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, 2000
[ ] 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 Identification No.)
incorporation or organization)
1980 Post Oak Blvd., Houston TX 77056
------------------------------------------------------------
(Address of principal executive offices, including 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 13,765,520
Class B Common 1,050,012
<PAGE>
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2000
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part I
1. Financial Statements 1
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
3. Quantitative and Qualitative Disclosures About
Market Risk 6
Part II
1. Legal Proceedings 8
5. Other Information 8
6. Exhibits and Reports on Form 8-K 7
Signature 9
<PAGE>
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 and 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
2000 1999
-------- --------
<S> <C> <C>
($000 Omitted)
Revenues
Title premiums, fees and other revenues 191,176 227,716
Real estate information services 12,199 15,091
Investment income 5,168 4,907
Investment gains (losses) - net (340) 164
-------- ------
208,203 247,878
Expenses
Amounts retained by agents 90,839 112,134
Employee costs 68,674 69,499
Other operating expenses 39,061 36,461
Title losses and related claims 8,560 9,266
Depreciation and amortization 5,091 3,875
Interest 381 286
Minority interests 944 990
-------- -------
213,550 232,511
-------- -------
Earnings (loss) before taxes (5,347) 15,367
Income taxes (benefit) (1,993) 5,767
-------- -------
Net earnings (loss) (3,354) 9,600
======== =======
Average number of shares outstanding -
assuming dilution (000) 14,811 14,336
Earnings (loss) per share - basic (1) (0.23) 0.68
Earnings (loss) per share - diluted (1) (0.23) 0.67
======== =======
Comprehensive earnings:
Net earnings (loss) (3,354) 9,600
Changes in unrealized investment gains,
net of taxes of $293 and $(1,190), respectively 544 (2,210)
-------- -------
Comprehensive earnings (loss) (2,810) 7,390
======== =======
</TABLE>
(1) Restated for a two-for-one stock split in May 1999.
-1-
<PAGE>
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MAR 31 DEC 31
2000 1999
---------- ----------
<S> <C> <C>
($000 Omitted)
Assets
Cash and cash equivalents 30,738 36,803
Short-term investments 57,604 67,455
Investments - statutory reserve funds 185,706 185,087
Investments - other 56,096 57,669
Receivables 49,518 48,580
Property and equipment 45,953 45,900
Title plants 26,455 26,258
Goodwill 35,080 31,641
Deferred income taxes 12,110 12,378
Other 26,012 23,970
---------- ----------
525,272 535,741
========== ==========
Liabilities
Notes payable 22,232 19,054
Accounts payable and accrued liabilities 29,264 41,303
Estimated title losses 183,826 183,787
Minority interests 6,837 6,673
Contingent liabilities and commitments
Stockholders' equity
Common and Class B Common Stock and
additional paid-in capital 80,125 79,126
Retained earnings 206,100 209,454
Accumulated other comprehensive earnings (3,112) (3,656)
---------- -----------
Total stockholders' equity ($19.17 per share at
March 31, 2000) 283,113 284,924
---------- -----------
525,272 535,741
========== ===========
</TABLE>
-2-
<PAGE>
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
($000 Omitted)
Cash (used) provided by operating activities (Note) (9,095) 9,858
Investing activities:
Purchases of property and equipment and title plants - net (4,822) (4,874)
Proceeds from investments matured and sold 30,361 8,034
Purchases of investments (19,059) (9,469)
Increases in notes receivable (2,281) (1,617)
Collections on notes receivable 338 350
Proceeds from sale of equity investment 0 2,855
Cash paid for the acquisition of subsidiaries - net (3,844) (1,038)
---------- ---------
Cash provided (used) by investing activities 693 (5,759)
Financing activities:
Dividends paid 0 (527)
Distribution to minority interests (824) (530)
Proceeds from issuance of stock 0 104
Proceeds of notes payable 4,488 2,346
Payments on notes payable (1,327) (3,175)
---------- ---------
Cash provided (used) by financing activities 2,337 (1,782)
---------- ---------
(Decrease) increase in cash and cash equivalents (6,065) 2,317
========== ==========
</TABLE>
NOTE: Reconciliation of net earnings to the above amounts -
<TABLE>
<S> <C> <C>
Net earnings (loss) (3,354) 9,600
Add (deduct):
Depreciation and amortization 5,091 3,875
Provision for title losses in excess of payments 39 374
Provision for uncollectible amounts - net 0 (160)
Decrease in accounts receivable - net 1,036 9,070
Decrease in accounts payable and accrued liabilities - net (12,123) (12,802)
Minority interest expense 944 990
Equity in net earnings of investees (41) (274)
Realized investment gains (losses) - net 340 (164)
Stock bonuses 482 527
Increase in other assets (1,893) (1,224)
Other - net 384 46
---------- ---------
Cash (used) provided by operating activities (9,095) 9,858
========== =========
</TABLE>
-3-
<PAGE>
STEWART INFORMATION SERVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Interim Financial Statements
The financial information contained in this report for the three month periods
ended March 31, 2000 and 1999, and as of March 31, 2000, 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.
