-----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, L2b+cOLDF2cdpbLd9L1OZLDX3wBPX1HNcwV24tR80inhOoPhkIFDgt1p4NvhnvbW eM1dNHMbk0hPCUAk2W8QvA== /in/edgar/work/0000094344-00-000007/0000094344-00-000007.txt : 20001110 0000094344-00-000007.hdr.sgml : 20001110 ACCESSION NUMBER: 0000094344-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART INFORMATION SERVICES CORP CENTRAL INDEX KEY: 0000094344 STANDARD INDUSTRIAL CLASSIFICATION: [6361 ] IRS NUMBER: 741677330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02658 FILM NUMBER: 756875 BUSINESS ADDRESS: STREET 1: 1980 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136258100 MAIL ADDRESS: STREET 1: 1980 POST OAK BLVD STREET 2: STE 830 CITY: HOUSTON STATE: TX ZIP: 77056 10-Q 1 0001.txt QUARTERLY REPORT FOR 9/30/00 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-12688 STEWART INFORMATION SERVICES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-1677330 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1980 Post Oak Blvd., Houston TX 77056 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (713) 625-8100 ---------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name,former address and former fiscal year,if changed since last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common 13,997,677 Class B Common 1,050,012 FORM 10-Q QUARTERLY REPORT Quarter Ended September 30, 2000 TABLE OF CONTENTS Item No. Page - -------- ---- Part I 1. Financial Statements 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 3. Quantitative and Qualitative Disclosures About Market Risk 8 Part II 1. Legal Proceedings 10 5. Other Information 10 6. Exhibits and Reports on Form 8-K 9 Signature 11 STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS FOR THE QUARTERS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
THIRD QUARTER NINE MONTHS --------------------- -------------------- 2000 1999 2000 1999 ---------- --------- -------- -------- ($000 Omitted) ($000 Omitted) Revenues Title premiums, fees and other revenues 219,459 246,460 616,905 749,293 Real estate information services 14,019 14,507 39,246 45,823 Investment income 5,519 5,394 16,006 15,186 Investment gains (losses) - net 7 20 (280) 50 --------- -------- -------- ------ 239,004 266,381 671,877 810,352 Expenses Amounts retained by agents 100,514 124,186 280,771 378,582 Employee costs 75,398 72,030 217,208 215,493 Other operating expenses 43,465 43,321 125,013 122,898 Title losses and related claims 9,340 9,937 27,447 31,123 Depreciation and amortization 5,575 4,968 15,801 13,161 Interest 497 314 1,364 910 Minority interests 1,341 1,377 3,786 3,803 --------- -------- -------- ------- 236,130 256,133 671,390 765,970 --------- -------- -------- ------- Earnings before taxes 2,874 10,248 487 44,382 Income taxes 1,116 4,150 209 16,958 --------- -------- -------- ------- Net earnings 1,758 6,098 278 27,424 ========= ======== ======== ======= Average number of shares outstanding - assuming dilution (000) 15,018 14,762 14,913 14,562 Earnings per share - basic 0.12 0.42 0.02 1.90 Earnings per share - diluted 0.12 0.41 0.02 1.88 ========= ========= ======== ======= Comprehensive earnings: Net earnings 1,758 6,098 278 27,424 Changes in unrealized investment gains (losses), net of taxes of $916, $(700), $1,129 and $(3,950), respectively 1,701 (1,300) 2,097 (7,335) --------- -------- -------- ------- Comprehensive earnings 3,459 4,798 2,375 20,089 ========= ========= ======== =======
-1- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
SEP 30 DEC 31 2000 1999 ---------- ---------- ($000 Omitted) Assets Cash and cash equivalents 34,359 36,803 Short-term investments 64,221 65,583 Investments - statutory reserve funds 194,955 186,917 Investments - other 51,484 57,711 Receivables 46,295 48,580 Property and equipment 47,487 45,900 Title plants 27,809 26,258 Goodwill 37,515 31,641 Deferred income taxes 12,535 12,378 Other 29,177 23,970 ---------- ---------- 545,837 535,741 ========== ========== Liabilities Notes payable 28,954 19,054 Accounts payable and accrued liabilities 34,056 41,303 Estimated title losses 184,951 183,787 Minority interests 6,625 6,673 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 84,590 79,126 Retained earnings 209,732 209,454 Accumulated other comprehensive deficit (1,559) (3,656) Treasury stock - 116,900 shares (1,512) - ---------- ----------- Total stockholders' equity ($19.36 per share at September 30, 2000) 291,251 284,924 ---------- ----------- 545,837 535,741 ========== ===========
