<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 20, 2000
--------------
FIDELITY NATIONAL FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 1-9396 86-0498599
- ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
17911 Von Karman, Suite 300,
Irvine, California 92614
- ---------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
(949) 622-5000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSAL OF ASSETS
On March 20, 2000, Fidelity National Financial, Inc., a Delaware
corporation ("Fidelity"), completed its acquisition of Chicago Title
Corporation, a Delaware corporation ("Chicago Title") pursuant to the Agreement
and Plan of Merger, dated as of August 1, 1999 and amended as of October 13,
1999 (the "Merger Agreement"), between Fidelity and Chicago Title. As provided
in the Merger Agreement, which was approved by the stockholders of Fidelity and
Chicago Title at special meetings of stockholders held on February 9, 2000 and
February 11, 2000, respectively, Chicago Title merged with and into Fidelity,
with Fidelity as the surviving corporation in the merger (the "Merger"). As a
result of and at the effective time of the Merger, each issued and outstanding
share of common stock, par value $1.00 per share, of Chicago Title was converted
into the right to receive merger consideration having a value of approximately
$49.29, consisting of cash or shares of common stock, par value $.0001 per
share, of Fidelity. Holders of shares of Chicago Title had the right, on or
prior to 5:00 p.m., eastern time, on March 20, 2000, the date on which the
effective time of the Merger occurred, to elect to receive their merger
consideration in the form of cash, or in the form of shares of Fidelity common
stock, or a combination of cash and Fidelity shares.
Pursuant to an Exchange Agent Agreement between Fidelity and Harris
Trust Company of New York, as exchange agent, Fidelity deposited cash in the
aggregate amount of $570,250,486 and an aggregate of 38,761,680 shares of
Fidelity common stock, for distribution to the former holders of common stock of
Chicago Title common stock on the basis of their respective elections and
subject to the proration provisions of the Merger Agreement. On Monday, March
27, 2000, Fidelity announced allocation information resulting from the Exchange
Agent's compilation of elections received from Chicago Title stockholders.
According to the Exchange Agent, the holders of 6,992,831 Chicago Title shares
elected to receive cash in the Merger, and the holders of 14,324,315 Chicago
Title shares elected to receive shares of Fidelity common stock in the Merger.
Accordingly, pursuant to the allocation and proration provisions of the Merger
Agreement, each former Chicago Title stockholder who elected to receive cash in
the Merger is entitled to receive cash in the amount of $49.2879 for each share
with respect to which a cash election, or no election, was made and each former
Chicago Title stockholder who elected to receive shares of Fidelity common stock
in the Merger is entitled to receive 2.7060 shares of Fidelity common stock and
cash in the amount of $13.6304 for each share with respect to which a stock
election is made, together with cash in lieu of any fractional shares of
Fidelity common stock otherwise issuable in respect thereof, at the rate of
$13.1771 per Fidelity share.
The cash portion of the merger consideration was provided by borrowings
made under Fidelity's new senior credit facility. On the closing date, Fidelity
incurred borrowings of $715 million, of which approximately $570 million was
deposited with the Exchange Agent to pay the cash portion of the merger
consideration to former stockholders of Chicago Title, and $145 million was used
to refinance certain existing indebtedness of Fidelity, FNF Capital, Inc., a
wholly-owned subsidiary of Fidelity, and Chicago Title and to pay transaction
expenses. The borrowings include $450 million aggregate principal amount of term
loans, $100 million aggregate principal amount of short-term revolving loans,
and $165 million aggregate principal amount of revolving loans.
The Merger will be treated as a reorganization pursuant to Section
368(a) of the Internal Revenue Code, as amended, and will be accounted under the
"purchase method" of accounting. The closing sale price of the Fidelity common
stock on the closing date, as reported by the New York Stock Exchange, was
$18.00.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The audited consolidated balance sheets of Chicago Title Corporation
and its subsidiaries ("Chicago Title") as of December 31, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' equity and comprehensive income and cash flows for
each of the three years in the three-year period ended December 31,
1999, together with notes thereto and the report of KPMG LLP,
independent accountants, are included as Exhibit 99.3 to this
Report.
(b) Pro forma financial statements.
The pro forma financial statements required to be filed by Item 7(b)
of Form 8-K are not included herein, and will be filed by amendment
within 60 days after the due date of this Report.
(c) Exhibits.
99.1 Press Release of Fidelity National Financial, Inc.,
announcing completion of merger with Chicago Title
Corporation, issued on March 20, 2000 (incorporated by
reference to Exhibit 99.1 to the Registrant's Current Report
on Form 8-K filed April 4, 2000).
99.2 Press Release of Fidelity National Financial, Inc.,
announcing merger consideration election information, issued
on March 27, 2000 (incorporated by reference to Exhibit 99.2
to the Registrant's Current Report on Form 8-K filed April 4,
2000).
99.3 The audited consolidated balance sheets of Chicago Title
Corporation and its subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of income,
changes in stockholders' equity and comprehensive income and
cash flows for each of the three years in the three-year
period ended December 31, 1999, together with notes thereto
and the report of KPMG LLP, independent accountants.
99.4 Consent of KPMG LLP, with respect to the audited consolidated
financial statements of Chicago Title Corporation and its
subsidiaries.
3
<PAGE> 4
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 hereunto duly authorized.
FIDELITY NATIONAL FINANCIAL, INC.
Dated: April 10, 2000 By: /s/ M'Liss Jones Kane
---------------------------------
Name: M'Liss Jones Kane
Title: Senior Vice President
and Secretary
4
<PAGE> 1
CHICAGO TITLE CORPORATION
Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chicago Title Corporation:
We have audited the accompanying consolidated balance sheets of Chicago
Title Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Chicago Title Corporation and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
January 24, 2000
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 35,024 $ 39,230
Cash pledged to secure trust and escrow deposits 54,580 93,887
Marketable securities, available-for-sale:
Fixed maturities, at fair value (amortized cost of $1,104,733 and
$1,136,432 in 1999 and 1998, respectively) 1,089,524 1,158,664
Equity securities, at fair value (cost of $33,895 and $33,079
in 1999 and 1998, respectively) 29,334 35,464
- ----------------------------------------------------------------------------------------------------------------------------
Total marketable securities 1,118,858 1,194,128
Receivables, including accrued investment income, less allowance for
doubtful accounts of $11,959 and $14,072 in 1999 and 1998, respectively 67,120 75,840
Deferred federal income taxes 109,700 89,553
Fixed assets, net 115,568 104,322
Title plants 153,346 151,600
Goodwill 146,908 90,581
Other assets (Note 2) 106,213 42,618
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $1,907,317 $1,881,759
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 107,052 $ 112,136
Accrued expenses and other liabilities 207,203 172,253
Bank and other long-term debt 20,999 21,648
Reserve for title losses 667,005 618,831
Trust and escrow deposits secured by pledged assets 392,796 495,299
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,395,055 1,420,167
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (NOTE 6):
Common stock-par value of $1 per share, authorized 66,000,000 shares;
issued and outstanding 21,901,000 shares at December 31, 1999 (net
of 137,338 treasury shares) and 21,905,685 shares at December 31,
1998 (net of 20,966 treasury shares) 21,901 21,906
Additional paid-in capital 125,955 127,270
Unearned compensation-restricted stock and employee stock award plans (8,107) (15,573)
Retained earnings 385,364 311,988
Accumulated other comprehensive income (Note 6) (12,851) 16,001
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 512,262 461,592
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,907,317 $1,881,759
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Title, escrow, trust and other revenue $1,988,783 $1,861,463 $1,411,496
Investment income 68,593 63,837 52,266
Net realized investment gain on sales to Alleghany Corporation -- -- 2,214
Net realized investment gains - other 1,663 1,409 1,470
- --------------------------------------------------------------------------------------------------------------------
Total revenues 2,059,039 1,926,709 1,467,446
