<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 8-K/A
AMENDMENT NO. 2
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 has been treated as a reorganization pursuant to Section
368(a) of the Internal Revenue Code, as amended, and has been accounted for
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 auditors, are incorporated by reference to Exhibit 99.3
to the Registrant's Current Report on Form 8-K filed April 10, 2000.
(b) Pro forma financial statements.
The pro forma financial data required to be filed by Item 7(b)
of Form 8-K are included herein.
(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 auditors
(incorporated by reference to Exhibit 99.3 to the
Registrant's Current Report on Form 8-K filed April 10,
2000).
99.4 Consent of KPMG LLP, with respect to the audited consolidated
financial statements of Chicago Title Corporation and its
subsidiaries.
99.5 Registrant's Quarterly Report on Form 10-Q, as of and for the
three months ended March 31, 2000, filed May 15, 2000.
99.6 Pro forma financial data and notes thereto.
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: May 17, 2000 By: /s/ ALAN L. STINSON
----------------------------------
Name: Alan L. Stinson
Title: Executive Vice President
and Chief Financial Officer
4
<PAGE> 5
EXHIBIT INDEX
EXHIBIT
INDEX DESCRIPTION
------- -----------
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 auditors
(incorporated by reference to Exhibit 99.3 to the
Registrant's Current Report on Form 8-K filed April 10,
2000).
99.4 Consent of KPMG LLP, with respect to the audited consolidated
financial statements of Chicago Title Corporation and its
subsidiaries.
99.5 Registrant's Quarterly Report on Form 10-Q, as of and for the
three months ended March 31, 2000, filed May 15, 2000.
99.6 Pro forma financial data and notes thereto.
<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 incorporated by reference in
this Current Report on Form 8-K/A of Fidelity National Financial, Inc.
KPMG LLP
Los Angeles, California
May 19, 2000
<PAGE> 1
EXHIBIT 99.5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended March 31, 2000
Commission File Number 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0498599
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
17911 Von Karman Avenue, Suite 300, Irvine, California 92614
- ------------------------------------------------------ ----------------------
(Address of principal executive offices) (Zip Code)
(949) 622-4333
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
$.0001 par value Common Stock 67,010,645 shares as of May 5, 2000
Exhibit Index appears on page 16 of 17 sequentially numbered pages.
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of 3
March 31, 2000 and December 31, 1999
B. Condensed Consolidated Statements of Earnings 4
for the three-month periods ended March 31, 2000
and 1999
C. Condensed Consolidated Statements of Comprehensive 5
Earnings for the three-month periods ended
March 31, 2000 and 1999
D. Condensed Consolidated Statements of Cash Flows 6
for the three-month periods ended March 31, 2000
and 1999
E. Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Part II: OTHER INFORMATION
Item 1. Legal Proceedings 15
Items 2, 3 and 5 of Part II have been omitted because they
are not applicable with respect to the current
reporting period.
Item 4. Submission of Matter to Vote of Securities Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIDELITY NATIONAL FINANCIAL, INC.
---------------------------------
(Registrant)
By: /s/ Alan L. Stinson
Date: May 12, 2000 -----------------------------
Alan L. Stinson
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available for sale, at fair value, at
March 31, 2000 includes $224,229 of pledged fixed
maturity securities related to secured trust deposits ... $ 1,136,295 $ 347,051
Equity securities, at fair value ..................... 70,684 38,881
Other long-term investments, at cost, which
approximates fair value ............................ 42,295 43,253
Short-term investments, at cost, which approximates
fair value, at March 31, 2000 includes $88,932 of
pledged short-term investments related to
secured trust deposits ............................. 191,859 74,232
Investments in real estate and partnerships, net ..... 3,551 3,499
----------- -----------
Total investments ................................ 1,444,684 506,916
Cash and cash equivalents, at March 31, 2000 includes
$148,227 of pledged cash related to secured trust
deposits ................................................ 240,778 38,569
Leases and residual interests in securitizations .......... 152,148 142,141
Trade receivables, net .................................... 118,261 60,784
Notes receivable, net ..................................... 18,377 18,304
Cost in excess of net assets acquired ..................... 776,142 53,576
Prepaid expenses and other assets ......................... 190,012 61,937
Title plants .............................................. 263,861 59,914
Property and equipment, net ............................... 182,766 55,453
Deferred tax asset ........................................ 145,099 31,579
----------- -----------
$ 3,532,128 $ 1,029,173
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities ............. $ 383,277 $ 122,570
Notes payable ........................................ 792,571 226,359
Reserve for claim losses ............................. 910,708 239,962
Secured trust deposits ............................... 462,801 --
Income taxes payable ................................. 25,287 3,175
----------- -----------
2,574,644 592,066
Minority interests ................................... 4,319 4,613
Stockholders' equity:
Preferred stock, $.0001 par value; authorized,
3,000,000 shares; issued and outstanding, none ..... -- --
Common stock, $.0001 par value; authorized,
100,000,000 shares as of March 31, 2000 and
50,000,000 shares as of December 31, 1999; issued,
66,934,696 as of March 31, 2000 and 39,224,169 as
of December 31, 1999 ............................... 7 4
Additional paid-in capital ........................... 631,200 246,959
Retained earnings .................................... 322,975 327,785
----------- -----------
954,182 574,748
Accumulated other comprehensive loss ................. (1,017) (5,975)
Less treasury stock, cancelled in 2000 and
12,036,102 shares at December 31, 1999, at cost .... -- (136,279)
----------- -----------
953,165 432,494
----------- -----------
$ 3,532,128 $ 1,029,173
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------
2000 1999
----------- --------
(Unaudited)
<S> <C> <C>
REVENUE:
Title insurance premiums ........................................ $260,400 $241,874
Escrow fees ..................................................... 32,283 32,795
