UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended September 30, 2002
Commission File Number 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 86-0498599 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
| 17911 Von Karman Avenue, Suite 300, Irvine, California | 92614 | |
| (Address of principal executive offices) | (Zip Code) | |
(949) 622-4333
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of November 6, 2002, 95,535,241 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2002
INDEX
| Page | ||||||||||||||||
| Part I: |
FINANCIAL INFORMATION | |||||||||||||||
| Item 1. |
Condensed Consolidated Financial Statements | |||||||||||||||
| A. | Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 3 | ||||||||||||||
| B. | Condensed Consolidated Statements of Earnings for the three months and nine months ended September 30, 2002 and 2001 | 4 | ||||||||||||||
| C. | Condensed Consolidated Statements of Comprehensive Earnings for the three months and nine months ended September 30, 2002 and 2001 | 5 | ||||||||||||||
| D. | Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2002 | 6 | ||||||||||||||
| E. | Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 | 7 | ||||||||||||||
| F. | Notes to Condensed Consolidated Financial Statements | 9 | ||||||||||||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||||||||||||
| Item 3. |
Quantitative and Qualitative Disclosure About Market Risk | 20 | ||||||||||||||
| Item 4. |
Controls and Procedures | 20 | ||||||||||||||
| Part II: |
OTHER INFORMATION | |||||||||||||||
| Item 1. |
Legal Proceedings | 21 | ||||||||||||||
| Item 6. |
Exhibits and Reports on Form 8-K | 21 | ||||||||||||||
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
||||||||||
Investments: |
||||||||||
Fixed maturities available for sale, at fair value at September 30, 2002
includes $186,260 and, at December 31, 2001 includes $237,253 of
pledged fixed maturity securities related to secured trust deposits |
$ | 1,243,612 | $ | 1,216,240 | ||||||
Equity securities, at fair value |
88,779 | 56,360 | ||||||||
Other long-term investments |
34,456 | 39,682 | ||||||||
Settlement
of investments, at September 30, 2002 includes $73,048 and at
December 31, 2001 includes $0 of pledged investments related to
secured trust deposits |
215,921 | 19,691 | ||||||||
Short-term investments, at September 30, 2002 includes $203,938 and at
December 31, 2001 includes $81,893 of pledged short-term investments
related to secured trust deposits |
869,812 | 491,539 | ||||||||
Total investments |
2,452,580 | 1,823,512 | ||||||||
Cash and cash equivalents, at September 30, 2002 includes $394,973 and at
December 31, 2001 includes $367,907 of pledged cash related to
secured trust deposits |
549,753 | 542,620 | ||||||||
Leases and residual interests in securitizations |
141,714 | 173,883 | ||||||||
Trade receivables, net |
181,208 | 163,961 | ||||||||
Notes receivable, net (related party — $6,426 in 2002 and $7,668 in 2001) |
17,775 | 20,149 | ||||||||
Cost in excess of net assets acquired, net |
947,275 | 808,584 | ||||||||
Prepaid expenses and other assets |
365,996 | 339,242 | ||||||||
Title plants |
275,988 | 275,591 | ||||||||
Property and equipment, net |
165,376 | 161,643 | ||||||||
Deferred tax assets |
99,120 | 106,813 | ||||||||
| $ | 5,196,785 | $ | 4,415,998 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Liabilities: |
||||||||||
Accounts payable and accrued liabilities |
$ | 606,395 | $ | 596,019 | ||||||
Notes payable |
513,856 | 565,690 | ||||||||
Reserve for claim losses |
892,675 | 881,053 | ||||||||
Secured trust deposits |
855,876 | 673,126 | ||||||||
Income taxes payable |
105,309 | 14,074 | ||||||||
| 2,974,111 | 2,729,962 | |||||||||
Minority interests and preferred stock of subsidiary |
115,561 | 47,166 | ||||||||
Stockholders’ equity: |
||||||||||
Preferred stock, $.0001 par value; authorized, 3,000,000 shares;
issued and outstanding, none |
— | — | ||||||||
Common stock, $.0001 par value; authorized, 150,000,000 shares as of
September 30, 2002 and 100,000,000 shares as of December 31, 2001;
issued, 96,585,967 as of September 30, 2002 and 95,348,876 as of
December 31, 2001 |
10 | 10 | ||||||||
Additional paid-in capital |
1,542,118 | 1,158,847 | ||||||||
Retained earnings |
575,165 | 498,073 | ||||||||
| 2,117,293 | 1,656,930 | |||||||||
Accumulated other comprehensive earnings |
17,970 | 4,866 | ||||||||
Less treasury stock, 958,500 shares as of September 30, 2002 and
1,100,000 shares as of December 31, 2001, at cost |
(28,150 | ) | (22,926 | ) | ||||||
| 2,107,113 | 1,638,870 | |||||||||
| $ | 5,196,785 | $ | 4,415,998 | |||||||
See Notes to Condensed Consolidated Financial Statement
3
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||
REVENUE: |
||||||||||||||||||
Title insurance premiums |
$ | 882,565 | $ | 699,601 | $ | 2,408,416 | $ | 1,901,980 | ||||||||||
Escrow and other title-related fees |
254,152 | 187,568 | 679,304 | 516,540 | ||||||||||||||
Real estate related services |
113,800 | 76,739 | 308,183 | 195,598 | ||||||||||||||
Interest and investment income |
19,869 | 21,444 | 59,023 | 72,096 | ||||||||||||||