- --------------------------------------------------------------------------------------------------------------------
Expenses:
Salaries and other employee benefits 625,973 619,814 454,648
Commissions paid to agents 726,903 648,023 526,324
Provision for title losses 117,387 123,920 102,324
Interest expense 4,356 4,707 4,644
Other operating and administrative expenses (Note 17) 421,999 388,540 295,903
- --------------------------------------------------------------------------------------------------------------------
Total expenses 1,896,618 1,785,004 1,383,843
- --------------------------------------------------------------------------------------------------------------------
Operating income from continuing operations before income taxes 162,421 141,705 83,603
Income taxes 56,667 53,536 27,894
- --------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 105,754 88,169 55,709
Net income from discontinued operations -- 9,013 12,162
- --------------------------------------------------------------------------------------------------------------------
Net income $ 105,754 $ 97,182 $ 67,871
BASIC AND DILUTED EARNINGS PER SHARE (NOTE 8):
Continuing operations $ 4.84 $ 4.03 $ 2.54
Discontinued operations -- 0.41 0.56
- --------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 4.84 $ 4.44 $ 3.10
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Common Additional
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 stock paid-in capital
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996 $13,676 $117,381
Net income -- --
Other comprehensive income (Note 6) -- --
Total comprehensive income
Dividends paid to former parent -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 13,676 117,381
Net income -- --
Other comprehensive income (Note 6) -- --
Total comprehensive income
Recapitalization for spin-off 7,848 (7,848)
Issuance of stock 403 18,599
Amortization of restricted stock -- --
Dividends to former parent -- --
Treasury shares acquired and reissued
for employee benefit plans (21) (862)
Cash dividends paid to stockholders
($0.68 per share) -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 21,906 127,270
Net income -- --
Other comprehensive income (Note 6) -- --
Total comprehensive income
Issuance of stock 111 3,413
Amortization of restricted stock -- --
Treasury shares acquired and reissued
for employee benefit plans (116) (4,728)
Cash dividends paid to stockholders
($1.42 per share) -- --
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $21,901 $125,955
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
<TABLE>
<CAPTION>
Accumulated
other Total
Unearned Retained comprehensive stockholders'
compensation earnings income equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ -- $225,659 $ 3,879 $360,595
-- 67,871 -- 67,871
-- -- 7,186 7,186
--------
75,057
-- (32,105) -- (32,105)
- -------------------------------------------------------------------------------------------------
-- 261,425 11,065 403,547
-- 97,182 -- 97,182
-- -- 5,040 5,040
--------
102,222
-- -- -- --
(18,877) -- -- 125
3,304 -- -- 3,304
-- (31,599) (104) (31,703)
-- (119) -- (1,002)
-- (14,901) -- (14,901)
- -------------------------------------------------------------------------------------------------
(15,573) 311,988 16,001 461,592
-- 105,754 -- 105,754
-- -- (28,852) (28,852)
--------
76,902
147 -- -- 3,671
6,283 -- -- 6,283
1,036 (1,351) -- (5,159)
-- (31,027) -- (31,027)
- -------------------------------------------------------------------------------------------------
$ (8,107) $385,364 $ (12,851) $512,262
=================================================================================================
</TABLE>
4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS ACTIVITIES:
Net income from continuing operations $ 105,754 $ 88,169 $ 55,709
Adjustments to reconcile net income from continuing operations
to net cash provided by continuing operations activities:
Depreciation and amortization 54,097 40,907 31,032
Changes in assets and liabilities:
Cash pledged to secure trust and escrow deposits 39,307 6,320 (815)
Receivables 9,356 (7,097) (10,979)
Current and deferred federal income taxes (2,325) (18,190) (4,792)
Other assets (58,787) (830) 12,058
Accounts payable and accrued expenses and other liabilities 23,527 43,265 39,091
Reserves for title losses 48,289 53,687 31,411
Trust and escrow deposits secured by pledged assets (102,503) 27,660 111,842
Gain on sale of investments (1,663) (1,409) (3,684)
- -------------------------------------------------------------------------------------------------------------------------------
Net adjustments 9,298 144,313 205,164
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations activities 115,052 232,482 260,873
- -------------------------------------------------------------------------------------------------------------------------------
Dividends received from Alleghany Asset Management, Inc. -- 7,472 13,300
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 115,052 239,954 274,173
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of long-term marketable securities (504,972) (426,759) (384,693)
Sales of long-term marketable securities 315,632 167,772 148,968
Maturities and redemptions of long-term marketable securities 211,143 107,441 132,664
Net sales (purchases) of short-term investments 20,808 32,027 (99,509)
Purchases of other invested assets (9,420) (6,986) (4,955)
Sales of other invested assets 915 4,336 7,163
Purchases of fixed assets (35,723) (35,094) (28,506)
Sales of fixed assets 959 4,400 3,134
Purchases of title records and indexes (577) (305) (584)
Sales of title records and indexes 100 -- 1,385
Purchases of subsidiaries (82,748) (32,427) (4,106)
Cash of acquired subsidiaries 5,719 4,443 33
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (78,164) (181,152) (229,006)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to former parent -- (9,000) (32,105)
Principal payments on bank and other long-term debt (20,103) (12,840) (11,554)
Principal receipts on bank and other long-term debt 19,300 -- --
Payment of cash dividends (Note 6) (31,027) (14,901) --
Original issuance and reissuance of treasury stock (Note 6) 6,078 1,567 --
Purchases of treasury stock (15,342) (2,574) --
Cash remaining with discontinued operations -- (3,043) (3,361)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (41,094) (40,791) (47,020)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (4,206) 18,011 (1,853)
Cash at beginning of year 39,230 21,219 23,072
- -------------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 35,024 $ 39,230 $ 21,219
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations
- --------------------
Chicago Title Corporation (Chicago Title) and its subsidiaries (collectively,
the Company) issue title insurance policies and administer escrow funds
principally through three subsidiaries: Chicago Title Insurance Company (CTIC),
Ticor Title Insurance Company (Ticor Title) and Security Union Title Insurance
Company (Security Union). Title insurance provides protection against defects in
title to owners and lenders in real estate transactions, and the Company earns
escrow fees for its role in administering escrow funds related to real estate
transactions. Business is conducted on a nationwide basis, and insurance
policies are distributed through more than 340 full service offices and 4,400
policy-issuing agents in 49 states, Puerto Rico, the Virgin Islands, Guam and
Canada. Customers include attorneys, real estate professionals, banks and other
parties to real estate transactions. Other real estate-related services include
the production and delivery of flood certificates, consumer credit information,
real estate valuations, home warranty insurance and default management. These
services are offered through various subsidiaries. The Company reports its
financial information as one segment.
Basis of Presentation
- ---------------------
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
Company. All significant intercompany transactions have been eliminated in
consolidation. All dollar amounts shown, except per share data, are in thousands
unless otherwise noted.
Spin-off
- --------
On June 17, 1998, Alleghany Corporation (Alleghany) completed a spin-off of the
Company through the pro-rata distribution to its stockholders of 21,523,863
shares of common stock of Chicago Title. Immediately prior to the spin-off,
364,184 shares of common stock were issued as restricted stock to members of the
Company's senior management. Immediately after the spin-off, an additional
16,000 shares were issued as restricted stock to non-employee directors of
Chicago Title. These shares of restricted stock are being 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 Chicago Title received a total of 2,604
shares in lieu of cash as payment of a portion of their annual retainer.
On a pre-tax basis, for the year ended December 31, 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 Chicago Title'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 year ended December 31, 1998, other operating and
administrative expenses included $5.4 million for professional fees, printing
costs, listing fees and other expenses directly associated with the spin-off.
