SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000 Commission File No. 1-13990
-------------------- ---------
LANDAMERICA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 Gateway Centre Parkway
Richmond, Virginia 23235-5153
(Address of principal executive offices) (Zip Code)
(804) 267-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, No Par Value 13,509,119 November 10, 2000
------------------ ----------------------
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets.....................................3
Consolidated Statements of Operations ..........................5
Consolidated Statements of Cash Flows...........................6
Consolidated Statements of Changes in
Shareholders' Equity.........................................7
Notes to Consolidated Financial Statements......................8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations...................................10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...........................................13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...............................14
Signatures.....................................................15
2
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturities available-for-sale - at fair value
(amortized cost: 2000 - $791,837; 1999 - $764,748) $ 769,921 $ 735,084
Equity securities - at fair value (cost: 2000 - $3,285;
1999 - $3,278) 1,870 1,807
Mortgage loans (less allowance for doubtful accounts:
2000 - $139; 1999 - $138) 10,221 7,124
Invested cash 75,639 109,045
------------ ------------
Total investments 857,651 853,060
CASH 41,870 54,939
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 2000 -
$1,851; 1999 - $2,026) 11,677 12,701
Premiums (less allowance for doubtful accounts: 2000 -
$8,048; 1999 - $9,525) 35,524 35,542
Income tax recoverable - 4,256
------------ ------------
Total notes and accounts receivable 47,201 52,499
PROPERTY AND EQUIPMENT - at cost (less accumulated
depreciation and amortization: 2000 - $92,206; 1999 -
$ 81,097) 70,159 72,661
TITLE PLANTS 94,152 93,608
GOODWILL (less accumulated amortization: 2000 -
$41,551; 1999 - $33,208) 354,192 347,158
DEFERRED INCOME TAXES 81,881 80,980
OTHER ASSETS 112,376 103,016
------------ ------------
Total assets $ 1,659,482 $ 1,657,921
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES 2000 1999
----------- ---- ----
<S> <C> <C>
POLICY AND CONTRACT CLAIMS $ 559,293 $ 554,450
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 142,661 150,408
FEDERAL INCOME TAXES 6,115 -
NOTES PAYABLE 184,400 207,653
OTHER 15,112 14,707
------------ ------------
Total liabilities 907,581 927,218
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized 5,000,000 shares,
no shares of Series A Junior Participating Preferred
Stock issued or outstanding; 2,200,000 shares of 7%
Series B Cumulative Convertible Preferred Stock
issued and outstanding 175,700 175,700
Common stock, no par value, 45,000,000 shares
authorized, shares issued and outstanding: 2000 -
13,504,319; 1999 - 13,680,421 339,804 342,138
Accumulated other comprehensive loss (23,331) (31,135)
Retained earnings 259,728 244,000
------------ ------------
Total shareholders' equity 751,901 730,703
------------ ------------
Total liabilities and shareholders' equity $ 1,659,482 $ 1,657,921
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999 (In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Title and other operating revenues:
Direct operations $ 195,353 $ 211,922 $ 563,145 $ 659,402
Agency operations 244,280 289,891 724,472 852,956
---------- ---------- ---------- ----------
439,633 501,813 1,287,617 1,512,358
Investment income 12,724 12,135 38,144 37,051
Gain (loss) on sales of investments 39 (150) (144) (1,563)
---------- ---------- ---------- ----------
452,396 513,798 1,325,617 1,547,846
---------- ---------- ---------- ----------
EXPENSES
Salaries and employee benefits 129,931 140,700 379,314 432,595
Agents' commissions 191,509 225,407 566,286 663,813
Provision for policy and contract claims 19,340 24,460 56,727 74,197
Interest expense 3,412 2,968 10,153 8,748
Exit and termination costs 2,179 - 2,179 -
General, administrative and other 94,158 106,114 275,324 303,589
---------- ---------- ---------- ----------
440,529 499,649 1,289,983 1,482,942
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 11,867 14,149 35,634 64,904
INCOME TAX EXPENSE (BENEFIT)
Current (7,876) (4,102) (889) 18,998
Deferred 11,911 9,038 13,005 4,692
---------- ---------- ---------- ----------
4,035 4,936 12,116 23,690
---------- ---------- ---------- ----------
NET INCOME 7,832 9,213 23,518 41,214
DIVIDENDS - PREFERRED STOCK (1,925) (1,925) (5,775) (5,775)
---------- ---------- ---------- ----------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 5,907 $ 7,288 $ 17,743 $ 35,439
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.44 $ 0.51 $ 1.32 $ 2.39
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,431 14,247 13,408 14,800
NET INCOME PER COMMON SHARE ASSUMING
DILUTION $ 0.43 $ 0.48 $ 1.28 $ 2.08
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ASSUMING DILUTION 18,403 19,190 18,314 19,794
</TABLE>
See accompanying notes.
