-----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, V0FzHyQdPi3dQlxcKfNGwOUntPYgwjVou3gLeC7FPb/5GLDg/JulHCE58bIMnvnu j+0NqkryMM8z9ehCTajzSQ== 0001095811-00-000938.txt : 20000411 0001095811-00-000938.hdr.sgml : 20000411 ACCESSION NUMBER: 0001095811-00-000938 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000320 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000410 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-09396 FILM NUMBER: 597744 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 8-K/A 1 FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): March 20, 2000 -------------- FIDELITY NATIONAL FINANCIAL, INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware 1-9396 86-0498599 - ---------------------------- ------------------------ ------------------- (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 17911 Von Karman, Suite 300, Irvine, California 92614 - ---------------------------------------- ------------------- (Address of Principal Executive Offices) (Zip Code) (949) 622-5000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 2 ITEM 2. ACQUISITION OR DISPOSAL OF ASSETS On March 20, 2000, Fidelity National Financial, Inc., a Delaware corporation ("Fidelity"), completed its acquisition of Chicago Title Corporation, a Delaware corporation ("Chicago Title") pursuant to the Agreement and Plan of Merger, dated as of August 1, 1999 and amended as of October 13, 1999 (the "Merger Agreement"), between Fidelity and Chicago Title. As provided in the Merger Agreement, which was approved by the stockholders of Fidelity and Chicago Title at special meetings of stockholders held on February 9, 2000 and February 11, 2000, respectively, Chicago Title merged with and into Fidelity, with Fidelity as the surviving corporation in the merger (the "Merger"). As a result of and at the effective time of the Merger, each issued and outstanding share of common stock, par value $1.00 per share, of Chicago Title was converted into the right to receive merger consideration having a value of approximately $49.29, consisting of cash or shares of common stock, par value $.0001 per share, of Fidelity. Holders of shares of Chicago Title had the right, on or prior to 5:00 p.m., eastern time, on March 20, 2000, the date on which the effective time of the Merger occurred, to elect to receive their merger consideration in the form of cash, or in the form of shares of Fidelity common stock, or a combination of cash and Fidelity shares. Pursuant to an Exchange Agent Agreement between Fidelity and Harris Trust Company of New York, as exchange agent, Fidelity deposited cash in the aggregate amount of $570,250,486 and an aggregate of 38,761,680 shares of Fidelity common stock, for distribution to the former holders of common stock of Chicago Title common stock on the basis of their respective elections and subject to the proration provisions of the Merger Agreement. On Monday, March 27, 2000, Fidelity announced allocation information resulting from the Exchange Agent's compilation of elections received from Chicago Title stockholders. According to the Exchange Agent, the holders of 6,992,831 Chicago Title shares elected to receive cash in the Merger, and the holders of 14,324,315 Chicago Title shares elected to receive shares of Fidelity common stock in the Merger. Accordingly, pursuant to the allocation and proration provisions of the Merger Agreement, each former Chicago Title stockholder who elected to receive cash in the Merger is entitled to receive cash in the amount of $49.2879 for each share with respect to which a cash election, or no election, was made and each former Chicago Title stockholder who elected to receive shares of Fidelity common stock in the Merger is entitled to receive 2.7060 shares of Fidelity common stock and cash in the amount of $13.6304 for each share with respect to which a stock election is made, together with cash in lieu of any fractional shares of Fidelity common stock otherwise issuable in respect thereof, at the rate of $13.1771 per Fidelity share. The cash portion of the merger consideration was provided by borrowings made under Fidelity's new senior credit facility. On the closing date, Fidelity incurred borrowings of $715 million, of which approximately $570 million was deposited with the Exchange Agent to pay the cash portion of the merger consideration to former stockholders of Chicago Title, and $145 million was used to refinance certain existing indebtedness of Fidelity, FNF Capital, Inc., a wholly-owned subsidiary of Fidelity, and Chicago Title and to pay transaction expenses. The borrowings include $450 million aggregate principal amount of term loans, $100 million aggregate principal amount of short-term revolving loans, and $165 million aggregate principal amount of revolving loans. The Merger will be treated as a reorganization pursuant to Section 368(a) of the Internal Revenue Code, as amended, and will be accounted under the "purchase method" of accounting. The closing sale price of the Fidelity common stock on the closing date, as reported by the New York Stock Exchange, was $18.00. 2 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. The audited consolidated balance sheets of Chicago Title Corporation and its subsidiaries ("Chicago Title") as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income and cash flows for each of the three years in the three-year period ended December 31, 1999, together with notes thereto and the report of KPMG LLP, independent accountants, are included as Exhibit 99.3 to this Report. (b) Pro forma financial statements. The pro forma financial statements required to be filed by Item 7(b) of Form 8-K are not included herein, and will be filed by amendment within 60 days after the due date of this Report. (c) Exhibits. 99.1 Press Release of Fidelity National Financial, Inc., announcing completion of merger with Chicago Title Corporation, issued on March 20, 2000 (incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed April 4, 2000). 99.2 Press Release of Fidelity National Financial, Inc., announcing merger consideration election information, issued on March 27, 2000 (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed April 4, 2000). 99.3 The audited consolidated balance sheets of Chicago Title Corporation and its subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income and cash flows for each of the three years in the three-year period ended December 31, 1999, together with notes thereto and the report of KPMG LLP, independent accountants. 99.4 Consent of KPMG LLP, with respect to the audited consolidated financial statements of Chicago Title Corporation and its subsidiaries. 3 4 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 hereunto duly authorized. FIDELITY NATIONAL FINANCIAL, INC. Dated: April 10, 2000 By: /s/ M'Liss Jones Kane --------------------------------- Name: M'Liss Jones Kane Title: Senior Vice President and Secretary 4 EX-99.3 2 EXHIBIT 99.3 1 CHICAGO TITLE CORPORATION Financial Statements December 31, 1999 and 1998 (With Independent Auditors' Report Thereon) 2 INDEPENDENT AUDITORS' REPORT The Board of Directors Chicago Title Corporation: We have audited the accompanying consolidated balance sheets of Chicago Title Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chicago Title Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP January 24, 2000 3 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- (In thousands, except share data) ASSETS Cash on hand and in banks $ 35,024 $ 39,230 Cash pledged to secure trust and escrow deposits 54,580 93,887 Marketable securities, available-for-sale: Fixed maturities, at fair value (amortized cost of $1,104,733 and $1,136,432 in 1999 and 1998, respectively) 1,089,524 1,158,664 Equity securities, at fair value (cost of $33,895 and $33,079 in 1999 and 1998, respectively) 29,334 35,464 - ---------------------------------------------------------------------------------------------------------------------------- Total marketable securities 1,118,858 1,194,128 Receivables, including accrued investment income, less allowance for doubtful accounts of $11,959 and $14,072 in 1999 and 1998, respectively 67,120 75,840 Deferred federal income taxes 109,700 89,553 Fixed assets, net 115,568 104,322 Title plants 153,346 151,600 Goodwill 146,908 90,581 Other assets (Note 2) 106,213 42,618 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $1,907,317 $1,881,759 ============================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 107,052 $ 112,136 Accrued expenses and other liabilities 207,203 172,253 Bank and other long-term debt 20,999 21,648 Reserve for title losses 667,005 618,831 Trust and escrow deposits secured by pledged assets 392,796 495,299 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,395,055 1,420,167 - ---------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY (NOTE 6): Common stock-par value of $1 per share, authorized 66,000,000 shares; issued and outstanding 21,901,000 shares at December 31, 1999 (net of 137,338 treasury shares) and 21,905,685 shares at December 31, 1998 (net of 20,966 treasury shares) 21,901 21,906 Additional paid-in capital 125,955 127,270 Unearned compensation-restricted stock and employee stock award plans (8,107) (15,573) Retained earnings 385,364 311,988 Accumulated other comprehensive income (Note 6) (12,851) 16,001 - ---------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 512,262 461,592 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $1,907,317 $1,881,759 ============================================================================================================================
