-----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, FnSEKz3RX35tLrgTXU6fVHgH1TUrZ177ySHLsAOadXDI2uYa6oPYaQz3Cz0JqmrI /qJ5aj0i0qChFfs1fTD7mw== 0000950129-04-002692.txt : 20040503 0000950129-04-002692.hdr.sgml : 20040503 20040503164542 ACCESSION NUMBER: 0000950129-04-002692 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART INFORMATION SERVICES CORP CENTRAL INDEX KEY: 0000094344 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 741677330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-02658 FILM NUMBER: 04774070 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-Q 1 h14936e10vq.txt STEWART INFORMATION SERVICES CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-12688 STEWART INFORMATION SERVICES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-1677330 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1980 Post Oak Blvd., Houston TX 77056 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (713) 625-8100 ---------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of April 29, 2004. Common 17,050,124 Class B Common 1,050,012 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 2004 TABLE OF CONTENTS
Item No. Page - -------- ---- Part I - FINANCIAL INFORMATION 1. Financial Statements 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 3. Quantitative and Qualitative Disclosures about Market Risk 8 4. Controls and Procedures 9 Part II - OTHER INFORMATION 1. Legal Proceedings 10 5. Other Information 10 6. Exhibits and Reports on Form 8-K 10 Signature 11
As used in this report, "we", "us", "our" and "Stewart" mean Stewart Information Services Corporation and our subsidiaries unless the context indicates otherwise. STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS FOR THE QUARTERS ENDED MARCH 31, 2004 and 2003
THREE MONTHS ENDED --------------------------- MAR 31 MAR 31 2004 2003 -------- -------- ($000 Omitted) Revenues Title insurance: Direct operations 182,534 191,730 Agency operations 257,887 225,565 Real estate information services 17,615 19,050 Investment income 5,152 4,783 Investment gains (losses) - net 1,704 (204) -------- -------- 464,892 440,924 Expenses Amounts retained by agencies 210,052 184,749 Employee costs 134,350 132,002 Other operating expenses 73,981 66,848 Title losses and related claims 19,280 17,956 Depreciation 6,976 5,909 Interest 218 215 Minority interests 2,148 2,338 -------- -------- 447,005 410,017 -------- -------- Earnings before taxes 17,887 30,907 Income taxes (6,747) (11,032) -------- -------- Net earnings 11,140 19,875 ======== ======== Average number of shares outstanding - assuming dilution (000 omitted) 18,181 17,831 Earnings per share - basic 0.62 1.12 Earnings per share - diluted 0.61 1.11 ======== ======== Comprehensive earnings: Net earnings 11,140 19,875 Changes in other comprehensive earnings, net of taxes of $901 and $470, respectively 1,673 872 -------- -------- Comprehensive earnings 12,813 20,747 ======== ========
See notes to condensed consolidated financial statements. -1- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 31, 2004 AND DECEMBER 31, 2003
MAR 31 DEC 31 2004 2003 ---------- ---------- ($000 Omitted) Assets Cash and cash equivalents 101,401 114,202 Short-term investments 146,756 153,322 Investments - statutory reserve funds 387,692 375,421 Investments - other 63,109 59,035 Receivables 66,202 79,025 Property and equipment 77,867 74,174 Title plants 45,473 43,216 Goodwill 97,655 79,084 Other 58,839 54,388 ---------- ---------- 1,044,994 1,031,867 ========== ========== Liabilities Notes payable 28,738 24,583 Accounts payable and accrued liabilities 68,468 82,147 Estimated title losses 274,429 268,089 Deferred income taxes 24,185 22,440 Minority interests 12,627 13,219 Contingent liabilities and commitments (Note 6) Stockholders' equity Common and Class B Common Stock and additional paid-in capital 143,514 141,168 Retained earnings 480,246 469,107 Accumulated other comprehensive earnings 16,692 15,019 Treasury stock - 325,669 shares (3,905) (3,905) ---------- ----------- Total stockholders' equity (18,100,136 shares outstanding at March 31, 2004) 636,547 621,389 ---------- ----------- 1,044,994 1,031,867 ========== ===========
See notes to condensed consolidated financial statements. -2- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
THREE MONTHS ENDED --------------------------- MAR 31 MAR 31 2004 2003 -------- -------- ($000 Omitted) Cash provided by operating activities (Note) 25,251 22,538 Investing activities: Purchases of property and equipment and title plants - net (5,604) (8,650) Proceeds from investments matured and sold 134,920 48,829 Purchases of investments (139,681) (71,436) Increases in notes receivable (1,612) (333) Collections on notes receivable 534 446 Cash paid for equity investees (1,000) -- Cash paid for the acquisitions of subsidiaries - net (see below) (27,067) (9,517) -------- -------- Cash used for investing activities (39,510) (40,661) Financing activities: Distribution to minority interests (2,558) (1,907) Proceeds from exercise of stock options 873 -- Proceeds of notes payable 6,739 5,885 Payments on notes payable (3,596) (2,198) -------- -------- Cash provided by financing activities 1,458 1,780 -------- -------- Decrease