<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, 1999
Commission File Number 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0498599
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17911 Von Karman Avenue, Suite 300, Irvine, California 92614
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(949) 622-4333
- --------------------------------------------------------------------------------
(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 Stock 30,346,116 shares as of May 12, 1999
Exhibit Index appears on page 13 of 14 sequentially numbered pages.
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1999
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, 1999 and December 31, 1998
B. Condensed Consolidated Statements of Earnings 4
for the three-month periods ended
March 31, 1999 and 1998 (Restated)
C. Condensed Consolidated Statements of 5
Comprehensive Earnings for the three-month
periods ended March 31, 1999 and 1998 (Restated)
D. Condensed Consolidated Statements of Cash Flows 6
for the three-month periods ended
March 31, 1999 and 1998 (Restated)
E. Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
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 13
</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/ Alan L. Stinson
-----------------------------------
Alan L. Stinson
Executive Vice President, Financial
Operations (Chief Accounting Officer) Date: May 12, 1999
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Investments:
Fixed maturities available for sale, at fair value ............................ $327,906 $330,068
Equity securities, at fair value .............................................. 45,352 50,191
Other long-term investments, at cost, which approximates fair value ........... 41,038 40,278
Short-term investments, at cost, which approximates fair value ................ 43,769 85,305
Investments in real estate and partnerships, net .............................. 3,801 4,673
-------- --------
Total investments ......................................................... 461,866 510,515
Cash and cash equivalents .......................................................... 59,037 51,309
Leases and lease securitization residual interest .................................. 115,614 93,507
Trade receivables, net ............................................................. 80,230 75,940
Notes receivable, net .............................................................. 16,272 10,761
Prepaid expenses and other assets .................................................. 109,340 111,471
Title plants ....................................................................... 59,302 58,932
Property and equipment, net ........................................................ 48,689 46,070
Deferred tax asset ................................................................. 15,104 10,965
-------- --------
$965,454 $969,470
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities ...................................... $112,300 $123,357
Notes payable ................................................................. 150,198 214,624
Reserve for claim losses ...................................................... 232,082 224,534
Income taxes payable .......................................................... 9,704 8,683
-------- --------
504,284 571,198
Minority interests ............................................................ 1,925 1,532
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 1999 and 1998; issued, 39,054,118 as of March 31, 1999 and
35,540,036 as of December 31, 1998 .......................................... 4 3
Additional paid-in capital .................................................... 244,676 173,888
Retained earnings ............................................................. 283,416 265,567
-------- --------
528,096 439,458
Accumulated other comprehensive income ........................................ 6,044 11,657
Less treasury stock, 7,883,537 shares as of March 31, 1999 and
6,645,487 shares as of December 31, 1998, at cost ........................... 74,895 54,375
-------- --------
459,245 396,740
-------- --------
$965,454 $969,470
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1999 1998
-------- --------
(Unaudited)
(Restated)
<S> <C> <C>
REVENUE:
Title insurance premiums ............................................................... $241,874 $182,296
Escrow fees ............................................................................ 32,795 26,311
Other fees and revenue ................................................................. 63,664 46,585
Interest and investment income, including realized gains (losses) ...................... 5,941 7,021
-------- --------
344,274 262,213
-------- --------
EXPENSES:
Personnel costs ........................................................................ 108,545 84,511
Other operating expenses ............................................................... 77,166 56,415
Agent commissions ...................................................................... 106,992 76,024
Provision for claim losses ............................................................. 15,231 13,339
Interest expense ....................................................................... 2,836 3,125
-------- --------
310,770 233,414
-------- --------
Earnings before income taxes ........................................................... 33,504 28,799
Income tax expense ..................................................................... 13,737 12,119
-------- --------
Net earnings ....................................................................... $ 19,767 $ 16,680
======== ========
Basic net earnings ..................................................................... $ 19,767 $ 16,680
======== ========
Basic earnings per share ............................................................... $ .64 $ .62
======== ========
Weighted average shares outstanding, basic basis ....................................... 30,767 26,892
======== ========
Diluted net earnings ................................................................... $ 20,030 $ 17,304
======== ========
Diluted earnings per share ............................................................. $ .60 $ .53
======== ========
Weighted average shares outstanding, diluted basis ..................................... 33,423 32,579
======== ========
Cash dividends per share ............................................................... $ .07 $ .06
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
-------- --------
(Unaudited)
(Restated)
<S> <C> <C>
Net earnings ................................................................................ $ 19,767 $ 16,680
Other comprehensive earnings (loss):
Unrealized gains (losses) on investments, net (1) ...................................... (6,008) 1,663
Reclassification adjustments for gains (losses) included in net income (2) ............. 395 (1,157)
-------- --------
Other comprehensive earnings (loss) ......................................................... (5,613) 506
-------- --------
Comprehensive earnings ...................................................................... $ 14,154 $ 17,186
======== ========
</TABLE>
(1) Net of income tax expense (benefit) of $(4,175) and $1,209 in 1999 and 1998,
respectively.
