<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission file number 1-12688
STEWART INFORMATION SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1677330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1980 Post Oak Blvd., Houston, TX 77056
(Address of principal executive offices)
(Zip Code)
(713) 625-8100
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 5,703,188
Class B Common 525,006
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
------- ----
<S> <C> <C>
Part I
1. Financial Statements 1
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II
1. Legal Proceedings 8
6. Exhibits and Reports on Form 8-K 11
Signature 15
</TABLE>
<PAGE> 3
STEWART INFORMATION SERVICES CORPORATION
INCOME STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
FIRST QUARTER
1995 1994
-------- --------
($000 Omitted)
<S> <C> <C>
Revenues
Title premiums, fees and related revenues 55,024 80,123
Investment income 3,318 3,073
Investment gains 53 578
Other income (347) 637
------ ------
58,048 84,411
Expenses
Employee costs 31,973 41,139
Other operating expenses 19,189 22,350
Title losses and related claims 6,627 11,800
Depreciation and amortization 2,263 1,832
Interest 152 143
Minority interests (42) 316
------ ------
60,162 77,580
Income (loss) before taxes (2,114) 6,831
Income taxes (benefit) (687) 2,391
------ ------
Net income (loss) (1,427) 4,440
====== ======
Average number of shares outstanding (000) 6,217 6,173
Earnings (loss) per share
Net income (loss) (0.23) 0.72
====== ======
</TABLE>
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<PAGE> 4
STEWART INFORMATION SERVICES CORPORATION
BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
MAR 31 DEC 31
1995 1994
-------- --------
($000 Omitted)
<S> <C> <C>
Assets
Cash and cash equivalents 11,048 16,214
Investments 195,780 196,379
Receivables 32,322 29,440
Property and equipment, net 25,290 24,778
Title plants 14,647 14,369
Other 43,390 43,996
------- -------
322,477 325,176
======= =======
Liabilities
Notes payable 7,581 7,865
Accounts payable and accrued liabilities 17,878 21,968
Estimated title losses 134,926 134,316
Minority interest 4,521 4,674
Contingent liabilities and commitments
Stockholders' equity
Common and Class B Common Stock and
additional paid-in capital 49,215 48,962
Net unrealized investment (losses)/gains, less
deferred taxes of $1,446 and $2,888 (2,686) (5,363)
Retained earnings 111,042 112,754
------- -------
Total stockholders' equity ($25.30 per share at
March 31, 1995) 157,571 156,353
------- -------
322,477 325,176
======= =======
</TABLE>
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<PAGE> 5
STEWART INFORMATION SERVICES CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ----------
($000 Omitted)
<S> <C> <C>
Net cash flow (used) provided by operating activities (Note) (6,771) 10,308
Cash flow from investing activities:
Purchases of property and equipment and title plants, less
capital leases - net (2,934) (2,352)
Proceeds of investments matured to sold 26,606 18,138
Purchases of investments, excluding mortgage loans (21,967) (39,523)
Increases in mortgages and other notes (181) (679)
Collections on mortgages and other notes 403 460
Proceeds from issuance of stock 252 0
------- -------
Net cash provided (used) by investing activities 2,179 (23,956)
Cash flow from financing activities:
Dividends paid (285) (265)
Proceeds of notes payable 419 1,797
Payments on notes payable and capital leases (708) (1,932)
------- -------
Net cash used by financing activities (574) (400)
------- -------
Net decrease in cash equivalents (5,166) (14,048)
======= =======
NOTE: Reconciliation of net income to above amounts:
Net income (loss) (1,427) 4,440
Add (deduct):
Depreciation and amortization 2,281 1,831
Provision for title losses in excess of payments 610 7,650
Provision for uncollectible amounts 151 860
(Increase) decrease in accounts receivable, net (3,383) 616
Decrease in accounts payable and accrued liabilities - net (5,210) (4,503)
Minority interest expense (42) 316
Equity in net income investments 360 (720)
Realized investment gains (losses) - net 53 (578)
Other, net (164) 396
------- -------
Net cash flow (used) provided by operating activities (6,771) 10,308
======= =======
</TABLE>
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<PAGE> 6
STEWART INFORMATION SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
Note 1: Interim Financial Statements
The financial information contained in this report for the three month
periods ended March 31, 1995 and 1994, and as at March 31, 1995, is unaudited.
