-----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, WnwRpAe2pY2mjM4/BX/0YayB8ygsvAZXtwkfDawfk6je54wXHprlJJzid5TX4Crv CZrAvaaT7Z3lW1E5yWV/fg== 0000892569-95-000662.txt : 19951119 0000892569-95-000662.hdr.sgml : 19951119 ACCESSION NUMBER: 0000892569-95-000662 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591657 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE CITY: IRVINE STATE: CA ZIP: 92714 BUSINESS PHONE: 7148529770 MAIL ADDRESS: STREET 1: 2100 S.E. MAIN STREET STREET 2: SUITE 400 CITY: IRVINE STATE: CA ZIP: 92714 10-Q 1 FORM 10-Q ENDING SEPTEMBER 30, 1995 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 September 30, 1995 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 92714 - ------------------------------------------------------------------------- (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 - 11,138,575 shares as of November 10, 1995 Exhibit Index appears on page 11 of 12 sequentially numbered pages. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended September 30, 1995 TABLE OF CONTENTS
Page Number ----------- Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements A. Condensed Consolidated Balance Sheets as of 3 September 30, 1995 and December 31, 1994 B. Condensed Consolidated Statements of Earnings 4 for the three-month and nine-month periods ended September 30, 1995 and 1994 C. Condensed Consolidated Statements of Cash Flows 5 for the nine-month periods ended September 30, 1995 and 1994 D. Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 8 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 11
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: November 13, 1995 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)
September 30, December 31, 1995 1994 ------------ ------------ (Unaudited) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost $ 26,169 $ 26,664 Available for sale, at fair value 85,017 149,111 -------- -------- Total fixed maturities 111,186 175,775 Equity securities, at fair value 22,535 15,482 Other long-term investments, at cost, which approximates fair value 2,552 16,000 Short-term investments, at cost, which approximates fair value 7,375 800 Investments in real estate and partnerships, net 9,017 9,591 -------- -------- Total investments 152,665 217,648 Cash and cash equivalents 68,102 34,689 Trade receivables, net 36,883 28,495 Notes receivable, net 15,840 13,139 Prepaid expenses and other assets 35,055 28,096 Title plants 41,749 36,977 Property and equipment, net 40,951 39,534 Deferred income taxes 6,791 12,553 Income taxes receivable 1,124 6,988 -------- -------- $399,160 $418,119 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 44,716 $ 48,114 Notes payable 136,091 142,129 Reserve for claim losses 146,761 153,306 -------- -------- 327,568 343,549 Minority interest 364 616 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 1995 and 1994; issued, 15,796,539 in 1995 and 15,661,365 in 1994 2 2 Additional paid-in capital 57,868 56,659 Retained earnings 67,925 66,668 -------- -------- 125,795 123,329 Net unrealized gains (losses) on investments 1,725 (8,914) Less treasury stock, 4,698,957 shares in 1995 and 3,303,100 shares in 1994, at cost 56,292 40,461 -------- -------- 71,228 73,954 -------- -------- $399,160 $418,119 ======== ========
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 Nine months ended September 30, September 30, ------------------------- -------------------------- 1995 1994 1995 1994 -------- -------- -------- -------- (Unaudited) (Unaudited) REVENUE: Title insurance premiums $ 76,992 $ 84,281 $202,907 $286,850 Escrow fees 14,349 11,564 35,017 41,512 Other fees and revenue 15,648 13,957 41,676 46,778 Interest and investment income, including realized gains and losses 6,482 3,517 12,424 11,227 -------- -------- -------- -------- 113,471 113,319 292,024 386,367 -------- -------- -------- -------- EXPENSES: Personnel costs 44,978 42,505 119,302 140,968 Other operating expenses 34,306 30,783 88,251 96,450 Agent commissions 19,124 32,456 59,579 105,951 Provision for claim losses 5,016 2,394 13,643 18,830 Interest expense 2,216 2,284 6,833 6,151 -------- -------- -------- -------- 105,640 110,422 287,608 368,350 -------- -------- -------- -------- Earnings before income taxes and extraordinary item 7,831 2,897 4,416 18,017 Income tax expense (benefit) 1,958 580 (31) 5,311 -------- -------- -------- -------- Earnings before extraordinary item 5,873 2,317 4,447 12,706 Extraordinary item -- loss on early retirement