See accompanying notes to consolidated financial statements. 1 4 CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES: Title, escrow, trust and other revenue $1,988,783 $1,861,463 $1,411,496 Investment income 68,593 63,837 52,266 Net realized investment gain on sales to Alleghany Corporation -- -- 2,214 Net realized investment gains - other 1,663 1,409 1,470 - -------------------------------------------------------------------------------------------------------------------- Total revenues 2,059,039 1,926,709 1,467,446 - -------------------------------------------------------------------------------------------------------------------- Expenses: Salaries and other employee benefits 625,973 619,814 454,648 Commissions paid to agents 726,903 648,023 526,324 Provision for title losses 117,387 123,920 102,324 Interest expense 4,356 4,707 4,644 Other operating and administrative expenses (Note 17) 421,999 388,540 295,903 - -------------------------------------------------------------------------------------------------------------------- Total expenses 1,896,618 1,785,004 1,383,843 - -------------------------------------------------------------------------------------------------------------------- Operating income from continuing operations before income taxes 162,421 141,705 83,603 Income taxes 56,667 53,536 27,894 - -------------------------------------------------------------------------------------------------------------------- Net income from continuing operations 105,754 88,169 55,709 Net income from discontinued operations -- 9,013 12,162 - -------------------------------------------------------------------------------------------------------------------- Net income $ 105,754 $ 97,182 $ 67,871 BASIC AND DILUTED EARNINGS PER SHARE (NOTE 8): Continuing operations $ 4.84 $ 4.03 $ 2.54 Discontinued operations -- 0.41 0.56 - -------------------------------------------------------------------------------------------------------------------- Net earnings per share $ 4.84 $ 4.44 $ 3.10 ====================================================================================================================
See accompanying notes to consolidated financial statements. 2 5 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Additional YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 stock paid-in capital - -------------------------------------------------------------------------------------------------------------------- (In thousands) BALANCE AT DECEMBER 31, 1996 $13,676 $117,381 Net income -- -- Other comprehensive income (Note 6) -- -- Total comprehensive income Dividends paid to former parent -- -- - -------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1997 13,676 117,381 Net income -- -- Other comprehensive income (Note 6) -- -- Total comprehensive income Recapitalization for spin-off 7,848 (7,848) Issuance of stock 403 18,599 Amortization of restricted stock -- -- Dividends to former parent -- -- Treasury shares acquired and reissued for employee benefit plans (21) (862) Cash dividends paid to stockholders ($0.68 per share) -- -- - -------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1998 21,906 127,270 Net income -- -- Other comprehensive income (Note 6) -- -- Total comprehensive income Issuance of stock 111 3,413 Amortization of restricted stock -- -- Treasury shares acquired and reissued for employee benefit plans (116) (4,728) Cash dividends paid to stockholders ($1.42 per share) -- -- - -------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1999 $21,901 $125,955 ====================================================================================================================
See accompanying notes to consolidated financial statements. 3 6
Accumulated other Total Unearned Retained comprehensive stockholders' compensation earnings income equity - ------------------------------------------------------------------------------------------------- $ -- $225,659 $ 3,879 $360,595 -- 67,871 -- 67,871 -- -- 7,186 7,186 -------- 75,057 -- (32,105) -- (32,105) - ------------------------------------------------------------------------------------------------- -- 261,425 11,065 403,547 -- 97,182 -- 97,182 -- -- 5,040 5,040 -------- 102,222 -- -- -- -- (18,877) -- -- 125 3,304 -- -- 3,304 -- (31,599) (104) (31,703) -- (119) -- (1,002) -- (14,901) -- (14,901) - ------------------------------------------------------------------------------------------------- (15,573) 311,988 16,001 461,592 -- 105,754 -- 105,754 -- -- (28,852) (28,852) -------- 76,902 147 -- -- 3,671 6,283 -- -- 6,283 1,036 (1,351) -- (5,159) -- (31,027) -- (31,027) - ------------------------------------------------------------------------------------------------- $ (8,107) $385,364 $ (12,851) $512,262 =================================================================================================
4 7 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- (In thousands) CASH FLOWS FROM CONTINUING OPERATIONS ACTIVITIES: Net income from continuing operations $ 105,754 $ 88,169 $ 55,709 Adjustments to reconcile net income from continuing operations to net cash provided by continuing operations activities: Depreciation and amortization 54,097 40,907 31,032 Changes in assets and liabilities: Cash pledged to secure trust and escrow deposits 39,307 6,320 (815) Receivables 9,356 (7,097) (10,979) Current and deferred federal income taxes (2,325) (18,190) (4,792) Other assets (58,787) (830) 12,058 Accounts payable and accrued expenses and other liabilities 23,527 43,265 39,091 Reserves for title losses 48,289 53,687 31,411 Trust and escrow deposits secured by pledged assets (102,503) 27,660 111,842 Gain on sale of investments (1,663) (1,409) (3,684) - ------------------------------------------------------------------------------------------------------------------------------- Net adjustments 9,298 144,313 205,164 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by continuing operations activities 115,052 232,482 260,873 - ------------------------------------------------------------------------------------------------------------------------------- Dividends received from Alleghany Asset Management, Inc. -- 7,472 13,300 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operations 115,052 239,954 274,173 - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of long-term marketable securities (504,972) (426,759) (384,693) Sales of long-term marketable securities 315,632 167,772 148,968 Maturities and redemptions of long-term marketable securities 211,143 107,441 132,664 Net sales (purchases) of short-term investments 20,808 32,027 (99,509) Purchases of other invested assets (9,420) (6,986) (4,955) Sales of other invested assets 915 4,336 7,163 Purchases of fixed assets (35,723) (35,094) (28,506) Sales of fixed assets 959 4,400 3,134 Purchases of title records and indexes (577) (305) (584) Sales of title records and indexes 100 -- 1,385 Purchases of subsidiaries (82,748) (32,427) (4,106) Cash of acquired subsidiaries 5,719 4,443 33 - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (78,164) (181,152) (229,006) - ------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid to former parent -- (9,000) (32,105) Principal payments on bank and other long-term debt (20,103) (12,840) (11,554) Principal receipts on bank and other long-term debt 19,300 -- -- Payment of cash dividends (Note 6) (31,027) (14,901) -- Original issuance and reissuance of treasury stock (Note 6) 6,078 1,567 -- Purchases of treasury stock (15,342) (2,574) -- Cash remaining with discontinued operations -- (3,043) (3,361) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (41,094) (40,791) (47,020) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (4,206) 18,011 (1,853) Cash at beginning of year 39,230 21,219 23,072 - ------------------------------------------------------------------------------------------------------------------------------- Cash at end of year $ 35,024 $ 39,230 $ 21,219 ===============================================================================================================================
See accompanying notes to consolidated financial statements. 5 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION Nature of Operations - -------------------- Chicago Title Corporation (Chicago Title) and its subsidiaries (collectively, the Company) issue title insurance policies and administer escrow funds principally through three subsidiaries: Chicago Title Insurance Company (CTIC), Ticor Title Insurance Company (Ticor Title) and Security Union Title Insurance Company (Security Union). Title insurance provides protection against defects in title to owners and lenders in real estate transactions, and the Company earns escrow fees for its role in administering escrow funds related to real estate transactions. Business is conducted on a nationwide basis, and insurance policies are distributed through more than 340 full service offices and 4,400 policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands, Guam and Canada. Customers include attorneys, real estate professionals, banks and other parties to real estate transactions. Other real estate-related services include the production and delivery of flood certificates, consumer credit information, real estate valuations, home warranty insurance and default management. These services are offered through various subsidiaries. The Company reports its financial information as one segment. Basis of Presentation - --------------------- The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include the accounts of the Company. All significant intercompany transactions have been eliminated in consolidation. All dollar amounts shown, except per share data, are in thousands unless otherwise noted. Spin-off - -------- On June 17, 1998, Alleghany Corporation (Alleghany) completed a spin-off of the Company through the pro-rata distribution to its stockholders of 21,523,863 shares of common stock of Chicago Title. Immediately prior to the spin-off, 364,184 shares of common stock were issued as restricted stock to members of the Company's senior management. Immediately after the spin-off, an additional 16,000 shares were issued as restricted stock to non-employee directors of Chicago Title. These shares of restricted stock are being expensed over their respective vesting periods based upon the value of such shares as of the first trading day after the spin-off, which was $18.0 million. On the day after the spin-off, the non-employee directors of Chicago Title received a total of 2,604 shares in lieu of cash as payment of a portion of their annual retainer. On a pre-tax basis, for the year ended December 31, 1998, salaries and other employee benefits included $19.5 million in executive compensation associated with the spin-off (including $7.2 million attributable to the repurchase of an option that had been granted to John Rau in connection with the commencement of his employment as President and Chief Executive Officer of Chicago Title's subsidiary Chicago Title and Trust Company (CT&T) in January 1997), and $3.7 million in related managerial restructuring expenses. On a pre-tax basis, for the year ended December 31, 1998, other operating and administrative expenses included $5.4 million for professional fees, printing costs, listing fees and other expenses directly associated with the spin-off. In connection with the spin-off, effective June 9, 1998, all of the outstanding stock of Alleghany Asset Management, Inc. (AAM) was distributed by CT&T to Alleghany, which resulted in a $22.7 million reduction in the Company's stockholders' equity. In light of such distribution, AAM is classified as a discontinued operation for 1997 and 1998. Use of Estimates in the Preparation of Financial Statements - ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Discontinued Operations - ----------------------- AAM participates in the financial services and investment management business principally through two subsidiaries: The Chicago Trust Company and Montag & Caldwell, Inc. These companies provide investment management, counseling and administrative services to institutional clients, pension and profit sharing plans and high net worth individuals. The Chicago Trust Company acts as trustee and fiduciary under various types of trust agreements. Another subsidiary of AAM, Chicago Deferred Exchange Corporation, acts as an intermediary to facilitate tax-free exchanges of real and personal property. 