SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
COMMISSION FILE NO. 1-13990
LAWYERS TITLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6630 West Broad Street
Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
(804) 281-6700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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 ___
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 3, 1997 was approximately $198,745,000. Directors of
registrant are considered affiliates for purposes of this calculation but should
not necessarily be deemed affiliates for any other purpose.
The number of shares of Common Stock, no par value, outstanding on March 3,
1997, was 8,908,991.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1997 Annual Meeting of
Shareholders (to be filed) are incorporated by reference into Part III hereof.
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PART I
ITEM 1. BUSINESS
The Company
Lawyers Title Corporation (the "Company") is a holding company organized under
the laws of the Commonwealth of Virginia on June 24, 1991. The Company's
principal subsidiary, Lawyers Title Insurance Corporation ("Lawyers Title"), has
been engaged since 1925 primarily in the title insurance business through its
network of branches, service offices, subsidiaries and agencies. As a holding
company, the Company has greater flexibility in conducting certain operations,
especially with regard to capital transactions, while the operating title
insurance subsidiaries remain subject to regulation by the various states. See
"Regulation" below.
Lawyers Title
Lawyers Title was founded in 1925 in Richmond, Virginia. It soon expanded into
other southeast states and by 1934 had become the largest title insurance
company in the South, with over 3,000 approved attorneys and agents. Branches
and agents were added gradually in other states, and the post-World War II years
promoted substantial growth of Lawyers Title. The business continued to expand
nationally and into U.S. possessions and Canada. By the early 1960s, Lawyers
Title's operations covered the entire country (with the exception of Iowa, which
does not recognize title insurance).
In the 1970s, Lawyers Title purchased two title underwriters, Mid-South Title
Insurance Corporation ("Mid-South Title"), headquartered in Memphis, Tennessee,
and Land Title Insurance Company ("Land Title"), headquartered in California. In
the 1980s, Lawyers Title combined its California operations, improving its
service and operations in the state which provides the single largest source of
premium revenue for the title insurance industry. California World Financial
Corporation and its wholly owned subsidiary, California - World Title Company,
merged into an entity then known as Continental Land Title Company, which
ultimately became a subsidiary of Lawyers Title, with operations in California,
Oregon and Arizona. In 1989, the California subsidiary's name became Continental
Lawyers Title Company ("Continental Lawyers"), to emphasize its relationship
with the national company.
In 1994, Lawyers Title purchased two additional title underwriters, Oregon Title
Insurance Company ("Oregon Title"), headquartered in Portland, Oregon, and Title
Insurance Company of America ("TICA"), headquartered in Dallas, Texas. Effective
December 1, 1995, TICA was merged into Mid-South Title, whose name was changed
to Title Insurance Company of America (hereinafter "TICA" refers to such
surviving corporation).
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Lawyers Title has its National Headquarters offices at 6630 West Broad Street,
Richmond, Virginia 23230. Its telephone number is (804) 281-6700. Unless the
context otherwise requires, Lawyers Title, as used herein, refers to Lawyers
Title and each of its branches, service offices, subsidiaries and agencies.
General
Lawyers Title is engaged in the business of providing title insurance and
related services. In addition to writing title insurance, in some states Lawyers
Title furnishes certificates of title and abstracts of title. As an incident to
the issuance of title insurance, Lawyers Title also offers a closing protection
letter to lenders and owners who purchase title insurance, and in some areas it
also serves as an escrow agent in closing real estate transactions.
Most title insurance policies sold by Lawyers Title and its subsidiaries are
underwritten by Lawyers Title; however, title insurance policies are also
underwritten by Oregon Title in Oregon, and TICA is licensed and qualified to
underwrite policies in Texas, Tennessee, Florida, Ohio, Georgia, Louisiana,
Alabama, Arkansas, Virginia, Michigan, Illinois and Kentucky. Land Title only
reissues policies it has previously issued. Policies previously issued by
Mid-South Title remain in effect in Tennessee, Mississippi, Arkansas, Alabama,
Florida, Georgia and Louisiana.
Lawyers Title's business is conducted in 49 states and in the District of
Columbia, the territories of Puerto Rico and the U.S. Virgin Islands, the
Bahamas and a number of Canadian provinces. Geographical coverage is provided by
Lawyers Title's nationwide network of 14 National Division offices, 10 regional
offices and approximately 260 branch and closing/escrow offices. In addition,
Lawyers Title has approximately 3,800 independent agents and 36,000 approved
attorneys.
Title insurance policies are written through and issued by branch offices of
Lawyers Title and its underwriting subsidiaries, by title insurance agents or by
some combination thereof. Agencies may be either independently owned or
subsidiaries of Lawyers Title. In the western states, Lawyers Title operates
primarily through independent agents and subsidiaries (Continental Lawyers,
American Title Group, Inc., Lawyers Title of Arizona, Inc. and Oregon Title),
while its eastern operations are conducted through branch offices, agents and
approved attorneys. In the fiscal year ended December 31, 1996, approximately
53.5% of total title insurance revenues were derived from direct operations
(company branches and wholly owned subsidiary agencies) and 46.5% came from
independent agents. As of December 31, 1996, no single independent agent was the
source of more than 5% of the title insurance revenues of Lawyers Title.
Lawyers Title and its subsidiaries also provide escrow services
to customers in various areas of the country. Primarily in the
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western states, it is a general practice, incident to the issuance of title
insurance policies, to hold funds and documents in escrow for delivery in real
estate transactions upon fulfillment of the conditions to such delivery. In the
mid-western states, Florida and some eastern cities, it is customary for the
title company to close the transaction and disburse the sale or loan proceeds.
Fees for such escrow and closing services are generally separate and distinct
from the title insurance premiums.
Lawyers Title has two wholly owned subsidiaries devoted to computer automation
of various aspects of the title insurance business, including on-line title
plants, policy issuance and closing documentation and support functions. These
are Datatrace Information Services Company, Inc. and Genesis Data Systems, Inc.
Another subsidiary, Lawyers Title Exchange Company, facilitates tax-free
property exchanges pursuant to Section 1031 of the Internal Revenue Code by
holding the sale proceeds from one transaction until a second acquisition
occurs, thereby assisting customers in deferring the recognition of taxable
income.
In 1994, the Company formed a new subsidiary, Lawyers Title Environmental
Insurance Service Agency, Inc., to market environmental insurance products for
commercial properties under a marketing agreement with Environmental Warranty,
Inc. ("EWI"), a Connecticut corporation. EWI was previously a program
administrator for SAFECO Corporation. EWI is currently a managing general agent
for American International Group, one of the largest and most active
underwriters in the environmental insurance field. Lawyers Title has a minority
interest in EWI.
In 1996, Lawyers Title formed a new subsidiary, Lawyers Title Services Company,
Inc. ("LTSC") to coordinate residential real estate transactions for national
lenders and to provide other real estate related products and services (such as
appraisals, tax services, flood certification, surveys, and document
preparation) through a single source. LTSC is currently qualified in 22 states.
Also in 1996, Lawyers Title, through a newly formed subsidiary, Global Corporate
Services, Inc. acquired a 50% ownership interest in Argonaut Relocation
Services, LLC ("Argonaut") a Michigan limited liability company. Argonaut, which
employs approximately 120 individuals, offers a full line of employee relocation
services to companies moving employees anywhere in the world.
Title Insurance
In general, title insurance policies indemnify the insured from losses resulting
from certain outstanding liens, encumbrances and other defects in title to real
property that appear as matters of public record, and from certain other matters
not of public record. Many of the principal customers of title insurance
companies buy insurance for the accuracy and reliability of the title search as
well as for the indemnity features of the policy. The beneficiaries of title
insurance policies are generally
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owners or buyers of real property or parties who make loans on the security of
real property. An owner's policy protects the named insured against title
defects, liens and encumbrances existing as of the date of the policy and not
specifically excluded or excepted from its provisions, while a lender's policy,
in addition to the foregoing, insures against the invalidity of the lien of the
insured mortgage and insures the priority of the lien as stated in the title
policy.
Lawyers Title issues title insurance policies on the basis of a title report,
which is prepared pursuant to underwriting guidelines prescribed in manuals
published by Lawyers Title, after a search of the public records, maps and
documents to ascertain the existence of easements, restrictions, rights of way,
conditions, encumbrances, liens or other matters affecting the title to, or use
of, real property. In certain instances, a visual inspection of the property is
also made. Title examinations may be made by branch employees, agency personnel
or approved attorneys, whose reports are utilized by or rendered to a branch or
agent and are the basis for the issuance of policies by such branch or agent.
In the case of difficult or unusual legal or underwriting issues involving
potential title risks, the branch office or agent is instructed to consult with
a supervising Lawyers Title office. Contracts with agencies require that the
agent seek prior approval of Lawyers Title in order to commit Lawyers Title to
assume a risk over a stated dollar limit. Pursuant to agency agreements, Lawyers
Title assumes all of the risks to the insured, in the absence of certain types
of misconduct by the agent, in return for a portion of the premium received.
Lawyers Title owns a number of title plants and in some areas leases or
participates with other title insurance companies or agents in the cooperative
operating of such plants. Title plants are compilations of copies of public
records, maps and documents that are indexed to specific properties in an area,
and they serve to facilitate the preparation of title reports. In many of the
larger markets, the title plant and search procedures have been automated. To
maintain the value of the title plants, Lawyers Title continually updates its
records by regularly adding current information from the public records and
other sources. In this way, Lawyers Title maintains the ability to produce
quickly and at a reduced expense a statement of the instruments which constitute
the chain of title to a particular property.
The premium for title insurance is due in full when the title transaction is
closed, and the policy amount is usually based upon the purchase price of the
property or the amount of the loan secured by the property. While most other
forms of insurance provide for the assumption of risk of loss arising out of
unforeseen future events, title insurance serves to protect the policyholder
from the risk of loss from events that predate the issuance of the policy. This
distinction underlies the low claims loss experience of title insurers as
compared to other insurance underwriters. Losses generally result either from
judgment errors
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or mistakes made in the title search and examination process or the escrow
process or from hidden defects such as fraud, forgery, incapacity or missing
heirs. Operating expenses, on the other hand, are higher for title insurance
companies than for other companies in the insurance industry. Most title
insurers incur considerable costs relating to the personnel required to process
forms, search titles, collect information on specific properties and prepare
title insurance commitments and policies.
A title policy can be issued directly by a title insurer or indirectly on behalf
of a title insurer through agents which are not themselves licensed as insurers.
Where the policy is issued by a title insurer, the search is performed by or at
the direction of the title insurer, and the premium is collected and retained by
the title insurer. Where the policy is issued through an agent, the agent
generally performs the search (in some areas searches are performed by approved
attorneys), examines the title, collects the premium and retains a portion of
the premium. The remainder of the premium is remitted to the title insurer as
compensation for bearing the risk of loss in the event a claim is made under the
policy. The percentage of the premium retained by an agent varies from region to
region and is sometimes regulated by the states. A title insurer is obligated to
pay title claims in accordance with the terms of its policies, regardless of
whether it issued its policy directly or indirectly through an agent.
Insured Risk on Policies in Force
The amount of the insured risk or "face amount" of insurance under a title
insurance policy is generally equal to either the purchase price of the property
or the amount of the loan secured by the property. The insurer is also
responsible for the cost of defending the insured title against covered claims.
The insurer's actual exposure at any time is significantly less than the total
face amount of policies in force because the risk on an owner's policy is often
reduced over time as a result of subsequent transfers of the property and the
reissuance of title insurance by other title insurance underwriters, and the
coverage of a lender's policy is reduced and eventually terminated as a result
of payment of the mortgage loan. Because of these factors, the total contingent
liability of a title underwriter on outstanding policies cannot be precisely
ascertained.
In the ordinary course of business, Lawyers Title and its underwriting
subsidiaries represent and defend the interests of their insureds, and provide
on the Company books for estimated losses and loss adjustment expenses. Title
insurers are sometimes subject to unusual claims (such as claims of Indian
tribes to land formerly inhabited by them) and to claims arising outside the
insurance contract, such as for alleged negligence in search, examination or
closing, alleged improper claims handling and alleged bad faith. The damages
alleged in such claims arising outside the insurance contract may often exceed
the stated liability limits of the policies involved. While Lawyers Title in
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the ordinary course of its business has been subject from time to time to these
types of claims, Lawyers Title's losses to date on such claims have not been
significant in number or material in dollar amount to the Company's financial
condition. In recent years, Lawyers Title has also experienced several large
claims resulting from agent escrow defalcations, and as a result of experience
in those cases, has put in place more stringent agent qualification and audit
procedures.
Liabilities for estimated losses and loss adjustment expenses represent the
estimated ultimate net cost of all reported and unreported losses incurred
through December 31, 1996. The reserves for unpaid losses and loss adjustment
expenses are estimated using individual case-basis valuations and statistical
analyses. Those estimates are subject to the effects of trends in loss severity
and frequency. Although considerable variability is inherent in such estimates,
management believes that the reserves for losses and loss adjustment expenses
are adequate. The estimates are continually reviewed and adjusted as necessary
as experience develops or new information becomes known; such adjustments are
included in current operations. The provision for policy and contract claims as
a percentage of operating revenues for 1996 was 5.2%, for 1995 was 5.2%, and for
1994 was 9.6%. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations."
Lawyers Title generally pays losses in cash; however, it sometimes settles
claims by purchasing the interest of the insured in the real property or the
interest of the claimant adverse to the insured. Assets acquired in this manner
are carried at the lower of cost or estimated realizable value, net of any
indebtedness thereon.
Lawyers Title places a high priority on maintaining effective quality assurance
and claims administration programs. Lawyers Title's quality assurance program
focuses on quality control, claims prevention and product risk assessment in its
branches, subsidiaries and independent agencies. The claims administration
program focuses on improving liability analysis, prompt, fair and effective
handling of claims, prompt evaluation of settlement or litigation with first and
third-party claimants and appropriate use of ADR (Alternative Dispute
Resolution) in claims processing. In addition, to reduce the incidence of agency
defalcations, Lawyers Title has strengthened its procedures for renewing
existing agents, has expanded its due diligence requirements in acquiring new
agents and has intensified its Agency Audit Program. The Company continues to
refine its systems for maintaining effective quality assurance and claims
administration programs.
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Reinsurance and Coinsurance
Lawyers Title distributes large title insurance risks through the mechanisms of
reinsurance and coinsurance. In reinsurance agreements, the reinsurer accepts
that part of the risk which the primary insurer (the "ceding company" or
"ceder") decides not to retain, in consideration for a portion of the premium. A
number of factors may enter into a company's decision to reinsure, including
retention limits imposed by state law, customer demands and the risk retention
philosophy of the company. The ceder, however, remains liable to the insured for
the total risk, whether or not the reinsurer meets its obligation. As a general
rule, when Lawyers Title purchases reinsurance on a particular risk it will
retain a primary risk of 5% of the total risk with a minimum primary risk of $5
million and may participate with reinsurers on liability amounts above the
primary level on a secondary level. In the absence of specific approval by
management, reinsurance generally is purchased if the risk is greater than $35
million.