In the opinion of management, all adjustments necessary for a fair presentation
of this information for all unaudited periods, consisting only of normal
recurring accruals, have been made. The results of operations for the interim
periods are not necessarily indicative of results for a full year.
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<PAGE> 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
______________________________________________________________________________
A comparison of the results of operations of the Company for the first three
months of 1995 with the first three months of 1994 follows:
General
The Company's dominant segment of operations is the land title business. In
general, the principal factors which contribute to increases in title revenues
include declining mortgage interest rates (which usually increase home sales),
increases in refinancing ("refis") transactions, rising home prices, higher
premium rates, increased market share, additional revenues from new offices and
increased revenue from non-residential commercial transactions. Although
relatively few in number, large commercial transactions usually yield higher
premiums.
Revenues
The Company's revenues from title premiums and fees fell $25.1 million, or
31.3%, in the first three months of 1995 as compared to the first three months
of 1994. Unlike the first quarter of 1994, the Company did not benefit in the
first quarter of 1995 from a high volume of loan refinancings.
Regular business declined also from the same quarter a year ago. Volume in the
first quarter of 1994 was driven by low mortgage interest rates, which began a
steady rise in February 1994 until recently, when rates began to level off.
The number of closings handled by the Company were down 43.4% primarily because
of the reduction in refinancing transactions, as well as regular transactions.
Closings decreased in California, Texas, Colorado and most of the company's
other major markets. The average revenue per closing rose 14.3%. Premium
revenues from new and existing agents decreased in 1995 over 1994.
Investment income was up 8.0% in 1995, as an increase in the average balance
invested combined with higher market yields helped investment income increase
in 1995.
Expenses
Employee expenses decreased $9.2 million, or 22.3%, in 1995 primarily because
of a decrease in the average number of employees, from 4,228 a year ago to
3,398 in 1995. The decrease in staff in 1995 was primarily in California,
Texas and Florida.
Other operating expenses decreased by $3.2 million, or 14.1%, in 1995 primarily
because of the decrease in volume, which reduced supplies, bad debts, title
plant expenses and premium taxes. Other operating expenses include office
rent, advertising, telephone, policy forms, delivery expenses, travel and fees
paid to attorneys for examination and closing services.
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<PAGE> 8
Provisions for title losses and related claims were down $5.2 million in 1995.
The Company's recent experience in claims has improved significantly. The
first quarter of 1995 included larger than usual recoveries. As a percentage
of title premiums, fees and related revenues, provisions decreased to 12.0% in
1995 versus 14.7% in 1994. The ratio was 13.9% for the full year 1994.
In December 1994 the California Board of Equalization ruled in favor of the
Company concerning an assessment previously filed against the Company for
certain additional premium taxes for the year 1987; however, an assessment for
retaliatory premium taxes for 1987 is still pending. The amount of the
remaining assessment is $1.1 million, excluding interest and penalties. The
Company cannot predict the results of this assessment nor can the Company
predict whether California will assess additional taxes for years subsequent to
1989 or the amount of any such assessments, if made. No assessments were made
for the years 1988 or 1989 and those years are barred from assessments.
The provision for income taxes represented a 32.5% effective tax rate in 1995
and 35.0% effective tax rate in 1994.
Liquidity and capital resources
Operating earnings represent the primary source of financing, but this may be
supplemented by bank borrowings. The capital resources of the Company, and the
present debt-to-equity relationship, are considered satisfactory.
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<PAGE> 9
PART II
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. - Rights of Common and Class B Common 11
Stockholders
27.0 - Financial data schedule 12
28.2 - Details of Investments as reported in the 14
Quarterly Report to Shareholders
(b) There were no reports on Form 8-K filed during the
quarter ended March 31, 1995.
