-----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, THdr+BvZYTzC/+ebMhcS8zI/mUexRwhfw45TH7DXlptdBmefXWNujlHhID1mQiv3 39N02eu1QtDeS7NVMNm5nw== 0000950129-96-000786.txt : 19960513 0000950129-96-000786.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950129-96-000786 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEWART INFORMATION SERVICES CORP CENTRAL INDEX KEY: 0000094344 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 741677330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06151 FILM NUMBER: 96559347 BUSINESS ADDRESS: STREET 1: 2200 W LOOP S STREET 2: STEWART TITLE BLDG CITY: HOUSTON STATE: TX ZIP: 77027 BUSINESS PHONE: 7138711100 10-Q 1 STEWART INFORMATION SERVICES CORPORATION 03/31/96 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 31, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ____________________ Commission file number 1-12688 ------- STEWART INFORMATION SERVICES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-1677330 - -------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1980 Post Oak Blvd., Houston, TX 77056 ---------------------------------------- (Address of principal executive offices) (Zip Code) (713) 625-8100 --------------- (Registrant's telephone number, including area code) ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common 6,150,226 Class B Common 525,006 2 FORM 10-Q QUARTERLY REPORT Quarter Ended March 31, 1996 TABLE OF CONTENTS ----------------- Item No. Page - ------- ---- Part I 1. Financial Statements 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II 1. Legal Proceedings 8 6. Exhibits and Reports on Form 8-K 9 Signature 13 3 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
FIRST QUARTER ---------------------- 1996 1995 ------- -------- ($000 Omitted) Revenues Title premiums, fees and related revenues 74,636 55,024 Investment income 3,446 3,318 Investment gains 374 53 Other income (452) (347) ------- ------- 78,004 58,048 Expenses Employee costs 40,747 31,973 Other operating expenses 22,914 19,189 Title losses and related claims 7,960 6,627 Depreciation and amortization 2,465 2,263 Interest 284 152 Minority interests 236 (42) ------- ------ 74,606 60,162 Income (loss) before taxes 3,398 (2,114) Income taxes (benefit) 1,223 (687) ------- ------ Net income (loss) 2,175 (1,427) ======= ====== Average number of shares outstanding (000) 6,666 6,217 Earnings (loss) per share Net income (loss) 0.33 (0.23) ======= ======
-1- 4 STEWART INFORMATION SERVICES CORPORATION CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995
MAR 31 DEC 31 1996 1995 ------- ------- ($000 Omitted) Assets Cash and cash equivalents 16,737 16,698 Short-term investments 27,122 28,238 Investments - statutory reserve funds 117,961 118,040 Investments - other 69,785 67,716 Receivables 30,860 30,240 Property and equipment, net 26,158 24,271 Title plants 19,109 19,243 Deferred taxes 16,000 14,108 Other 34,428 32,805 ------- ------- 358,160 351,359 ======= ======= Liabilities Notes payable 13,081 12,589 Accounts payable and accrued liabilities 20,897 21,041 Estimated title losses 142,284 138,312 Minority interest 4,561 4,565 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 56,537 52,335 Net unrealized investment gains, less deferred taxes 447 3,970 Retained earnings 120,353 118,547 ------- ------- Total stockholders' equity ($28.83 per share at March 31, 1996) 177,337 174,852 ------- ------- 358,160 351,359 ======= =======
-2- 5 STEWART INFORMATION SERVICES CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995 ------- ------- ($000 Omitted) Net cash flow provided by operating activities (Note) 7,201 (6,771) Cash flow from investing activities: Purchases of property and equipment and title plant (2,086) (2,934) Proceeds of investments matured to sold 30,732 26,606 Purchases of investments, excluding mortgage loans (35,995) (21,967) Increases in mortgages and other notes (373) (181) Collections on mortgages and other notes 706 403 Proceeds from issuance of stock 0 252 Cash paid for the purchase of subsidiaries - net (231) 0 ------- ------- Net cash (used) provided by investing activities (7,247) 2,179 Cash flow from financing activities: Dividends paid (369) (285) Proceeds of notes payable 1,002 419 Payments on notes payable (548) (708) ------- ------- Net cash provided (used) by financing activities 85 (574) ------- ------- Net increase (decrease) in cash and cash equivalents 39 (5,166) ======= ======= NOTE: Reconciliation of net income to above amounts: Net income 2,175 (1,427) Add (deduct): Depreciation and amortization 2,484 2,281 Provision for title losses in excess of payments 3,972 610 Provision for uncollectible amounts (110) 151 Increase in accounts receivable, net (1,355) (3,383) Decrease in accounts payable and accrued liabilities (291) (5,210) Minority interest expense 236 (42) Equity in net earnings of investees 404 360 Realized investment losses (gains) - net (374) 53 Other, net 60 (164) ------- ------- Net cash flow provided (used) by operating activities 7,201 (6,771) ======= =======