In connection with the spin-off, effective June 9, 1998, all of the outstanding
stock of Alleghany Asset Management, Inc. (AAM) 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, AAM is classified as a
discontinued operation for 1997 and 1998.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Discontinued Operations
- -----------------------
AAM participates in the financial services and investment management business
principally through two subsidiaries: The Chicago Trust Company and Montag &
Caldwell, Inc. These companies provide investment management, counseling and
administrative services to institutional clients, pension and profit sharing
plans and high net worth individuals. The Chicago Trust Company acts as trustee
and fiduciary under various types of trust agreements. Another subsidiary of
AAM, Chicago Deferred Exchange Corporation, acts as an intermediary to
facilitate tax-free exchanges of real and personal property.
6
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net assets and results of operations of AAM are shown as discontinued
operations in the accompanying consolidated financial statements. All footnote
disclosures reflect continuing operations only, unless otherwise noted. See Note
13 for further discussion.
(2) SIGNIFICANT ACCOUNTING POLICIES
Cash
- ----
For purposes of the consolidated statements of cash flows, cash includes only
funds on deposit which are available for immediate withdrawal.
Marketable Securities
- ---------------------
Marketable securities consist of investments in fixed maturities and equity
securities. Fixed maturities consist of bonds, certificates of deposit,
commercial paper and redeemable preferred stocks. The Company determines the
appropriate classification of marketable securities at the time of purchase. As
of December 31, 1999 and 1998, all marketable securities are classified as
available-for-sale and carried at fair value. Unrealized gains and losses, net
of deferred taxes, are excluded from net income and are reported as a separate
component of stockholders' equity until realized. A decline in the market value
of any marketable security below cost that is deemed other than temporary is
charged to net income, resulting in the establishment of a new cost basis for
the security. Realized gains and losses on marketable securities are determined
on the specific identification method.
Fixed Assets
- ------------
Fixed assets, except land, are depreciated or amortized on a straight-line basis
using estimated lives ranging from three to forty years. At December 31, 1999,
gross fixed assets consisted of land, buildings and improvements, and furniture
and equipment of $8,050, $66,584, and $120,622, respectively. At December 31,
1998, gross fixed assets consisted of land, buildings and improvements, and
furniture and equipment of $8,043, $56,924 and $107,316, respectively.
Accumulated depreciation and amortization was $79,688 and $67,961 at December
31, 1999 and 1998, respectively.
Title Plants
- ------------
Title plants are carried at cost. The cost is not being amortized, as properly
maintained title plants have indefinite lives. Title plants are reviewed for
impairment whenever events or circumstances provide evidence suggesting the
carrying amount of the asset may not be recoverable. Current costs of
maintaining title plants are expensed in the year incurred.
Goodwill
- --------
Goodwill is amortized over its estimated useful life on a straight-line basis
over periods ranging from five to forty years. Goodwill is reviewed for
impairment whenever events or circumstances provide evidence suggesting the
carrying amount of the asset may not be recoverable.
Federal Income Taxes
- --------------------
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Reserve for Title Losses
- ------------------------
The reserve for title losses represents the estimated claim cost and loss
adjustment expense necessary to cover the ultimate net cost of settling all
losses incurred and unpaid. Such estimates are based on individual case
estimates for reported claims and estimates for incurred but not reported
losses. These estimates are adjusted in the aggregate for ultimate loss
expectations based on historical experience patterns, with any change in
probable ultimate liabilities being reflected in net income. In the opinion of
management, the current reserve for title losses is adequate.
7
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value Disclosures
- ----------------------
The Company does not have a material amount of derivative financial instruments.
In addition, the carrying values and fair values of the Company's financial
instruments are disclosed in Note 14. Generally accepted accounting principles
exclude certain financial instruments and all nonfinancial instruments from
disclosure requirements.
Escrow Deposits
- ---------------
The title insurance subsidiaries administer escrow deposits generally related to
customers' real estate transactions. The funds are held in an agency capacity
and, accordingly, amounts aggregating approximately $2,832,885 and $2,450,390
are excluded from the accompanying consolidated balance sheets at December 31,
1999 and 1998, respectively.
Regulatory Accounting Practices
- -------------------------------
The title insurance subsidiaries are required to file annual statements with
insurance regulatory authorities which are prepared on an accounting basis
prescribed or permitted by such authorities. Prescribed statutory accounting
principles include state laws, regulations and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). Permitted statutory accounting practices encompass all
accounting practices that are not prescribed but are allowed for purposes of
reporting to the states; such practices differ from state to state, may differ
from company to company within a state, and may change in the future.
Revenue Recognition
- -------------------
Title insurance premiums and escrow fees are typically recognized as revenues at
the time of the real estate closing. Revenues from title policies issued by
independent agents are generally recorded when notice of issuance is received
from the agent.
Stock-based Compensation
- ------------------------
The Company accounts for its employee stock option plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees." The Company has not issued stock options where the exercise price is
less than the market value of Chicago Title common stock on the date of grant
and, accordingly, no compensation expense has been recognized.
Statements of Cash Flows
- ------------------------
The Company has elected to use the indirect method in reporting net cash flow
from operating activities. Under this method, the following additional
disclosures are required for each of the years in the three-year period ended
December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Paid $ 4,263 $ 4,746 $ 5,077
Income taxes paid 60,047 69,442 41,331
- ------------------------------------------------------------------------
</TABLE>
Reclassifications
- -----------------
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform with the 1999 presentation.
Accounting Changes
- ------------------
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133, as subsequently amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133," is effective for
financial statements for fiscal years beginning after June 15, 2000. While the
Company is still evaluating this standard, adoption of SFAS No. 133 is not
expected to have a material impact on the financial position or results of
operations of the Company.
8
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which provides guidance on accounting
for the costs of computer software intended for internal use. Effective January
1, 1999, the Company adopted the provisions of SOP 98-1. For the year ended
December 31, 1999, total costs incurred were $11,139 of which $11,073 were costs
in progress and $66 were capitalized for internal system development. These
costs are primarily attributable to the Company's previously announced
electronic spine project.
(3) MARKETABLE SECURITIES
The amortized cost and fair value of those Company investments in marketable
securities included in the consolidated balance sheets which represent fixed
maturities and equity securities as of December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
1999 cost gains losses Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government obligations $ 425,295 $ 2,749 $ (8,162) $ 419,882
State and municipal bonds 330,451 811 (5,376) 325,886
Other bonds 134,584 171 (5,209) 129,546
Certificates of deposit 31,147 -- -- 31,147
Commercial paper 164,100 -- -- 164,100
Redeemable preferred stocks 19,156 107 (300) 18,963
- -------------------------------------------------------------------------------------------------------------
Total fixed maturities 1,104,733 3,838 (19,047) 1,089,524
Equity securities 33,895 -- (4,561) 29,334
- -------------------------------------------------------------------------------------------------------------
Total $1,138,628 $ 3,838 $(23,608) $1,118,858
=============================================================================================================
Gross Gross
Amortized unrealized unrealized Fair
1998 cost gains losses Value
- -------------------------------------------------------------------------------------------------------------
Fixed maturities:
U.S. Government obligations $ 420,079 $12,426 $ (257) $ 432,248
State and municipal bonds 333,814 6,832 (81) 340,565
Other bonds 173,973 3,699 (779) 176,893
Certificates of deposit 5,455 -- -- 5,455
Commercial paper 189,498 -- -- 189,498
Redeemable preferred stocks 13,613 482 (90) 14,005
- -------------------------------------------------------------------------------------------------------------
Total fixed maturities 1,136,432 23,439 (1,207) 1,158,664
Equity securities 33,079 2,570 (185) 35,464
- -------------------------------------------------------------------------------------------------------------
Total $1,169,511 $26,009 $ (1,392) $1,194,128
=============================================================================================================
</TABLE>
The fair value of certain bonds is less than amortized cost. No provision has
been made for possible losses on these bonds as such declines are considered to
be temporary. Amortized cost for certain investments represents original cost
adjusted for other than temporary declines in value.