(2) Net of income tax expense (benefit) of $(274) and $842 in 1999
and 1998, respectively.
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
-------- --------
(Unaudited)
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................................... $ 19,767 $ 16,680
Reconciliation of net earnings to net cash used in operating activities:
Depreciation and amortization ...................................................... 5,588 4,631
Net increase in reserve for claim losses ........................................... 7,548 179
Net increase in provision for possible losses other than claims .................... 139 129
(Gain) loss on sales of assets ..................................................... 669 (1,999)
Equity in (gains) losses of unconsolidated partnerships ............................ 393 (45)
Amortization of LYONs original issue discount ...................................... 485 1,076
Change in assets and liabilities, net of effects from acquisition of
subsidiaries:
Net increase in leases and lease securitization residual interest .................. (22,107) (20,470)
Net increase in trade receivables .................................................. (4,290) (10,404)
Net increase in prepaid expenses and other assets .................................. (559) (2,015)
Net decrease in accounts payable and accrued liabilities ........................... (11,476) (6,313)
Net decrease in income taxes ....................................................... 816 6,710
-------- --------
Net cash used in operating activities ....................................................... (3,027) (11,841)
-------- --------
Cash flows from investing activities:
Proceeds from sale of real estate ...................................................... 946 --
Proceeds from sales and maturities of investments ...................................... 56,435 43,942
Collections of notes receivable ........................................................ 1,201 1,158
Additions to title plants .............................................................. (415) (96)
Additions to property and equipment .................................................... (6,567) (3,735)
Additions to investments ............................................................... (18,471) (48,584)
Additions to notes receivable .......................................................... (7,174) (1,565)
-------- --------
Net cash provided by (used in) investing activities ......................................... 25,955 (8,880)
-------- --------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(Continued)
6
<PAGE> 7
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1999 1998
------- --------
(Unaudited)
(Restated)
<S> <C> <C>
Cash flows from financing activities:
Borrowings ............................................................................. $ 9,635 $ 6,992
Debt service payments .................................................................. (2,754) (3,861)
Dividends paid ......................................................................... (2,064) (2,065)
Purchase of treasury stock ............................................................. (20,520) --
Stock options exercised ................................................................ 503 1,840
-------- --------
Net cash provided by (used in) financing activities ......................................... (15,200) 2,906
-------- --------
Net increase (decrease) in cash and cash equivalents ........................................ 7,728 (17,815)
Cash and cash equivalents at beginning of period ............................................ 51,309 72,887
-------- --------
Cash and cash equivalents at end of period .................................................. $ 59,037 $ 55,072
======== ========
Supplemental cash flow information:
Income taxes paid ...................................................................... $ 12,717 $ 5,850
======== ========
Interest paid .......................................................................... $ 7,216 $ 2,156
======== ========
Noncash investing and financing activities:
Dividends declared and unpaid .......................................................... $ 2,123 $ 1,597
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
7
<PAGE> 8
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 Annual Report on Form 10-K for
the year ended December 31, 1998.
Certain reclassifications have been made in the 1998 Condensed Consolidated
Financial Statements to conform to classifications used in 1999.
Note B - Redemption of Liquid Yield Option Notes Outstanding
- ------------------------------------------------------------
On January 13, 1999, the Company announced that it was going to redeem, pursuant
to the terms of the indenture, its outstanding Liquid Yield Option Notes
("LYONs") due 2009 for $581.25 per $1,000 maturity value on February 15, 1999.
