<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998.
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 1-13995
CHICAGO TITLE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-4217886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
171 North Clark Street
Chicago, Illinois 60601-3294
(Address of principal executive offices) (Zip Code)
(888) 431-4288
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
21,864,951
(As of September 30, 1998)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHICAGO TITLE CORPORATION
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
(In 000's, except share data)
<TABLE>
<CAPTION>
(Unaudited)
ASSETS September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Cash on hand and in banks $ 30,078 21,219
Cash pledged to secure trust and escrow deposits 186,642 100,207
Marketable securities, available-for-sale:
Fixed maturities, at fair value (amortized cost of $1,061,321 and
$1,016,446 in 1998 and 1997, respectively) 1,090,718 1,032,089
Equity securities, at fair value (cost of $33,271 and $33,232
in 1998 and 1997, respectively) 34,861 34,489
----------- -----------
Total marketable securities 1,125,579 1,066,578
Receivables, including accrued investment income, less allowance for
doubtful accounts of $11,357 and $7,574 in 1998 and 1997, respectively 69,884 62,558
Deferred federal income taxes 87,773 75,997
Fixed assets, net 101,462 97,222
Title plants 151,460 150,546
Net assets of Alleghany Asset Management, Inc. distributed
to Alleghany Corporation (Note 2) -- 18,097
Other assets 123,809 109,783
----------- -----------
Total assets $ 1,876,687 1,702,207
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 97,227 105,692
Accrued expenses and other liabilities 144,503 128,638
Notes payable and other obligations (Note 4) 41,876 32,443
Reserve for title losses 603,168 564,334
Trust and escrow deposits secured by pledged assets 545,279 467,553
----------- -----------
Total liabilities 1,432,053 1,298,660
----------- -----------
Stockholders' Equity (Note 2):
Common stock-par value of $1 and $4,000 per share, authorized 66,000,000
and 3,722 shares; issued and outstanding 21,864,951 (net of 41,700
treasury shares) and 3,419 shares at September 30, 1998 and December
31, 1997, respectively 21,907 13,676
Additional paid-in capital 127,313 117,381
Unearned compensation-restricted stock (16,305) --
Retained earnings (Note 4, 5) 293,241 261,425
Accumulated other comprehensive income (Note 3) 20,141 11,065
----------- -----------
Total paid-in-capital and retained earnings 446,297 403,547
Less cost of treasury stock (41,700 shares) (Note 6) (1,663) --
Total stockholders' equity 444,634 403,547
----------- -----------
Total liabilities and stockholders' equity $ 1,876,687 1,702,207
=========== ===========
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
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CHICAGO TITLE CORPORATION
Consolidated Statements of Income
For the three months and nine months ended
September 30, 1998 and 1997 (Unaudited)
(In 000's)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Title, escrow, trust and other revenue $ 481,326 357,430 1,328,887 995,726
Investment income 15,563 13,236 46,116 37,220
Net realized investment gains 199 2,509 737 2,805
--------- --------- --------- ---------
Total revenues 497,088 373,175 1,375,740 1,035,751
--------- --------- --------- ---------
EXPENSES:
Salaries and other employee benefits (Note 2) 157,618 116,830 452,242 324,029
Commissions paid to agents 170,450 127,188 455,683 365,293
Provision for title losses 31,904 25,866 88,650 72,152
Interest expense 1,147 1,659 3,552 3,879
Other operating and administrative expenses (Note 2) 89,670 75,244 276,053 210,260
--------- --------- --------- ---------
Total expenses 450,789 346,787 1,276,180 975,613
--------- --------- --------- ---------
Operating income from continuing operations
before income taxes 46,299 26,388 99,560 60,138
Income taxes 16,393 8,905 37,710 19,889
--------- --------- --------- ---------
Net income from continuing operations 29,906 17,483 61,850 40,249
Net income from discontinued operations (Note 2) -- 3,752 9,013 9,071
--------- --------- --------- ---------
Net income $ 29,906 21,235 70,863 49,320
========= ========= ========= =========
Basic and diluted earnings per share (Note 2, 3)
Continuing operations $ 1.37 0.80 2.83 1.84
Discontinued operations -- 0.17 0.41 0.41
--------- --------- --------- ---------
Net earnings per share $ 1.37 0.97 3.24 2.25
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
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CHICAGO TITLE CORPORATION
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997 (Unaudited)
(In 000's)