Marketable securities with restrictions at December 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Pledged to secure statutory premium reserves $460,060 $430,898
On deposit with regulatory authorities 17,288 19,201
Pledged to secure trust and escrow deposits 338,215 408,434
=================================================================================
</TABLE>
9
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amortized cost and fair value of fixed maturities at December 31, 1999, by
contractual maturity, are shown below. Contractual maturities will differ from
expected maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
cost value
- ----------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 355,768 $ 355,715
Due after one year through five years 389,166 381,904
Due after five years through 10 years 70,306 67,878
Due after 10 years 28,253 29,661
- ----------------------------------------------------------------------------
843,493 835,158
Mortgage-backed securities 261,240 254,366
- ----------------------------------------------------------------------------
Total $1,104,733 $1,089,524
============================================================================
</TABLE>
The change in accumulated other comprehensive income included in stockholders'
equity for each of the years in the three-year period ended December 31, 1999
was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in accumulated other comprehensive income--continuing
operations $(44,388) $ 7,717 $10,903
Income tax benefit (expense)--continuing operations 15,536 (2,701) (3,816)
Change in accumulated other comprehensive income--discontinued
Operations, net of income tax benefit (expense) -- 24 99
- ---------------------------------------------------------------------------------------------------------------
Change in accumulated other comprehensive income, net of taxes $(28,852) $ 5,040 $ 7,186
===============================================================================================================
</TABLE>
Net investment income from marketable securities included in the results of
operations for each of the years in the three-year period ended December 31,
1999 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $65,552 $61,117 $50,481
Dividends on equity securities 3,041 2,720 1,785
- ---------------------------------------------------------------------------------------------------------------
Investment income $68,593 $63,837 $52,266
===============================================================================================================
</TABLE>
Investment expenses are included in other operating and administrative expenses
and are immaterial. Proceeds from sales of marketable securities were $315,632,
$167,772, and $148,968 during 1999, 1998, and 1997, respectively. The components
of net gains on sales of those marketable securities included in the results of
operations for each of the years in the three-year period ended December 31,
1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gains $1,745 $1,412 $ 1,514
Losses (131) (36) (45)
Equity securities:
Gains 56 33 8,097
Losses (7) -- (5,882)
- ---------------------------------------------------------------------------------------------------------------
Net gains on sales of marketable securities $1,663 $1,409 $ 3,684
===============================================================================================================
</TABLE>
10
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) BANK AND OTHER LONG-TERM DEBT
Bank and other long-term debt included in the consolidated balance sheets at
December 31, 1999 and 1998 are summarized below:
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank borrowing at 4.75 percent to 6.00 percent during 1999 and
5.72 percent to 6.31 percent during 1998 $19,300 $19,333
Unsecured promissory notes at 6.00 percent to 9.00 percent during 1999 and 1998 1,699 2,315
- -----------------------------------------------------------------------------------------------------------
Total bank and other long-term debt $20,999 $21,648
===========================================================================================================
</TABLE>
On January 1, 1999, the Company entered into a revolving line of credit
agreement that provided for borrowings of up to $20.0 million. This agreement
terminated on December 31, 1999. On May 26, 1999, the Company entered into two
separate agreements with banking institutions for lines of credit of $20 million
and $25 million, replacing similar lines of credit that CT&T had with the same
lenders. The new lines of credit will expire on May 24, 2000. Borrowings
thereunder, which bear interest at a floating rate, are available for general
corporate purposes.
On May 28, 1999, the Company borrowed $19.3 million under the $25 million line
of credit to repay the outstanding balance of $19.3 million under a bank credit
agreement entered into by CT&T in connection with the acquisition of two of
CT&T's title insurance subsidiaries, Security Union and Ticor Title. Such $19.3
million remained outstanding under the $25 million line of credit, and no
amounts were outstanding under the $20 million line of credit, as of December
31, 1999. The credit agreement on the bank borrowing provides that the amount
outstanding is payable at or prior to expiration of the line of credit.
On June 2, 1999, the Company entered into a bank credit agreement providing for
maximum borrowings of $50 million on a revolving basis, replacing a similar
agreement that CT&T had with the same lenders. The new credit agreement will
expire on May 29, 2004. Borrowings thereunder, which bear interest at a floating
rate, are available for general corporate purposes. No amounts were outstanding
under this credit agreement as of December 31, 1999.
These arrangements require CT&T to meet certain financial tests and include some
customary restrictive covenants.
In addition to the credit relationships described above, in connection with the
escrow and closing services that the Company offers to its customers, the
Company deposits substantial funds into demand deposit accounts with various
financial institutions. The Company negotiates for and receives a range of
banking services from these institutions as permitted by banking laws and
regulations, such as direct services, that provide escrow accounting and other
services, and credit accommodations including short-term low rate loans to the
Company secured by its assets, primarily commercial paper purchased by the
Company with the proceeds of such loans.
(5) STATUTORY SURPLUS AND NET INCOME
The Company's title insurance subsidiaries are restricted as to the amount of
dividends that may be paid without prior regulatory approval. The maximum amount
of dividends that these subsidiaries may pay in 2000 without prior regulatory
approval is $97,842. The statutory surplus of CTIC, Ticor Title and Security
Union was approximately $283,546, $291,110, and $251,996 as of December 31,
1999, 1998 and 1997, respectively. The statutory net income of CTIC, Ticor Title
and Security Union was approximately $99,505, $86,517 and $72,683 for the years
ended December 31, 1999, 1998 and 1997, respectively.
The title insurance subsidiaries have prepared their annual statements using
certain permitted statutory accounting practices, which differ from prescribed
statutory accounting practices, but which have been approved by the respective
insurance departments of their states of domicile. Such practices include the
recognition of a deferred tax asset attributable to net operating loss
carryforwards of a merged affiliated company, and different methodologies in the
calculation of the statutory premium reserve for three of the title insurers.
The Company believes that such permitted practices do not have a negative
implication for the individual title insurers nor on the accompanying
consolidated financial statements.
11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) STOCKHOLDERS' EQUITY
Dividends declared and paid to the Company by title insurance subsidiaries,
other subsidiaries and AAM for each of the years in the three-year period ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Title insurance subsidiaries $79,700 $54,300 $46,700
Other subsidiaries 8,300 5,300 5,000
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 88,000 59,600 51,700
AAM -- 7,995 13,300
- -------------------------------------------------------------------------------------------------------------------
Total dividends declared and paid to the Company by subsidiaries $88,000 $67,595 $65,000
===================================================================================================================
</TABLE>
The Company paid cash dividends of $9,000 and $32,105 to Alleghany in 1998 and
1997, respectively. The Company also paid dividends of $31,027 and $14,901 to
its stockholders during 1999 and 1998, respectively.
In July 1998, Chicago Title's board of directors authorized the purchase of up
to two million shares of Chicago Title common stock over the next five years to
provide shares for various employee and director benefit plans. As of December
31, 1999, 221,800 shares of common stock had been repurchased at a cost of
$9,132. Subsequently, all of these shares were reissued under various Chicago
Title benefit plans.
In March 1999, the Company's board of directors authorized the repurchase of up
to five percent, or 1.1 million of its currently outstanding shares over the
next two years. As of December 31, 1999, the Company had repurchased 247,800
shares of common stock at a cost of $8,784. Subsequently, 110,462 of these
shares were reissued under various Chicago Title benefit plans.
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
which requires the reporting of comprehensive income in addition to net income
from operations. Comprehensive income is a more inclusive financial reporting
methodology that requires disclosure of certain financial information that
historically has not been recognized in the calculation of net income. At
December 31, 1999, 1998 and 1997, the Company held securities classified as
available for sale, which had pre-tax unrealized gains (losses) of $(44,388),
$7,754 and $11,055, respectively. These amounts reflect pre-tax reclassification
adjustments of $1,663, $1,409, and $3,684 for gains realized in income from the
sale of marketable securities in 1999, 1998 and 1997, respectively. The
statement of changes in stockholders' equity has been restated for prior years
to reflect the adoption of SFAS No. 130.