Other fees and revenue .......................................... 70,274 63,664
Interest and investment income, including realized gains (losses) 14,700 5,941
-------- --------
377,657 344,274
-------- --------
EXPENSES:
Personnel costs ................................................. 110,707 108,545
Other operating expenses ........................................ 110,563 76,305
Agent commissions ............................................... 125,908 106,992
Provision for claim losses ...................................... 14,585 15,231
Interest expense ................................................ 6,579 2,836
-------- --------
368,342 309,909
-------- --------
Earnings before amortization of cost in excess of
net assets acquired ............................................ 9,315 34,365
Amortization of cost in excess of net assets acquired ........... 1,654 861
-------- --------
Earnings before income taxes .................................... 7,661 33,504
Income tax expense .............................................. 5,792 13,737
-------- --------
Net earnings ................................................ $ 1,869 $ 19,767
======== ========
Basic net earnings .............................................. $ 1,869 $ 19,767
======== ========
Basic net earnings per share .................................... $ .06 $ .64
======== ========
Weighted average shares outstanding, basic basis ................ 32,526 30,767
======== ========
Diluted net earnings ............................................ $ 1,869 $ 20,030
======== ========
Diluted net earnings per share .................................. $ .06 $ .60
======== ========
Weighted average shares outstanding, diluted basis .............. 33,954 33,423
======== ========
Cash dividends per share ........................................ $ .10 $ .07
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS(In
thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
2000 1999
------- --------
(Unaudited)
<S> <C> <C>
Net earnings ......................................... $ 1,869 $ 19,767
Other comprehensive earnings (loss):
Unrealized gains (losses) on investments, net (1) 7,665 (6,008)
Reclassification adjustments for (gains) losses
included in net earnings (2) .................. (2,707) 395
------- --------
Other comprehensive earnings (loss) .................. 4,958 (5,613)
------- --------
Comprehensive earnings ............................... $ 6,827 $ 14,154
======= ========
</TABLE>
- ----------------
(1) Net of income tax expense (benefit) of $5,110 and $(4,175) in 2000 and 1999,
respectively.
(2) Net of income tax expense (benefit) of $1,805 and $(274) in 2000 and 1999,
respectively.
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
2000 1999
--------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ....................................................... $ 1,869 $ 19,767
Reconciliation of net earnings to net cash used in
operating activities:
Depreciation and amortization .................................. 16,019 5,588
Net increase in reserve for claim losses ....................... 1 7,548
Net increase in provision for possible losses other than claims 133 139
(Gain) loss on sales of assets ................................. (4,512) 669
Equity in (gains) losses of unconsolidated partnerships ........ (141) 393
Amortization of LYONs original issue discount .................. -- 485
Change in assets and liabilities, net of effects from
acquisition of subsidiaries:
Net increase in leases and residual interests in securitizations (10,007) (22,107)
Net increase in trade receivables .............................. (1,403) (4,290)
Net increase in prepaid expenses and other assets .............. (586) (559)
Net decrease in accounts payable and accrued liabilities ....... (8,651) (11,476)
Net decrease in income taxes ................................... (2,234) 816
--------- --------
Net cash used in operating activities ................................... (9,512) (3,027)
--------- --------
Cash flows from investing activities:
Proceeds from sale of real estate .................................. -- 946
Proceeds from sales and maturities of investments .................. 143,259 56,435
Collections of notes receivable .................................... 5,849 1,201
Additions to title plants .......................................... -- (415)
Additions to property and equipment ................................ (9,001) (6,567)
Additions to investments ........................................... (101,154) (18,471)
Additions to notes receivable ...................................... (5,570) (7,174)
Acquisitions of subsidiaries, net of cash acquired ................. (389,819) --
--------- --------
Net cash provided by (used in) investing activities ..................... (356,436) 25,955
--------- --------
Cash flows from financing activities:
Borrowings ......................................................... $ 596,415 $ 9,635
Debt service payments .............................................. (34,093) (2,754)
Dividends paid ..................................................... (3,922) (2,064)
Purchase of treasury stock ......................................... (551) (20,520)
Stock options exercised ............................................ 10,308 503
--------- --------
Net cash provided by (used in) financing activities ..................... 568,157 (15,200)
--------- --------
Net increase in cash and cash equivalents ............................... 202,209 7,728
Cash and cash equivalents at beginning of period ........................ 38,569 51,309
--------- --------
Cash and cash equivalents at end of period .............................. $ 240,778 $ 59,037
========= ========
Supplemental cash flow information:
Income taxes paid .................................................. $ 1,038 $ 12,717
========= ========
Interest paid ...................................................... $ 6,011 $ 7,216
========= ========
Non-cash investing and financing activities:
Dividends declared and unpaid ...................................... $ 6,679 $ 2,123
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A - Basis of Financial Statements
The financial information included in this report includes the accounts of
Fidelity National Financial, Inc. and its subsidiaries (collectively, the
"Company") and has been prepared in accordance with generally accepted
accounting principles and the instructions to Form 10-Q and Article 10 of
Regulation S-X. All adjustments considered necessary for a fair presentation
have been included. This report should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 1999 and the
Company's Report on Form 8-K/A, Amendment No. 1, dated March 20, 2000.
