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 March 31, 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
incorporation or organization) Identification No.)
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 13,403,141 May 10, 2000
------------------ --------------------
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
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 1. Legal Proceedings............................................................14
Item 6. Exhibits and Reports on Form 8-K.............................................14
Signatures...................................................................15
</TABLE>
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
- ------ ---- ----
<S> <C> <C>
INVESTMENTS:
Fixed maturities available-for-sale - at fair value
(amortized cost: 2000 - $775,655; 1999 - $764,748) $ 749,347 $ 735,084
Equity securities - at fair value (cost: 2000 - $3,285;
1999 - $3,278) 1,878 1,807
Mortgage loans (less allowance for doubtful accounts:
2000 - $121; 1999 - $138) 4,020 7,124
Invested cash 81,392 109,045
------------- -------------
Total investments 836,637 853,060
CASH 52,373 54,939
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 2000 -
$1,764; 1999 - $2,026) 12,575 12,701
Premiums (less allowance for doubtful accounts: 2000 -
$9,318; 1999 - $9,525) 35,341 35,542
Income tax recoverable 5,064 4,256
------------- -------------
Total notes and accounts receivable 52,980 52,499
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization: 2000 -
$80,728; 1999 - $81,907) 72,118 72,661
TITLE PLANTS 93,999 93,608
GOODWILL (less accumulated amortization: 2000 -
$35,946; 1999 - $33,208) 352,743 347,158
DEFERRED INCOME TAXES 81,553 80,980
OTHER ASSETS 102,862 103,016
------------- -------------
Total assets $ 1,645,265 $ 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>
March 31, December 31,
LIABILITIES 2000 1999
- ----------- ---- ----
<S> <C> <C>
POLICY AND CONTRACT CLAIMS $ 555,995 $ 554,450
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 137,798 150,408
NOTES PAYABLE 211,390 207,653
OTHER 15,138 14,707
-------------- --------------
Total liabilities 920,321 927,218
-------------- --------------
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 -
13,403,141; 1999 - 13,680,421 337,605 342,138
Accumulated other comprehensive loss (27,715) (31,135)
Retained earnings 239,354 244,000
-------------- --------------
Total shareholders' equity 724,944 730,703
-------------- --------------
Total liabilities and shareholders' equity $ 1,645,265 $ 1,657,921
============== ==============
</TABLE>
See accompanying notes.
4
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES
Title and other operating revenues:
Direct operations $ 164,920 $ 216,712
Agency operations 228,859 261,449
---------- ----------
393,779 478,161
Investment income 12,773 12,377
Gain (loss) on sales of investments 87 (635)
---------- ----------
406,639 489,903
---------- ----------
EXPENSES
Salaries and employee benefits 121,047 142,911
Agents' commissions 178,321 202,780
Provision for policy and contract claims 17,371 23,495
Interest expense 3,382 2,895
General, administrative and other 89,626 94,237
---------- ----------
409,747 466,318
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES (3,108) 23,585
INCOME TAX (BENEFIT) EXPENSE
Current (484) 13,104
Deferred (573) (4,389)
---------- -----------
(1,057) 8,715
---------- ----------
NET (LOSS) INCOME (2,051) 14,870
DIVIDENDS - PREFERRED STOCK (1,925) (1,925)
---------- ----------
NET (LOSS) INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ (3,976) $ 12,945
========== ==========
NET (LOSS) INCOME PER COMMON SHARE $ (0.30) $ 0.85
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 13,442 15,316
NET (LOSS) INCOME PER COMMON SHARE ASSUMING
DILUTION $ (0.30) $ 0.73
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING
DILUTION 13,442 20,388
</TABLE>
See accompanying notes.
5
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,051) $ 14,870
Depreciation and amortization 9,039 8,325
Amortization of bond premium 732 442
Realized investment (gains) losses (87) 635
Deferred income tax (573) (4,389)
Change in assets and liabilities, net of businesses acquired:
Notes receivable 126 (115)
Premiums receivable 277 8,388
Income taxes receivable/payable (808) (2,861)
Policy and contract claims 1,545 11,753
Accounts payable and accrued expenses (12,610) (18,321)
Other 1,492 (12,408)
---------- ----------
Net cash (used in) provided by operating activities (2,918) 6,319
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment, net (5,501) (13,876)
Purchase of business, net of cash acquired (5,106) -
Cost of investments acquired:
Fixed maturities - available-for-sale (39,506) (293,680)
Mortgage loans - (8,436)
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 27,902 269,204
Mortgage loans 3,104 -
---------- ----------
Net cash used in investing activities (19,107) (46,788)
---------- ----------
Cash flows from financing activities:
Proceeds from the sale of common shares - 988
Cost of common shares repurchased (4,533) -
Repayment of cash surrender value loan (903) (156)
Dividends paid (2,595) (2,691)
Payments on notes payable (163) (48)
---------- ----------
Net cash used in financing activities (8,194) (1,907)
---------- ----------
Net decrease in cash and invested cash (30,219) (42,376)
Cash and invested cash at beginning of period 163,984 174,027
---------- ----------
Cash and invested cash at end of period $ 133,765 $ 131,651
========== ==========
</TABLE>
See accompanying notes.