(7) EMPLOYEE BENEFIT PLANS
Pension and Other Retirement Plans
- ----------------------------------
The Company sponsors a contributory defined contribution savings and profit
sharing plan for eligible employees. Eligible employees may elect to
participate, contributing up to 13 percent of their total salaries. The Company
will match employee contributions from a minimum of $0.25 up to a maximum of
$1.50 for each dollar of employee contribution up to 6 percent of the employee's
base salary, subject to the Company's return on equity for the year. The
Company's cost for this plan was $21,099, $20,262 and $12,727 in 1999, 1998 and
1997, respectively.
In addition to the defined contribution savings and profit sharing plan,
employees of the Company participate in one of two additional retirement plans.
Beginning in 1995, the Company implemented a noncontributory defined
contribution plan. All new employees automatically participate in this plan.
Additionally, certain employees who were in the defined benefit pension plan
discussed below elected to participate in this plan. Contributions to this plan
are based upon salary and length of service. Contributions are invested in a
group of mutual funds or common stock of the Company as directed by the
employee. The Company's cost for this plan was $4,002, $2,780 and $2,151 in
1999, 1998 and 1997, respectively.
12
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The second additional retirement plan is a noncontributory defined benefit
pension plan (the Plan) covering certain of its employees. The benefits are
based on years of service and the employee's average monthly compensation in the
highest 60 consecutive calendar months during the 120 months ending at
retirement or termination. The Company's funding policy is to contribute
annually at least the minimum required contribution under the Employee
Retirement Income Security Act (ERISA). Contributions are intended to provide
not only for benefits accrued to date, but also for those expected to be earned
in the future. The Company made no contribution in 1999 and $6,800 in 1998.
As of December 31, 1999, a total of 237,551 shares of Chicago Title common stock
were held by the Company's benefit plans.
The following table sets forth the funded status of the Plan and amounts
recognized in the Company's consolidated balance sheets at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation:
Net benefit obligation at beginning of year $119,661 $101,924
Service cost 5,467 5,060
Interest cost 8,328 7,342
Actuarial (gain) loss (8,075) 12,548
Gross benefits paid (12,520) (7,213)
- ----------------------------------------------------------------------------------
Net benefit obligation at end of year 112,861 119,661
Change in Plan Assets:
Fair value of plan assets at beginning of year 97,557 97,593
Actual return on plan assets 13,732 5,650
Employer contributions 6,800 --
Gross benefits paid (12,520) (5,686)
- ----------------------------------------------------------------------------------
Fair value of plan assets at end of year 105,569 97,557
Funded status at end of year (7,292) (22,104)
Employer contributions -- 6,800
Unrecognized net actuarial (gain) loss 14,608 31,177
Unrecognized prior service cost (202) (324)
- ----------------------------------------------------------------------------------
Net prepaid pension asset included in other assets $ 7,114 $ 15,549
==================================================================================
</TABLE>
Under SFAS No. 87, "Employers' Accounting for Pensions," the measurement date
shall be as of the date of the financial statements, or if used consistently
from year to year, as of a date not more than three months prior to that date.
The Company's measurement date is September 30, therefore the 1998 employer
contribution made in the fourth quarter of 1998 is reflected in the 1999 plan
year.
The principal assumptions used in the actuarial calculations of projected
benefit obligations and net periodic pension expense for 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average assumptions:
Discount rate 7.75% 6.85% 7.50%
Expected return on Plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.50% 4.50% 4.50%
===========================================================================================
</TABLE>
13
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net periodic pension expense included in the results of
operations for each of the years in the three-year period ended December 31,
1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 5,467 $ 5,060 $ 5,046
Interest cost 8,328 7,342 8,631
Expected return on assets (8,685) (7,357) (7,806)
Amortization of:
Transition obligation (asset) -- -- (718)
Prior service cost (122) (120) (122)
Actuarial (gain) loss 3,447 2,396 4,294
- ---------------------------------------------------------------------------
Total net periodic benefit cost $ 8,435 $ 7,321 $ 9,325
===========================================================================
</TABLE>
The Chicago Trust Company, a subsidiary of AAM, is a qualified trust company and
as such, serves as trustee for the assets of the pension and other retirement
plans.
Postretirement Plans
- --------------------
In addition to retirement benefits, the Company provides certain health care and
life insurance benefits for retired employees. The costs of these benefit plans
are accrued during the periods the employees render service.
The Company is self-insured for its postretirement health care and life
insurance benefit plans, and the plans are not funded. The health care plans
provide for insurance benefits after retirement and are generally contributory,
with contributions adjusted annually. Postretirement life insurance benefits are
noncontributory, with coverage amounts declining with increases in a retiree's
age.
The Company's postretirement health care and life insurance costs included in
the results of operations for each of the years in the three-year period ended
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 945 $ 771 $ 531
Interest cost 1,875 1,974 1,456
Amortization of:
Prior service cost (855) (890) (700)
Actuarial (gain) loss -- (26) --
- ----------------------------------------------------------------------
Total net periodic benefit cost $1,965 $1,829 $1,287
======================================================================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6.00 percent in 1999 and 6.50 percent in
1998, declining to 5.00 percent in the year 2002. The discount rate used was
8.00 percent in 1999 and 6.85 percent for 1998. If the health care cost trend
rate assumptions were increased 1.00 percent, the accumulated postretirement
benefit obligation as of December 31, 1999 would increase by 2.15 percent. The
effect of this change on the sum of the service and interest cost would be an
increase of 2.20 percent. If the health care costs trend rate assumptions were
decreased 1.00 percent, the accumulated post retirement benefit obligation as of
December 31, 1999 would decrease by 1.93 percent. The effect of this change on
the sum of the service and interest cost would be a decrease of 1.98 percent.
14
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The accrued cost of the accumulated postretirement benefit obligation included
in the consolidated balance sheets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation:
Net benefit obligation at beginning of year $ 30,181 $ 24,325
Service cost 945 771
Interest cost 1,875 1,974
Plan participants' contributions 1,840 1,699
Actuarial (gain) loss (6,216) 4,271
Gross benefits paid (3,408) (2,859)
- ------------------------------------------------------------------------------------------------------
Net benefit obligation at end of year 25,217 30,181
Change in Plan Assets:
Fair value of plan assets at beginning of year -- --
Employer contributions 1,568 1,160
Plan participants' contributions 1,840 1,699
Gross benefits paid (3,408) (2,859)
- ------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year -- --
Funded status at end of year (25,217) (30,181)
Unrecognized net actuarial (gain) loss (1,049) 5,166
Unrecognized prior service cost (5,673) (6,526)
- ------------------------------------------------------------------------------------------------------
Net accrued cost of accumulated postretirement benefit obligation
included in accrued expenses and other liabilities $(31,939) $(31,541)
======================================================================================================
</TABLE>
Under SFAS No. 106, "Accounting for Postretirement Benefits Other Than
Pensions," the measurement date shall be as of the date of the financial
statements, or if used consistently from year to year, as of a date not more
than three months prior to that date. The Company's measurement date is December
31.
