-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MjIk96DRSEAjy1BMY0bZ8UClcCVNUjH+YsT/9rxvSlOeOSgAO7z1qP0I3IFy+qck 3VT69F/xijaMK3PELxtb/A== 0000892569-97-001258.txt : 19970509 0000892569-97-001258.hdr.sgml : 19970509 ACCESSION NUMBER: 0000892569-97-001258 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY NATIONAL FINANCIAL INC /DE/ CENTRAL INDEX KEY: 0000809398 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 860498599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09396 FILM NUMBER: 97597687 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148529770 MAIL ADDRESS: STREET 2: 17911 VON KARMAN AVE STE 500 CITY: IRVINE STATE: CA ZIP: 92714 10-Q 1 FORM 10-Q 1 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 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1997 Commission File Number 1-9396 FIDELITY NATIONAL FINANCIAL,INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 86-0498599 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 17911 Von Karman Avenue, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 622-5000 - -------------------------------------------------------------------------------- (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 ( ) Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. $.0001 par value Common Stock 13,921,556 shares as of May 5, 1997 Exhibit Index appears on page 10 of 11 sequentially numbered pages. 1 2 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 1997 TABLE OF CONTENTS Part I: FINANCIAL INFORMATION Page Number ----------- Item 1. Condensed Consolidated Financial Statements A. Condensed Consolidated Balance Sheets as of 3 March 31, 1997 and December 31, 1996 B. Condensed Consolidated Statements of 4 Operations for the three-month periods ended March 31, 1997 and 1996 C. Condensed Consolidated Statements of Cash 5 Flows for the three-month periods ended March 31, 1997 and 1996 D. Notes to Condensed Consolidated Financial 7 Statements Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations Part II: OTHER INFORMATION Items 1.-5. of Part II have been omitted because they are not applicable with respect to the current reporting period. Item 6. Exhibits and Reports on Form 8-K 10 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. FIDELITY NATIONAL FINANCIAL, INC. (Registrant) By: /s/ Carl A. Strunk ---------------------------- Carl A. Strunk Executive Vice President, Chief Financial Officer and Date: May 5, 1997 Treasurer 2 3 Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
March 31, December 31, 1997 1996 ----------- ------------ (Unaudited) ASSETS Investments: Fixed maturities available for sale, at fair value $159,800 $166,329 Equity securities, at fair value 48,695 43,578 Other long-term investments, at cost, which approximates fair value 5,650 5,542 Short-term investments, at cost, which approximates fair value 2,801 873 Investments in real estate and partnerships, net 7,081 11,352 -------- -------- Total investments 224,027 227,674 Cash and cash equivalents 49,711 63,971 Trade receivables, net 52,915 54,355 Notes receivable, net 11,043 11,317 Prepaid expenses and other assets 59,917 55,072 Title plants 51,099 50,701 Property and equipment, net 42,253 38,617 Income taxes receivable 5,590 7,589 -------- -------- $496,555 $509,296 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 45,100 $ 53,987 Notes payable 147,059 148,922 Reserve for claim losses 188,456 187,245 Deferred income taxes 5,436 7,604 -------- -------- 386,051 397,758 Minority interest 1,224 1,287 Stockholders' equity: Preferred stock, $.0001 par value; authorized, 3,000,000 shares; issued and outstanding, none -- -- Common stock, $.0001 par value; authorized, 50,000,000 shares in 1997 and 1996; issued, 19,413,694 in 1997 and 19,412,694 in 1996 2 2 Additional paid-in capital 61,271 61,271 Retained earnings 93,058 91,019 -------- -------- 154,331 152,292 Net unrealized gains on investments 9,324 12,334 Less treasury stock, 5,492,138 shares in 1997 and 1996, at cost 54,375 54,375 -------- -------- 109,280 110,251 -------- -------- $496,555 $509,296 ======== ========
See Notes to Condensed Consolidated Financial Statements. 3 4 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Three months ended March 31, -------------------------- 1997 1996 ---------- --------- (Unaudited) REVENUE: Title insurance premiums $ 110,914 $ 89,823 Escrow fees 16,550 16,018 Other fees and revenue 19,633 16,443 Interest and investment income, including realized gains (losses) 6,095 4,114 --------- --------- 153,192 126,398 --------- --------- EXPENSES: Personnel costs 54,988 50,683 Other operating expenses 39,438 33,328 Agent commissions 44,061 25,647 Provision for claim losses 7,066 6,241 Interest expense 2,517 2,199 --------- --------- 148,070 118,098 --------- --------- Earnings before income taxes 5,122 8,300 Income tax expense 2,100 3,155 --------- --------- Net earnings $ 3,022 $ 5,145 ========= ========= Primary earnings per share $ .21 $ .36 ========= ========= Fully diluted earnings per share $ .20 $ .32 ========= ========= Primary weighted average shares