<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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: 0-15196
US FACILITIES CORPORATION
-------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0097221
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
650 Town Center Drive, Suite 1600, Costa Mesa, CA 92626
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
(714)549-1600
-------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report.)
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 _____
Number of shares outstanding of each class of the Registrant's Common Stock
as of May 7, 1996:
Common Stock, par value $.01 per share: 5,838,098
Common Stock Purchase Rights: 5,838,098
<PAGE>
INDEX
<TABLE>
<S> <C>
Part I FINANCIAL INFORMATION
Item 1. FINANCIAL INFORMATION
Condensed Consolidated Financial Statements:
Balance Sheets as of March 31, 1996 and
December 31, 1995. . . . . . . . . . . . . . . . . . . . . . 3
Income Statements for the Quarters Ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 4
Statements of Stockholders' Equity at
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows for the Quarters Ended
March 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements. . . . . . 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
Part II OTHER INFORMATION
Item 6. EXHIBITS and REPORTS ON FORM 8-K . . . . . . . . . . . . . . 13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Financial Statements:
US FACILITIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(000 omitted)
<TABLE>
ASSETS
<CAPTION>
March 31, 1996 December 31,1995
-------------- ----------------
<S> <C> <C>
Investments, at market (amortized cost
$168,288 at March 31,1996, $159,333 at
December 31,1995) $174,418 $170,258
Cash and invested cash 7,917 8,165
Restricted cash and short term investments 23,025 24,036
Accrued investment income 2,157 2,414
Receivables:
Reinsurance losses and reserves 19,308 18,597
Premiums 13,285 14,065
Prepaid reinsurance premiums 5,551 5,117
Deferred policy acquisition costs 2,628 2,830
Other assets 4,668 4,390
-------- --------
Total assets $252,957 $249,872
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Insurance liabilities:
Amounts due insurance companies $ 25,008 $ 25,712
Losses and loss adjustment expenses 82,270 78,894
Unearned premiums 18,572 17,705
Note payable 35,000 35,000
Accounts payable and accrued expenses 3,127 4,500
-------- --------
Total liabilities 163,977 161,811
Stockholders' Equity 88,980 88,061
-------- --------
Total liabilities and stockholders' equity $252,957 $249,872
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
US FACILITIES CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(000 omitted, except per share data)
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Premiums earned $29,152 $26,695
Commissions and fees 6,589 6,420
Net investment income 2,442 2,164
Realized investment gains 735 180
------- -------
Total revenues 38,918 35,459
------- -------
Operating Expenses:
Losses and loss adjustment expenses
incurred 20,842 17,640
Policy acquisition expenses 8,874 8,760
General and administrative expenses 3,545 4,785
Interest 680 542
------- -------
Total operating expenses 33,941 31,727
------- -------
Income before income taxes 4,977 3,732
Income tax expense 1,169 810
------- -------
Net income $ 3,808 $ 2,922
======= =======
Net income per common and common equivalent share $ 0.64 $ 0.52
======= =======
Weighted average number of common and common
equivalent shares outstanding during period 5,979 5,589
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
US FACILITIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(000 omitted)
<TABLE>
<CAPTION>
Net
unrealized
Common Paid in gain(loss) Retained Treasury
stock capital on securities earnings stock Total
------ ------- ------------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $59 $44,261 $(2,637) $26,544 $(5,148) $63,079
Net Income -- -- -- 2,922 -- 2,922
Dividends paid -- -- -- (272) -- (272)
Exercise of stock options -- (127) -- -- 1,074 947
Unrealized investment
gain, net -- -- 3,624 -- -- 3,624
--- ------- ------- ------- ------- -------
Balance at
March 31, 1995 $59 $44,134 $ 987 $29,194 $(4,074) $70,300
=== ======= ======= ======= ======= =======
Balance at
December 31, 1995 $61 $44,489 $ 7,211 $39,273 $(2,973) $88,061
Net Income -- -- -- 3,808 -- 3,808
Dividends paid -- -- -- (350) -- (350)
Exercise of stock options -- 197 -- -- 429 626
Unrealized investment loss, net -- -- (3,165) -- -- (3,165)
--- ------- ------- ------- ------- -------
