UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (X) |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR | ||
| ( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarter Ended March 31, 2003
Commission File Number 1-9396
FIDELITY NATIONAL FINANCIAL, INC.
| Delaware | 86-0498599 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
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| 17911 Von Karman Avenue, Suite 300, Irvine, California | 92614 | |
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| (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 ( )
Indicate by check mark whether the registrant is an accelerated filed (as defined in Rule 12b-2 of the Exchange Act).
YES (X) NO ( )
As of April 30, 2003, 134,954,362 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2003
INDEX
| Page | ||||||||||||||||
| Part I: | FINANCIAL INFORMATION | |||||||||||||||
| Item 1. | Condensed Consolidated Financial Statements | |||||||||||||||
| A. | Condensed Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002 |
3 | ||||||||||||||
| B. | Condensed Consolidated Statements of Earnings for the three
months ended March 31, 2003 and 2002 |
4 | ||||||||||||||
| C. | Condensed Consolidated Statements of Comprehensive Earnings
for the three months ended March 31, 2003 and 2002 |
5 | ||||||||||||||
| D. | Condensed Consolidated Statement of Stockholders’ Equity for the
three months ended March 31, 2003 |
6 | ||||||||||||||
| E. | Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 2003 and 2002 |
7 | ||||||||||||||
| F. | Notes to Condensed Consolidated Financial Statements |
9 | ||||||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||||||||||||||
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 17 | ||||||||||||||
| Item 4. | Controls and Procedures | 17 | ||||||||||||||
| Part II: | OTHER INFORMATION | |||||||||||||||
| Item 1. | Legal Proceedings | 18 | ||||||||||||||
| Item 2. | Changes in Securities and Proceeds | 18 | ||||||||||||||
| Item 6. | Exhibits and Reports on Form 8-K | 18 | ||||||||||||||
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)
| March 31, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
ASSETS |
||||||||||
Investments: |
||||||||||
Fixed maturities available for sale, at fair value, at March 31, 2003
includes $261,865 and at December 31, 2002 includes $243,844 of
pledged fixed maturity securities related to secured trust deposits |
$ | 1,554,439 | $ | 1,564,183 | ||||||
Equity securities, at fair value |
99,581 | 74,401 | ||||||||
Other long-term investments |
16,217 | 38,368 | ||||||||
Settlement of investments |
(12,916 | ) | (207 | ) | ||||||
Short-term investments at March 31, 2003 includes $204,802 and at
December 31, 2002 includes $231,080 of pledged short-term investments
related to secured trust deposits |
1,154,999 | 888,863 | ||||||||
Total investments |
2,812,320 | 2,565,608 | ||||||||
Cash and cash equivalents, at March 31, 2003 includes $322,924 and at
December 31, 2002 includes $295,051 of pledged cash related to secured
trust deposits |
535,727 | 482,600 | ||||||||
Leases and residual interests in securitizations |
102,220 | 119,242 | ||||||||
Trade receivables, net |
256,117 | 220,842 | ||||||||
Notes receivable, net (related party — $1,748 in 2003 and $2,804 in 2002) |
11,515 | 12,363 | ||||||||
Goodwill |
1,216,374 | 996,613 | ||||||||
Prepaid expenses and other assets |
381,094 | 351,348 | ||||||||
Title plants |
281,831 | 275,976 | ||||||||
Property and equipment, net |
192,721 | 165,595 | ||||||||
Deferred tax asset |
74,627 | 55,557 | ||||||||
| $ | 5,864,546 | $ | 5,245,744 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Liabilities: |
||||||||||
Accounts payable and accrued liabilities |
$ | 696,639 | $ | 698,917 | ||||||
Notes payable |
717,228 | 493,458 | ||||||||
Reserve for claim losses |
902,753 | 887,973 | ||||||||
Secured trust deposits |
781,003 | 750,920 | ||||||||
Income taxes payable |
111,290 | 28,743 | ||||||||
| 3,208,913 | 2,860,011 | |||||||||
Minority interests and preferred stock of subsidiary |
137,421 | 131,797 | ||||||||
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
issued, 127,307,182 as of March 31, 2003 and 121,471,220 as of
December 31, 2002 |
13 | 12 | ||||||||
Additional paid-in capital |
1,711,836 | 1,551,637 | ||||||||
Retained earnings |
866,338 | 738,522 | ||||||||
| 2,578,187 | 2,290,171 | |||||||||
Accumulated other comprehensive earnings |
10,595 | 12,303 | ||||||||
Unearned compensation |
(3,915 | ) | (1,628 | ) | ||||||
Less treasury stock, 2,588,125 shares as of March 31, 2003 and 1,839,500
shares as of December 31, 2002, at cost |
(66,655 | ) | (46,910 | ) | ||||||
| 2,518,212 | 2,253,936 | |||||||||
| $ | 5,864,546 | $ | 5,245,744 | |||||||
See Notes to Condensed Consolidated Financial Statements
3
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
| Three months ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
REVENUE: |
||||||||||
Title insurance premiums |
$ | 967,661 | $ | 729,362 | ||||||
Escrow and other title-related fees |
266,927 | 189,295 | ||||||||
Real estate related services |
174,205 | 115,909 | ||||||||
Interest and investment income |
17,057 | 18,281 | ||||||||
Realized gains, net |
6,633 | 7,058 | ||||||||
Other income |
4,393 | 6,955 | ||||||||
| 1,436,876 | 1,066,860 | |||||||||
EXPENSES: |
||||||||||
