-----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, SWBaoC9+Um8WqOhfjvoXRBbioOP66wUTpMv7Zu0S706nok4OUXkS+tVVtFDNtFMy aoPXT6hhqOGP+qIoB3gtTA== 0001095811-01-502227.txt : 20010516 0001095811-01-502227.hdr.sgml : 20010516 ACCESSION NUMBER: 0001095811-01-502227 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIDELITY NATIONAL FINANCIAL INC /DE/ CENTRAL INDEX KEY: 0000809398 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 860498599 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09396 FILM NUMBER: 1634737 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVE STREET 2: STE 300 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9496225000 MAIL ADDRESS: STREET 1: MLISS JONES KANE STREET 2: 17911 VON KARMAN AVE STE 300 CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 a72470e10-q.txt FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 2001 Commission File Number 1-9396 FIDELITY NATIONAL FINANCIAL, INC. (Exact name of registrant as specified in its charter) Delaware 86-0498599 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 17911 Von Karman Avenue, Suite 300, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (949) 622-4333 ------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] As of May 10, 2001, 78,229,023 shares of the Registrant's Common Stock were outstanding. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 2001 INDEX
Page ---- Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements A. Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 B. Condensed Consolidated Statements of Earnings for the three months ended March 31, 2001 and 2000 4 C. Condensed Consolidated Statements of Comprehensive Earnings for the three months ended March 31, 2001 and 2000 5 D. Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2001 6 E. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000 7 F. Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosure About Market Risk 16 Part II: OTHER INFORMATION Item 1. Legal Proceedings 17 Item 6. Exhibits and Reports on Form 8-K 17
2 3 Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
March 31, December 31, 2001 2000 ---------- ---------- (Unaudited) ASSETS Investments: Fixed maturities available for sale, at fair value, at March 31, 2001 includes $252,034 and at December 31, 2000 includes $248,512 of pledged fixed maturity securities related to secured trust deposits ........................................................... $1,174,168 $1,188,681 Equity securities, at fair value .................................... 38,150 39,959 Other long-term investments, at fair value .......................... 46,190 46,870 Short-term investments at March 31, 2001 includes $183,536 and at December 31, 2000 includes $210,861 of pledged short-term investments related to secured trust deposits ................... 405,086 409,317 Investments in real estate and partnerships, net .................... 439 504 ---------- ---------- Total investments ............................................... 1,664,033 1,685,331 Cash and cash equivalents, at March 31, 2001 includes $173,556 and at December 31, 2000 includes $132,141 of pledged cash related to secured trust deposits .............................................. 314,008 262,955 Leases and residual interests in securitizations ........................ 176,079 151,052 Trade receivables, net .................................................. 138,053 127,633 Notes receivable, net ................................................... 14,776 16,381 Income taxes receivable ................................................. -- 22,343 Cost in excess of net assets acquired, net .............................. 793,727 770,060 Prepaid expenses and other assets ....................................... 277,634 231,118 Title plants ............................................................ 275,751 275,295 Property and equipment, net ............................................. 165,435 172,838 Deferred tax asset ...................................................... 112,517 118,979 ---------- ---------- $3,932,013 $3,833,985 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities ............................ $ 425,933 $ 446,394 Notes payable ....................................................... 568,175 791,430 Reserve for claim losses ............................................ 898,845 907,482 Secured trust deposits .............................................. 593,876 576,350 Income taxes payable ................................................ 16,732 -- ---------- ---------- 2,503,561 2,721,656 Minority interests .................................................. 7,776 5,592 Stockholders' equity: Preferred stock, $.0001 par value; authorized, 3,000,000 shares; issued and outstanding, none ............................. -- -- Common stock, $.0001 par value; authorized, 100,000,000 shares issued, 78,220,752 as of March 31, 2001 and 69,499,409 as of December 31, 2000 .................................................. 8 7 Additional paid-in capital .......................................... 966,268 695,141 Retained earnings ................................................... 446,375 409,216 ---------- ---------- 1,412,651 1,104,364 Accumulated other comprehensive earnings ............................ 8,025 2,373 ---------- ---------- 1,420,676 1,106,737 ---------- ---------- $3,932,013 $3,833,985 ========== ==========
See Notes to Condensed Consolidated Financial Statements 3 4 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data)
