-----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, V9viqpot5BCAtEKNPEUBgoUtIsyYOH1eGpBZdnvXtPa7JTk6EOot9nr5F7Tr2SiU yDqXIiKXFK+x8DtrRkhgJA== 0000950129-03-001417.txt : 20030318 0000950129-03-001417.hdr.sgml : 20030318 20030318150550 ACCESSION NUMBER: 0000950129-03-001417 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030318 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-02658 FILM NUMBER: 03607603 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 CITY: HOUSTON STATE: TX ZIP: 77056 10-K 1 h03429e10vk.txt STEWART INFORMATION SERVICES CORPORATION 12/31/02 - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 OR [ ] 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, TEXAS 77056 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 625-8100 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1 PAR VALUE 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this report, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ] As of June 30, 2002, which was the last day of the second fiscal quarter of 2002, 16,595,691 shares of Common Stock, $1 par value, and 1,050,012 shares of Class B Common Stock, $1 par value, were outstanding. The aggregate market value as of such date of the Common Stock (based upon the closing sales price of the Common Stock of Stewart Information Services Corporation, as reported by the NYSE on June 28, 2002) held by non-affiliates of the Registrant was approximately $341,040,628. DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive proxy statement (the "Proxy Statement"), relating to the annual meeting of the Registrant's stockholders to be held April 25, 2003, are incorporated by reference in Parts III and IV of this document. - -------------------------------------------------------------------------------- FORM 10-K ANNUAL REPORT YEAR ENDED DECEMBER 31, 2002 TABLE OF CONTENTS
ITEM NO. PAGE - ---- ---- PART I 1. Business.................................................................... 1 2. Properties.................................................................. 4 3. Legal Proceedings........................................................... 5 4. Submission of Matters to a Vote of Security Holders......................... 5 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters ...... 6 6. Selected Financial Data..................................................... 7 7. Management Discussion and Analysis of Financial Condition and Results of Operations................................................................. 7 7A. Quantitative and Qualitative Disclosures about Market Risk.................. 10 8. Financial Statements and Supplementary Data................................. 11 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................................. 11 PART III 10. Directors and Executive Officers of the Registrant.......................... 12 11. Executive Compensation...................................................... 12 12. Security Ownership of Certain Beneficial Owners and Management ............. 12 13. Certain Relationships and Related Transactions.............................. 12 14. Controls and Procedures..................................................... 12 PART IV 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........... 14 Signatures.................................................................. 15 Certifications Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002........................................................................ 16
Forward-Looking Statements All statements included in this report, other than statements of historical facts, addressing activities, events or developments that we expect or anticipate 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, legislation (primarily legislation related to title insurance) and other risks and uncertainties discussed in our filings with the Securities and Exchange Commission. As used in this report, "we", "us" and "our" mean Stewart Information Services Corporation and our subsidiaries, unless the context indicates otherwise. P A R T I ITEM 1. BUSINESS We are a Delaware corporation formed in 1970. We and our predecessors have been engaged in the title business since 1893. Our primary business is title insurance. We issue policies through more than 6,400 issuing locations on homes and other real property located in all 50 states, the District of Columbia and several foreign countries. We also sell electronically delivered real estate services and information, as well as mapping products and geographic information systems, to domestic and foreign governments and private entities. Our two segments of business are title and real estate information (REI). The segments significantly influence business to each other because of the nature of their operations and their common customers. The segments provide services through a network of offices, including both direct operations and agencies, throughout the United States. The operations in the several international markets in which we do business are generally insignificant to consolidated results. The financial information related to these segments is discussed in Item 7 - Management Discussion and Analysis. TITLE The title segment includes the functions of searching, examining, closing and insuring the condition of the title to real property. Examination and closing. The purpose of a title examination is to ascertain the ownership of the property being transferred, debts that are owed on it and the scope of the title policy coverage. This involves searching for and examining documents such as deeds, mortgages, wills, divorce decrees, court judgments, liens, paving assessments and tax records. At the closing or "settlement", the seller executes a deed to the new owner. The buyer typically signs new mortgage documents. Closing funds are then disbursed to the seller, the prior mortgage company, real estate brokers, the title company and others. The documents are then recorded in the public records. A title policy is generally issued to both the lender and the new owner. Title policies. Lenders in the USA generally require title insurance as a condition to making a loan on real estate, including securitized lending. This is to assure lenders of the priority of their lien position. The purchasers of the property want insurance against claims that may arise against the ownership of the property. The face amount of the policy is normally the purchase price or the amount of the related loan. Title insurance is substantially different from other types of insurance. Fire, auto, health and life insurance protect against losses and events in the future. In contrast, title insurance seeks to eliminate most risks through the examination and settlement process. Investments. We have established policies and procedures to manage our exposure to changes in the fair value of our investments. These policies include retaining an investment advisory firm, an emphasis upon credit quality, management of portfolio duration, maintaining or increasing investment income through high coupon rates and actively managing profile and security mix based upon market conditions. All of our investments are classified as available-for-sale. Losses. Losses on policies primarily occur because of a title defect not discovered during the examination and settlement process. Other reasons for losses include forgeries, misrepresentations, unrecorded construction liens, the failure to pay off existing liens, mishandling of settlement funds, issuance by agencies of unauthorized coverages and other legal issues. Some claimants seek damages in excess of policy limits. Those claims are based on various legal theories usually alleging misrepresentation by an agency. Although we vigorously defend against spurious claims, we have from time to time incurred a loss in excess of policy limits. Experience shows that most claims against policies and claim payments are made in the first six years after the policy has been issued, although claims may be made many years later. By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors. -1- Our liability for estimated title losses comprises both known claims and other losses expected to be reported in the future. The amount of our loss reserve represents the aggregate future payments, net of recoveries, that we expect to incur on policy and escrow losses and in costs to settle claims. Provisions are charged to income in the same year the related premium revenues are recognized. The amounts provided are based on reported claims, historical loss experience, title industry averages, current legal environment and types of policies written. Amounts shown as our estimated liability for future loss payments are continually reviewed for reasonableness and adjusted as appropriate. Independent actuaries also review the adequacy of the liability amounts on an annual basis. In accordance with industry practice, the amounts have not been discounted to their present values. Factors affecting revenues. Title revenues are closely related to the level of activity in the real estate market we serve and the prices at which real estate sales are made. Real estate sales are directly affected by the availability and cost of money to finance purchases. Other factors include demand by buyers, consumer confidence and family incomes. These factors may override the seasonal nature of the title business. Generally, the third quarter is the most active in terms of real estate sales and the first quarter is the least active. In addition, when interest rates decline, the number of refinancing transactions and associated revenues generally increase. Selected information for the national real estate industry follows (2002 amounts are preliminary):
- ------------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------------------- Housing starts - millions......................... 1.71 1.60 1.57 Housing resales - millions........................ 5.56 5.30 5.15 Housing resales - median sales price in $ thousands.................................... 158.3 147.8 139.0
Customers. The primary sources of title business are attorneys, builders, developers, lenders and real estate brokers. No one customer was responsible for as much as ten percent of our title revenues in any of the last three years. Titles insured included residential and commercial properties, undeveloped acreage, farms, ranches and water rights. Service, location, financial strength, size and related factors affect customer acceptance. Increasing market share is accomplished primarily by providing superior service. The parties to a closing are concerned with personal schedules and the interest and other costs associated with any delays in the settlement. The rates charged to customers are regulated, to varying degrees, by different states. Financial strength and stability of the title underwriter are important factors in maintaining and increasing our agency network. Out of the nation's top four title insurers, we earned one of the highest ratings awarded by the title industry's leading rating companies. Our principal underwriter, Stewart Title Guaranty Company (Guaranty) is currently rated A" by Demotech, Inc., A+ by Fitch, A+ by Lace Financial, A2 by Moodys and A- by Standard & Poors. Market share. Title insurance statistics are compiled annually by the title industry's national association. Based on unconsolidated statutory net premiums written for 2001 (2002 amounts are not yet available), Guaranty is one of the leading individual title insurers in America. Our principal competitors include Fidelity National Financial, Inc., The First American Corporation and LandAmerica Financial Group, Inc. Like most title insurers, we also compete with abstractors, attorneys who issue title opinions and attorney-owned title insurance bar funds. We also compete with issuers of alternative title insurance products, which typically provide more limited coverage and less service for a smaller premium. A number of homebuilders, financial institutions, real estate brokers and others own or control title insurance agencies, some of which issue policies underwritten by Guaranty. This "controlled" business also provides competition for our agencies. -2- Title revenues by state. The approximate amounts and percentages of consolidated title operating revenues for the last three years were:
- --------------------------------------------------------------------------------------------------------------------- Amounts ($ millions) Percentages 2002 2001 2000 2002 2001 2000 - --------------------------------------------------------------------------------------------------------------------- California........................................ 305 194 111 18 16 13 Texas............................................. 234 190 176 14 16 20 Florida........................................... 119 88 60 7 7 7 New York.......................................... 109 78 67 6 7 8 All others........................................ 918 638 452 55 54 52 - --------------------------------------------------------------------------------------------------------------------- 1,685 1,188 866 100 100 100 =====================================================================================================================
Offices. At December 31, 2002, we had 6,466 locations issuing policies, compared to 5,829 a year earlier and 5,354 two years earlier. Of these totals 5,979, 5,373 and 4,952 were independent agencies at December 31, 2002, 2001 and 2000, respectively. Regulations. Title insurance companies are subject to extensive state regulations covering premium rates, agency licensing, policy forms, trade practices, reserve requirements, investments and the flow of funds between an insurer and its parent or its subsidiaries and any similar related party transaction. Kickbacks and similar practices are prohibited by various state and federal laws. REAL ESTATE INFORMATION The real estate information (REI) segment primarily provides electronic delivery of data, products and services related to real estate transactions. Our services related to the mortgage origination process include flood zone determinations, property valuations, electronic mortgage documents, property reports and tax services. We also provide document retrieval, preparation and recordation of assignments and lien releases, recordation services, collateral reviews and loan pool certifications. In addition, we provide diverse products and services related to I.R.C. Section 1031 tax-deferred exchanges; automated mapping projects and geodetic positioning; real estate database conversion, construction, maintenance and access; automation for government recording and registration; and criminal, credit and motor vehicle background checks and pre-employment screening services. Factors affecting revenues. As in the title segment, REI revenues, particularly those generated by mortgage information services and tax-deferred exchanges, are closely related to the level of activity in the real estate market. Revenues related to many services are generated on a project basis. Contracts for automating government recording and registration and mapping projects are often awarded through a lengthy bid process. Our principal competitors vary across the wide range of services. In the mortgage-related products and services area, competitors include the major title underwriters mentioned under "-Title", as well as entities known as vendor management companies. Customers. The primary sources of our REI business are residential mortgage lenders and servicers. Our timeliness and accuracy in providing services are critical to our customers. It directly affects the service they provide to their customer, primarily the borrower. Delays and errors directly impact the cost of originating or servicing the loan or the value of the loan asset. Our other customers include title agencies, county clerks and recorders, municipalities, real estate professionals and attorneys. Our financial strength, marketplace presence and reputation as a technology innovator are important factors in attracting new business. GENERAL Technology. Our automation products and services are increasing productivity in the title office and speeding the real estate closing process for lenders, real estate professionals and consumers. Before automation, an order typically required several individuals to search the title, retrieve and review documents and create the title policy commitment. Today, on a normal subdivision file, one person can receive the order electronically and, on the same computer screen, view the prior file, examine the index of documents, retrieve and review electronically stored documents, prepare the title policy commitment and deliver the product. -3- Trademarks. We have developed numerous automation products and processes that are crucial to both our title and REI segments. These systems automate most facets of the real estate transaction. Among these trademarked products and processes are AIM(R), E-Title(R), GlobeXplorer(R), Landata Title Office(R), Landata Title Plant(R), Landscan(R), REIMall(R), Single-Seat Technology(TM), SureClose(R), TitleLogix(R) and Virtual Underwriter(R). We consider these trademarks, which are perpetual in duration, to be important in our business. Employees. As of December 31, 2002, we and our subsidiaries employed 7,852 people. We consider our relationship with our employees to be good. WEBSITE ACCESS TO REPORTS. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on our web site at www.stewart.com as soon as reasonably practicable after we electronically file those reports with the SEC. ITEM 2. PROPERTIES We lease or own the following principal properties:
Lease entered into/ Location Type Use Size Acquired in - ------------------------- ---------------------- ----------------------- -------------- ------------- Houston, Texas Leased office building Executive office of the 236,643 sq. ft. Registrant and Guaranty (1) Houston, Texas Leased office building Office of Guaranty 52,000 sq. ft. (2) Houston, Texas Leased office building Office of Guaranty 41,361 sq. ft. (3) Los Angeles, California Leased office building Office of Guaranty 22,466 sq. ft. (5) Dallas, Texas Leased office building Office of Guaranty 27,402 sq. ft. (6) Riverside, California Leased office building Office of Guaranty 20,968 sq. ft. (7) San Antonio, Texas Leased office building Office of Guaranty 20,864 sq. ft. (4) Seattle, Washington Leased office building Office of Guaranty 19,454 sq. ft. (2) Concord, California Leased office building Office of Guaranty 18,916 sq. ft. (5) Irvine, California Leased office building Office of Guaranty 15,502 sq. ft. (5) San Antonio, Texas Leased office building Office of Guaranty 15,000 sq. ft. (3) San Diego, California Leased office building Office of Guaranty 15,000 sq. ft. (4) Galveston, Texas Owned office building Office of Guaranty 50,000 sq. ft. 1905 Phoenix, Arizona Owned office building Office of Guaranty 24,459 sq. ft. 1981 San Antonio, Texas Owned office building Office of Guaranty 26,769 sq. ft. 1980 & 1982 Phoenix, Arizona Owned office building Office of Guaranty 17,500 sq. ft. 1985 Yuma, Arizona Owned office building Office of Guaranty 23,000 sq. ft. 2002
- --------------------------------------- (1) This lease terminates in 2016. (2) These leases terminate in 2006. (3) These leases terminate in 2007. (4) These leases terminate in 2005. (5) These leases terminate in 2004. (6) This lease terminates in 2009. (7) This lease terminates in 2003. We lease offices at approximately 540 locations. The average term for all such leases is approximately 4 years. The leases expire from 2003 to 2016. We believe we will not have any difficulty obtaining renewals of leases as they expire or, alternatively, leasing comparable properties. The aggregate annual rental expense under all office leases was approximately $40,663,000 in 2002. -4- We consider all buildings and equipment that we own or lease to be well maintained, adequately insured and generally sufficient for our purposes. ITEM 3. LEGAL PROCEEDINGS We are a party to a number of lawsuits incurred in connection with our business, most of which are of a routine nature involving 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 agency. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -5- P A R T II ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our Common Stock is listed on the New York Stock Exchange (NYSE) under the symbol "STC". The following table sets forth the high and low sales prices of our Common Stock for each fiscal period indicated, as reported by the NYSE.