(8) STOCK COMPENSATION AND EARNINGS PER SHARE
Chicago Title adopted the 1998 Long-Term Incentive Plan (the 1998 Plan) to
provide incentives to officers and employees of Chicago Title and its
subsidiaries and to directors of Chicago Title. The 1998 Plan permits the
Company to provide incentive compensation such as restricted stock, stock
options, stock appreciation rights, stock awards and cash bonuses, as well as
other types of incentive compensation. No awards may be granted under the 1998
Plan after 2003. The 1998 Plan has 2,230,000 shares authorized, of which
1,580,000 may be used for stock options and stock appreciation rights and the
remaining 650,000 may be used for restricted stock awards. Currently outstanding
options become exercisable one to three years after issuance and expire five to
10 years from the grant date. During 1999 and 1998, a total of 30,000 and
400,184 shares, respectively, of restricted stock awards were granted. The
amount of unearned compensation related to the restricted stock is reflected as
a reduction to stockholders' equity. A summary of all stock option activity
during the years ended December 31, 1999 and 1998 follows:
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
----------------------------- ------------------------------
Weighted Weighted
Number of average Number of average
Options outstanding shares exercise price shares exercise price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning of year 874,940 $46.91 -- --
Add (deduct):
Granted 40,500 37.44 881,940 $46.91
Exercised -- -- -- --
Cancelled (61,000) 46.94 (7,000) 47.06
- ---------------------------------------------------------------------------------------------------------------
End of year 854,440 $46.46 874,940 $46.91
Exercisable, end of year -- -- -- --
===============================================================================================================
</TABLE>
The following options were outstanding as of December 31, 1999:
<TABLE>
<CAPTION>
Weighted
average
Number of remaining
Exercise price shares contractual life
- -----------------------------------------------------------------------
<S> <C> <C>
$47.06 789,440 8.38 years
$44.28 4,500 9.07 years
$41.94 24,500 8.83 years
$39.41 14,000 9.32 years
$34.97 20,000 9.16 years
$33.00 2,000 9.22 years
=======================================================================
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation" requires a fair-value
based method of accounting for stock-based compensation. To calculate the fair
value of the options awarded, the Company elected to use the Black-Scholes
pricing model which produced a value of 36.05 percent and 39.90 percent of the
exercise price for 1999 and 1998 awards, respectively. The following assumptions
were used to derive the ratio: a seven-year option term, an annualized
volatility rate of 39.35 percent and 39.90 percent, a risk-free rate of return
of 5.34 percent and 5.60 percent and a dividend yield of 3.04 percent and 2.40
percent in 1999 and 1998, respectively. The Company elected to account for
terminations when they occur rather than include an attrition factor in its
model.
If the compensation cost had been measured using the fair-value based accounting
method under SFAS No. 123, pro-forma net income for the years ended December 31,
1999 and 1998 would have been $102,112 and $95,318, and basic and diluted
earnings per share would have been $4.68 and $4.35 in 1999 and 1998,
respectively.
Only a small portion of the stock options issued in 1999 and 1998 was dilutive,
and as a result, basic and diluted earnings per share are the same in 1999 and
1998. Earnings per share information has been presented as if the 21,906,651
shares referenced in these footnotes had been outstanding for all periods
presented prior to the spin-off. The weighted average number of shares
outstanding for the years ended December 31, 1999 and 1998 was 21,840,090 and
21,902,304, respectively.
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES
Income tax expense (benefit) included in the statements of income and changes in
stockholders' equity and comprehensive income for each of the years in the
three-year period ended December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
1999 Federal State Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Current $ 59,130 $2,088 $ 61,218
Deferred (4,551) -- (4,551)
- --------------------------------------------------------------------------------------------------------------
Total from continuing operations 54,579 2,088 56,667
Accumulated other comprehensive income--deferred (15,536) -- (15,536)
- --------------------------------------------------------------------------------------------------------------
Total income tax expense $ 39,043 $2,088 $ 41,131
==============================================================================================================
1998 Federal State Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing operations:
Current $ 66,578 $1,644 $ 68,222
Deferred (14,686) -- (14,686)
- --------------------------------------------------------------------------------------------------------------
Total from continuing operations 51,892 1,644 53,536
Total from discontinued operations 5,748 880 6,628
Accumulated other comprehensive income--deferred 2,701 -- 2,701
- --------------------------------------------------------------------------------------------------------------
Total income tax expense $ 60,341 $2,524 $ 62,865
==============================================================================================================
1997 Federal State Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations:
Current $ 38,290 $ 840 $ 39,130
Deferred (11,236) -- (11,236)
- --------------------------------------------------------------------------------------------------------------
Total from continuing operations 27,054 840 27,894
Total from discontinued operations 6,663 1,007 7,670
Accumulated other comprehensive income--deferred 3,816 -- 3,816
- --------------------------------------------------------------------------------------------------------------
Total income tax expense $ 37,533 $1,847 $ 39,380
==============================================================================================================
</TABLE>
During 1999, 1998 and 1997, the Company utilized net operating loss
carryforwards which resulted in a $1,402 current tax benefit and a $1,402
deferred tax expense for each year. In 1998, the Company recorded an additional
deferred tax asset of $1,044 as a result of an Internal Revenue Service audit.
The difference between the federal income tax rate and the effective federal
income tax rate on income from continuing operations of the Company for each of
the years in the three-year period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ----------------------
Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected expense $ 56,847 35.0% $ 49,597 35.0% $ 29,261 35.0%
Nondeductible expenses 1,873 1.2 1,964 1.4 1,467 1.8
Tax-exempt interest income (4,821) (3.0) (4,759) (3.4) (3,698) (4.4)
Goodwill amortization 1,885 1.1 1,135 0.8 800 0.8
Dividends received deduction (490) (0.3) (238) (0.2) (489) (0.6)
State taxes, net of federal
tax benefit (731) (0.4) (575) (0.4) (294) (0.4)
Other, net 16 0.0 4,768 3.4 7 0.2
- ------------------------------------------------------------------------------------------------------------------------
Actual tax expense $ 54,579 33.6% $ 51,892 36.6% $ 27,054 32.4%
========================================================================================================================
</TABLE>
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities included in the consolidated balance
sheets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for title losses $111,586 $104,554
Reserves for invested assets 1,313 2,057
Expenses deducted for tax purposes when paid 19,161 21,641
Net operating loss and credit carryforwards 3,232 4,634
Unrealized depreciation of marketable securities 6,920 --
Other assets 4,628 5,415
- -------------------------------------------------------------------------------------------
Total gross deferred tax assets 146,840 138,301
===========================================================================================
Deferred tax liabilities:
Unrealized appreciation of marketable securities -- 8,616
Book to tax basis differences of marketable securities 2,599 2,291
Receivable reserves and other liabilities 2,800 2,404
Tax over book depreciation 1,813 1,758
Title plants 29,085 29,085
Prepaid pension cost 843 4,594
- -------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 37,140 48,748
- -------------------------------------------------------------------------------------------
Net deferred tax asset $109,700 $ 89,553
===========================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes the
deferred tax assets will be fully utilized in the future based upon a review of
anticipated future earnings and all other available evidence.
The amount of operating loss carryforwards available to offset future federal
taxable income at December 31, 1999 is $9,234 and expires in 2006.
(10) LEASES
The Company leases certain facilities, furniture and equipment under long-term
noncancelable operating lease agreements which expire at various dates through
2012. Total lease expense for all operating leases amounted to $71,577, $61,848
and $57,119 for the years ended December 31, 1999, 1998 and 1997, respectively.
Of the total lease expense, contingent rental costs associated with lease, tax
and expense escalation clauses approximated $4.4 million, $3.7 million and $3.4
million for 1999, 1998 and 1997, respectively. Sublease rentals are
insignificant. The aggregate minimum payments under noncancelable operating
leases with initial terms of more than one year are: $42,588 in 2000, $41,796 in
2001, $38,132 in 2002, $32,712 in 2003 and $83,228 thereafter. These amounts are
exclusive of any additional amounts which may become due under certain leases
containing terms that call for additional rental based on increases in operating
costs.
(11) LITIGATION AND CONTINGENT LIABILITIES
The Company is a party to various pending lawsuits involving losses under title
insurance policies and various other types of litigation. The Company has
established reserves for these items, where appropriate, and is of the opinion
that any losses actually sustained in connection with these lawsuits will not
have a material effect on the Company's consolidated financial position or
results of operations.