Lawyers Title also assumes reinsurance from other title insurance underwriters
pursuant to a standard reinsurance agreement concerning specific title insurance
risks for properties on which it assumes a portion of the liability. Lawyers
Title has entered into numerous reinsurance agreements with other title
insurance underwriters on specific transactions. Lawyers Title's exposure on all
reinsurance assumed is reduced due to retention by the ceding company of a
substantial primary risk level. In addition, exposure under these agreements
generally ceases upon a transfer of the insured properties and, with respect to
insured loans, is decreased by reductions in mortgage loan balances. Because of
this, the actual exposure is much less than the total reinsurance which Lawyers
Title has assumed. Lawyers Title provides loss reserves on assumed reinsurance
business on a basis consistent with reserves for direct business.
Lawyers Title also utilizes coinsurance to enable it to provide coverage in
amounts greater than it would be willing or able to undertake individually.
Under coinsurance transactions, each individual underwriting company issues its
individual policy and assumes a fraction of the overall total risk. There is
liability for each participating company for the particular fraction of the risk
it assumes.
Lawyers Title enters into reinsurance and coinsurance arrangements with most of
the larger participants in the title insurance market and such arrangements are
not materially concentrated with any single title insurance company. Revenues
and claims from reinsurance are not material to Lawyers Title's business as a
whole.
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Title Insurance Premium Revenues
In the years ended December 31, 1996, 1995 and 1994, premiums from the issuance
of title policies represented 76.8%, 79.9% and 82.6%, respectively, of the
Company's consolidated revenues.
The table below sets forth, for the years ended December 31, 1996, 1995 and
1994, the approximate dollars and percentages of the Company's title insurance
premium revenues for the ten states representing the largest percentages of such
revenues and for all other states combined:
Year Ended December 31,
(Amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
Amount % Amount % Amount %
------ ----- ------ ----- ------ -----
<S> <C>
Texas $ 98,762 21.6% $ 82,604 21.4% $ 63,487 15.3%
California 48,841 10.7 28,530 7.4 33,984 8.2
Florida 33,340 7.3 26,852 7.0 29,173 7.1
Pennsylvania 30,223 6.6 29,468 7.6 28,929 7.0
New York 24,318 5.3 17,396 4.5 23,268 5.6
Michigan 23,067 5.1 20,625 5.3 24,304 5.9
Virginia 20,613 4.5 19,968 5.2 21,958 5.3
Ohio 18,130 4.0 14,503 3.8 20,001 4.8
New Jersey 15,391 3.4 14,123 3.7 18,364 4.5
Massachusetts 13,356 2.9 11,187 2.9 13,716 3.3
All Others 130,336 28.6 120,615 31.2 136,673 33.0
-------- ----- -------- ----- -------- -----
Totals $456,377 100.0% $385,871 100.0% $413,857 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Sales and Marketing
Although Lawyers Title enhances its business development through general
advertising, it believes its primary source of business is from the real estate
community, such as attorneys, real estate brokers and developers, financial
institutions, mortgage brokers and independent escrow agents. Lawyers Title's
business results from construction and sale of new housing, resales and
refinancings of residential real estate and from commercial real estate
activity. In the 1990s Lawyers Title has placed a renewed emphasis on
residential real estate activity while maintaining a leadership position in
insuring commercial real estate transactions. Although precise data are not
available to compare the percentage of total premium revenues of Lawyers Title
derived from commercial versus residential real estate activities, 83% of such
revenues in 1996 resulted from policies providing coverage of $1 million or less
(which tend to be residential) and 17% of such revenues resulted from policies
providing coverage in excess of $1 million.
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Regional differences exist in Lawyers Title's sales and marketing emphasis. In
eastern metropolitan areas, for instance, Lawyers Title has emphasized the
marketing of title insurance for commercial real estate transactions. In the
western states, primarily California, the principal source of business has been
resales and refinancings of residential real estate and construction and sales
of new housing.
To increase profits and improve margins, Lawyers Title is expanding its direct
operations in markets with projected growth, attractive title insurance rates
and favorable claims experience. Since 1992, Lawyers Title has acquired title
operations in Texas, North Carolina, Oregon, Florida, Virginia, Maryland,
District of Columbia, Ohio, Maine, Michigan, New Mexico, New Jersey,
Pennsylvania and Wisconsin. See "Recent Acquisitions." In addition, within the
last three years Lawyers Title has added closing/escrow offices and sales
representatives in many markets.
Lawyers Title has gained a favorable reputation for its National Division
offices which specialize in the sale and servicing of title insurance for
complex commercial and multi-property transactions. Lawyers Title has 14 such
offices located in strategic metropolitan areas throughout the country. Each of
these National Division offices markets title insurance products and services to
large commercial customers in its areas and serves the customer's title
insurance needs throughout the country.
LTSC, located at Lawyers Title's National Headquarters, also services national
lenders which seek to obtain title insurance products and services as well as a
variety of other real estate related products and services such as appraisals,
tax services, flood certifications, surveys and document preparation through a
single source. LTSC is able to offer lenders one stop shopping for such products
and services based on the internal capabilities of Lawyers Title and strategic
alliances with other providers.
Customers
Lawyers Title is not dependent upon any single customer or any single group of
customers. The loss of any one customer would not have a material adverse effect
on Lawyers Title.
Competition
The title insurance business is very competitive. Competition is based primarily
on price, service and expertise. The size and financial strength of the insurer
are also important factors, particularly for larger commercial customers. Title
insurance underwriters also compete for agents on the basis of service and
commission levels.
Lawyers Title is one of the largest title insurance underwriters in the United
States based on gross title revenues. Its principal
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competitors are other major title insurance underwriters and their agency
networks. These include Chicago Title Insurance Company, First American Title
Insurance Company, Commonwealth Land Title Insurance Company, Stewart Title
Guaranty Company, Old Republic National Title Insurance Company and Fidelity
National Title Insurance Company. Of the more than one hundred title insurance
underwriting companies licensed in the United States, the top seven companies
account for approximately 90% of the title insurance market.
Lawyers Title and its title insurance subsidiaries are subject to regulation by
the insurance authorities of the states in which they do business. See
"Regulation." Within this regulatory framework, Lawyers Title competes with
respect to premium rates, coverage, risk evaluation, service and business
development.
State regulatory authorities impose underwriting limits on title insurers based
primarily on levels of available capital and surplus. While such limits may
theoretically hinder Lawyers Title's assumption of a particular large
underwriting liability, in practice Lawyers Title has established its own
internal risk limits at levels substantially lower than those allowed by state
law. Therefore, statutory capital-based risk limits are not considered by
Lawyers Title to be a significant factor in the amount or size of underwriting
it may undertake. However, some of Lawyers Title's competitors, within their
family of underwriters, have much greater available capital resources and are
able to assume greater levels of individual policy risk without distributing
such risk through reinsurance. Therefore, such companies may have a certain
competitive advantage in bidding for larger policies over Lawyers Title, which
may have to arrange reinsurance or coinsurance coverage.
Regulation
The title insurance business is regulated by state regulatory authorities who
possess broad powers relating to the granting and revoking of licenses, and the
type and amount of investments which Lawyers Title and its insurance
subsidiaries may make. These state authorities also regulate insurance rates,
forms of policies and the form and content of required annual statements, and
have the power to audit and examine the financial records of these companies.
Under state laws, certain levels of capital and surplus must be maintained and
certain amounts of portfolio securities must be segregated or deposited with
appropriate state officials. State regulatory policies also restrict the amount
of dividends which insurance companies may pay without prior regulatory
approval.
The National Association of Insurance Commissioners has adopted model
legislation which if enacted would regulate title insurers and agents nationally
and change certain statutory reporting requirements. The proposed legislation
also would require title insurers to audit agents periodically and require
licensed agents to maintain professional liability insurance. The Company cannot
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predict whether the proposed legislation or any provision thereof will be
adopted in Virginia or any other state. In 1996, Virginia enacted legislation
requiring an annual certification of reserve adequacy by a qualified actuary to
comply with the new statutory reporting requirements.
A substantial portion of the assets of Lawyers Title and its underwriting
subsidiaries consists of their portfolios of investment securities. As a title
insurance company domiciled in Virginia, Lawyers Title is required by state
statute to maintain assets of a statutorily defined quality in an amount equal
to its total liabilities determined on a statutory basis plus 50% of statutory
equity. For statutory purposes, the insurer's total liabilities include a
statutory premium reserve, reserves established for losses in the course of
settlement ("case reserves") and other liabilities related to operations.
The statutorily required assets are maintained by Lawyers Title in
investment-grade corporate securities and United States, state and local
obligations. In addition to these investments, Lawyers Title maintains
portfolios of cash and cash-equivalents. The investment portfolios are managed
by professional investment advisors whose work is reviewed by the Pension and
Portfolio Committee of the Company's Board of Directors.
Land Title, TICA and Oregon Title, domiciled in California, Tennessee and
Oregon, respectively, are similarly required to maintain certain levels and
qualities of assets.
Many state insurance regulatory laws intended primarily for the protection of
policyholders contain provisions that require advance approval by state agencies
of any change in control of an insurance company or insurance holding company
that is domiciled (or, in some cases, doing business) in that state. Under such
current laws, any future transaction that would constitute a change in control
of the Company would generally require approval by the state insurance
departments of Virginia, California, Tennessee, Texas, Ohio and Oregon. Such
requirement may have the effect of delaying or preventing certain transactions
affecting the control of the Company or the ownership of the Company's Common
Stock, including transactions that could be advantageous to the shareholders of
the Company.
Investment Policies
The Company earns investment income from its portfolio of securities.
Historically, as a general policy, Lawyers Title limited its investments in
equity securities to approximately 50% of its statutory surplus. In 1996, the
Company changed its strategy for insurance company portfolios by shifting away
from investments in equity securities and into fixed-maturity securities. The
Company believes that the effect on future operations will be to replace the
lower dividend yields and variable capital gains experience of the equity
securities with the more steady and predictable stream of interest income from
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fixed-maturity securities. The fixed-maturity portfolio consists of investment
grade securities and is designed to comply with the various state regulatory
requirements while maximizing yield. The Company regularly re-examines its
portfolio strategies in light of changing earnings or tax situations. See Note 3
to the Consolidated Financial Statements and the General section of Management's
Discussion and Analysis for the major categories of investments, contractual
maturities and income received.
Seasonality; Backlog
The title insurance business is closely related to overall levels of real estate
activity. Historically, real estate activity has been generally slower in the
winter months with volumes showing significant improvements in the spring and
summer months. The percentage of title orders closed to title orders opened is
typically lower in the first six months than at year end because of this
seasonal variance. In addition, the title insurance business is cyclical due to
the effect of interest rate fluctuations on the level of real estate activity.
Periods of high interest rates adversely affect real estate activity and
therefore premium revenues.
Employees
As of December 31, 1996, the Company had 3,757 employees. The Company's
relationship with its employees is good. No employees are currently covered by
any collective bargaining agreements, and the Company is not aware of any union
organizing activity relating to its employees.
Recent Acquisitions
The strategic focus of the Company is on growth through carefully selected
acquisitions. Primarily, this focus is centered on the acquisition of small to
medium-size title insurance agencies and underwriters. Although the Company
generally does not expect any single acquisition will be material, it believes
that such acquisitions in the aggregate over time will enhance profitability.
The Company continually assesses the growth potential for its business in its
existing markets as well as those markets in which it is not currently
participating. Through acquisitions of independent agencies with a track record
of profitability and the prospect of growth in the future, the Company can
expand revenues while increasing its profit margins and control over the
acquired agencies. In assessing the acquisition of an underwriter, the Company
reviews, among other factors, the underwriter's profitability, location, growth
potential in its existing market, claims experience and adequacy of its
reserves.
Since 1992, the Company has made several acquisitions in
furtherance of its acquisition strategy. In 1992, it acquired an
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agency in Medina, Ohio. In 1993, the Company acquired agencies in Houston,
Texas; El Paso, Texas; Madison, Wisconsin; Jackson, Michigan; and an agency with
five branch offices located in Charlotte, Winston-Salem, Raleigh, Greensboro and
Wilmington, North Carolina. In 1994, the Company acquired an agency in Rio
Rancho, New Mexico; a full service title agency operation with approximately 17
offices (including closing offices) in the Orlando, Florida area; an underwriter
headquartered in Portland, Oregon with approximately 15 offices (including
escrow offices); and a full service title agency operation in Texas with offices
in Dallas, Fort Worth, Austin and San Antonio, along with numerous closing
offices. In 1995, the Company acquired a full service title agency operation
with offices in Maryland, the District of Columbia and Northern Virginia; an
agency in Grand Blanc, Michigan; and agency operations in Maryland, Pennsylvania
and New Jersey which have been converted to branch offices. In 1996, the Company
acquired full service title agency operations in Cuyahoga Falls, Ohio and in
Portland, Maine; entered into joint venture arrangements which resulted in the
Company acquiring controlling interests in two title agencies, one located in
Columbus, Ohio and the other in Nashville, Tennessee; acquired an interest in a
relocation company in a joint venture with General Motors Corporation; and
acquired an interest in a flood certification company located in Bristol,
Pennsylvania. In most of these instances, the existing management of the
acquired company has remained in place to supervise the day-to-day operations of
the business.
Environmental Matters
Recent title insurance policies specifically exclude any liability for
environmental risks or contamination. Older policies, while not specifically
addressing environmental risks, are not considered to provide any coverage for
such matters, and the Company does not expect any significant expenses related
to environmental claims.
Lawyers Title sometimes acts as a temporary title holder to real estate under a
nominee holding agreement and Lawyers Title, through its subsidiaries, sometimes
participates in holding agreements involving tax-deferred exchanges. Lawyers
Title's customers in such situations generally are financially strong entities
from whom it secures indemnification for potential environmental and other
claims. In other situations where Lawyers Title might acquire title to real
estate, it will generally require that an appropriate environmental assessment
be made to evaluate and avoid any potential liability.
ITEM 2. PROPERTIES
The Company conducts its business operations primarily in leased office space.
Lawyers Title leases approximately 83,300 square feet of office space for its
corporate headquarters in Richmond, Virginia. This lease expires on September
30, 2000. The Company
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<PAGE>
has numerous other leases for its branch offices and subsidiaries throughout the
states in which it operates. In addition, it owns several properties which in
aggregate are not material to its business taken as a whole.
The Company's title plants constitute a principal asset. Such plants comprise
copies of public records, maps, documents, previous reports and policies which
are indexed to specific properties in an area. The plants are generally located
at the office which serves a particular locality. They enable title personnel to
examine title matters relating to a specific parcel of real property as
reflected in the title plant, and eliminate or reduce the need for a separate
search of the public records. They contain material dating back a number of
years and are kept current on a daily or other frequent basis by the addition of
copies of documents filed of record which affect real property. The Company
maintains title plants covering many of the areas in which it operates, although
certain offices utilize jointly owned and maintained plants. The Company
capitalizes only the initial cost of title plants. The cost of maintaining such
plants is charged to expense as incurred.
