code)
(603) 643-1567
(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 November 11, 1996, 7,161,977 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,
September 30, 1996 (Unaudited), and December 31, 1995 3
Condensed Consolidated Income Statements (Unaudited),
Three Months and Nine Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
Part II. OTHER INFORMATION
Items 1 through 6 11
SIGNATURES 12
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Common equity securities, at fair value (cost: $87.3 and $232.1) $ 120.6 $ 274.5
Fixed maturity investments, at fair value (cost: $153.7 and $109.8) 153.4 110.7
Other investments (cost: $120.5 and $86.7) 162.3 95.9
Short-term investments, at amortized cost (which approximated market value) 70.4 103.6
------------- ------------
Total investments 506.7 584.7
Cash 4.4 2.7
Capitalized mortgage servicing, net of accumulated amortization 389.1 397.1
Mortgage loans held for sale 273.5 381.0
Other mortgage origination and servicing assets 179.8 164.4
Insurance premiums receivable 54.0 45.3
Investments in unconsolidated insurance affiliates 209.3 96.2
Other assets 262.3 200.5
------------- ------------
Total Assets $ 1,879.1 $ 1,871.9
============= ============
Liabilities
Short-term debt $ 357.9 $ 445.4
Long-term debt 406.9 407.3
Loss and loss adjustment expense reserves 50.3 44.1
Unearned insurance premiums 73.4 35.0
Accounts payable and other liabilities 237.7 196.4
------------- ------------
Total liabilities 1,126.2 1,128.2
------------- ------------
Minority Interest - preferred stock of subsidiary 44.0 44.0
------------- ------------
Shareholders' Equity
Common stock at $1 par value per share - authorized 125,000,000 shares;
issued 32,229,675 and 32,719,279 shares 32.2 32.7
Common paid-in surplus 369.9 375.5
Retained earnings 1,121.8 1,124.6
Common stock in treasury, at cost - 25,034,939 shares (871.0) (871.0)
Net unrealized gains on investment securities 56.0 37.9
------------- ------------
Total shareholders' equity 708.9 699.7
------------- ------------
Total Liabilities, Minority Interest and Shareholders' Equity $ 1,879.1 $ 1,871.9
============= ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
CONDENSED CONSOLIDATED INCOME STATEMENTS
Unaudited
(millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -----------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Mortgage servicing revenue $ 33.0 $ 32.0 $ 101.1 $ 107.4
Amortization of capitalized servicing 16.1 14.5 26.1 51.6
Net loss on financial instruments .2 - 5.1 -
---------- ---------- --------- ---------
Net servicing revenue 16.7 17.5 69.9 55.8
Net gain on sales of mortgages 7.7 9.6 32.2 15.3
Gain on sale of mortgage servicing 10.1 - 10.1 28.2
Other mortgage operations revenue 4.1 3.5 13.6 10.5
Insurance premuims earned 30.4 - 75.7 -
Equity in earnings of unconsolidated insurance affiliates 3.0 3.2 6.1 7.2
Other insurance operations revenue 2.0 - 7.3 9.7
Investment income 16.0 14.8 45.6 42.0
---------- ---------- --------- ---------
Total revenues 90.0 48.6 260.5 168.7
---------- ---------- --------- ---------
Expenses:
Compensation and benefits 25.3 16.0 73.2 96.7
General expenses 22.8 14.7 64.0 42.1
Interest expense 11.5 12.2 38.5 34.3
Insurance losses and loss adjustment expenses 21.7 - 52.2 -
---------- ---------- --------- ---------
Total expenses 81.3 42.9 227.9 173.1
---------- ---------- --------- ---------
Pretax operating earnings (loss) 8.7 5.7 32.6 (4.4)
Net realized investment gains (losses) (1.6) 4.4 28.1 31.8
---------- ---------- --------- ---------
Pretax earnings 7.1 10.1 60.7 27.4
Income tax provision 3.4 3.5 24.7 11.3
---------- ---------- --------- ---------
After tax earnings 3.7 6.6 36.0 16.1
Tax benefit from sale of discontinued operations - - - 66.0
Loss on early extinguishment of debt, after tax - - - (.4)
---------- ---------- --------- ---------