in cash and cash equivalents (12,801) (16,343) ======== ======== NOTE: Reconciliation of net earnings to the above amounts - Net earnings 11,140 19,875 Add (deduct): Depreciation and amortization 6,976 5,909 Provision for title losses in excess of payments 6,340 6,384 Provision for uncollectible amounts - net 169 1,195 Decrease in accounts receivable - net 13,913 6,985 Decrease in accounts payable and accrued liabilities - net (14,749) (20,483) Minority interest expense 2,148 2,338 Equity in net earnings of investees (933) (1,160) Dividends received from equity investees 571 1,321 Realized investment (gains) losses - net (1,704) 204 Stock bonuses 1,127 787 Increase (decrease) in deferred taxes 678 (427) Decrease (increase) in other assets 778 (308) (Decrease) increase in foreign currency translation (574) 91 Other - net (629) (173) -------- -------- Cash provided by operating activities 25,251 22,538 ======== ======== Supplemental information: Net assets acquired Goodwill 18,682 6,233 Title plants 1,578 1,000 Other 9,246 4,902 Liabilities assumed (2,439) (2,618) -------- -------- Cash paid for the acquisitions of subsidiaries - net 27,067 9,517 ======== ========
See notes to condensed consolidated financial statements. -3- STEWART INFORMATION SERVICES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1: Interim Financial Statements The financial information contained in this report for the three month periods ended March 31, 2004 and 2003, and as of March 31, 2004, is unaudited. In the opinion of our management, all adjustments necessary for a fair presentation of this information for all unaudited periods, consisting only of normal recurring accruals, have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Certain amounts in the 2003 condensed consolidated financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. Note 2: 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. 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 1% and 0%, an expected life of ten years for each option, expected volatility of 34.8% and 37.2% and a risk-free interest rate of 4.0% and 4.3% for the two quarters ended March 31, 2004 and 2003, respectively. Had compensation cost for the Company's plans been determined consistent with SFAS No. 123, the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:
THREE MONTHS ENDED ----------------------------- MAR 31 MAR 31 2004 2003 --------- --------- ($000 Omitted, except per share amounts) Net earnings: - ------------- As reported 11,140 19,875 Stock-based employee compensation determined under fair value method (932) (529) --------- --------- Pro forma 10,208 19,346 Earnings per share: - ------------------- Net earnings - basic 0.62 1.12 Pro forma - basic 0.56 1.09 Net earnings - diluted 0.61 1.11 Pro forma - diluted 0.56 1.08
-4- Note 3: Segment Information Our two reportable segments are title and real estate information. Selected financial information related to these segments follows:
Real estate Title information Total ----- ----------- ----- ($000 Omitted) Revenues: - --------- Three months ended March 31, 2004 447,277 17,615 464,892 March 31, 2003 421,874 19,050 440,924 Pretax earnings: - ---------------- Three months ended March 31, 2004 16,653 1,234 17,887 March 31, 2003 27,942 2,965 30,907 Identifiable assets: - -------------------- March 31, 2004 999,043 45,951 1,044,994 December 31, 2003 988,384 43,483 1,031,867
Intersegment revenues are insignificant and have been eliminated above. Note 4: Earnings Per Share Our basic earnings per share figures were calculated by dividing net earnings by the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the reporting period. The only potentially dilutive effect on earnings per share relates to our stock option plans. In calculating the effect of the options and determining a figure for diluted earnings per share, the average number of shares used in calculating basic earnings per share was increased by 111,000 and 88,000 for the three month periods ended March 31, 2004 and 2003, respectively. At March 31, 2004, 66,500 options were considered antidilutive. Note 5: Equity in Investees The amount of earnings from equity investments was $0.9 million and $1.2 million for the three months ended March 31, 2004 and 2003, respectively. These amounts are included in "title insurance revenues - direct operations" in the condensed consolidated statements of earnings and comprehensive earnings. Note 6: Contingent Liabilities and Commitments On March 31, 2004, 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 $1,691,000 for equity investees and $8,465,000 for other third parties. Management believes that the related underlying assets and 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. The Company's accrued liability balance relating to the non-contingent value of third-party guarantees amounts to $156,000 at March 31, 2004. In the ordinary course of business, the Company guarantees the third party indebtedness of its consolidated subsidiaries. On March 31, 2004, the maximum potential future payments on the guarantees is not more than the notes payable recorded on the condensed consolidated balance sheets. -5- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT OVERVIEW. We reported net earnings of $11.1 million for the three months ended March 31, 2004, compared with net earnings of $19.9 million for the first quarter of 2003. On a diluted per share basis, net earnings were $0.61 for the first quarter of 2004, compared with net earnings of $1.11 for the first quarter of 2003. A decline in refinancing transactions began in the third quarter of 2003 when mortgage interest rates increased. Rates are currently at a level comparable to a year ago. Total revenues increased 5.4% in the first quarter of this year because of increased premiums from agencies, home prices and commercial business. Revenues from direct operations decreased 4.8% in the first quarter of this year compared with the first quarter of 2003 primarily due to a decline in refinancing transactions. Pretax profits declined 42.1% in the first quarter of 2004 over the same quarter a year ago due to a higher complement of lower margin agency business compared with direct operations. In addition, opening new offices and occupancy costs contributed to lower margins. Although interest rates have been more favorable than we anticipated for the first quarter of 2004, strong job growth should see rates increase. While that will reduce refinancings in the near term, it supports continued health and growth in residential and commercial markets. CRITICAL ACCOUNTING ESTIMATES. Actual results can differ from the estimates we report. However, we believe there is no material risk of a change in our accounting estimates that is likely to have a material impact on our reported financial condition and operating performance for the three months ended March 31, 2004. Our most critical accounting estimate is providing title loss reserves. Estimating future policy loss payments is difficult because claims, by their nature, are complex and paid over long periods of time. We base our estimates on reported claims, historical loss experience and industry averages. Independent actuaries have reviewed and found our reserves to be adequate at each year end. Based on events that may indicate impairment of title plants and other long-lived assets, and our annual evaluation of goodwill, we estimate and expense any loss in value to our current operations. There were no amounts expensed in the three months ended March 31, 2004. We use independent appraisers to assist us in determining the fair value of our reportable units in assessing whether an impairment in goodwill exists. We report premium revenues from agencies primarily when policies are reported to us. We also accrue for unreported policies where reasonable estimates can be made. We consider historical reporting patterns, current trends in interest rates and other factors and known information about the agencies. In this accrual, we are not estimating future transactions. We are estimating policies that have already been issued but not yet received by us. RESPA. In late December 2003, the Department of Housing and Urban Development (HUD) issued its proposed final rule concerning reforms to RESPA. The rule was withdrawn in March 2004. In our view, the proposed rule would have likely increased prices to the consumer. WHAT WE DO. Our primary business is title insurance and settlement-related services. We close transactions and issue policies on homes, commercial properties and other real property located in all 50 states, the District of Columbia and several foreign countries through more than 7,400 issuing locations, including both direct operations and agencies. 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 current levels of non-USA operations are immaterial with respect to our consolidated financial results. Our business has two main segments: title insurance-related services and real estate information (REI). These segments are closely related due to the nature of their operations and common customers. -6- FACTORS AFFECTING REVENUES. 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 and 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. 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2003 OPERATING ENVIRONMENT. According to published industry data, interest rates for 30-year fixed-rate mortgages, excluding points, for the three months ended March 31, 2004, averaged 5.6% as compared with 5.8% for the same period in 2003. Interest rates increased significantly in the third quarter of 2003 but have trended slightly downward over the last six months. The rate at the end of March 2004 was 5.4%. Real estate activity was weaker in the first quarter of 2004 as compared with the first quarter of 2003. Refinancing transactions, in particular, declined nationwide in the first quarter of 2004. The ratio of refinancings to total loan applications was 59.0% for the first quarter of 2004 compared with 77.0% for the same period in 2003. Refinancings usually have lower title insurance premium rates than real property sales. Existing home sales increased 6.4% in the first three months of 2004 over the same period in 2003. Our order levels began to decline in the third quarter of 2003, largely as a result of an increase in interest rates, and remained below prior year levels during the first quarter of 2004. Rates