The title plants and title examination procedures have been automated and
computerized to a large extent in many areas. To protect against casualty loss,
the Company's offices maintain duplicate files and backups of all title plants.
The Company believes that its properties are maintained in good operating
condition and are suitable and adequate for its purposes at current sales
levels.
ITEM 3. LEGAL PROCEEDINGS
Brown and Segall Litigation. On July 15, 1993, the United States Court of
Appeals for the Third Circuit in a case entitled Ticor Title Insurance Co. v.
Federal Trade Commission (No. 89-3787) (the "FTC Proceeding"), issued a ruling
against the five title insurance company defendants (including Lawyers Title)
holding that the state action doctrine and the McCarran-Ferguson Act did not
provide antitrust protection for the filing of rates for title search and
examination services through rating bureaus in Connecticut and Arizona. The
Supreme Court on March 21, 1994, denied a petition for certiorari, and the FTC
Proceeding was terminated on May 10, 1994.
Following the initiation of the FTC Proceeding in 1985, at least 12 different
private antitrust class actions were filed against various title insurance
companies, including Lawyers Title, in federal district courts in Pennsylvania,
New York, California and Oregon. These cases were all consolidated as In Re Real
Estate Title and Settlement Services Antitrust Litigation, MDL Docket No. 633
("MDL 633"), in the United States District Court for the Eastern District of
Pennsylvania. The consolidated cases were resolved by a settlement that did not
entail the payment of
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<PAGE>
direct monetary damages that was approved by the District Court in 1986 and
affirmed by the Third Circuit in 1987.
Subsequent to the MDL 633 settlement, additional private class action suits were
filed against the title insurance companies (including Lawyers Title) that were
defendants in MDL 633. One of these was dismissed by the trial court and
affirmed on appeal. Another case, Walter F. Brown, et al. v. Ticor Title
Insurance Co., et al. (Civ. 90-0577) ("Brown"), was filed on April 13, 1990, in
the United States District Court for the District of Arizona. The complaint
alleged that the plaintiffs are members of a class consisting of all persons who
purchased title search and examination services in Arizona and Wisconsin since
January 1981. The plaintiffs claimed that the defendants' participation in title
insurance rating bureaus in those states violated the federal antitrust laws.
The complaint requested injunctive relief, treble damages in an unspecified
amount, and costs and attorneys' fees. Summary judgment for the defendants was
granted by the District Court, but in December 1992, the United States Court of
Appeals for the Ninth Circuit reversed and remanded the case to the District
Court for further proceedings. (Brown v. Ticor Title Insurance Co., 982 F.2d
386). In June 1993, the defendants filed a petition for certiorari with the
Supreme Court, and that petition was granted on October 4, 1993. On April 4,
1994, the Supreme Court dismissed the writ of certiorari as improvidently
granted.
A case entitled Segall v. Stewart Title Company Co., et al., Civil Action No.
94-C-0441 ("Segall"), a putative class action on behalf of Wisconsin purchasers
of title search and examination services, was filed on April 20, 1994, in the
United States District Court for the Eastern District of Wisconsin and has been
consolidated with Brown in the United States District Court for the District of
Arizona. The claims presented in Segall on behalf of Wisconsin purchasers are
essentially identical to those presented on behalf of the class of Wisconsin
purchasers covered by the Brown case.
On May 3, 1996, the District Court in Arizona approved the settlement of the
consolidated Brown and Segall litigation. The settlement permits class members
who purchased title search and examination services from any of the defendants
(1) to elect a cash benefit (equal to 7.7% of the amount paid for title search
and examination services) if the purchase occurred during certain time periods
(1981-1982 in Arizona and 1981-1984 in Wisconsin), and (2) so long as the
purchase occurred during the class period (January 1, 1981 through June 10,
1986), to receive an additional $5,000 of coverage without charge on any title
insurance policy purchased from any of the defendants within a year following
final approval of the settlement. A class member who purchased title search and
examination services from any of the defendants during the class period and who
does not elect to receive the cash benefit receives without additional charge an
inflation enhancement of the original title insurance policy. Class members who
did not purchase title search and examination services from any of the
defendants but who became insured by one
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<PAGE>
of them receives the policy enhancement benefit. Class members who purchased
title insurance from an insurer other than one of the defendants receives the
additional $5,000 of coverage in connection with the purchase of a new title
insurance policy within one year following final approval of the settlement.
Although the amount of attorneys' fees and costs to be awarded to the
plaintiffs' attorneys has not been finally determined, the Company believes that
the portion of any such award payable by Lawyers Title will not have a material
effect on the Company's financial condition. Accordingly, for purposes of the
Company's financial reports, the Arizona District Court's approval of the
settlement has terminated the Brown and Segall litigation.
General. Lawyers Title and its title insurance subsidiaries
represent and defend the interests of their insureds in
connection with various other litigation and claims relating to
title insurance policies in the ordinary course of business. See
"Business - Insured Risk on Policies in Force."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the persons who serve as executive officers of the
registrant, their ages and positions as of December 31, 1996, and their business
experience during the prior five years. There are no family relationships
between any of such persons and any Director, executive officer, or person
nominated to become a Director or executive officer.
<TABLE>
<CAPTION>
Name Age Office and Experience
<S> <C>
Charles H. Foster, Jr. 53 Chairman and Chief Executive
Officer. Also serves as Chairman
and Chief Executive Officer of
Lawyers Title.
Janet A. Alpert 50 President and Chief Operating
Officer. Also serves as President
and Chief Operating Officer of
Lawyers Title. Served as Executive
Vice President of the Company from
October 1991 to December 1992 and
as Executive Vice President --
Eastern Operations of Lawyers Title
from January 1989 to December 1992.
Kenneth Astheimer 48 Executive Vice President. Also
serves as Executive Vice President
-- Western Operations of Lawyers
Title.
Charles W. Keith 59 Executive Vice President. Also
serves as Executive Vice President
-- Eastern Operations of Lawyers
Title.
George William Evans 42 Vice President and Treasurer. Also
serves as Senior Vice President --
Treasurer and Chief Financial
Officer of Lawyers Title.
Russell W. Jordan, III 56 Secretary and General Counsel.
Also serves as Senior Vice
President and General Counsel of
Lawyers Title.
John R. Blanchard 48 Controller. Also serves as Senior
Vice President - Controller of
Lawyers Title.
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<PAGE>
John M. Carter 41 Assistant Secretary. Also serves
as Vice President, General
Corporate Counsel and Secretary of
Lawyers Title. Served as Vice
President, Corporate Counsel and
Secretary of Lawyers Title from
1992 to 1994.
H. Randolph Farmer 57 Senior Vice President - Corporate
Communications and Advertising of
Lawyers Title.
William H. Goodwyn, Jr. 61 Executive Vice President -
Marketing of Lawyers Title.
Robert J. Palmer 41 Senior Vice President and Chief
Information Officer of Lawyers
Title. Served as Vice President
and Director of Systems Development
and Support of Lawyers Title from
February 1994 to October 1994, as
Director of Systems Development and
Support of Lawyers Title from
February 1993 to February 1994, and
as Senior Consultant of Lawyers
Title from 1990 to February 1993.
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information and Dividend Policy
Dividends Common Stock
Declared Price Range
Per Share High Low
--------- ---- ---
1996
Fourth Quarter $0.05 $21.75 $17.63
Third Quarter 0.05 22.38 17.38
Second Quarter 0.05 19.88 16.00
First Quarter 0.05 19.13 16.63
1995
Fourth Quarter $0.05 $19.25 $14.63
Third Quarter 0.05 16.63 13.50
Second Quarter 0.05 15.88 12.38
First Quarter 0.03 13.25 10.50
As of March 3, 1997, there were 2,734 shareholders of record of the Company's
common stock.
The Company's current dividend policy anticipates the payment of quarterly
dividends in the future. Future dividends will be dependent on the future
earnings, financial condition and capital requirements of the Company and other
factors. The payment of dividends is subject to the restrictions described in
Note 7 of the Notes to the Consolidated Financial Statements. As of December 31,
1996, approximately $14.1 million was available for the payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
On February 25, 1993 the Company's Board of Directors declared a three-for-two
split of its common stock to all shareholders of record on April 15, 1993.
Accordingly, all common share, per common share and stock option data have been
restated to reflect the stock split.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto.
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<PAGE>
(In thousands of dollars except per common share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C>
For the year ended December 31:
Revenues $594,182 $482,832 $501,200 $504,109 $471,161
Net income 36,519 17,051 6,814 28,965 11,864
Earnings per
common share 4.11 1.92 0.80 4.31 1.88
Dividends per
common share 0.20 0.18 0.12 .06 -
At December 31:
Total assets 520,968 475,843 453,259 438,140 363,673
Shareholders'
equity 262,168 238,385 203,323 201,161 143,978
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Overview -Lawyers Title Corporation reported improved earnings in 1996 compared
to 1995 which had been a significant improvement over 1994. The Company's
primary business is the insurance of titles to real property which is greatly
influenced by the real estate economy. Underlying economic factors adversely
affected 1994 results due to upward pressures on mortgage loan interest rates as
the Federal Reserve responded to inflationary fears. Mortgage interest rates
averaged 7.8% in 1996, 8.0% in 1995 and 8.4% in 1994. Housing starts were 1.5
million, 1.35 million and 1.4 million in 1996, 1995 and 1994, respectively.
Resales of existing homes were at 4.1 million, 3.8 million and 4.0 million in
1996, 1995 and 1994, respectively.
During the three year period from 1994 to 1996, the Company benefited from three
distinct portions of its business strategy. Operations were expanded through the
acquisition of title insurance agents and underwriters, expenses were tightly
monitored and controlled, and claims experience improved due to quality control
efforts and an improved claims environment.
Revenues - The Company's operating revenues are dependent on overall levels of
real estate activity which are influenced by a number of factors including
interest rates, access to capital, housing starts, housing resales, and the
general state of the economy. In addition, the Company's revenues are affected
by the Company's sales and marketing efforts, its acquisition program and its
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<PAGE>
strategic decisions based on the rate structure and claims environment in
particular markets.
Premiums and related fees are determined both by competition and by state
regulation. Operating revenues from direct title operations are recognized at
the time real estate transactions close, which is generally 60 to 90 days after
the opening of a title order. Operating revenues from agents are recognized when
the issuance of a policy is reported to the Company by an agent. Although agents
generally report the issuance of policies on a monthly basis, heightened levels
of real estate activity may slow this reporting process. This typically results
in delays of 30 to 60 days from the closing of real estate transactions until
the recognition of revenues from agents.
In addition to the premiums and related fees, the Company has historically
earned investment income from its portfolio of fixed- maturity and equity
securities. Investment income includes dividends and interest as well as
realized capital gains or losses on the portfolio. The Company regularly
reexamines its portfolio strategies in light of changing earnings or tax
situations. In the fourth quarter of 1996 the Company shifted its investment
strategy, eliminating its investment in equity securities and beginning to move
all of its investment portfolio into fixed-maturity securities. The
repositioning of the portfolio will eliminate the exposure of the regulated
surplus of the Company's insurance subsidiaries to market fluctuations inherent
in equity portfolios. Additionally, the commensurate increase in fixed-maturity
securities will increase the level of more stable, predictable interest income
earned.
Factors Affecting Profit Margins and Pre-Tax Profits - The Company's profit
margins are affected by several factors, including volume, policy amount and
type of real estate activity. Volume is an important determinant of
profitability because Lawyers Title, like any other title insurance company, has
a significant level of fixed costs arising from personnel, occupancy costs and
maintenance of title plants. Because a premium is based on the face amount of
the policy, larger policies generate higher premiums although expenses of
issuance do not necessarily increase in proportion to policy size. Profit
margins are lower on refinancings than on sales due to premium discounts and
higher cancellation rates generally experienced on refinancings. Cancellations
affect profitability because costs are incurred both in opening and in
processing orders.
The Company's principal variable expense is commissions paid to independent
agents. The Company regularly reviews the profitability of its agency revenues;
contracting in unprofitable markets and expanding where acceptable levels of
profitability are available. The Company continually monitors its operating
margin, which is the percentage of operating revenues less salaries and employee
benefits, agency commissions and other expenses to operating revenues.
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<PAGE>
Claims - Generally, title insurance claim rates are lower than for other types
of insurance because title insurance policies insure against prior events
affecting the quality of real estate titles, rather than against unforeseen, and
therefore less predictable, future events. A provision is made for estimated
future claim payments at the time revenue is recognized. Both the Company's
experience and industry data indicate that claims activity continues through 20
years after the policy is issued. Management uses actuarial techniques to
estimate future claims by analyzing past claim payment patterns. Management has
continued to emphasize and strengthen claims prevention and product quality
programs.
In the fourth quarter of 1996 the Company made a change from reporting policy
and contract claims on a discounted to an undiscounted basis. This change was
made to conform with industry practice and because it is considered preferable
by rating agencies and investment analysts. The effect of the change for 1996
was to increase the provision for policy and contract claims by $76 million and
decrease net income by $49 million and net income per share by $5.51.
In addition, during the fourth quarter of 1996 the Company determined that the
trend of favorable loss experience which has emerged over the past few years
could be relied upon and the Company changed its estimate of the ultimate net
cost of all reported and unreported losses incurred through September 30, 1996
to reflect this favorable experience. The effect of the change in estimate was
to decrease the provision for policy and contract claims by $78 million and to
increase net income by $50.7 million and net income per share by $5.70.
Because the change in accounting principle to no longer discount policy and
contract claims is inseparable from the change in estimate, both have been
accounted for as a change in estimate. Accordingly, the net effect of the two
changes, a decrease of $2 million in the provision for policy and contract
claims, has been included in operations for the fourth quarter. The above
changes were both made to conform with general industry practice. The changes
are included in the provision for policy and contract claims and no prior
amounts have been restated.
Contingencies - Refer to "Legal Proceedings" for a discussion of pending legal
proceedings. Management believes that amounts, if any, recovered by plaintiffs
in these actions will not have a material adverse effect on the Company's
financial position or operating results.
Other Expenses - The most significant components of other expenses are rent for
office space, outside costs of title production, travel, communications and
taxes levied by states on premiums.
Seasonality - Historically, real estate activity has been generally slower in
the winter months with volumes showing significant improvements in the spring
and summer months. The percentage of title orders closed to title orders opened
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<PAGE>
is typically lower in the first six months than at year end because of this
seasonal variance. See "Business-Seasonality; Backlog." In recent years low
levels of mortgage interest rates have caused fluctuations in real estate
activity levels outside of the usual, seasonal pattern. The Company
cannot predict whether or when the historical seasonal pattern of real estate
activity will resume.
