-----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, Um70xtrsuCSHcqs6i1YmAg+9Rk3G/KTIDsV+ukQTNb9QQdijuWcgZki4V6kis4RN PD3im4soQmDcYGunDAWvOg== 0000892569-99-001349.txt : 19990514 0000892569-99-001349.hdr.sgml : 19990514 ACCESSION NUMBER: 0000892569-99-001349 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 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: SEC FILE NUMBER: 001-09396 FILM NUMBER: 99619134 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE 300 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9496225000 MAIL ADDRESS: STREET 1: MLISS JONES KANE STREET 2: 17911 VON KARMAN AVE STE 300 CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1999 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, 1999 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, Suite 300, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (949) 622-4333 - -------------------------------------------------------------------------------- (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 30,346,116 shares as of May 12, 1999 Exhibit Index appears on page 13 of 14 sequentially numbered pages. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 1999 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, 1999 and December 31, 1998 B. Condensed Consolidated Statements of Earnings 4 for the three-month periods ended March 31, 1999 and 1998 (Restated) C. Condensed Consolidated Statements of 5 Comprehensive Earnings for the three-month periods ended March 31, 1999 and 1998 (Restated) D. Condensed Consolidated Statements of Cash Flows 6 for the three-month periods ended March 31, 1999 and 1998 (Restated) E. Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk 11 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 13
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/ Alan L. Stinson ----------------------------------- Alan L. Stinson Executive Vice President, Financial Operations (Chief Accounting Officer) Date: May 12, 1999 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 and per share data)
March 31, December 31, 1999 1998 --------- ------------ (Unaudited) ASSETS Investments: Fixed maturities available for sale, at fair value ............................ $327,906 $330,068 Equity securities, at fair value .............................................. 45,352 50,191 Other long-term investments, at cost, which approximates fair value ........... 41,038 40,278 Short-term investments, at cost, which approximates fair value ................ 43,769 85,305 Investments in real estate and partnerships, net .............................. 3,801 4,673 -------- -------- Total investments ......................................................... 461,866 510,515 Cash and cash equivalents .......................................................... 59,037 51,309 Leases and lease securitization residual interest .................................. 115,614 93,507 Trade receivables, net ............................................................. 80,230 75,940 Notes receivable, net .............................................................. 16,272 10,761 Prepaid expenses and other assets .................................................. 109,340 111,471 Title plants ....................................................................... 59,302 58,932 Property and equipment, net ........................................................ 48,689 46,070 Deferred tax asset ................................................................. 15,104 10,965 -------- -------- $965,454 $969,470 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ...................................... $112,300 $123,357 Notes payable ................................................................. 150,198 214,624 Reserve for claim losses ...................................................... 232,082 224,534 Income taxes payable .......................................................... 9,704 8,683 -------- -------- 504,284 571,198 Minority interests ............................................................ 1,925 1,532 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 1999 and 1998; issued, 39,054,118 as of March 31, 1999 and 35,540,036 as of December 31, 1998 .......................................... 4 3 Additional paid-in capital .................................................... 244,676 173,888 Retained earnings ............................................................. 283,416 265,567 -------- -------- 528,096 439,458 Accumulated other comprehensive income ........................................ 6,044 11,657 Less treasury stock, 7,883,537 shares as of March 31, 1999 and 6,645,487 shares as of December 31, 1998, at cost ........................... 74,895 54,375 -------- -------- 459,245 396,740 -------- -------- $965,454 $969,470 ======== ========
See Notes to Condensed Consolidated Financial Statements. 3 4 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
Three months ended March 31, --------------------- 1999 1998 -------- -------- (Unaudited) (Restated) REVENUE: Title insurance premiums ............................................................... $241,874 $182,296 Escrow fees ............................................................................ 32,795 26,311 Other fees and revenue ................................................................. 63,664 46,585 Interest and investment income, including realized gains (losses) ...................... 5,941 7,021 -------- -------- 344,274 262,213 -------- -------- EXPENSES: Personnel costs ........................................................................ 108,545 84,511 Other operating expenses ............................................................... 77,166 56,415 Agent commissions ...................................................................... 106,992 76,024 Provision for claim losses ............................................................. 15,231 13,339 Interest expense ....................................................................... 2,836 3,125 -------- -------- 310,770 233,414 -------- -------- Earnings before income taxes ........................................................... 