FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997 Commission File No. 0-13990
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LAWYERS TITLE CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 54-1589611
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6630 West Broad Street, Richmond, Virginia 23230
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (804) 281-6700
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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, 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.
Common Stock 8,912,366 April 1, 1997
No Par Value ------------------ -----------------
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets................................. 3
Consolidated Statements of Operations
and Retained Earnings .................................. 5
Consolidated Statements of
Cash Flows.............................................. 6
Notes to Consolidated
Financial Statements.................................... 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations............................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................ 10
Signatures.................................................. 11
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<CAPTION>
<S> <C>
March 31, December 31,
ASSETS 1997 1996
- ------ ---- ----
INVESTMENTS:
Fixed maturities:
Available-for-sale - at fair value (amortized
cost: 1997 - $239,032; 1996 - $214,875) $ 237,519 $ 218,224
Equity securities - at fair value (cost: 1997 -
$935; 1996 - $930) 1,730 1,725
Mortgage loans (less allowance for doubtful
accounts: 1997 and 1996 - $150) 471 480
Invested cash 35,161 71,626
------------ -----------
Total investments 274,881 292,055
CASH 17,305 23,997
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts:
1997 and 1996 - $1,008) 6,482 6,657
Accounts receivable (less allowance for doubtful
accounts: 1997 - $2,284; 1996 - $2,197) 24,790 20,003
Income tax benefits 181 -
------------ -----------
Total notes and accounts receivable 31,453 26,660
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization:
1997 - $46,895; 1996 - $44,670) 21,203 21,959
TITLE PLANTS 49,133 48,536
GOODWILL (less accumulated amortization:
1997 - $12,791; 1996 - $12,393) 59,130 59,669
DEFERRED INCOME TAXES 26,533 23,435
OTHER ASSETS 24,974 24,657
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$ 504,612 $ 520,968
============ ===========
3
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<CAPTION>
March 31, December 31,
LIABILITIES 1997 1996
- ----------- ---- ----
POLICY AND CONTRACT CLAIMS $ 197,017 $ 196,285
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 38,279 47,211
INCOME TAXES PAYABLE - 5,721
OTHER 9,507 9,583
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Total liabilities 244,803 258,800
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
5,000,000 shares, none issued or outstanding - -
Common stock, no par value, authorized 45,000,000
shares, issued and outstanding, 8,912,366 in
1997 and 8,889,791 in 1996 167,443 167,044
Unrealized investment (losses) gains (less related
deferred income tax (benefit) expense of ($251)
in 1997 and $1,450 in 1996) (466) 2,694
Retained earnings 92,832 92,430
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Total shareholders' equity 259,809 262,168
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$ 504,612 $ 520,968
============ ===========
See accompanying notes.
4
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands of dollars except per share amounts)
(Unaudited)
<CAPTION>
1997 1996
---- ----
REVENUES
Premiums $ 102,735 $ 94,720
Title search and escrow 24,435 22,749
Investment income, net 4,136 5,345
------------ -----------
131,306 122,814
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EXPENSES
Salaries and employee benefits 46,916 43,287
Agents' commissions 44,711 37,133
Provision for policy and contract claims 6,980 6,286
General, administrative and other 31,615 29,391
------------ -----------
130,222 116,097
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OPERATING INCOME BEFORE INCOME TAXES 1,084 6,717
INCOME TAX EXPENSE (BENEFIT)
Current 1,635 1,264
Deferred (1,398) 932
------------ -----------
237 2,196
------------ -----------
NET INCOME 847 4,521
DIVIDENDS (445) (444)
RETAINED EARNINGS BEGINNING OF PERIOD 92,430 57,689
------------ -----------
RETAINED EARNINGS END OF PERIOD $ 92,832 $ 61,766
============ ===========
EARNINGS PER COMMON SHARE $0.10 $0.51
===== =====
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 8,900 8,887
See accompanying notes.
5
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands of dollars)
(Unaudited)
<CAPTION>
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 847 $ 4,521
Depreciation & amortization 2,257 2,072
Amortization of bond premium 150 217
Realized investment gains (45) (2,171)
Deferred income tax (1,398) 932
Change in assets & liabilities:
Notes receivable 175 518
Accounts receivable (4,787) (88)
Income taxes receivable/payable (5,902) 952
Policy & contract claims 732 (976)
Accounts payable and accrued expenses (8,932) (1,316)
Cash surrender value of life insurance - (996)
Other (656) (954)
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Net cash (used in) provided by operating activities (17,559) 2,711
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Cash flows from investing activities:
Purchase of property & equipment - net (1,700) (2,185)
Cost of investments acquired:
Fixed maturities - available-for-sale (42,624) (29,687)
Equity securities (6) (11,235)
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 18,361 26,020
Equity securities 1 12,197
Mortgage loans 9 10
------------ -----------
Net cash used in investing activities (25.959) (4,880)
------------ -----------
Cash flows from financing activities:
Dividends paid (445) (444)
Change in notes payable 806 (1,547)
------------ -----------
Net cash provided by (used in) financing activities 361 (1,991)
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Net decrease in cash and invested cash (43,157) (4,160)
Cash & invested cash at beginning of period 95,623 40,647
------------ -----------
Cash & invested cash at end of period $ 52,466 $ 36,487
============ ===========
See accompanying notes.