On May 19, 1999, the California Attorney General, on behalf of the People of the
State of California, the Controller of the State of California, and the
Insurance Commissioner of the State of California filed a complaint against an
alleged class of defendants consisting of title insurers and escrow companies
doing business in California. The complaint alleges that defendants failed to
escheat certain escrow funds to the State of California, charged home buyers and
other customers improper fees, and failed to pay over to customers interest
payments, or payments in lieu of interest, made by various banks on escrow funds
deposited by defendants on behalf of such customers, in violation of various
California laws. The plaintiffs
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
seek damages according to proof, return of allegedly improper fees, disgorgement
of the alleged interest payments or payments in lieu of interest, payment to the
State of California of the funds that allegedly should have been escheated,
interest, costs of suit including attorneys' fees and investigative fees, civil
penalties, and injunctive relief. Neither Chicago Title nor any of its
subsidiaries has been identified by name as a defendant in this lawsuit.
On June 22, 1999, a plaintiff's class action lawsuit entitled Sobol v. Chicago
Title Company, a subsidiary of CTIC, was filed in the Los Angeles, California
Superior Court. The complaint alleges that when acting as a closer, Chicago
Title Company charged for reconveyance recording fees when no recording
occurred. That action has been stayed indefinitely pending the outcome of the
California Attorney General's lawsuit described above.
On November 10, 1999, a plaintiff's class action entitled Baker v. First
American Title Insurance Company was filed in the San Francisco, California
Superior Court. Chicago Title Company and Chicago Title Corporation are named
defendants. The complaint alleges that the defendants failed to escheat certain
escrow funds to the State of California, charged home buyers and other customers
improper fees, and failed to pay over to customers interest payments, or
payments in lieu of interest, made by various banks on escrow charges deposited
by the defendants on behalf of such customers, in violation of various
California laws. The plaintiffs seek damages and other relief. The plaintiffs
have petitioned to coordinate the action with the California Attorney General's
lawsuit, the Sobol v. Chicago Title Company lawsuit, and other pending
California class action lawsuits. Various defendants, including Chicago Title
Company, have opposed that petition for coordination. At this time, liability
related to the aforementioned three cases is neither probable or estimable and
as such, the accompanying financial statements contain no specific provision for
these contingent liabilities other than accruals for certain defense costs.
(12) ACQUISITIONS
During 1999, the Company acquired the assets of, or stock in, nine separate
companies for a total cost of $82,748. During 1998, the Company acquired the
assets of, or stock in, seven separate companies for a total cost of $32,427.
These acquisitions were accounted for using the purchase method of accounting.
In January 2000, the Company agreed to acquire the assets of, or stock in, three
additional companies for a total cost of approximately $3,710.
(13) RELATED PARTY TRANSACTIONS
In August 1997, Alleghany effected a transfer of equity security holdings with
the Company. The fair value of the shares sold by the Company to Alleghany and
the shares acquired by the Company from Alleghany was approximately equal. The
transaction resulted in a net gain in the results of operations for 1997 of
$2.21 million pre-tax. The securities transferred were investments in marketable
equity securities of unrelated third parties.
Agreements in Anticipation of the Spin-off
- ------------------------------------------
Prior to the spin-off, certain agreements were entered into between Alleghany
and its subsidiaries and Chicago Title and its subsidiaries to define their
ongoing relationship after the dividend of AAM to Alleghany (the AAM
Distribution) and the spin-off. The following summarizes material terms of these
agreements.
Distribution Agreement
- ----------------------
Chicago Title and Alleghany entered into a Distribution Agreement (the
Distribution Agreement) which generally provides for, among other things,
cooperation regarding past matters and the allocation of responsibility for past
obligations and certain obligations that may arise in the future. The
Distribution Agreement provides that each of Alleghany and Chicago Title will
indemnify the other party and its affiliates from and against any and all
damage, loss, liability and expense arising out of or due to the failure of the
indemnitor or any of its subsidiaries to pay, perform or otherwise discharge any
of the liabilities or obligations for which it is responsible under the terms of
the Distribution Agreement. The Distribution Agreement also provides that
Chicago Title will bear the expenses incurred in connection with the spin-off,
except that Alleghany will bear certain identified legal fees and expenses.
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Tax Sharing Agreement
- ---------------------
Chicago Title and Alleghany entered into a tax sharing agreement (the Tax
Sharing Agreement) to allocate certain tax liabilities between Chicago Title and
Alleghany and their respective subsidiaries and to allocate responsibilities
with respect to tax returns. Under the Tax Sharing Agreement, Chicago Title will
bear (i) its separately computed share of Alleghany's consolidated federal
income tax liability for each taxable period for which Chicago Title or any of
its subsidiaries was a member of the Alleghany consolidated group for federal
income tax purposes (except that Chicago Title is not liable for taxes in
respect of AAM and its subsidiaries for any period) and (ii) the appropriate
part of any state or local tax imposed based on receipts, income, capital or net
worth and computed on a consolidated, unitary or combined basis by reference to
the assets and/or activities of Chicago Title. Chicago Title also will be
responsible for any tax liability resulting from any action necessary to
implement the spin-off and its associated events, including the AAM Distribution
and the transfer of a business previously conducted by a subsidiary of AAM to
Chicago Title. All other taxes are allocated between Chicago Title and Alleghany
based on the legal entity on which the tax is imposed.
The Tax Sharing Agreement provides that if Alleghany is subject to any tax
attributable to the spin-off, including by reason of the spin-off's failure to
qualify under Section 355 of the Internal Revenue Code (the Code) as a tax-free
distribution, then Chicago Title will be obligated to indemnify and to hold
Alleghany harmless from any such tax unless such tax arises solely by reason of
certain actions taken, or certain misrepresentations made, by Alleghany. The Tax
Sharing Agreement obligates Chicago Title to indemnify and hold Alleghany
harmless from any tax attributable to the AAM Distribution if the AAM
Distribution does not qualify as a tax-free distribution under Section 355 of
the Code because of any misrepresentation made by Chicago Title upon which the
tax ruling received from the Internal Revenue Service was based or because of
any action taken by Chicago Title which is inconsistent with the treatment of
the AAM Distribution as a tax-free distribution. In the Tax Sharing Agreement,
Chicago Title also agrees not to take certain specified actions which might
adversely affect the tax status of the spin-off or the AAM Distribution.
Although Chicago Title and its subsidiaries remain jointly and severally liable
with Alleghany and its subsidiaries for all unpaid tax liabilities of the
Alleghany consolidated group for any year for which Chicago Title's subsidiaries
were members of the Alleghany consolidated group (except for AAM and its
subsidiaries), the Tax Sharing Agreement provides that Alleghany shall indemnify
Chicago Title for all such liabilities (including interest and penalties),
provided that Chicago Title and its subsidiaries have performed all of their
obligations under the Tax Sharing Agreement. Moreover, although Chicago Title
and its subsidiaries remain jointly and severally liable with Alleghany and its
subsidiaries for failures to fund current pension plan obligations as well as
for the penalty taxes imposed to enforce such current funding, Alleghany has
agreed to indemnify Chicago Title for all such liabilities.
Investment Management Agreements
- --------------------------------
The Chicago Trust Company entered into Investment Management Agreements with
Chicago Title and certain of its subsidiaries providing for the management by
The Chicago Trust Company of substantially all of the long-term investable
assets and certain of the short-term investable assets of Chicago Title and its
subsidiaries. The term of the agreements is five years, with automatic one-year
renewals unless either party terminates by giving notice of such termination at
least three months prior to the end of any such term. The agreements also may be
terminated by Chicago Title or its subsidiaries party thereto in the event that
investment performance is unsatisfactory. The investment management fees charged
under the Investment Management Agreements generally are based on market rates,
and are not material.
Transitional Services Agreement
- -------------------------------
CT&T and AAM entered into an agreement pursuant to which CT&T continued to
furnish various administrative services to AAM. The initial term of the
agreement ended on December 31, 1998. CT&T continues to provide certain
administrative services to AAM under recently negotiated terms.