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from continuing operations activities:
Net income from continuing operations $ 61,850 40,249
Adjustments to reconcile net income from continuing operations
to net cash used in continuing operations activities:
Depreciation and amortization 28,545 22,877
Changes in assets and liabilities:
Cash pledged to secure trust and escrow deposits (86,434) (88,643)
Receivables (1,318) (160)
Current and deferred federal income taxes (9,440) 1,637
Other assets 8,917 9,983
Accounts payable and accrued expenses and other liabilities (8,457) (7,613)
Reserves for title losses 38,024 17,192
Trust and escrow deposits secured by pledged assets 77,639 96,363
Gain on sale of investments (737) (2,805)
--------- ---------
Net adjustments 46,739 48,831
--------- ---------
Net cash provided by continuing operations activities 108,589 89,080
--------- ---------
Dividends received from Alleghany Asset Management, Inc. 7,472 7,800
--------- ---------
Net cash provided by operations 116,061 96,880
--------- ---------
Cash flows from investing activities:
Purchases of long-term marketable securities (349,176) (268,155)
Sales of long-term marketable securities 164,662 90,813
Maturities and redemptions of long-term marketable securities 83,899 109,162
Net sales of short-term investments 55,946 (9,692)
Purchases of other invested assets (3,942) (3,470)
Sales of other invested assets 2,248 4,762
Purchases of fixed assets (23,738) (21,241)
Sales of fixed assets 3,104 2,946
Purchases of title records and indexes (225) (305)
Purchases of subsidiaries (30,657) (3,406)
Cash of acquired subsidiaries 4,443 138
--------- ---------
Net cash (used in) investing activities (93,436) (98,448)
--------- ---------
Cash flows from financing activities:
Principal receipts (payments) on notes payable and other obligations (1,612) (838)
Payment of cash dividend (Note 5) (7,448) --
Purchases of treasury stock (Note 6) (1,663) --
Cash remaining with discontinued operations (Note 2) (3,043) (3,046)
--------- ---------
Net cash (used in) financing activities (13,766) (3,884)
--------- ---------
Net increase (decrease) in cash 8,859 (5,452)
Cash at beginning of year 21,219 23,072
--------- ---------
Cash as of balance sheet date $ 30,078 17,620
========= =========
</TABLE>
See accompanying notes to consolidated quarterly financial statements.
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<PAGE> 5
CHICAGO TITLE CORPORATION
NOTES TO CONSOLIDATED QUARTERLY FINANCIAL STATEMENTS
(IN 000'S)
(1) BASIS OF PRESENTATION
This report should be read in conjunction with the Registration
Statement on Form 10 (File No. 1-13995) (the "Form 10") of Chicago
Title Corporation (the "Company"). The Form 10 was filed with the
Securities and Exchange Commission in connection with the spin-off of
the Company (the "Spin-Off") by Alleghany Corporation ("Alleghany").
The information included in this report is unaudited but reflects all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods covered
thereby. The results for such interim periods are not indicative of
operating results in future periods.
(2) THE SPIN-OFF
On June 17, 1998, Alleghany completed the Spin-Off through the pro-rata
distribution to its stockholders of 21,523,863 shares of common stock
of the Company. Immediately prior to the Spin-Off, 364,184 shares of
common stock were issued as restricted stock to members of senior
management of the Company. Immediately after the Spin-Off, an
additional 16,000 shares were issued as restricted stock to
non-employee directors of the Company. These shares of restricted stock
will be expensed over their respective vesting periods based upon the
value of such shares as of the first trading day after the Spin-Off,
which was $18.0 million. On the day after the Spin-Off, the
non-employee directors of the Company received a total of 2,604 shares
in lieu of cash as payment of a portion of their annual retainer.
Earnings per share information has been presented as if the 21,906,651
shares referenced above had been outstanding for all periods presented
prior to the Spin-Off. The weighted average number of shares
outstanding for the three months and nine months ended September 30,
1998 were 21,894,726 and 21,902,632 respectively.
On a pre-tax basis, for the nine months ended September 30, 1998,
salaries and other employee benefits included $19.5 million in
executive compensation associated with the Spin-Off (including $7.2
million attributable to the repurchase of an option that had been
granted to John Rau in connection with the commencement of his
employment as President and Chief Executive Officer of the Company's
subsidiary Chicago Title and Trust Company ("CT&T") in January 1997),
and $3.7 million in related managerial restructuring expenses.