Certain amounts in the 1999 condensed consolidated financial statements have
been reclassified for comparative purposes. Net earnings, as previously
reported, were not affected.
Note 2: Segment Information
The Company's two reportable segments are title and real estate information.
Selected financial information related to these segments follows:
<TABLE>
<CAPTION>
Real Estate
Title Information Total
----- ----------- -----
($000 Omitted)
<S> <C> <C> <C>
Revenues:
- ---------
Three months ended
3/31/00 196,004 12,199 208,203
3/31/99 232,787 15,091 247,878
Pretax Earnings (Loss):
- -----------------------
Three months ended
3/31/00 (3,656) (1,691) (5,347)
3/31/99 13,805 1,562 15,367
Identifiable Assets:
- --------------------
3/31/00 484,746 40,526 525,272
12/31/99 496,191 39,550 535,741
</TABLE>
Note 3: Earnings Per Share
The Company's basic earnings per share figures were calculated by dividing net
earnings by the weighted average number of shares of Common Stock and Class B
Common Stock outstanding during the reporting period. The only potentially
dilutive effect on earnings per share for the Company related to its stock
option plans.
In calculating the effect of the options and determining a figure for diluted
earnings per share, the average number of shares used in calculating basic
earnings per share was increased by 95,000 and 148,000 for the three month
periods ending March 31, 2000 and 1999, respectively.
-4-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
The Company's two segments of operations are title insurance and real estate
information. In general, the principal factors that contribute to increases in
the Company's operating revenues include declining mortgage interest rates
(which usually increase home sales and refinancing transactions), rising home
prices, higher premium rates, increased market share, additional revenues from
new offices and increased revenues from commercial transactions. Although
relatively few in number, large commercial transactions typically yield higher
premiums.
Mortgage interest rates, which averaged 6.9% in the first quarter of 1999, rose
over the rest of the year to about 7.9% at the end of the year. Rates in early
2000 increased again to an average of 8.3% for the first quarter.
Home sales declined about 9% in the first quarter of 2000 compared with the
first quarter of 1999. Refinancing transactions decreased during the second half
of 1999 and the first quarter of 2000. Refinance activity dropped from
representing 58 percent of total applications in the first three months of 1999
to 25 percent in the same period of 2000, as reported by industry experts.
A comparison of the results of operations of the Company for the first three
months of 2000 with the first three months of 1999 follows.
REVENUES
Revenues from title premiums and fees decreased $36.5 million, or 16.0%, from a
year ago. Mortgage interest rates were significantly higher in the early part of
2000 than in the same period a year ago, decreasing real estate sales and
refinancing transactions.
The number of closings handled by the Company decreased 24.4%. Closings
decreased in California, Arizona, Colorado and most other states. The average
revenue per closing increased in 2000 due to higher home prices and a smaller
number of refinancings, which generate lower premiums. Increases in revenues
from commercial transactions also contributed to higher revenues per closing in
2000.
Other revenues in the first quarter of 1999 included a $1.1 million pretax gain
resulting from a settlement of a lawsuit and a related sale of an equity
ownership in a title agency.
Real estate information revenues were $12.2 million in 2000 and $15.1 million in
1999. The decrease was primarily due to the decline in real estate activity.
Investment income increased 5.3% in 2000 due to an increase in the average
balances invested.
EXPENSES
Premiums earned from agents were $113.00 million in 2000 and $138.7 in 1999. The
amounts retained by agents, as a percentage of premiums, were 80.4% and 80.9%
for the three months ended March 31, 2000 and March 31, 1999, respectively.
Amounts retained by title agents are based on contracts between agents and the
title underwriters of the Company. The percentage that amounts retained by
agents bears to agent revenues may vary from year to year because of the
geographical mix of agent operations and the volume of title revenues.
Employee expenses for the combined business segments decreased $0.8 million, or
1.2%, in 2000 primarily because of a lower average number of employees during
the first quarter of 2000 compared to a year ago.
Employee costs for the title segment decreased slightly, while employee costs
for the REI segment increased slightly. The number of employees in existing
title offices at the end of the first quarter of 2000 were reduced by about 10%
from a year ago. The decrease at the end of the first quarter of 2000 from the
peak reached in early 1999 was 13%. The decreases in the number of employees
were offset, however, by significant increases in newly acquired and startup
offices, expansion of national marketing operations to gain market share and
continued advancements in technology.
Other operating expenses increased by $2.6 million, or 7.1% in 2000. Expenses
that increased include expenses of new offices, bad debts, rent and search fees.
Other significant components of other operating expenses are title plant
expenses, supplies, computer costs, business promotion, telephone, travel,
premium taxes, policy forms and delivery costs.
-5-
Provisions for title losses and related claims were down $0.7 million, or 7.6%,
in 2000. As a percentage of title premiums, fees and related revenues, the
provision in the first quarter of 2000 increased to 4.5% versus 4.1% in 1999.
The provision (benefit) for income taxes represented effective tax rates of
37.3% and 37.5% in 2000 and 1999, respectively.