</TABLE>
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<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS
On August 29, 1989, a purported class action was filed in the
Circuit Court of Milwaukee County, Wisconsin against Guaranty, eleven other
title insurance companies and nine individuals. The plaintiffs purported to
represent a class of all persons and entities in Wisconsin who purchased title
insurance and/or search and examination services from 1971 through at least
December 31, 1984. The complaint alleges that the defendants violated
Wisconsin antitrust and insurance laws by participating in a title insurance
rating bureau. Plaintiffs seek declaratory relief, treble damages in an
unspecified amount and costs and attorneys' fees. On February 1, 1990, the
defendants filed a motion to dismiss the complaint in the Circuit Court of
Milwaukee County, Wisconsin on the basis of res judicata, implied repeal of the
Wisconsin antitrust laws by the Wisconsin insurance laws, filed tariff doctrine
and statute of limitations. The Circuit Court granted the defendants' motion
on October 17, 1990. On June 19, 1991, the Circuit Court denied the
plaintiffs' motion to amend their complaint to add new plaintiffs. The
plaintiffs appealed the Circuit Court's rulings to the Court of Appeals of
Wisconsin, which certified the appeal to the Wisconsin Supreme Court on April
1, 1992. On June 9, 1993, the Supreme Court affirmed the Circuit Court's
dismissal of the case. The plaintiffs filed a motion for reconsideration in
the Wisconsin Supreme Court on or about June 28, 1993, and the defendants filed
a response on or about July 7, 1993. On or about August 17, 1993, the Wisconsin
Supreme Court denied the plaintiffs' motion. The United States Supreme Court,
denied the plaintiff's petition for certiorari on February 22, 1994.
On April 13, 1990, Walter Thomas Brown and Jeffrey L. Dziewit sued
Guaranty and five other major title insurers in a purported class action in
United States District Court for the District of Arizona. The complaint
alleges that the defendants' participation in a title insurance rating bureau
constituted a violation of federal antitrust laws. Plaintiffs seek injunctive
relief, treble damages in an unspecified amount, and costs and attorneys' fees.
The plaintiffs purport to represent a class consisting of all persons, except
officers and directors of the defendants and their immediate families, who
purchased title search and examination services from defendants in Arizona and
Wisconsin from January 7, 1981, to the present time. The District Court
granted the defendants' motion for summary judgment on March 1, 1991. On
December 28, 1992, the United States Court of Appeals for the Ninth Circuit
affirmed in part the decision of the district court, holding that the federal
class action settlement bars the plaintiffs' claims for injunctive relief, but
reversed in part the decision of the district court by holding that the federal
class action settlement does not bar the plaintiffs' claims for monetary
damages. In addition, the court held that the defendants are not protected
from the plaintiffs' claims by the state action doctrine or the filed tariff
doctrine. The title insurers filed a petition for rehearing in the Ninth
Circuit on or about January 11, 1993. On or about March 17, 1993, the Ninth
Circuit denied the petition for rehearing. On or about March 24, 1993, the
Ninth Circuit granted the title insurers' motion to stay issuance of the Ninth
Circuit's mandate for a period of ninety days, pending the title insurers'
filing of a petition for certiorari with the United States Supreme Court.
On or about June 15, 1993, the title insurers filed their petition for
a writ of certiorari. On or about October 1, 1993, counsel for the plaintiffs
and counsel for the defendants executed a "memorandum of understanding"
regarding a proposed settlement. Under an Agreement of Settlement subsequently
executed by the parties, the proposed settlement class would include persons
who purchased search and examination services in Wisconsin and Arizona from
January 1, 1981 through June 10, 1986. Members of the settlement class who
purchased from one of the defendants or their agents from 1981 through 1984
with respect to Wisconsin, or from 1981 through 1982 with respect to Arizona,
would be entitled to receive a cash payment equal to 7.7 percent of the amount
that each such class member paid for title search and examination services
(provided that the total liability of the defendants not exceed $1,587,326 in
Wisconsin and that the total liability of the defendants not exceed $1,225,200
in Arizona). Members of the
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<PAGE> 11
settlement class who are eligible but do not elect to receive the cash option
would receive, without additional charge, a policy enhancement designed to
reflect the impact of inflation from January 1, 1981 to the date of any final
settlement order. Such class members and members of the settlement class who
purchased from persons other than the defendants or their agents will receive
the last $5,000 of coverage without charge in connection with any new title
insurance policy purchased from any of the defendants within one year following
any final settlement order with respect to property located either in Arizona
or Wisconsin. Members of this settlement class would have the right to "opt
out" of the proposed settlement, and the defendants would have the right to
reject the settlement if 5,000 or more members elect to opt out. The proposed
settlement, which is subject to notice and court approval pursuant to the
provisions of Federal Rule of Civil Procedure 23 and other authorities, would
result in a judgment dismissing with prejudice all claims of the settlement
class under federal and state antitrust laws as to the defendants and their
agents, officers, and employees.