On a pre-tax basis, for the nine months ended September 30, 1998, other
operating and administrative expenses included $4.8 million and $5.4
million, respectively, for professional fees, printing costs, listing
fees and other expenses directly associated with the Spin-Off.
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In connection with the Spin-Off, effective June 9, 1998, all of the
outstanding stock of Alleghany Asset Management, Inc. was distributed
by CT&T to Alleghany, which resulted in a $22.7 million reduction in
the Company's stockholders' equity. In light of such distribution,
Alleghany Asset Management is classified as a discontinued operation
for all periods presented.
(3) NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of
general-purpose financial statements. Interim financial statements are
required to include only disclosure of total comprehensive income for
the current and prior reporting periods.
The Company's total comprehensive income for the three months ended
September 30, 1998 and 1997 was $39,155 and $26,869, respectively. The
Company's total comprehensive income for the nine months ended
September 30, 1998 and 1997 was $79,939 and $53,668, respectively.
Other comprehensive income relates to the Company's change in
unrealized appreciation (depreciation) of marketable securities, net of
deferred taxes, and was $9,249 and $5,634 for the three months ended
September 30, 1998 and 1997, respectively, and $9,076 and $4,348 for
the nine months ended September 30, 1998 and 1997, respectively.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share," to which the Company became subject this
year upon becoming a public company. Under SFAS No. 128, the dual
presentation of basic and diluted earnings per share ("EPS") is
required on the face of the income statement for all entities with
complex capital structures. In addition, SFAS No. 128 requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. No options were issued during the third quarter of 1998.
During the second quarter of 1998, the Company issued 860,000 options
to purchase common stock of the Company to management and employees.
These options were anti-dilutive, and as such were excluded from the
diluted EPS calculations in accordance with SFAS No. 128.
(4) NOTE PAYABLE
Prior to the Spin-Off, CT&T issued to Alleghany a promissory note in
the principal amount of $9.0 million payable on December 31, 1998. This
note represents a distribution by CT&T of a portion of its earnings for
the period during 1998 that it was held as a subsidiary of Alleghany.
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<PAGE> 7
(5) DIVIDEND
On each of July 28, 1998 and October 27, 1998, the Company's Board of
Directors declared a cash dividend of $0.34 per share, payable on
September 15, 1998 and December 15, 1998, respectively, to stockholders
of record on September 1, 1998 and December 1, 1998, respectively.
(6) TREASURY STOCK
In July 1998, the Company's Board of Directors authorized the purchase
of up to two million shares of the Company's common stock over the next
five years to provide shares for various employee and director benefit
plans. As of September 30, 1998, 41,700 shares of common stock had been
repurchased at a cost of $1,663, as reflected in the balance sheet as
of such date. These shares have subsequently been reissued under the
Company's Employee Stock Purchase Plan.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Results of Operations--Comparison of Three Months and Nine Months Ended
September 30, 1998 and September 30, 1997
Net Income
For the third quarter of 1998, net income from continuing operations
was $29.9 million or $1.37 per share on both a basic and diluted basis. This
represents a 71.1 percent increase over net income from continuing operations of
$17.5 million, or $0.80 per share on both a basic and diluted basis, for the
same period in 1997. For the third quarter, total revenue was $497 million, a
33.2 percent increase over the prior year period.
This period marked the first full quarter of operations for the Company
following the June 1998 Spin-Off from Alleghany. Exclusive of $21.6 million in
after-tax non-recurring Spin-Off and related management restructuring costs, net
income from continuing operations amounted to $83.4 million or $3.81 per basic
and diluted share for the nine months ended September 30, 1998. This represents
an increase of 107.2 percent over the $40.2 million in net income from
continuing operations and $1.84 per basic and diluted share earned in the first
nine months of 1997. Total revenue for the first three quarters rose 32.8
percent to $1.38 billion in 1998 from $1.04 billion in 1997.
Prior to the Spin-Off, the Company performed trust and asset management
services through a subsidiary, Alleghany Asset Management. Ownership of this
subsidiary was transferred to Alleghany shortly preceding the Spin-Off.
Accordingly, the results of operation of this subsidiary are reported in the
Company's statements of income as discontinued operations. As a result of the
Spin-Off, Alleghany Asset Management made no contribution to third quarter 1998
results. Net income from discontinued operations was $3.8 million, or $0.17 per
basic and diluted share, in the third quarter of 1997. For the nine months ended
September 30, net income from discontinued operations amounted to $9.0 million
in 1998 compared to $9.1 million in 1997. This amounted to $0.41 per basic and
diluted share in each period.