Certain reclassifications have been made in the 1999 Condensed Consolidated
Financial Statements to conform to classifications used in 2000.
Note B - Chicago Title Corporation Merger
On August 1, 1999, the Company announced that it had signed an Agreement and
Plan of Merger ("Merger Agreement") to purchase Chicago Title Corporation
("Chicago Title"), headquartered in Chicago, Illinois, for approximately $1.13
billion, or $52.00 per share of Chicago Title common stock, using approximately
equal amounts of cash and Company common stock, subject to certain adjustments
based on the average price of Company common stock, as defined in the Merger
Agreement. Under the terms of the Merger Agreement, the allocation between cash
and stock would be adjusted so Chicago Title stockholders would receive more
than 50% of the outstanding stock of the combined company. Additionally, the
price would be payable in shares of Company common stock or, upon election by
Chicago Title stockholders, in cash, subject to proration necessary to achieve
the allocation between cash and stock described above. The Merger Agreement,
which was amended on October 13, 1999, was approved by the Boards of Directors
of both companies and was approved by the stockholders of both the Company and
Chicago Title in February 2000. Following the receipt of requisite regulatory
approvals and the satisfaction of other customary conditions, including
amendments to the Company's Bylaws, Charter and Certificate of Incorporation,
the transaction closed on March 20, 2000 ("Merger").
Pursuant to the terms of the Merger Agreement, Chicago Title stockholders
received an aggregate purchase price of approximately $1.1 billion. The purchase
price was paid in the form of 1.7673 shares of Company common stock and $26.00
in cash for each share of Chicago Title Corporation common stock, resulting in
the issuance of approximately 38.8 million shares of Company common stock at an
average price during the applicable trading period of $13.1771 per share and the
payment of approximately $570.2 million in cash. The Merger has been accounted
for as a purchase.
The Company has recorded certain preliminary purchase accounting adjustments,
which are based on estimates utilizing available information. Such purchase
accounting adjustments may be refined as additional information becomes
available. Cost in excess of net assets acquired which has been recorded as a
result of the Merger will be amortized on a straight-line basis over twenty
years.
The Company's Condensed Consolidated Balance Sheet and Condensed Consolidated
Statement of Earnings as of and for the three months ended March 31, 2000
include the balance sheet accounts of the former Chicago Title Corporation as of
March 31, 2000 and the results of operations for the 11-day period subsequent to
March 20, 2000, the merger date, through March 31, 2000.
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A roll-forward of consolidated stockholders' equity from December 31, 1999 to
March 31, 2000, including the effect of the Merger is as follows (in thousands):
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Treasury Stock
--------------------- Paid-in Retained Comprehensive -------------------
Shares Amount Capital Earnings Earnings (Loss) Shares Amount
--------- -------- --------- -------- --------------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 39,224 $ 4 $246,959 $327,785 $(5,975) 12,036 $(136,279)
Purchase of treasury stock -- -- -- -- -- 39 (550)
Exercise of stock options. 1,024 -- 10,306 -- -- -- --
Other comprehensive gain--
unrealized gain on
investments and other
financial instruments... -- -- -- -- 4,958 -- --
Acquisition of Chicago
Title Corporation....... 38,762 4 510,763 -- -- -- --
Retirement of treasury
stock................... (12,075) (1) (136,828) -- -- (12,075) 136,829
Cash dividends............ -- -- -- (6,679) -- -- --
Net earnings.............. -- -- -- 1,869 -- -- --
------- ---- -------- -------- ------- ------- ---------
Balance, March 31, 2000...... 66,935 $ 7 $631,200 $322,975 $(1,017) -- $ --
======= ==== ======== ======== ======= ======= =========
</TABLE>
In connection with the Merger, the Company has entered into an $800 million
syndicated credit agreement ("Credit Agreement"). The Credit Agreement provides
for three distinct credit facilities: a $100 million, 18-month revolving credit
facility, a $250 million 6-year revolving credit facility and a $450 million
term loan facility with a 6-year amortization period. The Credit Agreement is
unsecured at a variable interest rate based on the debt ratings assigned to the
Company by independent agencies. The initial interest rate is LIBOR plus 1.50%.
Proceeds from the Credit Agreement are available and have been used to finance
the cash portion of the merger consideration, to refinance certain previously
existing indebtedness, to pay fees and expenses incurred in connection with the
merger and to fund other general corporate purposes of the combined company.
Selected unaudited pro forma combined results of operations for the three-month
periods ended March 31, 2000 and 1999, assuming the Merger occurred on January
1, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
2000 1999
-------- --------
(In thousands,
except per share data)
<S> <C> <C>
Total revenue ...................................... $716,364 $833,725
Net earnings before merger-related expenses
and non-recurring charges ........................ 10,835 29,426
Basic net earnings (loss) .......................... (2,536) 29,426
Basic net earnings per share before merger-related
expenses and non-recurring charges ............... .16 .42
Basic net earnings (loss) per share ................ (.04) .42
Diluted net earnings (loss) ........................ (2,536) 29,689
Diluted net earnings per share before merger-related
expenses and non-recurring charges ............... .16 .41
Diluted net earnings (loss) per share .............. (.04) .41
</TABLE>
Note C - Dividends
On March 17, 2000, the Company's Board of Directors declared a cash dividend of
$.10 per share, payable on May 30, 2000, to stockholders of record on April 10,
2000.