Three months ended March 31, ---------------------- 2001 2000 -------- -------- (Unaudited) REVENUE: Title insurance premiums ................ $534,840 $260,400 Escrow and other title-related fees ..... 141,399 58,225 Real estate related services ............ 56,550 20,870 Interest and investment income, including realized gains and losses ............. 27,848 14,700 Other income ............................ 17,227 23,462 -------- -------- 777,864 377,657 EXPENSES: Personnel costs ......................... 250,824 110,707 Other operating expenses ................ 176,009 110,563 Agent commissions ....................... 221,928 125,908 Provision for claim losses .............. 26,741 14,585 Interest expense ........................ 14,382 6,579 -------- -------- Total expenses ...................... 689,884 368,342 -------- -------- Earnings before amortization of cost in excess of net assets acquired ........... 87,980 9,315 Amortization of cost in excess of net assets acquired ......................... 11,722 1,654 -------- -------- Earnings before income taxes .............. 76,258 7,661 Income tax expense ........................ 31,266 5,792 -------- -------- Net earnings ........................ $ 44,992 $ 1,869 ======== ======== Basic earnings per share .................. $ 0.59 $ 0.06 ======== ======== Weighted average shares outstanding, basic basis .................................. 76,047 32,526 ======== ======== Diluted earnings per share ................ $ 0.57 $ 0.06 ======== ======== Weighted average shares outstanding, diluted basis ............................. 78,719 33,954 ======== ======== Cash dividends per share .................. $ 0.10 $ 0.10 ======== ========
See Notes to Condensed Consolidated Financial Statements 4 5 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (In thousands)
Three months ended March 31, --------------------- 2001 2000 ------- ------- (Unaudited) Net earnings ............................. $44,992 $ 1,869 Other comprehensive earnings (loss): Unrealized gains on investments, net(1) ............................... 4,756 7,665 Reclassification adjustments for (gains) losses included in net earnings(2) .... 896 (2,707) ------- ------- Other comprehensive earnings ............. 5,652 4,958 ------- ------- Comprehensive earnings ................... $50,644 $ 6,827 ======= =======
(1) Net of income tax expense of $3.2 million and $5.1 million for the three months ended March 31, 2001 and 2000, respectively. (2) Net of income tax expense (benefit) of ($597) and $1.8 million for the three months ended March 31, 2001 and 2000, respectively. See Notes to Condensed Consolidated Financial Statements. 5 6 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (In thousands)
Accumulated Common Stock Additional Other ------------------------ Paid-in Retained Comprehensive Shares Amount Capital Earnings Income --------- --------- ---------- ----------- -------------- (In thousands) Balance, December 31, 2000 ........ 69,499 $ 7 $ 695,141 $ 409,216 $ 2,373 Exercise of stock options ....... 672 -- 8,023 -- -- Tax benefit associated with the exercise of options ....... -- -- 6,804 -- -- Other comprehensive income -- unrealized gain on investments and other financial instruments -- -- -- -- 5,652 Common stock offering, net ...... 8,050 1 256,300 -- -- Cash dividends declared ......... -- -- -- (7,833) -- Net earnings .................... -- -- -- 44,992 -- --------- --------- --------- --------- --------- Balance, March 31, 2001 ........... 78,221 $ 8 $ 966,268 $ 446,375 $ 8,025 ========= ========= ========= ========= =========
See Notes Condensed Consolidated Financial Statements 6 7 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, ------------------------- 2001 2000 --------- --------- (Unaudited) Cash flows from operating activities: Net earnings ..................................................................... $ 44,992 $ 1,869 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization ................................................ 27,430 16,019 Net increase (decrease) in reserve for claim losses .......................... (8,637) 1 Net increase in provision for possible losses other than claims .............. 200 133 Gain on sales of assets ...................................................... (838) (4,512) Change in assets and liabilities, net of effects from acquisitions: Net increase in leases and lease securitization residual interests ........... (25,027) (10,007) Net increase in secured trust deposits ....................................... (86) -- Tax benefit associated with the exercise of stock options .................... 6,804 -- Net increase in trade receivables ............................................ (11,946) (1,403) Net increase in prepaid expenses and other assets ............................ (7,502) (586) Net decrease in accounts payable, accrued liabilities and minority interests.. (62,436) (8,792) Net increase (decrease) in income taxes ...................................... 39,866 (2,234) --------- --------- Net cash provided by (used in) operating activities .................................. 2,820 (9,512) --------- --------- Cash flows from investing activities: Proceeds from sales of investment securities available for sale .................. 162,763 143,171 Proceeds from maturities of investment securities available for sale ............. 43,355 88 Proceeds from sale of assets ..................................................... 318 -- Collections of notes receivable .................................................. 2,586 5,849 Additions to title plants ........................................................ (824) -- Additions to property and equipment .............................................. (11,025) (9,001) Purchases of investment securities available for sale ............................ (203,571) (122,097) Net proceeds from short-term investment securities ............................... 4,198 20,943 Additions to notes receivable .................................................... (1,427) (5,570) Acquisitions of businesses, net of cash acquired ................................. (23,631) (538,046) --------- --------- Net cash used in investing activities ................................................ (27,258) (504,663) --------- ---------