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<PAGE>
Results of Operations
Comparison of Years Ended December 31, 1996,
December 31, 1995 and December 31, 1994
Operating Revenues - Revenues from operations improved 19.3% to $557.8 million
in 1996 compared to $467.4 million in 1995. This 1995 level was a 4.0% reduction
from the 1994 amount.
The 1996 year benefited from a favorable economic environment. Average mortgage
rates were 7.0% in January 1996 and, although fluctuating, never exceeded 8.3%
for any month in 1996. The favorable economic environment led to increased
levels of housing starts and housing resales in 1996 compared to 1995. Business
volumes for direct and agency business improved approximately 18% from 670,000
transactions in 1995 to 790,000 in 1996.
Conversely, revenue fell for the full year of 1995 compared to 1994 as a result
of interest rate pressures. Average mortgage rates stood at 9.2% at the
beginning of 1995, fell gradually to 7.6% by the end of the first half of 1995,
averaged 7.5% in the second half of the year and stood at 7.2% at year end.
Interest rate related business volume reductions were offset in part by revenue
from acquisitions of $68 million.
The volume of orders for title insurance opened in Company offices increased
14.2% in 1996 compared to 1995 after improving 16.2% between 1994 and 1995.
Exclusive of recent acquisitions, orders in 1995 would have fallen 9.9% compared
to 1994.
Investment Income - Investment income increased significantly to $36.4 million
in 1996 compared to $15.5 million in 1995 after increasing from $14.1 million in
1994. The increase was due principally to increased levels of capital gains
which were $23.4 million in 1996, $3.0 million in 1995 and $1.7 million in 1994.
In the fourth quarter of 1996 the Company changed its investment strategy,
selling all of its equity portfolio and beginning to move the proceeds into
fixed-maturity securities. This sale resulted in capital gains of $17.4 million.
The remaining components of investment income, dividends and interest, amounted
to $14.2 million, $14.0 million and $13.2 million in 1996, 1995 and 1994,
respectively.
Expenses - Salaries and Employee Benefits: Personnel related expenses are a
significant portion of total operating expenses in the title insurance industry.
These expenses require management through the often rapidly changing conditions
in the real estate economy. Salaries and employee benefits increased 18.2% in
1996 compared to 1995. This increase was largely tied to higher business volumes
which necessitated increased staffing levels to meet customer service demands,
incentive increases and normal merit raises. Salaries and employee benefits
increased 8.4% in 1995 over 1994. In the fourth quarter of 1994, in response to
a severe fall in order counts, a special staff and salary reduction program was
implemented that lasted through the second quarter of 1995. As an offset to
these reductions, staffing levels increased between 1994 and 1995 due to
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<PAGE>
the Company's acquisition program. Operating revenue net of agents' commissions
improved on a per employee basis in both 1996 and 1995 compared to the prior
year.
Agents' Commissions: Commissions paid to title insurance agents are the largest
single expense incurred by the Company. The commission rate varies by geographic
area in which the commission was earned. Commissions as a percentage of agency
revenue were 74.2%, 73.9% and 75.4% in 1996, 1995 and 1994, respectively.
General, Administrative and Other Expenses: The most significant components of
other expenses are rent for office space, outside costs of title production,
travel, communications and taxes levied by states on premiums. Portions of these
expenses vary with the volume of business transacted by the Company.
Provision for Policy and Contract Claims: The Company's claims experience has
shown improvement in recent years. As a percentage of its operating revenues,
the provision for policy and contract claims was 5.2%, 5.2% and 9.6% in 1996,
1995 and 1994, respectively. As previously discussed, the Company changed its
method of reporting policy and contract claims in the fourth quarter of 1996.
Income Taxes - The Company pays U.S. federal and state income taxes based on
laws in the jurisdictions in which it operates. The effective tax rates
reflected in the income statement for 1996, 1995 and 1994 differ from the U.S.
federal statutory rate principally due to non-taxable interest, dividend
deductions, travel and entertainment and company-owned life insurance.
At December 31, 1996 the Company had recorded deferred tax assets of $32.2
million related primarily to policy and contract claims and employee benefit
plans. Substantially all of this deferred tax asset balance could be realized in
the future through the reversal of existing temporary taxable differences.
Accordingly, it is more likely than not that the income tax benefits will be
realized for all the temporary deductible differences existing at December 31,
1996.
The Company reassesses the realization of deferred assets quarterly and, if
necessary, adjusts its valuation allowance accordingly.
Net Income - Net income was $36.5 million in 1996, $17.1 million in 1995 and
$6.8 million in 1994. Earnings per share were $4.11, $1.92 and $0.80 in 1996,
1995 and 1994, respectively. The increase in 1996 over 1995 was due to favorable
results from operations and capital gains attributable to a shift in the
Company's investment portfolio discussed under Investment Income.
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<PAGE>
Liquidity and Capital Resources - Cash provided by operating activities was
$33.2 million for 1996, $22.0 million for 1995 and $6.4 million for 1994. The
Company believes that it can meet both its short- and long-term capital needs.
In addition to $95.6 million of cash and invested cash on hand at December 31,
1996, the Company has no long-term debt and maintains a $35.0 million working
capital line of credit of which $34.0 million was unused at December 31, 1996.
Forward-Looking and Cautionary Statements - The Company and its representatives
may from time to time make written or oral forward- looking statements,
including statements contained in the Company's filings with the Securities and
Exchange Commission and in its reports to shareholders. In connection with the
"safe harbor" provision of the Private Securities Litigation Reform Act of 1995,
the Company is hereby identifying important factors that could cause actual
results to differ materially from those contained in any forward-looking
statements made by or on behalf of the Company; any such statement is qualified
by reference to the following cautionary statements.
The title insurance business is characterized by low profit margins due to the
high cost of producing title evidence whereas premium revenues are subject to
regulatory and competitive restraints. The amount of title insurance business
available is influenced by housing starts, housing resales and commercial real
estate transactions. Real estate activity levels have historically been cyclical
and are influenced by such factors as interest rates and the health of the
overall economy. The value of the Company's investment portfolio is subject to
fluctuation based on similar factors. The title insurance industry may be
exposed to substantial claims, such as claims of Indian tribes. The industry is
regulated by state laws which require the maintenance of minimum levels of
capital and surplus and which restrict the amount of dividends which may be paid
without prior regulatory approval. Developments in any of these areas, which are
more fully described elsewhere in Parts I and II hereof, each of which is
incorporated into this section by reference, could cause the Company's results
to differ materially from results that have been or may be projected by or on
behalf of the Company. The Company cautions that the foregoing list of important
factors is not exclusive. The Company does not undertake to update any forward-
looking statement that may be made from time to time by or on behalf of the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this report.
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No changes in the Company's independent accountants or disagreements on
accounting and financial disclosure required to be reported hereunder have taken
place.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as to certain information regarding executive officers included in Part
I, the definitive proxy statement for the 1997 Annual Meeting of Shareholders to
be filed within 120 days after the end of the last fiscal year is incorporated
herein by reference for the information required by this item.
ITEM 11. EXECUTIVE COMPENSATION
The definitive proxy statement for the 1997 Annual Meeting of Shareholders to be
filed within 120 days after the end of the last fiscal year is incorporated
herein by reference for the information required by this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The definitive proxy statement for the 1997 Annual Meeting of Shareholders to be
filed within 120 days after the end of the last fiscal year is incorporated
herein by reference for the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The definitive proxy statement for the 1997 Annual Meeting of Shareholders to be
filed within 120 days after the end of the last fiscal year is incorporated
herein by reference for the information required by this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1), (2) and (3). The response to this portion of Item 14 is
submitted as a separate section of this report.
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<PAGE>
(b) Reports on Form 8-K
Item 5
On November 15, 1996, the Registrant filed a Current Report on Form 8-K
reporting its public announcement involving a change in the investment
strategy for the investment portfolios of its title insurance
subsidiaries resulting in a shift away from equity investments to
fixed-maturity securities.
(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.
(d) Financial Statement Schedules - The response to this portion of Item 14
is submitted as a separate section of this report.
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<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LAWYERS TITLE CORPORATION
By /s/ Charles H. Foster, Jr.
----------------------------------
Charles H. Foster, Jr., Chairman
and Chief Executive Officer
March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/Charles H. Foster, Jr. Chairman and Chief Executive March 24, 1997
- ------------------------- Officer and Director --------------
Charles H. Foster, Jr. (Principal Executive Officer) Date
/s/George William Evans Vice President and Treasurer March 24, 1997
- ------------------------- (Principal Financial Officer) --------------
George William Evans (Principal Financial Officer) Date
/s/John R. Blanchard Controller March 24, 1997
- ------------------------- --------------
John R. Blanchard Date
/s/Janet A. Alpert President and Chief Operating March 24, 1997
- ------------------------- Officer and Director --------------
Janet A. Alpert Date
/s/Theodore L. Chandler, Jr. Director March 24, 1997
- -------------------------- --------------
Theodore L. Chandler, Jr. Date
/s/Wallace L. Chandler Director March 24, 1997
- -------------------------- --------------
Wallace L. Chandler Date
/s/James Ermer Director March 24, 1997
- -------------------------- --------------
James Ermer Date
/s/Robert H. Hilb Director March 24, 1997
- -------------------------- --------------
Robert H. Hilb Date
/s/John Garnett Nelson Director March 24, 1997
- -------------------------- --------------
John Garnett Nelson Date
</TABLE>
-29-
<PAGE>
<TABLE>
<S> <C>
/s/Robert F. Norfleet, Jr. Director March 24, 1997
- -------------------------- --------------
Robert F. Norfleet, Jr. Date
/s/Eugene P. Trani Director March 24, 1997
- -------------------------- --------------
Eugene P. Trani Date
/s/Marshall B. Wishnack Director March 24, 1997
- -------------------------- --------------
Marshall B. Wishnack Date
</TABLE>
-30-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEMS 14 (a)(1), (2) AND (3), (c) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
LAWYERS TITLE CORPORATION
RICHMOND, VIRGINIA
-31-
<PAGE>
FORM 10-K ITEM 14 (a)(1), (2) AND (3)
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of Lawyers Title Corporation and
subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors...................................................................................F-1
Consolidated Balance Sheets, December 31, 1996 and 1995..........................................................F-2
Consolidated Statements of Operations,
Years Ended December 31, 1996, 1995 and 1994...................................................................F-4
Consolidated Statements of Cash Flows,
Years Ended December 31, 1996, 1995 and 1994...................................................................F-5
Consolidated Statements of Changes in Shareholders'
Equity, Years Ended December 31, 1996, 1995
and 1994.......................................................................................................F-6
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994...............................................................................F-7
</TABLE>
The following consolidated financial statement schedules of Lawyers Title
Corporation and subsidiaries are included in Item 14(d):
<TABLE>
<S> <C>
Schedule I Summary of Investments.................................................F-31
Schedule II Condensed Financial Information of
Registrant ..........................................................F-32
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore, have been omitted.
-32-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Lawyers Title Corporation
We have audited the accompanying consolidated balance sheets of Lawyers Title
Corporation and subsidiaries as of December 31, 1996, and 1995, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lawyers
Title Corporation and subsidiaries at December 31, 1996, and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the financial statements, in 1996 the Company changed
its method of accounting for policy and contract claims and in 1994 the Company
changed its method of accounting for certain debt and equity securities.
