<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
Commission File Number 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 86-0498599
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17911 Von Karman Avenue, Irvine, California 92714
------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
(714) 622-5000
------------------------------------------------------
(Registrant's telephone number, including area code)
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.
$.0001 par value common - 11,415,278 shares as of May 11, 1995
Exhibit Index appears on page 10 of 11 sequentially numbered pages.
1
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FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION Page Number
-----------
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of 3
March 31, 1995 and December 31, 1994
B. Condensed Consolidated Statements of Operations 4
for the three-month periods ended
March 31, 1995 and 1994
C. Condensed Consolidated Statements of Cash Flows 5
for the three-month periods ended
March 31, 1995 and 1994
D. Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II: OTHER INFORMATION
Items 1.-5. of Part II have been omitted because they are not
applicable with respect to the current reporting period.
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
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.
FIDELITY NATIONAL FINANCIAL, INC.
---------------------------------
(Registrant)
By: /s/ Carl A. Strunk
-------------------------------
Carl A. Strunk
Executive Vice President,
Chief Financial Officer and Date: May 12, 1995
Treasurer
2
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Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at amortized cost $ 26,786 $ 26,664
Available for sale, at fair value 139,048 149,111
------- -------
Total fixed maturities 165,834 175,775
Equity securities, at fair value 21,545 15,482
Other long-term investments, at cost,
which approximates fair value 16,000 16,000
Short-term investments, at cost,
which approximates fair value 1,009 800
Investments in real estate and partnerships, net 9,462 9,591
------- -------
Total investments 213,850 217,648
Cash and cash equivalents 22,709 34,689
Trade receivables, net 29,827 28,495
Notes receivable, net 16,355 13,139
Prepaid expenses and other assets 27,538 28,096
Title plants 41,069 36,977
Property and equipment, net 39,710 39,534
Deferred income taxes 8,703 12,553
Income taxes receivable 7,747 6,988
------- -------
$407,508 $418,119
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities $ 43,085 $ 48,114
Notes payable 146,131 142,129
Reserve for claim losses 149,430 153,306
------- -------
338,646 343,549
Minority interest 627 616
Stockholders' equity:
Preferred stock, $.0001 par value; authorized,
3,000,000 shares; issued and outstanding, none -- --
Common stock, $.0001 par value; authorized,
50,000,000 shares in 1995 and 1994;
issued, 15,672,161 in 1995 and 15,661,365 in 1994 2 2
Additional paid-in capital 56,772 56,659
Retained earnings 62,592 66,668
------- -------
119,366 123,329
Net unrealized losses on investments (1,442) (8,914)
Less treasury stock, 4,158,304 shares in 1995 and
3,303,100 shares in 1994, at cost 49,689 40,461
------- -------
68,235 73,954
------- -------
$407,508 $418,119
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
REVENUE:
Title insurance premiums $59,501 $107,208
Escrow fees 8,910 16,407
Other fees and revenue 12,188 16,336
Interest and investment income,
including realized gains (losses) 2,460 3,668
------ -------
83,059 143,619
------ -------
EXPENSES:
Personnel costs 34,685 51,932
Other operating expenses 25,372 32,408
Agent commissions 21,220 38,690
Provision for claim losses 4,088 8,794
Interest expense 2,431 1,861
------ -------
87,796 133,685
------ -------
Earnings (loss) before income taxes
and extraordinary item (4,737) 9,934
Income tax expense (benefit) (2,289) 3,129
------ -------
Earnings (loss) before extraordinary item (2,448) 6,805
Extraordinary item -- loss on early retirement
of Senior Notes, net of applicable income
tax benefit of ($437) (813) --
------ -------
Net earnings (loss) $(3,261) $ 6,805
====== =======
Primary earnings (loss) per share
before extraordinary item $ (.20) $ .43
Extraordinary item -- loss on early retirement of
Senior Notes, net of applicable income tax benefit (.07) --
------ -------
Primary earnings (loss) per share $ (.27) $ .43
====== =======
Fully diluted earnings (loss) per share $ (.27) $ .40
====== =======
Primary weighted average shares outstanding 11,948 15,881
====== =======
Fully diluted weighted average shares outstanding 11,948 18,141
====== =======
Cash dividends per share $ .07 $ .07
====== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(3,261) $ 6,805
Reconciliation of net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 3,240 2,187
Net increase (decrease) in reserve for claim losses (3,876) 4,740
Provision for possible losses
on real estate and notes receivable 45 43
Gain (loss) on sales of investments 401 (188)
Loss on sales of assets 31 --
Other 39 1
Amortization of LYONs original issue discount 1,202 711
Change in assets and liabilities, net of effects
from acquisition of subsidiaries:
Net (increase) decrease in trade receivables (1,332) 226
Net decrease in prepaid expenses and other assets 526 1,112
Net decrease in accounts payable and accrued liabilities (4,990) (2,067)
Net decrease in income taxes (759) (3,728)
------ -------
Net cash provided by (used in) operating activities (8,734) 9,842
------ -------
Cash flows from investing activities:
Proceeds from sales of property and equipment 232 7
Proceeds from sales and maturities of investments:
Held to maturity 1,451 173
Available for sale 51,418 9,490
Collections of notes receivable 249 888
Additions to title plants (4,109) (445)
Additions to property and equipment (3,450) (4,513)
Additions to investments:
Held to maturity (1,617) (1,215)
Available for sale (36,706) (78,741)
Other investments -- (16,000)
Additions to notes receivable (3,510) (273)
Investments in real estate and advances to partnerships (67) (121)
Purchase of ATIC preferred stock -- (15,500)
------ --------
Net cash provided by (used in) investing activities 3,891 (106,250)
------ --------
</TABLE>
See notes to condensed consolidated financial statements.