See Notes to Condensed Consolidated Financial Statements. 7 8 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three months ended March 31, ------------------------- 2001 2000 --------- --------- (Unaudited) Cash flows from financing activities: Borrowings ................................. $ 43,433 $ 596,415 Net proceeds from common stock offering .... 256,300 -- Debt service payments ...................... (266,687) (34,093) Dividends paid ............................. (6,993) (3,922) Purchase of treasury stock ................. -- (551) Stock options exercised .................... 8,023 10,308 --------- --------- Net cash provided by financing activities ...... 34,076 568,157 --------- --------- Net increase in cash and cash equivalents ...... 9,638 53,982 Cash and cash equivalents at beginning of period 130,814 38,569 --------- --------- Cash and cash equivalents at end of period ..... $ 140,452 $ 92,551 ========= ========= Supplemental cash flow information: Income taxes paid (refunded) ............... $ (15,000) $ 1,038 ========= ========= Interest paid .............................. $ 14,837 $ 6,011 ========= ========= Noncash investing and financing activities: Dividends declared and unpaid .............. $ 7,833 $ 6,679 ========= =========
See Notes to Condensed Consolidated Financial Statements 8 9 Fidelity National Financial, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements Note A - Basis of Financial Statements The financial information included in this report includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, the "Company") and has been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain reclassifications have been made in the 2000 Condensed Consolidated Financial Statements to conform to classifications used in 2001. Note B - Recent Developments On January 3, 2001 the Company acquired International Data Management Corporation ("IDM"), a leading provider of real estate information services, for $20.8 million in cash. IDM's real estate information databases contain over 100 million real property ownership and sales records from the continental United States. The databases are updated daily to reflect new sales, mortgage information and other changes in real property ownership. The acquisition was accounted for as a purchase and the Company is amortizing cost in excess of net assets acquired in connection with the acquisition on a straight-line basis over 15 years. On April 12, 2001 the Company and VISTA Information Solutions, Inc. (Nasdaq: VINF), a provider of real estate information products and services, including multiple listing services systems and environmental data and disclosure information businesses, signed a definitive agreement to combine both companies' real estate information, technology products and assets into a jointly owned real estate services company. Under the terms of the agreement, the Company will contribute the assets and operations of its tax, credit, flood, appraisal and property records businesses in exchange for approximately 77 percent of VISTA stock. The Company anticipates that this transaction will close during the third quarter of 2001. Note C - Merger with Chicago Title Corporation On March 20, 2000, Chicago Title Corporation ("Chicago Title") merged with and into the Company pursuant to an Agreement and Plan of Merger, dated August 1, 1999, as amended on October 13, 1999. Pursuant to the merger agreement, Chicago Title stockholders received aggregate merger consideration valued at approximately $1.1 billion. The merger consideration was paid in the form of 1.7673 shares of Company common stock and $26.00 in cash for each share of Chicago Title common stock, resulting in the issuance of approximately 38.8 million shares of Company common stock valued at an average price during the applicable trading period of $13.1771 per share and the payment of approximately $570.2 million in cash. The merger was accounted for as a purchase, and the Company is amortizing cost in excess of net assets acquired in connection with the merger on a straight-line basis over 20 years. The Company's Condensed Consolidated Statements of Earnings for the first quarter of 2000 include the results of operations of Chicago Title for the period from March 20, 2000, the merger date, through March 31, 2000. In connection with the merger, the Company entered into an $800.0 million syndicated credit agreement. The credit agreement provides for three distinct credit facilities: (i) a $100.0 million, 18-month revolving credit facility, which has been paid in full and terminated, see Note D; (ii) a $250.0 million, 6-year revolving credit facility; and, (iii) a $450.0 million term loan facility with a 6-year amortization period. The credit agreement bears interest at a variable interest rate based on the debt ratings assigned to the Company by certain independent agencies, and is unsecured. The current interest rate is LIBOR plus 1.125%. Amounts borrowed under the credit agreement were used to finance the cash portion of the merger consideration, to refinance previously existing indebtedness, to pay fees and expenses incurred in connection with the merger and to fund other general corporate purposes. 9 10 Selected unaudited pro forma combined results of operations for the three-month period ended March 31, 2000, assuming the merger had occurred as of January 1, 2000, and using actual general and administrative expenses prior to the merger, is set forth below:
Three months ended March 31, 2000 ------------------ (In thousands, except per share data) Total revenue ...................................... $ 709,917 Net earnings before merger-related expenses and non-recurring charges ........................ $ 12,558 Net loss ........................................... $ (21,230) Basic net earnings per share before merger-related expenses and non-recurring charges ............... $ 0.19 Diluted net earnings per share before merger-related expenses and non-recurring charges ............... $ 0.19 Basic net loss per share ........................... $ (0.32) Diluted net loss per share ......................... $ (0.32)