33,504 28,799 Income tax expense ..................................................................... 13,737 12,119 -------- -------- Net earnings ....................................................................... $ 19,767 $ 16,680 ======== ======== Basic net earnings ..................................................................... $ 19,767 $ 16,680 ======== ======== Basic earnings per share ............................................................... $ .64 $ .62 ======== ======== Weighted average shares outstanding, basic basis ....................................... 30,767 26,892 ======== ======== Diluted net earnings ................................................................... $ 20,030 $ 17,304 ======== ======== Diluted earnings per share ............................................................. $ .60 $ .53 ======== ======== Weighted average shares outstanding, diluted basis ..................................... 33,423 32,579 ======== ======== 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 COMPREHENSIVE EARNINGS (In thousands, except per share data)
Three months ended March 31, ---------------------- 1999 1998 -------- -------- (Unaudited) (Restated) Net earnings ................................................................................ $ 19,767 $ 16,680 Other comprehensive earnings (loss): Unrealized gains (losses) on investments, net (1) ...................................... (6,008) 1,663 Reclassification adjustments for gains (losses) included in net income (2) ............. 395 (1,157) -------- -------- Other comprehensive earnings (loss) ......................................................... (5,613) 506 -------- -------- Comprehensive earnings ...................................................................... $ 14,154 $ 17,186 ======== ========
(1) Net of income tax expense (benefit) of $(4,175) and $1,209 in 1999 and 1998, respectively. (2) Net of income tax expense (benefit) of $(274) and $842 in 1999 and 1998, respectively. See Notes to Condensed Consolidated Financial Statements. 5 6 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, ---------------------- 1999 1998 -------- -------- (Unaudited) (Restated) Cash flows from operating activities: Net earnings ........................................................................... $ 19,767 $ 16,680 Reconciliation of net earnings to net cash used in operating activities: Depreciation and amortization ...................................................... 5,588 4,631 Net increase in reserve for claim losses ........................................... 7,548 179 Net increase in provision for possible losses other than claims .................... 139 129 (Gain) loss on sales of assets ..................................................... 669 (1,999) Equity in (gains) losses of unconsolidated partnerships ............................ 393 (45) Amortization of LYONs original issue discount ...................................... 485 1,076 Change in assets and liabilities, net of effects from acquisition of subsidiaries: Net increase in leases and lease securitization residual interest .................. (22,107) (20,470) Net increase in trade receivables .................................................. (4,290) (10,404) Net increase in prepaid expenses and other assets .................................. (559) (2,015) Net decrease in accounts payable and accrued liabilities ........................... (11,476) (6,313) Net decrease in income taxes ....................................................... 816 6,710 -------- -------- Net cash used in operating activities ....................................................... (3,027) (11,841) -------- -------- Cash flows from investing activities: Proceeds from sale of real estate ...................................................... 946 -- Proceeds from sales and maturities of investments ...................................... 56,435 43,942 Collections of notes receivable ........................................................ 1,201 1,158 Additions to title plants .............................................................. (415) (96) Additions to property and equipment .................................................... (6,567) (3,735) Additions to investments ............................................................... (18,471) (48,584) Additions to notes receivable .......................................................... (7,174) (1,565) -------- -------- Net cash provided by (used in) investing activities ......................................... 25,955 (8,880) -------- --------
See Notes to Condensed Consolidated Financial Statements. (Continued) 6 7 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, ---------------------- 1999 1998 ------- -------- (Unaudited) (Restated) Cash flows from financing activities: Borrowings ............................................................................. $ 9,635 $ 6,992 Debt service payments .................................................................. (2,754) (3,861) Dividends paid ......................................................................... (2,064) (2,065) Purchase of treasury stock ............................................................. (20,520) -- Stock options exercised ................................................................ 503 1,840 -------- -------- Net cash provided by (used in) financing activities ......................................... (15,200) 2,906 -------- -------- Net increase (decrease) in cash and cash equivalents ........................................ 7,728 (17,815) Cash and cash equivalents at beginning of period ............................................ 51,309 72,887 -------- -------- Cash and cash equivalents at end of period .................................................. $ 59,037 $ 55,072 ======== ======== Supplemental cash flow information: Income taxes paid ...................................................................... $ 12,717 $ 5,850 ======== ======== Interest paid .......................................................................... $ 7,216 $ 2,156 ======== ======== Noncash investing and financing activities: Dividends declared and unpaid .......................................................... $ 2,123 $ 1,597 ======== ========