-3- 6 STEWART INFORMATION SERVICES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ Note 1: Interim Financial Statements The financial information contained in this report for the three month periods ended March 31, 1996 and 1995, and as at March 31, 1996, is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of this information for all unaudited periods, consisting only of normal recurring accruals, have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year. -4- 7 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- A comparison of the results of operations of the Company for the first three months of 1996 with the first three months of 1995 follows: General The Company's dominant segment of operations is the land title business. In general, the principal factors which contribute to increases in title revenues include declining mortgage interest rates (which usually increase home sales), increases in refinancing ("refis") transactions, rising home prices, higher premium rates, increased market share, additional revenues from new offices and increased revenue from non-residential commercial transactions. Although relatively few in number, large commercial transactions usually yield higher premiums. Revenues The Company's revenues from title premiums and fees rose $19.6 million, or 35.6%, in the first three months of 1996 as compared to the first three months of 1995. Mortgage interest rates in early 1996 were significantly lower than a year ago, causing higher real estate activity in the current year. The number of closings handled by the Company were up approximately 52.0%. Closings increased in California, Texas, Colorado and most of the Company's other major markets. The average revenue per closing fell in 1996 because more refinancing transactions (which are discounted) were handled. Premium revenues from nontitle operations and new and existing agents increased in 1996 over 1995. Investment income was up slightly in 1996, due to an increase in the average balance invested. Expenses Employee expenses increased $8.8 million, or 27.4%, in 1996 primarily because of an increase in the average number of employees, from 3,398 a year ago to 3,925 in 1996. The increase in staff in 1996 was primarily in California, Colorado, Nevada, new offices and automation. While the Company continues to monitor overall employee expenses, it has chosen to increase cost levels in automation and real estate information areas. The Company believes the development and sale of new products and services for new and -5- 8 existing customers is important to its future. Through automating operating processes, the Company expects to add customer revenue and reduce operating expenses and title losses in the future. Other operating expenses increased by $3.7 million, or 19.4%, in 1996 primarily because of new offices and increased volume. Other operating expenses include business promotion, premium taxes, title plant expenses, office rent, telephone, policy forms, delivery expenses, travel and fees paid to attorneys for examination and closing services. Provisions for title losses and related claims were up $1.3 million in 1996. The Company's recent experience in claims has improved significantly. As a percentage of title premiums, fees and related revenues, provisions decreased to 10.7% in 1996 versus 12.0% in 1995. The ratio was 11.1% for the full year 1995. In December 1994 the California Board of Equalization (CBOE) ruled in favor of the Company concerning an assessment of additional premium taxes for the year 1987. However, an additional assessment for retaliatory taxes for 1987 was left pending. In April 1996 the CBOE ruled in favor of the Company on the retaliatory assessment. Five other states have also assessed the Company additional premium or retaliatory taxes. The Company cannot predict whether additional taxes of this nature will be assessed in material amounts. State taxing authoratives are under increasing pressure to collect additional tax revenues. The Company intends to vigorously oppose any assessments and believes its tax payments are correct. However, there can be no assurances the Company will prevail in these controversies. The provision for income taxes represented a 36.0% effective tax rate in 1996 and a 32.5% effective tax rate in 1995. Liquidity and capital resources Operating earnings represent the primary source of financing, but this may be supplemented by bank borrowings. The capital resources of the Company, and the present debt-to-equity relationship, are considered satisfactory. -6- 9 PART II
Page ---- Item 1. Legal Proceedings 8 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4. - Rights of Common and Class B Common 9 Stockholders 27.0 - Financial data schedule 10 28.2 - Details of Investments as reported in the 12 Quarterly Report to Shareholders (b) There were no reports on Form 8-K filed during the quarter ended March 31, 1996