Note D - Common Stock Offering On January 24, 2001, the Company issued 8,050,000 shares of its common stock at a public offering price of $33.50 per share. Proceeds from this offering, net of underwriting discounts and commissions and other estimated related expenses, were $256.3 million. Net proceeds of $100.0 million were used to repay in full and terminate the $100.0 million, 18-month revolving credit facility and net proceeds of $149.5 million were used to pay down in full the $250.0 million, 6-year revolving credit facility. The remainder of the cash proceeds are available for general corporate purposes. Note E - Earnings Per Share The Company presents "basic" earnings per share, representing net earnings divided by the weighted average shares outstanding (excluding all common stock equivalents), and "diluted" earnings per share, representing the dilutive effect of all common stock equivalents. The following table illustrates the computation of basic and diluted earnings per share:
Three months ended March 31, -------------------- 2001 2000 ------- ------- (In thousands, except per share amounts) Net earnings, basic and diluted basis .... $44,992 $ 1,869 ======= ======= Weighted average shares outstanding during the period, basic basis ................ 76,047 32,526 Plus: Common stock equivalent shares assumed from conversion of options ..... 2,672 1,428 ------- ------- Weighted average shares outstanding during the period, diluted basis .............. 78,719 33,954 ======= ======= Basic earnings per share ................. $ 0.59 $ 0.06 ======= ======= Diluted earnings per share ............... $ 0.57 $ 0.06 ======= =======
10 11 Note F - Segment Information Summarized financial information concerning the Company's reportable segments is shown in the following table. The amounts reported for 2000 include the results of operations for Chicago Title for the period from March 20, 2000, the merger date, through March 31, 2000. Reportable segments are determined based on the organizational structure and types of products and services from which each reportable segment derives its revenue.
REAL ESTATE THREE MONTHS ENDED: TITLE RELATED CORPORATE MARCH 31, 2001 INSURANCE SERVICES AND OTHER TOTAL - -------------- ---------- ------------ ---------- ---------- (Dollars in thousands) Total revenue ............... $ 701,886 $ 56,908 $ 19,070 $ 777,864 ========== ========== ========== ========== Operating earnings .......... $ 75,595 $ 8,228 $ 6,399 $ 90,222 Interest and investment income, including realized gains and losses.. 25,647 358 1,843 27,848 Depreciation and amortization expense ...... 22,934 2,076 2,420 27,430 Interest expense ............ 1,243 3 13,136 14,382 ---------- ---------- ---------- ---------- Earnings (loss) before income taxes .............. 77,065 6,507 (7,314) 76,258 Income tax expense (benefit) ................. 31,597 2,668 (2,999) 31,266 ---------- ---------- ---------- ---------- Net earnings (loss) ......... $ 45,468 $ 3,839 $ (4,315) $ 44,992 ========== ========== ========== ========== Assets ...................... $3,213,190 $ 265,752 $ 453,071 $3,932,013 ========== ========== ========== ==========
REAL ESTATE THREE MONTHS ENDED: TITLE RELATED CORPORATE MARCH 31, 2000 INSURANCE SERVICES AND OTHER TOTAL - -------------- ---------- ------------ ---------- ---------- (Dollars in thousands) Total revenue ............... $ 329,490 $ 20,992 $ 27,175 $ 377,657 ========== ========== ========== ========== Operating earnings (loss).... $ 24,804 $ 1,897 $ (11,142) $ 15,559 Interest and investment income, including realized gains and losses.. 10,865 122 3,713 14,700 Depreciation and amortization expense ...... 9,289 387 6,343 16,019 Interest expense ............ 792 2 5,785 6,579 ---------- ---------- ---------- ---------- Earnings (loss) before income taxes .............. 25,588 1,630 (19,557) 7,661 Income tax expense (benefit) ................. 19,345 1,232 (14,785) 5,792 ---------- ---------- ---------- ---------- Net earnings (loss) ......... $ 6,243 $ 398 $ (4,772) $ 1,869 ========== ========== ========== ========== Assets ...................... $3,048,525 $ 54,857 $ 428,746 $3,532,128 ========== ========== ========== ==========
11 12 Notes to Condensed Consolidated Financial Statements, Continued The activities of the reportable segments include the following: Title Insurance This segment, consisting of title insurance underwriters and wholly-owned title insurance agencies, provides core title insurance and escrow services, including document preparation, collection and trust activities. This segment coordinates its activities with those of the real estate related services segment described below in order to offer the full range of real estate products and services required to execute and close a real estate transaction. Real Estate Related Services This segment, consisting of various real estate related and ancillary service subsidiaries, offers the complementary specialized products and services required to execute and close a real estate transaction that are not offered by the title insurance segment described above. These services include document recording services on a nationwide basis, tax qualifying property exchange services, property appraisal services, tax monitoring services, home warranty insurance, credit reporting, real estate referral services, flood monitoring, and foreclosure publishing and posting. These services require specialized expertise and have been centralized for efficiency and ease of management. Corporate and Other The corporate segment consists of the operations of the parent holding company, as well as the operations of Micro General Corporation, FNF Capital, Inc. and Express Network, Inc., which was sold in the second quarter of 2000, as well as the issuance and repayment of corporate debt obligations. The non-recurring charges of $13.4 million that were recorded during the first quarter of 2000 primarily relate to the corporate segment. The accounting policies of the segments are the same as those used in the Condensed Consolidated Financial Statements. Intersegment sales or transfers which occurred in the ordinary course of consolidated operations, have been eliminated from the segment information provided. Note G - Dividends and Stock Repurchase Program On January 13, 2001, the Company's Board of Directors declared a cash dividend of $.10 per share, payable on April 27, 2001, to stockholders of record as of April 13, 2001. On April 25, 2001, the Company's Board of Directors declared a cash dividend of $.10 per share, payable on July 27, 2001, to stockholders of record as of July 13, 2001. On April 25, 2001, the Company's Board of Directors authorized the Company to purchase up to 5,000,000 shares of its common stock. Purchases may be made from time to time by the Company in the open market, in block purchases or in privately negotiated transactions. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including, but not limited to: general economic and business conditions, including interest rate fluctuations and general volatility in the capital markets; changes in the performance of the real estate markets; the impact of competitive products and pricing; success of operating initiatives; our ability to integrate the acquired business operations of Chicago Title and our ability to implement cost-saving synergies associated with the acquisition; adverse publicity; the ability to identify businesses to be acquired; availability of qualified personnel; employee benefits costs and changes in, or the failure to comply with government regulations and other risks detailed in our filings with the Securities and Exchange Commission. 12 13 Factors Affecting Comparability Our Condensed Consolidated Statements of Earnings for 2000 include the results of operations of Chicago Title for the period from March 20, 2000, the merger date, through March 31, 2000. As a result, quarter over quarter comparisons may not be meaningful. In addition, during the first quarter of 2000 we recorded certain non-recurring charges totaling $13.4 million, after applicable taxes. These charges primarily relate to the revaluation of non-title assets, including our investment in Express Network, Inc. ("ENI"), which was sold in the second quarter of 2000, and existing goodwill associated with ENI and the write-off of obsolete software. RESULTS OF OPERATIONS Net earnings for the first quarter of 2001 were $45.0 million, or $0.57 per diluted share, as compared with net earnings of $1.9 million, or $0.06 per diluted share, for the first quarter of 2000. Excluding the non-recurring, non-title related charges we recorded in the first quarter of 2000 of $13.4 million, or $0.39 per diluted share, net earnings for the three-month period ending March 31, 2000 were $15.2 million, or $0.45 per diluted share. The following table presents the calculation of net earnings before amortization of cost in excess of net assets acquired and non-recurring charges. We believe that earnings before amortization of cost in excess of net assets acquired and non-recurring charges better reflects the operational performance of our business.
Three months ended March 31, ----------------------- 2001 2000 -------- -------- (In thousands, except per share data) Net earnings .......................... $ 44,992 $ 1,869 Amortization of cost in excess of net assets acquired ................. 11,722 1,654 Tax effect of amortization of cost in excess of net assets acquired ....... (247) -- Non-recurring charges, net of tax ..... -- 13,371 -------- -------- Net earnings before amortization of cost in excess of net assets acquired and non-recurring charges .. $ 56,467 $ 16,894 ======== ======== Diluted net earnings per share before amortization of cost in excess of net assets acquired and non-recurring charges .............................. $ 0.72 $ 0.50 ======== ======== Diluted weighted average shares outstanding ......................... 78,719 33,954 ======== ========
Our acquisition of Chicago Title on March 20, 2000, has impacted the mix of business between our direct and agency operations as compared with the prior year period. Economic conditions, including the steady increase in interest rates during the second half of 1999 through the first half of 2000, resulted in a significant decline in refinancing transactions in 2000, which shifted the real estate market during that period from a refinance-driven market to a more traditional market driven by new home purchases and resales. However, beginning in December 2000 and continuing through the first quarter of 2001, the Federal Reserve Board has reduced interest rates by two percentage points, bringing interest rates down to their lowest level in nearly two years, which has significantly increased the volume of refinance activity. As a result of the shift in mix of business from the Chicago Title merger, along with steady decreases in interest rates, total title insurance premiums have increased in the first quarter of 2001 as compared with the first quarter of 2000 on a pro forma basis (assuming the Chicago Title merger occurred on January 1, 2000). 13 14 The following table presents information regarding the components of title insurance premiums:
Three months ended March 31, ---------------------------------------------- % of % of 2001 Total 2000 Total -------- ------- -------- ------- (Dollars in thousands) Title premiums from direct operations $249,707 46.7% $102,466 39.3% Title premiums from agency operations 285,133 53.3% 157,934 60.7% -------- ------- -------- ------- Total $534,840 100.0% $260,400 100.0% ======== ======= ======== =======
