-----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, A81v0z3jJHqT/bP8lSf5GbFHevMjYaIQEto1HXrsrFML4kiP40OphqVM2VtSFV25 +k2KgBuv9Xtfotkse4fpkA== 0000094344-96-000004.txt : 19961118 0000094344-96-000004.hdr.sgml : 19961118 ACCESSION NUMBER: 0000094344-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART INFORMATION SERVICES CORP CENTRAL INDEX KEY: 0000094344 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 741677330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06151 FILM NUMBER: 96662547 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 STEWART INFORMATION SERVICES CORPORATION-FORM 10-Q 1 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, 1996 [ ] 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) (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 6,202,779 Class B Common 525,006 2 FORM 10-Q QUARTERLY REPORT Quarter Ended September 30, 1996 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 5 Part II 1. Legal Proceedings 10 6. Exhibits and Reports on Form 8-K 11 Signature 15
3 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS FOR THE NINE MONTHS AND QUARTER ENDED SEPTEMBER 30, 1996 and 1995
============================= ========================= THIRD QUARTER NINE MONTHS ----------------------------- ------------------------- 1996 1995 1996 1995 ----------------------------- ------------------------- ($000 Omitted) ($000 Omitted) ============================= ========================= Revenues Title premiums, fees and other revenues 84,133 73,158 244,234 191,201 Investment income 3,710 3,384 10,679 10,011 Investment gains (losses) (149) 247 101 600 Other income 352 376 755 728 ----------------------------- ------------------------- 88,046 77,165 255,769 202,540 Expenses Employee costs 43,590 36,872 127,314 102,724 Other operating expenses 25,693 22,446 74,826 63,250 Title losses and related claims 8,484 9,201 24,544 22,234 Depreciation and amortization 2,724 2,640 7,903 7,319 Interest 277 416 853 831 Minority interests 314 403 1,057 636 ----------------------------- ------------------------- 81,082 71,978 236,497 196,994 Earnings before taxes 6,964 5,187 19,272 5,546 Income taxes 2,507 1,686 6,938 1,797 ----------------------------- ------------------------- Net earnings 4,457 3,501 12,334 3,749 ============================= ========================= Average number of shares outstanding (000) 6,727 6,344 6,696 6,264 Earnings per share 0.66 0.55 1.84 0.60 ============================= =========================
-1- 4 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
============================ SEPT 30 DEC 31 1996 1995 ---------------------------- ($000 Omitted) ============================ Assets Cash and cash equivalents 20,836 16,698 Short-term investments 34,772 28,238 Investments - statutory reserve funds 121,344 118,040 Investments - other 67,845 67,716 Receivables 29,572 30,240 Property and equipment, net 27,620 24,271 Title plants 20,887 19,243 Goodwill 16,251 11,029 Deferred income taxes 15,168 14,108 Other 20,824 21,776 ---------------------------- 375,119 351,359 ============================ Liabilities Notes payable 12,243 12,589 Accounts payable and accrued liabilities 24,115 21,041 Estimated title losses 146,697 138,312 Minority interests 4,495 4,565 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 57,266 52,335 Net unrealized investment gains 537 3,970 Retained earnings 129,766 118,547 ---------------------------- Total stockholders' equity ($27.88 per share at September 30, 1996) 187,569 174,852 ---------------------------- 375,119 351,359 ============================
-2- 5 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
============================= 1996 1995 ----------------------------- ($000 Omitted) ============================= Cash provided by operating activities (Note) 27,692 13,052 Cash flow from investing activities: Purchases of property and equipment and title plants - net (8,272) (5,781) Proceeds from investments matured and sold 62,426 52,583 Purchases of investments (77,592) (54,594) Increases in notes receivable (886) (1,014) Collections on notes receivable 2,472 923 Proceeds from issuance of stock 71 253 Cash received (paid) for the purchase of subsidiaries - net 276 (5,278) ----------------------------- Cash used by investing activities (21,505) (12,908) Cash flow from financing activities: Dividends paid (1,115) (863) Proceeds of notes payable 3,054 6,488 Payments on notes payable (3,988) (2,677) ----------------------------- Cash (used) provided by financing activities (2,049) 2,948 ----------------------------- Increase in cash and cash equivalents 4,138 3,092 ============================= NOTE: Reconciliation of net income to above amounts: Net income 12,334 3,749 Add (deduct): Depreciation and amortization 7,903 7,319 Provision for title losses in excess of payments 8,385 3,086 Provision for uncollectible amounts 18 0 (Increase) decrease in accounts receivable, net (1,448) 552 Increase (decrease) in accounts payable and accrued liabilities - net 3,711 (1,420) Minority interest expense 1,057 635 Equity in net earnings of investees (733) (310) Realized investment (losses) gains - net (101) 600 Other, net (3,434) (1,159) ----------------------------- Cash provided by operating activities 27,692 13,052 =============================