6 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The net assets and results of operations of AAM are shown as discontinued operations in the accompanying consolidated financial statements. All footnote disclosures reflect continuing operations only, unless otherwise noted. See Note 13 for further discussion. (2) SIGNIFICANT ACCOUNTING POLICIES Cash - ---- For purposes of the consolidated statements of cash flows, cash includes only funds on deposit which are available for immediate withdrawal. Marketable Securities - --------------------- Marketable securities consist of investments in fixed maturities and equity securities. Fixed maturities consist of bonds, certificates of deposit, commercial paper and redeemable preferred stocks. The Company determines the appropriate classification of marketable securities at the time of purchase. As of December 31, 1999 and 1998, all marketable securities are classified as available-for-sale and carried at fair value. Unrealized gains and losses, net of deferred taxes, are excluded from net income and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any marketable security below cost that is deemed other than temporary is charged to net income, resulting in the establishment of a new cost basis for the security. Realized gains and losses on marketable securities are determined on the specific identification method. Fixed Assets - ------------ Fixed assets, except land, are depreciated or amortized on a straight-line basis using estimated lives ranging from three to forty years. At December 31, 1999, gross fixed assets consisted of land, buildings and improvements, and furniture and equipment of $8,050, $66,584, and $120,622, respectively. At December 31, 1998, gross fixed assets consisted of land, buildings and improvements, and furniture and equipment of $8,043, $56,924 and $107,316, respectively. Accumulated depreciation and amortization was $79,688 and $67,961 at December 31, 1999 and 1998, respectively. Title Plants - ------------ Title plants are carried at cost. The cost is not being amortized, as properly maintained title plants have indefinite lives. Title plants are reviewed for impairment whenever events or circumstances provide evidence suggesting the carrying amount of the asset may not be recoverable. Current costs of maintaining title plants are expensed in the year incurred. Goodwill - -------- Goodwill is amortized over its estimated useful life on a straight-line basis over periods ranging from five to forty years. Goodwill is reviewed for impairment whenever events or circumstances provide evidence suggesting the carrying amount of the asset may not be recoverable. Federal Income Taxes - -------------------- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Reserve for Title Losses - ------------------------ The reserve for title losses represents the estimated claim cost and loss adjustment expense necessary to cover the ultimate net cost of settling all losses incurred and unpaid. Such estimates are based on individual case estimates for reported claims and estimates for incurred but not reported losses. These estimates are adjusted in the aggregate for ultimate loss expectations based on historical experience patterns, with any change in probable ultimate liabilities being reflected in net income. In the opinion of management, the current reserve for title losses is adequate. 7 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair Value Disclosures - ---------------------- The Company does not have a material amount of derivative financial instruments. In addition, the carrying values and fair values of the Company's financial instruments are disclosed in Note 14. Generally accepted accounting principles exclude certain financial instruments and all nonfinancial instruments from disclosure requirements. Escrow Deposits - --------------- The title insurance subsidiaries administer escrow deposits generally related to customers' real estate transactions. The funds are held in an agency capacity and, accordingly, amounts aggregating approximately $2,832,885 and $2,450,390 are excluded from the accompanying consolidated balance sheets at December 31, 1999 and 1998, respectively. Regulatory Accounting Practices - ------------------------------- The title insurance subsidiaries are required to file annual statements with insurance regulatory authorities which are prepared on an accounting basis prescribed or permitted by such authorities. Prescribed statutory accounting principles include state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). Permitted statutory accounting practices encompass all accounting practices that are not prescribed but are allowed for purposes of reporting to the states; such practices differ from state to state, may differ from company to company within a state, and may change in the future. Revenue Recognition - ------------------- Title insurance premiums and escrow fees are typically recognized as revenues at the time of the real estate closing. Revenues from title policies issued by independent agents are generally recorded when notice of issuance is received from the agent. Stock-based Compensation - ------------------------ The Company accounts for its employee stock option plans in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to Employees." The Company has not issued stock options where the exercise price is less than the market value of Chicago Title common stock on the date of grant and, accordingly, no compensation expense has been recognized. Statements of Cash Flows - ------------------------ The Company has elected to use the indirect method in reporting net cash flow from operating activities. Under this method, the following additional disclosures are required for each of the years in the three-year period ended December 31, 1999:
1999 1998 1997 - ------------------------------------------------------------------------ Interest Paid $ 4,263 $ 4,746 $ 5,077 Income taxes paid 60,047 69,442 41,331 - ------------------------------------------------------------------------
Reclassifications - ----------------- Certain reclassifications have been made to the 1998 consolidated financial statements to conform with the 1999 presentation. Accounting Changes - ------------------ In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133, as subsequently amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133," is effective for financial statements for fiscal years beginning after June 15, 2000. While the Company is still evaluating this standard, adoption of SFAS No. 133 is not expected to have a material impact on the financial position or results of operations of the Company. 8 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In March 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the costs of computer software intended for internal use. Effective January 1, 1999, the Company adopted the provisions of SOP 98-1. For the year ended December 31, 1999, total costs incurred were $11,139 of which $11,073 were costs in progress and $66 were capitalized for internal system development. These costs are primarily attributable to the Company's previously announced electronic spine project. (3) MARKETABLE SECURITIES The amortized cost and fair value of those Company investments in marketable securities included in the consolidated balance sheets which represent fixed maturities and equity securities as of December 31, 1999 and 1998 are as follows:
Gross Gross Amortized unrealized unrealized Fair 1999 cost gains losses Value - ------------------------------------------------------------------------------------------------------------- Fixed maturities: U.S. Government obligations $ 425,295 $ 2,749 $ (8,162) $ 419,882 State and municipal bonds 330,451 811 (5,376) 325,886 Other bonds 134,584 171 (5,209) 129,546 Certificates of deposit 31,147 -- -- 31,147 Commercial paper 164,100 -- -- 164,100 Redeemable preferred stocks 19,156 107 (300) 18,963 - ------------------------------------------------------------------------------------------------------------- Total fixed maturities 1,104,733 3,838 (19,047) 1,089,524 Equity securities 33,895 -- (4,561) 29,334 - ------------------------------------------------------------------------------------------------------------- Total $1,138,628 $ 3,838 $(23,608) $1,118,858 ============================================================================================================= Gross Gross Amortized unrealized unrealized Fair 1998 cost gains losses Value - ------------------------------------------------------------------------------------------------------------- Fixed maturities: U.S. Government obligations $ 420,079 $12,426 $ (257) $ 432,248 State and municipal bonds 333,814 6,832 (81) 340,565 Other bonds 173,973 3,699 (779) 176,893 Certificates of deposit 5,455 -- -- 5,455 Commercial paper 189,498 -- -- 189,498 Redeemable preferred stocks 13,613 482 (90) 14,005 - ------------------------------------------------------------------------------------------------------------- Total fixed maturities 1,136,432 23,439 (1,207) 1,158,664 Equity securities 33,079 2,570 (185) 35,464 - ------------------------------------------------------------------------------------------------------------- Total $1,169,511 $26,009 $ (1,392) $1,194,128 =============================================================================================================