HIGH LOW -------- -------- 2002: First quarter................................... $ 20.23 $ 16.40 Second quarter.................................. 20.55 17.10 Third quarter................................... 21.50 15.05 Fourth quarter.................................. 22.50 19.29 2001: First quarter................................... $ 22.25 $ 16.80 Second quarter.................................. 19.71 16.20 Third quarter................................... 20.64 15.80 Fourth quarter.................................. 22.15 18.60
In March 2001, we filed a registration statement with the Securities and Exchange Commission to sell from time to time up to $75 million of Common Stock. In August 2001 we issued 2.5 million shares at $19 per share resulting in net proceeds of $44.5 million. We paid regular quarterly cash dividends on our Common Stock from 1972 through 1999. During 1999 our Board of Directors approved a plan to repurchase up to 5% (680,000 shares) of our outstanding Common Stock. The Board also determined that our regular quarterly dividend should be discontinued in favor of returning those and additional funds to stockholders through the stock repurchase plan. Under this plan, we repurchased 116,900 shares of Common Stock during 2000 and none in 2001 and 2002. No cash dividends were paid during 2002, 2001 or 2000. Our Certificate of Incorporation provides that no cash dividends may be paid on the Class B Common Stock. An additional 208,769 shares of treasury stock were acquired primarily in the second quarter of 2002. The majority of these shares were acquired as a result of the consolidation of a majority owned subsidiary that was previously held as an equity method investment. All of these shares were held by our Parent Company at December 31, 2002. The number of shareholders of record as of December 31, 2002 was 3,457. As of March 7, 2003, the price of one share of our Common Stock was $23.00. -6- ITEM 6. SELECTED FINANCIAL DATA (Ten year summary)
- -------------------------------------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------------------- IN MILLIONS OF DOLLARS Total revenues.................. 1,779.7 1,271.6 935.5 1,071.3 968.8 708.9 656.0 534.6 611.1 683.6 Title segment: Operating revenues........... 1,684.9 1,187.5 865.6 993.7 899.7 657.3 609.4 496.0 599.5 672.9 Investment income............ 20.7 19.9 19.1 18.2 18.5 15.9 14.5 13.6 12.4 10.3 Investment gains (losses).... 3.0 0.4 0 0.3 0.2 0.4 0.1 1.0 (0.8) 0.4 Total revenues............... 1,708.6 1,207.8 884.7 1,012.2 918.4 673.6 624.0 510.6 611.1 683.6 Pretax earnings.............. 145.1 75.3 5.8 43.6 73.2 29.2 22.5 10.8 13.8 37.6 REI segment: (1) Revenues..................... 71.1 63.8 50.8 59.0 50.4 35.3 32.0 24.0 Pretax earnings (losses)..... 8.8 5.3 (4.7) 3.0 3.1 (5.5) 0.4 (0.1) Title loss provisions........... 75.9 51.5 39.0 44.2 39.2 29.8 33.8 29.6 40.2 58.6 % of title operating revenues................ 4.5 4.3 4.5 4.4 4.4 4.5 5.6 6.0 6.7 8.7 Goodwill expense................ - 3.0 1.8 1.7 1.2 1.0 0.9 0.6 0.3 0.2 Net earnings.................... 94.5 48.7 0.6 28.4 47.0 15.3 14.4 7.0 9.7 23.7 Cash flow from operations....... 162.6 108.2 31.9 57.9 86.5 36.0 38.3 20.6 27.7 54.3 Total assets.................... 842.3 677.9 563.4 535.7 498.5 417.7 383.4 351.4 325.2 313.9 Long-term debt.................. 7.4 7.0 15.4 6.0 8.9 11.4 7.9 7.3 2.5 3.0 Stockholders' equity............ 493.6 394.5 295.1 284.9 260.4 209.5 191.0 174.9 156.4 156.2 PER SHARE DATA (2) Average shares - diluted (in millions)................ 17.8 16.3 15.0 14.6 14.2 13.8 13.5 12.7 12.5 12.4 Net earnings - basic............ 5.33 3.01 0.04 1.96 3.37 1.12 1.08 0.56 0.78 1.93 Net earnings - diluted.......... 5.30 2.98 0.04 1.95 3.32 1.11 1.07 0.55 0.77 1.90 Stockholders' equity............ 27.84 22.16 19.61 19.39 18.43 15.17 14.17 13.68 12.59 12.69 Market price: High........................ 22.50 22.25 22.31 31.38 33.88 14.63 11.32 11.25 10.71 10.17 Low......................... 15.05 15.80 12.25 10.25 14.25 9.38 9.82 7.57 7.19 6.25 Year end.................... 21.39 19.75 22.19 13.31 29.00 14.50 10.38 10.75 7.69 10.00 - -----------------------------------=============================================================================================
(1) Prior to 1995, segment operations for real estate information services were not reported separately from title operations and were less significant. (2) Restated for a two-for-one stock split in May 1999 and a three-for-two stock split in April 1994, effected as stock dividends. ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS GENERAL. Our primary business is title insurance. We close transactions and issue policies on homes and other real property located in all 50 states, the District of Columbia and several foreign countries through more than 6,400 issuing locations. Our direct operations include affiliated agencies while agency operations include nonaffiliated agencies that have underwriting contracts with us. We also sell electronically delivered real estate services and information, as well as mapping products and geographic information systems, to domestic and foreign governments and private entities. -7- Our business has two main segments: title insurance and real estate information (REI). These segments are closely related due to the nature of their operations and common customers. The segments provide services throughout the United States through a network of offices, including both direct operations and agencies. Although we conduct operations in several international markets, at current levels non-USA operations are generally immaterial with respect to our consolidated financial results. Generally, the principal factors that contribute to increases in our operating revenues for our title and REI segments include: - declining mortgage interest rates, which usually increase home sales and refinancing transactions; - rising home prices; - higher premium rates; - increased market share; - opening of new offices, acquisitions; and - a higher ratio of commercial transactions that, although relatively few in number, typically yield higher premiums. These factors may override the seasonal nature of the title business. CRITICAL ACCOUNTING POLICIES. We believe the accounting policies that are the most critical to our financial statements, and that are subject to the most judgment, are those relating to title loss reserves, premium revenue recognition and recoverability of long-lived assets, such as goodwill and title plants. Title loss reserves represent the aggregate future payments, net of recoveries, that we expect to incur on policy and escrow losses and in costs to settle claims. Future title loss payments are difficult to estimate due to the complex nature of title claims, the length of time over which claims are paid, the significantly varying dollar amounts of individual claims and other factors. Loss provision amounts are based on reported claims, historical loss experience, title industry averages, the current legal environment and the types of policies written. The title loss reserves are continually reviewed and adjusted, as appropriate. Independent actuaries review the adequacy of the reserves on an annual basis. Premium revenues on title insurance written by our direct title operations are recognized as revenue at the time of the closing of the related real estate transaction. Premium revenues on title insurance policies written by agencies are recognized primarily when policies are reported to us. Revenues are recorded on a total premium basis versus net to the underwriter. We accrue for unreported policies where reasonable estimates can be made based on historical reporting patterns of agencies, current trends and known information about agencies. We review the carrying values of title plants and other long-lived assets if certain events occur that may indicate impairment. Impairment is indicated when the projected undiscounted cash flow over the estimated life of an asset is less than its carrying value. If impairment is determined by management and an independent valuation, the book amount is written down to fair value by calculating the discounted value of the projected cash flow. In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets", goodwill for each reporting unit is tested for impairment annually and goodwill determined to be impaired is expensed to current operations. RESULTS OF OPERATIONS A comparison of the results of operations of the Company for 2002 with 2001 and 2001 with 2000 follows. OPERATING ENVIRONMENT. According to published industry data, interest rates for 30-year fixed rate mortgages, excluding points, for the year 2002 averaged 6.5% as compared to 7.0% in 2001. Comparable rates averaged 8.1% in 2000. In 2000 interest rates were on an upward trend, with rates reaching a peak of 8.5% in May. Rates then declined for seven consecutive months. In 2001 rates held steady at close to 7% for most of the year. In 2002 rates continued to hold steady at close to 7% until April. Rates then declined through December 2002, reaching a low of 5.9%. Operating in these mortgage interest rate environments, real estate activity was strong in 2002 and 2001. Nationwide, refinancing transactions remained strong in 2002. The ratio of refinancings to total loan applications was 58.8% for 2002, 56.8% for 2001 and 21.3% for 2000. Refinancings usually have lower title insurance premium rates than real property sales. Existing home sales increased 5.0% in 2002 over 2001 and 2.8% in 2001 from 2000. TITLE REVENUES. Our revenues from title increased 41.9% in 2002 over 2001 and 37.2% in 2001 from 2000. -8- Revenues from direct operations increased 31.2% in 2002 and 41.7% in 2001. The number of direct closings we handled increased 31.8% in 2002 and 55.7% in 2001. The largest revenue increases in both years were primarily in California, Texas and Florida. Direct closings relate only to files closed by our underwriters and subsidiaries and do not include closings by agencies. The average revenue per closing decreased 0.8% in 2002 and 9.3% in 2001 due to the higher ratio of refinancings in those years. In 2000 other revenues included $1.6 million in losses in an equity investee startup operation. Premium revenues from agencies increased 50.4% to $995.3 million in 2002 and 33.8% to $661.9 million in 2001 from $494.6 million in 2000. The increases in 2002 and 2001 were primarily due to the increases in both refinancings and property sales. The largest revenue increases in both years were primarily in California, Pennsylvania, New York, Virginia and Texas. TITLE REVENUES BY STATE. The approximate amounts and percentages of consolidated title operating revenues for the last three years were:
- -------------------------------------------------------------------------------------------------------------- Amounts ($ millions) Percentages 2002 2001 2000 2002 2001 2000 - -------------------------------------------------------------------------------------------------------------- California ....................................... 305 194 111 18 16 13 Texas ............................................ 234 190 176 14 16 20 Florida .......................................... 119 88 60 7 7 7 New York ......................................... 109 78 67 6 7 8 All others ....................................... 918 638 452 55 54 52 - -------------------------------------------------------------------------------------------------------------- 1,685 1,188 866 100 100 100 - ----------------------------------------------------==========================================================
REI REVENUES. Real estate information revenues were $71.1 million in 2002, $63.8 million in 2001 and $50.8 million in 2000. The increases in 2002 and 2001 resulted primarily from providing an increased number of post-closing services, flood determinations and electronic mortgage documents resulting from the large volume of real estate transactions. INVESTMENTS. Investment income increased 3.9% in 2002 and 4.3% in 2001 primarily because of increases in average balances invested, partially offset by lower yields. Certain investment gains in 2002, 2001 and 2000 were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. We realized a gain on the sale of investment real estate in 2002, but it was offset by a comparable after-tax loss of $1.2 million on the sale of WorldCom bonds. We also recorded gains in late 2002 when we sold certain investments primarily to maximize tax benefits and manage portfolio duration. AGENCY RETENTION. The amounts retained by agencies, as a percentage of revenues from agency operations, were 81.9%, 81.5% and 81.2% in the years 2002, 2001 and 2000, respectively. Amounts retained by title agencies are based on contracts between agencies and our title underwriters. The percentage that amounts retained by agencies bears to agency revenues may vary from year to year because of the geographical mix of agency operations and the volume of title revenues. SELECTED COST RATIOS (BY SEGMENT). The following table shows employee costs and other operating expenses as a percentage of related title and real estate information operating revenues for the last three years.