-2- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999 -------- -------- ($000 Omitted) Cash provided by operating activities (Note) 17,272 42,114 Investing activities: Purchases of property and equipment and title plants - net (16,446) (19,794) Proceeds from investments matured and sold 51,360 32,839 Purchases of investments (48,863) (57,269) Increases in notes receivable (2,795) (5,838) Collections on notes receivable 860 5,315 Proceeds from sale of equity investment - 5,840 Cash paid for the acquisition of subsidiaries - net (8,537) (5,166) ---------- --------- Cash used by investing activities (24,421) (44,073) Financing activities: Dividends paid - (1,612) Repurchases of common stock (1,512) - Distribution to minority interests (3,568) (2,871) Proceeds from issuance of stock - 39 Proceeds of notes payable 13,842 8,470 Payments on notes payable (4,057) (5,745) ---------- --------- Cash provided (used) by financing activities 4,705 (1,719) ---------- --------- Decrease in cash and cash equivalents (2,444) (3,678) ========== ==========
NOTE: Reconciliation of net earnings to the above amounts - Net earnings 278 27,424 Add (deduct): Depreciation and amortization 15,801 13,161 Provision for title losses in excess of payments 1,164 7,206 Provision for uncollectible amounts - net 38 (465) Decrease in accounts receivable - net 4,218 5,477 Decrease in accounts payable and accrued liabilities - net (7,450) (12,918) Minority interest expense 3,786 3,803 Equity in net earnings of investees (166) (750) Realized investment losses (gains) - net 280 (50) Gain on sale of equity investment - (1,145) Stock bonuses 541 598 Increase in other assets (2,228) (846) Other - net 1,010 619 ---------- --------- Cash provided by operating activities 17,272 42,114 ========== =========
-3- STEWART INFORMATION SERVICES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 Note 1: Interim Financial Statements The financial information contained in this report for the three and nine month periods ended September 30, 2000 and 1999, and as of September 30, 2000, is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of this information for all unaudited periods, consisting only of normal recurring accruals, have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year. Certain amounts in the 1999 condensed consolidated financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. Note 2: Segment Information The Company's two reportable segments are title and real estate information. Selected financial information related to these segments follows:
Real Estate Title Information Total ----- ----------- ----- ($000 Omitted) Revenues: - --------- Three months ended 9/30/00 224,985 14,019 239,004 9/30/99 251,874 14,507 266,381 Nine months ended 9/30/00 632,631 39,246 671,877 9/30/99 764,529 45,823 810,352 Pretax Earnings (Losses): - ------------------------- Three months ended 9/30/00 3,945 (1,071) 2,874 9/30/99 9,675 573 10,248 Nine months ended 9/30/00 4,392 (3,905) 487 9/30/99 41,551 2,831 44,382 Identifiable Assets: - -------------------- 9/30/00 505,717 40,120 545,837 12/31/99 496,191 39,550 535,741
Note 3: Earnings Per Share The Company's basic earnings per share figures were calculated by dividing net earnings by the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the reporting period. The only potentially dilutive effect on earnings per share for the Company related to its stock option plans. In calculating the effect of the options and determining a figure for diluted earnings per share, the average number of shares used in calculating basic earnings per share was increased by 97,000 and 138,000 for the three month periods ending September 30, 2000 and 1999, respectively and 98,000 and 138,000 for the nine month periods ending September 30, 2000 and 1999, respectively. -4- Note 4: Contingent Liabilities and Commitments The Company is presently named in a private class action brought under California's Unfair Business Practices Act: Soriano v. Stewart Title. In a related matter, The Company is an unnamed and unserved defendant in a large class action filed by the California Attorney General against a class of all title companies in the State of California. The lawsuit seeks restitution and injunctive relief against an unidentified defendant class of all title companies in the state, based on alleged title company practices concerning escheatment, fees and banking services credits. The Company is in settlement discussion with the California Attorney General. Although the ultimate disposition of these lawsuits cannot be predicted with certainty, it is the opinion of the Company's management, based on its analysis and discussions with its outside counsel, that the outcome of any claim, whether individually or on a combined basis, will not have a materially adverse effect on the consolidated financial condition of the Company. Note 5: Changes in Accounting Principles Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires companies to recognize all derivatives as either assets or liabilities in