Balance at
March 31, 1996 $61 $44,686 $ 4,046 $42,731 $(2,544) $88,980
=== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
US FACILITIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000 omitted)
<TABLE>
<CAPTION>
Quarter Ended March 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Cash provided by operating activities $ 7,787 $ 321
Cash flows from investing activities:
Purchases of fixed maturity investments (11,835) (38,332)
Purchases of equity securities (487) (337)
Proceeds from sales of investment securities 10,619 26,910
Net sales (purchases) of short term
investments (6,365) 12,464
Purchases of property and equipment (243) (71)
-------- --------
Cash (used in) provided by investing activities (8,311) 634
-------- --------
Cash flows from financing activities:
Dividends paid (350) (272)
Exercise of stock options 626 947
-------- --------
Cash provided by financing activities 276 675
-------- --------
Net (decrease) increase in cash and invested cash (248) 1,630
Cash and invested cash at beginning of period 8,165 4,502
-------- --------
Cash and invested cash at end of period $ 7,917 $ 6,132
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ -- $ --
======== ========
Income taxes paid, net $ 61 $ 5
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
US FACILITIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. The results
of operations for the three months ended March 31,1996 are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto for the year ended December 31,1995 included in the US Facilities
Corporation (the "Company") 1995 Annual Report to Stockholders.
2. Note Payable
Effective March 29, 1996, the Company renegotiated its bank Credit
Agreement to extend the commencement of required principal reductions and
maturity by one year, and reduce the applicable interest margin from 2% to
1.75% over LIBOR. Mandatory principal reductions now commence in March 1997,
and the Note matures December 31, 2002. At March 31, 1996, the Company was
in compliance with all covenants of the Credit Agreement.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's consolidated revenues for the 1996 first quarter increased
10% to $38,918,000 from $35,459,000 in the 1995 quarter. Revenue growth
resulted from: increases in premiums earned in both of the Company's business
segments; a 13% increase in net investment income resulting from higher
levels of invested assets; and the effect of first quarter 1996 realized
gains. The increase in realized gains in 1996 primarily resulted from two
transactions. These levels of realized gains are not expected to continue
during 1996.
Consolidated net income increased 30% to $3,808,000 in the 1996 quarter
from $2,922,000 in the 1995 quarter. The increase in net income reflects
improved profitability primarily due to a 26% decline in consolidated general
and administrative expenses. Such decline is due to the Company's continuing
focus on cost control and its emphasis on increasing productivity, as well as
the effect in the 1995 quarter of $695,000 pre-tax expenses pertaining to the
resignation of the Company's former Chief Executive Officer. Income tax
expense as a percentage of pre-tax income fluctuates depending on the
proportion of tax-exempt investment income to total pre-tax income.
The statutory combined ratio is the traditional indicator of the potential
underwriting profitability of an insurance company's business. The Company's
statutory combined ratio was 102.4 and 100.2 for the quarters ended March 31,
1996 and 1995, respectively.
BUSINESS SEGMENTS
The Company conducts business primarily in two business segments which are
classified as:
(a) MEDICAL, which includes all commission and fee-based revenues of the
Company and reinsurance of 50% of the medical stop-loss and provider excess
business generated by the Company's wholly owned subsidiary, USBenefits
Insurance Services, Inc. ("USBenefits"). USBenefits acts primarily as the
underwriting manager and marketing organization for medical stop-loss and
provider excess coverages issued by The Continental Insurance Company, one of
the CNA Insurance Companies, an unaffiliated party. Provider excess coverage
is specifically designed to address the risk hospitals and physician groups
are facing from a managed care environment under capitated fee arrangements.
USBenefits also provides other employee benefit related
8
<PAGE>
products. This business segment has been referred to in the Company's
previous filings as the "medical stop-loss and employee benefit products"
segment.