Realized gains, net |
3,480 | 2,726 | 9,195 | 8,024 | ||||||||||||||
Other income |
8,981 | 14,540 | 28,550 | 47,792 | ||||||||||||||
| 1,282,847 | 1,002,618 | 3,492,671 | 2,742,030 | |||||||||||||||
EXPENSES: |
||||||||||||||||||
Personnel costs |
371,842 | 308,974 | 1,037,722 | 854,171 | ||||||||||||||
Other operating expenses |
259,746 | 206,039 | 717,046 | 583,634 | ||||||||||||||
Agent commissions |
368,511 | 288,649 | 1,020,936 | 766,605 | ||||||||||||||
Provision for claim losses |
44,129 | 34,980 | 120,421 | 95,435 | ||||||||||||||
Amortization of cost in excess of net assets
acquired |
— | 11,546 | — | 35,045 | ||||||||||||||
Interest expense |
8,371 | 13,396 | 25,999 | 36,917 | ||||||||||||||
Total expenses |
1,052,599 | 863,584 | 2,922,124 | 2,371,807 | ||||||||||||||
Earnings before income taxes, minority interest
and cumulative effect of a change in accounting
principle |
230,248 | 139,034 | 570,547 | 370,223 | ||||||||||||||
Income tax expense |
82,890 | 53,301 | 205,397 | 148,088 | ||||||||||||||
Earnings before minority interest and cumulative
effect of a change in accounting principle |
147,358 | 85,733 | 365,150 | 222,135 | ||||||||||||||
Minority interest |
3,847 | 1,651 | 8,368 | 3,230 | ||||||||||||||
Earnings before cumulative effect of a change in
accounting principle |
143,511 | 84,082 | 356,782 | 218,905 | ||||||||||||||
Cumulative effect of a change in accounting
principle, net of income tax benefit of $3,035 |
— | — | — | (5,709 | ) | |||||||||||||
Net earnings |
$ | 143,511 | $ | 84,082 | $ | 356,782 | $ | 213,196 | ||||||||||
Basic earnings per share before cumulative
effect of a change in accounting
principle |
$ | 1.50 | $ | 0.89 | $ | 3.74 | $ | 2.33 | ||||||||||
Cumulative effect of a change in
accounting principle |
— | — | — | (0.06 | ) | |||||||||||||
Basic earnings per share |
$ | 1.50 | $ | 0.89 | $ | 3.74 | $ | 2.27 | ||||||||||
Weighted average shares outstanding, basic
basis |
95,670 | 94,945 | 95,276 | 93,885 | ||||||||||||||
Diluted earnings per share before cumulative
effect of a change in accounting
principle |
$ | 1.45 | $ | 0.86 | $ | 3.61 | $ | 2.26 | ||||||||||
Cumulative effect of a change in
accounting principle |
— | — | — | (0.06 | ) | |||||||||||||
Diluted earnings per share |
$ | 1.45 | $ | 0.86 | $ | 3.61 | $ | 2.20 | ||||||||||
Weighted average shares outstanding, diluted
basis |
99,177 | 97,759 | 98,762 | 96,710 | ||||||||||||||
Cash dividends per share |
$ | 0.12 | $ | 0.09 | $ | 0.31 | $ | 0.25 | ||||||||||
See Notes to Condensed Consolidated Financial Statement
4
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
| Three months ended | Nine months ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||||||
Net earnings |
$ | 143,511 | $ | 84,082 | $ | 356,782 | $ | 213,196 | |||||||||
Other comprehensive earnings: |
|||||||||||||||||
Unrealized gains on investments,
net (1) |
2,952 | 5,371 | 12,223 | 10,401 | |||||||||||||
Reclassification adjustments for losses
included in net earnings (2) |
1,119 | 4,035 | 881 | 3,135 | |||||||||||||
Other comprehensive earnings |
4,071 | 9,406 | 13,104 | 13,536 | |||||||||||||
Comprehensive earnings |
$ | 147,582 | $ | 93,488 | $ | 369,886 | $ | 226,732 | |||||||||
| (1) | Net of income tax expense of $2.0 million and $3.6 million and $8.1 million and $6.9 million for the three months and nine months ended September 30, 2002 and 2001, respectively. | ||
| (2) | Net of income tax expense of $746 and $2.7 million and $587 and $2.1 million for the three months and nine months ended September 30, 2002 and 2001, respectively. |
See Notes to Condensed Consolidated Financial Statement
5
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In thousands)
| Accumulated | ||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | Treasury Stock | |||||||||||||||||||||||||||
| Paid-in | Retained | Comprehensive | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Earnings | Shares | Amount | ||||||||||||||||||||||||
Balance, December 31, 2001 |
95,349 | $ | 10 | $ | 1,158,847 | $ | 498,073 | $ | 4,866 | 1,100 | $ | (22,926 | ) | |||||||||||||||||
Purchase of treasury stock |
— | — | — | — | — | 959 | (28,150 | ) | ||||||||||||||||||||||
Exercise of stock options |
2,337 | — | 34,009 | — | — | — | ||||||||||||||||||||||||
Tax benefit associated with
the exercise of options |
— | — | 12,863 | — | — | — | — | |||||||||||||||||||||||
Other comprehensive
earnings — unrealized
gain on investments
and other financial
instruments |
— | — | — | — | 13,104 | — | — | |||||||||||||||||||||||
Capital transactions of
investments accounted
for under the equity
method |
— | — | 7,604 | — | — | — | — | |||||||||||||||||||||||
FNIS/MGEN merger |
— | — | 102,060 | — | — | — | — | |||||||||||||||||||||||
Retirement of treasury
stock |
(1,100 | ) | — | (22,926 | ) | — | — | (1,100 | ) | 22,926 | ||||||||||||||||||||
Effect of 10% stock
dividend |
— | — | 249,661 | (249,661 | ) | — | — | — | ||||||||||||||||||||||
Cash dividends declared
($0.31 per share) |
— | — | — | (30,029 | ) | — | — | — | ||||||||||||||||||||||
Net earnings |
— | |||||||||||||||||||||||||||||