The increase in real estate activity in 2001 as well as the inclusion of the results of the Chicago Title operations for a full quarter in 2001 as compared with eleven days in the prior year quarter, has been partially offset by a decrease in the average fee per file. The decrease in fee per file is consistent with the increased levels of refinance activity experienced during the first quarter of 2001. Escrow and other title-related fees for the three-month period ended March 31, 2001 were $141.4 million as compared with $58.2 million for the corresponding period of the prior year. The trend in escrow and title-related fees is generally consistent with that of our direct title premiums. Revenues from real estate related services were $56.6 million in the first quarter of 2001 as compared with $20.9 million for the prior year quarter. The increase in revenue for the three-month period is primarily the result of the acquisition of Chicago Title as well as increases in revenue from our credit reporting, flood monitoring, home warranty insurance and tax qualifying property exchange services. Interest and investment income was $27.8 million in the first quarter of 2001 as compared with $14.7 million in the first quarter of 2000. The increase in interest and investment income earned during the first quarter of 2001 is primarily due to an increase in invested assets as a result of the Chicago Title acquisition. The increase in invested assets and interest earned thereon in the first quarter of 2001 was partially offset by net realized gains on the sale of assets of $0.8 million as compared with net realized gains of $4.5 million in the first quarter of 2000. Other income represents external revenue generated by Micro General Corporation, our majority-owned information-services subsidiary, FNF Capital, Inc., our equipment leasing subsidiary and ENI, which was sold in the second quarter of 2000. Other income for the first quarter of 2001 was $17.2 million as compared with $23.5 million for the first quarter of 2000. The decrease in other income is due to the sale of ENI in the second quarter of 2000 as well as decreases in externally generated revenue by Micro General Corporation. Our operating expenses consist primarily of personnel costs, other operating expenses and agent commissions, which are incurred as orders are received and processed. Title insurance premiums and escrow and other title-related fees are generally recognized as income at the time the underlying transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have impacted margins and net earnings. We have implemented programs and have taken necessary actions to maintain expense levels consistent with revenue; however, a short time lag does exist in reducing variable costs and certain fixed costs are incurred regardless of revenue levels. Personnel costs include base salaries, commissions and bonuses paid to employees, and are one of our most significant operating expenses. These costs generally fluctuate with the level of orders opened and closed and with the mix of revenue. For the first quarter of 2001 personnel costs were $250.8 million, or 32.3% of total revenue, compared with $110.7 million, or 29.3% of total revenue for the corresponding 2000 quarter. On a pro forma basis (assuming the Chicago Title merger occurred on January 1, 2000), personnel costs as a percentage of revenue have decreased in the first quarter of 2001 as compared with the first quarter of 2000. We have taken significant measures to maintain appropriate personnel levels and costs relative to the volume and mix of business while maintaining customer service standards and quality controls. We will continue to monitor prevailing market conditions and will adjust personnel costs in accordance with activity. 14 15 Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), postage and courier services, computer services (including personnel costs associated with information technology support), professional services, advertising expenses, general insurance, depreciation and trade and notes receivable allowances. We continue to be committed to cost control measures. In response to market conditions, we have implemented aggressive cost control programs in order to maintain operating expenses at levels consistent with the levels of revenue. However, certain fixed costs are incurred regardless of revenue levels, resulting in period-over-period fluctuations. Our cost control programs are designed to evaluate expenses, both current and budgeted, relative to existing and projected market conditions. Total other operating expenses were $176.0 million, or 22.6% of total revenues for the first quarter of 2001 as compared with $110.6 million, or 29.3% of total revenues for the first quarter of 2000. Agent commissions represent the portion of policy premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions were 77.8% of agent title premiums in the first quarter of 2001 as compared with 79.7% of agent title premiums for the first quarter of 2000. Agent commissions and the resulting percentage of agent title premiums retained by us vary according to regional differences in real estate closing practices and state regulations. The provision for claim losses includes an estimate of anticipated title claims, escrow losses and major claims. The estimate of anticipated title claims and escrow losses is accrued as a percentage of title premium revenue based on our historical loss experience and other relevant factors. We monitor our claim loss experience on a continual basis and adjust the provision for claim losses accordingly. Based on our loss development studies, we believe that as a result of our underwriting and claims handling practices, as well as the refinancing business of prior years, we will maintain the favorable claim loss trends we have experienced over the past several years. As such, our claim loss provision as a percentage of total title premiums was 5.0% in the first quarter of 2001 as compared with 5.6% in the first quarter of 2000. Interest expense for the three-month period ended March 31, 2001 was $14.4 million. Interest expense for the three-month period ended March 31, 2000 was $6.6 million. The increase in interest expense in 2001 is attributable to the increase in outstanding notes payable, primarily related to the financing of the Chicago Title merger. Amortization of cost in excess of net assets acquired was $11.7 million in the first quarter of 2001 as compared with $1.7 million in the first quarter of 2000. In connection with the acquisition of Chicago Title, we recorded estimated cost in excess of net assets acquired of approximately $762.3 million. As