- ------------------------------------------------------------------------------------------------------- Employee costs (%) Other operating (%) 2002 2001 2000 2002 2001 2000 - ------------------------------------------------------------------------------------------------------- Title ...................................... 24.5 27.6 29.7 13.8 15.6 18.2 REI ........................................ 57.0 59.6 69.4 26.8 26.1 30.0 - ----------------------------------------------=========================================================
These two categories of expenses are discussed below in terms of year-to-year monetary increases. EMPLOYEE COSTS. Employee costs for the combined business segments increased 24.0% in 2002 and 25.1% in 2001. The number of persons we employed at December 31, 2002, 2001 and 2000 was approximately 7,800, 6,900 and 5,600, respectively. The increase in staff in 2002 and 2001 was primarily due to increased title and REI volume and acquisitions of new offices. In our REI segment, employee costs increased in 2002 and 2001 primarily due to a shift in focus to provide more post-closing services to lenders. These services are considerably more labor intensive than other REI services. -9- OTHER OPERATING EXPENSES. Other operating expenses for the combined business segments increased 24.0% in 2002 and 16.9% in 2001. The increase in other operating expenses for the combined business segments in 2002 was in search fees, premium taxes, new offices and business promotion. In 2001 the overall increase was in new offices, search fees, premium taxes and rent. Other operating expenses also include rent, telephone, supplies, title plant expenses, travel and auto. Most of these operating expenses follow, to varying degrees, the changes in transaction volume and revenues. Our employee costs and certain other operating costs are sensitive to inflation. To the extent inflation causes increases in the prices of homes and other real estate, premium revenues are also increased. Premiums are determined in part by the insured values of the transactions we handle. TITLE LOSSES. Provisions for title losses, as a percentage of title operating revenues, were 4.5%, 4.3% and 4.5% in 2002, 2001 and 2000, respectively. The continued improvement in industry trends in claims and increases in refinancing transactions, which generally result in lower loss exposure, have led to lower loss ratios. INCOME TAXES. The provisions for federal, state and foreign income taxes represented effective tax rates of 38.6%, 39.6% and 47.1% in 2002, 2001 and 2000, respectively. The 2000 effective rate was higher primarily due to state income taxes, which were proportionately higher in relation to taxable income. LIQUIDITY AND CAPITAL RESOURCES. In 2001 and 2000 we financed a portion of the purchase price of certain acquisitions through the issuance of $3.2 million and $4.9 million, respectively, of our Common Stock. Acquisitions during 2002, 2001 and 2000 resulted in additions to our goodwill of $11.7 million, $19.3 million and $7.5 million, respectively. We filed a registration statement with the Securities and Exchange Commission and in August 2001 issued 2.5 million shares of Common Stock at $19 per share, resulting in net proceeds of $44.5 million. Cash provided by operations was $162.6 million, $108.2 million and $31.9 million in 2002, 2001 and 2000, respectively. Cash flow from operations has been the primary source of financing for additions to property and equipment, expanding operations and other requirements. This source may be supplemented by bank borrowings. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements. A substantial majority of consolidated cash and investments is held by Stewart Title Guaranty Company (Guaranty) and its subsidiaries. Cash transfers between Guaranty and its subsidiaries and the Company are subject to certain legal restrictions. See Notes 2 and 3 to the consolidated financial statements. Our liquidity, excluding Guaranty and its subsidiaries, is comprised of cash and investments aggregating $10.9 million and short-term liabilities of $1.6 million at December 31, 2002. We know of no commitments or uncertainties that are likely to materially affect our ability to fund cash needs. See Note 17 to the consolidated financial statements. We consider our capital resources to be adequate. Our capital resources are represented by a low debt-to-equity ratio, in which long-term debt is $7.4 million and stockholders' equity is $493.6 million at December 31, 2002. We are not aware of any trends, either favorable or unfavorable, that would materially affect notes payable or stockholders' equity and we do not expect any material changes to the cost of such resources. However, significant acquisitions in the future could materially affect the notes payable or stockholders' equity balances. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The discussion below about our risk management strategies includes forward-looking statements that are subject to risks and uncertainties. Management's projections of hypothetical net losses in fair value of our market rate sensitive financial instruments, should certain potential changes in market rates occur, is presented below. While we believe that the potential market rate changes are reasonably possible, actual rate changes could differ. Our only material market risk in investments in financial instruments is our debt securities portfolio. We invest primarily in marketable municipal, U.S. Government, corporate and mortgage-backed debt securities. We do not invest in financial instruments of a hedging or derivative nature. -10- We have established policies and procedures to manage our exposure to changes in the fair value of our investments. These policies include retaining an investment advisory firm, an emphasis upon credit quality, management of portfolio duration, maintaining or increasing investment income through high coupon rates and actively managing profile and security mix depending upon market conditions. We have classified all of our investments as available-for-sale. The market value of our investments in debt securities at December 31, 2002 was $367.9 million. Debt securities at December 31, 2002 mature, according to their contractual terms, as follows (actual maturities may differ because of call or prepayment rights):
Amortized Market cost value ------------------------ ($000 Omitted) In one year or less........................................... 28,696 28,999 After one year through two years.............................. 16,313 16,869 After two years through three years........................... 26,280 27,390 After three years through four years.......................... 44,007 45,454 After four years through five years........................... 32,770 34,611 After five years.............................................. 203,756 213,178 Mortgage-backed securities.................................... 1,324 1,360 ------- ------- 353,146 367,861 ======= =======
We believe our investment portfolio is diversified and do not expect any material loss to result from the failure to perform by issuers of the debt securities we hold. Our investments are not collateralized. The mortgage-backed securities are insured by agencies of the U.S. Government. Based on our debt securities portfolio and interest rates at December 31, 2002, a 100 basis point increase (decrease) in interest rates would result in a decrease (increase) of approximately $16.1 million, or 4.4%, in the fair value of our portfolio. Changes in interest rates may affect the fair value of the debt securities portfolio and may result in unrealized gains or losses. Gains or losses would only be realized upon the sale of the investments. Any other than temporary declines in market values of securities are charged to earnings. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required to be provided in this item is included in our Consolidated Financial Statements, including the Notes thereto, attached hereto as pages F-1 to F-17, and such information is incorporated in this report by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -11- P A R T III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The information regarding our directors will be included in the proxy statement for our 2003 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after December 31, 2002, and is incorporated in this report by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation will be included in the Proxy Statement and is incorporated in this report by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding beneficial ownership of our Common Stock will be included in the Proxy Statement and is incorporated in this report by reference. The table below describes our compensation plans under which equity securities are authorized for issuance, as of December 31, 2002.
- ----------------------------------------------------------------------------------------------------------------------------- Number of securities Number of securities to be issued upon Weighted-average remaining available exercise of exercise price of for future issuance outstanding options, outstanding options, under equity Plan category warrants and rights warrants and rights compensation plans - ----------------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 504,700 16.31 1,282,122 Equity compensation plans not approved by security holders - - 460,601(1) - ----------------------------------------------------------------------------------------------------------------------------- Total 504,700 16.31 1,742,723 - -------------------------------------------------------======================================================================
(1) The Company has a Service Award Program under which shares may be granted to employees who achieve specified length of service milestones. No specific number of shares have been reserved for issuance under this program. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding Certain Relationships and Related Transactions will be included in the Proxy Statement and is incorporated in this report by reference. ITEM 14. CONTROLS AND PROCEDURES In its recent Release No. 34-46427, effective August 29, 2002, the Securities and Exchange Commission, among other things, adopted rules requiring reporting companies to maintain disclosure controls and procedures to provide reasonable assurance that a registrant is able to record, process, summarize and report the information required in the registrant's quarterly and annual reports under the Securities Exchange Act of 1934 (the "Exchange Act"). While we believe that our existing disclosure controls and procedures have been effective to accomplish these objectives, we intend to continue to examine, refine and formalize our disclosure controls and procedures and to monitor ongoing developments in this area. Our principal executive officers and our principal financial officer, based upon their evaluation of our disclosure controls and procedures conducted as of a date within 90 days before the filing date of this annual report (as defined in Rule 13a-14(c) and Rule 15d-14(c) under the Exchange Act), have concluded that those disclosure controls and procedures are effective. -12- There have been no changes in our internal controls or in other factors known to us that could significantly affect these controls subsequent to their evaluation, nor were any corrective actions necessary with regard to significant deficiencies and material weaknesses. -13- P A R T IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules The financial statements and financial statement schedules filed as part of this report are listed in the "Index to Consolidated Financial Statements" on Page F-1 of this document. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (b) Reports on Form 8-K We did not file any reports on Form 8-K during the three months ended December 31, 2002. (c) Exhibits 3.1 - Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 3.2 - By-Laws of the Registrant, as amended March 13, 2000 (incorporated by reference in this report from Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4. - Rights of Common and Class B Common Stockholders (incorporated by reference to Exhibits 3.1 and 3.2 hereto) * 10.1 - Summary of agreements as to payment of bonuses to certain executive officers * 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July 24, 1990 and October 30, 1992, between the Registrant and certain executive officers (incorporated by reference in this report from Exhibit 10.2 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1997) Stewart Information Services Corporation 2002 Stock Option Plan for Region Managers (incorporated by reference in this report from Exhibit 10.4 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002) * 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan (incorporated by reference in this report from Exhibit 10.3 of Annual Report on Form 10-K for the fiscal year ended December 31, 1999) 21. - Subsidiaries of the Registrant 23. - Consent of Independent Certified Public Accountant, including consent to incorporation by reference of their reports into previously filed Securities Act registration statements 99.1 - Certificate of Co-Chief Executive Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.2 - Certificate of Co-Chief Executive Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.3 - Certificate of Chief Financial Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 *Indicates a management contract or compensation plan. -14- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized. STEWART INFORMATION SERVICES CORPORATION (Registrant) By: Malcolm S. Morris --------------------------------------------------------- Malcolm S. Morris, Co-Chief Executive Officer and Chairman of the Board of Directors By: Stewart Morris, Jr. --------------------------------------------------------- Stewart Morris, Jr., Co-Chief Executive Officer, President and Director By: Max Crisp --------------------------------------------------------- Max Crisp, Executive Vice President and Chief Financial Officer, Secretary-Treasurer, Director and Principal Financial and Accounting Officer Dated: March 17, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed by the following persons on our behalf and in the capacities and on the dates indicated: Lloyd Bentsen III Director March 17, 2003 John P. LaWare Director March 17, 2003 - ------------------------ ----------------------- (Lloyd Bentsen III) (John P. LaWare) Max Crisp Director March 17, 2003 Malcolm S. Morris Director March 17, 2003 - ------------------------ ----------------------- (Max Crisp) (Malcolm S. Morris) Nita Hanks Director March 17, 2003 Stewart Morris, Jr. Director March 17, 2003 - ------------------------ ----------------------- (Nita Hanks) (Stewart Morris, Jr.) Paul Hobby Director March 17, 2003 W. Arthur Porter Director March 17, 2003 - ------------------------ ----------------------- (Paul Hobby) (W. Arthur Porter) E. Douglas Hodo Director March 17, 2003 - ------------------------ (E. Douglas Hodo)
-15- CERTIFICATIONS Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 I, Malcolm S. Morris, certify that: 1. I have reviewed the annual report on Form 10-K of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a and 15d-14) for the registrant and we have (a) designed such controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 17, 2003 /S/ MALCOLM S. MORRIS ------------------------------------- [Signature] Title: Chairman of the Board and Co-Chief Executive Officer -16- CERTIFICATIONS Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 I, Stewart Morris, Jr., certify that: 1. I have reviewed the annual report on Form 10-K of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a and 15d-14) for the registrant and we have (a) designed such controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 17, 2003 /S/ STEWART MORRIS, JR. ------------------------------------- [Signature] Title: Co-Chief Executive Officer, President and Director -17- CERTIFICATIONS Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 I, Max Crisp, certify that: 1. I have reviewed the annual report on Form 10-K of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a and 15d-14) for the registrant and we have (a) designed such controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 17, 2003 /S/ MAX CRISP ------------------------------------- [Signature] Title: Executive Vice President and Chief Financial Officer, Secretary- Treasurer, Director and Principal Financial and Accounting Officer -18- INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Stewart Information Services Corporation and Subsidiaries' Consolidated Financial Statements: Independent Auditors' Report F-2 Consolidated Statements of Earnings, Retained Earnings and Comprehensive Earnings for the years ended December 31, 2002, 2001 and 2000 F-3 Consolidated Balance Sheets as of December 31, 2002 and 2001 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 F-5 Notes to Consolidated Financial Statements F-6 Financial Statement Schedules: Schedule I - Financial Information of the Registrant (Parent Company) S-1 Schedule II - Valuation and Qualifying Accounts S-5
F-1 Independent Auditors' Report To the Stockholders and Board of Directors of Stewart Information Services Corporation We have audited the consolidated financial statements of Stewart Information Services Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stewart Information Services Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for goodwill in 2002. KPMG LLP Houston, Texas February 14, 2003 F-2 CONSOLIDATED STATEMENTS OF EARNINGS, RETAINED EARNINGS AND COMPREHENSIVE EARNINGS
- ------------------------------------------------------------------------------------------------------------------------------ Years ended December 31 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ ($000 Omitted) REVENUES Title insurance: Direct operations..................................................... 689,588 525,543 370,992 Agency operations..................................................... 995,283 661,943 494,614 Real estate information services......................................... 71,119 63,821 50,749 Investment income........................................................ 20,694 19,922 19,107 Investment gains - net................................................... 3,032 356 23 - ------------------------------------------------------------------------------------------------------------------------------ 1,779,716 1,271,585 935,485 EXPENSES Amounts retained by agencies........................................... 814,651 539,369 401,761 Employee costs......................................................... 453,304 365,562 292,276 Other operating expenses .............................................. 250,933 202,342 173,038 Title losses and related claims........................................ 75,920 51,454 38,999 Depreciation........................................................... 21,383 19,637 19,144 Goodwill............................................................... - 3,011 1,807 Interest............................................................... 725 2,216 2,266 Minority interests..................................................... 8,940 7,414 5,048 - ------------------------------------------------------------------------------------------------------------------------------ 1,625,856 1,191,005 934,339 Earnings before taxes...................................................... 153,860 80,580 1,146 Income taxes............................................................... 59,380 31,894 540 - ------------------------------------------------------------------------------------------------------------------------------ NET EARNINGS............................................................... 94,480 48,686 606 Retained earnings at beginning of year..................................... 258,746 210,060 209,454 - ------------------------------------------------------------------------------------------------------------------------------ Retained earnings at end of year........................................... 353,226 258,746 210,060 - -----------------------------------------------------------------------------------=========================================== Average number of shares outstanding - assuming dilution (000 omitted)........................................................... 17,826 16,348 14,980 Earnings per share - basic................................................. 5.33 3.01 .04 EARNINGS PER SHARE - DILUTED............................................... 5.30 2.98 .04 - -----------------------------------------------------------------------------------=========================================== Comprehensive earnings: Net earnings............................................................... 94,480 48,686 606 Changes in other comprehensive earnings, net of taxes of $2,797, $1,158 and $2,985............................................ 5,195 2,151 5,528 - ------------------------------------------------------------------------------------------------------------------------------ COMPREHENSIVE EARNINGS..................................................... 99,675 50,837 6,134 - -----------------------------------------------------------------------------------===========================================