of Senior Notes, net of applicable income tax benefit of $437 in 1995, gain on early retirement of Liquid Yield Option Notes ("LYONs"), net of applicable income tax expense of $312 in 1994 -- -- (813) 579 -------- -------- -------- -------- Net earnings $ 5,873 $ 2,317 $ 3,634 $ 13,285 ======== ======== ======== ======== Primary earnings per share before extraordinary item $ .51 $ .16 $ .37 $ .82 Extraordinary item -- loss on early retirement of Senior Notes, net of applicable income tax benefit in 1995, gain on early retirement of LYONs, net of applicable income tax expense in 1994 $ -- $ -- $ (.07) $ .04 -------- -------- -------- -------- Primary earnings per share $ .51 $ .16 $ .31 $ .86 ======== ======== ======== ======== Fully diluted earnings per share $ .44 $ .16 $ .31 $ .84 ======== ======== ======== ======== Primary weighted average shares outstanding 11,589 14,589 11,880 15,436 ======== ======== ======== ======== Fully diluted weighted average shares outstanding 15,228 14,589 11,880 19,041 ======== ======== ======== ======== Cash dividends per share $ .07 $ .07 $ .21 $ .21 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine months ended September 30, ------------------------ 1995 1994 -------- -------- (Unaudited) Cash flows from operating activities: Net earnings $ 3,634 $ 13,285 Reconciliation of net earnings to net cash used in operating activities: Depreciation and amortization 9,825 7,462 Net increase (decrease) in reserve for claim losses (6,545) 1,435 Increase (decrease) in provision for possible losses on real estate and notes receivable 295 (224) Gain on sales of investments (4,011) (227) Amortization of LYONs original issue discount and debt issuance costs 3,661 3,582 Other (148) (266) Change in assets and liabilities, net of effects from acquisition of subsidiaries: Net (increase) decrease in trade receivables (8,388) 1,577 Net increase in prepaid expenses and other assets (7,058) (4,669) Net decrease in accounts payable and accrued liabilities (3,074) (15,093) Net (increase) decrease in income taxes 5,864 (7,705) -------- -------- Net cash used in operating activities (5,945) (843) -------- -------- Cash flows from investing activities: Proceeds from sales of property and equipment 3,243 12 Proceeds from sales of title plants 24 271 Proceeds from sales and maturities of investments: Held to maturity 2,310 1,390 Available for sale 183,350 96,302 Collections of notes receivable 2,397 1,729 Additions to title plants (4,826) (985) Additions to property and equipment (13,708) (20,038) Additions to investments: Held to maturity (1,941) (2,942) Available for sale (99,075) (123,671) Other investments -- (16,000) Additions to notes receivable (5,393) (7,008) Investments in real estate and advances to partnerships (100) (871) Acquisition of subsidiaries, net of cash acquired -- 161 Purchase of ATIC preferred stock -- (15,500) -------- -------- Net cash provided by (used in) investing activities 66,281 (87,150) -------- --------
See notes to condensed consolidated financial statements. (continued) 5 6 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands)
Nine months ended September 30, ------------------------- 1995 1994 -------- -------- (Unaudited) Cash flows from financing activities: Borrowings $ 46,284 $ 40,434 Issuance of LYONs -- 101,337 Repurchase of LYONs -- (7,810) Debt service payments (55,884) (43,127) Repurchase of treasury stock (15,831) (26,508) Dividends paid (2,701) (2,145) Stock options exercised 1,209 1,335 -------- -------- Net cash provided by (used in) financing activities (26,923) 63,516 -------- -------- Net increase (decrease) in cash and cash equivalents 33,413 (24,477) Cash and cash equivalents at beginning of period 34,689 42,731 -------- -------- Cash and cash equivalents at end of period $ 68,102 $ 18,254 ======== ======== Supplemental cash flow information: Income taxes paid (refunded) $ (6,335) $ 12,094 ======== ======== Interest paid $ 8,437 $ 3,423 ======== ======== Noncash investing and financing activities: Dividends declared and unpaid $ 778 $ 955 ======== ======== Acquisition of ACS Systems, Inc.: Assets acquired $ 3,694 Liabilities assumed (1,013) -------- Value of stock issued $ 2,681 ========