Net Income 3.7 6.6 36.0 81.7
Less dividends on preferred stock - .5 - 3.8
---------- ---------- --------- ---------
Net income applicable to common stock $ 3.7 $ 6.1 $ 36.0 $ 77.9
========== ========== ========= =========
Primary earnings per share:
After tax earnings $ .46 $ .75 $ 4.38 $ 1.46
Net income .46 .75 4.38 9.26
Fully diluted earnings per share:
After tax earnings .46 .75 4.38 1.74
Net income .46 .75 4.38 8.86
</TABLE>
See Notes to Condensed Consolidated Financial Statements
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<PAGE>
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operations:
Net income $ 36.0 $ 81.7
Charges (credits) to reconcile net income to cash flows from operations:
Tax benefit from sale of discontinued operations - (66.0)
Loss on early extinguishment of debt, after tax - .4
Undistributed equity in earnings of unconsolidated insurance affiliates (3.9) (6.6)
Compensation expense resulting from warrant extension - 46.2
Net realized investment gains (28.1) (31.8)
Decrease (increase) in mortgage loans held for sale 107.5 (177.8)
Gain on sale of mortgage servicing (10.1) (28.2)
Increase in unearned insurance premiums 38.4 -
Increase in insurance premiums receivable (8.7) -
Increase in deferred insurance policy acquisition costs (6.6) -
Depreciation and amortization 32.3 55.2
Net unrealized loss on financial instruments 4.9 -
Capitalized excess mortgage servicing income (7.6) (4.7)
Changes in current income taxes receivable and payable 9.0 21.9
Deferred income tax expense (benefit) 15.1 (10.8)
Other, net 23.7 46.8
--------- ---------
Net cash flows provided from (used for) operating activities 202.0 (73.7)
--------- ---------
Cash flows from investing activities:
Net decrease in short-term investments 33.2 50.4
Sales of common equity securities and other investments 196.4 152.8
Sales and maturities of fixed maturity investments 98.3 -
Purchases of common equity securities and other investments (58.1) (70.5)
Purchases of fixed maturity investments (145.8) -
Acquisition of consolidated affiliate (13.2) -
Investments in unconsolidated insurance affiliates (107.6) (33.8)
Collections on mortgage origination and servicing assets 122.8 154.2
Additions to purchased mortgage servicing rights (22.5) (36.1)
Originated mortgage servicing rights (32.1) (20.4)
Proceeds from sale of mortgage servicing 11.7 169.8
Additions to other mortgage origination and servicing assets (145.6) (123.8)
Net (purchases) sales of fixed assets (4.8) .3
--------- ---------
Net cash flows (used for) provided from investing activities (67.3) 242.9
--------- ---------
Cash flows from financing activities:
(Repayments) issuances of short-term debt (58.1) 67.4
Repayments of long-term debt (29.7) (93.7)
Purchases of common stock retired (39.8) (64.2)
Purchases of preferred stock retired - (75.0)
Dividends paid to shareholders (4.5) (4.9)
Other (.9) .1
--------- ---------
Net cash used for financing activities (133.0) (170.3)
--------- ---------
Net increase (decrease) in cash during period 1.7 (1.1)
Cash balance at beginning of period 2.7 1.5
--------- ---------
Cash balance at end of period $ 4.4 $ .4
========= =========
Supplemental cash flows information:
Interest paid $ (33.8) $ (30.4)
Net income tax payments $ (.7) $ (.2)
Non-cash exchanges of investment securities $ - $ 90.0
</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 principal
businesses are conducted through White Mountains Holdings, Inc. and its
operating subsidiaries ("White Mountains") and Source One Mortgage Services
Corporation and its subsidiaries ("Source One"). White Mountains is an insurance
holding company principally engaged through its affiliates in the business of
property and casualty insurance. Source One is one of the nation's largest
independent mortgage banking companies.