See notes to consolidated financial statements. F-3 CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------- December 31 2002 2001 - ------------------------------------------------------------------------------------------------------------- ($000 Omitted) ASSETS Cash and cash equivalents.............................................. 139,156 60,706 Short-term investments................................................. 50,673 56,267 Investments in debt and equity securities, at market: Statutory reserve funds............................................ 306,501 239,084 Other.............................................................. 69,260 86,046 - ------------------------------------------------------------------------------------------------------------- 375,761 325,130 Receivables: Notes.............................................................. 5,817 8,923 Premiums from agencies............................................. 33,348 17,738 Other.............................................................. 35,184 30,039 Less allowance for uncollectible amounts........................... (5,308) (4,664) - ------------------------------------------------------------------------------------------------------------- 69,041 52,036 Property and equipment, at cost: Land............................................................... 5,566 2,402 Buildings.......................................................... 8,913 7,823 Furniture and equipment............................................ 169,483 146,108 Less accumulated depreciation and amortization..................... (123,099) (107,561) - ------------------------------------------------------------------------------------------------------------- 60,863 48,772 Title plants, at cost.................................................. 40,036 37,715 Real estate, at lower of cost or net realizable value.................. 2,598 4,126 Investments in investees, on an equity basis........................... 10,674 12,158 Goodwill, less accumulated amortization of $13,479..................... 66,885 52,971 Deferred income taxes.................................................. - 4,288 Other assets........................................................... 26,586 23,694 - ------------------------------------------------------------------------------------------------------------- 842,273 677,863 - ------------------------------------------------------------------------------------========================= LIABILITIES Notes payable, including $7,354 and $6,966 long-term portion........... 14,195 13,794 Accounts payable and accrued liabilities............................... 82,248 57,752 Estimated title losses................................................. 230,058 202,544 Deferred income taxes.................................................. 11,284 - Minority interests..................................................... 10,896 9,233 Contingent liabilities and commitments STOCKHOLDERS' EQUITY Common - $1 par, authorized 30,000,000, issued and outstanding 16,681,212 and 16,751,240............................................. 17,007 16,868 Class B Common - $1 par, authorized 1,500,000, issued and outstanding 1,050,012............................................................. 1,050 1,050 Additional paid-in capital............................................. 116,870 115,239 Retained earnings...................................................... 353,226 258,746 Accumulated other comprehensive earnings: Unrealized investment gains.......................................... 9,039 3,843 Foreign currency translations........................................ 305 306 Treasury stock - 325,669 and 116,900 Common shares, at cost............ (3,905) (1,512) - ------------------------------------------------------------------------------------------------------------- Total stockholders' equity ($27.84 and $22.16 per share)........ 493,592 394,540 - ------------------------------------------------------------------------------------------------------------- 842,273 677,863 - ------------------------------------------------------------------------------------=========================
See notes to consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------------- Years ended December 31 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- ($000 Omitted) CASH PROVIDED BY OPERATING ACTIVITIES (NOTE)............................... 162,551 108,186 31,913 Investing activities: Purchases of property and equipment, title plants and real estate- net................................................................ (30,165) (23,452) (19,191) Proceeds from investments matured and sold............................. 163,737 70,074 87,325 Purchases of investments............................................... (197,748) (135,579) (80,550) Increases in notes receivable.......................................... (3,198) (3,208) (10,535) Collections on notes receivable........................................ 6,305 11,531 1,733 Cash paid for equity investees......................................... - - (6,863) Cash paid for acquisitions of subsidiaries - net (see below)........... (12,502) (13,016) (9,475) - ----------------------------------------------------------------------------------------------------------------------------- CASH USED BY INVESTING ACTIVITIES.......................................... (73,571) (93,650) (37,556) Financing activities: Purchases of treasury stock............................................ - - (1,512) Distributions to minority interests.................................... (7,713) (5,926) (4,814) Proceeds from exercise of stock options................................ 467 337 19 Proceeds from stock offering - net..................................... - 44,509 - Proceeds from notes payable............................................ 4,259 6,597 16,856 Payments on notes payable.............................................. (7,543) (35,852) (5,829) - ----------------------------------------------------------------------------------------------------------------------------- CASH (USED) PROVIDED BY FINANCING ACTIVITIES............................... (10,530) 9,665 4,720 - ----------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... 78,450 24,201 (923) - ------------------------------------------------------------------------------------========================================= Note: Reconciliation of net earnings to the above amounts Net earnings........................................................... 94,480 48,686 606 Add (deduct): Depreciation and amortization....................................... 21,383 22,648 20,951 Provisions for title losses in excess of payments................... 27,306 11,483 6,511 (Increase) decrease in receivables - net............................ (18,785) (1,660) 576 Increase (decrease) in payables and accrued liabilities - net 21,878 18,450 (3,138) Minority interest expense........................................... 8,940 7,414 5,048 Net (earnings) losses from equity investees......................... (3,420) (1,345) 596 Dividends received from equity investees............................ 2,892 2,275 1,132 Provisions for deferred income taxes................................ 12,775 1,897 2,041 Other - net......................................................... (4,898) (1,662) (2,410) - ----------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities...................................... 162,551 108,186 31,913 - ------------------------------------------------------------------------------------========================================= Supplemental information: Net assets acquired (purchase method): Goodwill............................................................. 11,739 19,312 7,528 Title plants......................................................... 537 5,056 5,239 Other................................................................ 4,580 4,830 3,645 Liabilities assumed..................................................... (6,574) (12,962) (2,000) Common stock issued..................................................... - (3,220) (4,937) Treasury stock acquired................................................. 2,220 - - Cash paid for acquisitions of subsidiaries - net........................ 12,502 13,016 9,475 - ----------------------------------------------------------------------------------------------------------------------------- Income taxes paid....................................................... 23,645 14,615 528 Interest paid........................................................... 730 1,649 1,687 - ------------------------------------------------------------------------------------=========================================
See notes to consolidated financial statements. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Three years ended December 31, 2002) NOTE 1 GENERAL. Stewart Information Services Corporation, through its subsidiaries (collectively, the Company), is primarily engaged in the title insurance business. The Company also provides real estate information services. The Company operates through a network of direct and agency offices throughout the United States. Approximately 32 percent of consolidated title revenues are generated in California and Texas. The operations in the international markets in which the Company does business are insignificant to consolidated results. A. MANAGEMENT RESPONSIBILITY. The accompanying financial statements were prepared by management, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), including management's best judgments and estimates. Actual results could differ from estimates. B. NEW SIGNIFICANT ACCOUNTING PRONOUNCEMENTS. The Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002, as required, and no longer amortizes goodwill. Instead, goodwill and other intangibles are reviewed no less than annually and amounts determined to be impaired will be expensed to current operations. The effect on the Company's results of operations is described in Note 7. In accordance with SFAS No. 141 "Business Combinations", the Company has used the purchase method of accounting for business combinations occurring after June 30, 2001. The effect on the Company's consolidated financial position or results of operations was immaterial. The Company adopted the stock-based compensation disclosure requirements of SFAS No. 148. See Note 1S. The impact the on the Company's financial position or results of operations for the change in the fair value method of accounting for stock-based compensation, if adopted, is expected to be immaterial. The Company adopted the disclosure requirements for guarantees required by FASB Interpretation No. 45 effective December 31, 2002. The Company will adopt the initial recognition and measurement provision of the non-contingent aspects of guarantees issued or modified after December 31, 2002 and currently anticipates no significant effect on the Company's consolidated financial position or results of operations. The Company will adopt the requirements of consolidation of variable interest entities created or obtained after January 31, 2003 and related disclosures required by FASB Interpretation No. 46, effective June 15, 2003. The effect on the Company's consolidated financial position or results of operations is expected to be immaterial. C. RECLASSIFICATIONS. Certain prior year amounts in the consolidated financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. D. CONSOLIDATION. The consolidated financial statements include all subsidiaries in which the Company owns more than 50% voting rights in electing directors. Unconsolidated investees, owned 20% through 50%, and over which the Company exercises significant influence, are accounted for by the equity method. All significant intercompany accounts and transactions are eliminated and provisions are made for minority interests. E. STATUTORY ACCOUNTING. Stewart Title Guaranty Company (Guaranty) and other title insurance underwriters owned by the Company prepare financial statements in accordance with statutory accounting practices prescribed or permitted by regulatory authorities. In restating to GAAP, the statutory premium reserve and the reserve for reported title losses are eliminated and, in substitution, amounts are established for estimated title losses (see Note 1G). The net effect, after providing for certain deferred income taxes, is included in consolidated retained earnings. F. REVENUE RECOGNITION. Operating revenues from direct title operations are considered earned at the time of the closing of the related real estate transaction. Premium revenues on title insurance policies written by agencies are recognized primarily when policies are reported to the Company. The Company accrues for unreported policies where reasonable estimates can be made based on historical reporting patterns of agencies, current trends and known information about agencies. F-6 Revenues from real estate information services are considered earned at the time the service is performed or the work product is delivered to the customer. G. TITLE LOSSES AND RELATED CLAIMS. Estimating future title loss payments is difficult because of the complex nature of title claims, the length of time over which claims are paid, the significantly varying dollar amounts of individual claims and other factors. The Company's liability for estimated title losses comprises both known claims and other losses expected to be reported in the future. The amount of the reserves represents the aggregate future payments, net of recoveries, that the Company expects to incur on policy and escrow losses and in costs to settle claims. Provisions are charged to income in the same year the related premium revenues are recognized. The amounts provided are based on reported claims, historical loss experience, title industry averages, current legal environment and types of policies written. Amounts shown as the Company's estimated liability for future loss payments are continually reviewed for reasonableness and adjusted as appropriate. Independent actuaries also review the adequacy of the liability amounts on an annual basis. In accordance with industry practice, the amounts have not been discounted to their present values. H. CASH EQUIVALENTS. Cash equivalents are highly liquid investments that are convertible to cash or mature on a daily basis as part of the Company's management of day-to-day operating cash. I. SHORT-TERM INVESTMENTS. Short-term investments comprise time deposits with banks and savings and loan associations, federal government obligations, money market accounts and other investments maturing in less than one year. J. INVESTMENTS. The Company has classified its investment portfolio as available-for-sale. Realized gains and losses on sales of investments are determined using the specific identification method. Net unrealized gains and losses on securities, net of applicable deferred taxes, are included in stockholders' equity. Any other than temporary declines in fair values of securities are charged to earnings. K. PROPERTY AND EQUIPMENT. Depreciation is computed principally using the straight-line method at the following rates: buildings - 30 to 40 years and furniture and equipment - 3 to 10 years. Maintenance and repairs are expensed as incurred while improvements are capitalized. Gains and losses are recognized at disposal. L. TITLE PLANTS. Title plants include compilations of a county's official land records, prior examination files, copies of prior title policies, maps and related materials that are geographically indexed to a specific property. The costs of acquiring existing title plants and creating new ones, prior to the time such plants are placed in operation, are capitalized. Such costs are not amortized because there is no indication of any loss of value. The costs of maintaining and operating title plants are expensed as incurred. Gains and losses on sales of copies of title plants or interests in title plants are recognized at the time of sale. M. GOODWILL. Goodwill is the excess of the purchase price over the fair value of net assets acquired. Prior to January 1, 2002 goodwill was amortized using the straight-line method by charges to earnings generally over 20 to 40 years. Effective January 1, 2002, goodwill is not amortized but is reviewed no less than annually and, if determined to be impaired, is expensed to current operations. Goodwill impairment charges were $703,000 in 2001. There were no such charges in 2002 and 2000. See Note 1B. N. OTHER ACQUIRED INTANGIBLES. The Company does not have any significant acquired intangible assets, other than title plants and goodwill. O. LONG-LIVED ASSETS. The Company reviews the carrying values of goodwill, title plants and other long-lived assets if certain events occur that may indicate impairment. Goodwill is reviewed no less than annually. Impairment of all other long-lived assets is indicated when projected undiscounted cash flows over the estimated lives of the assets are less than carrying values. If impairment is determined by management, the book amounts are written down to fair values by calculating the discounted values of projected cash flows. See Note 1B. P. FAIR VALUES. The fair values of financial instruments, including cash and cash equivalents, short-term investments, notes receivable, notes payable and accounts payable, are determined by reference to various market data and other valuation techniques, as appropriate. The fair values of these financial instruments approximate their carrying values. Investments in debt and equity securities are carried at their fair values. Q. DERIVATIVES AND HEDGING. The Company does not invest in hedging or derivative instruments. Accordingly, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", which was effective January 1, 2001 for the Company, had no impact on the consolidated financial statements. F-7 R. INCOME TAXES. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the tax bases and the book carrying values for certain assets and liabilities. Valuation allowances are provided as may be appropriate. Enacted tax rates are used in calculating amounts. S. STOCK-BASED COMPENSATION. The Company has two fixed stock-based employee compensation plans. The Company accounts for the plans under the intrinsic value method. Accordingly, no stock-based employee compensation cost is reflected in net earnings, as all options granted under the plans had an exercise price equal to the market value of the underlying Common Stock on the date of grant. See Note 13. The Company applies APB No. 25 and related Interpretations in accounting for its plans. Under SFAS No. 123, compensation cost would be recognized for the fair value of the employees' purchase rights, which is estimated using the Black-Scholes model. The Company assumed a dividend yield of 0%, an expected life of five to ten years for each option, expected volatility of 38.0% to 41.6% and a risk-free interest rate of 4.8% to 6.0% for the three years ended December 31, 2002. Had compensation cost for the Company's plans been determined consistent with FAS 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