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note D - Segment Information
During the first quarter of 2000, the Company restructured its business segments
to more accurately reflect a change in the Company's current operating
structure. All previously reported segment information has been restated to be
consistent with the current presentation.
The Company's Condensed Consolidated Financial Statements as of March 31, 2000
and 1999 and for the three months ended March 31, 2000 and 1999, include three
reportable segments. Reportable segments are determined based on the
organizational structure and types of products and services from which each
reportable segment derives its revenue.
As of and for the three months ended March 31, 2000 (dollars in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
TITLE INFORMATION
INSURANCE SERVICES CORPORATE TOTAL
---------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Total revenue ........... $ 323,196 $ 23,941 $ 30,520 $ 377,657
========== ======== ========= ==========
Operating earnings
(loss) ................ $ 23,659 $ (2,899) $ (5,201) $ 15,559
Interest and investment
income, including
realized gains (losses) 11,074 121 3,505 14,700
Depreciation and
amortization .......... 9,290 4,747 1,982 16,019
Interest expense ........ 225 2 6,352 6,579
---------- -------- --------- ----------
Earnings (loss) before
income taxes .......... 25,218 (7,527) (10,030) 7,661
Income tax expense
(benefit) ............. 11,436 194 (5,838) 5,792
---------- -------- --------- ----------
Net earnings (loss) ..... $ 13,782 $ (7,721) $ (4,192) $ 1,869
========== ======== ========= ==========
Assets .................. $3,161,241 $ 97,641 $ 273,246 $3,532,128
========== ======== ========= ==========
</TABLE>
As of and for the three months ended March 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
REAL ESTATE
TITLE INFORMATION
INSURANCE SERVICES CORPORATE TOTAL
--------- ----------- --------- --------
<S> <C> <C> <C> <C>
Total revenue ........... $293,018 $24,908 $ 26,348 $344,274
======== ======= ========= ========
Operating earnings
(loss) ................ $ 35,583 $ 2,364 $ (1,960) $ 35,987
Interest and investment
income, including
realized gains (losses) 5,449 84 408 5,941
Depreciation and
amortization .......... 4,060 505 1,023 5,588
Interest expense ........ 583 4 2,249 2,836
-------- ------- --------- --------
Earnings (loss) before
income taxes .......... 36,389 1,939 (4,824) 33,504
Income tax expense
(benefit) ............. 15,379 779 (2,421) 13,737
-------- ------- --------- --------
Net earnings (loss) ..... $ 21,010 $ 1,160 $ (2,403) $ 19,767
======== ======= ========= ========
Assets .................. $687,554 $54,471 $ 223,429 $965,454
======== ======= ========= ========
</TABLE>
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The activities of the reportable segments include the following:
Title Insurance
This segment, consisting of title insurance underwriters and wholly-owned title
insurance agencies, provides core title insurance and escrow services, including
document preparation, collection and trust activities and certain real estate
information services. This segment coordinates its activities with those of the
real estate information services segment described below in order to offer the
full range of real estate products and services required to execute and close a
real estate transaction.
Real Estate Information Services
This segment, consisting of various real estate information and ancillary
service subsidiaries, offers the complementary specialized products and services
required to execute and close a real estate transaction that are not offered by
the title insurance segment described above. These services include document
recording services on a nationwide basis, tax qualifying property exchange
services, property appraisal services, tax monitoring services, home warranty
insurance, credit reporting, real estate referral services, flood monitoring,
and foreclosure publishing and posting. These services require specialized
expertise and have been centralized for efficiency and management purposes.
Corporate
The corporate segment includes the operations of the parent holding company.
These operations consist of certain investment activities, including Micro
General Corporation and FNF Capital, Inc., and the issuance and repayment of
corporate debt obligations.
Expenditures for long-lived assets relate primarily to the title insurance
segment.
The accounting policies of the segments are the same as those used in the
Condensed Consolidated Financial Statements. Intersegment sales or transfers
which occurred in the ordinary course of consolidated operations, other than
transactions between the Company (primarily the Title Insurance segment) and
Micro General, have been eliminated from the segment information provided.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Factors That May Affect Operating Results
The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward-looking statements.
The reader should consult the risk factors listed from time to time in the
Company's reports on Forms 10-Q, 10-K and filings under the Securities Act of
1933, as amended.
Results of Operations
The Company's Condensed Consolidated Balance Sheet and Condensed Consolidated
Statement of Earnings as of and for the three months ended March 31, 2000
include the balance sheet accounts of the former Chicago Title Corporation as of
March 31, 2000 and the results of operations for the 11-day period subsequent to
March 20, 2000, the merger date, through March 31, 2000. As a result, quarter
over quarter comparisons may not be meaningful.
10
<PAGE> 11
Economic conditions, including volatility in mortgage interest rates, have
shifted the mix of the Company's core title and escrow business from a refinance
driven market in the first quarter of 1999 to a more traditional resale and new
home sale market. The Company has also experienced a return to seasonality in
the market. The decrease in real estate activity and order count has been
partially offset by an increase in average fee per file. The increase in fee per
file is consistent with a return to more normalized levels of refinance activity
as well as an increase in commercial business.