declined slightly in the first quarter of 2004. Most industry experts project interest rates to continue at current levels or move slightly higher. Due to the large number of refinancings completed in 2003, significantly fewer refinancing transactions are being forecast for 2004. TITLE REVENUES. Our revenues from direct operations decreased 4.8% in the first quarter of 2004 as compared with the first quarter of 2003. The number of direct closings we handled decreased 24.0% in the first quarter of 2004 compared with the same period in 2003. The decrease in the number of direct closings we handled is partially offset by the average revenue per closing. The average revenue per closing increased 27.0% in the first quarter of 2004 due to a lower ratio of refinancings closed by our direct operations compared with the first quarter of 2003. Title insurance premiums on refinancings are typically less than on real property sales. The average revenue per closing increase was also due to increased commercial transactions and home prices. The largest revenue decreases in the first quarter of 2004 were primarily in Colorado and Illinois. Direct closings relate only to files closed by our underwriters and subsidiaries and do not include closings by independent agencies. Premium revenues from agencies increased 14.3% to $257.9 million in the first quarter of 2004 from $225.6 million in the first quarter of 2003. An increased number of agents contributed to the increase in 2004. The largest revenue increases in 2004 were primarily in Virginia, Maryland, Florida and Texas. On April 27, 2004, the Texas Department of Insurance announced that title insurance rates will be reduced by 6.5% effective July 1, 2004. REI REVENUES. Real estate information revenues were $17.6 million for the first quarter of 2004 and $19.1 million for the first quarter of 2003. The decrease in 2004 resulted primarily from providing a decreased number of product and service deliveries resulting from the lower volume of real estate transactions. INVESTMENTS. Investment income increased 7.7% in the first quarter of 2004 compared with the first quarter of 2003 primarily because of increases in average balances invested, partially offset by lower yields. Certain investment gains and losses were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. -7- AGENCY RETENTION. The amounts retained by agencies, as a percentage of revenues from agency operations, were 81.5% and 81.9% in the first quarters of 2004 and 2003, respectively. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. The percentage that amounts retained by agencies bears to agency revenues may vary from period to period because of the geographical mix of agency operations and the volume of title revenues. EMPLOYEE COSTS. Employee costs for the combined business segments increased 1.8% in 2004. The numbers of persons we employed at March 31, 2004 and 2003 was approximately 8,300 and 8,100, respectively. The increase in staff in 2004 was primarily due to the acquisitions of new offices, offset slightly by decreased title volume. In our REI segment, employee costs decreased in 2004 primarily due to the decrease in REI volume. OTHER OPERATING EXPENSES. Other operating expenses for the combined business segments increased 10.7% in the first quarter of 2004. The increase was primarily in new offices, premium taxes, rent and insurance. Other operating expenses also include outside search fees, business promotion, telephone, title plant expenses and supplies. Most of these operating expenses follow, to varying degrees, the changes in transaction volume and revenues. TITLE LOSSES. Provisions for title losses, as a percentage of title operating revenues, were 4.4% in the first quarter of 2004, compared with 4.3% in the first quarter of 2003. INCOME TAXES. The provisions for federal, state and foreign income taxes represented effective tax rates of 37.7% and 35.7% in the first quarters of 2004 and 2003, respectively. The effective tax rate for the first quarter of 2003 includes a reduction for foreign taxes that amounts to 2.4%. The annual effective tax rate for 2003 was 38.0%. LIQUIDITY AND CAPITAL RESOURCES. Acquisitions during the first quarters of 2004 and 2003 resulted in additions to goodwill, excluding reallocations, of $18.7 million and $6.2 million, respectively. Cash provided by operations was $25.3 million and $22.5 million in the first quarter of 2004 and 2003, respectively. Cash flow from operations has been the primary source of financing for additions to property and equipment, expanding operations, dividends to shareholders 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. The most significant non-operating sources of cash were from proceeds of investments matured and sold in the amount of $134.9 million and $48.8 million in the first quarters of 2004 and 2003, respectively. We used cash for the purchases of investments in the amounts of $140.0 and $71.4 in the first quarters of 2004 and 2003, respectively. A substantial majority of consolidated cash and investments was 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 our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2003. Our liquidity, excluding Guaranty