Operating Revenues
Real estate markets throughout the first nine months of 1998 continued
to benefit from favorable economic conditions marked by low levels of
unemployment and the absence of inflationary pressures. The resulting
combination of low interest rates and strong consumer confidence led to healthy
increases in revenue from residential purchases, residential refinancings, and
commercial and industrial ("C&I") transactions.
Title, escrow, trust and other revenue was $481.3 million in the third
quarter of 1998, an increase of $123.9 million or 34.7 percent from the year
earlier period. Direct title premiums increased by $42.7 million and gross title
premiums from agents and
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<PAGE> 9
approved attorneys increased by $55.6 million. Escrow fees, real estate related
services, and property information sales rose by $14.9 million, $7.1 million,
and $3.3 million, respectively.
Of the 1998 third quarter increase in direct title premiums, $15.7
million was attributable to residential refinancings, $15.9 million was due to
residential purchases and $11.1 million was related to C&I transactions.
For the first nine months of 1998, title, escrow, trust and other
revenue was $1,328.9 million, an increase of $333.2 million or 33.5 percent from
the first nine months of 1997. Direct title premiums increased $120.4 million
and gross title premiums from agents and approved attorneys increased by $118.0
million. Escrow fees, real estate related services, and property information
sales rose by $42.3 million, $23.0 million, and $16.8 million, respectively.
Of the 1998 first nine month increase in direct title premiums, $56.6
million was due to residential refinancings, $35.5 million was related to
residential purchases and $28.3 million were attributable to C&I transactions.
During the 1998 third quarter, 67.5 percent of the Company's direct
title premiums were attributable to residential transactions, of which 47.1
percent were purchase transactions and 20.4 percent were refinancings. During
the 1997 third quarter, 65.0 percent of the Company's direct title premiums were
attributable to residential transactions, of which 50.9 percent were purchase
transactions and 14.1 percent were refinancings. The remaining direct title
premiums for each period were attributable to C&I transactions.
During the first nine months of 1998, approximately 66.1 percent of
the Company's direct title premiums were attributable to residential
transactions, of which 43.1 percent were purchase transactions and 23.0 percent
were refinancings. During the first nine months of 1997, 62.0 percent of the
Company's direct title premiums were attributable to residential transactions,
of which 48.5 percent were purchase transactions and 13.4 percent were
refinancings. The remaining direct title premiums for each period were
attributable to C&I transactions.
Investment Income
Investment income totaled $15.6 million in the third quarter and $46.1
million in the first nine months of 1998 as compared with $13.2 million and
$37.2 million, respectively, for the same periods last year. The increased level
of investment income was attributable to higher levels of investment assets. The
average duration of the portfolio at September 30, 1998 was 2.4 years as
compared with 2.2 years at December 31, 1997.
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Expenses
COMMISSIONS PAID TO AGENTS. Payment of commissions to title insurance
agents constitutes the largest single expense incurred by the Company. The
commission rate varies by geographic area in which the commission is earned,
primarily due to competitive factors and the level of services performed. The
percentage of premiums retained by agents amounted to 76.3 percent in the third
quarter of 1998 as compared with 75.8 percent in the third quarter of 1997. For
the first nine months of 1998, the percentage of premiums retained by agents
amounted to 76.2 percent as compared with 76.1 percent in the first nine months
of 1997. The Company reports amounts retained by agents, along with amounts paid
to approved attorneys, as commissions paid to agents in its consolidated
statements of income.
SALARIES AND OTHER EMPLOYEE BENEFITS. This category of expense
represents the cost of salaries, incentive compensation and benefits paid to
employees. One key ratio monitored by management is the amount of these expenses
as a percentage of operating revenue, net of commissions paid to agents. The
following table summarizes this ratio:
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Title, escrow, trust and other revenue $ 481,326 $ 357,430 $ 1,328,887 $ 995,726
Commissions paid to agents (170,450) (127,188) (455,683) (365,293)
----------- ----------- ----------- -----------
Net revenue 310,876 230,242 873,204 630,433
----------- ----------- ----------- -----------
Total salaries and other employee benefits 157,618 116,830 452,242 342,029
Less Spin-Off and related management
restructuring costs -- -- (23,196) --
----------- ----------- ----------- -----------
Total salaries and other employee benefits, net 157,618 116,830 429,046 342,029
----------- ----------- ----------- -----------
Percentage 50.7% 50.7% 49.1% 54.3%
=========== =========== =========== ===========
</TABLE>
During the third quarter of 1998 the level of total salaries and other
employee benefits as a percentage of net revenue remained flat at 50.7 percent
when compared to the same period in 1997.