The financial statements have been prepared in accordance with generally
accepted accounting principles and include all adjustments (consisting of normal
recurring adjustments) considered necessary by management to fairly present the
financial position, results of operations and cash flows of Fund American. These
interim financial statements may not be indicative of financial results for the
full year and should be read in conjunction with the Company's 1995 Annual
Report to Shareholders.
2. Accounting Standard Recently Issued
- ---------------------------------------
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". SFAS No. 125
eliminates the distinction between "normal" servicing rights and excess
servicing receivable and will change Source One's method of measuring the value
of its capitalized excess servicing asset. The statement is effective for
transfers and servicing of financial assets beginning in 1997. The Company has
not yet determined what impact, if any, the adoption of this statement will have
on its financial position or results of operations.
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 7,977,711 and
8,146,614 for the three month periods ended September 30, 1996 and 1995,
respectively, and 8,220,149 and 8,411,168 for the nine month periods ended
September 30, 1996 and 1995, respectively. Fully diluted earnings per share
amounts are based on the weighted average number of common shares outstanding,
assuming full dilution, of 7,977,743 and 8,150,534 for the three month periods
ended September 30, 1996 and 1995, respectively, and 8,220,229 and 9,221,554 for
the nine month periods ended September 30, 1996 and 1995, respectively.
Item 2. Management's Discussion and Analysis
- --------------------------------------------
Results of Operations -- Three-Month and Nine-Month Periods Ended September 30,
1996 and 1995
Fund American reported net income of $36.0 million, or $4.38 per share, for the
nine month period ended September 30, 1996, compared to net income of $81.7
million, or $8.86 per share fully diluted, for the nine month period ended
September 30, 1995. The 1995 nine month period includes three non-recurring
items recorded in the 1995 second quarter which served to increase net income by
a net amount of $42.3 million, or $4.58 per share fully diluted. For the 1996
third quarter Fund American reported net income of $3.7 million, or $.46 per
share, versus $6.6 million, or $.75 per share, in 1995.
-6-
<PAGE>
Book value per common and equivalent share increased to $90.10, an increase of
$6.82 from the December 31, 1995 book value per share of $83.28.
Insurance Operations. Property and casualty earned insurance premiums for the
1996 third quarter and year-to-date totalled $30.4 million and $75.7 million,
respectively. Earned premium will continue to substantially lag net written
premium until 1997 because Charter Indemnity Company ("Charter"), which writes
non-standard automobile insurance in Texas, began to retain virtually all its
written premium for the first time in 1996. Valley Insurance Companies
("Valley"), which includes the operations of Valley Insurance Company, a
regional property-casualty company which writes personal and commercial lines in
the Northwest, and White Mountains Insurance Company, a newly formed regional
property-casualty company which writes commercial lines in the Northeast, posted
a combined ratio of 101.9% for the 1996 nine month period. Valley's combined
ratio for the third quarter was adversely impacted by reserve strengthening for
California severity as well as startup costs incurred at Valley National
Insurance Company, a multi-state property and casualty subsidiary which is
currently being developed by Valley for future use. Valley had $52.6 million of
earned premium for the 1996 year-to-date period and had net written premium of
$57.8 million. Charter posted a combined ratio of 97.8% for the 1996 nine month
period. Charter had $23.1 million of earned premium for the 1996 year-to-date
period and had net written premium of $56.2 million. Valley and Charter were
acquired by White Mountains on December 1, 1995. A summary of White Mountains'
consolidated insurance operating results follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dollars in millions Sept. 30, 1996 Sept. 30, 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Gross written premium $ 36.5 $119.3
Net written premium 34.8 114.0
Ending statutory surplus 80.0
Valley:
- --------------------------------------
Loss and loss adjustment expense 68.2% 64.9%
ratio
Underwriting expense ratio 39.7% 37.0%
------ ------
Combined ratio 107.9% 101.9%
====== ======
Charter:
- --------------------------------------
Loss and loss adjustment expense 76.3% 78.1%
ratio
Underwriting expense ratio 22.7% 19.7%
------ ------
Combined ratio 99.0% 97.8%
==============================================================================
</TABLE>
The Company's unconsolidated insurance affiliates are comprised of a 25%
interest in Financial Security Assurance Holdings Ltd. ("FSA"), a 50% interest
in Folksamerica Holding Company, Inc. ("Folksamerica") and a 33% interest in
Main Street America Holdings, Inc. ("MSA"). FSA continued to post strong core
operating results for 1996 through the third quarter. FSA's adjusted book value
per share at September 30, 1996 was $33.43, up $2.27 from $31.16 at December 31,
1995. The 1996 growth in adjusted book value from FSA's operations was muted
somewhat by unrealized investment losses in its bond portfolio. Folksamerica
continues to persevere despite a highly competitive market. During the 1996
third quarter, Folksamerica's book value per share increased from $11.16 to
$11.67. MSA's underwriting results for the 1996 nine month period were
unsatisfactory with a combined ratio of 108.9%. MSA's loss ratio is high
because of unusually high winter storm losses in early 1996 but seems to be
improving as the year progresses.
-7-
<PAGE>
Mortgage Origination and Servicing. A summary of Source One's mortgage loan
production and mortgage servicing portfolio activities follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
---------------------------------------------------
Millions 1996 1995 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage loan production:
Retail originations $ 371 $ 534 $ 1,471 $ 1,059
Wholesale originations 420 475 1,632 889
---------------------------------------------------
Total $ 791 $ 1,009 $ 3,103 $ 1,948
- ---------------------------===================================================
Mortgage loan servicing
portfolio (a):
Beginning balance $ 31,329 $ 28,746 $ 31,831 $ 39,568
Mortgage loan 791 1,009 3,103 1,948
production
Regular payoffs (634) (687) (2,417) (1,550)
Sale of servicing (3.302) - (3,302) (9,893)
Other (537) (501) (1,568) (1,506)
---------------------------------------------------
Ending balance $ 27,647 $ 28,567 $ 27,647 $ 28,567
==============================================================================
</TABLE>
(a) Includes loans subserviced for others of $3,796 million and $4,111 million
as of September 30, 1996 and September 30, 1995, respectively.
The increase in mortgage loan production and payoffs for the 1996 nine month
period versus the comparable prior year period reflects lower market interest
rates and a corresponding increase in refinancing activity. Additional
information regarding Source One's mortgage loan servicing portfolio is shown
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Sept. 30, Dec. 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loan servicing portfolio (a):
Number of loans 439,264 494,051
Weighted average interest rate 8.31% 8.33%
Percent delinquent (includes loans in
process of foreclosure) 5.61% 6.08%
================================================================================
</TABLE>
(a) Includes loans subserviced for others of $3,796 million and $4,039 million
as of September 30, 1996 and December 31, 1995, respectively.
Source One's net mortgage servicing revenue increased to $69.9 million for the
nine month period ended September 30, 1996 from $55.8 million for the comparable
1995 period. The increase in net servicing revenue is primarily the result of
$27.5 million in pretax recoveries of Source One's valuation allowance for the
impairment of mortgage servicing rights in 1996. The impairment recoveries
reflect an increase in market interest rates which resulted in an increase in
the estimated fair value of Source One's mortgage servicing rights from 1995
levels. Gross mortgage servicing revenue, however, decreased during the 1996
year-to-date period due primarily to declines in both the size of the servicing
portfolio and average servicing fee rates.
Source One is now utilizing interest rate floor contracts and principal-only
swaps to mitigate the effect on earnings of higher amortization and impairment
of the capitalized servicing asset caused by changes in market interest rates.