(b) PROPERTY/CASUALTY insurance and reinsurance underwriting is conducted
by the Company's wholly-owned subsidiaries, USF RE INSURANCE COMPANY ("USF
RE") and USF Insurance Company ("USFIC"). USF RE assumes
property/casualty reinsurance from unaffiliated insurance companies primarily
through reinsurance intermediaries, and USFIC writes surplus lines insurance
through independent excess and surplus lines brokers.
The tables set forth below present pre-tax operating information by
business segment and holding company operations (including realized gains)
for the quarters ended March 31, 1996 and 1995, respectively.
MEDICAL
(000 omitted)
<TABLE>
<CAPTION>
Quarter Ended
March 31
--------
1996 1995 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Revenues:
Premiums earned $20,321 $19,572 4%
Commissions and fees 6,589 6,420 3%
Investment income 749 744 --
------- ------- ----
Total revenues 27,659 26,736 3%
------- ------- ----
Expenses:
Losses and loss adjustment 13,838 12,823 8%
Policy acquisition 6,856 6,422 7%
General and administrative 2,472 3,047 (19)%
------- ------- ----
Total expenses 23,166 22,292 4%
------- ------- ----
Income before income taxes $ 4,493 $ 4,444 1%
======= ======= ====
</TABLE>
Medical segment production increased 4% in the 1996 quarter over the 1995
quarter, generating the changes noted above in premiums earned and
commissions and fees revenues, in spite of a competitive pricing environment.
In turn, loss and loss adjustment expenses in 1996 as compared to 1995
reflect increases in the cost of healthcare which are not mitigated by
increases in premium rates due to price competition, as well as higher losses
incurred related to the provider excess business.
9
<PAGE>
The segment information presented in the table above includes pre-tax
losses of $342,000 for the quarter ended March 31, 1995 from the Company's
medical bill review operations which were closed effective May 31, 1995.
PROPERTY/CASUALTY
(000 omitted)
<TABLE>
<CAPTION>
Quarter Ended
March 31
--------
1996 1995 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Revenues:
Premiums earned $ 8,831 $7,123 24%
Investment income 1,674 1,407 19%
------- ------ ----
Total revenues 10,505 8,530 23%
------- ------ ----
Expenses:
Losses and loss adjustment 7,004 4,817 45%
Policy acquisition 2,018 2,338 (14)%
General and administrative 850 891 (5)%
------- ------ ----
Total expenses 9,872 8,046 23%
------- ------ ----
Income before income taxes $ 633 $ 484 31%
======= ====== ====
</TABLE>
The increase in premiums earned during the first quarter of 1996 over the
1995 period primarily resulted from the continuing growth of
property/casualty operations due to ongoing focused marketing efforts and
expansion of its client base.
Increases in losses and loss adjustment expenses in 1996 as compared to
1995 reflect the Company's continued growth of the casualty business which is
reserved at a higher formula loss ratio than property lines, offset in part
by the 1995 withdrawal from the plate glass business which generally had a
lower loss ratio and higher acquisition expenses. The decrease in policy
acquisition expenses in 1996 as compared to 1995 results from a shift in the
mix of business and modification of reinsurance arrangements.
10
<PAGE>
HOLDING COMPANY
(000 omitted)
<TABLE>
<CAPTION>
Quarter ended
March 31
-------------
1996 1995 % CHANGE
---- ---- --------
<S> <C> <C> <C>
Revenues:
Investment income $ 19 $ 13 5%
Realized gains 735 180 308%
----- ------- ---
Total revenues 754 193 291%
----- ------- ---
Expenses:
General and administrative 223 847 (74)%
Interest 680 542 25%
----- ------- ----
Total expenses 903 1,389 (35)%
----- ------- -----
Loss before income taxes $(149) $(1,196) (88)%
====== ======== =====
</TABLE>
In November, 1995 the Company increased its bank loan by $10,000,000,
resulting in higher interest expenses in 1996 as compared to 1995. These
funds were contributed to the surplus of USF RE to support additional premium
growth.
ACCOUNTING POLICIES
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" issued in October 1995, will be adopted by the
Company for the year ending December 31, 1996. Adoption is not expected to
have a material effect on the financial statements of the Company.