The fair value of certain bonds is less than amortized cost. No provision has been made for possible losses on these bonds as such declines are considered to be temporary. Amortized cost for certain investments represents original cost adjusted for other than temporary declines in value. Marketable securities with restrictions at December 31, 1999 and 1998 are as follows:
1999 1998 - --------------------------------------------------------------------------------- Pledged to secure statutory premium reserves $460,060 $430,898 On deposit with regulatory authorities 17,288 19,201 Pledged to secure trust and escrow deposits 338,215 408,434 =================================================================================
9 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized cost and fair value of fixed maturities at December 31, 1999, by contractual maturity, are shown below. Contractual maturities will differ from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair cost value - ---------------------------------------------------------------------------- Due in one year or less $ 355,768 $ 355,715 Due after one year through five years 389,166 381,904 Due after five years through 10 years 70,306 67,878 Due after 10 years 28,253 29,661 - ---------------------------------------------------------------------------- 843,493 835,158 Mortgage-backed securities 261,240 254,366 - ---------------------------------------------------------------------------- Total $1,104,733 $1,089,524 ============================================================================
The change in accumulated other comprehensive income included in stockholders' equity for each of the years in the three-year period ended December 31, 1999 was as follows:
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Change in accumulated other comprehensive income--continuing operations $(44,388) $ 7,717 $10,903 Income tax benefit (expense)--continuing operations 15,536 (2,701) (3,816) Change in accumulated other comprehensive income--discontinued Operations, net of income tax benefit (expense) -- 24 99 - --------------------------------------------------------------------------------------------------------------- Change in accumulated other comprehensive income, net of taxes $(28,852) $ 5,040 $ 7,186 ===============================================================================================================
Net investment income from marketable securities included in the results of operations for each of the years in the three-year period ended December 31, 1999 was as follows:
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Interest on fixed maturities $65,552 $61,117 $50,481 Dividends on equity securities 3,041 2,720 1,785 - --------------------------------------------------------------------------------------------------------------- Investment income $68,593 $63,837 $52,266 ===============================================================================================================
Investment expenses are included in other operating and administrative expenses and are immaterial. Proceeds from sales of marketable securities were $315,632, $167,772, and $148,968 during 1999, 1998, and 1997, respectively. The components of net gains on sales of those marketable securities included in the results of operations for each of the years in the three-year period ended December 31, 1999 were as follows:
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Fixed maturities: Gains $1,745 $1,412 $ 1,514 Losses (131) (36) (45) Equity securities: Gains 56 33 8,097 Losses (7) -- (5,882) - --------------------------------------------------------------------------------------------------------------- Net gains on sales of marketable securities $1,663 $1,409 $ 3,684 ===============================================================================================================
10 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) BANK AND OTHER LONG-TERM DEBT Bank and other long-term debt included in the consolidated balance sheets at December 31, 1999 and 1998 are summarized below:
1999 1998 - ----------------------------------------------------------------------------------------------------------- Bank borrowing at 4.75 percent to 6.00 percent during 1999 and 5.72 percent to 6.31 percent during 1998 $19,300 $19,333 Unsecured promissory notes at 6.00 percent to 9.00 percent during 1999 and 1998 1,699 2,315 - ----------------------------------------------------------------------------------------------------------- Total bank and other long-term debt $20,999 $21,648 ===========================================================================================================
On January 1, 1999, the Company entered into a revolving line of credit agreement that provided for borrowings of up to $20.0 million. This agreement terminated on December 31, 1999. On May 26, 1999, the Company entered into two separate agreements with banking institutions for lines of credit of $20 million and $25 million, replacing similar lines of credit that CT&T had with the same lenders. The new lines of credit will expire on May 24, 2000. Borrowings thereunder, which bear interest at a floating rate, are available for general corporate purposes. On May 28, 1999, the Company borrowed $19.3 million under the $25 million line of credit to repay the outstanding balance of $19.3 million under a bank credit agreement entered into by CT&T in connection with the acquisition of two of CT&T's title insurance subsidiaries, Security Union and Ticor Title. Such $19.3 million remained outstanding under the $25 million line of credit, and no amounts were outstanding under the $20 million line of credit, as of December 31, 1999. The credit agreement on the bank borrowing provides that the amount outstanding is payable at or prior to expiration of the line of credit. On June 2, 1999, the Company entered into a bank credit agreement providing for maximum borrowings of $50 million on a revolving basis, replacing a similar agreement that CT&T had with the same lenders. The new credit agreement will expire on May 29, 2004. Borrowings thereunder, which bear interest at a floating rate, are available for general corporate purposes. No amounts were outstanding under this credit agreement as of December 31, 1999. These arrangements require CT&T to meet certain financial tests and include some customary restrictive covenants. In addition to the credit relationships described above, in connection with the escrow and closing services that the Company offers to its customers, the Company deposits substantial funds into demand deposit accounts with various financial institutions. The Company negotiates for and receives a range of banking services from these institutions as permitted by banking laws and regulations, such as direct services, that provide escrow accounting and other services, and credit accommodations including short-term low rate loans to the Company secured by its assets, primarily commercial paper purchased by the Company with the proceeds of such loans. (5) STATUTORY SURPLUS AND NET INCOME The Company's title insurance subsidiaries are restricted as to the amount of dividends that may be paid without prior regulatory approval. The maximum amount of dividends that these subsidiaries may pay in 2000 without prior regulatory approval is $97,842. The statutory surplus of CTIC, Ticor Title and Security Union was approximately $283,546, $291,110, and $251,996 as of December 31, 1999, 1998 and 1997, respectively. The statutory net income of CTIC, Ticor Title and Security Union was approximately $99,505, $86,517 and $72,683 for the years ended December 31, 1999, 1998 and 1997, respectively. The title insurance subsidiaries have prepared their annual statements using certain permitted statutory accounting practices, which differ from prescribed statutory accounting practices, but which have been approved by the respective insurance departments of their states of domicile. Such practices include the recognition of a deferred tax asset attributable to net operating loss carryforwards of a merged affiliated company, and different methodologies in the calculation of the statutory premium reserve for three of the title insurers. The Company believes that such permitted practices do not have a negative implication for the individual title insurers nor on the accompanying consolidated financial statements. 11 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) STOCKHOLDERS' EQUITY Dividends declared and paid to the Company by title insurance subsidiaries, other subsidiaries and AAM for each of the years in the three-year period ended December 31, 1999 were as follows:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Title insurance subsidiaries $79,700 $54,300 $46,700 Other subsidiaries 8,300 5,300 5,000 - ------------------------------------------------------------------------------------------------------------------- Continuing operations 88,000 59,600 51,700 AAM -- 7,995 13,300 - ------------------------------------------------------------------------------------------------------------------- Total dividends declared and paid to the Company by subsidiaries $88,000 $67,595 $65,000 ===================================================================================================================