(continued)
5
<PAGE> 6
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1995 1994
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Borrowings $ 4,218 $104,692
Debt service payments (1,386) (21,610)
Purchase of treasury stock (9,228) --
Dividends paid (854) (2,145)
Stock options exercised 113 433
------ -------
Net cash provided by (used in) financing activities (7,137) 81,370
------ -------
Net decrease in cash and cash equivalents (11,980) (15,038)
Cash and cash equivalents at beginning of period 34,689 42,731
------ -------
Cash and cash equivalents at end of period $22,709 $ 27,693
====== =======
Supplemental cash flow information:
Income taxes paid (refunded) $(1,967) $ 6,686
====== =======
Interest paid $ 1,836 $ 1,340
====== =======
Noncash investing and financing activities:
Dividends declared and unpaid $ 815 $ 1,073
====== =======
Discount on purchase of ATIC preferred stock,
increase in reserve for claim losses $ 6,219
=======
</TABLE>
See notes to condensed consolidated financial statements.
6
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FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Financial Statements
- --------------------------------------
The financial information included in this report includes the accounts of
Fidelity National Financial, Inc. and its subsidiaries (collectively, the
"Company") and has been prepared in accordance with generally accepted
accounting principles and the instructions to Form 10-Q and Article 10 of
Regulation S-X. All adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation, have been included. This report
should be read in conjunction with the Company's 1994 Annual Report on Form
10-K for the year ended December 31, 1994, as amended. Certain
reclassifications have been made in the 1994 Condensed Consolidated Financial
Statements to conform to the classifications used in 1995.
Note B - Dividends
- ------------------
On March 28, 1995, the Company's Board of Directors declared a cash dividend of
$.07 per share, payable on May 4, 1995, to stockholders of record on April 13,
1995.
Note C - Authorization To Repurchase Common Stock and LYONs
- -----------------------------------------------------------
On March 9, 1995, the Company announced that its Board of Directors
authorized the additional repurchase, in the open market or in privately
negotiated transactions, of up to 2 million shares of its common stock, or a
comparable amount of the Company's Liquid Yield Option Notes (the "LYONs").
This is in addition to the 5 million shares or a comparable amount of LYONs
previously authorized for repurchase by the Board of Directors -- 1 million
shares on March 31, 1994, 1 million shares on June 14, 1994, and an additional
3 million shares on August 11, 1994. Any shares repurchased will initially be
held by the Company. A limited number of shares may be used for various
stock-based employee benefit programs and the remainder will be used for other
general corporate purposes. As of May 11, 1995, the Company had repurchased
4,278,804 shares of its common stock for an aggregate price of $50.9 million,
or $11.91 per share. Additionally, as of May 11, 1995, the Company had
repurchased $48 million in maturity amount of LYONs for an aggregate price of
$17.6 million, all of which were purchased in 1994.
Note D - Acquisitions
- ---------------------
On March 8, 1995, the Company acquired the common stock of Western Title
Company of Washington, an underwritten title agency with operations in King
County (Seattle) and Snohomish County (Everett) in the state of Washington.
Western Title Company of Washington was acquired from its selling shareholder
for $3.2 million in cash. In addition, the Company also acquired an option to
purchase a title plant in Pierce County (Tacoma), Washington. The acquired
company will operate as a subsidiary of the Company in King and Snohomish
Counties under the name Fidelity National Title Company of Washington. The
acquisition has been accounted for as a purchase.