INFLATION
The healthcare marketplace has long been subject to the effects of
increasing costs for provider services. Such inflation in the costs of
healthcare tends to generate higher claims payments, resulting in increases
in premiums for medical stop-loss coverage, and in greater revenues.
Management believes various cost control initiatives and the trend to
self-insured plans have stabilized the price spiral and have caused a decline
in the rate of increase in the cost of healthcare.
Inflation can negatively impact insurance and reinsurance operations by
causing higher claims settlements than may have originally been estimated,
while not necessarily allowing an immediate increase in premiums to a level
necessary to maintain profit margins. Historically, the Company has made no
explicit provisions for inflation, but trends are considered when setting
underwriting terms and claim reserves. Such reserves are subjected to a
continuing internal and external review process to assess their adequacy and
11
<PAGE>
are adjusted as deemed appropriate. Overall, economic trends also affect
interest rates, which in turn affect investment income and the market value
of the Company's investment portfolio.
LIQUIDITY AND CAPITAL RESOURCES
The Company utilizes cash from operations and maturing investments to meet
its insurance obligations to policyholders and claimants, as well as to meet
operating costs. Primary sources of cash from operations include premium
collections, investment income and commissions and fees. The principal uses
of cash from operations are for premium payments to insurance companies,
payments of claims under USF RE's and USFIC's reinsurance and insurance
contracts, and operating expenses such as salaries, commissions, taxes and
general overhead. As discussed in Note 2 to the Condensed Consolidated
Financial Statements, the Company renegotiated its Credit Agreement effective
March 29, 1996. The Credit Agreement with the Company's lender contains
certain covenants, restrictions and dividend payment limitations with which
the Company was in compliance at March 31, 1996.
The Company anticipates that it will continue to generate sufficient cash
flow from operations to cover its short-term (1-18 months) and long-term (18
months to 3 years) liquidity needs. While the Company currently has no
immediate plans for significant capital outlays, from time to time it
contemplates acquisition opportunities that complement its business
operations.
The Company currently invests primarily in the highest grades of bonds,
equities, certificates of deposit and short-term instruments. At March 31,
1996, 99% of the fixed income portfolio was in securities rated A or better.
All such securities are carried at quoted market values at the latest balance
sheet date. The Company does not invest in real estate, derivatives or high
yield bonds.
LEGISLATIVE AND REGULATORY DEVELOPMENTS
Federal healthcare legislative proposals, which were extensively considered
but not adopted by the 103rd Congress (1993-1994), have been under
consideration by the current Congress. As with prior efforts, such proposals
concern government regulation and control of the financing and delivery of
healthcare, including the scope of the present preemptive provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") that affect
self-insured healthcare plans. Recently, the House of Representatives and the
Senate adopted separate healthcare insurance reform bills. A House and
Senate conference committee will attempt to reconcile the different
provisions of these bills, some of which concern self-insured plans,
including additional reporting requirements and greater market access for
groups of small employers. Legislative action on the reconciled bills is
expected in the near future.
12
<PAGE>
The National Association of Insurance Commissioners ("NAIC") adopted in
September 1995 a model act that would regulate medical stop-loss policies.
The principal feature of the model act is a recommendation that stop-loss
policies contain a minimum specific attachment point (the amount of risk an
employer retains for itself). In order to be effective in any state, the
NAIC model act would have to be adopted by legislative action in such state.
Management believes that few states will adopt the model act, but some may
adopt it with specific attachment point requirements lower than the level
recommended by the model act. Management also believes that if adopted by a
state, the model act will be challenged on the basis that it is preempted by
ERISA.
The Company cannot predict at this time the extent to which the federal or
state legislative or regulatory initiatives discussed above will be adopted,
or the extent of the impact they would have on the Company's business.
Management believes, however, that changes to the healthcare system which
ultimately may be adopted will continue to recognize employers'
self-insurance of healthcare benefits as a viable and cost effective method
of financing healthcare. Management further believes such changes will not
have a significant effect on its medical stop-loss business, and that its
medical segment products will remain a source of revenues to the Company.