PROVISION FOR TITLE LOSSES. The following table summarizes key
information pertaining to the Company's provision for title losses:
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<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Provision for title losses $ 31,904 $ 25,866 $ 88,650 $ 72,152
Title, escrow, trust and other revenue 481,326 357,430 1,328,887 995,726
Ratio 6.6% 7.2% 6.7% 7.2%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Reserve for title losses at period-end $603,168 $564,334
Paid losses, net of recoveries-trailing 12 months 66,579 70,913
Reserve coverage of paid losses-trailing 12 months 9.1 x 8.0 x
</TABLE>
The provision for title losses as a percentage of operating revenue was
reduced this year from the provision in 1997 in recognition of a continued
downward trend in claims paid.
OTHER OPERATING AND ADMINISTRATIVE EXPENSES. During the third quarter
of 1998, other operating and administrative expenses increased $14.4 million
when compared to the same period in 1997. During the first nine months of 1998,
excluding Spin-Off and related management restructuring costs of $5.4 million,
operating and administrative expenses increased $60.4 million. The increased
level of expense was related to increases in variable costs associated with the
higher levels of revenue earned in the current year.
Of the third quarter increases in these expenses, purchased property
information increased $6.1 million, contract labor increased $4.9 million,
postage and supplies increased $2.7 million, and the remainder of the increase
was incurred in other categories.
Of the increase in these expenses for the first nine months of 1998,
purchased property information increased $18.6 million, contract labor increased
$10.8 million, postage and supplies increased $6.3 million and the remainder of
the increase was incurred in other categories.
Liquidity and Capital Resources
At September 30, 1998, the Company and CT&T (on a stand-alone basis
excluding all other subsidiaries) had total cash and marketable securities of
$579.8 million, $545.3 million of which were pledged to secure escrow and other
liabilities. At December 31, 1997, CT&T (on a stand-alone basis excluding
subsidiaries) had total cash and marketable securities of $511.9 million, $476.2
million of which were pledged to secure escrow and other liabilities.
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<PAGE> 12
For the nine months ended September 30, 1998, the Company generated
cash from continuing operations of $108.6 million. For the comparable period
last year, a total of $89.1 million in cash was generated by continuing
operations activities. The increase in cash flow from continuing operations was
attributable to improved operating performance and improved claims experience.
During the nine months ended September 30, 1998, the Company used a
total of $30.7 million in cash in six acquisitions. The Company used internally
generated funds to finance these acquisitions.
On May 29, 1998, CT&T entered into a revolving loan and credit
agreement that provides for borrowings of up to $50 million on a revolving basis
at a floating rate of interest. No amounts were outstanding under this facility
as of September 30, 1998. This facility will terminate in May 2003.
The transfer of Alleghany Asset Management preceding the Spin-Off
reduced the Company's consolidated stockholders' equity by $22.7 million. During
second quarter of 1998, prior to the Spin-Off, CT&T declared a dividend in the
amount of $9 million to Alleghany in the form of a promissory note which is
payable at December 31, 1998. This dividend represents a distribution by CT&T of
a portion of its earnings for the period during 1998 that it was held as a
subsidiary of Alleghany.
On October 27, 1998, the Company's board of directors declared a
dividend of $0.34 per share payable in cash on December 15, 1998 to stockholders
of record as of December 1, 1998. Based upon a total of 21.9 million shares of
common stock outstanding, this will result in the reduction of consolidated
stockholders' equity by $7.4 million.
The Company has announced that it may purchase up to two million shares
of its common stock in open market transactions from time to time over the next
five years. The purpose of the repurchase program is to provide shares for
various employee and director benefit plans. Pursuant to this program, 41,700
shares were purchased in the third quarter of 1998 at a cost of $1.7 million.
The Company's common stockholders' equity per share as of September 30,
1998 was $20.34.
Management believes cash generated from operations, investments, and
cash available from financing activities will provide sufficient liquidity to
meet the Company's anticipated needs over the next twelve to twenty-four months.
Year 2000 Issues
Many computer programs utilized by the Company and its business units
use only two digits to identify the year in the date field, which may mean that
a computer will fail
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<PAGE> 13
to distinguish dates in the year 2000 and thereafter from dates in the 1900's.