6
<PAGE>
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(In thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Preferred Stock Common Stock Comprehensive Retained Shareholders'
Shares Amounts Shares Amounts Income (Loss) Earnings Equity
------ ------- ------ ------- ------------- -------- ------
<S> <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 - - - - - 14,870 14,870
Other comprehensive income
Net unrealized loss on securities, net of
tax benefit of $(4,467) - - - - (8,635) - (8,635)
---------
Comprehensive income 6,235
---------
Common stock issued - - - - - - -
Stock option and incentive plans - - 22,470 988 - - 988
Preferred dividends (7%) - - - - - (1,925) (1,925)
Common dividends ($0.05/share) - - - - - (766) (766)
--------- ------- --------- -------- -------- -------- ---------
Balance - March 31, 1999 2,200,000 $175,700 15,317,042 $383,816 $ 3,732 $212,473 $ 775,721
========= ======== ========== ======== ======== ======== =========
Balance - December 31, 1999 2,200,000 $175,700 13,680,421 $342,138 $(31,135) $244,000 $ 730,703
Net loss - - - - - (2,051) (2,051)
Other comprehensive income
Net unrealized gain on securities - - - - 3,420 - 3,420
---------
Comprehensive income 1,369
---------
Common stock retired - - (287,300) (4,533) - - (4,533)
Common stock issued - - 10,020 - - - -
Preferred dividends (7%) - - - - - (1,925) (1,925)
Common dividends ($0.05/share) - - - - - (670) (670)
--------- ------- --------- -------- -------- -------- ---------
Balance - March 31, 2000 2,200,000 $175,700 13,403,141 $337,605 $(27,715) $239,354 $ 724,944
========= ======== ========== ======== ======== ======== =========
</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 March 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Net (loss) income - numerator for diluted
earnings per share $ (2,051) $ 14,870
Less preferred dividends (1,925) (1,925)
---------- ----------
Numerator for basic earnings per share $ (3,976) $ 12,945
========== ==========
Denominator:
Weighted average shares - denominator for
basic earnings per share 13,442 15,316
Effect of dilutive securities:
Assumed weighted average conversion of
preferred stock - 4,825
Employee stock options - 247
---------- ----------
Denominator for diluted earnings per share 13,442 20,388
========== ==========
Basic (loss) earnings per common share $ (0.30) $ 0.85
========== ==========
Diluted (loss) earnings per common share $ (0.30) $ 0.73
========== ==========
</TABLE>
8
<PAGE>
In accordance with generally accepted accounting principles, the effect
of dilutive securities was excluded from the calculation of the diluted
loss per common share in the first quarter of 2000 as such inclusion
would result in antidilution.
3. 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 year ended December 31, 1999, and Legal Proceedings on page 14 of
this Form 10-Q.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Operating Revenues
The Company reported operating revenue for the quarter ended March 31, 2000 of
$393.8 million, compared to $478.2 million in the comparable quarter of 1999.
The 1999 quarter was still benefiting from a strong residential refinancing
market, while 2000's first quarter reflects the adverse effects of the Federal
Reserve's five interest rate increases since the middle of 1999.
On a positive note, and in line with typical seasonal patterns, the open order
count registered for the first quarter of 2000 was almost 9% ahead of the count
registered for the fourth quarter of 1999. In addition, the March order count
was the strongest since last August.
Investment Income
Investment income was $12.8 million in the first quarter of 2000 compared to
$12.4 million in the first quarter of 1999. The increase was largely
attributable to the increased yields earned on the underlying investments.
Expenses
Operating expenses for the first quarter of 2000 totaled $409.7 million compared
to $466.3 million in the first quarter of 1999. Agents' commissions decreased
$24.5 million between the 1999 and 2000 quarters in direct relation to the
decrease in agency revenue. Salary and related expenses were $121.0 million in
the first quarter of 2000 compared to $142.9 million for the 1999 period which
constitutes a decrease of $21.9 million or 15.3%. This decrease resulted from a
decrease in average staffing levels from 10,400 in the first quarter of 1999 to
8,220 in the first quarter of 2000.