The following table presents information regarding the components of title
premiums (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------------------
2000 % of Total 1999 % of Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Title premiums from direct operations $102,466 39.3% $107,959 44.6%
Title premiums from agency operations 157,934 60.7% 133,915 55.4%
-------- ----- -------- -----
Total title premiums ....... $260,400 100.0% $241,874 100.0%
======== ===== ======== =====
</TABLE>
The trend in the mix of business between direct and agency operations reflects
the impact of the lag of approximately three to six months in agent activity
compared to the immediate recognition of title insurance premiums generated by
direct operations. Fluctuations in title premiums by region and the overall
difference in the mix of business that has occurred following the acquisition of
Chicago Title has also impacted the allocation between direct and agency
operations.
The trend in escrow fees quarter over quarter is generally consistent with the
trend in direct title premiums, after adjusting for the change in the mix of
business in 2000 compared to 1999. Escrow fees for the first quarter of 2000
were $32.3 million compared to $32.8 million in the 1999 quarter.
Other fees and income represents the revenue generated by the Company's real
estate related ancillary service businesses, the revenue of Micro General
Corporation, our majority-owned information technology and telecommunication
services subsidiary, and the revenue generated by FNF Capital, Inc., our
equipment leasing subsidiary. Other fees and income for the first quarter of
2000 trended consistently with current market conditions.
Interest and investment income was $14.7 million in the first quarter of 2000
compared to $5.9 million in the first quarter of 1999. The increase in interest
and investment income earned during the 2000 period is primarily due to an
increase in invested assets and net realized gains in 2000 compared to net
realized losses for the same period in 1999. Net realized gains on the sale of
assets were $4.5 million in the first quarter of 2000 compared to net realized
losses of $669,000 in the corresponding 1999 period.
The Company's operating expenses consist primarily of personnel costs, other
operating expenses and agent commissions, which are incurred as orders are
received and processed. Title insurance premiums, escrow fees and other fees and
revenue are generally recognized as income at the time the underlying
transaction closes. Certain other fees and revenue are recognized over the
period the related services are provided. As a result, revenue lags
approximately 60-90 days behind expenses and therefore gross margins may
fluctuate. The changes in the market environment, mix of business between direct
and agency operations and the contributions from our various business units have
impacted margins and net earnings. The Company has implemented programs and
taken necessary actions to maintain expense levels consistent with revenue;
however, a short time lag does exist in reducing variable costs and certain
fixed costs are incurred regardless of revenue levels.
The Company recorded certain one-time charges totaling $13.4 million, after
applicable income taxes. These charges were primarily related to the revaluation
of non-title assets, including the Company's investment in Express Network, Inc.
and certain existing goodwill and obsolete software.
11
<PAGE> 12
Personnel costs include base salaries, commissions and bonuses paid to
employees, and are one of the most significant operating expenses incurred by
the Company. These costs generally fluctuate with the level of orders opened and
closed and with the mix of revenue. Personnel costs totaled $110.7 million and
$108.5 million for the quarters ended March 31, 2000 and 1999, respectively. The
Company has taken significant measures to maintain appropriate personnel levels
and costs relative to the volume and mix of business while maintaining customer
service standards and quality controls. These fluctuations reflect a continuing
emphasis on expense control and an increase in productivity resulting from the
Company's automation and electronic commerce initiatives. The Company continues
to monitor the prevailing market conditions and will adjust personnel costs in
accordance with activity.
Other operating expenses consist of facilities expenses, title plant
maintenance, premium taxes (which insurance underwriters are required to pay on
title premiums and title related revenue in lieu of franchise and other state
taxes), postage and courier services, computer services, professional services,
advertising expenses, general insurance, depreciation and trade and notes
receivable allowances. The Company continues to be committed to cost control
measures. In response to market conditions, the Company implemented aggressive
cost control programs in order to maintain operating expenses at levels
consistent with the levels of revenue; however, certain fixed costs are incurred
regardless of revenue levels, resulting in year over year percentage
fluctuations. The Company's cost control programs are designed to evaluate
expenses, both current and budgeted, relative to existing and projected market
conditions. Items considered include, but are not limited to, capital
expenditures, service contracts, facility requirements (e.g., renewal/
termination of leases and relocation of offices), expected fluctuations in the
number of personnel, the impact of technology and profitability. Additionally,
the Company has centralized its purchasing function in order to obtain the most
favorable prices/rates available for vendor provided products and services,
which also facilitates a highly structured requisition/approval process and cost
analysis program. Total other operating expenses totaled $110.6 million and
$76.3 million in the 2000 and 1999 quarters, respectively.
The increase in amortization is due to the additional amortization in the first
quarter of 2000 related to the addition of Chicago Title.
Agent commissions represent the portion of policy premiums retained by agents
pursuant to the terms of their respective agency contracts. Agent commissions
were 79.7% of agent policy premiums in the first quarter of 2000 compared to
79.9% of agent policy premiums in the first quarter of 1999. Agent commissions
and the resulting percentage of agency premiums retained by the Company vary
according to regional differences in real estate closing practices and state
regulations.