Failure to correct this situation could result in a significant disruption in
business operations. The Company and its business units have undertaken a
program to determine the extent of "Year 2000" compliance issues within each of
its significant information technology and non-information technology systems
(such as equipment which contains micro-processors) and to take remedial action.
Included within the scope of this review are systems utilized on a company-wide
basis in title plants, title production units, claim processing, human
resources, financial management and company-wide infrastructure. Non-compliant
systems are being reprogrammed or replaced and subsequently tested.
Costs of approximately $1.0 million were incurred in all of 1997 and
another $1.5 million was spent through the third quarter of 1998 in performing
the review and related remedial work on these centralized systems. The Company
expects to spend an additional $0.7 million through the remainder of 1998 and in
1999 to complete its company-wide system remediation and testing efforts. The
majority of both the incurred and anticipated spending is associated with
payroll expense for internal and contract programming personnel. By the end of
1998, it is expected that the evaluation and remediation phases for each of the
significant company-wide systems will have been largely completed for Year 2000
issues, thus allowing sufficient time in 1999 for further testing.
In addition to the company-wide systems, there are various other
computer systems used by the Company's business units on a local basis. Regional
managers report on the status of Year 2000 compliance activities within their
area of responsibility to the Company's senior management on a regular basis. To
assist in their compliance programs, a comprehensive questionnaire that
incorporates recommendations of the American Land Title Association has been
developed and distributed by the Company's Information Services Division. Due to
the diverse nature of the computer systems used on a local basis, it is
difficult to estimate the total costs to be incurred in performing the necessary
review and remediation activity for Year 2000 issues. However, based upon the
results of reviews that have taken place to date, the Company's management
believes that such costs will not exceed $3.0 million in total over the years
1998 and 1999.
Management currently believes that it will be able to timely resolve
the Year 2000 issues affecting the computer systems of the Company and its
business units and that the cost of addressing such matters will not have a
material impact on the business, operations or financial condition of the
Company and its business units.
In addition to the review of internal systems, the Company and its
business units are also contacting third parties with which they do business to
coordinate action with respect to Year 2000 issues and to receive confirmation
that plans are being developed to address Year 2000 compliance. To date, the
Company has received varying information from such third parties on the state of
compliance or expected compliance. The Company and its business units have not
yet developed contingency plans to address the failure of third parties to
address Year 2000 compliance issues adequately. Where needed, contingency plans
are expected to be developed by early 1999.
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<PAGE> 14
Failure by third parties with which the Company has important business
relationships to resolve their Year 2000 issues could have a material adverse
effect on the Company's operations and financial condition. The Company is
unable to determine at this time the most reasonably likely worst-case scenario,
but this will be analyzed based upon information that the Company continues to
receive from third parties.
Forward-Looking Statements
The statements made in this report contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Act of 1934 that involve a number of uncertainties
and risks that could significantly affect current plans and anticipated actions
and the Company's future financial condition and results. In addition to the
matters described in this report, risk factors listed from time to time in the
Company's reports and filings with the Securities and Exchange Commission,
including its Form 10, may affect the results achieved by the Company.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of 1998.
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHICAGO TITLE CORPORATION
Registrant
Date: November 16, 1998 /s/ Peter G. Leemputte
------------------------------------
Peter G. Leemputte
Executive Vice President, Chief Administrative
Officer and Chief Financial Officer
(principal financial officer)
-16-
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
27 Financial Data Schedule.
-17-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CHICAGO
TITLE CORPORATION'S CONSOLIDATED BALANCE SHEET AT 9/30/98 AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE 9 MONTHS THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 1,090,718
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 34,861
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,125,579
<CASH> 216,720
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,876,687
<POLICY-LOSSES> 603,168
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 41,876
0
0
<COMMON> 21,907
<OTHER-SE> 422,727
<TOTAL-LIABILITY-AND-EQUITY> 1,876,687
1,328,887
<INVESTMENT-INCOME> 46,116
<INVESTMENT-GAINS> 737
<OTHER-INCOME> 0
<BENEFITS> 88,650
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 1,187,530
<INCOME-PRETAX> 99,560
<INCOME-TAX> 37,710
<INCOME-CONTINUING> 61,850
<DISCONTINUED> 9,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,863
<EPS-PRIMARY> 3.24
<EPS-DILUTED> 3.24
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