a result, amortization of cost in excess of net assets acquired has increased accordingly. Income tax expense, as a percentage of earnings before income taxes, was 41.0% and 75.6% for the first quarters of 2001 and 2000, respectively. The fluctuation in income tax expense as a percentage of earnings before income taxes is attributable to our estimate of ultimate income tax liability, the impact of the non-recurring charges in the first quarter of 2000 and the non-deductible goodwill recorded pursuant to the Chicago Title merger and the characteristics of net earnings, i.e. operating income versus investment income. LIQUIDITY AND CAPITAL RESOURCES In connection with the Chicago Title merger, we entered into a syndicated credit agreement. The credit agreement provides for three distinct credit facilities: - $100.0 million, 18 month revolving credit facility due September 30, 2001; - $250.0 million, 6 year revolving credit facility due March 19, 2006; and - $450.0 million term loan facility with a 6 year amortization period, due March 19, 2006. The credit agreement bears interest at a variable rate of interest based on the debt ratings assigned to us by certain independent agencies, and is unsecured. The current interest rate is LIBOR plus 1.125%. Amounts borrowed under the credit agreement were used to pay the cash portion of the merger consideration, to refinance previously existing indebtedness, to pay fees and expenses incurred in connection with the merger and to fund other general corporate purposes. 15 16 The credit agreement and other debt facilities impose certain affirmative and negative covenants on us relating to current debt ratings, certain financial ratios related to liquidity, net worth, capitalization, investments, acquisitions and restricted payments, and certain dividend restrictions. On January 24, 2001, we issued 8,050,000 shares of our common stock at a public offering price of $33.50 per share. Proceeds from this offering, net of underwriting discounts and commissions and other estimated related expenses, were $256.3 million. Net proceeds of $100.0 million were used to repay in full and terminate the $100.0 million, 18 month revolving credit facility and net proceeds of $149.5 million were used to pay down in full the $250.0 million, 6 year revolving credit facility. The remainder of the cash proceeds are available for general corporate purposes. See Note D. Our cash requirements include debt service, operating expenses, lease fundings, lease securitizations, taxes and dividends on our common stock. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities and bank borrowings through existing credit facilities. Our short-and long-term liquidity requirements are monitored regularly to match cash inflows with cash requirements. We forecast the daily needs of all of our subsidiaries and periodically review their short- and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying these projections. Our two significant sources of funds are dividends and distributions from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are executed within the guidelines of management agreements among us and our subsidiaries. Our insurance subsidiaries are restricted by state regulation in their ability to pay dividends and make distributions. Each state of domicile regulates the extent to which our title underwriters can pay dividends or make other distributions to us. Our underwritten title companies, real estate related service companies, Micro General and FNF Capital collect revenue and pay operating expenses. However, they are not regulated to the same extent as our insurance subsidiaries. Positive cash flow from these subsidiaries are invested primarily in cash and cash equivalents. Item 3. Quantitative and Qualitative Disclosure about Market Risk There have been no material changes in the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2000. 16 17 Part II: OTHER INFORMATION Item 1. Legal Proceedings As previously disclosed in our prior Securities and Exchange Commission filings, we have been named as a defendant in five class action lawsuits alleging irregularities and violations of title and escrow practices. One of these suits was filed by the Attorney General of the State of California on behalf of the California Controller and the California Department of Insurance against the entire title and escrow industry in California. The other four were filed by private law firms in State and Federal Courts in San Francisco and Los Angeles. In February 2000, we reached a settlement of the lawsuit filed by the California Department of Insurance. The settlement does not require us to pay any fine or penalty. We are vigorously defending the remaining lawsuits. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 3-4 Amendments to Bylaws of the Registrant. (b) Reports on Form 8-K: A Current Report on Form 8-K, dated January 16, 2001, was filed during the first quarter of 2001 to announce plans to make a public offering of shares of our Common Stock. A Current Report on Form 8-K, dated January 17, 2001, was filed during the first quarter of 2001 to announce that we expect to at least meet First Call's consensus fourth quarter earnings per share estimates. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIDELITY NATIONAL FINANCIAL, INC. --------------------------------- (Registrant) By: /s/ Alan L. Stinson -------------------------------------- Alan L. Stinson Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 14, 2001 17 EX-3.4 2 a72470ex3-4.txt EXHIBIT 3.4 1 EXHIBIT 3.4 RESOLUTIONS OF THE BOARD OF DIRECTORS OF FIDELITY NATIONAL FINANCIAL, INC. AMENDMENT TO BY LAWS APRIL 24, 2001 WHEREAS, there has been submitted to and considered by the Board of Directors of the Company amendments to Article II, Section 7 and Article III, Section 2(c) of the Company's Bylaws, as amended and restated, with respect to the procedures and timeframes by which stockholders may properly bring matters before an annual meeting of stockholders and the procedures and timeframes by which stockholders may propose nominees for election to the Board of Directors of the Company (the "Bylaw Amendments"); WHEREAS, the Bylaw Amendments are set forth in full in Exhibit G attached hereto; and WHEREAS, it is deemed to be in the best interests of this Company and its stockholders that the Bylaw Amendments be approved and adopted by the Board of Directors of the Company; NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article VII, Section 6 of the Bylaws, the Bylaw Amendment be, and in all respects hereby is, approved and adopted. 