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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 June 30, 2002
[ ] 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
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(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
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(Registrant's telephone number, including area code)
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(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 July 31, 2002.
Common 16,595,651
Class B Common 1,050,012
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2002
TABLE OF CONTENTS
Item No. Page
- -------- ----
Part I - FINANCIAL INFORMATION
1. Financial Statements 1
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
3. Quantitative and Qualitative Disclosures About
Market Risk 9
Part II - OTHER INFORMATION
1. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
5. Other Information 10
6. Exhibits and Reports on Form 8-K 11
Signature 12
As used in this report, "we", "us", "our" and "Stewart" mean Stewart Information
Services Corporation and our subsidiaries unless the context indicates
otherwise.
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
FOR THE QUARTERS AND SIX MONTHS ENDED
JUNE 30, 2002 and 2001
SECOND QUARTER SIX MONTHS
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
($000 Omitted) ($000 Omitted)
Revenues
Title insurance:
Direct operations 153,775 136,326 300,338 236,614
Agency operations 232,271 157,887 412,543 283,484
-------- -------- -------- --------
386,046 294,213 712,881 520,098
Real estate information
services 17,364 16,902 33,248 30,833
-------- -------- -------- --------
Total operating revenues 403,410 311,115 746,129 550,931
Investment income 4,593 4,500 9,496 10,045
Investment gains - net 235 45 587 398
-------- -------- -------- --------
408,238 315,660 756,212 561,374
Expenses
Amounts retained by
agents 188,560 128,858 336,849 231,315
Employee costs 105,979 90,916 210,544 170,268
Other operating
expenses 60,217 50,179 115,421 92,329
Title losses and
related claims 16,702 11,917 31,068 21,512
Depreciation 5,243 4,770 10,628 9,497
Goodwill -- 828 -- 1,369
Interest 260 784 515 1,443
Minority interests 2,534 2,171 4,064 3,396
-------- -------- -------- --------
379,495 290,423 709,089 531,129
-------- -------- -------- --------
Earnings before taxes 28,743 25,237 47,123 30,245
Income taxes 11,032 9,799 18,068 11,734
-------- -------- -------- --------
Net earnings 17,711 15,438 29,055 18,511
======== ======== ======== ========
Average number of
shares outstanding -
assuming dilution (000) 17,935 15,385 17,945 15,327
Earnings per share - basic 1.00 1.01 1.63 1.22
Earnings per share - diluted 0.99 1.00 1.62 1.21
======== ======== ======== ========
Comprehensive earnings:
Net earnings 17,711 15,438 29,055 18,511
Changes in unrealized
investment gains
(losses), net of taxes
of $2,103, $(590),
$848 and $571 3,904 (1,095) 1,574 1,060
-------- -------- -------- --------
Comprehensive earnings 21,615 14,343 30,629 19,571
======== ======== ======== ========
See notes to condensed consolidated financial statements.
-1-
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2002 AND DECEMBER 31, 2001
JUN 30 DEC 31
2002 2001
-------- --------
($000 Omitted)
Assets
Cash and cash equivalents 76,578 60,706
Short-term investments 58,591 56,267
Investments - statutory reserve funds 269,093 239,084
Investments - other 68,506 86,046
Receivables 47,573 52,036
Property and equipment 47,909 48,772
Title plants 39,419 37,715
Goodwill 55,983 52,971
Deferred income taxes -- 4,288
Other 41,929 39,978
-------- --------
705,581 677,863
======== ========
Liabilities
Notes payable 15,765 13,794
Accounts payable and accrued liabilities 46,288 57,752
Deferred income taxes 859 --
Estimated title losses 209,966 202,544
Minority interests 9,721 9,233
Contingent liabilities and commitments
Stockholders' equity
Common and Class B Common Stock and
additional paid-in capital 133,911 133,157
Retained earnings 287,299 258,746
Accumulated other comprehensive earnings 5,503 4,149
Treasury stock - 316,900 shares at June 30, 2002
and 116,900 shares at December 31, 2001, at cost (3,731) (1,512)
-------- --------
Total stockholders' equity ($23.97 per share at
June 30, 2002) 422,982 394,540
-------- --------
705,581 677,863
======== ========
See notes to condensed consolidated financial statements.