- ----------------------------------------------------------------------------------------------------------- 2002 2001 2000 - ----------------------------------------------------------------------------------------------------------- ($000 Omitted) Net earnings: As reported............................................................ 94,480 48,686 606 Stock-based employee compensation determined under fair value method.................................... (616) (630) (420) - ----------------------------------------------------------------------------------------------------------- Pro forma.............................................................. 93,864 48,056 186 - -------------------------------------------------------------------------------============================ Earnings per share: Net earnings - basic.................................................... 5.33 3.01 .04 Pro forma - basic...................................................... 5.29 2.97 .01 Net earnings - diluted.................................................. 5.30 2.98 .04 Pro forma - diluted..................................................... 5.27 2.94 .01 - -------------------------------------------------------------------------------============================
NOTE 2 RESTRICTIONS ON CASH AND INVESTMENTS. Statutory reserve funds are maintained to comply with legal requirements for statutory premium reserves and state deposits. These funds are not available for any other purpose. A substantial majority of consolidated investments and cash at each year end was held by the Company's title insurer subsidiaries. Generally, the types of investments a title insurer can make are subject to legal restrictions. Furthermore, the transfer of funds by a title insurer to its parent or subsidiary operations, as well as other related party transactions, are restricted by law and generally require the approval of state insurance authorities. NOTE 3 DIVIDEND RESTRICTIONS. Surplus as regards policyholders for Guaranty was $309,342,000 and $243,079,000 at December 31, 2002 and 2001, respectively. Statutory net income for Guaranty was $21,816,000, $11,195,000 and $5,289,000 in 2002, 2001 and 2000, respectively. Substantially all of the consolidated retained earnings at each year end was represented by Guaranty, which owns directly or indirectly substantially all of the subsidiaries included in the consolidation. Guaranty cannot pay a dividend in excess of certain limits without the approval of the Texas Insurance Commissioner. The maximum dividend which can be paid without such approval in 2003 is $61,868,000. Guaranty paid dividends of $90,000, $1,390,000 and $90,000 in 2002, 2001 and 2000, respectively. Dividends from Guaranty are also voluntarily restricted primarily to maintain statutory surplus and liquidity at competitive levels. The ability of a title insurer to pay claims can significantly affect the decision of lenders and other customers when buying a policy from a particular insurer. F-8 NOTE 4 INVESTMENTS. The amortized costs and market values of debt and equity securities at December 31 follow:
- ----------------------------------------------------------------------------------------------------------- 2002 2001 - ----------------------------------------------------------------------------------------------------------- AMORTIZED MARKET Amortized Market COST VALUE cost value - ----------------------------------------------------------------------------------------------------------- ($000 Omitted) Debt securities: Municipal..................................... 152,808 159,453 143,151 145,536 Corporate and utilities....................... 127,265 132,502 117,950 119,500 U.S. Government............................... 38,741 39,798 38,470 39,818 Foreign....................................... 33,008 34,748 7,767 7,842 Mortgage-backed............................... 1,324 1,360 1,963 1,961 Equity securities................................. 8,709 7,900 9,917 10,473 - ----------------------------------------------------------------------------------------------------------- 361,855 375,761 319,218 325,130 - -------------------------------------------------------------==============================================
Gross unrealized gains and losses at December 31 were:
- ------------------------------------------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------------- GAINS LOSSES Gains Losses - ------------------------------------------------------------------------------------------------------------- ($000 Omitted) Debt securities: ................................ Municipal ................................... 6,797 152 3,057 672 Corporate and utilities ..................... 6,472 1,235 2,954 1,404 U.S. Government ............................. 1,057 - 1,366 18 Foreign ..................................... 1,742 2 96 21 Mortgage-backed ............................. 36 - - 2 Equity securities ............................... 295 1,104 1,060 504 - ------------------------------------------------------------------------------------------------------------- 16,399 2,493 8,533 2,621 - --------------------------------------------------------------===============================================
Debt securities at December 31, 2002 mature, according to their contractual terms, as follows (actual maturities may differ because of call or prepayment rights):
- ---------------------------------------------------------------------------------------------------------- Amortized Market cost value - ---------------------------------------------------------------------------------------------------------- ($000 Omitted) In one year or less ............................. 28,696 28,999 After one year through five years ............... 119,370 124,324 After five years through ten years .............. 150,897 158,858 After ten years ................................. 52,859 54,320 Mortgage-backed securities ...................... 1,324 1,360 - ---------------------------------------------------------------------------------------------------------- 353,146 367,861 - ---------------------------------------------------------------------------------=========================
The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized. The mortgage-backed securities are insured by U.S. Government agencies. F-9 NOTE 5 INVESTMENT INCOME. Income from investments and realized gains and losses for the three years follow:
- ----------------------------------------------------------------------------------------------------- 2002 2001 2000 - ----------------------------------------------------------------------------------------------------- ($000 Omitted) Income: Debt securities ............................................ 17,484 15,614 13,770 Short-term investments, cash equivalents and other ......... 3,210 4,308 5,337 - ----------------------------------------------------------------------------------------------------- 20,694 19,922 19,107 - --------------------------------------------------------------------================================= Realized gains and losses: Gains ...................................................... 7,966 (1) 1,308 823 Losses ..................................................... (4,934) (952) (800) - ----------------------------------------------------------------------------------------------------- 3,032 356 23 - --------------------------------------------------------------------=================================
(1) Includes gain on sale of real estate of $2,376,000. The sales of securities resulted in proceeds of $118,106,000 in 2002, $41,694,000 in 2001 and $51,066,000 in 2000. Expenses assignable to investment income were insignificant. There were no significant investments at December 31, 2002 that did not produce income during the year. NOTE 6 INCOME TAXES. Deferred income taxes at December 31, 2002 and 2001 were as follows:
- ------------------------------------------------------------------------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------- ($000 Omitted) Deferred tax assets: Accruals not currently deductible .......................... 1,313 874 Net operating loss carryforwards ........................... 213 483 Allowance for uncollectible amounts ........................ 963 891 Book over tax depreciation ................................. 2,314 3,526 Investments in partnerships ................................ 1,222 905 Foreign tax credit carryforwards ........................... 1,409 1,609 Other ...................................................... 1,711 1,804 - ------------------------------------------------------------------------------------------------- 9,145 10,092 Less valuation allowance ................................... (1,292) (608) - ------------------------------------------------------------------------------------------------- 7,853 9,484 Deferred tax liabilities: Tax over book title loss provisions ........................ (13,051) (2,411) Unrealized gains on investments ............................ (4,867) (2,069) Other ...................................................... (1,219) (716) - ------------------------------------------------------------------------------------------------- (19,137) (5,196) - ------------------------------------------------------------------------------------------------- Net deferred income taxes ...................................... (11,284) 4,288 - ----------------------------------------------------------------------===========================
The Company has $1,207,000 and $202,000 foreign tax credit carryforwards that expire in 2006 and 2007, respectively. The valuation allowance relates to certain foreign tax credit carryforwards, net operating loss carryforwards and other deferred tax assets. Management believes it is more likely than not that future earnings will be sufficient to permit the Company to realize net deferred tax assets. Deferred tax expense was $12,775,000, $2,012,000 and $2,041,000 in 2002, 2001 and 2000, respectively. F-10 The following reconciles federal income taxes computed at the statutory rate with income taxes as reported.
- --------------------------------------------------------------------------------------------------------- 2002 2001 2000 - --------------------------------------------------------------------------------------------------------- ($000 Omitted) Expected income taxes at 35% ............................. 53,851 28,203 401 State income taxes ....................................... 3,268 1,976 223 Foreign taxes - net of tax credits ....................... 1,761 528 - Tax effect of permanent differences: Tax-exempt interest ................................... (2,009) (1,966) (1,909) Meals and entertainment .............................. 1,140 1,079 742 Goodwill ............................................. - 933 457 Net (earnings) losses from equity investees ......... (1,197) (471) 208 Minority interests ................................... 1,201 997 546 Non-taxable income ................................... (1,303) (1,434) (1,044) Other - net .......................................... 2,668 2,049 916 - -------------------------------------------------------------------------------------------------------- Income taxes ............................................. 59,380 31,894 540 - -----------------------------------------------------------------------================================= Effective income tax rates (%) ........................... 38.6 39.6 47.1 - -----------------------------------------------------------------------=================================
NOTE 7 GOODWILL. The carrying amounts of goodwill for the title reporting unit were $56,916,000 and $45,704,000 at December 31, 2002 and 2001, respectively. The remaining goodwill was attributable to the REI segment's two reportable units. During the three years ended December 31, 2002, goodwill was increased by acquisitions. Goodwill was decreased primarily by amortization in 2001 and 2000. In accordance with SFAS No. 142, amortization of goodwill was stopped effective January 1, 2002. There were no impairment write-offs of goodwill during the three-years ended December 31, 2002, except for $675,000 in 2001 in the REI segment and $28,000 in 2001 in the title segment.
- ------------------------------------------------------------------------------------------------------- 2002 2001 2000 - ------------------------------------------------------------------------------------------------------- ($000 Omitted except per share) Net earnings: As reported ............................................ 94,480 48,686 606 Excluding goodwill amortization ........................ - 51,697 2,413 Basic earnings per share: As reported ............................................ 5.33 3.01 .04 Excluding goodwill amortization ........................ - 3.19 .16 Diluted earnings per share: As reported ............................................ 5.30 2.98 .04 Excluding goodwill amortization ........................ - 3.16 .16 - ------------------------------------------------------------------------===============================
F-11 NOTE 8 EQUITY INVESTEES. Certain summarized aggregated financial information for investees follows:
- -------------------------------------------------------------------------------------------------------- 2002 2001 2000 - -------------------------------------------------------------------------------------------------------- ($000 Omitted) For the year: Revenues ............................................. 47,723 51,318 37,757 Net earnings ......................................... 7,635 3,617 602 As of December 31: Total assets ......................................... 18,255 25,475 Notes payable ........................................ 3,566 6,823 Stockholders' equity ................................. 12,423 15,457 - ------------------------------------------------------------------------================================
Title premium revenues earned, less amounts retained by agencies, from policies issued by equity investees were $9,092,000, $7,705,000 and $4,969,000 in 2002, 2001 and 2000, respectively. The amount of earnings (losses) from equity investees was $3,420,000, $1,345,000 and ($596,000) in 2002, 2001 and 2000, respectively. These amounts are included in title insurance - direct operations in the consolidated financial statements. Goodwill related to equity investees was not amortized for the year ended December 31, 2002 in accordance with SFAS No. 142. Goodwill related to equity investees was amortized for the two years ended December 31, 2001 on a basis similar to other goodwill. Equity investments will continue to be reviewed for impairment. See Note 1B. NOTE 9 NOTES PAYABLE.
- ---------------------------------------------------------------------------------------------------- 2002 2001 - ---------------------------------------------------------------------------------------------------- ($000 Omitted) Banks - primarily unsecured and at LIBOR (1) plus .75%, varying payments........ 9,759 7,620 Other than banks ............................................................... 4,436 6,174 - ---------------------------------------------------------------------------------------------------- 14,195 13,794 - ----------------------------------------------------------------------------------==================
(1) 1.38% and 1.88% at December 31, 2002 and 2001, respectively. The notes are due $6,841,000 in 2003, $2,124,000 in 2004, $1,734,000 in 2005, $613,000 in 2006, $2,206,000 in 2007 and $677,000 subsequent to 2007. NOTE 10 ESTIMATED TITLE LOSSES. Provisions accrued, payments made and liability balances for the three years follow:
- --------------------------------------------------------------------------------------------------------- 2002 2001 2000 - --------------------------------------------------------------------------------------------------------- ($000 Omitted) Balances at January 1 ........................................ 202,544 190,298 183,787 Provisions ............................................... 75,920 51,454 38,999 Payments ................................................. (48,441) (39,721) (32,338) Reserve balances acquired ................................ 35 763 - Decreases in salvage ..................................... - (250) (150) - --------------------------------------------------------------------------------------------------------- Balances at December 31 ...................................... 230,058 202,544 190,298 - ------------------------------------------------------------------------=================================
F-12 Provisions include amounts related to the current year of approximately $75,626,000, $51,085,000 and $38,815,000 for 2002, 2001 and 2000, respectively. Payments related to the current year, including escrow and other loss payments, were approximately $10,688,000, $11,817,000 and $8,515,000 in 2002, 2001 and 2000, respectively. NOTE 11 COMMON STOCK AND CLASS B COMMON STOCK. Holders of Common and Class B Common Stock have the same rights, except no cash dividends may be paid on Class B Common Stock. The two classes of stock vote separately when electing directors and on any amendment to the Company's certificate of incorporation that affects the two classes unequally. A provision of the by-laws requires an affirmative vote of at least two-thirds of the directors to elect officers or to approve any proposal that may come before the directors. This provision cannot be changed without a majority vote of each class of stock. Holders of Class B Common Stock may, with no cumulative voting rights, elect four directors if 1,050,000 or more shares of Class B Common Stock are outstanding; three directors if between 600,000 and 1,050,000 shares are outstanding; and none if less than 600,000 shares of Class B Common Stock are outstanding. Holders of Common Stock, with cumulative voting rights, elect the balance of the nine directors. Class B Common Stock may, at any time, be converted by its shareholders into Common Stock on a share-for-share basis, but all of the holders of Class B Common Stock have agreed among themselves not to convert their stock prior to January 2005. 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. At December 31, 2002 and 2001, there were 145,820 shares of Common Stock held by a subsidiary of the Company. These shares are considered retired but may be issued from time to time in lieu of new shares. F-13 NOTE 12 CHANGES IN STOCKHOLDERS' EQUITY.