Additionally, the LYONs holders had the right to convert the outstanding LYONs
to 28.077 shares of Company common stock per $1,000 maturity value of LYONS at
any time. As of February 15, 1999, $123,681,000 maturity value of LYONs had
converted to 3,473,000 shares of common stock, resulting in an addition of
approximately $70 million to stockholders' equity while reducing outstanding
notes payable by a like amount. The remaining $432,000 of maturity value was
redeemed for cash of approximately $251,000.
Note C - Dividends
- ------------------
On March 17, 1999, the Company's Board of Directors declared a cash dividend of
$.07 per share, payable on May 28, 1999, to stockholders of record on April 9,
1999.
Note D - Stock Purchase Plan and Employee Stock Purchase Loan Plan
- ------------------------------------------------------------------
On March 17, 1999, the Company's Board of Directors approved an increase to the
number of shares of outstanding Company common stock authorized for purchase
under the Company's previously announced purchase program. The new authorization
will permit the Company to purchase up to 4.0 million shares. Through May 12,
1999, the Company has purchased 2,110,515 shares at an average purchase price of
$16.01 per share totaling $33,790,000. Purchases may be made from time to time
by the Company in the open market or in block purchases or in privately
negotiated transactions depending on market conditions and other factors.
Also on March 17, 1999, the Company's Board of Directors approved the adoption
of the Fidelity National Financial, Inc. Employee Stock Purchase Loan Plan
("Loan Plan"). The purpose of the Loan Plan is to provide key employees with
further incentive to maximize shareholder value. The Company intends to offer an
aggregate of $7,750,000 in loans. Loan Plan funds must be used to make private
or open market purchases of Company common stock through a broker-dealer
designated by the Company. All loans will be full recourse and unsecured, and
will have a five-year term. Interest will accrue on the loans at a rate of 5%
per annum due at maturity. Loans may be prepaid any time without penalty.
Through May 12, 1999, loans have been made in the amount of $6,474,000 to
purchase 432,985 shares of Company common stock at an average purchase price of
$14.95 per share.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Factors That May Affect Operating Results
- -----------------------------------------
The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The reader should consult the risk factors listed from time to time in the
Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of
1933, as amended.
Results of Operations
- ---------------------
Stability in mortgage interest rates, a thriving real estate market and
continued strength in the overall economy resulted in an increase in total first
quarter 1999 revenue of $82.1 million, or 31.3%, to $344.3 million compared to
$262.2 million total revenue for the first quarter of 1998.
The following table presents information regarding the components of title
premiums:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1999 % of Total 1998 % of Total
-------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Title premiums from direct operations $107,959 44.6% $ 87,927 48.2%
Title premiums from agency operations 133,915 55.4% 94,369 51.8%
-------- ----- -------- -----
Total title premiums $241,874 100.0% $182,296 100.0%
======== ===== ======== =====
</TABLE>
Title orders and requests for title-related services have continued to react
favorably to existing market conditions as reflected by an increase in total
title premiums of $59.6 million, or 32.7%. The trend in the mix of business
between direct and agency operations reflects the impact of the lag of
approximately three to six months in agent remittances compared to the immediate
recognition of title insurance premiums generated by direct operations and
fluctuations in title premiums by region.
Escrow fees have increased $6.5 million, or 24.6%, in the first quarter of 1999
to $32.8 million compared to $26.3 million in the comparable 1998 period. This
growth is consistent with the trends indicated in the Company's direct
operations and has been further enhanced by the continuing strength in our
escrow operations and the Company's efforts to expand its escrow presence in
Southern California.
The increase in other fees and income reflects the continuing increase in the
contribution made by the Company's real estate related ancillary service
businesses, the revenue generated by Granite Financial, Inc., our equipment
leasing subsidiary, and the increased revenue of Micro General Corporation, a
majority-owned information technology and telecommunication services subsidiary.
Other fees and revenue during the first quarter of 1999 totaled $63.7 million
compared to $46.6 million in the first quarter of 1998, representing an increase
of $17.1 million, or 36.7%.
Interest and investment income decreased 15.4% to $5.9 million in the first
quarter of 1999 from $7.0 million in the first quarter of 1998. The decrease in
interest and investment income earned during the 1999 period is primarily due to
an increase in invested assets offset by net realized losses in 1999 compared to
net realized gains for the same period in 1998. Net realized losses were
$669,000 in the first quarter of 1999 compared to net realized gains of $2.0
million in the corresponding 1998 period.