-2-
STEWART INFORMATION SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
2002 2001
------- -------
($000 Omitted)
Cash provided by operating activities (Note) 42,585 44,566
Investing activities:
Purchases of property and
equipment and title plants - net (10,918) (8,184)
Proceeds from investments matured
and sold 56,600 44,094
Purchases of investments (68,385) (40,187)
Increases in notes receivable (1,202) (1,402)
Collections on notes receivable 1,551 1,734
Cash received (paid) for the
acquisition of subsidiaries - net 190 (6,661)
------- -------
Cash used by investing activities (22,164) (10,606)
Financing activities:
Distribution to minority interests (3,395) (2,590)
Proceeds from issuance of stock 122 92
Proceeds from notes payable 1,452 8,633
Payments on notes payable (2,728) (5,089)
------- -------
Cash (used) provided by financing
activities (4,549) 1,046
------- -------
Increase in cash and cash equivalents 15,872 35,006
======= =======
NOTE: Reconciliation of net earnings
to the above amounts -
Net earnings 29,055 18,511
Add (deduct):
Depreciation and amortization 10,628 10,866
Provision for title losses in
excess of payments 7,422 788
Provision for uncollectible
amounts - net 918 (140)
Decrease in accounts receivable - net 3,344 1,634
(Decrease) increase in accounts
payable and accrued liabilities - net (7,483) 11,876
Minority interest expense 4,064 3,396
Equity in net earnings of investees (1,417) (1,159)
Realized investment gains - net (587) (398)
Stock bonuses 631 416
Increase in other assets (3,778) (2,095)
Other - net (212) 871
------- -------
Cash provided by operating activities 42,585 44,566
======= =======
Supplemental information:
Assets acquired (purchase method)
Goodwill 1,699 9,138
Title plants 307 4,906
Other (1,216) 1,965
Liabilities assumed (453) (1,439)
Common Stock acquired (issued) 2,721 (2,900)
Debt issued to sellers (3,248) (5,009)
------- -------
Cash (received) paid for acquisitions (190) 6,661
======= =======
See notes to condensed consolidated financial statements.
-3-
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 and six month
periods ended June 30, 2002 and 2001, and as of June 30, 2002, is unaudited. In
the opinion of our 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. This report
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
Certain amounts in the 2001 condensed consolidated financial statements have
been reclassified for comparative purposes. Net earnings, as previously
reported, were not affected.
Note 2: Segment Information
Our two reportable segments are title and real estate information. Selected
financial information related to these segments follows:
Real estate
Title information Total
----- ----------- -----
($000 Omitted)
Revenues:
- ---------
Three months ended
6/30/02 390,874 17,364 408,238
6/30/01 298,758 16,902 315,660
Six months ended
6/30/02 722,964 33,248 756,212
6/30/01 530,541 30,833 561,374
Pretax earnings:
- ----------------
Three months ended
6/30/02 26,740 2,003 28,743
6/30/01 22,884 2,353 25,237
Six months ended
6/30/02 43,682 3,441 47,123
6/30/01 27,298 2,947 30,245
Identifiable assets:
- --------------------
6/30/02 666,979 38,602 705,581
12/31/01 639,282 38,581 677,863
Note 3: Earnings Per Share
Our 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 relates to our 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 158,000 and 140,000 for the three month
periods ended June 30, 2002 and 2001, respectively and 152,000 and 148,000 for
the six months ended June 30, 2002 and 2001, respectively.
-4-
Note 4: Equity in Investees
The amount of earnings from equity investments was $0.9 million and $1.0 million
for the three month periods ended June 30, 2002 and 2001, respectively and $1.4
million and $1.2 million for the six month periods ended June 30, 2002 and 2001,
respectively. These amounts are included in "title insurance revenues - direct
operations" in the condensed consolidated statements of earnings and
comprehensive earnings.
Note 5: Changes in Accounting Principles
In August 2001, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for
Impairment or Disposal of Long-Lived Assets". This statement is effective for
fiscal years beginning after December 15, 2001 and addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The adoption of SFAS 144 will not have a material effect on our consolidated
financial position or results of operations.