outstanding 14,485 14,110 ========= ========= Fully diluted weighted average shares outstanding 18,842 18,467 ========= ========= Cash dividends per share $ .07 $ .06 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 5 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, --------------------------- 1997 1996 ---------- ---------- (Unaudited) Cash flows from operating activities: Net earnings $ 3,022 $ 5,145 Reconciliation of net earnings to net cash provided by (used in) operating activities: Depreciation and amortization 3,304 2,802 Net increase (decrease) in reserve for claim losses 1,211 (644) Net increase (decrease) in provision for possible losses on real estate and notes receivable 150 (25) Gain on sales of assets (1,567) (1,162) Equity in (gains) losses of unconsolidated partnerships (63) 33 Amortization of LYONs original issue discount 1,374 1,273 Change in assets and liabilities, net of effects from acquisition of subsidiaries: Net (increase) decrease in trade receivables 1,440 (4,507) Net increase in prepaid expenses and other assets (5,542) (4,683) Net decrease in accounts payable and accrued liabilities (8,888) (1,239) Net decrease in income taxes receivable 1,999 3,066 -------- -------- Net cash provided by (used in) operating activities (3,560) 59 -------- -------- Cash flows from investing activities: Proceeds from sales of property and equipment 258 708 Proceeds from sale of real estate 4,320 -- Proceeds from sales and maturities of investments 67,584 74,768 Collections of notes receivable 1,429 4,317 Additions to title plants (398) -- Additions to property and equipment (6,742) (1,250) Additions to investments (71,843) (76,657) Additions to notes receivable (1,152) (1,885) Acquisitions of businesses, net of cash acquired -- (498) -------- -------- Net cash used in investing activities (6,544) (497) -------- --------
See Notes to Condensed Consolidated Financial Statements. (continued) 5 6 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, --------------------------- 1997 1996 --------- --------- (Unaudited) Cash flows from financing activities: Borrowings $ -- $ 1,494 Debt service payments (3,174) (2,508) Dividends paid (982) (860) --------- -------- Net cash used in financing activities (4,156) (1,874) -------- -------- Net decrease in cash and cash equivalents (14,260) (2,312) Cash and cash equivalents at beginning of period 63,971 47,431 -------- -------- Cash and cash equivalents at end of period $ 49,711 $ 45,119 ======== ======== Supplemental cash flow information: Income taxes paid $ 103 $ 224 ======== ======== Interest paid $ 1,185 $ 902 ======== ======== Noncash investing and financing activities: Dividends declared and unpaid $ 983 $ 796 ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 7 Notes to Condensed Consolidated Financial Statements Note A - Basis of Financial Statements The financial information included in this report includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, the "Company") and has been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. This report should be read in conjunction with the Company's 1996 Annual Report on Form 10-K for the year ended December 31, 1996. Note B - Dividends On March 25, 1997, the Company's Board of Directors declared a cash dividend of $.07 per share, payable on May 2, 1997, to stockholders of record on April 11, 1997. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue for the first quarter of 1997 increased $26.8 million, or 21.2%, to $153.2 million from $126.4 million in the first quarter of 1996. The increase can be attributed to an increase in agency title premiums resulting from the Company's acquisition of Nations Title Inc., which closed April 1, 1996; an increase in other fees and income and an increase in investment income. These increases were offset by a slight decrease in title premiums generated by direct operations. The decrease in title premiums from direct operations is primarily the result of real estate market seasonality and less favorable mortgage interest rates in the 1997 period compared to the 1996 period. The following table presents information regarding the components of title premiums (dollars in thousands):
March 31, ---------------------------------------------- 1997 % of Total 1996 % of Total -------- ---------- -------- ----------- Title premiums from direct operations $ 54,575 49.2% $56,295 62.7% Title premiums from agency operations 56,339 50.8% 33,528 37.3% -------- ----- ------- ----- Total title premiums $110,914 100.0% $89,823 100.0% ======== ===== ======= =====