/s/ ERNST & YOUNG LLP
-----------------------
ERNST & YOUND LLP
Richmond, Virginia
February 19, 1997
F-1
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ---- ----
<S> <C>
INVESTMENTS (Notes 2 and 3):
Fixed maturities available-for-sale
- at fair value (amortized cost:
1996 - $214,875; 1995 - $179,182) $218,224 $187,270
Equity securities - at fair value
(cost: 1996 - $930; 1995 - $43,327) 1,725 56,540
Mortgage loans (less allowance for
doubtful accounts: 1996 and
1995 - $150) 480 1,015
Invested cash 71,626 21,805
-------- --------
Total investments 292,055 266,630
CASH 23,997 18,842
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for
doubtful accounts: 1996 - $1,008;
1995 - $365) 6,657 7,565
Premiums (less allowance for
doubtful accounts: 1996 - $2,197;
1995 - $1,898) 16,429 17,242
Income tax benefits - 301
-------- --------
Total notes and accounts receivable 23,086 25,108
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortiza-
tion: 1996 - $44,670; 1995 - $36,581) 21,959 20,850
TITLE PLANTS 48,536 48,731
GOODWILL (less accumulated amortiza-
tion: 1996 - $12,393; 1995 - $10,174) 59,669 53,645
DEFERRED INCOME TAXES (Note 8) 23,435 16,127
OTHER ASSETS 28,231 25,910
-------- --------
$520,968 $475,843
======== ========
</TABLE>
F-2
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
LIABILITIES 1996 1995
---- ----
<S> <C>
POLICY AND CONTRACT CLAIMS
(Notes 2 and 4) $196,285 $193,791
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 47,211 34,933
FEDERAL INCOME TAXES 5,721 -
OTHER 9,583 8,734
-------- --------
Total liabilities 258,800 237,458
-------- --------
COMMITMENTS AND CONTINGENCIES
(Notes 10, 11 and 12)
SHAREHOLDERS' EQUITY (Notes 6 and 7)
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, 8,889,791 in 1996
and 8,885,991 in 1995 167,044 167,006
Unrealized investment gains (less
related deferred income tax
expense of $1,450 in 1996 and
$7,456 in 1995) 2,694 13,845
Retained earnings 92,430 57,689
Receivable from employee benefit plan - (155)
-------- --------
Total shareholders' equity 262,168 238,385
-------- --------
$520,968 $475,843
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(In thousands of dollars except per common share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
REVENUES
Premiums (Note 5) $456,377 $385,871 $413,857
Title search and escrow 101,381 81,490 73,200
Investment income - net
(Note 3) 36,424 15,471 14,143
-------- -------- --------
594,182 482,832 501,200
-------- -------- --------
EXPENSES (Notes 4, 9 and 10)
Salaries and employee
benefits 184,274 155,920 143,817
Agents' commissions 192,590 167,031 205,147
Provision for policy and
contract claims 29,211 24,297 46,775
General, administrative and
other 132,567 111,724 96,492
-------- -------- --------
538,642 458,972 492,231
-------- -------- --------
INCOME BEFORE INCOME TAXES 55,540 23,860 8,969
INCOME TAX EXPENSE (BENEFIT)
(Note 8)
Current 20,320 3,628 2,729
Deferred (1,299) 3,181 (574)
-------- -------- --------
19,021 6,809 2,155
-------- -------- --------
NET INCOME $ 36,519 $ 17,051 $ 6,814
======== ======== ========
EARNINGS PER COMMON SHARE $4.11 $1.92 $0.80
===== ===== =====
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 8,888,310 8,885,191 8,494,067
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(In thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Cash flows from operating activities:
Net income $ 36,519 $17,051 $ 6,814
Depreciation & amortization 9,927 8,108 6,460
Amortization of bond premium 722 1,087 1,610
Realized investment gains (23,430) (2,966) (1,681)
Deferred income tax (1,299) 3,181 (574)
Change in assets & liabilities, net
of businesses acquired:
Premiums receivable 813 (168) 3,833
Income taxes receivable/payable 6,061 3,810 (8,219)
Policy & contract claims 2,494 (5,905) 11,062
Accounts payable and accrued
expenses 5,772 (3,043) (7,925)
Cash surrender value of life
insurance (3,148) (3,231) (3,061)
Other (1,219) 359 (1,901)
-------- ------- -------
Net cash provided by
operating activities 33,212 18,283 6,418
-------- ------- -------
Cash flows from investing activities:
Purchase of property & equipment, net (8,612) (5,369) (5,689)
Purchase of businesses, net of
cash acquired (2,320) (8,026) (20,802)
Cost of investments acquired:
Fixed maturities - available-for-sale (115,731) (76,131) (99,430)
Equity securities (34,815) (40,103) (47,362)
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 79,324 75,985 96,758
Equity securities 100,533 45,975 33,492
Other 1,443 206 (157)
-------- ------- -------
Net cash provided by (used in) investing
activities 19,822 (7,463) (43,190)
-------- ------- -------
Cash flows from financing activities:
Proceeds of cash surrender value loan 3,891 3,673 16,023
Dividends paid (1,778) (1,599) (1,025)
Decrease in notes payable (171) (4,236) (1,793)
-------- ------- -------
Net cash provided by (used in)
financing activities 1,942 (2,162) 13,205
-------- ------- -------
Net increase (decrease) in cash and
invested cash 54,976 8,658 (23,567)
Cash & invested cash at beginning of year 40,647 31,989 55,556
-------- ------- -------
Cash & invested cash at end of year $ 95,623 $40,647 $31,989
======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
Receivable
Net from Total
Unrealized Retained Employee Share-
Common Stock Gains Earnings Benefit holders'
Shares Amount (Losses) (Deficit) Plan Equity
<S> <C>
BALANCE - December 31, 1993 8,418,209 $162,879 $ 3,513 $36,448 $(1,679) $201,161
Net Income - - - 6,814 - 6,814
Issuance of common stock 425,020 3,883 - - - 3,883
Adjustment to beginning balance
for change in accounting method,
net of income taxes of $2,055 - - 3,816 - - 3,816
Exercise of stock options 41,282 229 - - - 229
Repayment from employee benefit plan - - - - 672 672
Net unrealized losses - - (12,227) - - (12,227)
Dividends ($.12/share) - - - (1,025) - (1,025)
--------- -------- ------- ------- ------- --------
BALANCE - December 31, 1994 8,884,511 166,991 (4,898) 42,237 (1,007) 203,323
Net Income - - - 17,051 - 17,051
Exercise of stock options 1,500 15 - - - 15
Repayment from employee benefit plan - - - - 852 852
Net unrealized gains - - 18,743 - - 18,743
Dividends ($.18/share) - - - (1,599) - (1,599)
Other (20) - - - - -
--------- -------- ------- ------- ------- -------
BALANCE - December 31, 1995 8,885,991 167,006 13,845 57,689 (155) 238,385
Net Income - - - 36,519 - 36,519
Exercise of stock options 3,800 38 - - - 38
Repayment from employee benefit plan - - - - 155 155
Net unrealized losses - - (11,151) - - (11,151)
Dividends ($.20/share) - - - (1,778) - (1,778)
--------- -------- ------- ------- ------- --------
BALANCE - December 31, 1996 8,889,791 $167,044 $ 2,694 $92,430 $ - $262,168
========= ======== ======= ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of Lawyers Title
Corporation (the Company) and its wholly owned subsidiaries have been
prepared in conformity with generally accepted accounting principles
("GAAP") which, as to the insurance company subsidiaries, differ from
statutory accounting practices prescribed or permitted by regulatory
authorities.
Organization
The Company is engaged principally in the title insurance business.
Title insurance policies are insured statements of the condition of
title to real property, showing ownership as indicated by public
records, as well as outstanding liens, encumbrances and other matters
of record and certain other matters not of public record. Lawyers
Title's business results from commercial real estate activity, resales
and refinancings of residential real estate and construction and sale
of new housing. The Company conducts its business on a national basis
through a network of branch and agency offices with approximately 46.2%
of consolidated premium revenue generated in the states of Texas,
California, Florida and Pennsylvania.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
and operations, after intercompany eliminations, of Lawyers Title
Corporation, and its wholly owned subsidiaries, principally Lawyers
Title Insurance Corporation.
F-7
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments
The Company adopted the Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," as of January
1, 1994.
As required by SFAS No. 115, the Company records its fixed-maturity
investments which are classified as available-for-sale at fair value
and reports the change in the unrealized appreciation and depreciation
as a separate component of shareholders' equity. The amortized cost of
fixed-maturity investments classified as available-for-sale is adjusted
for amortization of premiums and accretion of discounts. That
amortization or accretion is included in net investment income.
Realized gains and losses on sales of investments, and declines in
value considered to be other than temporary, are recognized in
operations on the specific identification basis.
Title Plants
Title plants consist of title records relating to a particular region
and are generally stated at cost. Expenses associated with current
maintenance such as salaries and supplies are charged to expense in the
year incurred. The costs of acquired title plants and the building of
new title plants, prior to the time that a plant is put into operation,
are capitalized. Properly maintained title plants are not amortized
because there is no indication of diminution in their value.
Goodwill
The excess of cost over fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line basis over 40 years.
Depreciation
Property and equipment is depreciated principally on the straight-line
method over the useful lives of the various assets, which range from
three to 40 years.
F-8
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Premiums on title insurance written by the Company's employees are
recognized as revenue when the Company is legally or contractually
entitled to collect the premium. Premiums on insurance written by
agents are generally recognized when reported by the agent and recorded
on a "gross" versus "net" basis. Title search and escrow fees are
recorded as revenue when an order is closed.
Policy and Contract Claims
Liabilities for estimated losses and loss adjustment expenses represent
the estimated ultimate net cost of all reported and unreported losses
incurred through December 31,1996. The reserves for unpaid losses and
loss adjustment expenses are estimated using individual case-basis
valuations and statistical analyses. Those estimates are subject to the
effects of trends in loss severity and frequency. Although considerable
variability is inherent in such estimates, management believes that the
reserves for losses and loss adjustment expenses are adequate. The
estimates are continually reviewed and adjusted as necessary as
experience develops or new information becomes known; such adjustments
are included in current operations.
Income Taxes
Deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax benefits are recognized to the
extent that realization of such benefits are more likely than not.
Escrow and Trust Deposits
As a service to its customers, the Company administers escrow and trust
deposits which amounted to approximately $444,000 at December 31, 1996,
representing undisbursed amounts received for settlements of mortgage
loans and indemnities against specific title risks. These funds are not
considered assets of the Company and, therefore, are excluded from the
accompanying consolidated balance sheets.
F-9
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Land Exchanges
Through several non-insurance subsidiaries the Company facilitates
tax-free property exchanges for customers pursuant to Section 1031 of
the Internal Revenue Code. Acting as a qualified intermediary, the
Company holds the sale proceeds from sales transactions until a
qualifying acquisition occurs, thereby assisting its customers in
deferring the recognition of taxable income. At December 31, 1996 and
1995, the Company was holding $261,000 and $234,000, respectively, of
such proceeds which are not considered assets of the Company and are,
therefore, excluded from the accompanying consolidated balance sheets.
Statement of Cash Flows
For purposes of the statement of cash flows, invested cash is
considered a cash equivalent. Invested cash includes all highly liquid
investments with a maturity of three months or less when purchased.
Earnings per Common Share
Earnings per common share is based on the weighted average number of
common shares outstanding during each year. Potential dilution that
could result from the exercise of stock options is not material.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for invested cash
and short-term investments approximate those assets' fair values. Fair
values for investment securities are based on quoted market prices. The
Company has no other material financial instruments.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares
at the date of grant. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and accordingly, recognizes no compensation expense for the
stock option grants.
F-10
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
2. ACCOUNTING CHANGE
In the fourth quarter of 1996 the Company made a change from reporting
policy and contract claims on a discounted to an undiscounted basis.
This change was made to conform with industry practice and because it
is considered preferable by rating agencies and analysts. The effect of
the change for 1996 was to increase the provision for policy and
contract claims by $76 million and decrease net income by $49 million
and net income per share by $5.51.
In addition, during the fourth quarter of 1996 the Company determined
that the trend of favorable loss experience which has emerged over the
past few years could be relied upon and the Company changed its
estimate of the ultimate net cost of all reported and unreported losses
incurred through September 30, 1996 to reflect this favorable
experience. The effect of the change in estimate was to decrease the
provision for policy and contract claims by $78 million and to increase
net income by $50.7 million and net income per share by $5.70.
Because the change in accounting principal to no longer discount policy
and contract claims is inseparable from the change in estimate, both
have been accounted for as a change in estimate. Accordingly, the net
effect of the two changes, a decrease of $2 million in the provision
for policy and contract claims, has been included in operations for the
fourth quarter and no prior amounts have been restated. The above
changes were both made to conform with general industry practice.
In May 1993 the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company adopted the
provisions of the new standard for investments held as of or acquired
after January 1, 1994.
In accordance with SFAS No. 115, prior period financial statements have
not been restated to reflect the change in accounting principle. The
adoption of SFAS No. 115 as of January 1, 1994 had no effect on net
income. The opening
F-11
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
2. ACCOUNTING CHANGE (Continued)
balance of shareholders' equity was increased $3,816 (net of $2,055 in
deferred income taxes) to reflect the recognition in shareholders'
equity of unrealized appreciation for the Company's investment in debt
securities determined to be available-for-sale, previously carried at
amortized cost.
3. INVESTMENTS
The amortized cost and estimated fair value of investments in fixed
maturities at December 31, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> ---------- --------- ---------- ---------
U.S. Treasury
securities and
obligations of
U.S. Government
corporations
and agencies $ 62,206 $1,709 $547 $ 63,368
Obligations of
states and
political
subdivisions 76,203 1,065 143 77,125
Fixed maturities
issued by foreign
governments 345 38 - 383
Public utilities 4,550 24 17 4,557
Corporate
securities 61,195 1,364 147 62,412
Mortgage backed
securities 10,376 79 76 10,379
-------- ------ ---- --------
Fixed maturities
available-for-sale $214,875 $4,279 $930 $218,224
======== ====== ==== ========
</TABLE>
F-12
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
<TABLE>
<CAPTION>
1995
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C>
U.S. Treasury
securities and
obligations of
U.S. Government
corporations
and agencies $ 51,569 $3,881 $ 8 $ 55,442
Obligations of
states and
political
subdivisions 57,783 1,286 13 59,056
Fixed maturities
issued by foreign
governments 344 24 2 366
Public utilities 1,997 58 - 2,055
Corporate
securities 67,489 2,865 3 70,351
-------- ------ --- --------
Fixed maturities
available-for-sale $179,182 $8,114 $26 $187,270
======== ====== === ========
</TABLE>
The amortized cost and estimated fair value of fixed-maturity securities at
December 31, 1996 by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
F-13
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
Estimated
Amortized Fair
Cost Value
------------ -----------
Due in one year or less
$ 7,797 $ 7,840
Due after one year through
five years 63,499 64,315
Due after five years through
ten years 72,090 73,423
Due after ten years 61,113 62,268
Mortgage backed securities 10,376 10,378
-------- --------
$214,875 $218,224
========= ========
Earnings on investments and net realized gains for the three years
ended December 31, follow:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Fixed maturities $12,453 $11,283 $11,052
Equity securities 692 916 809
Invested cash and other
short-term investments 979 1,587 1,235
Mortgage loans 88 170 75
Net realized gains 23,371 2,970 1,665
------- ------- -------
Total investment income 37,583 16,926 14,836
Investment expenses (1,159) (1,455) (693)
------- ------- -------
Net investment income $36,424 $15,471 $14,143
======= ======= =======
</TABLE>
Realized and unrealized gains (losses) representing the change in
difference between fair value and cost (principally amortized cost for
fixed maturities) on fixed maturities and equity securities for the
three years ended December 31, are summarized below:
F-14
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
3. INVESTMENTS (Continued)
<TABLE>
<CAPTION>
Change in
Realized Unrealized
---------- -----------
<S> <C>
1996
Fixed maturities $ (50) $( 4,739)
Equity securities 23,421 (12,418)
------- --------
$23,371 $(17,157)
======= ========
1995
Fixed maturities $ (120) $16,920
Equity securities 3,090 11,916
------- -------
$ 2,970 $28,836
======= =======
1994
Fixed maturities $(1,063) $(5,741)
Equity securities 2,728 (2,670)
------- --------
$ 1,665 $(8,411)
======= =======
</TABLE>
Gross unrealized gains and (losses) relating to investments in equity
securities were $960 and $(165) at December 31, 1996.
Proceeds from sales of investments in fixed maturities, net of calls or
maturities during 1996, 1995 and 1994 were $67,425, $73,339 and
$93,286, respectively. Gross gains of $502, $422 and $788 in 1996, 1995
and 1994, respectively, and gross losses of $552, $542 and $1,843 in
1996, 1995 and 1994, respectively, were realized on those sales.
4. POLICY AND CONTRACT CLAIMS
The Company's estimate of net costs to settle reported claims and
claims incurred but not reported has not been discounted at December
31, 1996. Such estimates were discounted at a weighted-average rate of
7.5% at December 31, 1995 and 1994. The rates used for discounting loss
reserves on 1995 and 1994 issues were determined at the beginning of
those years. The discount rate established for 1995 issues was 7.5% and
for 1994 issues was 6.5%. If these estimates had not been discounted at
December 31, 1995 and 1994, reserves would have been increased by
$80,000 and $78,000, respectively.
F-15
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
4. POLICY AND CONTRACT CLAIMS (Continued)
Activity in the liability for unpaid claims and claim adjustment
expenses is summarized as follows:
1996 1995 1994
---- ---- ----
Balance at January 1 $193,791 $198,906 $187,619
Incurred related to:
Current year 28,930 44,322 56,765
Prior years 281 (20,025) (9,990)
-------- -------- --------
Total incurred 29,211 24,297 46,775
-------- -------- --------
Paid related to:
Current year 1,549 1,797 7,465
Prior years 25,168 28,562 29,761
-------- -------- --------
Total paid 26,717 30,359 37,226
-------- -------- --------
Amounts related to
purchase of
subsidiaries - 947 1,738
-------- -------- --------
Balance at December 31 $196,285 $193,791 $198,906
======== ======== ========
Balances at January 1, 1996, 1995 and 1994 and balances at December 31,
1995 and 1994 are reported on a discounted basis. The balance at
December 31, 1996 is reported on an undiscounted basis. Losses incurred
in 1996 include the effects of the accounting changes discussed in Note
2.