See notes to condensed consolidated financial statements. 6 7 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 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 1994 Annual Report on Form 10-K for the year ended December 31, 1994, as amended. Certain reclassifications have been made in the 1994 Condensed Consolidated Financial Statements to conform to the classifications used in 1995. Note B - Dividends - ------------------ On September 14, 1995, the Company's Board of Directors declared a cash dividend of $.07 per share, payable on October 17, 1995, to stockholders of record on October 6, 1995. Note C - Authorization To Repurchase Common Stock and LYONs - ----------------------------------------------------------- On March 9, 1995, the Company announced that its Board of Directors authorized the additional repurchase, in the open market or in privately negotiated transactions, of up to 2 million shares of its common stock, or a comparable amount of the Company's Liquid Yield Option Notes (the "LYONs"). This was in addition to the 5 million shares or a comparable amount of LYONs previously authorized for repurchase by the Board of Directors -- 1 million shares on March 31, 1994, 1 million shares on June 14, 1994, and an additional 3 million shares on August 11, 1994. Shares may be used for various stock-based employee benefit programs, other general corporate purposes or held in treasury. As of November 10, 1995, the Company had repurchased 4,698,957 shares of its common stock for an aggregate price of $56.3 million, or $11.98 per share. Additionally, as of November 10, 1995, the Company had repurchased $48 million in maturity amount of LYONs for an aggregate price of $17.6 million, all of which were purchased in 1994. Note D - Acquisitions - --------------------- On March 8, 1995, the Company acquired the common stock of Western Title Company of Washington, an underwritten title agency with operations in King County (Seattle) and Snohomish County (Everett) in the state of Washington. Western Title Company of Washington was acquired from its selling shareholder for $3.2 million in cash. In addition, the Company also acquired an option to purchase a title plant in Pierce County (Tacoma), Washington. The acquired company operates as a subsidiary of the Company in King and Snohomish Counties under the name Fidelity National Title Company of Washington. The acquisition has been accounted for as a purchase. On May 2, 1995, the Company acquired the common stock of Butte County Title Company, an underwritten title agency with operations in Butte County in the state of California. Butte County Title Company was acquired from its selling shareholders for $400,000 in cash. The acquired company operates as a subsidiary of the Company in Butte County. The acquisition has been accounted for as a purchase. On June 14, 1995 the Company acquired certain assets of World Title Company ("WTC") for a purchase price to be determined based on the collection of certain accounts. In the case of trade accounts receivable acquired, the Company will retain 15% of amounts collected subsequent to the acquisition date and will remit the remaining 85% to the Department of Insurance of the State of California ("Department"). The Company has also acquired the open title orders of WTC as of the purchase date. The Company will retain 66.5% of amounts collected on open title orders subsequent to the acquisition date and will remit the remaining 33.5% to the Department. On June 22, 1995 the Company acquired 100% of the common stock of World Tax Service ("World Tax") from WTC Financial, the parent company of WTC, for $1.8 million. The Company had previously executed an Asset Option Agreement ("Agreement") with WTC Financial to acquire an option to purchase a 60% undivided interest in all of the assets of World Tax. In connection with the Agreement, WTC Financial was granted an 7 8 option to purchase 100,000 shares of the Company's common stock at $14.50 per share. The option to purchase shares was acquired from WTC Financial as part of the World Tax transaction. This transaction has been accounted for as a purchase. On September 14, 1995 the Company announced that it had executed a definitive agreement with Nations Holding Group to acquire one hundred percent of Nations Title Inc., a Kansas corporation. Nations Title Inc., together with its wholly owned subsidiaries Nations Title Insurance Company, Nations Title Insurance of New York Inc. and National Title Insurance of New York Inc., is the eighth largest title insurance underwriter in the country and is in the business of underwriting and issuing title insurance policies and performing title related services such as escrow and trust activities in 49 states, Puerto