The provision for policy and contract claims decreased $6.1 million from the
first quarter of 1999 to the first quarter of 2000 as a result of the lower
amount of business written and continued improvement in the Company's loss
experience.
Net Income
The Company reported a net loss of $(2.1) million, or $(0.30) per share on a
diluted basis, for the quarter ended March 31, 2000, compared to net income of
$14.9 million, or $0.73 per share on a diluted basis, for the quarter ended
March 31, 1999. The 2000 first quarter results included negligible gain from the
sale of investments and the 1999 first quarter results included an after-tax
loss from sales of investments of $0.4 million, or $0.02 per share on a diluted
basis.
10
<PAGE>
In accordance with generally accepted accounting principles, the effect of
dilutive securities was excluded from the calculation of the diluted loss per
common share in the first quarter of 2000 as such inclusion would result in
antidilution.
Liquidity and Capital Resources
Cash used in operating activities for the three months ended March 31, 2000 was
$2.9 million. As of March 31, 2000, the Company held cash and invested cash of
$133.8 million and fixed maturity securities of $749.3 million.
In addition, the Company has a bank credit facility of which $30.0 million was
unused at March 31, 2000.
The Company believes that it will have sufficient liquidity and capital
resources to meet both its short and long term capital needs.
11
<PAGE>
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.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(dollars in thousands)
<TABLE>
<CAPTION>
2005 and Fair
2000 2001 2002 2003 2004 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Taxable available-for-sale
securities:
Book value 8,721 42,206 41,574 46,004 23,056 334,508 496,069 478,606
Average yield 7.4% 6.2% 6.2% 6.2% 7.0% 6.9%
Non-taxable available-for-sale
securities:
Book value 540 3,152 6,991 11,841 17,808 180,710 221,042 214,860
Average yield 6.8% 3.9% 4.5% 4.1% 4.8% 4.8%
Preferred stock:
Book value - - - - - 58,544 58,544 55,881
Average yield - - - - - 7.6%
</TABLE>
The Company also has long-term debt of $207.5 million bearing interest at 6.42%
at March 31, 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 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,
12
<PAGE>
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 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 1. Legal Proceedings
With respect to the Baker Suit as reported in the Company's Form 10-K
for the year ended December 31, 1999, on May 3, 2000, the San Francisco
Superior Court sustained certain of the title company defendants'
demurrers on the grounds of misjoinder of parties. The Court determined
that there are insufficient allegations in the complaint to hold any of
the parent companies (including the Company) liable for the actions of
their subsidiaries (including Commonwealth), and that there are
insufficient allegations in the complaint to hold any company liable
for the actions of any other company. The plaintiffs were granted leave
to amend their complaint within 30 days, following which the Court will
address the remaining demurrers and motions that have been filed by the
title company defendants. By agreement of the parties all discovery by
the plaintiffs has been stayed.
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
-------------------
None.
14
<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: May 12, 2000 /s/ Charles Henry Foster, Jr.
-------------------- --------------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: May 12, 2000 /s/ G. William Evans
--------------------- --------------------------------------
G. William Evans
Executive Vice President and Chief
Financial Officer
15
<PAGE>
EXHIBIT INDEX
No. Description
- --- -----------
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule (electronic copy only)
Exhibit 11
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
Statement Re: Computation of Earnings Per Share
The information required by this Exhibit is contained in Note 2 to the
Consolidated Financial Statements of LandAmerica Financial Group, Inc. and its
subsidiaries for the quarter ended March 31, 2000 set forth on page 8 of this
report.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR LANDAMERICA FINANCIAL GROUP, INC. FOR THE QUARTER ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 749,347
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,878
<MORTGAGE> 4,020
<REAL-ESTATE> 0
<TOTAL-INVEST> 836,637
<CASH> 52,373
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 1,645,265
<POLICY-LOSSES> 555,995
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
175,700
<COMMON> 337,605
<OTHER-SE> 211,639
<TOTAL-LIABILITY-AND-EQUITY> 1,645,265
393,779
<INVESTMENT-INCOME> 12,773
<INVESTMENT-GAINS> 87
<OTHER-INCOME> 0
<BENEFITS> 17,371
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 392,376
<INCOME-PRETAX> (3,108)
<INCOME-TAX> (1,057)
<INCOME-CONTINUING> (2,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