The favorable development on 1994 and prior year loss reserves during
1995 was attributable to successful recovery efforts, development on
previously reserved large claims and lower than expected payment levels
on the 1992 and 1993 issue years which included a high proportion of
refinance business.
5. REINSURANCE
The Company cedes and assumes title policy risks to and from other
insurance companies in order to limit and diversify its risk. The
Company cedes insurance on risks in excess of certain underwriting
limits which provides for recovery of a
F-16
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
5. REINSURANCE (Continued)
portion of losses. The Company remains contingently liable to the
extent that reinsuring companies cannot meet their obligations under
reinsurance agreements.
The Company has not paid or recovered any reinsured losses during the
three years ended December 31, 1996. The total amount of premiums for
assumed and ceded risks was less than 1.0% of title premiums in each of
the last three years.
6. SHAREHOLDERS' EQUITY
Rights Agreement
The Company has issued one preferred share purchase right (a "Right")
with each share of Common Stock issued. As adjusted for the
three-for-two split of the Common Stock in May 1993, each Right
entitles the holder to buy two-thirds of one-hundredth of a share of
Series A Junior Participating Preferred Stock ("Junior Preferred
Stock"). The purchase price for each one-hundredth of a share of Junior
Preferred Stock is $60, subject to adjustment. The Rights will become
exercisable only if a person or group acquires or announces a tender
offer for 20.0% or more of the outstanding Common Stock. At any time
before the rights become exercisable, the Board of Directors may reduce
this threshold percentage to not less than 10.0%. If a person or group
acquires the threshold percentage of Common Stock, each Right will
entitle the holder, other than the acquiring person, to buy shares of
Common Stock or Junior Preferred Stock having a market value of twice
the exercise price. If the Company is acquired in a merger or other
business combination, each Right will entitle the holder, other than
the acquiring person, to purchase securities of the surviving company
having a market value equal to twice the purchase price of the Rights.
The Rights will expire on October 1, 2001, and may be redeemed by the
Company at a price of one cent per Right at any time before they become
exercisable. Until the Rights become exercisable, they are evidenced by
the Common Stock certificates and are transferred with and only with
such certificates.
Stock Options
The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to
Employees"
F-17
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
("APB 25") and related Interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair value
accounting provided under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("Statement 123"), requires use of option
valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Under the Company's 1991 Stock Incentive Plan, as amended (the
"Incentive Plan"), officers, directors and key employees of the Company
and its subsidiaries may receive grants and/or awards of common stock,
restricted stock, phantom stock, incentive stock options, non-qualified
stock options and stock appreciation rights. As amended in 1995,
commencing January 1, 1996, the maximum number of shares of common
stock available for grants and awards under the Incentive Plan in each
calendar year is equal to 1.5% of the shares of common stock
outstanding as of the first business day of that year, plus the number
of shares available for grants and awards in prior years but not
covered by grants and awards in those years and any shares of common
stock as to which grants and awards have been terminated or forfeited.
Pursuant to the 1992 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), each non-employee director is granted an option to
purchase 1,500 shares of common stock of the Company on the first
business day following the annual meeting of shareholders. Up to 60,000
shares of the Company's common stock may be issued under the Directors'
Plan.
All options which have been granted under the Incentive Plan and the
Directors' Plan are non-qualified stock options with an exercise price
equal to the fair market value of a share of the Company's common stock
on the date of grant. Options granted in 1992 under the Incentive Plan
and all options granted under the Directors' Plan expire ten years from
the date of grant. All other options which have been granted under the
Incentive Plan expire seven years from the date of grant. Options
generally vest ratably over a four-year period.
F-18
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value
method of that Statement. The fair value of these options was estimated
at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions for 1996: risk-free interest
rate of 7.50%, dividend yield of 1.00%, volatility factor of the
expected market price of the Company's common stock of .34 and a
weighted-average expected life of the options of 5 years. The effects
of applying Statement 123 on a pro forma basis for 1995 and 1996
options are not likely to be representative of the effects on reported
pro forma net income in future years.
The Black-Scholes option valuation method was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for
earnings per share information):
1996 1995
---- ----
Pro forma net income $36,187 $16,922
Pro forma earnings
per share $4.07 $1.90
F-19
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Weighted- Weighted-
Average Average
Options Exercise Price Options Exercise Price
------- -------------- --------- ---------------
<S> <C>
Outstanding -
beginning of year 523,576 $11 421,576 $12
Granted 178,000 19 112,000 11
Exercised 3,800 10 1,500 10
Forfeited 6,050 16 8,500 22
--------- --------
Outstanding -
end of year 691,726 $13 523,576 $11
======= =======
Available for
future grant 55,856 103,018
Exercisable at
end of year 366,356 $11 278,651 $10
Weighted-average fair
value of options
granted during the year $7.38 $4.77
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged
from $3 to $22. The weighted-average remaining contractual life of
those options is 5 years.
Savings and Stock Ownership Plan
The Company has registered 600,000 shares of common stock for use in
connection with the Lawyers Title Insurance Corporation Savings and
Stock Ownership Plan. Substantially all of the employees of the Company
are eligible to participate in the Plan. On July 1, 1992, the Company
issued 323,400 shares of such stock to the Plan in exchange for a
$2,156 promissory note bearing interest at 8.0%. These shares were used
for matching contributions for plan participants through June of 1996
and were allocated to participants quarterly in the same proportion
that the quarterly principal and interest payments on the note bore to
the total principal and interest payments over the life of the note.
Subsequent to June 1996, the Plan Trustee purchased shares on the open
market to use in matching
F-20
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
6. SHAREHOLDERS' EQUITY (Continued)
employee contributions. The level of contributions to the Plan is
discretionary and set by the Board of Directors annually. In 1996, 1995
and 1994, 38,997, 94,096 and 115,990 shares were allocated to
participants at a cost of $143, $631 and $832, respectively, to the
Company. Additionally, 100,502 shares were purchased at a cost of
$1,851 and allocated to employees in 1996.
7. STATUTORY FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles (GAAP)
which differ in some respects from statutory accounting practices
prescribed or permitted in the preparation of financial statements for
submission to insurance regulatory authorities. Unconsolidated
statutory equity of Lawyers Title was $140,973 and $116,016 at December
31, 1996 and 1995, respectively. The difference between statutory
equity and equity determined on the basis of GAAP is primarily due to
differences between the provision for policy and contract claims
included in the accompanying financial statements and the statutory
unearned premium reserve, which is calculated in accordance with
statutory requirements, and statutory regulations that preclude the
recognition of certain assets including goodwill and deferred income
tax assets. Unconsolidated statutory net income of Lawyers Title was
$38,473, $18,516 and $13,993 for the years ended December 31, 1996,
1995 and 1994, respectively.
In a number of states, Lawyers Title is subject to regulations which
require minimum amounts of statutory equity and which require that the
payment of any extraordinary dividends receive prior approval of the
Insurance Commissioners of these states. An extraordinary dividend is
generally defined as one which, when added to other dividends paid in
the preceding twelve months, would exceed the lesser of 10.0% of
statutory equity accounts as of the preceding year end or statutory net
income excluding realized capital gains for the preceding year. Under
such statutory regulations, net assets of consolidated subsidiaries
aggregating $248,071 were not available for dividends, loans or
advances to the Company at December 31, 1996.
F-21
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
8. INCOME TAXES
The Company files a consolidated federal income tax return with its
subsidiaries. Significant components of the Company's deferred tax
assets and liabilities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Deferred tax assets:
Policy and contract claims $24,430 $23,021
Employee benefit plans 6,235 7,195
Other 1,499 1,382
------- -------
32,164 31,598
------- -------
Deferred tax liabilities:
Pension benefits 530 885
Title plant basis differences 4,961 4,961
Unrealized gains 1,451 7,455
Other 1,787 2,170
------- -------
8,729 15,471
------- -------
Net deferred tax asset $23,435 $16,127
======= =======
</TABLE>
The Company is required to establish a "valuation allowance" for any
portion of the deferred tax asset that management believes will not be
realized. In the opinion of management, it is more likely than not that
the Company will realize the benefit of the net deferred tax asset,
and, therefore, no such valuation allowance has been established at
December 31, 1996 and 1995.
The provision for income tax is less than the amount of income tax
determined by applying the applicable U.S. statutory income tax rate
(35%) to pre-tax income as a result of the following differences:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Computed expected expense
at statutory rate $19,439 $8,351 $3,139
Non-taxable interest (932) (828) (734)
Dividend deductions (146) (187) (170)
Company-owned life insurance (575) (645) (532)
Travel and entertainment 709 421 357
Other 526 (303) 95
------- ------ ------
Income tax expense $19,021 $6,809 $2,155
======= ====== ======
</TABLE>
F-22
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
8. INCOME TAXES (Continued)
Taxes (recovered) paid were $14,542 in 1996, $(252) in 1995 and $9,207
in 1994.
9. PENSION PLAN AND POSTRETIREMENT BENEFITS
The Company has a noncontributory defined benefit retirement plan which
covers substantially all employees. Benefits are based on salary and
years of service. The Company's funding policy is to annually
contribute the statutory required minimum. Plan assets include
marketable equity securities, U.S. government and corporate obligations
and cash equivalents. Prior service costs are amortized equally over
the average remaining service period of employees.
The following table sets forth the plan's funded status as of the
September 30 measurement dates:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Actuarial present value of benefit obligations:
Vested $ 93,545 $ 85,297
Nonvested 6,743 5,728
-------- --------
Total accumulated benefit
obligations $100,288 $ 91,025
======== ========
Plan assets at fair value $112,684 $104,190
Projected benefit obligations 115,606 104,043
-------- --------
Plan assets (less than) in excess
of projected benefit obligations (2,922) 147
Unrecognized net asset from
transition (162) (1,982)
Unrecognized prior service costs 172 245
Unrecognized net gain 6,156 5,621
-------- --------
Prepaid pension asset at
December 31 $ 3,244 $ 4,031
======== ========
</TABLE>
F-23
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
9. PENSION PLAN AND POSTRETIREMENT BENEFITS (Continued)
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.75% in 1996
and 1995. The average rate of increase in future compensation levels
used was 4.3% in 1996 and 1995. The expected long-term rate of return
on plan assets was 8.75% for 1996, 1995 and 1994.
The components of pension cost include the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Benefits earned during
the year $ 3,124 $ 2,795 $ 3,000
Interest cost on projected
benefit obligations 7,834 6,985 6,676
Actual return on plan assets (13,854) (16,125) (562)
Net amortization and
deferral 3,684 6,337 (9,003)
------- ------- -------
Pension cost $ 788 $ (8) $ 111
======= ======= =======
</TABLE>
The Company sponsors defined benefit life and health care plans that
provide postretirement medical, dental and life insurance benefits to
fulltime employees who have attained age 55 and have ten years of
service after age 40. The plans are contributory, with contributions
adjusted annually, and contain other cost-sharing features such as
deductibles and coinsurance. Currently, the Company does not require
contributions from employees who retired prior to 1991. Medical
benefits are funded as claims are incurred. Contributions are made to a
premium deposit fund with a life insurance company for retired
participants upon reaching age 65.
The following table presents the plan's funded status reconciled with
amounts recog nized in the Company's consolidated balance sheet:
F-24
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
9. PENSION PLAN AND POSTRETIREMENT BENEFITS (Continued)
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Medical/ Medical/
Dental Life Dental Life
-------- ------ ------- ------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $11,878 $5,414 $11,335 $5,280
Fully eligible active
plan participants 2,448 980 2,162 908
Other active plan
participants 3,340 1,079 2,945 1,089
------- ------ ------- ------
17,666 7,473 16,442 7,277
Plan assets invested in
a premium deposit fund,
at fair value - 2,244 - 2,288
------- ------ ------- ------
Accumulated postretirement
benefit obligation in
excess of plan assets 17,666 5,229 16,442 4,989
Unrecognized net (gain)
or loss (5,961) 1,582 (6,353) 1,704
Unrecognized transition
obligation 16,305 2,471 17,324 2,625
------- ------ ------- ------
Accrued postretirement
benefit cost $ 7,322 $1,176 $ 5,471 $ 660
======= ====== ======= ======
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
Medical/ Medical/ Medical/
Dental Life Dental Life Dental Life
----------- -------- -------- ----- ------ -----
<S> <C>
Service cost $ 532 $170 $ 476 $ 168 $ 520 $ 148
Interest 1,238 548 1,795 535 1,597 375
Actual return on
plan assets - (200) - (183) - (167)
Amortization of net
(gain) loss (256) 52 - - - -
Amortization of
transition obliga-
tion over 20 years 1,019 155 1,019 155 1,019 155
------ ---- ------ ---- ------ -----
Net periodic post-
retirement benefit
cost $2,533 $725 $3,290 $675 $3,136 $ 511
====== ==== ====== ==== ====== =====
</TABLE>
F-25
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
9. PENSION PLAN AND POSTRETIREMENT BENEFITS (Continued)
The assumed health care cost trend rate used to measure the expected
cost of benefits covered by the plan is 10.0% for 1997 and 9.5% for
1998, and is assumed to decrease 0.5% per year until 2004 and remain
level at 6.25% thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. For example, a 1.0%
increase in the annual health care cost trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1996
and 1995 by $854 and $1,731, respectively, and the aggregate of the
service and interest cost components of net periodic postretirement
benefit cost for 1996 by $67.
The weighted-average discount rate used to estimate the accumulated
postretirement benefit was 7.75% at December 31, 1996 and 1995. The
average rate of increase in future compensation levels used was 4.3% in
1996 and 1995.
10. LEASE COMMITMENTS
The Company conducts a major portion of its operations from leased
office facilities under operating leases that expire over the next 10
years. Additionally, the Company leases data processing and other
equipment under operating leases expiring over the next five years.
Following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining non-cancelable
lease terms in excess of one year as of December 31, 1996.
1997 $18,593
1998 15,104
1999 11,521
2000 6,440
2001 2,732
2002 and subsequent 1,365
-------
$55,755
=======
Rent expense was $22,551, $22,649 and $19,124 for the years ended
December 31, 1996, 1995 and 1994, respectively.
F-26
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
11. CREDIT ARRANGEMENTS
At December 31, 1996, the Company had working capital lines of credit
with three banks totaling $35,000 that may be drawn on as needed, with
interest at LIBOR plus 1.5% or the prime rate at the Company's choice.
At that date $1,000 was drawn against these lines. These credit lines
require a commitment fee of 0.16% and expire May 31,1997, although they
may be extended beyond that date at the sole discretion of the banks.
12. PENDING LEGAL PROCEEDINGS
Lawyers Title, in the ordinary course of its title insurance business,
is sometimes named as a defendant in litigation involving claims
arising outside of the title insurance contract, such as for alleged
negligence in title examination, improper claims administration or bad
faith. While it is the Company's policy to handle all claims promptly,
efficiently, fairly, and in accordance with the provisions of the
policy and all applicable laws, the Company may, nevertheless, be
subjected to plaintiffs' allegations seeking extracontractual or
punitive damages.