-3- 6 STEWART INFORMATION SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ Note 1: Interim Financial Statements The financial information contained in this report for the nine month periods ended September 30, 1996 and 1995, and as at September 30, 1996, 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. -4- 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- A comparison of the results of operations of the Company for the first nine months of 1996 with the first nine months of 1995 follows: General The Company's dominant segment of operations is the land title business. In general, the principal factors which contribute to increases in title revenues include declining mortgage interest rates (which usually increase home sales), increases in refinancing ("refis") transactions, rising home prices, higher premium rates, increased market share, additional revenues from new offices and increased revenue from non-residential commercial transactions. Although relatively few in number, large commercial transactions usually yield higher premiums. Revenues The Company's revenues from title premiums and fees rose $53.0 million, or 27.7%, in the first nine months of 1996 as compared to the first nine months of 1995. Mortgage interest rates in early 1996 were significantly lower than a year ago, causing higher real estate activity in the current year. The number of closings handled by the Company were up approximately 27.6%. Closings increased in California, Texas, Colorado and most of the Company's other major markets. The average revenue per closing increased slightly in 1996. Premium revenues from nontitle operations and new and existing agents increased in 1996 over 1995. Investment income was up 6.7% in 1996 due to an increase in the average balance invested. Expenses Employee expenses increased $24.6 million, or 23.9%, in 1996 primarily because of an increase in the average number of employees, from 3,559 a year ago to 3,961 in 1996. -5- 8 The increase in staff in 1996 was primarily in Texas, new offices and automation. While the Company continues to monitor overall employee expenses, it has chosen to increase cost levels in automation and real estate information areas. The Company believes the development and sale of new products and services for new and existing customers is important to its future. Through automating operating processes, the Company expects to add customer revenue and reduce operating expenses and title losses in the future. Other operating expenses increased by $11.6 million, or 18.3%, in 1996 primarily because of new offices and increased volume. Other operating expenses include business promotion, premium taxes, title plant expenses, office rent, telephone, policy forms, delivery expenses, travel and fees paid to attorneys for examination and closing services. Provisions for title losses and related claims were up $2.3 million in 1996. The Company's recent experience in claims has improved significantly. As a percentage of title premiums, fees and related revenues, provisions decreased to 10.0% in 1996 versus 11.6% in 1995. The ratio was 11.1% for the full year 1995. In December 1994 the California Board of Equalization (CBOE) ruled in favor of the Company concerning an assessment of additional premium taxes for the year 1987. However, an additional assessment for retaliatory taxes for 1987 was left pending. In April 1996 the CBOE ruled in favor of the Company on the retaliatory assessment. Five other states have also assessed the Company additional premium or retaliatory taxes. The Company cannot predict whether additional taxes of this nature will be assessed in material amounts. State taxing authorities are under increasing pressure to collect additional tax revenues. The Company intends to vigorously oppose any assessments and believes its tax payments are correct. However, there can be no assurances the Company will prevail in these controversies. The provision for income taxes represented a 36.0% effective tax rate in 1996 and a 32.4% effective tax rate in 1995. The effective tax rate in 1996 was higher primarily because of the increases in state income tax provisions and in unremitted earnings of investees. Liquidity and capital resources Operating earnings represent the primary source of financing, but this may be supplemented by bank borrowings. The capital resources of the Company, and the present debt-to-equity relationship, are considered satisfactory. -6- 9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------ A comparison of the results of operations of the Company for the third quarter of 1996 with the third quarter of 1995 follows: General The Company's dominant segment of operations is the land title business. In general, the principal factors which contribute to increases in title revenues include declining mortgage interest rates (which usually increase home sales), increases in refinancing ("refis") transactions, rising home prices, higher premium rates, increased market share, additional revenues from new offices and increased revenue from non-residential commercial transactions. Although relatively few in number, large commercial transactions usually yield higher premiums. Revenues The Company's revenues from title premiums and fees rose $11.0 million, or 15.0%, in the third quarter of 1996 as compared to the third quarter of 1995. Mortgage interest rates in early 1996 were significantly lower than a year ago, causing higher real estate activity in the current year. The number of closings handled by the Company were up approximately 5.1%. Closings increased in Texas, Colorado, Arizona and most of the Company's other major markets. The average revenue per closing rose 7.9% in 1996. Premium revenues from nontitle operations and new and existing agents increased in 1996 over 1995. Investment income was up 9.6% in 1996, due to an increase in the average balance invested. Expenses Employee expenses increased $6.7 million, or 18.2%, in 1996 primarily because of an increase in the average number of employees, from 3,511 a year ago to 4,208 in 1996. -7- 10 The increase in staff in 1996 was primarily in Texas, new offices and automation. While the Company continues to monitor overall employee expenses, it has chosen to increase cost levels in automation and real estate information areas. The Company believes the development and sale of new products and services for new and existing customers is important to its future. Through automating operating processes, the Company expects to add customer revenue and reduce operating expenses and title losses in the future. Other operating expenses increased by $3.2 million, or 14.5%, in 