Some of the statements included within Management's Discussion and Analysis
of Financial Condition and Results of Operations and in the Condensed
Consolidated Financial Statements and related Notes may be considered to be
forward looking statements (as that term is defined in the Private Securities
Litigation Reform Act of 1995), and which are subject to certain risks and
uncertainties. Among those factors which could cause the actual results to
differ materially from those suggested by such statements are the following:
catastrophe losses in the Company's insurance lines or a material aggregation
of losses; changes in federal or state law affecting an employer's ability to
self-insure; the availability of adequate retrocessional insurance coverage
at appropriate prices; stock and bond market volatility; the effects of
competitive market pressures within the stop-loss or property/casualty
marketplaces; the effect of changes required by generally accepted accounting
principles or statutory accounting principles; and other risks which are
described from time to time in the Company's filings with the Securities and
Exchange Commission.
PART II OTHER INFORMATION
Item 6. EXHIBITS and REPORTS ON FORM 8-K.
(a) The following is a list of exhibits required to be filed as part of this
Form 10-Q by Item 601 of Regulation S-K:
13
<PAGE>
3.1, 4.1 Restated Certificate of Incorporation, as amended, as presently in
effect. Filed as Exhibits 3.1 and 3.1.1 to the Company's Form S-1
Registration Statement declared effective by the Securities and
Exchange Commission on October 31, 1986 (the "Registration
Statement"), and incorporated herein by this reference; and as
Exhibit 3 to the Company's Current Report on Form 8-K dated May 24,
1990, and incorporated herein by this reference.
3.2, 4.2 Bylaws of US Facilities Corporation, as amended, as presently in
effect. Filed as Exhibit 4.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, and incorporated
herein by this reference.
4.3 Common Stock Certificate of US Facilities Corporation. Filed as
Exhibit 4.1 to the Company's Registration Statement, and
incorporated herein by this reference.
4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current
Report on Form 8-K dated May 24, 1990, and incorporated herein by
this reference.
4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the
Company's Current Report on Form 8-K dated January 16, 1992, and
incorporated herein by this reference.
4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 29, 1994, and
incorporated herein by this reference.
4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the
Company's Current Report on Form 8-K dated September 28, 1995,
and incorporated herein by this reference.
10.1* First Amendment to the Credit Agreement dated as of March 29, 1996,
between the US Facilities Corporation and Fleet National Bank
of Connecticut.
11* US Facilities Corporation and Subsidiaries Computation of Earnings
Per Share.
* Describes the exhibits filed with this Quarterly Report on Form 10-Q.
14
<PAGE>
15* Independent Auditors' letter regarding unaudited interim financial
information.
27* Financial Data Schedules
(b) No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1996.
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.
US FACILITIES CORPORATION
Date: May 13, 1996 By: /S/DAVID L. CARGILE
-------------------------------
DAVID L. CARGILE
Chairman of the Board, President
and Chief Executive Officer
Date: May 13, 1996 By: /S/MARK BURKE
-------------------------------
MARK BURKE
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
* Describes the exhibits filed with this Quarterly Report on Form 10-Q.
15
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT
TO THE
CREDIT AGREEMENT
Dated as of March 29, 1996
This FIRST AMENDMENT dated as of March 29, 1996 (this "First Amendment")
is between US FACILITIES CORPORATION, a Delaware corporation (the
"Borrower"), and FLEET NATIONAL BANK OF CONNECTICUT, a national banking
association, formerly known as Shawmut Bank Connecticut, N.A. (the "Bank").
PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit
Agreement dated as of December 20, 1994 (the "Credit Agreement"). The
Borrower and the Bank wish to amend the Credit Agreement, to, among other
things, extend the Revolving Loan Termination Date and defer the date of the
commencement of the Mandatory Quarterly Commitment Reduction.