13. ACQUISITIONS
During the year ended December 31, 1996 the Company acquired three
title insurance agencies and an ancillary service business at an
aggregate cost of $7,900 of which $3,000 was paid in cash with the
balance payable in future periods. These acquisitions were not material
to the Company's operations.
Effective November 1, 1994, the Company acquired all of the outstanding
stock of Oregon Title Insurance Company (OTIC) in exchange for 425,020
shares of the Company's common stock valued at $3,883. OTIC is engaged
in the title insurance business. The acquisition has been accounted for
under the purchase method of accounting. Goodwill of approximately $500
is being amortized over 40 years.
Effective November 30, 1994, the Company acquired all of the
outstanding stock of American Title Group, Inc. (ATG) for approximately
$19,000 in cash. To provide indemnification to the Company for the
warranties of the sellers, $4,500 of the purchase price was placed with
an escrow agent to be released
F-27
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
13. ACQUISITIONS (Continued)
over four years as the warranties expire. At December 31, 1996 the
balance remaining in escrow was $2,250. ATG is engaged in the title
insurance business. The acquisition has been accounted for under the
purchase method of accounting. Goodwill of approximately $7,200 is
being amortized over 40 years.
The following unaudited pro forma summary presents information as if
the OTIC and ATG acquisitions had occurred at the beginning of the
fiscal year. The pro forma information is provided for information
purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is
it necessarily indicative of future results of operations of the
combined enterprise.
Unaudited
Year Ended
December 31, 1994
Premium and title search
and escrow revenue $545,748
========
Net income $ 3,857
========
Earnings per common share $ .43
========
In addition, during the year ended December 31, 1994 the Company
acquired two title insurance agencies at an aggregate cost of $5,786
which was paid in cash. These acquisitions were not material to the
Company's operations.
F-28
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
14. UNAUDITED QUARTERLY FINANCIAL DATA
Selected quarterly financial information follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- -------- -------- -------
<S> <C>
1996
Premiums, title
search, escrow
and other $117,469 $143,793 $141,679 $154,817
Net investment
income 5,345 5,500 4,593 20,986
Income before
income taxes 6,717 13,798 9,150 25,875
Net income 4,521 9,044 6,054 16,900
Income per common
share $.51 $1.02 $.68 $1.90
1995
Premiums, title
search, escrow
and other $104,838 $111,742 $118,479 $132,302
Net investment
income 3,301 3,036 4,566 4,568
Income before
income taxes 1,395 4,549 8,565 9,351
Net income 1,015 3,196 6,237 6,603
Income per
common share $.11 $.36 $.70 $.74
</TABLE>
In the fourth quarter of 1996 the Company changed its investment
strategy by selling all of its equity portfolio and began to move the
proceeds into fixed-maturity securities. This sale resulted in capital
gains of $17.4 million in the quarter.
Income per common share is computed using the weighted average number
of shares of common stock outstanding during each quarter.
15. ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than
F-29
<PAGE>
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands of dollars except per common share amounts)
15. ACCOUNTING PRONOUNCEMENTS (Continued)
the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long- lived assets that are expected to be disposed of.
The Company adopted SFAS No. 121 in the first quarter of 1996. The
adoption had no effect on the Company's financial statements for the
year ended December 31, 1996.
F-30
<PAGE>
Schedule I
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
DECEMBER 31, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
------------- --------- --------- --------
Amount at
which shown
Fair in the
Type of investment Cost Value balance sheet
--------------------- -------- ------- --------------
<S> <C>
Fixed maturities:
Bonds:
Available-for-sale:
United States Government
and government agencies
and authorities $ 62,206 $ 63,368 $ 63,368
States, municipalities and
political subdivisions 76,203 77,125 77,125
Foreign Government 345 383 383
Public utilities 4,550 4,557 4,557
All other corporate bonds 61,195 62,412 62,412
Mortgage-backed securities 10,376 10,379 10,379
-------- -------- --------
Total fixed maturities $214,875 $218,224 $218,224
======== ======== ========
Equity securities:
Common stocks:
Banks, trust and insurance
companies $ 49 $ 14 $ 14
Industrial, miscellaneous
and all other 881 1,711 1,711
Preferred stocks
-------- -------- --------
Total equity securities $ 930 $ 1,725 $ 1,725
======== ======== ========
Mortgage loans on real estate $ 480 XXX $ 480
======== === ========
Deposits with banks:
Invested cash $ 71,626 XXX $ 71,626
======== ========
Total investments $287,911 XXX $292,055
======== ========
</TABLE>
F-31
<PAGE>
Schedule II
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
ASSETS
Cash $ - $ 21
Stock of subsidiaries
at equity 263,456 238,038
Other assets 806 269
-------- --------
Total assets $264,262 $238,328
======== ========
LIABILITIES
Due to (from) subsidiaries $ 30 $ (57)
Note payable 1,000 -
Other liabilities 1,064 -
-------- ---------
Total liabilities 2,094 (57)
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,
8,889,791 in 1996 and
8,885,991 in 1995 167,044 167,006
Unrealized investment
gains 2,694 13,845
Retained earnings 92,430 57,689
Receivable from employee
benefit plan - (155)
-------- --------
Total shareholders' equity 262,168 238,385
-------- --------
$264,262 $238,328
======== ========
</TABLE>
F-32
<PAGE>
Schedule II
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
REVENUES
Dividends received from
consolidated subsidiaries $ 2,526 $ 2,610 $2,040
Management fee from
consolidated subsidiary 1,153 740 866
------- ------- ------
3,679 3,350 2,906
EXPENSES
Administrative expenses 1,153 740 866
------- ------ ------
INCOME BEFORE EQUITY
IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES 2,526 2,610 2,040
EQUITY IN UNDISTRIBUTED
INCOME OF CONSOLIDATED
SUBSIDIARIES 33,993 14,441 4,774
------- ------- ------
NET INCOME $36,519 $17,051 $6,814
======= ======= ======
</TABLE>
F-33
<PAGE>
Schedule II
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PARENT COMPANY STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In thousands of dollars)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
Cash flows from operating activities:
Net income $ 36,519 $ 17,051 $ 6,814
Undistributed net income
of subsidiary (33,993) (14,441) (4,774)
Other 589 - -
-------- -------- ------
Net cash provided by
operating activities 3,115 2,610 2,040
-------- -------- -------
Cash flows from investing activities:
Additional investment
in subsidiaries (2,358) (994) (1,020)
-------- -------- -------
Net cash used in investing
activities (2,358) (994) (1,020)
-------- -------- -------
Cash flows from financing activities:
Proceeds from note
payable 1,000 - -
Dividends paid (1,778) (1,599) (1,025)
-------- -------- -------
Net cash used in
financing activities (778) (1,599) (1,025)
-------- -------- -------
Net (decrease) increase in
cash (21) 17 (5)
Cash at beginning of year 21 4 9
-------- -------- -------
Cash at end of year $ - $ 21 $ 4
======== ======== =======
</TABLE>
F-34
<PAGE>
Schedule II
LAWYERS TITLE CORPORATION AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Basis of presentation - The accompanying parent company financial statements
should be read in conjunction with the Company's Consolidated Financial
Statements.
F-35
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of
Item 601 of
Regulation S-K Document
--------------- --------
3.1 Articles of Incorporation, incorporated by reference to
Exhibit 3A of the Registrant's Form 10 Registration Statement,
as amended, File No. 0-19408.
3.2 Bylaws, incorporated by reference to Exhibit 3B of the
Registrant's Form 10 Registration Statement, as amended, File
No. 0-19408.
4.1 Rights Agreement, dated as of October 1, 1991, between Lawyers
Title Corporation and Sovran Bank, N.A., as Rights Agent,
incorporated by reference to Exhibit 4A of the Registrant's
Form 8 Amendment No.2 to the Registrant's Form 10 Registration
Statement, as amended, File No. 0-19408.
4.2 Amendment, dated as of June 22, 1992, to Rights Agreement,
dated as of October 1, 1991, between Lawyers Title Corporation
and NationsBank, N.A. (formerly Sovran Bank, N.A.), as Rights
Agent, and Wachovia Bank of North Carolina, N.A., as Successor
Rights Agent, incorporated by reference to Exhibit 4A of the
Registrant's Form 8 Amendment No. 3 to the Registrant's Form
10 Registration Statement, as amended, File No. 0-19408.
4.3 Form of Stock Certificate, incorporated by reference to
Exhibit 4.3 of the Registrant's Form 10-K for the year ended
December 31, 1995, File No. 1- 13990.
10.1 Lawyers Title Corporation 1991 Stock Incentive Plan, as
amended May 16, 1995, May 21, 1996 and November 1, 1996,
incorporated by reference to Exhibit 10.1 of the Registrant's
Form 10-Q for the quarter ended September 30, 1996, File No.
1-13990.
10.2 Lawyers Title Insurance Corporation Deferred Income Plan,
incorporated by reference to Exhibit 10C of the Registrant's
Form 10 Registration Statement, as amended, File No. 0-19408.
F-36
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of
Item 601 of
Regulation S-K Document
--------------- --------
10.3 Lawyers Title Insurance Corporation Benefit Replacement Plan,
incorporated by reference to Exhibit 10M of the Registrant's
Form 10 Registration Statement, as amended, File No. 0-19408.
10.4 Lawyers Title Insurance Corporation Supplemental Pension Plan,
incorporated by reference to Exhibit 10B of the Registrant's
Form 10 Registration Statement, as amended, File No. 0-19408.
10.5 Lawyers Title Corporation 1992 Stock Option Plan for
Non-Employee Directors, as amended May 21, 1996, incorporated
by reference to Exhibit 10.5 of the Registrant's Form 10-Q for
the quarter ended June 30, 1996, File No. 1- 13990.
10.6 Distribution and Indemnity Agreement among Universal
Corporation, Lawyers Title Insurance Corporation and Lawyers
Title Corporation, dated as of October 1, 1991, incorporated
by reference to Exhibit 2.1 of the Registrant's Form 10-K for
the year ended December 31, 1991, File No. 0-19408.
10.7 Tax Sharing Agreement among Universal Corporation, Lawyers
Title Insurance Corporation and Lawyers Title Corporation,
dated as of October 1, 1991, incor porated by reference to
Exhibit 10.15 of the Registrant's Form 10-K for the year ended
December 31, 1991, File No. 0-19408.
10.8 Lawyers Title Insurance Corporation Senior Executive Severance
Agreement, incorporated by reference to Exhibit 10G of the
Registrant's Form 10 Registration Statement, as amended, File
No. 0-19408.
10.9 Lawyers Title Corporation Change of Control Employment
Agreement, incorporated by reference to Exhibit 10.12 of the
Registrant's Form 10-K for the year ended December 31, 1994,
File No. 0-19408.
F-37
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of
Item 601 of
Regulation S-K Document
--------------- --------
10.10 Lawyers Title Insurance Corporation Change of Control
Employment Agreement, incorporated by reference to Exhibit
10.13 of the Registrant's Form 10-K for the year ended
December 31, 1994, File No. 0-19408.
10.11 Form of Lawyers Title Corporation Non-Qualified Stock Option
Agreement, dated October 29, 1991, with Schedule of Optionees
and amounts of options granted, incorporated by reference to
Exhibit 10.17 of the Registrant's Form 10- K for the year
ended December 31, 1991, File No. 0-19408.
10.12 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 8, 1992, with Schedule of
Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.18 of the Registrant's Form 10-K for
the year ended December 31, 1991, File No. 0-19408.
10.13 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 4, 1993, with Schedule of
Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.21 of the Registrant's Form 10-K for
the year ended December 31, 1992, File No. 0-19408.
10.14 Form of Lawyers Title Corporation Non-Employee Director
Non-Qualified Stock Option Agreement, incorporated by
reference to Exhibit 10.18 of the Registrant's Form 10-K for
the year ended December 31, 1994, File No. 0- 19408.
10.15 Lawyers Title Insurance Corporation Regional Manager's
Incentive Program for 1993, incorporated by reference to
Exhibit 10.24 of the Registrant's Form 10-K for the year ended
December 31, 1992, File No. 0-19408.
F-38
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of
Item 601 of
Regulation S-K Document
--------------- --------
10.16 Deed of Lease, dated September 29, 1989, between The Life
Insurance Company of Virginia and Lawyers Title Insurance
Corporation, incorporated by reference to Exhibit 10.26 of the
Registrant's Form S-1 Registration Statement, as amended, File
No. 33-70134.
10.17 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 4, 1994, with schedule of
optionees and amounts of options granted, incorporated by
reference to Exhibit 10.27 of the Registrant's Form 10-K for
the year ended December 31, 1993, File No. 0-19408.
10.18 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 5, 1995, with schedule of
optionees and amounts of options granted, incorporated by
reference to Exhibit 10.22 of the Registrant's Form 10-K for
the year ended December 31, 1994, File No. 0-19408.
10.19 Lawyers Title Insurance Corporation 1995 Benefit Restoration
Plan, incorporated by reference to Exhibit 10.23 of the
Registrant's Form 10-K for the year ended December 31, 1994,
File No. 0-19408.
10.20 Lawyers Title Corporation Outside Directors Deferral Plan,
incorporated by reference to Exhibit 10.24 of the Registrant's
Form 10-K for the year ended December 31, 1994, File No.
0-19408.
10.21 Form of Lawyers Title Insurance Corporation Split-Dollar Life
Insurance Agreement and Collateral Assignment, incorporated by
reference to Exhibit 10.25 of the Registrant's Form 10-K for
the year ended December 31, 1994, File No. 0-19408.
F-39
<PAGE>
ITEM 14(a)(3)
INDEX TO EXHIBITS
Exhibit Number
and Applicable
Section of
Item 601 of
Regulation S-K Document
--------------- --------
10.22 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 3, 1996, with Schedule of
Optionees and amounts of options granted, incorporated by
reference to Exhibit 10.26 of the Registrant's Form 10-K for
the year ended December 31, 1995, File No. 1-13990.
10.23 Form of Lawyers Title Corporation Employee Non-Qualified Stock
Option Agreement, dated January 7, 1997, with Schedule of
Optionees and amounts of options granted.*
18 Accounting Change Preferability Letter.*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP. *
* Filed Herewith
F-40
EXHIBIT 10.23
LAWYERS TITLE CORPORATION
EMPLOYEE
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the 7th day of January, 1997, between
Lawyers Title Corporation, a Virginia corporation (the "Company"), and
_________________ ("Optionee"), is made pursuant and subject to the provisions
of the Company's 1991 Stock Incentive Plan (the "Plan"), a copy of which is
attached. All terms used herein that are defined in the Plan shall have the same
meaning given them in the Plan.