Personnel costs |
441,339 | 330,138 | ||||||||
Other operating expenses |
315,609 | 221,123 | ||||||||
Agent commissions |
387,213 | 308,971 | ||||||||
Provision for claim losses |
48,384 | 36,468 | ||||||||
Interest expense |
8,060 | 8,617 | ||||||||
Total expenses |
1,200,605 | 905,317 | ||||||||
Earnings before income taxes and minority interest |
236,271 | 161,543 | ||||||||
Income tax expense |
87,420 | 58,154 | ||||||||
Earnings before minority interest |
148,851 | 103,389 | ||||||||
Minority interest |
5,272 | 2,404 | ||||||||
Net earnings |
$ | 143,579 | $ | 100,985 | ||||||
Basic earnings per share |
$ | 1.19 | $ | 0.85 | ||||||
Weighted average shares outstanding, basic
basis |
120,392 | 118,221 | ||||||||
Diluted earnings per share |
$ | 1.16 | $ | 0.83 | ||||||
Weighted average shares outstanding, diluted
basis |
124,208 | 122,186 | ||||||||
Cash dividends per share |
$ | 0.12 | $ | 0.07 | ||||||
See Notes to Condensed Consolidated Financial Statements
4
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
| Three months ended | |||||||||
| March 31, | |||||||||
| 2003 | 2002 | ||||||||
| (Unaudited) | |||||||||
Net earnings |
$ | 143,579 | $ | 100,985 | |||||
Other comprehensive earnings (loss): |
|||||||||
Unrealized gains (losses) on investments,
net (1) |
1,523 | (2,141 | ) | ||||||
Reclassification adjustments for gains
included in net earnings (2) |
(3,231 | ) | (1,799 | ) | |||||
Other comprehensive loss |
(1,708 | ) | (3,940 | ) | |||||
Comprehensive earnings |
$ | 141,871 | $ | 97,045 | |||||
| (1) | Net of income tax expense (benefit) of $1.0 million and $(1.4) million for the three months ended March 31, 2003 and 2002, respectively. | |
| (2) | Net of income tax benefit of $(2.2) million and $(1.2) million for the three months ended March 31, 2003 and 2002, respectively. |
See Notes to Condensed Consolidated Financial Statements.
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 | Unearned | ||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Earnings | Compensation | Shares | Amount | ||||||||||||||||||||||||||
Balance, December 31,
2002 |
121,471 | $ | 12 | $ | 1,551,637 | $ | 738,522 | $ | 12,303 | $ | (1,628 | ) | 1,840 | $ | (46,910 | ) | |||||||||||||||||
Purchase of treasury
stock |
— | — | — | — | — | — | 748 | (19,745 | ) | ||||||||||||||||||||||||
Exercise of stock options |
1,124 | — | 12,384 | — | — | — | — | ||||||||||||||||||||||||||
Tax benefit associated
with the exercise of
options |
— | — | 8,129 | — | — | — | — | — | |||||||||||||||||||||||||
Acquisition of ANFI, Inc. |
4,712 | 1 | 139,288 | — | — | — | — | — | |||||||||||||||||||||||||
Other comprehensive
loss — unrealized
loss on investments
and other financial
instruments |
— | — | — | — | (1,708 | ) | — | — | — | ||||||||||||||||||||||||
Amortization of unearned
compensation |
— | — | — | — | — | 456 | — | — | |||||||||||||||||||||||||
Unearned compensation –
ANFI |
— | — | — | — | — | (2,743 | ) | — | — | ||||||||||||||||||||||||
Capital transactions of
investments accounted
for under the equity
method |
— | — | 398 | — | — | — | — | — | |||||||||||||||||||||||||
Cash dividends declared
($0.12 per share) |
— | — | — | (15,763 | ) | — | — | — | — | ||||||||||||||||||||||||
Net earnings |
— | — | — | 143,579 | — | — | — | — | |||||||||||||||||||||||||
Balance, March 31, 2003 |
127,307 | $ | 13 | $ | 1,711,836 | $ | 866,338 | $ | 10,595 | $ | (3,915 | ) | 2,588 | $ | (66,655 | ) | |||||||||||||||||
See Notes Condensed Consolidated Financial Statements
6
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Three months ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
Cash flows from operating activities: |
||||||||||
Net earnings |
$ | 143,579 | $ | 100,985 | ||||||
Reconciliation of net earnings to net cash provided by operating activities: |
||||||||||
Depreciation and amortization |
21,802 | 16,939 | ||||||||
Net increase in reserve for claim losses |
4,716 | 2,015 | ||||||||
Gain on sales of assets |
(6,633 | ) | (7,058 | ) | ||||||
Change in assets and liabilities, net of effects from acquisitions: |
||||||||||
Net decrease in leases and lease securitization residual interests |
17,022 | 9,954 | ||||||||
Net (increase) decrease in secured trust deposits |
15,103 | (426 | ) | |||||||
Tax benefit associated with the exercise of stock options |
8,129 | 3,655 | ||||||||
Net increase in trade receivables |
(18,389 | ) | (2,517 | ) | ||||||
Net (increase) decrease in prepaid expenses and other assets |
(22,448 | ) | 17,223 | |||||||
Net decrease in accounts payable, accrued liabilities and minority interests |
(49,352 | ) | (23,794 | ) | ||||||
Net increase in income taxes |
77,550 | 46,520 | ||||||||
Net cash provided by operating activities |
191,079 | 163,496 | ||||||||
Cash flows from investing activities: |
||||||||||
Proceeds from sales of investment securities available for sale |
440,110 | 273,483 | ||||||||
Proceeds from maturities of investment securities available for sale |
73,655 | 43,269 | ||||||||
Proceeds from sale of assets |
211 | — | ||||||||
Collections of notes receivable |
1,668 | 1,794 | ||||||||
Additions to title plants |
(1,005 | ) | (557 | ) | ||||||
Additions to property and equipment |
(29,391 | ) | (14,207 | ) | ||||||
Purchases of investment securities available for sale |
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