The provision for claim losses includes an estimate of anticipated title claims
and major claims. The estimate of anticipated title claims is accrued as a
percentage of title premium revenue based on the Company's historical loss
experience and other relevant factors. The Company monitors its claims
experience on a continual basis and adjusts the provision for claim losses
accordingly. Based on Company loss development studies, the Company believes
that as a result of its underwriting and claims handling practices, as well as
the refinancing business of prior years, the Company will maintain the trend of
favorable claim loss experience. Based on this information, in the quarters
ended March 31, 2000 and 1999, the Company recorded a provision for claim losses
of 6.0% and 6.5% of title insurance premiums, respectively, net of recoupments
and prior to the impact of premium rates and Company loss experience in the
state of Texas. Premiums in Texas are all-inclusive and include a closing fee in
addition to a risk-related premium, which differs from similar coverage in other
states, while loss experience is comparable. As a result, the provision for
claim losses in Texas is much lower than in states that do not have
all-inclusive premiums. These factors resulted in a net provision for claim
losses of 5.6% and 6.3% in the first quarter of 2000 and 1999, respectively.
Interest expense is incurred by the Company in financing its capital asset
purchases, lease originations and certain acquisitions. Interest expense
consists of interest related to the Company's outstanding debt and in 1999 also
includes the amortization of original issue discount and debt issuance costs
related to the Liquid Yield Option Notes, which were converted or redeemed in
February 1999. Interest expense of "non-LYONs" debt totaled $6.6 million and
$2.4 million for the three-month periods ended March 31, 2000 and 1999,
respectively. The LYONs related component of interest expense amounted to
$445,000 for the first quarter of 1999. The increase in interest expense is
attributable to the increase in outstanding notes payable, primarily related to
the Chicago Title merger financing, and an increase in certain indices, on which
the Company's variable interest rates are based.
12
<PAGE> 13
Income tax expense for the three-month periods ended March 31, 2000 and 1999, as
a percentage of earnings before income taxes was 75.6% and 41.0%, respectively.
The fluctuation in income tax expense as a percentage of earnings before income
taxes is attributable to the Company's estimate of ultimate income tax
liability, the impact of the non-recurring charges and the characteristics of
net income, i.e., operating income versus investment income.
Liquidity and Capital Resources
The Company's cash requirements include debt service, operating expenses, lease
fundings, lease securitizations, taxes and dividends on its common stock. The
Company believes that all anticipated cash requirements for current operations
will be met from internally generated funds, through cash received from
subsidiaries, cash generated by investment securities and bank borrowings
through existing credit facilities. The short- and long-term liquidity
requirements of the Company, Insurance Subsidiaries, underwritten title
companies ("UTCs"), ancillary service companies, Micro General and FNF Capital
are monitored regularly to match cash inflows with cash requirements. The
Company and its subsidiaries forecast their daily cash needs and periodically
review their short- and long-term projected sources and uses of funds, as well
as the asset, liability, investment and cash flow assumptions underlying these
projections.
Two of the significant sources of the Company's funds are dividends and
distributions from its subsidiaries. As a holding company, the Company receives
cash from its subsidiaries in the form of dividends and as reimbursement for
operating and other administrative expenses it incurs. The reimbursements are
executed within the guidelines of various management agreements among the
Company and its subsidiaries. The Insurance Subsidiaries are restricted by state
regulations in their ability to pay dividends and make distributions. Each state
of domicile regulates the extent to which the Company's title underwriters can
pay dividends or make other distributions to the Company. The Company's UTCs,
ancillary service companies, Micro General and FNF Capital collect revenue and
pay operating expenses; however, they are not regulated to the same extent as
the Insurance Subsidiaries. Positive cash flow from the UTCs, ancillary service
companies, Micro General and FNF Capital is invested primarily in cash and cash
equivalents. Fluctuations in operating cash flows are primarily the result of
increases or decreases in revenue.
See "Overview."
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company does not believe there have been any material changes in the market
risks since December 31, 1999, which would impact the fair value of certain
assets and liabilities included in the Condensed Consolidated Balance Sheets.
Year 2000 Issues
Information technology is an integral part of the Company's business. The
Company also recognizes the critical nature of and the technological challenges
associated with the Year 2000 issue. The Year 2000 ("Y2K") issue results from
computer programs and computer hardware that utilize only two digits to identify
a year in the date field, rather than four digits. If such programs or hardware
are not modified or upgraded information systems could fail, lock up, or in
general fail to perform according to normal expectations. The Company has
implemented a program and committed both personnel and other resources to
determine the extent of Y2K issues. The scope of the Y2K program included a
review of the systems used in our title plants, title policy processing, escrow
production, claims processing, real estate related services, financial
management, human resources, payroll and infrastructure. In addition to a review
of internal systems, the Company has formally communicated with third parties
with which it does business in order to determine whether or not they are Y2K
compliant and the extent to which the Company may be vulnerable to third
parties' failure to become Y2K compliant. The Company continues the process of
identifying Y2K compliance issues in its systems, equipment and processes. The
Company will make any necessary changes to such systems, updating or replacing
such systems and equipment, and modifying such processes to make them Y2K
compliant.
13
<PAGE> 14
The Company developed a four-phase program to become Y2K compliant. Phase I is
"Plan Preparation and Identification of the Problem." This is a continuing
phase. Phase II is "Plan Execution and Remediation." Phase III is "Testing."