5
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,518 $ 41,214
Depreciation and amortization 27,127 27,200
Amortization of bond premium 1,017 2,052
Realized investment losses 144 1,563
Deferred income tax (889) 4,692
Change in assets and liabilities, net of businesses acquired:
Notes receivable 1,024 (5,408)
Premiums receivable 152 17,676
Income taxes receivable/payable 10,371 (13,171)
Policy and contract claims 4,843 27,382
Accounts payable and accrued expenses (8,264) (38,869)
Other (7,312) (22,726)
------------ ------------
Net cash provided by operating activities 51,731 41,605
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment, net (15,438) (38,773)
Purchase of business, net of cash acquired (12,507) -
Cost of investments acquired:
Fixed maturities - available-for-sale (180,073) (500,826)
Mortgage loans - net (3,097) 2,176
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 151,823 492,811
------------ ------------
Net cash used in investing activities (59,292) (44,612)
------------ ------------
Cash flows from financing activities:
Proceeds from the sale of common shares 2,572 2,404
Cost of common shares repurchased (4,906) (34,397)
Repayment of cash surrender value loan (1,637) (6,447)
Dividends paid (7,790) (7,992)
Payments on notes payable (27,153) (117)
------------ ------------
Net cash used in financing activities (38,914) (46,549)
Net decrease in cash and invested cash (46,475) (49,556)
Cash and invested cash at beginning of period 163,984 174,027
------------ ------------
Cash and invested cash at end of period $ 117,509 $ 124,471
============ ============
</TABLE>
See accompanying notes.
6
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Other Total
--------------- ------------ Comprehensive Retained Shareholders'
Shares Amounts Shares Amounts Income (Loss) Earnings Equity
------ ------- ------ ------- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE - December 31, 1998 2,200,000 $ 175,700 15,294,572 $ 382,828 $ 12,367 $ 200,294 $ 771,189
Net income - - - - - 41,214 41,214
Net unrealized loss on securities,
net of tax benefit of $(14,166) - - - - (25,150) - (25,150)
-----------
Comprehensive income 16,064
-----------
Common stock retired - - (1,211,200) (34,397) - - (34,397)
Stock option and incentive plans - - 89,339 2,404 - - 2,404
Preferred dividends (7%) - - - - - (5,775) (5,775)
Common dividends ($0.15/share) - - - - - (2,217) (2,217)
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE - September 30, 1999 2,200,000 $ 175,700 14,172,711 $ 350,835 $ (12,783) $ 233,516 $ 747,268
========== ========== =========== =========== =========== =========== ===========
BALANCE - December 31, 1999 2,200,000 $ 175,700 13,680,421 $ 342,138 $ (31,135) $ 244,000 $ 730,703
Net income - - - - - 23,518 23,518
Unrealized gain on securities - - - - 7,804 - 7,804
-----------
Comprehensive income 31,322
-----------
Common stock retired - - 111,198 2,572 - - 2,572
Stock option and incentive plans - - (287,300) (4,906) - - (4,906)
Preferred dividends (7%) - - - - - (5,775) (5,775)
Common dividends ($0.15/share) - - - - - (2,015) (2,015)
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE - September 30, 2000 2,200,000 $ 175,700 13,504,319 $ 339,804 $ (23,331) $ 259,728 $ 751,901
========== ========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
1. Interim Financial Information
The unaudited consolidated financial information included in this
report has been prepared in conformity with the accounting principles
and practices reflected in the consolidated financial statements
included in the Form 10-K for the year ended December 31, 1999 filed
with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. This report should be read in conjunction with
the aforementioned Form 10-K. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of this information have been made. The results of
operations for the interim periods are not necessarily indicative of
results for a full year.