The Company paid cash dividends of $9,000 and $32,105 to Alleghany in 1998 and 1997, respectively. The Company also paid dividends of $31,027 and $14,901 to its stockholders during 1999 and 1998, respectively. In July 1998, Chicago Title's board of directors authorized the purchase of up to two million shares of Chicago Title common stock over the next five years to provide shares for various employee and director benefit plans. As of December 31, 1999, 221,800 shares of common stock had been repurchased at a cost of $9,132. Subsequently, all of these shares were reissued under various Chicago Title benefit plans. In March 1999, the Company's board of directors authorized the repurchase of up to five percent, or 1.1 million of its currently outstanding shares over the next two years. As of December 31, 1999, the Company had repurchased 247,800 shares of common stock at a cost of $8,784. Subsequently, 110,462 of these shares were reissued under various Chicago Title benefit plans. During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that requires disclosure of certain financial information that historically has not been recognized in the calculation of net income. At December 31, 1999, 1998 and 1997, the Company held securities classified as available for sale, which had pre-tax unrealized gains (losses) of $(44,388), $7,754 and $11,055, respectively. These amounts reflect pre-tax reclassification adjustments of $1,663, $1,409, and $3,684 for gains realized in income from the sale of marketable securities in 1999, 1998 and 1997, respectively. The statement of changes in stockholders' equity has been restated for prior years to reflect the adoption of SFAS No. 130. (7) EMPLOYEE BENEFIT PLANS Pension and Other Retirement Plans - ---------------------------------- The Company sponsors a contributory defined contribution savings and profit sharing plan for eligible employees. Eligible employees may elect to participate, contributing up to 13 percent of their total salaries. The Company will match employee contributions from a minimum of $0.25 up to a maximum of $1.50 for each dollar of employee contribution up to 6 percent of the employee's base salary, subject to the Company's return on equity for the year. The Company's cost for this plan was $21,099, $20,262 and $12,727 in 1999, 1998 and 1997, respectively. In addition to the defined contribution savings and profit sharing plan, employees of the Company participate in one of two additional retirement plans. Beginning in 1995, the Company implemented a noncontributory defined contribution plan. All new employees automatically participate in this plan. Additionally, certain employees who were in the defined benefit pension plan discussed below elected to participate in this plan. Contributions to this plan are based upon salary and length of service. Contributions are invested in a group of mutual funds or common stock of the Company as directed by the employee. The Company's cost for this plan was $4,002, $2,780 and $2,151 in 1999, 1998 and 1997, respectively. 12 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The second additional retirement plan is a noncontributory defined benefit pension plan (the Plan) covering certain of its employees. The benefits are based on years of service and the employee's average monthly compensation in the highest 60 consecutive calendar months during the 120 months ending at retirement or termination. The Company's funding policy is to contribute annually at least the minimum required contribution under the Employee Retirement Income Security Act (ERISA). Contributions are intended to provide not only for benefits accrued to date, but also for those expected to be earned in the future. The Company made no contribution in 1999 and $6,800 in 1998. As of December 31, 1999, a total of 237,551 shares of Chicago Title common stock were held by the Company's benefit plans. The following table sets forth the funded status of the Plan and amounts recognized in the Company's consolidated balance sheets at December 31, 1999 and 1998:
1999 1998 - ---------------------------------------------------------------------------------- Change in Benefit Obligation: Net benefit obligation at beginning of year $119,661 $101,924 Service cost 5,467 5,060 Interest cost 8,328 7,342 Actuarial (gain) loss (8,075) 12,548 Gross benefits paid (12,520) (7,213) - ---------------------------------------------------------------------------------- Net benefit obligation at end of year 112,861 119,661 Change in Plan Assets: Fair value of plan assets at beginning of year 97,557 97,593 Actual return on plan assets 13,732 5,650 Employer contributions 6,800 -- Gross benefits paid (12,520) (5,686) - ---------------------------------------------------------------------------------- Fair value of plan assets at end of year 105,569 97,557 Funded status at end of year (7,292) (22,104) Employer contributions -- 6,800 Unrecognized net actuarial (gain) loss 14,608 31,177 Unrecognized prior service cost (202) (324) - ---------------------------------------------------------------------------------- Net prepaid pension asset included in other assets $ 7,114 $ 15,549 ==================================================================================
Under SFAS No. 87, "Employers' Accounting for Pensions," the measurement date shall be as of the date of the financial statements, or if used consistently from year to year, as of a date not more than three months prior to that date. The Company's measurement date is September 30, therefore the 1998 employer contribution made in the fourth quarter of 1998 is reflected in the 1999 plan year. The principal assumptions used in the actuarial calculations of projected benefit obligations and net periodic pension expense for 1999, 1998 and 1997 are as follows:
1999 1998 1997 - ------------------------------------------------------------------------------------------- Weighted-average assumptions: Discount rate 7.75% 6.85% 7.50% Expected return on Plan assets 9.00% 9.00% 9.00% Rate of compensation increase 4.50% 4.50% 4.50% ===========================================================================================
13 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The components of net periodic pension expense included in the results of operations for each of the years in the three-year period ended December 31, 1999 were as follows:
1999 1998 1997 - --------------------------------------------------------------------------- Service cost $ 5,467 $ 5,060 $ 5,046 Interest cost 8,328 7,342 8,631 Expected return on assets (8,685) (7,357) (7,806) Amortization of: Transition obligation (asset) -- -- (718) Prior service cost (122) (120) (122) Actuarial (gain) loss 3,447 2,396 4,294 - --------------------------------------------------------------------------- Total net periodic benefit cost $ 8,435 $ 7,321 $ 9,325 ===========================================================================
The Chicago Trust Company, a subsidiary of AAM, is a qualified trust company and as such, serves as trustee for the assets of the pension and other retirement plans. Postretirement Plans - -------------------- In addition to retirement benefits, the Company provides certain health care and life insurance benefits for retired employees. The costs of these benefit plans are accrued during the periods the employees render service. The Company is self-insured for its postretirement health care and life insurance benefit plans, and the plans are not funded. The health care plans provide for insurance benefits after retirement and are generally contributory, with contributions adjusted annually. Postretirement life insurance benefits are noncontributory, with coverage amounts declining with increases in a retiree's age. The Company's postretirement health care and life insurance costs included in the results of operations for each of the years in the three-year period ended December 31, 1999 are as follows:
1999 1998 1997 - ---------------------------------------------------------------------- Service cost $ 945 $ 771 $ 531 Interest cost 1,875 1,974 1,456 Amortization of: Prior service cost (855) (890) (700) Actuarial (gain) loss -- (26) -- - ---------------------------------------------------------------------- Total net periodic benefit cost $1,965 $1,829 $1,287 ======================================================================
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 6.00 percent in 1999 and 6.50 percent in 1998, declining to 5.00 percent in the year 2002. The discount rate used was 8.00 percent in 1999 and 6.85 percent for 1998. If the health care cost trend rate assumptions were increased 1.00 percent, the accumulated postretirement benefit obligation as of December 31, 1999 would increase by 2.15 percent. The effect of this change on the sum of the service and interest cost would be an increase of 2.20 percent. If the health care costs trend rate assumptions were decreased 1.00 percent, the accumulated post retirement benefit obligation as of December 31, 1999 would decrease by 1.93 percent. The effect of this change on the sum of the service and interest cost would be a decrease of 1.98 percent. 14 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The accrued cost of the accumulated postretirement benefit obligation included in the consolidated balance sheets at December 31, 1999 and 1998 are as follows:
1999 1998 - ------------------------------------------------------------------------------------------------------ Change in Benefit Obligation: Net benefit obligation at beginning of year $ 30,181 $ 24,325 Service cost 945 771 Interest cost 1,875 1,974 Plan participants' contributions 1,840 1,699 Actuarial (gain) loss (6,216) 4,271 Gross benefits paid (3,408) (2,859) - ------------------------------------------------------------------------------------------------------ Net benefit obligation at end of year 25,217 30,181 Change in Plan Assets: Fair value of plan assets at beginning of year -- -- Employer contributions 1,568 1,160 Plan participants' contributions 1,840 1,699 Gross benefits paid (3,408) (2,859) - ------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year -- -- Funded status at end of year (25,217) (30,181) Unrecognized net actuarial (gain) loss (1,049) 5,166 Unrecognized prior service cost (5,673) (6,526) - ------------------------------------------------------------------------------------------------------ Net accrued cost of accumulated postretirement benefit obligation included in accrued expenses and other liabilities $(31,939) $(31,541) ======================================================================================================