Phase IV is "Maintaining Y2K Compliance." The status of the Y2K compliance
program is monitored by senior management of the Company and by the Audit
Committee of the Company's Board of Directors. The costs of the Y2K related
efforts incurred to date have not been material, and the estimate of remaining
costs to be incurred is not considered to be material. These estimates may be
subject to change due to the complexities of estimating the cost of modifying
applications to become Y2K compliant and the difficulties in assessing third
parties', including various local governments upon which the Company relies upon
to provide title related data, ability to become Y2K compliant.
The Company has not experienced any Y2K compliance related issues to date.
Management of the Company believes that its electronic data processing and
information systems are Y2K compliant; however, there can be no assurance all of
the Company's systems are Y2K compliant, or the costs to be Y2K compliant will
not exceed management's current expectations, or that the failure of such
systems to be Y2K compliant will not have a material adverse effect on the
Company's business. The Company believes that functions currently performed with
the assistance of electronic data processing equipment could be performed
manually or outsourced if certain systems are determined not to be Y2K
compliant.
The Company has substantially completed a contingency plan in the event that any
systems are not Y2K compliant.
This entire section "Year 2000 Issues" is hereby designated a "Year 2000
Readiness Disclosure", as defined in the Year 2000 Information and Readiness
Disclosure Act.
14
<PAGE> 15
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been named as a defendant in four class action lawsuits
alleging irregularities and violations of title and escrow practices.
One of these suits was filed by the Attorney General of the State of
California on behalf of the California Controller and the California
Department of Insurance against the entire title and escrow industry in
California. The other three were filed by private law firms in Federal
Court in San Francisco and the State Court in Los Angeles. As a result
of extensive meetings and discussions between the Company and the
Attorney General of the State of California, the Attorney General has
issued a letter stating that it does not expect to serve Fidelity
National Financial, Inc. with a formal complaint. The Attorney General
and the Company have previously expressed with confidence that the
issues regarding the Company are likely to be resolved without
litigation. The California Department of Insurance ("Department") and
the Company reached a settlement of their lawsuit in February 2000. The
settlement does not call for any fine or penalty to be paid by the
Company. The Company anticipates that the resolution of the action filed
by the Department will serve as a basis for the resolution of the other
lawsuits filed. The Company does not believe that such resolution will
have a material impact on its financial position or on its results of
operations.
Item 4. Submission of Matter to Vote of Securities Holders
On February 9, 2000, the Company held a special meeting of stockholders
pursuant to a Notice of Meeting and Proxy Statement dated December 29,
1999. At the meeting, stockholders approved and adopted the Agreement
and Plan of Merger, dated August 1, 1999, by and between Fidelity
National Financial, Inc. and Chicago Title Corporation and amended as of
October 13, 1999, including the issuance of shares of Fidelity National
Financial, Inc. common stock in the merger of Chicago Title Corporation
with and into Fidelity National Financial, Inc. (21,668,697 for and
418,405 withheld); and approved an amendment to Fidelity National
Financial, Inc.'s Certificate of Incorporation to increase the number of
Fidelity National Financial, Inc. common stock authorized for issuance
from 50,000,000 to 100,000,000 (21,671,858 for and 410,547 withheld).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 -- Computation of Primary and Diluted Earnings Per Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated January 11, 2000, related to January
11, 2000 Press Release issued by Fidelity National Financial, Inc. and
Chicago Title Corporation confirming that the U.S. Federal Trade
Commission had completed its review of and published for public comment
a consent order for the merger of Fidelity National Financial, Inc. and
Chicago Title Corporation.
Current Report on Form 8-K, dated February 9, 2000, related to February
9, 2000 Press Release issued by Fidelity National Financial, Inc.
announcing that its stockholders approved the merger of Chicago Title
Corporation with and into Fidelity National Financial, Inc. and to
February 11, 2000 Press Release issued by Fidelity National Financial,
Inc. that it had entered into a definitive Credit Agreement with Bank of
America, N.A., as the Administrative Agent, Chase Securities Inc., as
the Syndication Agent, Morgan Stanley Funding, Inc., as the
Documentation Agent, and various financial institutions, as Lenders.
Current Report on Form 8-K and Form 8-K/A, Amendment No. 1, dated March
20, 2000, related to the merger of Chicago Title Corporation with and
into Fidelity National Financial, Inc. and Chicago Title Corporation
financial statements as of and for the three-year period ended December
31, 1999.
15
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
11 Computation of Primary and Diluted Earnings Per Share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 99.6
NOTES TO UNAUDITED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The Unaudited Condensed Consolidated Balance Sheet included in the Fidelity
National Financial, Inc. Quarterly Report on Form 10-Q as of and for the three
month period ended March 31, 2000 filed May 15, 2000, and included as Exhibit
99.5 hereto, has been prepared including the impact of the merger of Chicago
Title Corporation with and into Fidelity National, Financial, Inc. The Merger
has been accounted for using the purchase method of accounting.
The Unaudited Pro Forma Combined Statement of Operations for the three months
ended March 31, 2000 and the Unaudited Combined Pro Forma Statement of Earnings
for the year ended December 31, 1999 included herein have been prepared
including the impact of the merger of Chicago Title Corporation with and into
Fidelity National, Financial, Inc., as if the Merger had been consummated on
January 1, 2000 and January 1, 1999, respectively. The Merger has been accounted
for using the purchase method of accounting. The Pro Forma Combined Financial
Data are provided for comparative purposes only. They do not purport to be
indicative of the results that actually would have occurred if the acquisition
had been consummated on the dates indicated or the results that may be obtained
in the future.