On October 4, 1993, the Supreme Court granted the title insurers'
petition for a writ of certiorari. On or about April 4, 1994, the Supreme
Court dismissed the writ as improvidently granted. On June 1, 1994, the
parties jointly filed with the district court their Agreement of Settlement and
a proposed order that would preliminarily approve the proposed settlement,
authorize notice to be given to members of the settlement class, and schedule a
hearing on the proposed settlement. On or about July 5, 1994, counsel for the
plaintiffs filed "Plaintiffs" Notice of Withdrawal of Joint Request for Entry
of Preliminary Settlement Order Lodged June 1, 1994." On or about July 14,
1994, the title insurers filed their response, urging the court to enforce the
Agreement of Settlement and to enter the proposed order. The court conducted a
status conference on March 28, 1995 and has scheduled a further status
conference for May 18, 1995.
On September 19, 1989, the Federal Trade Commission ("FTC") denied
Guaranty's appeal of the Administrative Law Judge's decision in In the Matter
of Ticor Title Insurance. The FTC ordered Guaranty and the other respondents
to cease and desist from discussing, proposing, settling or filing any rates
for title search and examination services through rating bureaus in New Jersey,
Pennsylvania, Connecticut, Wisconsin, Arizona and Montana, except where such
collective activity is engaged in pursuant to clearly articulated state policy
and is actively supervised by a state regulatory agency. The Court of Appeals
for the Third Circuit reversed the FTC's decision on January 9, 1991 and held
that the collective filing of rates for title search and examination services
is immune from federal antitrust liability under the state-action doctrine.
On June 12, 1992, the Supreme Court determined that state regulators
in Wisconsin and Montana failed to actively supervise rating bureau activity in
those states and that as a result, state action immunity did not apply.
Accordingly, the Court reversed the Court of Appeals' finding with respect to
those states. The Court also remanded to the Court of Appeals with
instructions to reconsider its findings with respect to Arizona and
Connecticut. The Court did not consider defenses raised by the title insurers
other than state action immunity. On July 15, 1993, the Court of Appeals held
that the state action doctrine did not apply to the title insurers' activity in
Arizona and Connecticut. The Court of Appeals also held that the title
insurers' activity was not protected by the McCarren-Ferguson Act's exemption
for the "business of insurance" or by the exemption for petitioning of the
government. On or about August 30, 1993, the Court of Appeals denied the title
insurers' petition for rehearing. The title insurers filed a petition for a
writ of certiorari with the United States Supreme Court, which denied the
petition on March 21, 1994. The FTC's order has been modified to delete
references to New Jersey and Pennsylvania and, as modified, has become final.
On or about April 22, 1994, Harold Segall and three other plaintiffs
sued Guaranty and 10 other title insurance companies in the United States
District Court for the Eastern District of Wisconsin. The plaintiffs purport
to represent a class consisting of persons who purchased title search and
examination services from one or more of the defendants in connection with the
sale or refinancing of residential real
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<PAGE> 12
estate in Wisconsin from January 7, 1981 through at least January 8, 1985.
According to the plaintiffs, the defendants violated federal antitrust law by
participating in a title insurance rating bureau through which they allegedly
agreed upon the process and other terms and conditions of sale for title search
and examination services in Wisconsin. The plaintiffs request treble damages
in an unspecified amount, costs, and attorney's fees. The plaintiffs also seek
an injunction against certain defendants other than Guaranty. On or about June
15, 1994 Guaranty filed its answer to the complaint. On or about July 8, 1994,
the plaintiffs filed a Motion to Transfer with the Judicial Panel on
Multidistrict Litigation, requesting that it transfer the action to the United
State District Court of the District of Arizona for consolidation with the
Arizona Federal proceeding, described above. Guaranty filed its opposition to
the motion on August 1, 1994. On October 11, 1994, the Panel filed an order
granting the motion to transfer.