1996 primarily because of new offices and increased volume. Other operating expenses include business promotion, premium taxes, title plant expenses, office rent, telephone, policy forms, delivery expenses, travel and fees paid to attorneys for examination and closing services. Provisions for title losses and related claims were down $0.7 million in 1996. The Company's recent experience in claims has improved significantly. As a percentage of title premiums, fees and related revenues, provisions decreased to 10.1% in 1996 versus 12.6% in 1995. The ratio was 11.1% for the full year 1995. In December 1994 the California Board of Equalization (CBOE) ruled in favor of the Company concerning an assessment of additional premium taxes for the year 1987. However, an additional assessment for retaliatory taxes for 1987 was left pending. In April 1996 the CBOE ruled in favor of the Company on the retaliatory assessment. Five other states have also assessed the Company additional premium or retaliatory taxes. The Company cannot predict whether additional taxes of this nature will be assessed in material amounts. State taxing authorities are under increasing pressure to collect additional tax revenues. The Company intends to vigorously oppose any assessments and believes its tax payments are correct. However, there can be no assurances the Company will prevail in these controversies. The provision for income taxes represented a 36.0% effective tax rate in 1996 and a 32.5% effective tax rate in 1995. The effective tax rate in 1996 was higher primarily because of the increases in state income tax provisions and in unremitted earnings of investees. Liquidity and capital resources Operating earnings represent the primary source of financing, but this may be supplemented by bank borrowings. The capital resources of the Company, and the present debt-to-equity relationship, are considered satisfactory. -8- 11 PART II
--------- Page --------- - ---------- ----------------------------------------------------------- Item 1. Legal Proceedings 10 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4. - Rights of Common and Class B Common 11 Stockholders 27.0 - Financial data schedule 12 28.2 - Details of Investments as reported in the 14 Quarterly Report to Shareholders (b) There were no reports on Form 8-K filed during the quarter ended September 30, 1996 - ---------- ----------------------------------------------------------- ---------
-9- 12 ITEM 3. LEGAL PROCEEDINGS Guaranty and 18 other title insurers are defendants in a consolidated class action proceeding originating from complaints first filed in April 1990. The suit is currently pending in the United States District Court for the District of Arizona. The plaintiffs allege that the defendants violated federal antitrust law by participating in title insurance rating bureaus in Arizona and Wisconsin in the early 1980s through which they allegedly agreed upon the prices and other terms and conditions of sale for title search and examination services. The plaintiffs request treble damages in an unspecified amount, costs and attorneys' fees. The Court has certified the proceeding as a class action and approved a settlement pursuant to which members of the class would receive cash (not to exceed approximately $4.1 million from all defendants) and additional coverage under, and discounts on, title insurance policies. In addition, the Court has awarded counsel for certain plaintiffs the negotiated sum of $1.3 million in fees and expenses. The Court has awarded counsel for the remaining plaintiffs fees and expenses totalling $0.5 million. The Court has under advisement the motions of such plaintiff's counsel to amend and to reconsider that award. 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. -10- 13 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 13, 1996 - -------------- Date /s/ MAX CRISP ------------------------------------- Max Crisp (Vice President - Finance, Secretary-Treasurer, Director and Principal Financial and Accounting Officer) -11- 14 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4 - Rights of Common and Class B Common Stockholders 27 - Financial data schedule 28.2 - Details of Investments as reported in the Quarterly Report to Shareholders EX-4 2 RIGHTS OF COMMON & CLASS B COMMON STOCKHOLDERS 1 EXHIBIT 4 STEWART INFORMATION SERVICES CORPORATION RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS September 30, 1996 ================================================================================ Common and Class B Common stockholders have the same rights, except (1) no cash dividends 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 Commons 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 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE RELATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 SEP-30-1996 189,189 0 0 0 0 0 223,961 20,836 0 0 375,119 146,697 0 0 0 12,243 6,728 0 0 180,841 375,119 244,234 10,679 101 755 24,544 0 0 19,272 6,938 12,334 0 0 0 12,334 1.84 1.84 138,312 25,850 (1,306) 4,990 11,169 146,697 0 Includes short-term investments.
EX-28.2 4 DETAILS OF INVESTMENTS REPORTED IN QUARTERLY RPRT. 1 Exhibit 28.2 STEWART INFORMATION SERVICES CORPORATION DETAILS OF INVESTMENTS SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
============================= SEP 30 DEC 31 1996 1995 ----------------------------- ($000 Omitted) ============================= Investments, at market, partially restricted: Short-term investments $34,772 $28,238 U.S. Treasury and agency obligations 24,390 29,636 Municipal bonds 98,160 95,049 Mortgage-backed securities 31,109 27,499 Corporate bonds 35,530 33,572 ----------------------------- TOTAL INVESTMENTS $223,961 $213,994 =============================
NOTE: The total appears as the sum of three amounts under short-term investments, 'investments' - statutory reserve funds and 'investments' - other in the balance sheet presented on page 2. -----END PRIVACY-ENHANCED MESSAGE-----