and its subsidiaries, is comprised of cash and investments aggregating $23.6 million and short-term liabilities of $4.4 million at March 31, 2004. We know of no commitments or uncertainties that are likely to materially affect our ability to fund cash needs. We consider our capital resources to be adequate. Our capital resources are represented by a low debt-to-equity ratio, in which notes payable was $28.7 million and stockholders' equity was $636.5 million at March 31, 2004. We are not aware of any trends, either favorable or unfavorable, that would materially affect notes payable or stockholders' equity. We do not expect any material changes in the cost of such resources. Significant acquisitions in the future could materially affect the notes payable or stockholders' equity balances. FORWARD-LOOKING STATEMENTS. All statements included in this report, other than statements of historical facts or statements 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in our investment strategies, types of financial instruments held or the risks associated with such instruments which would materially alter the market risk disclosures made in our Annual Statement on Form 10-K for the year ended December 31, 2003. -8- Item 4. Controls and Procedures Our principal executive officers and our principal financial officer, based upon their evaluation of our disclosure controls and procedures conducted as of March 31, 2004, have concluded that those disclosure controls and procedures are effective. There have been no changes in our internal controls or in other factors known to us that could significantly affect these controls, nor were any corrective actions necessary with regard to significant deficiencies or material weaknesses. -9- PART II - OTHER INFORMATION Item 1. Legal Proceedings We are a party to routine lawsuits incidental to our business, most of which involve disputed policy claims. In many of these suits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial condition. Item 5. Other Information 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 and 2001. Our Certificate of Incorporation provides that no cash dividends may be paid on the Class B Common Stock. In June 2003, the Board voted to recommence a dividend payout in response to favorable tax law changes. The Board of Directors of Stewart Information Services Corporation declared an annual cash dividend of $0.46 per share that was paid on December 19, 2003 to Common stockholders of record on December 5, 2003. We had a book value per share of $35.17 and $34.47 at March 31, 2004 and December 31, 2003, respectively. At March 31, 2004, this measure is based on approximately $636.5 million in stockholders' equity and 18.1 million shares outstanding. At December 31, 2003, this measure was based on approximately $621.4 million in stockholders' equity and 18.0 million shares outstanding. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Index to Exhibits immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference. (b) Reports on Form 8-K: During the quarterly period covered by this report, we filed a report on Form 8-K dated February 17, 2004, reporting financial results for the three months and year ended December 31, 2003. -10- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized. May 3, 2004 - ---------------- Date Stewart Information Services Corporation --------------------------------------------- (Registrant) By: /S/ MAX CRISP --------------------------------------------- Max Crisp (Executive Vice President and Chief Financial Officer, Secretary-Treasurer, Director and Principal Financial Officer)
-11- INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 - Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4. - Rights of Common and Class B Common Stockholders *10.1 - Summary of agreements as to payment of bonuses to certain executive officers (incorporated by reference in this report from Exhibit 10.1 of Annual Report on Form 10-K for the fiscal year ended December 31, 2002) *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 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 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2002) 31.1 - Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 - Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.3 - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 - Certification of Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 - Certification of Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.3 - Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 - Details of Investments at March 31, 2004 and December 31, 2003