The acquisition of Nations Title provided a balance to the Company's premium revenue between direct and agency, as well as a hedge against future market downturns. Traditionally, the Company had primarily focused on direct operations which generate higher margins than agency operations. The increase in other fees and revenue is related to increased contributions made by the Company's title-related services subsidiaries, such as real estate information and technology services, foreclosure publishing and posting, recording services and exchange intermediary services. Interest and investment income increased 48.8% to $6.1 million in the first quarter of 1997 from $4.1 million in the first quarter of 1996. The increase in interest and investment income earned during the 1997 period is primarily due to an increase in invested assets acquired in connection with the Nations Title acquisition and an improvement in net realized gains compared to the same period in 1996. Net realized gains were $1.6 million in the first quarter of 1997 as compared to net realized gains of $1.2 million in the corresponding 1996 period. The Company's operating expenses consist primarily of personnel costs and other operating expenses which are incurred as title insurance orders are received and processed. Title insurance premiums and escrow fees are recognized as income at the time the underlying real estate transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. 7 8 Personnel costs include both base salaries and commissions (direct operations) paid to employees and are the most significant operating expense incurred by the Company. These costs generally fluctuate with the level of direct orders opened and closed and with the mix of revenue between direct and agency operations. Personnel costs, as a percentage of total revenue, have decreased to 35.9% for the three-month period ended March 31, 1997 from 40.1% for the corresponding period in 1996. The fluctuation in personnel costs as a percentage of total revenue can be attributed to the varying market conditions in the title insurance industry and the mix of agency versus direct business. The Company has taken significant measures to maintain personnel costs at levels consistent with revenues. The Company continues to monitor the prevailing market conditions and will attempt to adjust personnel costs in accordance with title order activity. Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), escrow losses, courier services, computer services, professional services, general insurance, trade and notes receivable allowances and depreciation. Other operating expenses decreased as a percentage of total revenue to 25.7% in the first quarter of 1997 from 26.4% in the first quarter of 1996. The Company previously implemented and remains committed to aggressive cost control programs which will help maintain operating expense levels consistent with the levels of title-related revenue production; however, certain fixed costs are incurred regardless of revenue levels, resulting in period over period fluctuations. The period over period fluctuations in personnel costs and other operating expenses are primarily the result of the fluctuations in total revenue, as well as the changes in the direct operation and agency operation title premium mix. The addition of Nations Title Inc. title premiums, which are primarily agency related, has provided a balance between direct operation and agency revenue. In previous periods the majority of title premiums and total revenue were generated by direct operations, which resulted in higher personnel costs and other operating expenses. Agent commissions represent the portion of policy premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions were 78.2% of agent policy premiums in the first quarter of 1997 compared to 76.5% of agent policy premiums in the first quarter of 1996. Agent commissions and the resulting percentage of agency premiums retained by the Company varies according to regional differences in real estate closing practices and state regulations. The 1997 increase in agent commissions as a percentage of agency premiums over 1996 resulted in a decrease in the percentage of agency premiums retained by the Company. This decrease in retained agency premium can be attributed to the fact that the average commissions paid to the former Nations Title Inc. agents exceed those paid to agents existing prior to the acquisition. The combination of higher agency commission rates and the significant agency revenue generated by the Nations Title Inc. acquisition have resulted in higher overall commissions in 1997. The provision for claim losses includes an estimate of anticipated title claims and major claims. The estimate of anticipated title claims is accrued as a percentage of title premium revenue based on the Company's historical loss experience and other relevant factors. The Company monitors its claims experience on a continual basis and adjusts the provision for claim losses accordingly. Based on recently completed loss development studies, the Company believes that as a result of its underwriting and claims handling practices it will maintain the trend of favorable claim loss experience. The Company has provided for claim losses at 7.0% of title insurance premiums prior to the impact of major claim expense, recoupments, and premium rates and loss experience in the state of Texas. (Premiums are generally higher in Texas for similar coverage than in other states, while loss experience is comparable. As a result, losses as a percentage of premiums are