the statement of financial condition and to measure all derivatives at fair value. SFAS No. 133 requires that changes in fair value of a derivative be recognized currently in earnings unless specific hedge accounting criteria are met. Upon implementation of SFAS No. 133, hedging relationships may be redesignated, and securities held to maturity may be transferred to available for sale or trading. SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", deferred the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" amended the accounting and reporting standards of SFAS No. 133 for certain derivative instruments, hedging activities, and decisions made by the Derivatives Implementation Group. The Company does not invest in hedging or derivative instruments nor does it intend to do so in the future. Accordingly, SFAS 133, SFAS 137 and SFAS 138 will have no impact on the consolidated financial statements. -5- Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company's two segments of operations are title insurance ("Title") and real estate information ("REI"). In general, the principal factors that contribute to increases in the Company's operating revenues for both segments include declining mortgage interest rates (which usually increase home sales and refinancing transactions), rising home prices, higher premium rates, increased market share, additional revenues from new offices and increased revenues from commercial transactions. Although relatively few in number, large commercial transactions typically yield higher premiums. Mortgage interest rates, which averaged 7.0% in the first quarter of 1999, rose over the rest of the year to about 7.9% at the end of the year. Rates in 2000 increased again to an average of 8.3% during the first six months, but dropped to about 7.9% in September. According to the most recent industry sources available, existing home sales declined about 4.4% in the first nine months of 2000 compared with the first nine months of 1999. Refinancing transactions decreased significantly beginning in the second half of 1999 and continued at much lower levels in 2000. Refinance activity dropped from representing 34.4 percent of total applications in the first nine months of 1999 to 16.6 percent in the same period in 2000. A comparison of the results of operations of the Company for the first nine months of 2000 with the first nine months of 1999 follows. REVENUES For the first nine months of 2000, revenues from title premiums and fees decreased $132.4 million, or 17.7%, from a year ago. Mortgage interest rates were significantly higher in 2000 than in the same period a year ago, which reduced real estate sales and refinancing transactions. The number of direct closings handled by the Company decreased 12.3%. Closings decreased in California, Texas, Arizona, Colorado and most other states. The average revenue per closing increased in 2000 due to higher home prices and a smaller number of refinancings, which generate lower premiums. Increases in revenues from commercial transactions also contributed to higher revenues per closing in 2000. Premiums from agents were $347.9 million in 2000 and $467.2 million in 1999. While nearly all states declined, the largest decreases were in California and Florida. The decrease in premiums from agents was primarily attributable to the reduced number of refinancing and other transactions resulting from a higher interest rate environment. Other revenues in the first nine months of 1999 included a $1.1 million pretax gain resulting from a settlement of a lawsuit and a related sale of an equity ownership in a title agency. Real estate information revenues were $39.2 million in 2000 and $45.8 million in 1999. The 14.4% decrease was primarily due to the decline in real estate activity. REI profits were reduced in the first nine months of 1999 by a $1.3 million pretax charge resulting from the settlement of a lawsuit. Investment income increased 5.4% in 2000 over 1999 primarily due to an increase in the average balances invested. EXPENSES The amounts retained by agents, as a percentage of premiums, were 80.7% and 81.0% in 2000 and 1999, respectively. Amounts retained by agents are based on contracts between agents and the title underwriters of the Company. The percentage that amounts retained by agents bears to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. Employee expenses for the combined business segments increased $1.7 million, or 0.8%, in 2000. Employee costs for both the title and REI segments increased. The number of employees in existing title offices at the end of the first nine months of 2000 was reduced approximately 10.7% from a year ago. The reduction in the number of employees was offset, however, by significant increases in newly