NOW, THEREFORE, the Borrower and the Bank agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT. Effective as of the
effective date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, the Credit Agreement is hereby
amended as follows:
(a) SECTION 1.1 (DEFINITIONS) of the Credit Agreement is amended by
substituting for subparagraph (c) of the defined term "Applicable Margin" the
following:
"(c) with respect to Eurodollar Rate Loans, the rate per annum for each
rating level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period 1.75%
Level II Period 1.50%
(b) SECTION 1.1 (DEFINITIONS) of the Credit Agreement is amended by
substituting for the defined term "Revolving Loan Termination Date" the
following:
<PAGE>
- 2 -
"REVOLVING LOAN TERMINATION DATE" means December 31, 2002. If such
date is not a Business Day, the Revolving Loan Termination Date shall be
the next preceding Business Day.
(c) SUBSECTION (B) OF SECTION 2.5 (MANDATORY QUARTERLY REDUCTION OF
COMMITMENT) of the Credit Agreement is replaced with the following:
"(b) Commencing on March 31, 1997 and continuing on each succeeding
June 30, September 30, December 31 and March 31 thereafter until
the Revolving Loan Termination Date, the Commitment of the Bank to
make Revolving Loans A shall be reduced automatically by the amounts
set forth in the following table:
<TABLE>
<CAPTION>
Mandatory Quarterly
Year Commitment/Principal Reduction
---- ------------------------------
<S> <C>
January 1, 1997 - December 31, 1997 $625,000
January 1, 1998 - December 31, 1998 $1,325,000
January 1, 1999 - Revolving Loan Termination Date $1,700,000
</TABLE>
After the Commitment to make Revolving Loans A has been reduced to zero,
the above reduction amounts shall be applied to pay the outstanding principal
balance of the Revolving Loans B."
(d) SECTION 7.10 MINIMUM STATUTORY SURPLUS of the Credit Agreement is
replaced with the following:
"Section 7.10. MINIMUM STATUTORY SURPLUS. As of the end of any fiscal
quarter, permit Statutory Surplus of USF RE to be less than an amount equal
to the sum of (a) $80,000,000 plus (b) 75% of any positive Statutory Net
Income, after dividends to the Borrower, for each fiscal quarter following
the fiscal quarter ending December 31, 1995, plus (c) any contributions to
surplus made by the Borrower to USF RE, from Revolving Loans or otherwise,
during each fiscal quarter following the fiscal quarter ending December 31,
1995."
(e) SECTION 7.11 MINIMUM CONSOLIDATED GAAP NET WORTH of the Credit
Agreement is replaced with the following:
<PAGE>
- 3 -
"Section 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH. As of the end of any
fiscal quarter, permit Consolidated GAAP Net Worth of the Borrower and its
Subsidiaries to be less than an amount equal to the sum of (a) $75,000,000,
plus (b) 50% of cumulative positive net income (as determined in accordance
with GAAP) for each fiscal quarter following the fiscal quarter ending
December 31, 1995, plus (c) the amount of paid-in capital resulting from any
issuance by the Borrower of its capital stock after December 20, 1994."
(f) SECTION 7.10 MINIMUM STATUTORY SURPLUS of Attachment 3 to Exhibit C of
the Credit Agreement is replaced with the following:
"Section 7.10. MINIMUM STATUTORY SURPLUS
1. Statutory Surplus of USF RE as of the fiscal quarter
ending ____________, 199_ = ________________
2. Positive Statutory Net Income for each fiscal quarter
following the fiscal quarter ended December 31, 1995 was :
[Include data for each quarter, as applicable]
2a. The sum of positive Statutory Net Income for each of
the quarters set forth in Line 2 above = _______________
2b. 75% of line 2a = _______________
3. Contributions to surplus made by Borrower to USF RE
during each fiscal quarter following the fiscal quarter
ended December 31, 1995 were:
[Include data for each quarter, as applicable]