The following footnotes describe the Pro Forma Adjustments made.
(1) Reflects interest expense incurred of merger related debt of approximately
$590.5 million at an interest rate of 7.69% and the amortization of merger
related debt issuance costs of approximately $10.2 million using the
effective interest method over six years.
(2) Represents incremental amortization of cost in excess of net assets
acquired necessary to reflect amortization of merger related cost in excess
of net assets acquired of approximately $729.8 million on a straight line
basis over twenty years.
(3) Reflects income tax benefit of interest expense and amortization of debt
issuance costs at an expected marginal tax rate of forty percent.
(4) Basic and diluted earnings (loss) per share have been calculated assuming
the issuance of approximately 38.8 million shares in connection with the
merger and the conversion of outstanding Chicago Title Corporation dilutive
securities to a basis consistent with Fidelity National Financial, Inc.
dilutive securities.
<PAGE> 2
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
2000 (IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL UNAUDITED PRO FORMA
----------------------------------- -------------------------
CHICAGO
FIDELITY TITLE COMBINED ADJUSTMENTS COMBINED
--------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
Title insurance premiums and escrow fees $ 219,653 $370,493 $590,146 $ -- $ 590,146
Other fees and revenue 62,442 34,968 97,410 -- 97,410
Interest and investment income, including
realized gains (losses) 11,885 16,923 28,808 -- 28,808
--------- -------- -------- --------- ---------
293,980 422,384 716,364 -- 716,364
--------- -------- -------- --------- ---------
EXPENSES:
Personnel costs 93,487 135,421 228,908 -- 228,908
Other operating expenses 98,395 98,339 196,734 -- 196,734
Agent commissions 90,745 146,642 237,387 -- 237,387
Provision for claim losses 10,912 21,988 32,900 -- 32,900
Interest expense 6,504 1,062 7,566 11,808(1) 19,374
--------- -------- -------- --------- ---------
300,043 403,452 703,495 11,808 715,303
--------- -------- -------- --------- ---------
Earnings (loss) before amortization of cost
in excess of net assets acquired (6,063) 18,932 12,869 (11,808) 1,061
Amortization of cost in excess of net assets
acquired 1,654 4,042 5,696 5,080(2) 10,776
--------- -------- -------- --------- ---------
Earnings (loss) before income taxes (7,717) 14,890 7,173 (16,888) (9,715)
Income tax expense (benefit) (359) 6,795 6,436 (4,723)(3) 1,713
Merger-related expenses, net of applicable
income taxes -- 8,892 8,892 8,892
--------- -------- -------- --------- ---------
Net earnings (loss) from continuing operations $ (7,358) $ 16,987 $ 9,629 $ (12,165) $ (2,536)
========= ======== ======== ========= =========
LOSS PER SHARE FROM CONTINUING OPERATIONS:
Basic N/A N/A N/A N/A $ (0.04)(4)
Diluted N/A N/A N/A N/A (0.04)(4)
</TABLE>
2
<PAGE> 3
PRO FORMA COMBINED STATEMENT OF EARNINGS FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL UNAUDITED PRO FORMA
-------------------------------------- ---------------------------
CHICAGO
FIDELITY TITLE COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
REVENUE:
Title insurance premiums and escrow fees $1,063,186 $1,988,783 $3,051,969 $ -- $3,051,969
Other fees and revenue 260,623 68,593 329,216 -- 329,216
Interest and investment income, including
realized gains (losses) 28,395 1,663 30,058 -- 30,058
---------- ---------- ---------- ----------- ----------
1,352,204 2,059,039 3,411,243 -- 3,411,243
---------- ---------- ---------- ----------- ----------
EXPENSES:
Personnel costs 407,078 625,973 1,033,051 -- 1,033,051
Other operating expenses 328,485 713,670 1,042,155 -- 1,042,155
Agent commissions 423,675 117,387 541,062 -- 541,062
Provision for claim losses 52,713 4,356 57,069 -- 57,069
Interest expense 15,626 421,999 437,625 47,108(1) 484,733
---------- ---------- ---------- ----------- ----------
1,227,577 1,883,385 3,110,962 47,108 3,158,070
---------- ---------- ---------- ----------- ----------
Earnings (loss) before amortization of cost
in excess of net assets acquired 124,627 175,654 300,281 (47,108) 253,173
Amortization of cost in excess of net
assets acquired 6,799 13,233 20,032 23,255(2) 43,287
---------- ---------- ---------- ----------- ----------
Earnings (loss) before income taxes 117,828 162,421 280,249 (70,363) 209,886
Income tax expense (benefit) 46,975 56,667 103,642 (18,843)(3) 84,799
Merger-related expenses, net of applicable
income taxes -- 4,732 4,732 -- 4,732
---------- ---------- ---------- ----------- ----------
Net earnings (loss) from continuing operations $ 70,853 $ 110,486 $ 181,339 $ (51,520) $ 129,819
========== ========== ========== =========== ==========
EARNINGS PER SHARE FROM CONTINUING OPERATIONS:
Basic $ 2.38 $ 5.06 N/A N/A $ 1.89(4)
Diluted 2.27 5.06 N/A N/A 1.84(4)
</TABLE>
3