See Notes to Condensed Consolidated Financial Statements. 7 8 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 Annual Report on Form 10-K for the year ended December 31, 1998. Certain reclassifications have been made in the 1998 Condensed Consolidated Financial Statements to conform to classifications used in 1999. Note B - Redemption of Liquid Yield Option Notes Outstanding - ------------------------------------------------------------ On January 13, 1999, the Company announced that it was going to redeem, pursuant to the terms of the indenture, its outstanding Liquid Yield Option Notes ("LYONs") due 2009 for $581.25 per $1,000 maturity value on February 15, 1999. Additionally, the LYONs holders had the right to convert the outstanding LYONs to 28.077 shares of Company common stock per $1,000 maturity value of LYONS at any time. As of February 15, 1999, $123,681,000 maturity value of LYONs had converted to 3,473,000 shares of common stock, resulting in an addition of approximately $70 million to stockholders' equity while reducing outstanding notes payable by a like amount. The remaining $432,000 of maturity value was redeemed for cash of approximately $251,000. Note C - Dividends - ------------------ On March 17, 1999, the Company's Board of Directors declared a cash dividend of $.07 per share, payable on May 28, 1999, to stockholders of record on April 9, 1999. Note D - Stock Purchase Plan and Employee Stock Purchase Loan Plan - ------------------------------------------------------------------ On March 17, 1999, the Company's Board of Directors approved an increase to the number of shares of outstanding Company common stock authorized for purchase under the Company's previously announced purchase program. The new authorization will permit the Company to purchase up to 4.0 million shares. Through May 12, 1999, the Company has purchased 2,110,515 shares at an average purchase price of $16.01 per share totaling $33,790,000. Purchases may be made from time to time by the Company in the open market or in block purchases or in privately negotiated transactions depending on market conditions and other factors. Also on March 17, 1999, the Company's Board of Directors approved the adoption of the Fidelity National Financial, Inc. Employee Stock Purchase Loan Plan ("Loan Plan"). The purpose of the Loan Plan is to provide key employees with further incentive to maximize shareholder value. The Company intends to offer an aggregate of $7,750,000 in loans. Loan Plan funds must be used to make private or open market purchases of Company common stock through a broker-dealer designated by the Company. All loans will be full recourse and unsecured, and will have a five-year term. Interest will accrue on the loans at a rate of 5% per annum due at maturity. Loans may be prepaid any time without penalty. Through May 12, 1999, loans have been made in the amount of $6,474,000 to purchase 432,985 shares of Company common stock at an average purchase price of $14.95 per share. 8 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Factors That May Affect Operating Results - ----------------------------------------- The statements contained in this report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. The reader should consult the risk factors listed from time to time in the Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of 1933, as amended. Results of Operations - --------------------- Stability in mortgage interest rates, a thriving real estate market and continued strength in the overall economy resulted in an increase in total first quarter 1999 revenue of $82.1 million, or 31.3%, to $344.3 million compared to $262.2 million total revenue for the first quarter of 1998. The following table presents information regarding the components of title premiums:
Three Months Ended March 31, -------------------------------------------- 1999 % of Total 1998 % of Total -------- ---------- -------- ---------- (Dollars in thousands) Title premiums from direct operations $107,959 44.6% $ 87,927 48.2% Title premiums from agency operations 133,915 55.4% 94,369 51.8% -------- ----- -------- ----- Total title premiums $241,874 100.0% $182,296 100.0% ======== ===== ======== =====
Title orders and requests for title-related services have continued to react favorably to existing market conditions as reflected by an increase in total title premiums of $59.6 million, or 32.7%. The trend in the mix of business between direct and agency operations reflects the impact of the lag of approximately three to six months in agent remittances compared to the immediate recognition of title insurance premiums generated by direct operations and fluctuations in title premiums by region. Escrow fees have increased $6.5 million, or 24.6%, in the first quarter of 1999 to $32.8 million compared to $26.3 million in the comparable 1998 period. This growth is consistent with the trends indicated in the Company's direct operations and has been further enhanced by the continuing strength in our escrow operations and the Company's efforts to expand its escrow presence in Southern California. The increase in other fees and income reflects the continuing increase in the contribution made by the Company's real estate related ancillary service businesses, the revenue generated by Granite Financial, Inc., our equipment leasing subsidiary, and the increased revenue of Micro General Corporation, a majority-owned information technology and telecommunication services subsidiary. Other fees and revenue during the first quarter of 1999 totaled $63.7 million compared to $46.6 million in the first quarter of 1998, representing an increase of $17.1 million, or 36.7%. Interest and investment income decreased 15.4% to $5.9 million in the first quarter of 1999 from $7.0 million in the first quarter of 1998. The decrease in interest and investment income earned during the 1999 period is primarily due to an increase in invested assets offset by net realized losses in 1999 compared to net realized gains for the same period in 1998. Net realized losses were $669,000 in the first quarter of 1999 compared to net realized gains of $2.0 million in the corresponding 1998 period. The Company's operating expenses consist primarily of personnel costs, other operating expenses and agent commissions which are incurred as orders are received and processed. Title insurance premiums, escrow fees and other fees and revenue are generally recognized as income at the time the underlying transaction closes. Certain other fees and revenue are 9 10 recognized over the period the related services are provided. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. Personnel costs include both base salaries and commissions paid to employees and are the most significant operating expense incurred by the Company. These costs generally fluctuate with the level of orders opened and closed and with the mix of revenue. Personnel costs, as a percentage of total revenue, were essentially flat at 31.5% for the three-month period ended March 31, 1999 compared to 32.2% for the corresponding period in 1998. 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 activity. Personnel costs totaled $108.5 million and $84.5 million for the quarters ended March 31, 1999 and 1998, respectively. 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 remained comparable as a percentage of total revenue at 22.4% in the first quarter of 1999 and 21.5% in the first quarter of 1998. The Company previously implemented and remains committed to aggressive cost control programs which will help maintain operating expense levels consistent with the levels of revenue production; however, certain fixed costs are incurred regardless of revenue levels, resulting in period over period fluctuations. Other operating expenses totaled $77.2 million in the first quarter of 1999 compared to $56.4 million in the first quarter of 1998. Agent commissions represent the portion of policy premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions were 79.9% of agent policy premiums in the first quarter of 1999 compared to 80.6% of agent policy premiums in the first quarter of 1998. Agent commissions and the resulting percentage of agency premiums retained by the Company vary according to regional differences in real estate closing practices and state regulations. 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 Company loss development studies, the Company believes that as a result of its underwriting and claims handling practices, as well as the refinancing business of prior years, the Company will maintain the trend of favorable claim loss experience. Based on this information, in the quarters ended March 31, 1999 and 1998, the Company recorded a provision for claim losses of 6.5% and 7.0% of title insurance premiums, respectively, prior to major claim expense, net of recoupments and prior to the impact of premium rates and Company loss experience in the state of Texas. Premiums in Texas are all-inclusive and include a closing fee in addition to a risk-related premium, which differs from similar coverage in other states, while loss experience is comparable. As a result, the provision for claim losses in Texas is much lower than in states that do not have all-inclusive premiums. These factors resulted in a net provision for claim losses of 6.3% and 7.3% in the first quarter of 1999 and 1998, respectively. Interest expense is incurred by the Company in financing its capital asset purchases, lease originations 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. Interest expense of "non-LYONs" debt totaled $2.4 million and $2.0 million for the three-month periods ended March 31, 1999 and 1998, respectively. The LYONs related component of interest expense amounted to $445,000 for the first quarter of 1999 and $1.1 million for the first quarter of 1998. The decrease in LYONs related interest is attributable to the redemption of the LYONs in February 1999 and previous conversions. Income tax expense for the three-month periods ended March 31, 1999 and 1998, as a percentage of earnings before income taxes was 41.0% and 42.1%, respectively. The fluctuation in income tax expense as a percentage of earnings before income taxes is attributable to the Company's estimate of ultimate income tax liability and the characteristics of net income, i.e., operating income versus investment income. Liquidity and Capital Resources - ------------------------------- The Company's cash requirements include debt service, operating expenses, lease fundings, lease securitizations, taxes and dividends on its common stock. The Company believes that all anticipated cash requirements for current operations will be met from internally generated funds, through cash received from subsidiaries, cash generated by investment securities and bank borrowings through existing credit facilities. 10 11 Two of the significant sources of the Company's funds are dividends and distributions from its subsidiaries. As a holding company, the Company receives cash from its subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses it incurs. The reimbursements are executed within the guidelines of various management agreements among the Company and its subsidiaries. Fluctuations in operating cash flows are primarily the result of increases or decreases in revenue. The Company's insurance subsidiaries and underwritten title companies ("UTCs") collect premiums and pay claims and operating expenses. 