3a. The sum of the contributions for each of the quarters
set forth in line 3 above = _______________
4. The sum of $80,000,000 and line 2b and line 3a = _______________
5. Line 1 is not less than line 4."
<PAGE>
-4-
(g) SECTION 7.11 MINIMUM CONSOLIDATED GAAP NET WORTH of Attachment 3 to
Exhibit C of the Credit Agreement is replaced with the following:
"Section 7.11. MINIMUM CONSOLIDATED GAAP NET WORTH
1. Consolidated GAAP Net Worth as of the fiscal quarter ending
______________, 199__. = ______
2. Consolidated positive net income (as determined in accordance with
GAAP) for each fiscal quarter following the fiscal quarter ended
December 31, 1995 was:
[INCLUDE DATA FOR EACH QUARTER, AS APPLICABLE]
2a. The sum of the positive net income for each of the quarters
set forth in Line 2 above = ______
2b. 50% of line 2a = ______
3. Paid-in capital resulting from any issuance by the Borrower
of its capital stock = ______
4. The sum of $75,000,0000 and line 2b and line 3 = ______
5. Line 1 is not less than line 4."
Section 2. CONDITIONS OF EFFECTIVENESS. This First Amendment shall
become effective when, and only when, the Bank shall have received a
counterpart of this First Amendment executed by the Borrower and shall have
additionally received, in form and substance satisfactory to the Bank:
(a) A certificate of a Senior Officer of the Borrower stating that:
(i) the representations and warranties contained in Article 5 of
the Credit Agreement are correct on and as of the date of such
certificate as though made on and as of such date (or, if such
representation or warranty is expressly stated to have been made as
of a specific date, as of such specific date);
(ii) no Event of Default or Default has occurred and is continuing
or would result from the signing of this First Amendment or the
transactions contemplated thereby; and
(iii) there has been no material adverse change in the financial
condition, operations, Properties, business or business prospects of
the Borrower and its Subsidiaries, if any, since the date of the last
Borrowing under this Agreement.
<PAGE>
-5-
(b) A certificate of the Secretary or Assistant Secretary of the
Borrower as to the following:
(i) specimen signatures and incumbency of officers signing this
First Amendment and all other documents, certificates and instruments
delivered in connection herewith and therewith (collectively, the
"Amendment Documents"); and
(ii) that attached thereto is a true, complete and correct copy of
the resolutions of the Board of Directors (or Executive Committee
thereof) of the Borrower authorizing the transactions contemplated
by the Amendment Documents, certified by the Secretary of the
Borrower (which certificate shall state that such resolutions are
in full force and effect on the date of the certificate).
(c) All information and documents relating to the Borrower, as the Bank
may reasonably request, all in form and substance satisfactory to the Bank
and its special counsel.
(d) Payment to the Bank of the $12,500 amendment fee.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower
represents as follows:
(a) The execution, delivery and performance by the Borrower of this
First Amendment have been duly authorized by all necessary corporate action
and do not and will not (i) require any consent or approval of its
shareholders; (ii) violate any provisions of its articles of incorporation or
by-laws; (iii) violate any provision of, or require any filing, registration,
consent or approval under, any law, rule, regulation (including without
limitation, Regulation U and X), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to and
binding upon the Borrower or any Subsidiary; (iv) result in a breach of or
constitute a default or require any consent under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to
which the Borrower or any Subsidiary is a party or by which it or its
Properties may be bound; or (v) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the Properties now
owned or hereafter acquired by the Borrower.
(b) No authorization, consent, approval, order, license or permit from,
or filing, registration or qualification with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, or any
other Person, including without limitation, the California or Massachusetts
Insurance Commissioner, is required to authorize, or is required in
connection with the execution, delivery and performance by the Borrower of,
or the legality, validity, binding effect or enforceability of, this First
Amendment.
<PAGE>
-6-
(c) This First Amendment constitutes the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance
with its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and by general principles of equity.
(d) No actions, suits or proceedings or investigations (other than
routine examinations performed by insurance regulatory authorities) are
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary, or any Property of any of them before any
court, governmental agency or arbitrator, which if determined adversely to
the Borrower or any Subsidiary would in any one case or in the aggregate,
materially adversely affect the financial condition, operations, Properties,
business or, to the knowledge of the Borrower, prospects of the Borrower and
its Subsidiaries taken as a whole or the ability of the Borrower to perform
is obligations under the Credit Agreement, as amended by this First Amendment.