- -------------------------------------------------------------------------------------------------------------------- COMMON AND CLASS B ADDITIONAL OTHER COMMON PAID-IN COMPREHENSIVE TREASURY STOCK CAPITAL EARNINGS STOCK - -------------------------------------------------------------------------------------------------------------------- ($000 Omitted) Balances at December 31, 1999 ............... 14,696 64,304 (3,530) - Acquisitions ............................ 430 4,507 - - Stock bonuses and other ................. 41 545 - - Exercise of stock options ............... 1 18 - - Tax benefit of stock options exercised .. - 1 - - Unrealized investment gains ............. - - 5,148 - Realized loss reclassification .......... - - 396 - Foreign currency translations ........... - - (16) - Common stock repurchases ................ - - - (1,512) - -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 2000 ............... 15,168 69,375 1,998 (1,512) Stock offering .......................... 2,500 42,009 - - Acquisitions ............................ 198 3,022 - - Stock bonuses and other ................. 25 474 - - Exercise of stock options ............... 27 310 - - Tax benefit of stock options exercised .. - 49 - - Unrealized investment gains ............. - - 2,135 - Realized gain reclassification .......... - - (180) - Foreign currency translations ........... - - 196 - - -------------------------------------------------------------------------------------------------------------------- Balances at December 31, 2001 ............... 17,918 115,239 4,149 (1,512) Stock bonuses and other ................. 44 747 - - Exercise of stock options ............... 95 372 - - Tax benefit of stock options exercised .. - 512 - - Unrealized investment gains ............. - - 7,205 - Realized gain reclassification .......... - - (2,009) - Foreign currency translations ........... - - (1) - Common stock repurchased ................ - - - (2,220) Common stock forfeited .................. - - - (173) - -------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 2002 ............... 18,057 116,870 9,344 (3,905) - ----------------------------------------------------================================================================
In August 2001 the Company issued 2,500,000 shares of its Common Stock in an offering at a price of $19 per share. F-14 NOTE 13 STOCK OPTIONS. A summary of the status of the Company's fixed stock option plans for the three years follows:
- ---------------------------------------------------------------------------------------- Exercise Shares prices (1) - ---------------------------------------------------------------------------------------- ($) December 31, 1999 .................................... 392,400 12.81 Granted .......................................... 86,100 13.00 Exercised ........................................ (1,500) 13.00 Forfeited ........................................ (6,800) 13.57 - ---------------------------------------------------------------------------------------- December 31, 2000 .................................... 470,200 12.83 Granted .......................................... 84,100 19.37 Exercised ........................................ (27,100) 12.43 Forfeited ........................................ (11,000) 18.81 - ---------------------------------------------------------------------------------------- December 31, 2001 .................................... 516,200 13.79 Granted .......................................... 86,100 19.02 Exercised ........................................ (94,800) 4.98 Forfeited ........................................ (2,800) 20.22 - ---------------------------------------------------------------------------------------- DECEMBER 31, 2002 .................................... 504,700 16.31 - ------------------------------------------------------------------======================
(1) Weighted average At December 31, 2002, 2001 and 2000 there were 504,700, 516,200 and 470,200 options, respectively, exercisable. The weighted average fair values of options granted during the years 2002, 2001 and 2000 were $11.01, $11.53 and $7.51, respectively. See Note 1S. The following summarizes information about fixed stock options outstanding and exercisable at December 31, 2002:
- ------------------------------------------------------------------------------------------------ Range of exercise prices ($) 9.75 to 16.97 to 13.00 20.22 Total - ------------------------------------------------------------------------------------------------ Shares ............................................... 180,100 324,600 504,700 Remaining contractual life - years (1) ............... 3.3 7.3 5.9 Exercise price ($) (1) ............................... 11.06 19.22 16.31 - -----------------------------------------------------------=====================================
(1) Weighted average NOTE 14 EARNINGS PER SHARE. The Company's basic earnings per share was 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. To calculate diluted earnings per share, the number of shares determined above was increased by assuming the issuance of all dilutive shares during the same reporting period. The treasury stock method was used in calculating the additional number of shares. The only potentially dilutive effect on earnings per share for the Company is related to its stock option plans. In calculating the effect of the options and determining diluted earnings per share, the average number of shares used in calculating basic earnings per share was increased by 90,000 in 2002, 153,000 in 2001 and 106,000 in 2000. NOTE 15 REINSURANCE. As is the industry practice, the Company cedes risks to other title insurance underwriters. However, the Company remains liable if the reinsurer should fail to meet its obligations. The Company also assumes risks from other underwriters. Payments and recoveries on reinsured losses were insignificant during the three years ended December 31, 2002. The total amount of premiums for assumed and ceded risks was less than one percent of title revenues in each of the last three years. F-15 NOTE 16 LEASES. The Company's expense for leased office space was $40,663,000 in 2002, $37,181,000 in 2001 and $32,667,000 in 2000. These are noncancelable, operating leases expiring over the next 14 years. The future minimum lease payments are summarized as follows (stated in thousands of dollars): 2003 ................................................. 34,350 2004 ................................................. 26,628 2005 ................................................. 19,228 2006 ................................................. 15,289 2007 ................................................. 11,851 2008 and after ....................................... 65,907 - ------------------------------------------------------------------------ 173,253 - -----------------------------------------------------------------=======
NOTE 17 CONTINGENT LIABILITIES AND COMMITMENTS. The Company is contingently liable for disbursements of escrow funds held by agencies in certain cases where specific insured closing guarantees have been issued. The Company routinely holds funds in segregated escrow accounts pending the closing of real estate transactions. These accounts are not included in the consolidated balance sheets. This resulted in a contingent liability to the Company of approximately $1,053,614,000 at December 31, 2002. The Company is a qualified intermediary in tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code. The Company holds the proceeds from transactions until a qualifying exchange can occur. This resulted in a contingent liability to the Company of approximately $340,714,000 at December 31, 2002. On December 31, 2002 the Company was contingently liable for guarantees of indebtedness owed primarily to banks and others by unconsolidated equity investees and other third parties. The guarantees relate primarily to business expansion and generally expire no later than December 15, 2006. The maximum potential future payments on the guarantees amount to $2,679,000 for equity investees and $7,216,000 for other third parties. Management believes that the collateral available, primarily title plants and the guarantees of corporate stock, would enable the Company to recover the amounts paid under the guarantees. The Company believes no provision for losses is needed because no loss is expected on these guarantees. In the ordinary course of business the Company guarantees the third party indebtedness of its consolidated subsidiaries. On December 31, 2002 the maximum potential future payments on the guarantees is not more than the notes payable recorded on the consolidated balance sheets. In the normal conduct of its business, the Company is subject to lawsuits, regulatory investigations and other legal proceedings that may involve substantial amounts. Such matters are not predictable with complete assurance. The Company believes the probable resolution of such contingencies will not materially affect the financial condition of the Company. NOTE 18 SEGMENT INFORMATION. The Company's two reportable segments are title and real estate information (REI). Both segments serve each other and the real estate and mortgage industries. The title segment provides services needed in transferring the title in a real estate transaction. These services include searching, examining and closing the title to real property and insuring the condition of the title. The REI segment primarily provides services related to real estate transactions through electronic delivery. These services include title reports, flood determinations, property appraisals, mortgage documents, property reports and tax services. This segment also provides post-closing services to lenders. In addition, the REI segment provides services related to Section 1031 tax-deferred exchanges, mapping, and construction and maintenance of title plants for county clerks, tax assessors and title agencies. F-16 Under the Company's internal reporting system, most general corporate expenses are incurred by and charged to the title segment. Technology costs are also charged to the title segment, except for direct expenditures related to the REI segment. All investment income is included in the title segment as it is generated primarily from the investments of the title underwriting operations.
- --------------------------------------------------------------------------------------------------------------- Title REI Total - --------------------------------------------------------------------------------------------------------------- ($000 Omitted) 2002: Revenues ........................................ 1,708,597 71,119 1,779,716 Intersegment revenues ........................... 2,063 1,398 3,461 Depreciation and amortization ................... 18,545 2,838 21,383 Pretax earnings ................................. 145,059 8,801 153,860 Identifiable assets ............................. 797,854 44,419 842,273 2001: Revenues ......................................... 1,207,764 63,821 1,271,585 Intersegment revenues ............................ 2,023 3,787 5,810 Depreciation and amortization .................... 18,389 4,259 22,648 Pretax earnings .................................. 75,294 5,286 80,580 Identifiable assets .............................. 639,282 38,581 677,863 2000: Revenues ......................................... 884,736 50,749 935,485 Intersegment revenues ............................ 226 3,379 3,605 Depreciation and amortization .................... 16,710 4,241 20,951 Pretax earnings (losses) ......................... 5,863 (4,717) 1,146 - -------------------------------------------------------------------============================================
NOTE 19 QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
- ------------------------------------------------------------------------------------------------------------ Mar 31 June 30 Sept 30 Dec 31 - ------------------------------------------------------------------------------------------------------------ ($000 Omitted, except per share) Revenues: 2002 ............................................. 347,974 407,128 473,345 551,269 2001 ............................................. 245,714 315,660 340,154 370,057 Net earnings: 2002 ............................................. 11,344 17,711 21,597 43,828 2001 ............................................. 3,073 15,438 13,003 17,172 Earnings per share - diluted: 2002 ............................................. .63 .99 1.22 2.46 2001 ............................................. .20 1.00 .78 .96 - --------------------------------------------------------------==============================================
Computations of per share amounts for quarters are made independently. Therefore, the sum of per share amounts above may not agree with per share amounts for the year as a whole. F-17 STEWART TITLE GUARANTY COMPANY STEWART TITLE INSURANCE COMPANY Principal Underwriters of Stewart Information Services Corporation UNCONSOLIDATED STATUTORY BALANCE SHEETS (UNAUDITED) From statutory Annual Statements as filed
- ---------------------------------------------------------------------------------------------------------------- Stewart Title Stewart Title December 31, 2002 Guaranty Company Insurance Company - ---------------------------------------------------------------------------------------------------------------- ($000 Omitted) Admitted assets Bonds ............................................ 299,045 34,320 Stocks - investments in affiliates ............... 240,833 - Stocks - other ................................... 7,821 - Cash and short-term investments .................. 57,169 2,942 Title plants ..................................... 3,734 100 Title insurance premiums and fees receivable ..... 26,495 1,115 Other ............................................ 16,521 1,557 - ----------------------------------------------------------------------------------------------------------- 651,618 40,034 - -----------------------------------------------------------------------==================================== Liabilities, surplus and other funds Reserve for title losses ......................... 42,812 9,072 Statutory premium reserve ........................ 266,184 12,784 Other ............................................ 33,280 2,717 - ----------------------------------------------------------------------------------------------------------- 342,276 24,573 Surplus as regards policyholders (Note) .............. 309,342 15,461 - ----------------------------------------------------------------------------------------------------------- 651,618 40,034 - -----------------------------------------------------------------------====================================
Consolidated stockholder's equity (unaudited), based on accounting principles generally accepted in the United States of America (GAAP), for Stewart Title Guaranty Company at December 31, 2002 (000 omitted) ............................................................... $ 444,890 ==========
Note: The amount shown above for stockholder's equity exceeds policyholders surplus primarily because under GAAP the statutory premium reserve and reserve for reported title losses are eliminated and estimated title loss reserves are substituted, net of applicable income taxes. Unaudited - see accompanying independent auditors' report. F-18 SCHEDULE I STEWART INFORMATION SERVICES CORPORATION (PARENT COMPANY) EARNINGS AND RETAINED EARNINGS INFORMATION
================================================================================================================ Years Ended December 31, ------------------------------------ 2002 2001 2000 ---- ---- ---- (In thousands) ================================================================================================================ REVENUES Investment income ............................................ $ 532 $ 471 $ 374 Other income ................................................. 418 80 11 --------- --------- --------- 950 551 385 EXPENSES Employee costs ............................................... 284 220 189 Other operating expenses ..................................... 3,531 2,913 2,084 Depreciation and amortization ................................ 70 39 33 --------- --------- --------- 3,885 3,172 2,306 Losses before taxes and equity in earnings of investees ......... (2,935) (2,621) (1,921) Income tax benefit .............................................. 772 678 419 Earnings from equity investees .................................. 96,643 50,629 2,108 --------- --------- --------- NET EARNINGS .................................................... 94,480 48,686 606 Retained earnings at beginning of year .......................... 258,746 210,060 209,454 --------- --------- --------- Retained earnings at end of year ................................ $ 353,226 $ 258,746 $ 210,060 ========= ========= =========
See accompanying note to financial statement information. (Schedule continued on following page.) S-1 SCHEDULE I (CONTINUED) STEWART INFORMATION SERVICES CORPORATION (PARENT COMPANY) BALANCE SHEET INFORMATION