Rico, Guam and the Virgin Islands. Under the terms of the agreement, Fidelity National Financial will acquire one hundred percent of the outstanding stock of Nations Title Inc. from its sole shareholder, Nations Holding Group, for a purchase price of $21 million in cash and 160,000 shares of Fidelity National Financial common stock, which represents a discount from Nations Title Inc.'s book value as determined in accordance with generally accepted accounting principles. Note E - Credit Facility - ------------------------ On September 22, 1995 the Company announced that it had reached agreement on the terms of a $35 million credit facility with a banking syndicate led by Chase Manhattan Bank, N.A. The facility includes a $22 million term loan and a $13 million revolving credit facility. The $22 million term loan will be used to refinance existing higher rate indebtedness and for general corporate purposes. The $13 million revolving credit facility will be available to fund a portion of the Nations Title Inc. acquisition and to provide additional liquidity. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue for the third quarter of 1995 was $113.5 million compared to total revenue of $113.3 million for the third quarter of 1994. The composition of total revenue, however, has been impacted significantly by a change in the mix of business between direct and agency operations. Revenue derived from direct operations has increased offsetting a decrease in agency revenue. A continuing decline in mortgage interest rates positively impacted third quarter results and title order levels. The positive impact of these trends is evident in the Company's improved third quarter results. A change in market conditions, such as an increase or decrease in mortgage interest rates, impacts direct operations immediately, whereas agency operations report results on a cycle that lags direct operations by three to six months. As a result of this time lag in the agency operations reporting process, the full impact of the improved market conditions on agency operations has not been evident in third quarter 1995 revenue. In addition, it appears that the real estate/title insurance markets are returning to a more traditional pattern in which title orders fluctuate on a seasonal basis. Total revenue for the nine-month period ended September 30, 1995 has decreased 24.4% to $292.0 million from $386.4 million for the nine-month period ended September 30, 1994 as a result of the significant decline in real estate activity that was present in the first half of 1995 as compared to the first half of 1994 and the effect of the reporting lag on the 1995 and 1994 agency results. The market downturn was caused by the steady increase in mortgage interest rates which resulted from actions taken by the Federal Reserve Board during 1994. The slowdown in real estate activity caused a decrease in title orders, and, thus, a reduction in title premiums, escrow fees and other title related revenue. Interest and investment income increased 85.7% to $6.5 million in the third quarter of 1995 from $3.5 million in the third quarter of 1994. Interest and investment income for the nine-month period ended September 30, 1995 increased 10.7% to $12.4 million from $11.2 million for the comparable 1994 period. The increase in interest and investment income earned during the three-month period is primarily due to an increase in net realized gains. Net realized gains from the sale of investments were $3.9 million in the third quarter of 1995 and were immaterial in the corresponding 1994 period. Included in the third quarter 1995 gain amount are net realized gains of $3.4 million related to the disposition of the Company's investment in US Facilities Corporation. Year to date 1995 and 1994 amounts are comparable primarily as a result of a decrease in interest income resulting from a decrease in average invested assets 8 9 in 1995 offset by increased net realized gains. Net realized gains for the nine-month periods ended September 30, 1995 and 1994 were $4.0 million and $227,000, respectively. 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. 