(e) No information, exhibit or report furnished in writing by or on
behalf of the Borrower or any officer or director of the Borrower to the Bank
in connection with the negotiation of, or pursuant to the terms of, this
First Amendment contained when made any material misstatement of fact or
omitted to state a material fact necessary to make the statements contained
therein not misleading.
Section 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT
(a) Upon the effectiveness of this First Amendment, on and after the
date hereof, each reference in the Credit Agreement to "this Credit
Agreement", "hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Credit Agreement as amended thereby.
(b) Except as specifically amended above, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank under the Credit Agreement, nor constitute
a waiver of any provision of the Credit Agreement.
Section 5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand all costs and expenses of the Bank in connection with the preparation,
execution and delivery of this First Amendment and the other instruments and
documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Bank with
respect thereto and with respect to advising the Bank as to its rights and
responsibilities hereunder and thereunder. In addition, the Borrower shall
pay any and all stamp and other taxes
<PAGE>
-7-
payable or determined to be payable in connection with the execution and
delivery of this First Amendment and the other instruments and documents to
be delivered hereunder, and agrees to save the Bank harmless from and against
any and all liabilities with respect to or resulting from any delay in paying
or omission to pay such taxes.
Section 6. EXECUTION IN COUNTERPARTS. This First Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
Section 7. GOVERNING LAW. This First Amendment shall be governed by,
and construed in accordance with, the laws of the State of Connecticut.
Section 8. DEFINED TERMS. Capitalized terms used herein which are not
expressly defined herein shall have the meanings ascribed to them in the
Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
Accepted and agreed to as of the date first above written.
US FACILITIES CORPORATION
By: /s/ Mark Burke
--------------------------------
Name:
Title:
FLEET NATIONAL BANK OF CONNECTICUT
By: /s/ Robert B. Meditz
--------------------------------
Name: Robert B. Meditz
Title: Assistant Vice President
<PAGE>
EXHIBIT 11
US FACILITIES CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
The computation of per share income is based upon the weighted average
number of common and common equivalent shares outstanding during each quarter
ended March 31, as follows:
(000 OMITTED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Net Income $3,808 $2,922
====== ======
Weighted average shares outstanding during
the period 5,821 5,556
Common stock equivalent shares 158 33
------ ------
Common and common stock equivalent shares
outstanding for purposes of caluculating
income per share 5,979 5,589
Incremental shares to reflect full dilution 2 40
------ ------
Total shares for purpose of calculating fully
diluted income per share 5,981 5,629
====== ======
Primary net income per share $ 0.64 $ 0.52
====== ======
Fully diluted net income per share $ 0.64 $ 0.52
====== ======
</TABLE>
<PAGE>
EXHIBIT 15
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
US Facilities Corporation:
We have reviewed the condensed consolidated balance sheet of US Facilities
Corporation and subsidiaries as of March 31, 1996, and the related condensed
consolidated income statements, statements of stockholders' equity and cash
flows for the three-month periods ended March 31, 1996 and 1995. These
condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of US Facilities Corporation and
subsidiaries as of December 31, 1995, and the related consolidated income
statements, statements of stockholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated February 6, 1996,
we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ KPMG PEAT MARWICK LLP
Los Angeles, California
April 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 174,418
<CASH> 30,942
<RECOVER-REINSURE> 19,308
<DEFERRED-ACQUISITION> 2,628
<TOTAL-ASSETS> 252,957
<POLICY-LOSSES> 82,270
<UNEARNED-PREMIUMS> 18,572
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 35,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 252,957
29,152
<INVESTMENT-INCOME> 2,442
<INVESTMENT-GAINS> 735
<OTHER-INCOME> 6,589
<BENEFITS> 20,842
<UNDERWRITING-AMORTIZATION> 8,874
<UNDERWRITING-OTHER> 3,545
<INCOME-PRETAX> 4,977
<INCOME-TAX> 1,169
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,808
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 00
</TABLE>