The interest rate contracts, which were entered into in the 1995 fourth quarter
and the 1996 first half, are not subject to total losses in excess of their
original cost of $5.5 million. In the 1996 third quarter, Source One entered
into two
-8-
<PAGE>
principal-only swaps with a current aggregate notional value of $92 million.
Net mortgage servicing revenue for the three and nine month periods ended
September 30, 1996 has been reduced by $.2 million and $5.1 million of pretax
net losses, respectively, which represent declines in the market value of Source
One's investments in financial instruments.
Net gain on sales of mortgages increased to $32.2 million for the nine month
period ended September 30, 1996, from $15.3 million for the comparable 1995
period. The increase is primarily due to increased production and the related
mortgage loan sales volume during 1996 compared to 1995.
During the third quarter of 1996, Source One recognized a $10.1 million pretax
gain ($6.6 million after tax) from the sale of $3.3 billion of its mortgage loan
servicing portfolio to a third party. 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. In October 1996, Source One entered into a contract to acquire the
rights to service approximately $2.8 billion of mortgage loans from a third
party.
Investment Operations. Fund American's investment income is comprised primarily
of interest income earned on mortgage loans originated by Source One and on the
fixed maturity investments of its consolidated insurance operations. Investment
income increased to $45.6 million for the 1996 year-to-date period, from $42.0
million for the comparable prior year period. For the third quarter investment
income increased to $16.0 million in 1996, from $14.8 million in 1995. The
increases are primarily due to additional fixed maturity investments resulting
from the acquisition of Valley and Charter.
Total net investment gains and losses, before tax, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months
Ended Sept. 30,
-------------------
Millions 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Net realized gains $ 28.1 $ 31.8
Net unrealized gains 27.1 11.6
-------------------
Total net investment gains, before tax $ 55.2 $ 43.4
================================================================================
</TABLE>
During the first quarter of 1996, Fund American sold all its holdings (2,042,572
shares) of the common stock of Zurich Reinsurance Centre Holdings, Inc. ("ZRC")
for net proceeds of $61.8 million. Fund American also sold all its holdings
(2,928,100 shares) of the common stock of The Louisiana Land and Exploration
Company ("LLX") for net proceeds of $125.1 million. Gains on the sales of ZRC
and LLX represented the majority of the $28.1 million of realized net investment
gains reported for the nine month period ended September 30, 1996.
Expenses. Excluding a previously announced $46.2 million one-time compensation
charge related to outstanding employee stock warrants which is included in the
Company's 1995 year-to-date income statement, compensation and benefits expense
increased $22.7 million to $73.2 million during the 1996 nine month period
versus the comparable 1995 period. The increase is primarily a result of higher
mortgage loan production volumes experienced by Source One during 1996 and the
inclusion of Valley and Charter's personnel costs in the 1996 consolidated
financial statements.
General expenses increased to $22.8 million and $64.0 million for the 1996 third
quarter and year-to-date periods, respectively, versus $14.7 million and $42.1
million for the comparable prior year periods. The increases are primarily due
to the inclusion of Valley and Charter's operations in the 1996 consolidated
financial statements.
-9-
<PAGE>
Liquidity and Capital Resources
Parent Company. During the 1996 third quarter, the Company repurchased 329,054
Shares of its common stock for $27.1 million in a series of open market
transactions. All such Shares repurchased have since been retired.
Prospectively, the primary sources of cash inflows for the Company will be
distributions received from its operating subsidiaries, sales of investment
securities and investment income.
White Mountains and Subsidiaries. On June 19, 1996 White Mountains completed
its purchase, for $79.9 million including related expenses, of a 50% interest in
Folksamerica. Also on June 19, 1996, Folksamerica completed its previously
announced acquisition of Christiania General Insurance Corporation
("Christiania") of New York for $88.0 million. Folksamerica owns a multi-line
broker-market reinsurance company which in 1995 had net written premiums of
$159.7 million. At September 30, 1996, Folksamerica had total assets $1.0
billion, shareholders' equity of $161.5 million and total capitalization of
237.0 million.