1. Grant of Option. Pursuant to the terms of the Plan, the
Company, on January 7, 1997, granted to Optionee, subject to the terms and
conditions of the Plan and subject further to the terms and conditions herein
set forth, the right and option to purchase from the Company all or any part of
an aggregate of ________ shares of the common stock of the Company (the "Common
Stock") at the option price of $21.50 per share. Such option is to be
exercisable as hereinafter provided.
2. Terms and Conditions. This option is subject to the
following terms and conditions:
(a) Expiration Date. The Expiration Date of this option
is January 7, 2004.
(b) Exercise of Option. Except as provided in
paragraphs 3, 4, 5 and 6 below, this option shall become exercisable with
respect to twenty-five percent (25%) of the total number of shares covered by
this option, as set forth in
<PAGE>
paragraph 1 above, for each full 12 month period, up to a total of four (4) such
periods, that the Optionee continues to be employed by the Company after the
date of the granting of this option. Once this option has become exercisable
with respect to a particular number of shares in accordance with the preceding
sentence, it shall continue to be exercisable with respect to such shares until
the earlier of the termination of Optionee's rights hereunder pursuant to
paragraph 3, 4, 5 or 6, or the Expiration Date. A partial exercise of this
option shall not affect Optionee's right to exercise this option subsequently
with respect to the remaining shares that are exercisable subject to the
conditions of the Plan and this Agreement.
(c) Method of Exercising and Payment for Shares. This option
may be exercised only by written notice delivered to the attention of the
Company's Secretary at the Company's principal office in Richmond, Virginia. The
written notice shall specify the number of shares being acquired pursuant to the
exercise of the option when such option is being exercised in part in accordance
with subparagraph 2(b) hereof. The exercise date shall be the date upon which
such notice is received by the Company. Such notice shall be accompanied by
payment of the option price in full for each share either in cash in United
States Dollars, or by the surrender of shares of Common Stock, or by cash
equivalent acceptable to the Company or any combination thereof having an
aggregate fair market value equal to the option price.
-2-
<PAGE>
(d) Cashless Exercise. To the extent permitted by
applicable laws and regulations, at the request of the Optionee, the Company
will cooperate in a "cashless exercise" in accordance with Section 8.05 of the
Plan.
(e) Nontransferability. This option is nontransferable
except, in the event of the Optionee's death, by will or by the laws of descent
and distribution subject to the terms hereof. During Optionee's lifetime, this
option may be exercised only by Optionee.
3. Exercise in the Event of Death. This option shall become
exercisable in full in the event that Optionee dies while employed by the
Company or an Affiliate and prior to the Expiration Date of this option. In that
event, this option may be exercised by Optionee's estate, or the person or
persons to whom his rights under this option shall pass by will or the laws of
descent and distribution. Optionee's estate or such persons must exercise this
option, if at all, within two years of the date of Optionee's death or during
the remainder of the period preceding the Expiration Date, whichever is shorter,
but in no event may the option be exercised prior to the expiration of six (6)
months from the date of the grant of the option.
4. Exercise in the Event of Permanent and Total Disability. This
option shall be exercisable in full if Optionee becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed by
the Company or an Affiliate and prior to the Expiration Date of this option.
-3-
<PAGE>
In such event, Optionee must exercise this option, if at all, within two years
of the date on which he terminates employment with the Company due to permanent
and total disability or during the remainder of the period preceding the
Expiration Date, whichever is shorter, but in no event may the option be
exercised prior to the expiration of six (6) months from the date of the grant
of the option.
5. Exercise After Retirement or Other Approved Circumstance. In
the event that Optionee retires from employment with the Company or in any other
circumstance approved by the Committee in its sole discretion, this option shall
become exercisable in full but must be exercised by Optionee, if at all, within
two years following his retirement date, in the event of his retirement, or
within the period prescribed by the Committee, in an approved circumstance, or
during the remainder of the period preceding the Expiration Date, whichever is
shorter, but in no event may the option be exercised prior to the expiration of
six (6) months from the date of the grant of the option.
6. Exercise After Termination of Employment. In all events, other
than those events addressed in paragraphs 3, 4 and 5, in which the Optionee
ceases to be employed by the Company or an Affiliate other than for cause, the
Optionee may exercise this option, in whole or in part, with respect to that
number of shares which are exercisable under Paragraph 2 b. above at the time of
the termination of his employment; provided that this option must be exercised,
if at all, within ninety (90) days
-4-
<PAGE>
following the date upon which he ceases to be employed by the Company or during
the remainder of the period preceding the Expiration Date, whichever is shorter,
but in no event may the option be exercised prior to the expiration of six (6)
months from the date of the grant of the option. If Optionee's employment is
terminated for cause, his right to exercise this option shall terminate
immediately. For the purposes of this Agreement, "cause" shall mean conduct that
is unprofessional, unethical, immoral or fraudulent as determined in the sole
discretion of the Compensation Committee.
7. Fractional Shares. Fractional shares shall not be issuable
hereunder, and when any provision hereof may entitle Optionee to a fractional
share such fraction shall be disregarded.
8. No Right to Continued Employment. This option does not confer
upon Optionee any right with respect to continuance of employment by the Company
or an Affiliate, nor shall it interfere in any way with the right of the Company
or an Affiliate to terminate Optionee's employment at any time.
9. Investment Representation. Optionee agrees that, unless such
shares shall previously have been registered under the Securities Act of 1933,
(a) any shares purchased by him hereunder will be purchased for investment and
not with a view to distribution or resale, and (b) until such registration,
certificates representing such shares may bear an appropriate legend to assure
compliance with such Act. This investment
-5-
<PAGE>
representation shall terminate when such shares have been registered under the
Securities Act of 1933.
10. Change in Control or Capital Structure. Subject to any
required action by the shareholders of the Company, the number of shares of
Common Stock covered by this option, and the price per share thereof, shall be
proportionately adjusted and its terms shall be adjusted as the Committee shall
determine to be equitably required for any increase or decrease in the number of
issued and outstanding shares of Common Stock of the Company resulting from any
stock dividend (but only on the Common Stock), stock split, subdivision,
combination, reclassification, recapitalization or general issuance to holders
of Common Stock of rights to purchase Common Stock at substantially below its
then fair market value or any change in the number of such shares outstanding
effected without receipt of cash or property or labor or services by the Company
or for any spin-off, spin-out, split-up, split-off or other distribution of
assets to shareholders.
In the event of a Change in Control, the provisions of Section 13.03 of
the Plan shall apply to this option. In the event of a change in the Common
Stock of the Company as presently constituted, which is limited to a change of
all of its authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting from any such
change shall be deemed to be the Common Stock within the meaning of the Plan.
-6-
<PAGE>
The grant of this option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
11. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Virginia, except to the extent that federal law shall be deemed to apply.
12. Conflicts. In the event of any conflict between the
provisions of the Plan as in effect on the date hereof and the provisions of
this Agreement, the provisions of the Plan shall govern. All references herein
to the Plan shall mean the Plan as in effect on the date hereof.
13. Optionee Bound by Plan. Optionee hereby acknowledges receipt
of a copy of the Plan and agrees to be bound by all the terms and provisions
thereof.
14. Binding Effect. Subject to the limitations stated above and
in the Plan, this Agreement shall be binding upon and insure to the benefit of
the legatees, distributees, and personal representatives of Optionee and the
successors of the Company.
-7-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by a duly authorized officer, and Optionee has affixed his signature hereto, as
of the date and year first above written.
OPTIONEE: LAWYERS TITLE CORPORATION
___________________________ By: _____________________________
Title: __________________________
-8-
<PAGE>
LAWYERS TITLE INSURANCE CORPORATION
EMPLOYEE
NON-QUALIFIED STOCK OPTION AGREEMENT
DATED JANUARY 7, 1997
STRIKE PRICE PER SHARE: $21.50
LIST OF OPTIONEES AND AMOUNTS
-----------------------------
Number
Optionee Title of Shares
- ---------- ----- ---------
Charles H. Foster, Jr. Chairman & CEO 35,000
Janet A. Alpert President & COO 18,000
Kenneth Astheimer Executive V.P. - Operations 10,000
Charles W. Keith Executive V.P. - Operations 10,000
William H. Goodwyn, Jr. Executive V.P. - Marketing 2,000
Russell W. Jordan, III Senior V.P. & General Counsel 4,000
G. William Evans Senior V.P. & CFO 6,000
Robert J. Palmer Senior V.P. & CIO 4,000
John R. Blanchard Senior V.P. & Controller 2,000
H. Randolph Farmer Senior V.P. - Communications 2,000
Randall E. Cox Senior V.P. - Regional Manager 2,500
Edward J. Zerwekh Senior V.P. - Regional Manager 1,500
Joseph F. Drum, Jr. Senior V.P. - Regional Manager 2,000
Jeffrey D. Vaughan Senior V.P. - National 6,000
Division Manager
Exhibit 18
February 19, 1997
Mr. G. William Evans
Vice President and Treasurer
Lawyers Title Corporation
6630 West Broad Street
Richmond, Virginia 23230
Dear Mr. Evans:
Note 2 of Notes to Consolidated Financial Statements of Lawyers Title
Corporation (the Company) included in its Form 10-K for the year ended December
31, 1996 describes a change in the method of accounting for policy and contract
claims, which has been recognized as a change in estimate. Effective October 1,
1996, the Company no longer discounts its reserve for policy and contract claims
as it has in past years. You have advised us that you believe this change is to
a preferable method in your circumstances because the new method conforms with
industry practice and is considered preferable by rating agencies and analysts.
There are no authoritative criteria for determining a 'preferable' method of
recording a reserve for title insurance policy and contract claims on a
discounted or undiscounted basis. However, based on the particular
circumstances, we conclude that the change in the method of accounting for
policy and contract claims from reporting policy and contract claims on a
discounted to an undiscounted basis is to an acceptable alternative method
which, based on your business judgment to make this change for the reasons cited
above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
EXHIBIT 21
Subsidiaries of Lawyers Title Corporation State of Incorporation
Global Corporate Services, Inc. Michigan
Lawyers Title Environmental Insurance
Service Agency, Inc. Virginia
Its Subsidiaries:
LTEISA of Arizona, Inc. Arizona
LTEISA of California, Inc. California
LTEISA of Colorado, Inc. Colorado
LTEISA of Connecticut, Inc. Connecticut
LTEISA of New York, Inc. New York
LTEISA of Ohio, Inc. Ohio
LTEISA of Pennsylvania, Inc. Pennsylvania
LTEISA of Texas, Inc. Texas
Lawyers Title Exchange Company Maryland
Lawyers Title Services Company, Inc. Virginia
Lawyers Title Insurance Corporation Virginia
Its Subsidiaries:
American Title Group, Inc. Texas
Its Subsidiaries:
ATCOD, Inc. d/b/a American Title Company Texas
American Title Company of Austin
d/b/a Austin Title Company Texas
Commercial Abstract & Title Co.
d/b/a Lawyers Title of
San Antonio, Inc. Texas
William H. Tamm, Inc. Texas
Its Subsidiary:
Lawyers Title & Abstract Co. Texas
Texas Title Company Texas
Atlanta Title Company Georgia
Builders Disbursement Services, Inc. Virginia
Building Exchange Company Virginia
Charter Title Company Virginia
Commerce Title Guaranty Co. Tennessee
Continental Diversified Services Company California
Continental Lawyers Title Company California
Its Subsidiaries:
CLTC Exchange Company California
California Land Title Company California
California World Title Company California
Continental Land Title Company California
<PAGE>
Lawyers Title Insurance Corporation State of Incorporation
----------------------
Its Subsidiaries (Continued):
- -----------------------------
Subsidiaries of Continental Lawyers Title Company (con't.)
----------------------------------------------------------
Lawyers Title of Arizona, Inc. Arizona
Lawyers Title of Nevada, Inc. Nevada
Datatrace Information Services Company, Inc. Virginia
First Stable Properties, Inc. Virginia
Florida Southern Abstract & Title Co. Florida
Genesis Data Systems, Inc. Colorado
Guarantee Title Co., Inc. Kansas
Guaranty Abstract & Title Co., Amarillo, TX Texas
Land Title Abstract Co. Michigan
Land Title Dawson Abstract Co. Michigan
Land Title Insurance Company California
Lawyers Abstract Corporation South Carolina
Lawyers Acquisition Company, Inc. Virginia
Lawyers Holding Corporation Virginia
Its Subsidiaries:
Community Title, Inc. Maryland
Cumberland Title Company Maine
Louisville Title Agency of Central Ohio, Inc. Ohio
RGS Title Ltd. Virginia
Universal Title of Baltimore, Inc. Maryland
Lawyers Title Agency, Inc. Virginia
Lawyers Title of Baton Rouge, Inc. Louisiana
Lawyers Title of Dallas, Inc. Texas
Lawyers Title Data Corporation Virginia
Lawyers Title of El Paso, Inc. Virginia
Its Subsidiary:
Database Access, Inc. Texas
Lawyers Title Exchange Company - BKC Virginia
Lawyers Title Insurance Services Agency, Inc. Virginia
Lawyers Title of North Carolina, Inc. Virginia
Lawyers Title of Pueblo, Inc. Colorado
Lawyers Title Realty Services, Inc. Virginia
Monroe County Abstract Co. Michigan
Mortgage Data Services Agency, Inc. Ohio
New Mexico Title Company New Mexico
Oregon Title Insurance Company Oregon
Portland Financial Services Corporation Oregon
Real Estate Title Company, Incorporated Maryland
Real Title Company, Inc. Virginia
<PAGE>
Lawyers Title Insurance Corporation State of Incorporation
----------------------
Its Subsidiaries (Continued):
- ----------------------------
Richmond Company, Inc. Michigan
Rio Rancho Title, Inc. New Mexico
St. Clair County Abstract Co. Michigan
Tamiami Abstract & Title Co. Florida
The Title Guarantee & Trust Company Ohio
Title Investors Group, Inc. Texas
Its Subsidiary:
Title Insurance Company of America Tennessee
Its Subsidiaries:
Mid-South Title Co. of Central Arkansas, Inc. Arkansas
Mid-South Title Corporation
(f/n/a Bluff City Abstract Co., Inc.) Tennessee
Rutherford County Title Insurance Co. Tennessee
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in (a) the Registration Statement
(Form S-8 No. 33-42916 and 333-02884) pertaining to the Savings and Stock
Ownership Plan of Lawyers Title Insurance Corporation and Designated
Subsidiaries, (b) the Registration Statement (Form S-8 No. 33-43811) pertaining
to the Lawyers Title Corporation 1991 Stock Incentive Plan, (c) the Registration
Statement (Form S-8 No. 33-49624) pertaining to the Lawyers Title Corporation
1992 Stock Option Plan for Non-Employee Directors, and (d) the Registration
Statement (Form S-3 No. 33-97634) of Lawyers Title Corporation for the
registration of 627,108 of its common stock, and in the Prospectus related to
each, of our report dated February 19, 1997, with respect to the consolidated
financial statements and schedules of Lawyers Title Corporation included the
Annual Report (Form 10-K) for the year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
March 24, 1997
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