-----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, LSWlpHpADtJdGw5nKY52ymXNOnSpjA5jIYEfgj+EWRWDs4HK16GLOUXUSjyUPGsE 6oNh8Cl38aASd9lrQx3dOg== 0000950129-96-001733.txt : 19960813 0000950129-96-001733.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950129-96-001733 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 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: 96607887 BUSINESS ADDRESS: STREET 1: 1980 POST OAK BLVD CITY: HOUSTON STATE: TX ZIP: 77056 BUSINESS PHONE: 7136258100 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 June 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 6,201,580 Class B Common 525,006 2 FORM 10-Q QUARTERLY REPORT Quarter Ended June 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 SIX MONTHS AND QUARTER ENDED JUNE 30, 1996 and 1995
============================= ========================= SECOND QUARTER SIX MONTHS ----------------------------- ------------------------- 1996 1995 1996 1995 ----------------------------- ------------------------- ($000 Omitted) ($000 Omitted) ============================= ========================= Revenues Title premiums, fees and other revenues 85,465 63,019 160,101 118,043 Investment income 3,523 3,309 6,969 6,627 Investment gains (losses) (124) 300 250 353 Other income 855 699 403 352 ----------------------------- ------------------------- 89,719 67,327 167,723 125,375 Expenses Employee costs 42,977 33,879 83,724 65,852 Other operating expenses 26,219 21,615 49,133 40,804 Title losses and related claims 8,100 6,406 16,060 13,033 Depreciation and amortization 2,714 2,416 5,179 4,679 Interest 292 263 576 415 Minority interests 507 275 743 233 ----------------------------- ------------------------- 80,809 64,854 155,415 125,016 Earnings before taxes 8,910 2,473 12,308 359 Income taxes 3,208 798 4,431 111 ----------------------------- ------------------------- Net earnings 5,702 1,675 7,877 248 ============================= ========================= Average number of shares outstanding (000) 6,693 6,228 6,680 6,223 Earnings per share 0.85 0.27 1.18 0.04 ============================= =========================
-1- 4 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995
============================ JUN 30 DEC 31 1996 1995 ---------------------------- ($000 Omitted) ============================ Assets Cash and cash equivalents 21,266 16,698 Short-term investments 33,102 28,238 Investments - statutory reserve funds 118,408 118,040 Investments - other 65,656 67,716 Receivables 29,212 30,240 Property and equipment, net 26,824 24,271 Title plants 20,400 19,243 Goodwill 16,391 11,029 Deferred income taxes 16,331 14,108 Other 20,530 21,776 ---------------------------- 368,120 351,359 ============================ Liabilities Notes payable 12,419 12,589 Accounts payable and accrued liabilities 24,348 21,041 Estimated title losses 144,114 138,312 Minority interests 4,564 4,565 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 57,255 52,335 Net unrealized investment gains (losses) (262) 3,970 Retained earnings 125,682 118,547 ---------------------------- Total stockholders' equity ($27.16 per share at June 30, 1996) 182,675 174,852 ---------------------------- 368,120 351,359 ============================
-2- 5 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
============================= 1996 1995 ----------------------------- ($000 Omitted) ============================= Cash provided (used) by operating activities (Note) 19,888 (3,343) Cash flow from investing activities: Purchases of property and equipment and title plants - net (6,150) (3,644) Proceeds from investments matured and sold 47,421 36,011 Purchases of investments (56,864) (28,780) Increases in notes receivable (386) (766) Collections on notes receivable 1,840 759 Proceeds from issuance of stock 60 363 Cash received (paid) for the purchase of subsidiaries - net 276 (2,615) ----------------------------- Cash (used) provided by investing activities (13,803) 1,328 Cash flow from financing activities: Dividends paid (742) (570) Proceeds of notes payable 1,408 3,948 Payments on notes payable (2,183) (1,690) ----------------------------- Cash (used) provided by financing activities (1,517) 1,688 ----------------------------- Increase (decrease) in cash and cash equivalents 4,568 (327) ============================= NOTE: Reconciliation of net income to above amounts: Net income 7,877 248 Add (deduct): Depreciation and amortization 5,179 4,679 Provision for title losses in excess (less than) of payments 5,802 (1,169) Provision for uncollectible amounts 204 413 Increase in accounts receivable, net (1,142) (3,143) Increase (decrease) in accounts payable and accrued liabilities - net 3,210 (4,432) Minority interest expense 743 233 Equity in net earnings of investees (392) 109 Realized investment (losses) gains - net (250) (353) Other, net (1,343) 72 ----------------------------- Cash provided (used) by operating activities 19,888 (3,343) =============================
-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 six month periods ended June 30, 1996 and 1995, and as at June 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 six months of 1996 with the first six 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 $42.1 million, or 35.6%, in the first six months of 1996 as compared to the first six 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 40.6%. Closings increased in California, Texas, Colorado and most of the Company's other major markets. The average revenue per closing fell in 1996 because more refinancing transactions (which are discounted) were handled. Premium revenues from nontitle operations and new and existing agents increased in 1996 over 1995. Investment income was up 5.2% in 1996, due to an increase in the average balance invested. Expenses Employee expenses increased $17.9 million, or 27.1%, in 1996 primarily because of an increase in the average number of employees, from 3,423 a year ago to 4,005 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 $8.3 million, or 20.4%, 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 $3.0 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 11.0% 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 30.9% 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 second of 1996 with the second 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 $22.4 million, or 35.6%, in the second quarter of 1996 as compared to the second 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 31.2%. Closings increased in California, Texas, Colorado and most of the Company's other major markets. The average revenue per closing rose 1.7% in 1996. Premium revenues from nontitle operations and new and existing agents increased in 1996 over 1995. Investment income was up 6.5% in 1996, due to an increase in the average balance invested. Expenses Employee expenses increased $9.1 million, or 26.9%, in 1996 primarily because of an increase in the average number of employees, from 3,350 a year ago to 4,173 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 $4.6 million, or 21.3%, 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 $1.7 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 9.5% in 1996 versus 10.2% 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 32.3% 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 June 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 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 certified the proceeding as a class action and taken under advisement the amount of fees and expenses to be awarded to counsel for other plaintiffs. 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) August 8, 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 JUNE 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 JUNE 30, 1996 AND THE RELATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1996 JUN-30-1996 184,064 0 0 0 0 0 217,166 21,266 0 0 368,120 144,114 0 0 0 12,419 6,726 0 0 175,949 368,120 160,101 6,969 250 403 16,060 0 0 12,308 4,431 7,877 0 0 0 7,877 1.18 1.18 138,312 17,405 (1,345) 4,848 5,410 144,114 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 JUNE 30, 1996 AND DECEMBER 31, 1995
============================= JUN 30 DEC 31 1996 1995 ----------------------------- ($000 Omitted) ============================= Investments, at market, partially restricted: Short-term investments $33,102 $28,238 U.S. Treasury and agency obligations 27,407 29,636 Municipal bonds 92,288 95,049 Mortgage-backed securities 31,132 27,499 Corporate bonds 33,237 33,572 ----------------------------- TOTAL INVESTMENTS $217,166 $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-----