2 EXHIBIT G Article II, Section 7 Section 7: Notification of Business to be Transacted at Meeting. (a) At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before such meeting. To be brought properly before an annual meeting of stockholders, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or the chairman of the meeting, or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be received no less than one hundred twenty (120) days prior to the anniversary of the mailing of the preceding year's proxy statement for the annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary, to be timely notice by the stockholder must be received not earlier than the ninetieth day prior to such annual meeting of stockholders and not later than the close of business on the later of (i) the sixtieth day prior to such annual meeting or (ii) the tenth day following the date on which notice of the date of the annual meeting was mailed or public disclosure thereof was made, whichever first occurs. Each such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting of stockholders: (i) a brief description of the business desired to be brought before the annual meeting of stockholders and the reasons for conducting such business at such meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class, series, and number of shares of the Corporation that are beneficially owned by the stockholder, and (iv) any material interest of the stockholder or any affiliate of the stockholder in such business. The stockholder also shall comply with all applicable requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder with respect to the matters set forth in this Section 7. (b) To be properly brought before a special meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or the chairman of the meeting. No other business may be brought before a special meeting by stockholders. (c) No business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 7. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he or she should so determine, any such business not properly brought before the meeting shall not be transacted. Nothing herein shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or any successor provision. 3 Article III, Section 2(c): (c) Nomination of Directors. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding up of the Corporation, nominations for the election of directors shall be made by a nominating committee of the Board of Directors if then constituted pursuant to these Bylaws, or if no nominating committee has been constituted, by the Board of Directors. In addition, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at an annual meeting of stockholders, but only if written notice of such stockholder's intent to make such nomination or nominations has been received by the Secretary of the Corporation not less one hundred twenty (120) days prior to the anniversary of the mailing of the preceding year's proxy statement for the annual meeting of stockholders. In the event that the date of the annual meeting of stockholders is advanced by more than thirty days or delayed by more than sixty days from such anniversary, to be timely notice by the stockholder must be received by the Secretary of the Corporation not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of (i) the sixtieth day prior to such annual meeting or (ii) the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure thereof was made by the Corporation, whichever first occurs. Each such notice by a stockholder shall set forth: (i) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at a meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder or any person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such stockholder (an "affiliate" of such stockholder) and each nominee and any other person or persons (naming such person or persons) relating to the nomination or nominations; (iv) the class and number of shares of the Corporation that are beneficially owned by such stockholder and the person to be nominated as of the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees as of the date of such stockholder's notice; (v) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (vi) the written consent of each nominee to serve as a director of the Corporation if so elected. The stockholder also shall comply with all applicable requirements of the Exchange Act, and the rules and regulations thereunder, with respect to the matters set forth in this Section 2(c). 4 In addition, in the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors, any stockholder generally entitled to vote in the election of directors may nominate one or more persons for election as directors at a special meeting only if written notice of such stockholder's intent to make such nomination or nominations, setting forth the information and complying with the form described in the immediately preceding paragraph, has been received by the Secretary of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of (i) the sixtieth day prior to such special meeting or (ii) the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure thereof was made by the Corporation, whichever comes first. The stockholder also shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2(c). No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2(c). The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 2(c), and if he or she should so determine, the defective nomination shall be disregarded. -----END PRIVACY-ENHANCED MESSAGE-----