The Registrant is a party to numerous routine lawsuits incidental to
its business most of which involve disputed policy claims. In many of these
suits, the plaintiff seeks exemplary or treble damages in excess of policy
limits based on the alleged malfeasance of an issuing agent of the Registrant.
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<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stewart Information Services Corporation
(Registrant)
May 9, 1995
Date
/s/ MAX CRISP
_____________________________________
Max Crisp
(Vice President - Finance, Secretary-Treasurer,
Director and Principal Financial
and Accounting Officer)
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<PAGE> 14
EXHIBIT INDEX
4. -- Rights of Common and Class B Common Stockholders
27.0 -- Financial data schedule
28.2 -- Details of Investments as reported in the Quarterly Report to
Shareholders
<PAGE> 1
EXHIBIT 4
STEWART INFORMATION SERVICES CORPORATION
RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS
MARCH 31, 1995
Common and Class B Common stockholders have the same rights, except
(1) no cash dividends may be paid on Class B Common Stock and (2) the two
classes of stock are voted separately in electing directors. A provision in
the by-laws requires an affirmative vote of at least two-thirds of the
directors to approve any proposal which may come before the directors. This
by-law provision cannot be changed without majority vote of each class of
stock.
Common stockholders, with cumulative voting rights, may elect five or
more of the nine directors. Class B Common stockholders may, with no
cumulative voting rights, elect four directors, if 350,000 or more shares of
Class B Common Stock are outstanding; three directors, if between 200,000 and
350,000 shares of Class B Common Stock are outstanding; if less than 200,000
shares of Class B Commons Stock are outstanding, the Common Stock and the Class
B Common Stock shall be voted as a single class upon all matters, with the
right to cumulate votes for the election of directors.
No change in the Certificate of Incorporation which would affect the
Common Stock and the Class B Commons Stock unequally shall be made without the
affirmative vote of at least a majority of the outstanding shares of each
class, voting as a class.
Class B Common Stock may, at any time, be converted by its holders
into Common Stock on a share-for-share basis. Such conversion is mandatory on
any transfer to a person not a lineal descendant (or spouse, trustee, etc. of
such descendant) of William H. Stewart.
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<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 169,232
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 3,282
<REAL-ESTATE> 3,070
<TOTAL-INVEST> 195,780<F1>
<CASH> 11,048
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 322,477
<POLICY-LOSSES> 134,926
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 7,581
<COMMON> 6,228
0
0
<OTHER-SE> 151,343
<TOTAL-LIABILITY-AND-EQUITY> 322,477
55,024
<INVESTMENT-INCOME> 3,318
<INVESTMENT-GAINS> 53
<OTHER-INCOME> (347)
<BENEFITS> 6,627
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (2,114)
<INCOME-TAX> (687)
<INCOME-CONTINUING> (1,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,427)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
<RESERVE-OPEN> 134,316
<PROVISION-CURRENT> 7,577
<PROVISION-PRIOR> (950)
<PAYMENTS-CURRENT> 2,058
<PAYMENTS-PRIOR> 3,959
<RESERVE-CLOSE> 134,926
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Does not include short-term investments
</FN>
</TABLE>
<PAGE> 1
Exhibit 28.2
STEWART INFORMATION SERVICES CORPORATION
DETAILS OF INVESTMENTS
MARCH 31, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
MAR 31 DEC 31
1995 1994
----------------------
($000 Omitted)
<S> <C> <C>
Investments, at cost, partially restricted:
Short-term investments $21,549 $56,363
U.S. Treasury and agency obligations 26,205 10,105
Municipal bonds 89,381 85,267
Mortgage-backed securities 29,232 26,872
Corporate bonds 23,035 11,335
Mortgage loans 3,282 3,309
Real estate and other, at lower of cost or market 3,096 3,128
-------- --------
TOTAL INVESTMENTS $195,780 $196,379
======== ========
</TABLE>
NOTE: The total appears as a single line item under 'investments' in the
balance sheet presented on page 2.
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