The Company's operating expenses consist primarily of personnel costs, other
operating expenses and agent commissions which are incurred as orders are
received and processed. Title insurance premiums, escrow fees and other fees and
revenue are generally recognized as income at the time the underlying
transaction closes. Certain other fees and revenue are
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recognized over the period the related services are provided. 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 orders opened and closed and with the mix
of revenue. Personnel costs, as a percentage of total revenue, were essentially
flat at 31.5% for the three-month period ended March 31, 1999 compared to 32.2%
for the corresponding period in 1998. The Company has taken significant measures
to maintain personnel costs at levels consistent with revenues. The Company
continues to monitor the prevailing market conditions and will attempt to adjust
personnel costs in accordance with activity. Personnel costs totaled $108.5
million and $84.5 million for the quarters ended March 31, 1999 and 1998,
respectively.
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
remained comparable as a percentage of total revenue at 22.4% in the first
quarter of 1999 and 21.5% in the first quarter of 1998. The Company previously
implemented and remains committed to aggressive cost control programs which will
help maintain operating expense levels consistent with the levels of revenue
production; however, certain fixed costs are incurred regardless of revenue
levels, resulting in period over period fluctuations. Other operating expenses
totaled $77.2 million in the first quarter of 1999 compared to $56.4 million in
the first quarter of 1998.
Agent commissions represent the portion of policy premiums retained by agents
pursuant to the terms of their respective agency contracts. Agent commissions
were 79.9% of agent policy premiums in the first quarter of 1999 compared to
80.6% of agent policy premiums in the first quarter of 1998. Agent commissions
and the resulting percentage of agency premiums retained by the Company vary
according to regional differences in real estate closing practices and state
regulations.
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 Company 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, in the quarters
ended March 31, 1999 and 1998, the Company recorded a provision for claim losses
of 6.5% and 7.0% of title insurance premiums, respectively, prior to major claim
expense, net of recoupments and prior to the impact of premium rates and Company
loss experience in the state of Texas. Premiums in Texas are all-inclusive and
include a closing fee in addition to a risk-related premium, which differs from
similar coverage in other states, while loss experience is comparable. As a
result, the provision for claim losses in Texas is much lower than in states
that do not have all-inclusive premiums. These factors resulted in a net
provision for claim losses of 6.3% and 7.3% in the first quarter of 1999 and
1998, respectively.
Interest expense is incurred by the Company in financing its capital asset
purchases, lease originations 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
Liquid Yield Option Notes. Interest expense of "non-LYONs" debt totaled $2.4
million and $2.0 million for the three-month periods ended March 31, 1999 and
1998, respectively. The LYONs related component of interest expense amounted to
$445,000 for the first quarter of 1999 and $1.1 million for the first quarter of
1998. The decrease in LYONs related interest is attributable to the redemption
of the LYONs in February 1999 and previous conversions.
Income tax expense for the three-month periods ended March 31, 1999 and 1998, as
a percentage of earnings before income taxes was 41.0% and 42.1%, respectively.
The fluctuation in income tax expense as a percentage of earnings before income
taxes is attributable to the Company's estimate of ultimate income tax liability
and the characteristics of net income, i.e., operating income versus investment
income.
Liquidity and Capital Resources
- -------------------------------
The Company's cash requirements include debt service, operating expenses, lease
fundings, lease securitizations, 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, through cash received from
subsidiaries, cash generated by investment securities and bank borrowings
through existing credit facilities.
10
<PAGE> 11
Two of the significant sources of the Company's funds are dividends and
distributions from its subsidiaries. As a holding company, the Company receives
cash from its subsidiaries in the form of dividends and as reimbursement for
operating and other administrative expenses it incurs. The reimbursements are
executed within the guidelines of various management agreements among the
Company and its subsidiaries. Fluctuations in operating cash flows are primarily
the result of increases or decreases in revenue. The Company's insurance
subsidiaries and underwritten title companies ("UTCs") collect premiums and pay
claims and operating expenses. 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 from subsidiaries.
Positive cash flow from the 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. 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 title underwriters can
pay dividends or make other distributions to the Company. The UTCs are also
regulated by insurance regulatory or banking authorities. The Company's
ancillary service and leasing subsidiaries collect revenue and pay operating
expenses; however, they are not regulated by insurance or banking regulatory
authorities. Positive cash flow from the UTCs and ancillary service subsidiaries
is invested primarily in cash and cash equivalents.