lower.) Application of these factors resulted in a net provision for claim losses as a percentage of premiums of 6.4% and 6.9% for the three-month periods ended March 31, 1997 and 1996, respectively. Interest expense is incurred by the Company in financing its capital asset purchases and certain acquisitions. Interest expense consists of interest related to the Company's outstanding debt and the amortization of original issue discount and debt issuance costs related to the Liquid Yield Option Notes ("LYONs"). Interest expense of "non-LYONs" debt totaled $1.1 million and $900,000 for the three-month periods ended March 31, 1997 and 1996, respectively. The LYONs related component of interest expense amounted to $1.4 million for the first quarter of 1997 and $1.3 million for the first quarter of 1996. The increase in interest expense is primarily related to the increase in outstanding notes payable at March 31, 1997 compared to March 31, 1996. Income tax expense for the three-month periods ended March 31, 1997 and 1996, as a percentage of earnings before income taxes was 41.0% and 38.0%, respectively. The fluctuations in income tax expense as a percentage of earnings before income taxes are attributable to the effect of state income taxes on the Company's wholly-owned underwritten title companies ("UTCs") and the characteristics of net income, i.e., operating income versus investment income. 8 9 Liquidity and Capital Resources The Company's insurance subsidiaries and wholly-owned underwritten title companies collect premiums and pay claims and operating expenses. Fluctuations in operating cash flows are primarily the result of increases or decreases in revenue. The insurance subsidiaries also have cash flow sources derived from investment income, repayments of principal and proceeds from sales and maturities of investments and dividends and distributions from subsidiaries. Positive cash flow from the insurance subsidiaries is invested primarily in short-term investments, medium-term bonds and certain equity securities. Cash, cash equivalents and short-term investments held by the Company's insurance subsidiaries and UTCs provide liquidity for projected claims and operating expenses. The Company's cash requirements include debt service, operating expenses, taxes and dividends on its common stock. As a holding company, the Company receives cash from its subsidiaries as reimbursement for operating and other administrative expenses it incurs. The reimbursements are executed within the guidelines of various management agreements between the holding company and its subsidiaries. The Company believes that all anticipated cash requirements for current operations will be met from internally generated funds and short-term bank borrowings through existing credit facilities. One of the additional significant sources of the Company's funds is dividend distributions from its insurance subsidiaries and UTCs. The insurance subsidiaries and UTCs are restricted by state regulations in their ability to pay dividends and make distributions. Each state of domicile regulates the extent to which the Company's title underwriters and UTCs can pay dividends or make other distributions to the Company. The short- and long-term liquidity requirements of the Company and its subsidiaries are monitored regularly to match cash inflows with cash requirements. The Company and subsidiaries forecast their daily cash needs and periodically review their short- and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying these projections. 9 10 Part II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 Computation of Primary and Fully Diluted Earnings Per Share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: None 10 EX-11 2 COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS 1 EXHIBIT 11 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (In thousands, except per share amounts)
Three months ended March 31, -------------------------- 1997 1996 ---------- --------- (Unaudited) Primary net earnings $ 3,022 $ 5,145 Add: Amortization of original issue discount and debt issuance costs, net of income tax effect, applicable to LYONs 808 840 -------- -------- Fully diluted earnings $ 3,830 $ 5,985 ======== ======== Weighted average shares outstanding during the period 13,921 13,500 Common stock equivalent shares - primary 564 610 -------- -------- Common and common stock equivalent shares for purpose of calculating primary earnings per share 14,485 14,110 Incremental shares to reflect full dilution 4,357 4,357 -------- -------- Total shares for purpose of calculating fully diluted earnings per share 18,842 18,467 ======== ======== Primary earnings per share $ .21 $ .36 ======== ======== Fully diluted earnings per share $ .20 $ .32 ======== ========
11 EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 159,800 0 0 48,695 0 7,081 224,027 49,711 0 0 496,555 188,456 0 0 0 147,059 0 0 2 109,278 0 110,914 4,528 1,567 36,183 7,066 0 141,004 5,122 2,100 3,022 0 0 0 3,022 .21 .20 0 0 0 0 0 0 0
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