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 June 30, 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 July 24, 1997
No Par Value ----------------- ----------------
1
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
INDEX
Page No.
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
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
- ------ ---- ----
<S> <C>
INVESTMENTS:
Fixed maturities available-for-sale - at fair
value (amortized cost: 1997 - $242,190;
1996 - $214,875) $ 245,125 $ 218,224
Equity securities - at fair value (cost: 1997 -
$933; 1996 - $930) 1,716 1,725
Mortgage loans (less allowance for doubtful
accounts: 1997 and 1996 - $150) 461 480
Invested cash 23,311 71,626
------------ -----------
Total investments 270,613 292,055
CASH 26,927 23,997
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts:
1997 - $1,249; 1996 - $1,008) 6,499 6,657
Accounts receivable (less allowance for doubtful
accounts: 1997 - $2,351; 1996 - $2,197) 28,988 20,003
------------ -----------
Total notes and accounts receivable 35,487 26,660
PROPERTY AND EQUIPMENT - at cost (less accumulated depreciation and
amortization:
1997 - $49,233; 1996 - $44,670) 21,371 21,959
TITLE PLANTS 48,556 48,536
GOODWILL (less accumulated amortization:
1997 - $13,187; 1996 - $12,393) 59,279 59,669
DEFERRED INCOME TAXES 26,622 23,435
OTHER ASSETS 33,424 24,657
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$ 522,279 $ 520,968
============ ===========
</TABLE>
3
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES 1997 1996
- ----------- ---- ----
<S> <C>
POLICY AND CONTRACT CLAIMS $ 198,023 $ 196,285
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES 41,671 47,211
INCOME TAXES PAYABLE 667 5,721
OTHER LIABILITIES 11,610 9,583
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Total liabilities 251,971 258,800
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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 167,494 167,044
Unrealized investment gains (less related
deferred income tax expense of $1,301
in 1997 and $1,450 in 1996) 2,417 2,694
Retained earnings 100,397 92,430
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Total shareholders' equity 270,308 262,168
------------ -----------
$ 522,279 $ 520,968
============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C>
REVENUES
Premiums $ 225,140 $ 213,187 $ 122,405 $ 118,467
Title search, escrow and other 54,048 48,167 29,613 25,418
Investment income 8,383 10,753 4,247 5,408
---------- ---------- ---------- ----------
287,571 272,107 156,265 149,293
---------- ---------- ---------- ----------
EXPENSES
Salaries and employee benefits 96,818 89,768 49,902 46,481
Agents' commissions 95,766 86,385 51,055 49,252
Provision for policy and contract claims 15,320 13,584 8,340 7,298
General, administrative and other 66,189 61,855 34,574 32,464
---------- ---------- ---------- ----------
274,093 251,592 143,871 135,495
---------- ---------- ---------- ----------
OPERATING INCOME BEFORE
INCOME TAXES 13,478 20,515 12,394 13,798
INCOME TAX EXPENSE
Current 7,660 7,535 6,025 6,271
Deferred (3,040) (585) (1,642) (1,517)
---------- ---------- ---------- ----------
4,620 6,950 4,383 4,754
---------- ---------- ---------- ----------
NET INCOME 8,858 13,565 8,011 9,044
DIVIDENDS (891) (889) (446) (445)
RETAINED EARNINGS BEGINNING
OF PERIOD 92,430 57,689 92,832 61,766
---------- ---------- ---------- ----------
RETAINED EARNINGS END
OF PERIOD $ 100,397 $ 70,365 $ 100,397 $ 70,365
========== ========== ========== ==========
EARNINGS PER COMMON SHARE $ .99 $ 1.53 $ .90 $ 1.02
========== ========== ========== ==========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,906 8,887 8,912 8,887
</TABLE>
See accompanying notes.