acquired and startup offices, expansion of national marketing operations to gain market share and continued expansion in technology. -6- Other operating expenses increased by $2.1 million, or 1.7%, in 2000. Increased expenses include expenses of new offices, rent and search fees. Other components of other operating expenses are title plant expenses, supplies, computer costs, business promotion, telephone, travel, premium taxes, policy forms, delivery costs and cost of resale products purchased. Provisions for title losses and related claims were down $3.7 million, or 11.8%, in 2000. As a percentage of title premiums, fees and related revenues, the provision in 2000 was 4.4% versus 4.2% in 1999. The provision for income taxes represented effective tax rates of 42.9% and 38.2% in 2000 and 1999, respectively. A comparison of the results of operations of the Company for the third quarter of 2000 with the third quarter of 1999 follows. REVENUES For the third quarter of 2000, revenues from title premiums and fees decreased $27.0 million, or 11.0%, from a year ago. Mortgage interest rates were significantly higher in the third quarter of 2000 than in the same period a year ago, which reduced real estate sales and refinancing transactions. The number of direct closings handled by the Company increased slightly. Closings in new offices offset the decreases in Arizona, Texas, California and many other states. The average revenue per closing increased in 2000 due to higher home prices and a smaller number of refinancings, which generate lower premiums. Increases in revenues from commercial transactions also contributed to higher average revenues per closing in 2000. Premiums from agents decreased $28.7 million from $153.3 million in the third quarter of 1999 to $124.6 million in the third quarter of 2000. While nearly all states declined, the largest decreases were in California and Florida. The decrease in premiums from agents was primarily attributable to the reduced number of refinancing and other transactions resulting from a higher interest rate environment. Real estate information revenues were $14.0 million in 2000 and $14.5 million in 1999. The decrease wasprimarily due to the decline in real estate activity. Investment income increased 2.3% in 2000 over 1999 primarily due to an increase in the average yield. EXPENSES The amounts retained by agents, as a percentage of premiums, were 80.7% and 81.0% in 2000 and 1999, respectively. Amounts retained by agents are based on contracts between agents and the title underwriters of the Company. The percentage that amounts retained by agents bears to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. Employee expenses for the combined business segments increased $3.4 million, or 4.7%, in 2000. Employee costs for both the title and REI segments increased. The number of employees in existing title offices at the end of the third quarter of 2000 was reduced approximately 10.7% from a year ago. The reduction in the number of employees was offset, however, by significant increases in newly acquired and startup offices, expansion of national marketing operations to gain market share and continued expansion in technology. Other operating expenses increased by $0.1 million, or 0.3%, in 2000. Increased expenses include expenses of new offices and search fees. Other components of other operating expenses are rent, title plant expenses, supplies, computer costs, business promotion, telephone, travel, premium taxes, policy forms, delivery costs and cost of resale products purchased. Provisions for title losses and related claims were down $0.6 million, or 6.0% in 2000. As a percentage of title premiums, fees and related revenues, the provision in the third quarter of 2000 increased to 4.3% versus 4.0% in 1999. The provision for income taxes represented effective tax rates of 38.8% and 40.5% in 2000 and 1999, respectively. -7- YEAR 2000 ISSUE Information technology is a crucial part of the Company's business. Accordingly, the Company completed a comprehensive Year 2000 ("Y2K") readiness program that addressed challenges associated with the Y2K issue. As a result of this program, the Company encountered no major automation or business disruption due to Y2K issues. The Company continues to operate normally across all business units and geographies and will continue to monitor operations through 2000. The total costs incurred for the Y2K readiness program were $3.6 million. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations represents the primary source of financing for the Company, but this may be supplemented by bank borrowings. The capital resources of the Company and the present debt-to-equity relationship are considered satisfactory. During the first nine months of 2000, the Company financed a portion of various acquisitions through the issuance of Common Stock totaling $4.9 million. Acquisitions during the first nine months of 2000 have resulted in an increase in goodwill of $7.3 million. FORWARD LOOKING STATEMENTS All statements included in this report, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties including, among other things, changes in mortgage interest rates, employment levels, actions of competitors, changes in real estate markets, general economic conditions and legislation (primarily legislation related to insurance) and other risks and uncertainties discussed in the Company's filings with the Securities and Exchange Commission. Item 3: Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company's investment strategies, types of financial instruments held or the risks associated with such instruments which would materially alter the market risk disclosures made in the Company's Annual Statement on Form 10-K for the year ended December 31, 1999. -8- PART II Page ---------- Item 1. Legal Proceedings 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K (a) Index to exhibits (b) There were no reports on Form 8-K filed during the quarter ended September 30, 2000. -9- ITEM 1. LEGAL PROCEEDINGS The Registrant is a party to routine lawsuits incidental to its business, most of which involve disputed policy claims. In many of these suits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent of the Registrant. The Registrant does not expect that any of these proceedings will have a material adverse effect on its financial condition. ITEM 5. OTHER INFORMATION The Board of Directors has approved a plan to repurchase up to 5 percent (680,000 shares) of the Company's currently issued and outstanding Common Stock. The Board also determined that the Company's regular quarterly dividend should be discontinued in favor of returning those and additional funds to stockholders through the stock purchase plan. As of September 30, 2000, the Company had repurchased a total of 116,900 shares under this plan. -10- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Stewart Information Services Corporation ---------------------------------------- (Registrant) November 9, 2000 - ---------------- Date /S/ MAX CRISP ----------------------------------------------- Max Crisp (Vice President-Finance, Secretary-Treasurer, Director and Principal Financial and Accounting Officer) -11- INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4. - Rights of Common and Class B Common Stockholders 27.0 - Financial data schedule EX-4 2 0002.txt 10-Q FOR 9/30/00 EXHIBIT 4 STEWART INFORMATION SERVICES CORPORATION RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS September 30, 2000 Common and Class B Common stockholders have the same rights, except (1) no cash dividend may be paid on Class B Common Stock and (2) the two classes of stock are voted separately in electing directors. A provision in the by-laws requires an affirmative vote of at least two-thirds of the directors to approve any proposal which may come before the directors. This by-law provision cannot be changed without majority vote of each class of stock. Common stockholders, with cumulative voting rights, may elect five or more of the nine directors. Class B Common stockholders may, with no cumulative voting rights, elect four directors, if 350,000 or more shares of Class B Common stock are outstanding; three directors, if between 200,000 and 350,000 shares of Class B Common Stock are outstanding; if less than 200,000 shares of Class B Common Stock are outstanding, the Common Stock and the Class B Common Stock shall be voted as a single class upon all matters, with the right to cumulate votes for the election of directors. No change in the Certificate of Incorporation which would affect the Common Stock and the Class B Common Stock unequally shall be made without the affirmative vote of at least a majority of the outstanding shares of each class, voting as a class. Class B Common Stock may, at any time, be converted by its holders into Common Stock on a share-for-share basis. Such conversion is mandatory on any transfer to a person not a lineal descendant (or spouse, trustee, etc. of such descendant) of William H. Stewart. EX-27 3 0003.txt FDS FOR 9/30/00
5 STEWART INFORMATION SERVICES CORPORATION THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 2000 AND THE RELATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 Year DEC-31-2000 JAN-01-2000 SEP-30-2000 34,359 310,660 50,636 4,341 0 0 140,726 93,239 545,837 0 28,954 0 0 15,165 276,086 545,837 0 671,877 0 280,771 361,808 27,447 1,364 487 209 278 0 0 0 278 0.02 0.02 Includes short-term investments.
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