================================================================================================================= December 31, ---------------- 2002 2001 ---- ---- (In thousands) ================================================================================================================= ASSETS Cash and cash equivalents ........................................................... $ 933 $ 167 Short-term investments .............................................................. 200 3,003 Investments in debt securities, at market ........................................... 9,756 14,975 Receivables: Notes, including $23,399 and $32,859 from affiliates .............................. 23,595 33,032 Other, including $554 and $556 from affiliates .................................... 631 848 Less allowance for uncollectible amounts .......................................... (20) (20) --------- --------- 24,206 33,860 Furniture and equipment, at cost .................................................... 4,461 257 Less accumulated depreciation ....................................................... (205) (149) --------- --------- 4,256 108 Title plants, at cost ............................................................... 48 48 Investments in investees ............................................................ 451,380 340,029 Other assets ........................................................................ 4,577 4,883 --------- --------- $ 495,356 $ 397,073 ========= ========= LIABILITIES Notes payable ..................................................................... $ 265 $ 329 Accounts payable and accrued liabilities .......................................... 1,499 2,204 Contingent liabilities and commitments STOCKHOLDERS' EQUITY Common - $1 par, authorized 30,000,000, issued and outstanding 16,681,212 and 16,751,240 ....................................................................... 17,007 16,868 Class B Common - $1 par, authorized 1,500,000 issued and outstanding 1,050,012 ...... 1,050 1,050 Additional paid-in capital .......................................................... 116,870 115,239 Retained earnings (1) ............................................................... 353,226 258,746 Accumulated other comprehensive earnings: Unrealized investment gains ..................................................... 9,039 3,843 Foreign currency translations ................................................... 305 306 Treasury stock - 325,669 and 116,900 Common shares, at cost ......................... (3,905) (1,512) --------- --------- Total stockholders' equity ($27.84 and $22.16 per share) ..................... 493,592 394,540 --------- --------- $ 495,356 $ 397,073 ========= =========
(1) Includes undistributed earnings of subsidiaries of $361,077 in 2002 and $264,434 in 2001. See accompanying note to financial statement information. (Schedule continued on following page.) S-2 SCHEDULE I (CONTINUED) STEWART INFORMATION SERVICES CORPORATION (PARENT COMPANY) CASH FLOW INFORMATION
================================================================================================================= Years Ended December 31, ---------------------------- 2002 2001 2000 ---- ---- ---- (In thousands) ================================================================================================================= CASH USED BY OPERATING ACTIVITIES (NOTE) ......................... $ (1,685) $ (279) $ (5,701) Investing activities: Purchases of property and equipment - net ..................... (4,209) (70) - Proceeds from investments matured and sold .................... 19,799 3,484 2,354 Purchases of investments ...................................... (11,686) (16,902) - Dividends received from unconsolidated subsidiaries ........... 90 1,390 8,090 Increases in notes and other receivables ...................... (93) (29,603) (75) Collections on notes and other receivables .................... 9,529 1,440 56 Cash paid for acquisitions of subsidiaries - net .............. (11,382) (4,067) (2,175) -------- -------- -------- CASH PROVIDED (USED) BY INVESTING ACTIVITIES ..................... 2,048 (44,328) 8,250 -------- -------- -------- Financing activities: Payments on notes payable ..................................... (64) (448) (680) Proceeds from exercise of stock options ....................... 467 337 19 Proceeds from stock offering - net ............................ - 44,509 - Purchases of treasury stock ................................... - - (1,512) -------- -------- -------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES ..................... 403 44,398 (2,173) -------- -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................. $ 766 $ (209) $ 376 ======== ======== ======== Note: Reconciliation of net earnings to the above amounts Net earnings .................................................. $ 94,480 $ 48,686 $ 606 Add (deduct): Depreciation and amortization .............................. 70 39 33 Decrease (increase) in receivables - net ................... 2 1,606 (1,714) (Decrease) increase in payables and accrued liabilities - net ....................................... (705) 36 (1,863) Earnings from equity investees ............................. (96,643) (50,629) (2,108) Other - net ................................................ 1,111 (17) (655) -------- -------- -------- Cash used by operating activities ............................. $ (1,685) $ (279) $ (5,701) ======== ======== ======== Supplemental information: Income taxes paid ........................................... - - - Interest paid ............................................... - - - Noncash transactions: Forgiveness of debt from affiliate ........................... - - 4,913
See accompanying note to financial statement information. (Schedule continued on following page.) S-3 SCHEDULE I (CONTINUED) STEWART INFORMATION SERVICES CORPORATION (PARENT COMPANY) NOTE TO FINANCIAL STATEMENT INFORMATION We operate as a holding company transacting substantially all business through our subsidiaries. Our consolidated financial statements are included in Part II, Item 8 of Form 10-K. The Parent Company financial statements should be read in conjunction with the aforementioned consolidated financial statements and notes thereto and financial statement schedules. Certain amounts in the 2001 and 2000 Parent Company financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. Dividends received from subsidiaries for 2002, 2001 and 2000 were $90,000, $1,390,000 and $90,000, respectively. S-4 SCHEDULE II STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 2002
====================================================================================================================== Col. C Col. A Col. B Additions Col. D Col. E ====================================================================================================================== Balance Charged Charged to at to other Balance beginning cost and accounts Deductions at end Description of period expenses (described) (described) of period ====================================================================================================================== Stewart Information Services Corporation and subsidiaries: Year ended December 31, 2000: Estimated title losses ............. $183,787,003 $ 38,999,295 - $ 32,488,157 (A) $190,298,141 Allowance for uncollectible amounts ......................... 4,379,473 2,130,000 - 1,382,655 (B) 5,126,818 Year ended December 31, 2001: Estimated title losses ............. 190,298,141 51,453,895 $ 763,000(C) 39,970,656 (A) 202,544,380 Allowance for uncollectible amounts ......................... 5,126,818 1,600,000 - 2,062,348 (B) 4,664,470 Year ended December 31, 2002: Estimated title losses ............. 202,544,380 75,920,324 35,000(C) 48,442,030 (A) 230,057,674 Allowance for uncollectible amounts ......................... 4,664,470 2,223,000 1,579,908 (B) 5,307,562 Stewart Information Services Corporation - Parent: Year ended December 31, 2000: Allowance for uncollectible amounts $ 20,000 - - - $ 20,000 Year ended December 31, 2001: Allowance for uncollectible amounts 20,000 - - - 20,000 Year ended December 31, 2002: Allowance for uncollectible amounts 20,000 - - $ 294 (B) 19,706
(A) Represents primarily payments of policy and escrow losses and loss adjustment expenses during the year. (B) Represents uncollectible accounts written off. (C) Represents estimated title loss reserve acquired. S-5 INDEX TO EXHIBITS Exhibit 3.1 - Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 3.2 - By-Laws of the Registrant, as amended March 13, 2000 (incorporated by reference in this report from Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4. - Rights of Common and Class B Common Stockholders (incorporated by reference to Exhibits 3.1 and 3.2 hereto) 10.1 - Summary of agreements as to payment of bonuses to certain executive officers 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July 24, 1990 and October 30, 1992, between the Registrant and certain executive officers (incorporated by reference in this report from Exhibit 10.2 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1997) 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan (incorporated by reference in this report from Exhibit 10.3 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1999) 10.4 - Stewart Information Services Corporation 2002 Stock Option Plan for Region Managers (incorporated by reference in this report from Exhibit 10.4 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002) 21. - Subsidiaries of the Registrant 23. - Consent of Independent Certified Public Accountant, including consent to incorporation by reference of their reports into previously filed Securities Act registration statements 99.1 - Certificate of Co-Chief Executive Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.2 - Certificate of Co-Chief Executive Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.3 - Certificate of Chief Financial Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002
EX-10.1 3 h03429exv10w1.txt SUMMARY OF AGREEMENTS AS TO PAYMENT OF BONUSES EXHIBIT 10.1 STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES EXECUTIVE OFFICERS' BONUS PLANS DECEMBER 31, 2002 The following summarizes the terms of the bonus arrangements approved our Compensation Committee with respect to our executive officers: MALCOLM S. MORRIS, as Chairman of the Board and Co-Chief Executive Officer, shall receive in addition to his salary, 1% on the first $20,000,000 of the consolidated income before taxes of Stewart Title Guaranty Company as reported to its stockholder, .75% of the profits from $20,000,001 to $40,000,000, .50% of the profits from $40,000,001 to $60,000,000 and .25% of the profits exceeding $60,000,000. For the calendar year 2002, Mr. Morris shall receive no less than $250,000 in bonus compensation. STEWART MORRIS, JR., as President and Co-Chief Executive Officer, shall receive in addition to his salary, 1% on the first $20,000,000 of the consolidated income before taxes of Stewart Title Guaranty Company as reported to its stockholder, .75% of the profits from $20,000,001 to $40,000,000, .50% of the profits from $40,000,001 to $60,000,000 and .25% of the profits exceeding $60,000,000. For the calendar year 2002, Mr. Morris shall receive no less than $250,000 in bonus compensation. CARLOSS MORRIS, as Chairman of the Executive Committee, shall receive in addition to his salary, 1% of the first $16,500,000 of the consolidated income before taxes of Stewart Title Guaranty Company as reported to its stockholder. For the calendar year 2002, Mr. Morris shall receive no more than $165,000 in bonus compensation. STEWART MORRIS, as Vice Chairman of the Executive Committee, shall receive in addition to his salary, 1% of the first $16,500,000 of the consolidated income before taxes of Stewart Title Guaranty Company as reported to its stockholder. For the calendar year 2002, Mr. Morris shall receive no more than $165,000 in bonus compensation. MAX CRISP, as Vice President - Finance, shall receive in addition to his salary, ..5% of the first $50,000,000 of the consolidated income before taxes of Stewart Title Guaranty Company as reported to its stockholder, .40% of the profits from $50,000,001 to $75,000,000, .30% of the profits from $75,000,001 to $100,000,000 and .20% of the profits exceeding $100,000,000. For the calendar year 2002, Mr. Crisp shall receive no less than $126,000 in bonus compensation. EX-21 4 h03429exv21.txt SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Stewart Title of Mobile, Inc. ............................... Alabama Guarantee Title Company LLC ................................. Alabama Stewart Title of Anchorage .................................. Alaska Citizens Title & Trust ...................................... Arizona Stewart Title & Trust of Phoenix, Inc. ...................... Arizona Stewart Title of Southern Arizona ........................... Arizona Stewart National Title Services ............................. Arizona Stewart Title & Trust of Tucson ............................. Arizona Arkansas Title Insurance Company ............................ Arkansas Bromstad Abstract ........................................... Arkansas First Arkansas Title Company ................................ Arkansas Garland County Title Company ................................ Arkansas Garland County Title LLC .................................... Arkansas Landata Inc. of Arkansas .................................... Arkansas Roy Pugh Abstract ........................................... Arkansas McDonald Abstract and Title Company ......................... Arkansas Stewart Title of Arkansas ................................... Arkansas Tucker Abstract ............................................. Arkansas Ultima ...................................................... Arkansas Landata Airborne Systems, Inc. .............................. California API Properties Corporation .................................. California Asset Preservation, Inc. .................................... California Bay Area Title .............................................. California Cuesta Title Company ........................................ California GlobeXplorer ................................................ California GPMD, Inc. .................................................. California Granite Bay Holding Corp. ................................... California Granite Properties, Inc. .................................... California ICON Transaction Coordinators ............................... California Inter City .................................................. California Landata, Inc. of Los Angeles ................................ California Landata, Inc. of the West Coast ............................. California Nations Title Company ....................................... California Online Documents, Inc. ...................................... California Stewart Title of California, Inc. ........................... California Stewart Valuations .......................................... California Transaction Management Services, LLC ........................ California WTI Properties, Inc. ........................................ California Platte Valley Title ......................................... Colorado Stewart Title Company of Colorado Springs ................... Colorado Stewart Title of Aspen, Inc. ................................ Colorado Stewart Title of Denver, Inc. ............................... Colorado Stewart Title of Eagle County, Inc. ......................... Colorado Stewart Title of Glenwood Springs, Inc. ..................... Colorado Stewart Title of Larimer County, Inc. ....................... Colorado Stewart Title of Pueblo ..................................... Colorado Stewart Title of Steamboat Springs .......................... Colorado Stewart Water, L.L.C ........................................ Colorado Western Colorado Title ...................................... Colorado Sureclose of Colorado Springs, LLC .......................... Colorado Action Title Agency, Inc. ................................... Florida Acquire Corporation ......................................... Florida Advance Homestead Title, Inc. ............................... Florida
(continued) EXHIBIT 21 CONTINUED STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Bay Title Services, Inc. ...................................... Florida Complete Title ................................................ Florida Executive Title ............................................... Florida Manatee Pinellas Title Company ................................ Florida MGS Holding Company LLC ....................................... Florida New Century Title of Orlando .................................. Florida New Century Title of Sarasota ................................. Florida New Century Title of Tampa .................................... Florida Premier Title Affiliates ...................................... Florida Southern Title ................................................ Florida Stewart Approved Title, Inc. .................................. Florida Stewart Acquire Land Title LLP ................................ Florida Stewart Insurance Services, Inc. .............................. Florida Stewart Management Services ................................... Florida Stewart Title Company of Sarasota, Inc. ....................... Florida Stewart Title of Clearwater, Inc. ............................. Florida Stewart Title of the Four Corners ............................. Florida Stewart Title of Jacksonville, Inc. ........................... Florida Stewart Title of Martin County ................................ Florida Stewart Title of Northwest Florida ............................ Florida Stewart Title of Orange County, Inc. .......................... Florida Stewart Title of Pensacola .................................... Florida Stewart Title of Pinellas, Inc. ............................... Florida Stewart Title of Tallahassee, Inc. ............................ Florida Stewart Title of Tampa ........................................ Florida Stewart Properties of Tampa ................................... Florida Stewart River City Title ...................................... Florida SureClose of Florida, Inc. .................................... Florida Title Wave Title Services, LLC ................................ Florida United Southern Title ......................................... Florida Blaine County Title, Inc. ..................................... Idaho Stewart Title Company of Boise, Inc. .......................... Idaho Stewart Title of Canyon County ................................ Idaho Stewart Title of Couer d'Alene, Inc. .......................... Idaho Information Services of Illinois .............................. Illinois Landata Inc. of Illinois ...................................... Illinois Stewart Title Company of Illinois ............................. Illinois Stewart Title of Elkhart County ............................... Indiana Stewart Title Services of Central Indiana ..................... Indiana Stewart Title Services of Indiana, Inc. ....................... Indiana Stewart Title Services of Northwest Indiana, LLC .............. Indiana Title Search Services, LLC .................................... Indiana Stewart Title Services of Hancock County ...................... Indiana Current Logistics ............................................. Indiana McPherson County Abstract & Title Company, Inc. ............... Kansas Stewart Title of Louisiana, Inc. .............................. Louisiana Preferred Title, LLC .......................................... Maine Cambridge Landata, Inc. ....................................... Maryland Stewart Title Company of Maryland ............................. Maryland Smart Choice Settlements of Maryland .......................... Maryland Stewart Title of Detroit, Inc. ................................ Michigan Stewart Title of Minnesota, Inc. .............................. Minnesota