Note E - Subsequent Event
- -------------------------
On May 2, 1995, the Company acquired the common stock of Butte County Title
Company, an underwritten title agency with operations in Butte County in the
state of California. Butte County Title Company was acquired from its selling
shareholders for $400,000 in cash. The acquired company will operate as a
subsidiary of the Company in Butte County. The acquisition has been accounted
for as a purchase.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Total revenue for the first quarter of 1995 decreased 42.2% to $83.1 million
from $143.6 million in the first quarter of 1994 as a result of a significant
decline in refinancing activity and a stagnation in residential resale and new
home sale markets. This market downturn can be attributed to the steady
increase in mortgage interest rates which resulted from actions taken by the
Federal Reserve Board during 1994. The slowdown in real estate activity has
caused a decrease in title orders and, thus, a reduction in title premiums and
other title related revenue such as escrow and other title related fees. In
addition, it appears that the real estate/title insurance markets are returning
to a seasonal nature in which the first quarter has historically been the
slowest.
Interest and investment income decreased 32.4% to $2.5 million in the first
quarter of 1995 from $3.7 million in the first quarter of 1994. The decrease
in interest and investment income earned during the 1995 period is primarily
due to a decrease in average invested assets compared to the same period in
1994. Realized gains (losses) from the sale of investments were $(401,000) in
the first quarter of 1995 and $188,000 in the corresponding 1994 period.
The Company's operating expenses consist primarily of personnel costs and other
operating expenses which are incurred as title insurance orders are received
and processed. Title insurance premiums and escrow fees are recognized as
income at the time the underlying real estate transaction closes. As a result,
revenue lags approximately 60-90 days behind expenses and, therefore, gross
margins may fluctuate.
Personnel costs include both base salaries and commissions paid to employees
and are the most significant operating expense incurred by the Company. These
costs generally fluctuate with the level of direct orders opened and closed and
with the mix of revenue between direct and agency operations. Personnel costs,
as a percentage of total revenue, have increased to 41.8% for the three-month
period ended March 31, 1995 from 36.2% for the corresponding period in 1994.
As a result of the reduction in title orders and title related business, the
Company has taken significant measures to maintain appropriate personnel costs
relative to revenues, as indicated in the decrease in personnel costs of
approximately $17.2 million, or 33.2%, between the first quarters of 1995 and
1994. The Company continues to monitor the prevailing market conditions and
will respond as necessary, while positioning itself to take advantage of a real
estate recovery when it occurs.
Other operating expenses consist primarily of facilities expenses, title plant
maintenance, premium taxes (which insurance underwriters are required to pay on
title premiums in lieu of franchise and other state taxes), escrow losses,
courier services, computer services, professional services, general insurance,
trade and notes receivable allowances and depreciation. Other operating
expenses increased as a percentage of total revenue to 30.5% in the first
quarter of 1995 from 22.6% in the first quarter of 1994. In response to the
current market environment, the Company has implemented aggressive cost control
programs which will help maintain operating expense levels consistent with the
levels of title related revenue production during this declining market.
However, certain fixed costs are incurred regardless of revenue levels which
resulted in the period over period percentage increases.
Agent commissions represent the portion of policy premiums retained by agents
pursuant to the terms of their respective agency contracts. Agent commissions
were 77.0% of agent policy premiums in the first quarter of 1995 compared to
77.1% of agent policy premiums in the first quarter of 1994.
The provision for claim losses includes an estimate of anticipated title claims
and major claims. The estimate of anticipated title claims is accrued as a
percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly. Based on recently completed loss development studies, the Company
believes that as a result of its underwriting and claims handling practices, as
well as the refinancing business of prior years, the Company will maintain the
trend of favorable claim loss experience. Based on this information, the
Company has provided for claim losses at 7.0% of title insurance premiums prior
to the impact of major claim expense, recoupments and premium rates and Company
loss experience in the state of Texas. (Premiums are generally higher in Texas
for similar coverage than in other states, while loss experience is comparable.
8
<PAGE> 9
As a result, losses as a percentage of premiums are lower.) Application of
these factors resulted in a net provision for claim losses as a percentage of
premiums of 6.9% and 8.2% for the three-month periods ended March 31, 1995
and 1994, respectively.
Interest expense is incurred by the Company in financing its capital asset
purchases and certain acquisitions. Interest expense consists of interest
related to the Company's outstanding debt and the amortization of original
issue discount and debt issuance costs related to the LYONs issued in February
1994. Interest expense of "non-LYONs" debt totaled $1.2 million and $1.1
million for the three-month periods ended March 31, 1995 and 1994,
respectively. The LYONs related component of interest expense amounted to $1.2
million for the first quarter of 1995 and $711,000 for the first quarter of
1994. Interest expense and amortization expense increased in 1995 over 1994
primarily as a result of the LYONs offering. An increase in the average
outstanding balance of a certain subsidiary's equipment line of credit and
increasing interest rates also resulted in increased interest expense in 1995
over 1994.
Income tax expense (benefit) for the three-month periods ended March 31, 1995
and 1994, as a percentage of earnings (loss) before income taxes, including the
extraordinary loss on extinguishment of debt, was (45.5)% and 31.5%,
respectively. This increase is primarily the result of the significant
tax exempt component of the Company's investment portfolio and the related tax
consequences of tax exempt income when the Company is not generating operating
income.