Sublease
- --------
The Chicago Trust Company subleases space from CT&T at the principal
headquarters building of Chicago Title until 2012 and on such terms as are
currently applicable to CT&T for such space.
20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments included in the
consolidated balance sheets at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Carrying Fair Carrying Fair
amount value amount value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash on hand and in banks $ 35,024 $ 35,024 $ 39,230 $ 39,230
Cash pledged to secure trust and escrow deposits 54,580 54,580 93,887 93,887
Marketable securities, available-for-sale:
Fixed maturities 1,089,524 1,089,524 1,158,664 1,158,664
Equity securities 29,334 29,334 35,464 35,464
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities:
Bank and other long-term debt 20,999 20,999 21,648 21,648
Trust and escrow deposits secured by pledged assets $ 392,796 $ 392,796 $ 495,299 $ 495,299
===========================================================================================================================
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practical to estimate fair
value:
Cash on hand and in banks, cash pledged to secure trust and escrow deposits, and
trust and escrow deposits secured by pledged assets: The carrying amounts
approximate fair value because of the short maturity of the instruments.
Marketable securities, available-for-sale: The fair values of the Company's
marketable securities are based on quoted market prices, where available. For
marketable securities not actively traded, fair values are estimated using
values obtained from independent pricing services.
Bank and other long-term debt: As of December 31, 1999 and 1998, the fair value
of the Company's bank and other long-term debt is the same as the carrying
value, as the interest rate is variable. In addition, the Company has not
determined the fair value of various loan guarantees made principally on behalf
of policy-issuing title insurance agents for third-party financing. The total
amount of loan guarantees at December 31, 1999 and 1998 was $6,891 and $8,295,
respectively. This amount represents the accounting loss the Company would incur
if any party to the loan guarantees failed to perform according to the terms of
the contract. Amounts that may become payable, if any, under such loan
guarantees are not reasonably estimable.
(15) RESERVE FOR TITLE LOSSES AND REINSURANCE
The Company's reserve for title losses is based on long-range projections
subject to uncertainty. Uncertainty regarding reserves of a given policy year is
gradually reduced as new information emerges each succeeding year, allowing more
reliable revaluations of such reserves. While management believes that the
reserve as of December 31, 1999 is adequate, uncertainties in the reserving
process could cause such reserve to develop favorably or unfavorably as new or
additional information emerges. Any adjustments to reserves are reflected in the
operating results of the periods in which they are made. Movements in reserves
which are small relative to the amount of such reserves could significantly
impact future reported earnings of the Company.
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity in the Company's reserve for title losses for each of the years in the
three-year period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of January 1 $618,831 $564,334 $532,923
Provision for title losses related to:
Current year 117,387 123,920 102,324
Prior year -- -- --
- ----------------------------------------------------------------------------------------
Total provision 117,387 123,920 102,324
- ----------------------------------------------------------------------------------------
Paid related to:
Current year 4,847 3,363 3,509
Prior years 64,251 66,870 67,404
- ----------------------------------------------------------------------------------------
Total paid 69,098 70,233 70,913
Balance from acquired subsidiaries (115) 810 --
- ----------------------------------------------------------------------------------------
Balance as of December 31 $667,005 $618,831 $564,334
========================================================================================
</TABLE>
In 1999, the Company reclassified amounts related to 1998 acquisitions from the
"Reserve for Title Losses" category to "Accounts Payable." This reclassification
resulted in a negative balance from acquired subsidiaries in 1999.
The Company had no reinsurance recoverable at December 31, 1999, 1998, 1997 or
1996. The title insurance subsidiaries assume and cede title risks and the
related premiums with other title insurance companies. In addition, the Company
has purchased reinsurance coverage for losses in excess of $12,500. For these
losses, the reinsurers will pay 90 percent of the next $50,000 in losses.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders.
The following table presents the effects of reinsurance on earned premiums:
<TABLE>
<CAPTION>
Percentage
of assumed
Earned premiums Gross Ceded Assumed Net to net
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 $1,630,956 $5,274 $2,691 $1,628,373 0.17%
1998 1,541,668 4,603 2,470 1,539,535 0.16%
1997 1,204,968 5,115 1,959 1,201,812 0.16%
====================================================================================================
</TABLE>
(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly revenues, net income and earnings per share for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------
1999 March 31 June 30 September 30 December 31 Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other revenue $471,810 $513,026 $504,632 $499,315 $1,988,783
Investment income 16,607 15,070 17,311 19,605 68,593
Net realized investment gains 1,034 215 12 402 1,663
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues $489,451 $528,311 $521,955 $519,322 $2,059,039
- ----------------------------------------------------------------------------------------------------------------------------
Net income:
From continuing operations $ 22,517 $ 29,922 $ 25,195 $ 27,039 $ 104,673
From sales of marketable securities 672 140 8 261 1,081
- ----------------------------------------------------------------------------------------------------------------------------
Total net income $ 23,189 $ 30,062 $ 25,203 $ 27,300 $ 105,754
- ----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share $ 1.06 $ 1.38 $ 1.16 $ 1.24 $ 4.84
============================================================================================================================
</TABLE>
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------
1998 March 31 June 30 September 30 December 31 Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Title, escrow, trust and other revenue $385,804 $461,757 $481,326 $532,576 $1,861,463
Investment income 14,805 15,748 15,563 17,721 63,837
Net realized investment gains 371 167 199 672 1,409
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues $400,980 $477,672 $497,088 $550,969 $1,926,709
- ----------------------------------------------------------------------------------------------------------------------------
Net income:
From continuing operations $ 21,000 $ 10,594 $ 29,777 $ 25,882 $ 87,253
From sales of marketable securities 241 109 129 437 916
From discontinued operations 4,979 4,034 -- -- 9,013
- ----------------------------------------------------------------------------------------------------------------------------
Total net income $ 26,220 $ 14,737 $ 29,906 $ 26,319 $ 97,182
- ----------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share:
Continuing operations $ 0.97 $ 0.49 $ 1.37 $ 1.20 $ 4.03
Discontinued operations 0.23 0.18 -- -- 0.41
- ----------------------------------------------------------------------------------------------------------------------------
Net earnings per share $ 1.20 $ 0.67 $ 1.37 $ 1.20 $ 4.44
============================================================================================================================
</TABLE>
(17) PROPOSED MERGER WITH FIDELITY NATIONAL FINANCIAL, INC.
The Company entered into a definitive agreement with Fidelity National
Financial, Inc., a Delaware corporation (Fidelity), dated as of August 1, 1999,
and amended as of October 13, 1999, providing for the merger of the Company into
Fidelity for a merger consideration of $52.00 per share of the Company's common
stock (subject to adjustment as set forth in the definitive agreement and
described beginning on page 5 in the joint proxy statement/prospectus prepared
in connection therewith), consisting of approximately equal amounts of cash and
Fidelity stock. The boards of directors of both companies have approved the
agreement. The transaction is subject to approval by the stockholders of the
Company and Fidelity, requisite regulatory authorities and other customary
conditions and is expected to be completed in the first quarter of 2000.
During 1999 Chicago Title incurred pre-tax merger-related expenses of
approximately $4,872 as follows:
<TABLE>
<CAPTION>
1999
- -------------------------------------------------------------
<S> <C>
Legal costs $ 1,926
Other professional services 1,955
Other direct expenses 592
Debt offering costs expensed 399
- -------------------------------------------------------------
Total merger-related costs 4,872
Less: tax deduction (140)
- -------------------------------------------------------------
Total merger-related costs after tax $ 4,732
=============================================================
</TABLE>
23
<PAGE> 1
EXHIBIT 99.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Fidelity National Financial, Inc.:
We consent to the use of our report dated January 24, 2000 on the consolidated
financial statements of Chicago Title Corporation included in this Current
Report on Form 8-K of Fidelity National Financial, Inc.
/s/ KPMG LLP
Chicago, Illinois
April 10, 2000