YEAR 2000 ISSUE
Information technology is a crucial part of the Company's business. Accordingly,
the Company has completed a comprehensive Year 2000 ("Y2K") readiness program
that addressed challenges associated with the Y2K issue. As a result of this
program, the Company encountered no major automation or business disruption due
to Y2K issues. The Company continues to operate normally across all business
units and geographies and will continue to monitor operations throughout 2000.
The total costs incurred for the Y2K readiness program were $3.6 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations represent the primary source of financing for the
Company, but this may be supplemented by bank borrowings. The capital resources
of the Company and the present debt-to-equity relationship are considered
satisfactory.
During the first three months of 2000, the Company financed a portion of various
acquisitions through the issuance of Common Stock totaling $0.4 million.
Acquisitions during the first three months of 2000 have resulted in additions to
goodwill of $3.9 million.
FORWARD LOOKING STATEMENTS
All statements included in this report, other than statements of historical
facts, which address activities, events or developments that the Company expects
or anticipates will or may occur in the future are forward-looking statements.
Such forward-looking statements are subject to risks and uncertainties
including, among other things, changes in mortgage interest rates, employment
levels, actions of competitors, changes in real estate markets, general economic
conditions and legislation (primarily legislation related to insurance) and
other risks and uncertainties discussed in the Company's filings with the
Securities and Exchange Commission.
Item 3: Quantitative and Qualitative Disclosures About Market Risk There have
been no material changes in the Company's investment strategies, types of
financial instruments held or the risks associated with such instruments which
would materially alter the market risk disclosures made in the Company's Annual
Statement on Form 10-K for the year ended December 31, 1999.
-6-
<PAGE>
PART II
Page
----------
Item 1. Legal Proceedings 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K
(a) Index to exhibits
(b) There were no reports on Form 8-K filed during the quarter ended
March 31, 2000.
-7-
<PAGE>
ITEM 1. LEGAL PROCEEDINGS
The Registrant is a party to 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. The Registrant
does not expect that any of these proceedings will have a material adverse
effect on its financial condition.
ITEM 5. OTHER INFORMATION
The Board of Directors has approved a plan to repurchase up to 5
percent (680,000 shares) of the Company's currently issued and outstanding
Common Stock. The Board also determined that the Company's regular quarterly
dividend should be discontinued in favor of returning those and additional funds
to stockholders through the stock purchase plan.
On March 15, 1999, the Registrant's Board of Directors approved a
two-for-one split of the Registrant's Common Stock, $1.00 par value ("Common
Stock"), and Class B Common Stock, $1.00 par value, which was effected in the
form of a stock dividend. Each stockholder of record of the Registrant at the
close of business on May 7, 1999 received one additional share for each share
owned on that date. The stock dividend was paid on May 21, 1999.
-8-
<PAGE>
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 11, 2000
- ----------------
Date
By: /S/ MAX CRISP
-----------------------------------------------
Max Crisp
(Vice President-Finance, Secretary-Treasurer,
Director and Principal Financial and
Accounting Officer)
-9-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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
EXHIBIT 4
STEWART INFORMATION SERVICES CORPORATION
RIGHTS OF COMMON AND CLASS B COMMON STOCKHOLDERS
March 31, 2000
Common and Class B Common stockholders have the same rights, except (1)
no cash dividend 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
Common 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 that would affect the
Common Stock and the Class B Common 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.
Exhibit 28.2
STEWART INFORMATION SERVICES CORPORATION
DETAILS OF INVESTMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MAR 31 DEC 31
2000 1999
--------- --------
<S> <C> <C>
($000 Omitted)
Investments, at market, partially restricted:
Short-term investments 57,604 67,455
U. S. Treasury and agency obligations 30,341 30,960
Municipal bonds 131,709 133,068
Mortgage-backed securities 11,091 8,509
Corporate bonds 63,395 64,902
Equity securities 5,266 5,317
--------- --------
TOTAL INVESTMENTS 299,406 310,211
========= ========
</TABLE>
NOTE: The total appears as the sum of three amounts on the condensed
consolidated balance sheets presented on page 2: (1) `short-term investments',
(2) `investments - statutory reserve funds' and (3) `investments - other'.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STEWART INFORMATION SERVICES CORPORATION
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000 AND THE RELATED STATEMENT OF EARNINGS FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 30,738
<SECURITIES> 299,406 <F1>
<RECEIVABLES> 53,935
<ALLOWANCES> 4,417
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 129,611
<DEPRECIATION> 83,658
<TOTAL-ASSETS> 525,272
<CURRENT-LIABILITIES> 0
<BONDS> 22,232
0
0
<COMMON> 14,765
<OTHER-SE> 268,348
<TOTAL-LIABILITY-AND-EQUITY> 525,272
<SALES> 0
<TOTAL-REVENUES> 208,203
<CGS> 0
<TOTAL-COSTS> 90,839
<OTHER-EXPENSES> 122,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> (5,347)
<INCOME-TAX> 1,993
<INCOME-CONTINUING> (3,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,354)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
<FN>
<F1> Includes short-term investments.
</FN>
</TABLE>