5
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LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C>
Cash flows from operating activities:
Net income $ 8,858 $ 13,565
Depreciation & amortization 4,744 4,180
Amortization of bond premium 284 408
Realized investment gains (101) (4,437)
Deferred income tax (3,040) (585)
Change in assets & liabilities:
Notes receivable 158 344
Premiums receivable (8,985) (409)
Current income taxes (5,054) 4,719
Policy & contract claims 1,738 33
Cash surrender value of life insurance (8,478) (743)
Accounts payable and accrued expenses (5,540) 1,513
Other (834) (2,817)
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Net cash (used in) provided by operating activities (16,250) 15,771
---------- ---------
Cash flows from investing activities:
Purchase of property & equipment - net (3,382) (4,202)
Purchase of businesses, net of cash acquired - (2,320)
Cost of investments acquired:
Fixed maturities (71,308) (53,219)
Equity securities (6) (19,907)
Proceeds from investment sales or maturities:
Fixed maturities 43,770 40,789
Equity securities 44 24,018
Mortgage loans 19 93
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Net cash used in investing activities (30,863) (14,748)
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Cash flows from financing activities:
Dividends paid (891) (889)
Change in notes payable 2,619 1,095
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Net cash provided by financing activities 1,728 206
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Net (decrease) increase in cash and invested cash (45,385) 1,229
Cash & invested cash at beginning of period 95,623 40,647
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Cash & invested cash at end of period $ 50,238 $ 41,876
========== =========
</TABLE>
See accompanying notes.
6
<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
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Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
Results of Operations
Net Income
Net income reported for the second quarter 1997 was $8.0 million or $.90 per
share compared to $9.0 million or $1.02 per share for the second quarter of
1996. The 1996 quarter included $2.3 million in capital gains before taxes,
while there were no significant capital gains in the 1997 quarter.
Net income for the first six months of 1997 was $8.9 million or $.99 per share
compared to $13.6 million or $1.53 per share for the same period of 1997. The
first half of 1996 benefited from the realization of $4.5 million of capital
gains on a pretax basis while there were no significant capital gains in the
first half of 1997.
Operating Revenues
Operating revenues improved 5.7% to $152.0 million in the second quarter of 1997
compared to $143.9 million reported in the second quarter of 1996. This
improvement was attributed largely to strength in revenues in direct operations.
In the six months ended June 30, 1997 revenues improved 6.8% to $279.2 million
in comparison to the six months ended June 30, 1996.
Although orders opened in direct offices decreased 4.0% for the first six months
of 1997 compared to the same period of 1996, orders for the second quarter of
1997 were approximately 2.0% greater than the second quarter of 1996. While
there is no assurance that opened orders will close, this level of order
activity provides a strong base for the start of the third quarter of 1997.
Investment Income
Investment income decreased in the three and six-month periods ended June 30,
1997 compared to the same periods of 1996. These decreases were primarily
attributable to the decreases in capital gains activity previously discussed.
These capital gains decreases were offset by increases in interest and dividend
income resulting from the move of a portion of the Company's investment
portfolio out of equity securities and into fixed maturity securities in the
fourth quarter of 1996.
8
<PAGE>
Expenses
The operating margin before claims and investment income was 10.8% in the second
quarter of 1997 virtually flat with the margin for the second quarter of 1996.
The margin in 1997 was protected despite an increase in average agents'
commission rates of 1.0% reflecting increased competition for agency business.
The provision for policy and contract claims was 5.5% of operating revenue in
the second quarter and first half of 1997 compared to 5.1% and 5.2% for the
comparable periods of 1996. These ratios are consistent with the claims
experience of recent quarters.
Liquidity and Capital Resources
As of June 30, 1997 the Company held cash and invested cash of $50.2 and
fixed-maturity securities of $245.1 million. Additionally, the Company had
unutilized lines of credit totaling $31.0 million at that time. Management
believes that the Company can meet both its short and long-term capital needs as
of June 30, 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
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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: August 12, 1997 /s/ Charles Henry Foster, Jr.
------------------------ --------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: August 12, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 245,125
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,716
<MORTGAGE> 461
<REAL-ESTATE> 0
<TOTAL-INVEST> 270,613
<CASH> 26,927
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 522,279
<POLICY-LOSSES> 198,023
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 167,494
<OTHER-SE> 102,814
<TOTAL-LIABILITY-AND-EQUITY> 522,279
225,140
<INVESTMENT-INCOME> 8,383
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 54,038
<BENEFITS> 15,320
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 258,773
<INCOME-PRETAX> 13,478
<INCOME-TAX> 4,620
<INCOME-CONTINUING> 8,858
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,858
<EPS-PRIMARY> .99
<EPS-DILUTED> 0
<RESERVE-OPEN> 196,285
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 198,023
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