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 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 increased to 39.6% for the three-month period ended September 30, 1995 from 37.5% for the corresponding period in 1994. Personnel costs as a percentage of total revenue for the nine-month period ended September 30, 1995 have increased to 40.9% from 36.5% for the corresponding 1994 period. However, personnel costs have decreased $21.7 million or 15.4% in the nine-month period ended September 30, 1995 compared to the same period in 1994. The increases in personnel costs as a percentage of total revenue in the 1995 periods as compared to the 1994 periods can primarily be attributed to the increase in direct revenue and related expenses as compared to agency revenue, the agency reporting lag, the discontinuance of the Company's wage reduction and salary freeze program and certain staffing increases related to the increasing workload due to higher order counts. As a result of the conditions in the real estate market, the Company has taken significant measures to maintain appropriate personnel costs relative to revenue. The Company continues to monitor prevailing market conditions and will adjust its personnel levels as necessary, while positioning itself to take advantage of a real estate recovery as it occurs. 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 increased as a percentage of total revenue to 30.2% in the third quarter of 1995 from 27.2% in the third quarter of 1994, and have increased to 30.2% for the nine-month period ended September 30, 1995 from 25.0% in the comparable 1994 period. These increases can also be attributed to the increase in direct revenue and related expenses as compared to agency revenue and the agency reporting lag. In response to the current market environment, the Company has continued 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 which resulted in the percentage increases. Agent commissions represent the portion of policy premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions were 76.7% of agency premiums in the third quarter of 1995 compared to 77.2% of agency premiums in the third quarter of 1994, and 76.2% and 77.1% of agency premiums for the nine-month periods ended September 30, 1995 and 1994, respectively. 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. The Company believes, based on its recently completed loss development studies, that it will maintain the trend of favorable claim loss experience as a result of its underwriting and claims handling practices, as well as the predominant refinancing business of prior years. Based on the Company's loss experience, in 1995 and 1994 the Company has provided for claim losses at 7.0% of title insurance premiums prior to the impact of major claim expense and recoupments. Application of these factors resulted in a net provision for claim losses as a percentage of premiums of 6.5% and 2.8% for the three-month periods ended September 30, 1995 and 1994, respectively, and 6.7% and 6.6% for the nine-month periods ended September 30, 1995 and 1994, respectively. The 2.8% net provision for claim losses as a percentage of premiums in the third quarter of 1994 is the result of the factors above and an adjustment made in the third quarter of 1994 to adjust the year-to-date provision for claim losses to 7.0%. 9 10 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 LYONs issued in February 1994. Interest expense of "non-LYONs" debt totaled $979,000 and $900,000 for the three-month periods ended September 30, 1995 and 1994, respectively, and $3.2 million and $2.6 million for the nine-month periods ended September 30, 1995 and 1994, respectively. The LYONs related component of interest expense amounted to $1.2 million for the third quarter of 1995 and $1.5 million for the third quarter of 1994, and $3.6 million for each of the nine-month periods ended September 30, 1995 and 1994. Interest expense, which includes the amortization of the LYONs original issue discount, increased in 1995 over 1994 primarily as a result of the LYONs offering and an increase in the average outstanding balance of a certain subsidiary's equipment outstanding debt. Increases in the prime interest rate, to which certain of the interest rates paid by the Company are indexed, also resulted in increased interest expense in 1995 over 1994. Income tax expense (benefit) for the three-month periods ended September 30, 1995 and 1994, as a percentage of earnings before income taxes, was 25.0% and 20.0%, respectively and (14.8%) and 29.7% for the nine-month periods ended September 30, 1995 and 1994, respectively. The 1995 income tax benefit and 1994 income tax expense for the nine-month period ended September 30, 1995 and 1994, respectively, include the impact of the extraordinary gain (loss) on early retirement of debt. In order to reduce interest expense incurred and interest rates paid, the Company prepaid the Senior Secured Notes (the "Senior Notes") issued in March 1993. Pursuant to the terms and conditions of the Senior Note Agreement, the Company provided for the Make Whole Provision, as defined, and related expenses in the first quarter of 1995. This amount, $1.25 million, before related income taxes, has been reflected as an extraordinary item in the Condensed Consolidated Statement of Income for the nine-month period ended September 30, 1995. Liquidity and Capital Resources The Company's cash requirements include debt service, operating expenses, 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 and short term bank borrowings through existing credit facilities. One of the significant sources of the Company's funds is dividends from its insurance subsidiaries. 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 six title underwriters can pay dividends or make other distributions to the Company. The Company's insurance subsidiaries 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 from subsidiaries. Positive cash flow from 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 short and long term liquidity requirements of the Company and insurance subsidiaries are monitored regularly to match cash inflows with cash requirements. The Company and insurance 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. In order to take advantage of market conditions, the Company's tax status and the interest rate environment, during the third quarter of 1995 the Company converted certain investments in tax-exempt fixed maturities to cash and cash equivalents. The Company is in the process of reinvesting these funds in taxable instruments. 10 11 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: Current Report on Form 8-K dated September 29, 1995 relating to Fidelity National Financial, Inc. entering into a definitive agreement to acquire Nations Title, Inc. and Fidelity National Financial, Inc. entering into a $35 million syndicated credit facility. 11 EX-11 2 COMPUTATION OF EARNING PER SHARE 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 Nine months ended September 30, September 30, ------------------------- -------------------------- 1995 1994(1) 1995(1) 1994 ------- ------- ------- ------- (Unaudited) (Unaudited) Earnings before extraordinary item $ 5,873 $ 2,317 $ 4,447 $12,706 Extraordinary item -- loss on early retirement of Senior Notes, net of applicable income tax benefit of $437 in 1995, gain on early retirement of Liquid Yield Option Notes ("LYONs"), net of applicable income tax expense of $312 in 1994 -- -- (813) 579 ------- ------- ------- ------- Primary earnings 5,873 2,317 3,634 13,285 Add: Amortization of original issue discount and debt issuance costs, net of income tax effect, applicable to LYONs 804 -- -- 2,615 ------- ------- ------- ------- Fully diluted earnings $ 6,677 $ 2,317 $ 3,634 $15,900 ======= ======= ======= ======= Weighted average shares outstanding during the period 11,138 14,243 11,489 14,959 Common stock equivalent shares - primary 451 346 391 477 ------- ------- ------- ------- Common and common stock equivalent shares for purpose of calculating primary earnings per share 11,589 14,589 11,880 15,436 Incremental shares to reflect full dilution 3,639 -- -- 3,605 ------- ------- ------- ------- Total shares for purpose of calculating fully diluted earnings per share 15,228 14,589 11,880 19,041 ======= ======= ======= ======= Primary earnings per share before extraordinary item $ .51 $ .16 $ .37 $ .82 Extraordinary item -- loss on early retirement of Senior Notes, net of applicable income tax benefit in 1995, gain on early retirement of LYONs, net of applicable income tax expense in 1994 -- -- (.07) .04 ------- ------- ------- ------- Primary earnings per share $ .51 $ .16 $ .31 $ .86 ======= ======= ======= ======= Fully diluted earnings per share $ .44 $ .16 $ .31 $ .84 ======= ======= ======= =======
(1) The impact of the assumed conversion of fully dilutive securities is antidilutive, and is therefore excluded from the computation. 12 EX-27 3 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 1 85,017 26,169 26,171 22,535 0 9,017 152,665 68,102 0 0 399,160 146,761 0 0 0 136,091 2 0 0 71,226 399,160 202,907 8,413 4,011 76,693 13,643 0 273,965 4,416 (31) 4,447 0 (813) 0 3,634 .31 .31 0 0 0 0 0 0 0
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