6
</TABLE>
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
1. Interim Financial Information
The unaudited consolidated financial information included in this report
has been prepared in conformity with the accounting principles and
practices reflected in the consolidated financial statements included in
the Form 10-K for the year ended December 31, 1996 filed with the
Commission under the Securities Exchange Act of 1934. This report should be
read in conjunction with the aforementioned Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of this information have been made. The
results of operations for the interim periods are not necessarily
indicative of results for a full year.
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
2. Pending Legal Proceedings
For additional information, see Pending Legal Proceedings on page F-27 of
the December 31, 1996 Form 10-K .
3. Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share (Statement 128), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded and dual presentation is required regardless of the difference
between basic and diluted earnings per share. The impact of Statement 128
on the calculation of primary and diluted earnings per share for these
quarters is not expected to be material.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
Results of Operations
Operating Revenues
Operating revenues improved to $127.2 million in the first quarter of 1997 from
$117.5 million in the first quarter of 1996. This 8.3% improvement was
principally due to amounts reported by agents.
During the first quarter of 1997, 95,000 new orders for title insurance were
opened in Company offices. This level of orders was a 10% reduction from the
level of 106,000 opened in the first quarter of 1996. This reduction is believed
to be in response to higher interest rates in the first quarter of 1997 than the
first quarter of 1996 and to result from a lower level of refinancing
transactions.
Investment Income
Investment income was $4.1 million in the first quarter of 1997 compared to $5.3
million in the first quarter of 1996.
The 1996 quarter benefited from capital gains of $2.2 million while there were
no significant gains in the first quarter of 1997. The first quarter of 1997
also reflects increased interest income compared to the same quarter of 1996 due
to the Company's move of a portion of its investment portfolio out of equity
securities and into fixed maturity securities in the fourth quarter of 1996.
Expenses
The operating margin, before claims and investment income, was 3.1% in the first
quarter of 1997 compared to 6.5% in the first quarter of 1996. The margin in
1997 was impacted by an increase in average agent's commission rates of 1.3%.
This reflects increased competition for agency business. Also impacting the
margins during the first quarter of 1997 were our efforts to grow and expand our
other real estate related services. This effort continued from the second half
of 1996 during which we have invested funds to not only increase the bundle of
services we bring to the marketplace, but to automate the way we bring these
products to our customer base. While these investments have put some near-term
pressure on margins, they are an essential part of our long-term, competitive
strategy.
In the light of the reduction in order counts and upward pressures on interest
rates in the first quarter of 1997, management continues to closely monitor
staffing levels and cost structures.
8
<PAGE>
Management is committed to maintaining a very competitive cost structure but
acknowledges the need for a commitment to high levels of customer service and
future growth.
Net Income
Net income was $847 thousand or $.10 per share for the quarter ended March 31,
1997 compared to net income of $4.5 million or $.51 per share for the quarter
ended March 31, 1996.
Liquidity and Capital Resources
Management believes that the Company has adequate resources to meet its short
and long-term capital needs at March 31, 1997. At that date cash and invested
cash balances of $52.5 million and fixed maturity security balances totaling
$237.5 million were held by the Company. Additionally, the Company has an unused
$35.0 million line of credit at March 31, 1997.
Reference is made to Item 7, "Forward-Looking and Cautionary Statements" on page
26 of the December 31, 1996 Form 10-K, regarding important factors that could
cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company, including
forward-looking statements contained in Item 2 of this Form 10-Q.
9
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
10
<PAGE>
Signature
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.
LAWYERS TITLE CORPORATION
(Registrant)
Date: May 13, 1997 /s/ Charles Henry Foster, Jr.
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Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: May 13, 1997 /s/ George William Evans
--------------------- ----------------------------
George William Evans
Vice President and Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 237,519
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,730
<MORTGAGE> 471
<REAL-ESTATE> 0
<TOTAL-INVEST> 274,881
<CASH> 17,305
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 504,612
<POLICY-LOSSES> 197,017
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 167,443
<OTHER-SE> 92,366
<TOTAL-LIABILITY-AND-EQUITY> 504,612
102,735
<INVESTMENT-INCOME> 4,136
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 24,435
<BENEFITS> 6,980
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 123,242
<INCOME-PRETAX> 1,084
<INCOME-TAX> 237
<INCOME-CONTINUING> 847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
<RESERVE-OPEN> 196,285
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 197,017
<CUMULATIVE-DEFICIENCY> 0
</TABLE>