(continued) EXHIBIT 21 CONTINUED STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Remerica Title Group LLC ................................. Minnesota Stewart Title of Minnesota, Inc. ......................... Minnesota Stewart Title of Mississippi ............................. Mississippi Stewart Title, Inc. ...................................... Missouri Sureclose of Kansas City ................................. Missouri GBS Holding .............................................. Missouri Gold Title Agency LLC .................................... Missouri Stewart Title of Bozeman, LLC ............................ Montana Stewart Title of Great Falls, LLC ........................ Montana Stewart Title of Montana ................................. Montana Stewart Title of Ravalli County, LLC ..................... Montana Surety Title, LLC ........................................ Montana Stewart Title of Carson City ............................. Nevada Stewart Title of Fallon .................................. Nevada Stewart Title of Douglas County .......................... Nevada Stewart Title of Nevada .................................. Nevada Stewart Title of Northeastern Nevada ..................... Nevada Stewart Title of Northern Nevada ......................... Nevada East Coast Title ......................................... New Hampshire Professional Title Agency ................................ New Hampshire Stewart Title of Northern New England .................... New Hampshire Accredited Title ......................................... New Hampshire Preferred Title .......................................... New Hampshire Parsippany-Stewart Title Agency, LLC ..................... New Jersey Stewart Title of Bergen County ........................... New Jersey Stewart Title of Central Jersey, Inc. .................... New Jersey Stewart-Princeton Abstract ............................... New Jersey Your Town Title Agency ................................... New Jersey Santa Fe Abstract Limited ................................ New Mexico Stewart Title Limited .................................... New Mexico Stewart Title of Valencia ................................ New Mexico River City Abstract, L.L.C ............................... New York Tristate Title Agency LLC ................................ New York Land Data Associates, Inc. ............................... New York Stewart Title Insurance Company .......................... New York Stewart Title of the Carolinas, LLC ...................... North Carolina Stewart Title of North Carolina, Inc. .................... North Carolina Stewart Title of the Piedmont ............................ North Carolina Union Commerce Title Company LLC ......................... North Carolina Red River Title Services ................................. North Dakota Advance Land Title ....................................... Ohio Agency Title, Ltd. ....................................... Ohio National Land Title Insurance Company .................... Ohio Stewart Fine Homes Title Agency LLC ...................... Ohio Stewart Home Builders Title Agency LLC ................... Ohio Stewart Home First Title Agency LLC ...................... Ohio Stewart Residential Title ................................ Ohio Stewart Service Center ................................... Ohio Stewart Stoneridge Title ................................. Ohio Public Title ............................................. Ohio Stewart Title Agency of Columbus, Ltd. ................... Ohio Stewart Title Agency of East Central Ohio ................ Ohio
(continued) EXHIBIT 21 CONTINUED STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Stewart Title Agency of Licking County ....................... Ohio Stewart Title Agency of Ohio, Inc. ........................... Ohio STMI Title ................................................... Ohio Third Capital Title Agency of Greater Cincinnati LLC ......... Ohio Landata Research ............................................. Oklahoma Stewart Abstract & Title Co. of Oklahoma ..................... Oklahoma Stewart Escrow & Title Services of Lawton .................... Oklahoma Stewart Title Insurance Company of Oregon .................... Oregon Stewart Title of Oregon ...................................... Oregon Americlose, LLC .............................................. Pennsylvania Stewart Title of Rhode Island, Inc. .......................... Rhode Island Acceptance Title ............................................. Tennessee Alliance Title East .......................................... Tennessee Classic Title ................................................ Tennessee Community Land Title ......................................... Tennessee Cumberland ................................................... Tennessee Elite Title .................................................. Tennessee Express Title ................................................ Tennessee Faithway Title ............................................... Tennessee First Data Systems, Inc. ..................................... Tennessee First Land Title ............................................. Tennessee Hillwood Title LLC ........................................... Tennessee NBC Title .................................................... Tennessee Performance Title ............................................ Tennessee PMG LLC ...................................................... Tennessee Professional Title LLC ....................................... Tennessee RE Title ..................................................... Tennessee Service Title ................................................ Tennessee Services Management Company .................................. Tennessee Stewart Title of Western Tennessee ........................... Tennessee Statewide Title .............................................. Tennessee Titan Land Title ............................................. Tennessee Title Connection ............................................. Tennessee TN Home Builders ............................................. Tennessee United Title ................................................. Tennessee Advance Title Company ........................................ Texas Cameron County Title ......................................... Texas CHADCO ....................................................... Texas Dominion Title LLC ........................................... Texas Dominion Title of Dallas ..................................... Texas East-West, Inc. .............................................. Texas Electronic Closing Services, Inc. ............................ Texas Fulghum, Inc. ................................................ Texas GC Acquisition, Inc. ......................................... Texas General American Resources ................................... Texas Gracy Title Co., L.C ......................................... Texas Landata Field Services ....................................... Texas Landata Geo Services, Inc. ................................... Texas Landata Group, Inc. .......................................... Texas Landata Information Services ................................. Texas Landata Resource ............................................. Texas Landata Site Services ........................................ Texas
(continued) EXHIBIT 21 CONTINUED STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Landata Systems, Inc. ....................................... Texas Landata Technologies ........................................ Texas Medina County Title ......................................... Texas Millennium Title ............................................ Texas Nacogdoches Abstract & Title ................................ Texas New Century Title of Dallas ................................. Texas National Order Center ....................................... Texas Ortem Investments, Inc. ..................................... Texas Premier Title of Dallas ..................................... Texas Premier Title, L.C .......................................... Texas Primero, Inc. ............................................... Texas Priority Title - Dallas ..................................... Texas Priority Title - Houston .................................... Texas Realty Bid .................................................. Texas Rodeo Palms ................................................. Texas Stewart Financial Services .................................. Texas Stewart Geospatial Solutions, Inc. .......................... Texas Stewart Information International, Inc. ..................... Texas Stewart Investment Services Corporation ..................... Texas Stewart Mortgage Information Company ........................ Texas Stewart Title Austin, Inc. .................................. Texas Stewart Title Company ....................................... Texas Stewart Title Company of Rockport, Inc. ..................... Texas Stewart Title Guaranty Company .............................. Texas Stewart Title of Corpus Christi ............................. Texas Stewart Title of Eagle Pass ................................. Texas Stewart Title of Lubbock, Inc. .............................. Texas Stewart Title of Midland LLC ................................ Texas Stewart Title of Montgomery County .......................... Texas Stewart Title of North Texas ................................ Texas Stewart Title of Texarkana .................................. Texas Stewart Transfer Services ................................... Texas Stewart Trust Company ....................................... Texas Titles, Inc. ................................................ Texas Stewart Title of Wichita Falls .............................. Texas U.S. Title of Wichita County, Ltd. .......................... Texas Landata, Inc. of Utah ....................................... Utah Cedar Run Title & Abstract .................................. Virginia Attorneys Title LLC ......................................... Virginia Commercial Title Agency LLC ................................. Virginia Greenbrier Title, LLC ....................................... Virginia Howell Title, LLC ........................................... Virginia Land Title Research, Inc. ................................... Virginia Potomac Title & Escrow ...................................... Virginia Resource Title, LLC ......................................... Virginia Signature & Stewart Settlements, L.C ........................ Virginia Smart Settlements, L.C ...................................... Virginia Stewart Title of Shenandoah Valley, L.C ..................... Virginia Stewart Title & Settlement Services, Inc. ................... Virginia Stewart Title and Escrow, Inc. .............................. Virginia Wetherbune Title LLC ........................................ Virginia Charter Title Insurance Company ............................. Washington
(continued) EXHIBIT 21 CONTINUED STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
STATE OF NAME OF SUBSIDIARY INCORPORATION ------------------ ------------- Security Title ........................................ Washington Stewart Title of Kittitas County ...................... Washington Stewart Title of Snohomish ............................ Washington Stewart Title of Washington ........................... Washington Stewart Title of Ferry County ......................... Washington Stewart Title of Tacoma, Inc. ......................... Washington Stewart Title of Western Washington ................... Washington Accurate Title ........................................ Wisconsin Sheboygan Abstract & Title Services ................... Wisconsin Sheboygan Title Services, Inc. ........................ Wisconsin Stewart Title of Gillette, Inc. ....................... Wyoming INTERNATIONAL Landata Inc. of Belize ................................ Belize Hato Rey Insurance Agency, Inc. ....................... Puerto Rico San Juan Abstract Company ............................. Puerto Rico Stewart Costa Rica .................................... Costa Rica Stewart Dominica ...................................... Dominican Republic Stewart Latin America ................................. Costa Rica Stewart Title Guaranty de Mexico, ABC ................. Mexico Stewart Data Slovakia ................................. Slovakia Stewart Title Insurance Company Limited ............... United Kingdom Stewart Title of Great Britain ........................ United Kingdom Stewart Geospatial Solutions .......................... Texas Stewart International Informacije ..................... Slovenia
EX-23 5 h03429exv23.txt CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT EXHIBIT 23 Consent of Independent Auditors The Board of Directors Stewart Information Services Corporation: We consent to incorporation by reference in the registration statements (No. 33-48519, No. 33-48520, No. 33-58156, No. 33-59747, No. 33-62535, No. 333-03981, No. 333-24075, No. 333-65971 and No. 333-77579) on Form S-8 and the registration statement (No. 333-58022) on Form S-3 of Stewart Information Services Corporation of our report dated February 14, 2003, relating to the consolidated balance sheets of Stewart Information Services Corporation and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of earnings, retained earnings and comprehensive earnings and cash flows for each of the years in the three-year period ended December 31, 2002, and all related schedules, which report appears in the December 31, 2002 annual report on Form 10-K of Stewart Information Services Corporation. /s/ KPMG LLP Houston, Texas March 17, 2003 EX-99.1 6 h03429exv99w1.txt CERTIFICATE OF CO-CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 STEWART INFORMATION SERVICES CORPORATION CERTIFICATE OF CO-CHIEF EXECUTIVE OFFICER FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002 Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 The undersigned, being the Co-Chief Executive Officer of Stewart Information Services Corporation (the "Company") hereby certifies that the Company's Annual Report on Form 10-K for the twelve month period ended December 31, 2002, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated March 17, 2003 /S/ MALCOLM S. MORRIS - --------------------- Name: Malcolm S. Morris Title: Chairman of the Board and Co-Chief Executive Officer EX-99.2 7 h03429exv99w2.txt CERTIFICATE OF CO-CHIEF EXECUTIVE OFFICER EXHIBIT 99.2 STEWART INFORMATION SERVICES CORPORATION CERTIFICATE OF CO-CHIEF EXECUTIVE OFFICER FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002 Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 The undersigned, being the Co-Chief Executive Officer of Stewart Information Services Corporation (the "Company") hereby certifies that the Company's Annual Report on Form 10-K for the twelve month period ended December 31, 2002, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated March 17, 2003. /S/ STEWART MORRIS, JR. - ----------------------- Name: Stewart Morris, Jr. Title: Co-Chief Executive Officer President and Director EX-99.3 8 h03429exv99w3.txt CERTIFICATE OF CHIEF FINANCIAL OFFICER EXHIBIT 99.3 STEWART INFORMATION SERVICES CORPORATION CERTIFICATE OF CHIEF FINANCIAL OFFICER FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002 Pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 The undersigned, being the Chief Financial Officer of Stewart Information Services Corporation (the "Company") hereby certifies that the Company's Annual Report on Form 10-K for the twelve month period ended December 31, 2002, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated March 17, 2003. /S/ MAX CRISP - ---------------------------- Name: Max Crisp Title: Executive Vice President and Chief Financial Officer, Secretary- Treasurer, Director and Principal Financial and Accounting Officer
-----END PRIVACY-ENHANCED MESSAGE-----