White Mountains' investment in Folksamerica includes (i) 6,920,000 shares of
ten-year 6.5% voting preferred stock having a liquidation preference of $79.4
million and (ii) ten-year warrants to purchase up to 6,920,000 shares of
Folksamerica Common Stock for $11.47 per share, subject to certain adjustments.
Folksamerica reported a book value per share at September 30, 1996 of $11.67.
On November 1, 1996 Fund American signed a definitive agreement (the
"Agreement") to raise its stake in MSA from 33% to 50%. MSA currently shares in
40% of National Grange Mutual Insurance Company ("National Grange") business
through a quota share reinsurance agreement which is expected to be increased to
60% pursuant to the Agreement. Also pursuant to the Agreement, National Grange
will contribute certain of its insurance, reinsurance and information and
financial services subsidiaries to MSA.
The aggregate purchase price to be paid by Fund American is approximately $60.2
million, subject to certain purchase price adjustments. The closing is
dependent upon receipt of Federal and state regulatory approvals and is expected
to occur near year-end 1996. Fund American expects to assign the additional
investment in MSA to White Mountains.
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. Source One is currently in the process of amending and
restating its secured credit agreements to increase its borrowing capacity and
flexibility. The provisions of the amendment increase the size of the facility
from $500 million to $750 million, which will allow Source One to finance
planned growth in production and servicing. The provisions will also extend the
maturity, reduce borrowing costs and amend covenants which will allow Source One
to upstream $60.0 million to its parent, Fund American Enterprises, Inc.
-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
None.
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: November 12, 1996 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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary earnings per share:
Earnings per share numerator:
After tax earnings $ 3,666 $ 6,637 $ 35,966 $ 16,090
Preferred stock dividends - (553) - (3,834)
---------- ---------- ---------- ----------
After tax earnings applicable to common stock 3,666 6,084 35,966 12,256
Tax benefit from sale of discontinued operations - - - 66,000
Loss on early extinguishment of debt, after tax - - - (400)
---------- ---------- ---------- ----------
Net income for per share computation $ 3,666 $ 6,084 $ 35,966 $ 77,856
========== ========== ========== ==========
Earnings per share denominator:
Average common shares outstanding 7,298 7,617 7,538 7,880
Dilutive options, warrants and performance shares 680 530 682 531
---------- ---------- ---------- ----------
Shares for per share computation 7,978 8,147 8,220 8,411
========== ========== ========== ==========
Primary earnings per share:
After tax earnings $ .46 $ .75 $ 4.38 $ 1.46
Net income .46 .75 4.38 9.26
Fully diluted earnings per share
Earnings per share numerator:
After tax earnings $ 3,666 $ 6,637 $ 35,966 $ 16,090
Preferred stock dividends, if applicable - (553) - -
---------- ---------- ---------- ----------
After tax earnings applicable to common stock 3,666 6,084 35,966 16,090
Tax benefit from sale of discontinued operations - - - 66,000
Loss on early extinguishment of debt, after tax - - - (400)
---------- ---------- -----------------------
Net income for per share computation $ 3,666 $ 6,084 $ 35,966 $ 81,690
========== ========== ========== ==========
Earnings per share denominator:
Average common shares outstanding 7,298 7,617 7,538 7,880
Dilution for options, warrants and performance shares 680 534 682 534
Dilution for preferred stock, if applicable - - - 808
---------- ---------- ---------- ----------
Shares for per share computation 7,978 8,151 8,220 9,222
========== ========== ========== ==========
Fully diluted earnings per share:
After tax earnings $ .46 $ .75 $ 4.38 $ 1.74
Net income .46 .75 4.38 8.86
</TABLE>
NOTE: The Voting Preferred Stock Series D is not a common stock equivalent.
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0
0
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