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income - numerator for diluted
earnings per share $ 7,832 $ 9,213 $ 23,518 $ 41,214
Less preferred dividends 1,925 1,925 5,775 5,775
-------- -------- -------- --------
Numerator for basic earnings per share $ 5,907 $ 7,288 $ 17,743 $ 35,439
======== ======== ======== ========
Denominator:
Weighted average shares -
denominator for basic earnings per
share 13,431 14,247 13,408 14,800
Effect of dilutive securities:
Assumed weighted average
conversion of preferred stock 4,824 4,824 4,824 4,824
Employee stock options 148 119 82 170
-------- -------- -------- --------
Denominator for diluted earnings per
share 18,403 19,190 18,314 19,794
======== ======== ======== ========
Basic earnings per common share $0.44 $0.51 $1.32 $2.39
===== ===== ===== =====
Diluted earnings per common share $0.43 $0.48 $1.28 $2.08
===== ===== ===== =====
</TABLE>
8
<PAGE>
3. Exit and Termination Costs
On August 1, 2000, the Company entered into a joint venture agreement
with The First American Corporation, creating Data Trace Information
Services (DTIS). Under the terms of the joint venture agreement, the
Company contributed certain assets of its subsidiary, DataTrace, in
exchange for a minority interest in the joint venture. Operations of
DTIS will be consolidated in Anaheim, California. The financial
statements of the Company reflect Data Trace as an investment in
affiliates, included in Other Assets on the balance sheet.
The Company has recorded exit and termination costs of $2,179 incurred
in connection with the joint venture. Costs incurred to exit certain
leases and license and maintenance agreements comprised $1,829 of this
amount. The remaining $350 relates to the termination of employees for
which employee severance benefits have been accrued.
Exit and termination costs paid through September 30, 2000 were $190.
4. Commitments and Contingencies
For additional information, see Pending Legal Proceedings on pages F-29
and F-30 and Legal Proceedings on pages 14 and 15 of the Form 10-K for
the fiscal year ended December 31, 1999, and Legal Proceedings on page
14 of the Form 10-Q for the period ended June 30, 2000.
5. Subsequent Event
On October 31, 2000, the Company acquired all of the outstanding shares
of Primis, Inc. (Primis). Primis is a web based provider of property
information and appraisal services. The acquisition will be accounted
for by the Company using the "purchase" method of accounting. The
assets and liabilities of Primis will be revalued to their respective
fair market values. The cost of acquisition was not material in
relation to the Company's financial position.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Operating Revenues
Operating revenues for the third quarter of 2000 were $439.6 million, compared
to $501.8 million in the third quarter of 1999. This decline in revenue is due
primarily to the effects of interest rate increases on the level of business
available, particularly from residential refinancing transactions, as well as a
decline in revenues from commercial transactions.
For the first nine months of 2000, operating revenues were $1.29 billion,
compared to $1.51 billion in the corresponding 1999 period. This decrease is
primarily the result of increases in mortgage interest rates and the resultant
decline in the amount of residential refinancing activity, in addition to a
decline in commercial revenue areas, in 2000 compared to 1999.
Investment Income
Investment income in the first nine months of 2000 was $38.1 million compared to
$37.1 million in the first nine months of 1999. This increase was attributable
to increased yields earned on underlying investments partially offset by a
decrease in the average amounts invested.
Expenses
As a result of the revenue declines discussed above, management instituted
aggressive expense management efforts. The results of these efforts were evident
in both the first nine months and the third quarter of 2000 compared to the
comparable periods of 1999.
Operating expenses for the third quarter of 2000 were $440.5 million compared to
$499.6 million in the third quarter of 1999. The decrease resulted principally
from reductions in salary and related expenses, agents commissions and general,
administrative and other expenses. Salary and related expenses decreased from
$140.7 million in 1999 to $129.9 million in 2000, which constitutes a decrease
of 8%. This decrease resulted from a reduction in average staffing levels from
9,700 in the third quarter of 1999 to 8,200 in the third quarter of 2000. Agents
commissions decreased $33.9 million from the third quarter of 1999, which is in
direct proportion to the decline in agency revenues. General administrative and
other expenses decreased $12.0 million, or 11%, for the quarter from the
comparable period in 1999.
Operating expenses for the first nine months of 2000 were $1.3 billion compared
to $1.5 billion for the comparable period of 1999. Salary and related expenses
were $379.3 million during the first nine months of 2000 compared to $432.6
million in the same period of 1999, a reduction of $52.9 million related to a
decrease in staffing levels. In addition, a decline in agents commissions, down
$97.5 million when compared to the same period of 1999, contributed to the
decrease for the nine month
10
<PAGE>
period. This decrease was in direct proportion to the decrease in agency
premiums. General, Administrative and Other expenses also decreased $28.3
million when compared to the prior year.
The provision for policy and contract claims decreased $17.5 million from the
first nine months of 1999 to the first nine months of 2000 as a result of the
lower amount of business written and continued recognition of improvement in the
Company's loss experience.
Net Income
LandAmerica reported net income of $7.8 million, or $0.43 per share on a diluted
basis, for the third quarter of 2000, compared to net income of $9.2 million, or
$0.48 per share on a diluted basis, for the third quarter of 1999. This decrease
resulted from a one time after tax charge of $1.4 million, or $0.08 per share,
for personnel and termination costs related to the Data Trace joint venture
entered into during the quarter.