-7- 10 ITEM 3. LEGAL PROCEEDINGS Guaranty and 18 other title insurers are defendants in a consolidated class action proceeding originating from complaints first filed in April 1990. The suit is currently pending in the United States District Court for the District of Arizona. The plaintiffs allege that the defendants violated federal antitrust law by participating in title insurance rating bureaus in Arizona and Wisconsin in the early 1980s through which they allegedly agreed upon the prices and other terms and conditions of sale for title search and examination services. The plaintiffs request treble damages in an unspecified amount, costs and attorneys' fees. The parties have negotiated and proposed to the court a settlement pursuant to which members of the class would receive cash (not to exceed approximately $4.1 million from all defendants) and additional coverage under, and discounts on, title insurance policies. In addition, the defendants and counsel for certain plaintiffs have proposed to the Court that it award such counsel the negotiated sum of $1.3 million in fees and expenses. Following hearings on these matters, the Court has certified the proceeding as a class action and taken the remaining issues under advisement. The Registrant is a party to routine lawsuits incidental to its business most of which involve disputed policy claims. In many of these suits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent of the Registrant. -8- 11 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Stewart Information Services Corporation ---------------------------------------- (Registrant) May 8, 1996 - ----------- Date /s/ Max Crisp _____________________________________ Max Crisp (Vice President - Finance, Secretary-Treasurer, Director and Principal Financial and Accounting Officer) -9- 12 EXHIBIT INDEX 4. - Rights of Common and Class B Common Stockholders 27.0 - Financial data schedule 28.2 - Details of Investments as reported in the Quarterly Report to Shareholders EX-4 2 RIGHTS OF COMMON & CLASS B COMMON STOCKHOLDERS 1 EXHIBIT 4 STEWART INFORMATION SERVICES CORPORATION RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS March 31, 1996 - -------------------------------------------------------------------------------- Common and Class B Common stockholders have the same rights, except (1) no cash dividends may be paid on Class B Common Stock and (2) the two classes of stock are voted separately in electing directors. A provision in the by-laws requires an affirmative vote of at least two-thirds of the directors to approve any proposal which may come before the directors. This by-law provision cannot be changed without majority vote of each class of stock. Common stockholders, with cumulative voting rights, may elect five or more of the nine directors. Class B Common stockholders may, with no cumulative voting rights, elect four directors, if 350,000 or more shares of Class B Common stock are outstanding; three directors, if between 200,000 and 350,000 shares of Class B Common Stock are outstanding; if less than 200,000 shares of Class B Commons Stock are outstanding, the Common Stock and the Class B Common Stock shall be voted as a single class upon all matters, with the right to cumulate votes for the election of directors. No change in the Certificate of Incorporation which would affect the Common Stock and the Class B Common Stock unequally shall be made without the affirmative vote of at least a majority of the outstanding shares of each class, voting as a class. Class B Common Stock may, at any time, be converted by its holders into Common Stock on a share-for-share basis. Such conversion is mandatory on any transfer to a person not a lineal descendant (or spouse, trustee, etc. of such descendant) of William H. Stewart. EX-27 3 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF MARCH 31, 1996 AND THE RELATED STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1996 MAR-31-1996 187,088 0 0 0 0 0 214,868 16,737 0 0 358,160 142,284 0 0 0 13,081 6,675 0 0 170,662 358,160 74,636 3,446 374 (452) 7,960 0 0 3,398 1,223 2,175 0 0 0 2,175 0.33 0.33 138,312 8,186 (226) 1,461 2,527 142,284 0 Includes short-term investments.
EX-28.2 4 DETAILS OF INVESTMENTS AS REPORTED IN QUARTERLY 1 EXHIBIT 28.2 STEWART INFORMATION SERVICES CORPORATION DETAILS OF INVESTMENTS MARCH 31, 1996 AND DECEMBER 31, 1995
MAR 31 DEC 31 1996 1995 -------- -------- ($000 Omitted) Investments, at market, partially restricted: Short-term investments $27,122 $28,238 U.S. Treasury and agency obligations 28,305 29,635 Municipal bonds 93,050 95,049 Mortgage-backed securities 31,747 27,499 Corporate bonds 33,960 33,546 Real estate and other, at market 684 685 -------- -------- TOTAL INVESTMENTS $214,868 $214,652
======== ======== NOTE: The total appears as the sum of three amounts under "investments" - short-term, "investments" - statutory reserve funds and "investment" - other in the balance sheet presented on page 2. -----END PRIVACY-ENHANCED MESSAGE-----