Under SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions," the measurement date shall be as of the date of the financial statements, or if used consistently from year to year, as of a date not more than three months prior to that date. The Company's measurement date is December 31. (8) STOCK COMPENSATION AND EARNINGS PER SHARE Chicago Title adopted the 1998 Long-Term Incentive Plan (the 1998 Plan) to provide incentives to officers and employees of Chicago Title and its subsidiaries and to directors of Chicago Title. The 1998 Plan permits the Company to provide incentive compensation such as restricted stock, stock options, stock appreciation rights, stock awards and cash bonuses, as well as other types of incentive compensation. No awards may be granted under the 1998 Plan after 2003. The 1998 Plan has 2,230,000 shares authorized, of which 1,580,000 may be used for stock options and stock appreciation rights and the remaining 650,000 may be used for restricted stock awards. Currently outstanding options become exercisable one to three years after issuance and expire five to 10 years from the grant date. During 1999 and 1998, a total of 30,000 and 400,184 shares, respectively, of restricted stock awards were granted. The amount of unearned compensation related to the restricted stock is reflected as a reduction to stockholders' equity. A summary of all stock option activity during the years ended December 31, 1999 and 1998 follows: 15 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1999 1998 ----------------------------- ------------------------------ Weighted Weighted Number of average Number of average Options outstanding shares exercise price shares exercise price - --------------------------------------------------------------------------------------------------------------- Beginning of year 874,940 $46.91 -- -- Add (deduct): Granted 40,500 37.44 881,940 $46.91 Exercised -- -- -- -- Cancelled (61,000) 46.94 (7,000) 47.06 - --------------------------------------------------------------------------------------------------------------- End of year 854,440 $46.46 874,940 $46.91 Exercisable, end of year -- -- -- -- ===============================================================================================================
The following options were outstanding as of December 31, 1999:
Weighted average Number of remaining Exercise price shares contractual life - ----------------------------------------------------------------------- $47.06 789,440 8.38 years $44.28 4,500 9.07 years $41.94 24,500 8.83 years $39.41 14,000 9.32 years $34.97 20,000 9.16 years $33.00 2,000 9.22 years =======================================================================
SFAS No. 123, "Accounting for Stock-Based Compensation" requires a fair-value based method of accounting for stock-based compensation. To calculate the fair value of the options awarded, the Company elected to use the Black-Scholes pricing model which produced a value of 36.05 percent and 39.90 percent of the exercise price for 1999 and 1998 awards, respectively. The following assumptions were used to derive the ratio: a seven-year option term, an annualized volatility rate of 39.35 percent and 39.90 percent, a risk-free rate of return of 5.34 percent and 5.60 percent and a dividend yield of 3.04 percent and 2.40 percent in 1999 and 1998, respectively. The Company elected to account for terminations when they occur rather than include an attrition factor in its model. If the compensation cost had been measured using the fair-value based accounting method under SFAS No. 123, pro-forma net income for the years ended December 31, 1999 and 1998 would have been $102,112 and $95,318, and basic and diluted earnings per share would have been $4.68 and $4.35 in 1999 and 1998, respectively. Only a small portion of the stock options issued in 1999 and 1998 was dilutive, and as a result, basic and diluted earnings per share are the same in 1999 and 1998. Earnings per share information has been presented as if the 21,906,651 shares referenced in these footnotes had been outstanding for all periods presented prior to the spin-off. The weighted average number of shares outstanding for the years ended December 31, 1999 and 1998 was 21,840,090 and 21,902,304, respectively. 16 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) INCOME TAXES Income tax expense (benefit) included in the statements of income and changes in stockholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 1999 consisted of the following:
1999 Federal State Total - -------------------------------------------------------------------------------------------------------------- Continuing operations: Current $ 59,130 $2,088 $ 61,218 Deferred (4,551) -- (4,551) - -------------------------------------------------------------------------------------------------------------- Total from continuing operations 54,579 2,088 56,667 Accumulated other comprehensive income--deferred (15,536) -- (15,536) - -------------------------------------------------------------------------------------------------------------- Total income tax expense $ 39,043 $2,088 $ 41,131 ============================================================================================================== 1998 Federal State Total - -------------------------------------------------------------------------------------------------------------- Continuing operations: Current $ 66,578 $1,644 $ 68,222 Deferred (14,686) -- (14,686) - -------------------------------------------------------------------------------------------------------------- Total from continuing operations 51,892 1,644 53,536 Total from discontinued operations 5,748 880 6,628 Accumulated other comprehensive income--deferred 2,701 -- 2,701 - -------------------------------------------------------------------------------------------------------------- Total income tax expense $ 60,341 $2,524 $ 62,865 ============================================================================================================== 1997 Federal State Total - -------------------------------------------------------------------------------------------------------------- Operations: Current $ 38,290 $ 840 $ 39,130 Deferred (11,236) -- (11,236) - -------------------------------------------------------------------------------------------------------------- Total from continuing operations 27,054 840 27,894 Total from discontinued operations 6,663 1,007 7,670 Accumulated other comprehensive income--deferred 3,816 -- 3,816 - -------------------------------------------------------------------------------------------------------------- Total income tax expense $ 37,533 $1,847 $ 39,380 ==============================================================================================================
During 1999, 1998 and 1997, the Company utilized net operating loss carryforwards which resulted in a $1,402 current tax benefit and a $1,402 deferred tax expense for each year. In 1998, the Company recorded an additional deferred tax asset of $1,044 as a result of an Internal Revenue Service audit. The difference between the federal income tax rate and the effective federal income tax rate on income from continuing operations of the Company for each of the years in the three-year period ended December 31, 1999 is as follows:
1999 1998 1997 ----------------------- ----------------------- ---------------------- Amount Rate Amount Rate Amount Rate - ------------------------------------------------------------------------------------------------------------------------ Expected expense $ 56,847 35.0% $ 49,597 35.0% $ 29,261 35.0% Nondeductible expenses 1,873 1.2 1,964 1.4 1,467 1.8 Tax-exempt interest income (4,821) (3.0) (4,759) (3.4) (3,698) (4.4) Goodwill amortization 1,885 1.1 1,135 0.8 800 0.8 Dividends received deduction (490) (0.3) (238) (0.2) (489) (0.6) State taxes, net of federal tax benefit (731) (0.4) (575) (0.4) (294) (0.4) Other, net 16 0.0 4,768 3.4 7 0.2 - ------------------------------------------------------------------------------------------------------------------------ Actual tax expense $ 54,579 33.6% $ 51,892 36.6% $ 27,054 32.4% ========================================================================================================================
17 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 1999 and 1998 are as follows:
1999 1998 - ------------------------------------------------------------------------------------------- Deferred tax assets: Reserve for title losses $111,586 $104,554 Reserves for invested assets 1,313 2,057 Expenses deducted for tax purposes when paid 19,161 21,641 Net operating loss and credit carryforwards 3,232 4,634 Unrealized depreciation of marketable securities 6,920 -- Other assets 4,628 5,415 - ------------------------------------------------------------------------------------------- Total gross deferred tax assets 146,840 138,301 =========================================================================================== Deferred tax liabilities: Unrealized appreciation of marketable securities -- 8,616 Book to tax basis differences of marketable securities 2,599 2,291 Receivable reserves and other liabilities 2,800 2,404 Tax over book depreciation 1,813 1,758 Title plants 29,085 29,085 Prepaid pension cost 843 4,594 - ------------------------------------------------------------------------------------------- Total gross deferred tax liabilities 37,140 48,748 - ------------------------------------------------------------------------------------------- Net deferred tax asset $109,700 $ 89,553 ===========================================================================================
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management believes the deferred tax assets will be fully utilized in the future based upon a review of anticipated future earnings and all other available evidence. The amount of operating loss carryforwards available to offset future federal taxable income at December 31, 1999 is $9,234 and expires in 2006. (10) LEASES The Company leases certain facilities, furniture and equipment under long-term noncancelable operating lease agreements which expire at various dates through 2012. Total lease expense for all operating leases amounted to $71,577, $61,848 and $57,119 for the years ended December 31, 1999, 1998 and 1997, respectively. Of the total lease expense, contingent rental costs associated with lease, tax and expense escalation clauses approximated $4.4 million, $3.7 million and $3.4 million for 1999, 1998 and 1997, respectively. Sublease rentals are insignificant. The aggregate minimum payments under noncancelable operating leases with initial terms of more than one year are: $42,588 in 2000, $41,796 in 2001, $38,132 in 2002, $32,712 in 2003 and $83,228 thereafter. These amounts are exclusive of any additional amounts which may become due under certain leases containing terms that call for additional rental based on increases in operating costs. (11) LITIGATION AND CONTINGENT LIABILITIES The Company is a party to various pending lawsuits involving losses under title insurance policies and various other types of litigation. The Company has established reserves for these items, where appropriate, and is of the opinion that any losses