For the nine months ended September 30, 2000, net income was $23.5 million, or
$1.28 per share on a diluted basis, compared to $41.2 million, or $2.08 per
share on a diluted basis, for the first nine months of 1999. The first nine
months of 2000 included an after-tax loss on sales of investments of $0.95
million, or less than $0.01 per diluted share, compared to a first nine months
1999 after-tax loss on sales of investments of $1.0 million, or $0.05 per
diluted share. The 2000 nine month period was also impacted by the one time
after tax charges of $1.4 million, or $0.08 per share, related to the joint
venture noted above.
Liquidity and Capital Resources
Cash provided by operating activities for the nine months ended September 30,
2000 was $51.7 million. As of September 30, 2000, the Company held cash and
invested cash of $117.5 million and fixed maturity securities of $769.9 million.
In addition, the Company has a bank credit facility of which $53.1 million was
unused at September 30, 2000.
The Company believes that it will have sufficient liquidity and capital
resources to meet both its short and long term capital needs.
Interest Rate Risk
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities, the table presents principal cash flows and related weighted
interest rates by expected maturity dates. Actual cash flows could differ from
the expected amounts.
11
<PAGE>
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(dollars in thousands)
<TABLE>
<CAPTION>
2005 and
2000 2001 2002 2003 2004 after Total Fair Value
---- ---- ---- ---- ---- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Taxable
available-for-sale
securities:
Book value $2,706 $27,468 $40,929 $48,614 $32,509 $364,565 $516,791 $502,437
Average yield 5.6% 6.2% 6.2% 6.2% 7.1% 6.9%
Non-taxable
available-for-sale
securities:
Book value 240 3,125 6,949 12,717 17,774 177,160 217,965 214,881
Average yield 6.2% 3.9% 4.5% 4.2% 4.8% 4.8%
Preferred stock:
Book value - - - - - 57,081 57,081 52,603
Average yield - - - - - 7.5%
</TABLE>
The Company also has variable rate long-term debt of $180.5 million bearing
interest at 6.86% at September 30, 2000. A .25% change in the interest rate
would affect income before income taxes by approximately $0.5 million annually.
Forward-Looking and Cautionary Statements
Certain information contained in this Quarterly Report on Form 10-Q includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Among other things, these statements
relate to the financial condition, results of operation and business of the
Company. In addition, the Company and its representatives may from time to time
make written or oral forward-looking statements, including statements contained
in other filings with the Securities and Exchange Commission and in its reports
to shareholders. These forward-looking statements are generally identified by
phrases such as "the Company expects," "the Company believes" or words of
similar import. These forward-looking statements are based upon management's
current knowledge and assumption about future events and involve certain risks
and uncertainties and other factors that may cause the actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Further, any such statement is specifically qualified in its
entirety by the following cautionary statements.
In connection with the title insurance industry in general, factors that may
cause actual results to differ materially from those contemplated by such
forward-looking statements include the following: (i) the costs of producing
title evidence are relatively high, whereas premium revenues are subject to
regulatory and competitive restraints; (ii) real estate activity levels have
historically been cyclical
12
<PAGE>
and are influenced by such factors as interest rates and the condition of the
overall economy; (iii) the value of the Company's investment portfolio is
subject to fluctuation based on similar factors; (iv) the title insurance
industry may be exposed to substantial claims by large classes of claimants; and
(v) the industry is regulated by state laws that require the maintenance of
minimum levels of capital and surplus and that restrict the amount of dividends
that may be paid by the Company's insurance subsidiaries without prior
regulatory approval.
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 3. Quantitative and Qualitative Disclosures
about Market Risk
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk" in Item 2 of this report.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
--------
Exhibit No. Document
----------- --------
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule (electronic copy only).
b) Reports on Form 8-K
-------------------
Form 8-K, filed August 7, 2000, reporting under Item 5 that the Company
entered into a Third Amendment to Amended and Restated Rights Agreement,
dated July 26, 2000, with State Street Bank and Trust Company.
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANDAMERICA FINANCIAL GROUP, INC.
---------------------------------------
(Registrant)
Date: November 10, 2000 /s/ Charles Henry Foster, Jr.
------------------------- ---------------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: November 10, 2000 /s/ G. William Evans
-------------------------- ---------------------------------------
G. William Evans
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
No. Document
--- --------
11 Statement Re: Computation of Earnings Per Share.
27 Financial Data Schedule (electronic copy only).