In order to reduce interest expense incurred and interest rates paid, the
Company determined that prepayment of the Senior Secured Notes (the "Senior
Notes") issued in March 1993 would be in the best interests of the Company.
Pursuant to the terms and conditions of the Senior Note Agreement, the Company
has provided for the Make Whole Provision, as defined, and related expenses in
the first quarter of 1995. This amount, $1.25 million, before related income
taxes, has been reflected as an extraordinary item in the Condensed
Consolidated Statement of Operations for the three-month period ended March 31,
1995.
Liquidity and Capital Resources
The Company's insurance subsidiaries collect premiums and pay claims and
operating expenses. Fluctuations in operating cash flows are primarily the
result of increases or decreases in revenue. The insurance subsidiaries also
have cash flow sources derived from investment income, repayments of principal
and proceeds from sales and maturities of investments and dividends and
distributions from subsidiaries. Positive cash flow from insurance
subsidiaries is invested primarily in short term investments and medium term
bonds. Short term investments held by the Company's insurance subsidiaries
provide liquidity for projected claims and operating expenses.
As a holding company, the Company receives cash from its subsidiaries as
reimbursement for operating and other administrative expenses it incurs. The
reimbursements are executed within the guidelines of various management
agreements between the holding company and its subsidiaries. The Company's
cash requirements include debt service, operating expenses, taxes and dividends
on its common stock. The Company believes that all anticipated cash
requirements for current operations will be met from internally generated funds
and short term bank borrowings through existing credit facilities.
One of the additional significant sources of the Company's funds is dividend
distributions from its insurance subsidiaries. The insurance subsidiaries are
restricted by state regulations in their ability to pay dividends and make
distributions. Each state of domicile regulates the extent to which the
Company's six title underwriters can pay dividends or make other distributions
to the Company.
The short and long term liquidity requirements of the Company and insurance
subsidiaries are monitored regularly to match cash inflows with cash
requirements. The Company and insurance subsidiaries forecast their daily cash
needs and periodically review their short and long term projected sources and
uses of funds, as well as the asset, liability, investment and cash flow
assumptions underlying these projections.
9
<PAGE> 10
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 Computation of Primary and Fully Diluted Earnings Per
Share
(b) Reports on Form 8-K:
None
10
<PAGE> 1
EXHIBIT 11
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
1995(1) 1994
--------- --------
(Unaudited)
<S> <C> <C>
Earnings (loss) before extraordinary item $(2,448) $ 6,805
Extraordinary item -- loss on early retirement of
Senior Notes, net of applicable income tax benefit of $(437) (813) --
------ ------
Primary earnings (loss) (3,261) 6,805
Add: Amortization of original issue discount and debt
issuance costs, net of income tax effect, applicable to LYONs -- 507
------ ------
Fully diluted earnings (loss) $(3,261) $ 7,312
====== ======
Weighted average shares outstanding
during the period 11,948 15,322
Common stock equivalent shares - primary -- 559
------ ------
Common and common stock equivalent shares for purpose
of calculating primary earnings (loss) per share 11,948 15,881
Incremental shares to reflect full dilution -- 2,260
------ ------
Total shares for purpose of calculating fully diluted
earnings (loss) per share 11,948 18,141
====== ======
Primary earnings (loss) per share before extraordinary item $ (.20) $ .43
Extraordinary item, loss on early retirement
of Senior Debt, net of income tax benefit (.07) --
------ ------
Primary earnings (loss) per share $ (.27) $ .43
====== ======
Fully diluted earnings (loss) per share $ (.27) $ .40
====== ======
</TABLE>
(1) The impact of the assumed conversion of dilutive securities is
antidilutive, and is therefore excluded from the computation.
11
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 139,048
<DEBT-CARRYING-VALUE> 26,786
<DEBT-MARKET-VALUE> 25,937
<EQUITIES> 21,545
<MORTGAGE> 0
<REAL-ESTATE> 9,462
<TOTAL-INVEST> 213,850
<CASH> 22,709
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 407,508
<POLICY-LOSSES> 149,430
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 146,131
<COMMON> 119,366
0
0
<OTHER-SE> (51,131)
<TOTAL-LIABILITY-AND-EQUITY> 68,235
59,501
<INVESTMENT-INCOME> 2,028
<INVESTMENT-GAINS> (401)
<OTHER-INCOME> 21,931
<BENEFITS> 4,088
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 81,277
<INCOME-PRETAX> (4,737)
<INCOME-TAX> (2,289)
<INCOME-CONTINUING> (2,448)
<DISCONTINUED> 0
<EXTRAORDINARY> (813)
<CHANGES> 0
<NET-INCOME> (3,261)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