The short- and long-term liquidity requirements of the Company, insurance
subsidiaries, UTCs, ancillary service and leasing subsidiaries are monitored
regularly to match cash inflows with cash requirements. The Company, insurance
subsidiaries, UTCs and ancillary service 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not believe there have been any material changes in the market
risks since December 31, 1998, which would impact the fair value of certain
assets and liabilities included in the Condensed Consolidated Balance Sheets.
Year 2000 Issues
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 issue ("Y2K") results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of potential Y2K issues. Included within the scope of this
program are systems used in title plants, title policy processing, escrow
production, claims processing, real estate related services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has initiated formal communications with third
parties with which it does business in order to determine whether or not they
are Y2K compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company is in the process of
identifying Y2K compliant issues in its systems, equipment and processes. The
Company is making changes to such systems, updating or replacing such equipment,
and modifying such processes to make them Y2K compliant.
The Company has developed a four phase program to become Y2K compliant. Phase I
is, "Plan Preparation and Identification of the Problem." This is an ongoing
phase that will continue beyond the year 2000 itself. Phase II is, "Plan
Execution and Remediation." Phase III is, "Testing." Phase IV is, "Maintaining
Y2K Compliance." The Company anticipates that its systems processes will be
substantially Y2K compliant by July 1999. The status of the Y2K compliance
program is monitored by senior management of the Company and by the Audit
Committee of the Company's Board of Directors. The costs of the Y2K related
efforts incurred to date have not been material, and the estimate of remaining
costs to be incurred is not considered to be material. Due to the complexities
of estimating the cost of modifying applications to become Y2K compliant and the
difficulties in assessing third parties', including various local governments
upon which the Company relies upon to provide title-related data, ability to
become Y2K compliant, estimates may be subject to change.
Management of the Company believes that its electronic data processing and
information systems will be Y2K compliant; however, there can be no assurance
that all of the Company's systems will be Y2K compliant, that the costs to be
Y2K compliant will not exceed management's current expectations, or that the
failure of such systems to be Y2K compliant will
11
<PAGE> 12
not have a material adverse effect on the Company's business. The Company
believes that functions currently performed with the assistance of electronic
data processing equipment could be performed manually or outsourced if certain
systems were determined not to be Y2K compliant on or after January 1, 2000.
The Company has not yet completed a contingency plan in the event that any
systems are not Y2K compliant, but will do so once the Phase III process of its
compliance program is begun. We expect this contingency plan to be complete by
July 1999.
This entire section, "Year 2000 Issues", is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
12
<PAGE> 13
Part II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 Computation of Primary and Diluted Earnings Per
Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated March 19, 1999, related to
March 17, 1999 election of Peter T. Sadowski and Brent B.
Bickett as Executive Vice President and General Counsel of
Fidelity National Financial, Inc. and Senior Vice
President--Financial Operations of Fidelity National
Financial, Inc., respectively.
13
<PAGE> 1
EXHIBIT 11
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND DILUTED EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1999 1998
------- -------
(Restated)
<S> <C> <C>
Net earnings, basic basis $19,767 $16,680
Plus: Impact of assumed conversion of the LYONs, net of applicable income taxes 263 624
------- -------
Diluted earnings $20,030 $17,304
======= =======
Weighted average shares outstanding during the period, basic basis 30,767 26,892
Plus: Common stock equivalent shares assumed from conversion of options 1,223 1,749
Common stock equivalent shares assumed from conversion of LYONs 1,433 3,938
------- -------
Weighted average shares outstanding during the period, diluted basis 33,423 32,579
======= =======
Basic earnings per share $ .64 $ .62
======= =======
Diluted earnings per share $ .60 $ .53
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 327,906
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,352
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 461,866
<CASH> 59,037
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 965,454
<POLICY-LOSSES> 232,082
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 150,198
0
0
<COMMON> 4
<OTHER-SE> 459,241
<TOTAL-LIABILITY-AND-EQUITY> 965,454
241,874
<INVESTMENT-INCOME> 6,610
<INVESTMENT-GAINS> (669)
<OTHER-INCOME> 96,459
<BENEFITS> 15,231
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 295,539
<INCOME-PRETAX> 33,504
<INCOME-TAX> 13,737
<INCOME-CONTINUING> 19,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,767
<EPS-PRIMARY> .64
<EPS-DILUTED> .60
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