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 from subsidiaries. Positive cash flow from the insurance subsidiaries is invested primarily in short-term investments and medium-term bonds. Short-term investments held by the Company's insurance subsidiaries provide liquidity for projected claims and operating expenses. The insurance subsidiaries 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 can pay dividends or make other distributions to the Company. The UTCs are also regulated by insurance regulatory or banking authorities. The Company's ancillary service and leasing subsidiaries collect revenue and pay operating expenses; however, they are not regulated by insurance or banking regulatory authorities. Positive cash flow from the UTCs and ancillary service subsidiaries is invested primarily in cash and cash equivalents. The short- and long-term liquidity requirements of the Company, insurance subsidiaries, UTCs, ancillary service and leasing subsidiaries are monitored regularly to match cash inflows with cash requirements. The Company, insurance subsidiaries, UTCs and ancillary service 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. Item 3. Quantitative and Qualitative Disclosure About Market Risk The Company does not believe there have been any material changes in the market risks since December 31, 1998, which would impact the fair value of certain assets and liabilities included in the Condensed Consolidated Balance Sheets. Year 2000 Issues Information technology is an integral part of the Company's business. The Company also recognizes the critical nature of and the technological challenges associated with the Year 2000 issue. The Year 2000 issue ("Y2K") results from computer programs and computer hardware that utilize only two digits to identify a year in the date field, rather than four digits. If such programs or hardware are not modified or upgraded information systems could fail, lock up, or in general fail to perform according to normal expectations. The Company has implemented a program and committed both personnel and other resources to determine the extent of potential Y2K issues. Included within the scope of this program are systems used in title plants, title policy processing, escrow production, claims processing, real estate related services, financial management, human resources, payroll and infrastructure. In addition to a review of internal systems, the Company has initiated formal communications with third parties with which it does business in order to determine whether or not they are Y2K compliant and the extent to which the Company may be vulnerable to third parties' failure to become Y2K compliant. The Company is in the process of identifying Y2K compliant issues in its systems, equipment and processes. The Company is making changes to such systems, updating or replacing such equipment, and modifying such processes to make them Y2K compliant. The Company has developed a four phase program to become Y2K compliant. Phase I is, "Plan Preparation and Identification of the Problem." This is an ongoing phase that will continue beyond the year 2000 itself. Phase II is, "Plan Execution and Remediation." Phase III is, "Testing." Phase IV is, "Maintaining Y2K Compliance." The Company anticipates that its systems processes will be substantially Y2K compliant by July 1999. The status of the Y2K compliance program is monitored by senior management of the Company and by the Audit Committee of the Company's Board of Directors. The costs of the Y2K related efforts incurred to date have not been material, and the estimate of remaining costs to be incurred is not considered to be material. Due to the complexities of estimating the cost of modifying applications to become Y2K compliant and the difficulties in assessing third parties', including various local governments upon which the Company relies upon to provide title-related data, ability to become Y2K compliant, estimates may be subject to change. Management of the Company believes that its electronic data processing and information systems will be Y2K compliant; however, there can be no assurance that all of the Company's systems will be Y2K compliant, that the costs to be Y2K compliant will not exceed management's current expectations, or that the failure of such systems to be Y2K compliant will 11 12 not have a material adverse effect on the Company's business. The Company believes that functions currently performed with the assistance of electronic data processing equipment could be performed manually or outsourced if certain systems were determined not to be Y2K compliant on or after January 1, 2000. The Company has not yet completed a contingency plan in the event that any systems are not Y2K compliant, but will do so once the Phase III process of its compliance program is begun. We expect this contingency plan to be complete by July 1999. This entire section, "Year 2000 Issues", is hereby designated a "Year 2000 Readiness Disclosure", as defined in the Year 2000 Information and Readiness Disclosure Act. 12 13 Part II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 Computation of Primary and Diluted Earnings Per Share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: Current Report on Form 8-K, dated March 19, 1999, related to March 17, 1999 election of Peter T. Sadowski and Brent B. Bickett as Executive Vice President and General Counsel of Fidelity National Financial, Inc. and Senior Vice President--Financial Operations of Fidelity National Financial, Inc., respectively. 13 EX-11 2 COMPUTATION OF PRIMARY AND DILUTED EARNINGS 1 EXHIBIT 11 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF PRIMARY AND DILUTED EARNINGS PER SHARE (In thousands, except per share amounts)
Three months ended March 31, ------------------- 1999 1998 ------- ------- (Restated) Net earnings, basic basis $19,767 $16,680 Plus: Impact of assumed conversion of the LYONs, net of applicable income taxes 263 624 ------- ------- Diluted earnings $20,030 $17,304 ======= ======= Weighted average shares outstanding during the period, basic basis 30,767 26,892 Plus: Common stock equivalent shares assumed from conversion of options 1,223 1,749 Common stock equivalent shares assumed from conversion of LYONs 1,433 3,938 ------- ------- Weighted average shares outstanding during the period, diluted basis 33,423 32,579 ======= ======= Basic earnings per share $ .64 $ .62 ======= ======= Diluted earnings per share $ .60 $ .53 ======= =======
EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 327,906 0 0 45,352 0 0 461,866 59,037 0 0 965,454 232,082 0 0 0 150,198 0 0 4 459,241 965,454 241,874 6,610 (669) 96,459 15,231 0 295,539 33,504 13,737 19,767 0 0 0 19,767 .64 .60 0 0 0 0 0 0 0
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