* A management compensation plan, contract or arrangement. EX-4 2 h14936exv4.txt RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS EXHIBIT 4 STEWART INFORMATION SERVICES CORPORATION RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS March 31, 2004 Common and Class B Common stockholders have the same rights, except (1) no cash dividend may be paid on Class B Common Stock and (2) the two classes of stock are voted separately in electing directors. A provision in the by-laws requires an affirmative vote of at least two-thirds of the directors to approve any proposal which may come before the directors. This by-law provision cannot be changed without a majority vote of each class of stock. Common stockholders, with cumulative voting rights, may elect five of the nine directors. Class B Common stockholders 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 of Class B Common Stock are outstanding; if less than 600,000 shares of Class B Common Stock are outstanding, the Common Stock and the Class B Common Stock shall be voted as a single class upon all matters, with the right to cumulate votes for the election of directors. No change in the Certificate of Incorporation which would affect the Common Stock and the Class B Common Stock unequally shall be made without the affirmative vote of at least a majority of the outstanding shares of each class, voting as a class. Class B Common Stock may, at any time, be converted by its 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. The agreement may be extended or terminated by them at any time. Such conversion is mandatory on any transfer to a person not a lineal descendant (or spouse, trustee, etc. of such descendant) of William H. Stewart. EX-31.1 3 h14936exv31w1.txt CERTIFICATION OF CO-CHIEF EO PURSUANT TO SEC. 302 EXHIBIT 31.1 CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Malcolm S. Morris, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 3, 2004 /S/ MALCOLM S. MORRIS ----------------------------------------- [Signature] Title: Chairman of the Board and Co-Chief Executive Officer EX-31.2 4 h14936exv31w2.txt CERTIFICATION OF CO-CHIEF EO PURSUANT TO SEC. 302 EXHIBIT 31.2 CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Stewart Morris, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 3, 2004 /S/ STEWART MORRIS, JR. ----------------------------------------- [Signature] Title: President and Co-Chief Executive Officer EX-31.3 5 h14936exv31w3.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.3 CERTIFICATION Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Max Crisp, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Stewart Information Services Corporation (registrant); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 3, 2004 /S/ MAX CRISP ----------------------------------------- [Signature] Title: Executive Vice President and Chief Financial Officer, Secretary- Treasurer, Director and Principal Financial Officer EX-32.1 6 h14936exv32w1.txt CERTIFICATION OF CO-CHIEF EO PURSUANT TO SEC. 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Stewart Information Services Corporation (the "Company") on Form 10-Q for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Malcolm S. Morris, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated May 3, 2004 /S/ MALCOLM S. MORRIS - -------------------------------- Name: Malcolm S. Morris Title: Chairman of the Board and Co-Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Stewart Information Services Corporation and will be retained by Stewart Information Services Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 7 h14936exv32w2.txt CERTIFICATION OF CO-CHIEF EO PURSUANT TO SEC. 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Stewart Information Services Corporation (the "Company") on Form 10-Q for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stewart Morris, Jr., Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated May 3, 2004 /S/ STEWART MORRIS, JR. - ----------------------------- Name: Stewart Morris, Jr. Title: Co-Chief Executive Officer President and Director A signed original of this written statement required by Section 906 has been provided to Stewart Information Services Corporation and will be retained by Stewart Information Services Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.3 8 h14936exv32w3.txt CERTIFICATION OF CFO PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Stewart Information Services Corporation (the "Company") on Form 10-Q for the period ending March 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stewart Morris, Jr., Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated May 3, 2004 /S/ STEWART MORRIS, JR. - ----------------------------- Name: Stewart Morris, Jr. Title: Co-Chief Executive Officer President and Director A signed original of this written statement required by Section 906 has been provided to Stewart Information Services Corporation and will be retained by Stewart Information Services Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.1 9 h14936exv99w1.txt DETAILS OF INVESTMENTS EXHIBIT 99.1 STEWART INFORMATION SERVICES CORPORATION DETAILS OF INVESTMENTS March 31, 2004 AND DECEMBER 31, 2003
MAR 31 DEC 31 2004 2003 ------- ------- ($000 Omitted) Investments, at market, partially restricted: Short-term investments 146,756 153,322 U. S. Treasury and agency obligations 31,819 28,795 Municipal bonds 190,981 187,205 Foreign 62,317 56,125 Mortgage-backed securities 557 723 Corporate bonds 148,384 145,273 Equity securities 16,743 16,335 ------- ------- TOTAL INVESTMENTS 597,557 587,778 ======= =======
NOTE: The total appears as the sum of three amounts on the condensed consolidated balance sheets presented on page 2: (1) `short-term investments', (2) `investments - statutory reserve funds' and (3) `investments - other'. -----END PRIVACY-ENHANCED MESSAGE-----