actually sustained in connection with these lawsuits will not have a material effect on the Company's consolidated financial position or results of operations. On May 19, 1999, the California Attorney General, on behalf of the People of the State of California, the Controller of the State of California, and the Insurance Commissioner of the State of California filed a complaint against an alleged class of defendants consisting of title insurers and escrow companies doing business in California. The complaint alleges that defendants failed to escheat certain escrow funds to the State of California, charged home buyers and other customers improper fees, and failed to pay over to customers interest payments, or payments in lieu of interest, made by various banks on escrow funds deposited by defendants on behalf of such customers, in violation of various California laws. The plaintiffs 18 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) seek damages according to proof, return of allegedly improper fees, disgorgement of the alleged interest payments or payments in lieu of interest, payment to the State of California of the funds that allegedly should have been escheated, interest, costs of suit including attorneys' fees and investigative fees, civil penalties, and injunctive relief. Neither Chicago Title nor any of its subsidiaries has been identified by name as a defendant in this lawsuit. On June 22, 1999, a plaintiff's class action lawsuit entitled Sobol v. Chicago Title Company, a subsidiary of CTIC, was filed in the Los Angeles, California Superior Court. The complaint alleges that when acting as a closer, Chicago Title Company charged for reconveyance recording fees when no recording occurred. That action has been stayed indefinitely pending the outcome of the California Attorney General's lawsuit described above. On November 10, 1999, a plaintiff's class action entitled Baker v. First American Title Insurance Company was filed in the San Francisco, California Superior Court. Chicago Title Company and Chicago Title Corporation are named defendants. The complaint alleges that the defendants failed to escheat certain escrow funds to the State of California, charged home buyers and other customers improper fees, and failed to pay over to customers interest payments, or payments in lieu of interest, made by various banks on escrow charges deposited by the defendants on behalf of such customers, in violation of various California laws. The plaintiffs seek damages and other relief. The plaintiffs have petitioned to coordinate the action with the California Attorney General's lawsuit, the Sobol v. Chicago Title Company lawsuit, and other pending California class action lawsuits. Various defendants, including Chicago Title Company, have opposed that petition for coordination. At this time, liability related to the aforementioned three cases is neither probable or estimable and as such, the accompanying financial statements contain no specific provision for these contingent liabilities other than accruals for certain defense costs. (12) ACQUISITIONS During 1999, the Company acquired the assets of, or stock in, nine separate companies for a total cost of $82,748. During 1998, the Company acquired the assets of, or stock in, seven separate companies for a total cost of $32,427. These acquisitions were accounted for using the purchase method of accounting. In January 2000, the Company agreed to acquire the assets of, or stock in, three additional companies for a total cost of approximately $3,710. (13) RELATED PARTY TRANSACTIONS In August 1997, Alleghany effected a transfer of equity security holdings with the Company. The fair value of the shares sold by the Company to Alleghany and the shares acquired by the Company from Alleghany was approximately equal. The transaction resulted in a net gain in the results of operations for 1997 of $2.21 million pre-tax. The securities transferred were investments in marketable equity securities of unrelated third parties. Agreements in Anticipation of the Spin-off - ------------------------------------------ Prior to the spin-off, certain agreements were entered into between Alleghany and its subsidiaries and Chicago Title and its subsidiaries to define their ongoing relationship after the dividend of AAM to Alleghany (the AAM Distribution) and the spin-off. The following summarizes material terms of these agreements. Distribution Agreement - ---------------------- Chicago Title and Alleghany entered into a Distribution Agreement (the Distribution Agreement) which generally provides for, among other things, cooperation regarding past matters and the allocation of responsibility for past obligations and certain obligations that may arise in the future. The Distribution Agreement provides that each of Alleghany and Chicago Title will indemnify the other party and its affiliates from and against any and all damage, loss, liability and expense arising out of or due to the failure of the indemnitor or any of its subsidiaries to pay, perform or otherwise discharge any of the liabilities or obligations for which it is responsible under the terms of the Distribution Agreement. The Distribution Agreement also provides that Chicago Title will bear the expenses incurred in connection with the spin-off, except that Alleghany will bear certain identified legal fees and expenses. 19 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Tax Sharing Agreement - --------------------- Chicago Title and Alleghany entered into a tax sharing agreement (the Tax Sharing Agreement) to allocate certain tax liabilities between Chicago Title and Alleghany and their respective subsidiaries and to allocate responsibilities with respect to tax returns. Under the Tax Sharing Agreement, Chicago Title will bear (i) its separately computed share of Alleghany's consolidated federal income tax liability for each taxable period for which Chicago Title or any of its subsidiaries was a member of the Alleghany consolidated group for federal income tax purposes (except that Chicago Title is not liable for taxes in respect of AAM and its subsidiaries for any period) and (ii) the appropriate part of any state or local tax imposed based on receipts, income, capital or net worth and computed on a consolidated, unitary or combined basis by reference to the assets and/or activities of Chicago Title. Chicago Title also will be responsible for any tax liability resulting from any action necessary to implement the spin-off and its associated events, including the AAM Distribution and the transfer of a business previously conducted by a subsidiary of AAM to Chicago Title. All other taxes are allocated between Chicago Title and Alleghany based on the legal entity on which the tax is imposed. The Tax Sharing Agreement provides that if Alleghany is subject to any tax attributable to the spin-off, including by reason of the spin-off's failure to qualify under Section 355 of the Internal Revenue Code (the Code) as a tax-free distribution, then Chicago Title will be obligated to indemnify and to hold Alleghany harmless from any such tax unless such tax arises solely by reason of certain actions taken, or certain misrepresentations made, by Alleghany. The Tax Sharing Agreement obligates Chicago Title to indemnify and hold Alleghany harmless from any tax attributable to the AAM Distribution if the AAM Distribution does not qualify as a tax-free distribution under Section 355 of the Code because of any misrepresentation made by Chicago Title upon which the tax ruling received from the Internal Revenue Service was based or because of any action taken by Chicago Title which is inconsistent with the treatment of the AAM Distribution as a tax-free distribution. In the Tax Sharing Agreement, Chicago Title also agrees not to take certain specified actions which might adversely affect the tax status of the spin-off or the AAM Distribution. Although Chicago Title and its subsidiaries remain jointly and severally liable with Alleghany and its subsidiaries for all unpaid tax liabilities of the Alleghany consolidated group for any year for which Chicago Title's subsidiaries were members of the Alleghany consolidated group (except for AAM and its subsidiaries), the Tax Sharing Agreement provides that Alleghany shall indemnify Chicago Title for all such liabilities (including interest and penalties), provided that Chicago Title and its subsidiaries have performed all of their obligations under the Tax Sharing Agreement. Moreover, although Chicago Title and its subsidiaries remain jointly and severally liable with Alleghany and its subsidiaries for failures to fund current pension plan obligations as well as for the penalty taxes imposed to enforce such current funding, Alleghany has agreed to indemnify Chicago Title for all such liabilities. Investment Management Agreements - -------------------------------- The Chicago Trust Company entered into Investment Management Agreements with Chicago Title and certain of its subsidiaries providing for the management by The Chicago Trust Company of substantially all of the long-term investable assets and certain of the short-term investable assets of Chicago Title and its subsidiaries. The term of the agreements is five years, with automatic one-year renewals unless either party terminates by giving notice of such termination at least three months prior to the end of any such term. The agreements also may be terminated by Chicago Title or its subsidiaries party thereto in the event that investment performance is unsatisfactory. The investment management fees charged under the Investment Management Agreements generally are based on market rates, and are not material. Transitional Services Agreement - ------------------------------- CT&T and AAM entered into an agreement pursuant to which CT&T continued to furnish various administrative services to AAM. The initial term of the agreement ended on December 31, 1998. CT&T continues to provide certain administrative services to AAM under recently negotiated terms. Sublease - -------- The Chicago Trust Company subleases space from CT&T at the principal headquarters building of Chicago Title until 2012 and on such terms as are currently applicable to CT&T for such space. 20 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (14) FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments included in the consolidated balance sheets at December 31, 1999 and 1998 are as follows:
1999 1998 ---------------------------- ---------------------------- Carrying Fair Carrying Fair amount value amount value - --------------------------------------------------------------------------------------------------------------------------- Assets: Cash on hand and in banks $ 35,024 $ 35,024 $ 39,230 $ 39,230 Cash pledged to secure trust and escrow deposits 54,580 54,580 93,887 93,887 Marketable securities, available-for-sale: Fixed maturities 1,089,524 1,089,524 1,158,664 1,158,664 Equity securities 29,334 29,334 35,464 35,464 - --------------------------------------------------------------------------------------------------------------------------- Liabilities: Bank and other long-term debt 20,999 20,999 21,648 21,648 Trust and escrow deposits secured by pledged assets $ 392,796 $ 392,796 $ 495,299 $ 495,299 ===========================================================================================================================
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate fair value: Cash on hand and in banks, cash pledged to secure trust and escrow deposits, and trust and escrow deposits secured by pledged assets: The carrying amounts approximate fair value because of the short maturity of the instruments. Marketable securities, available-for-sale: The fair values of the Company's marketable securities are based on quoted market prices, where available. For marketable securities not actively traded, fair values are estimated using values obtained from independent pricing services. Bank and other long-term debt: As of December 31, 1999 and 1998, the fair value of the Company's bank and other long-term debt is the same as the carrying value, as the interest rate is variable. In addition, the Company has not determined the fair value of various loan guarantees made principally on behalf of policy-issuing title insurance agents for third-party financing. The total amount of loan guarantees at December 31, 1999 and 1998 was $6,891 and $8,295, respectively. This amount represents the accounting loss the Company would incur if any party to the loan guarantees failed to perform according to the terms of the contract. Amounts that may become payable, if any, under such loan guarantees are not reasonably estimable. (15) RESERVE FOR TITLE LOSSES AND REINSURANCE The Company's reserve for title losses is based on long-range projections subject to uncertainty. Uncertainty regarding reserves of a given policy year is gradually reduced as new information emerges each succeeding year, allowing more reliable revaluations of such reserves. While management believes that the reserve as of December 31, 1999 is adequate, uncertainties in the reserving process could cause such reserve to develop favorably or unfavorably as new or additional information emerges. Any adjustments to reserves are reflected in the operating results of the periods in which they are made. Movements in reserves which are small relative to the amount of such reserves could significantly impact future reported earnings of the Company. 21 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Activity in the Company's reserve for title losses for each of the years in the three-year period ended December 31, 1999 is as follows:
1999 1998 1997 - ---------------------------------------------------------------------------------------- Balance as of January 1 $618,831 $564,334 $532,923 Provision for title losses related to: Current year 117,387 123,920 102,324 Prior year -- -- -- - ---------------------------------------------------------------------------------------- Total provision 117,387 123,920 102,324 - ---------------------------------------------------------------------------------------- Paid related to: Current year 4,847 3,363 3,509 Prior years 64,251 66,870 67,404 - ---------------------------------------------------------------------------------------- Total paid 69,098 70,233 70,913 Balance from acquired subsidiaries (115) 810 -- - ---------------------------------------------------------------------------------------- Balance as of December 31 $667,005 $618,831 $564,334 ========================================================================================
In 1999, the Company reclassified amounts related to 1998 acquisitions from the "Reserve for Title Losses" category to "Accounts Payable." This reclassification resulted in a negative balance from acquired subsidiaries in 1999. The Company had no reinsurance recoverable at December 31, 1999, 1998, 1997 or 1996. The title insurance subsidiaries assume and cede title risks and the related premiums with other title insurance companies. In addition, the Company has purchased reinsurance coverage for losses in excess of $12,500. For these losses, the reinsurers will pay 90 percent of the next $50,000 in losses. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The following table presents the effects of reinsurance on earned premiums:
Percentage of assumed Earned premiums Gross Ceded Assumed Net to net - ---------------------------------------------------------------------------------------------------- 1999 $1,630,956 $5,274 $2,691 $1,628,373 0.17% 1998 1,541,668 4,603 2,470 1,539,535 0.16% 1997 1,204,968 5,115 1,959 1,201,812 0.16% ====================================================================================================
(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly revenues, net income and earnings per share for the years ended December 31, 1999 and 1998 are as follows:
Three months ended -------------------------------------------------------------------------- 1999 March 31 June 30 September 30 December 31 Total - ---------------------------------------------------------------------------------------------------------------------------- Revenue: Title, escrow, trust and other revenue $471,810 $513,026 $504,632 $499,315 $1,988,783 Investment income 16,607 15,070 17,311 19,605 68,593 Net realized investment gains 1,034 215 12 402 1,663 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues $489,451 $528,311 $521,955 $519,322 $2,059,039 - ---------------------------------------------------------------------------------------------------------------------------- Net income: From continuing operations $ 22,517 $ 29,922 $ 25,195 $ 27,039 $ 104,673 From sales of marketable securities 672 140 8 261 1,081 - ---------------------------------------------------------------------------------------------------------------------------- Total net income $ 23,189 $ 30,062 $ 25,203 $ 27,300 $ 105,754 - ---------------------------------------------------------------------------------------------------------------------------- Basic and diluted earnings per share $ 1.06 $ 1.38 $ 1.16 $ 1.24 $ 4.84 ============================================================================================================================
22 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three months ended -------------------------------------------------------------------------- 1998 March 31 June 30 September 30 December 31 Total - ---------------------------------------------------------------------------------------------------------------------------- Revenue: Title, escrow, trust and other revenue $385,804 $461,757 $481,326 $532,576 $1,861,463 Investment income 14,805 15,748 15,563 17,721 63,837 Net realized investment gains 371 167 199 672 1,409 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues $400,980 $477,672 $497,088 $550,969 $1,926,709 - ---------------------------------------------------------------------------------------------------------------------------- Net income: From continuing operations $ 21,000 $ 10,594 $ 29,777 $ 25,882 $ 87,253 From sales of marketable securities 241 109 129 437 916 From discontinued operations 4,979 4,034 -- -- 9,013 - ---------------------------------------------------------------------------------------------------------------------------- Total net income $ 26,220 $ 14,737 $ 29,906 $ 26,319 $ 97,182 - ---------------------------------------------------------------------------------------------------------------------------- Basic and diluted earnings per share: Continuing operations $ 0.97 $ 0.49 $ 1.37 $ 1.20 $ 4.03 Discontinued operations 0.23 0.18 -- -- 0.41 - ---------------------------------------------------------------------------------------------------------------------------- Net earnings per share $ 1.20 $ 0.67 $ 1.37 $ 1.20 $ 4.44 ============================================================================================================================
(17) PROPOSED MERGER WITH FIDELITY NATIONAL FINANCIAL, INC. The Company entered into a definitive agreement with Fidelity National Financial, Inc., a Delaware corporation (Fidelity), dated as of August 1, 1999, and amended as of October 13, 1999, providing for the merger of the Company into Fidelity for a merger consideration of $52.00 per share of the Company's common stock (subject to adjustment as set forth in the definitive agreement and described beginning on page 5 in the joint proxy statement/prospectus prepared in connection therewith), consisting of approximately equal amounts of cash and Fidelity stock. The boards of directors of both companies have approved the agreement. The transaction is subject to approval by the stockholders of the Company and Fidelity, requisite regulatory authorities and other customary conditions and is expected to be completed in the first quarter of 2000. During 1999 Chicago Title incurred pre-tax merger-related expenses of approximately $4,872 as follows:
1999 - ------------------------------------------------------------- Legal costs $ 1,926 Other professional services 1,955 Other direct expenses 592 Debt offering costs expensed 399 - ------------------------------------------------------------- Total merger-related costs 4,872 Less: tax deduction (140) - ------------------------------------------------------------- Total merger-related costs after tax $ 4,732 =============================================================
23 EX-99.4 3 EXHIBIT 99.4 1 EXHIBIT 99.4 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Fidelity National Financial, Inc.: We consent to the use of our report dated January 24, 2000 on the consolidated financial statements of Chicago Title Corporation included in this Current Report on Form 8-K of Fidelity National Financial, Inc. /s/ KPMG LLP Chicago, Illinois April 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----