Note 6: Goodwill and Intangible Assets - Adoption of SFAS No. 142
We adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1,
2002 and stopped amortizing goodwill prospectively. Selected financial
information reflects the pro forma earnings assuming the provisions of SFAS No.
142 had been applied prior to January 1, 2002:
SECOND QUARTER SIX MONTHS
------------------- -----------------
2002 2001 2002 2001
------- ------- ------- ------
($000 Omitted, except earnings per share)
Net Earnings:
- -------------
Net earnings 17,711 15,438 29,055 18,511
Add back: Goodwill amortization,
net of tax -- 819 -- 1,352
--------- -------- -------- ---------
Pro forma net earnings 17,711 16,257 29,055 19,863
Basic earnings per share:
- -------------------------
Net earnings 1.00 1.01 1.63 1.22
Add back: Goodwill amortization -- 0.05 -- 0.09
--------- -------- -------- ---------
Pro forma net earnings 1.00 1.06 1.63 1.31
Diluted earnings per share:
- ---------------------------
Net earnings 0.99 1.00 1.62 1.21
Add back: Goodwill amortization -- 0.05 -- 0.09
--------- -------- -------- ---------
Pro forma net earnings 0.99 1.05 1.62 1.30
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Our primary business is title insurance. We issue policies on homes and other
real property located in all 50 states, the District of Columbia and several
foreign countries through more than 6,000 issuing locations. We also sell
electronically delivered real estate services and information, as well as
mapping products and geographic information systems, to domestic and foreign
governments and private entities.
Our business has two main segments: title and real estate information
("REI"). These segments are closely related due to the nature of their
operations and common customers. The segments provide services throughout the
United States through a network of offices, including both direct operations and
agents. Although we conduct operations in several international markets, at
current levels the contributions of the international markets are generally
immaterial with respect to our consolidated financial results.
CRITICAL ACCOUNTING POLICIES
We believe the accounting policies that are the most critical to our
financial statements, and that are subject to the most judgment, are those
relating to title loss reserves, premium revenue recognition and recoverability
of long-lived assets, such as goodwill and title plants.
Title loss reserves represent the aggregate future payments, net of
recoveries, that we expect to incur on policy losses and in costs to settle
claims. The future title loss payments are difficult to estimate due to the
complex nature of title claims, the length of time over which claims are paid,
the significantly varying dollar amounts of individual claims and other factors.
Loss provision amounts are based on reported claims, historical loss experience,
title industry averages, the current legal environment and the types of policies
written. The title loss reserve is continually reviewed and adjusted, as
appropriate. Independent actuaries review the adequacy of the reserve on an
annual basis.
Premiums on title insurance written by our direct title operations are
recognized as revenue at the time of the closing of the related real estate
transaction. Premiums on title insurance policies written by agents are
recognized primarily when policies are reported to us. We also accrue for
unreported policies where reasonable estimates can be made based on historical
reporting patterns of agents, current trends and known information about agents.
We review the carrying values of title plants and other long-lived assets if
certain events occur that may indicate impairment. Impairment is indicated when
projected undiscounted cash flows over the estimated life of the assets are less
than carrying values. If impairment is determined by management, the book
amounts are written down to fair value by calculating the discounted value of
projected cash flows. In accordance with SFAS No. 142 "Goodwill and Other
Intangible Assets", goodwill is tested for impairment annually and goodwill
determined to be impaired is expensed to current operations.
RESULTS OF OPERATIONS
Generally, the principal factors that contribute to increases in our
operating revenues for our title and REI segments include:
o declining mortgage interest rates, which usually increase home sales and
refinancing transactions;
o rising home prices;
o higher premium rates;
o increased market share;
o additional revenues from new offices and
o increased revenues from commercial transactions.
These factors may override the seasonal nature of the title business.
Generally, the third quarter is the most active in terms of real estate sales
and the first quarter is the least active.
-6-
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
GENERAL. According to published industry data, interest rates for 30-year
fixed mortgages, excluding points, for the six months ended June 30, 2002
averaged 6.9% as compared to 7.1% for the same period a year earlier. The rates
at year-end 2001 were just over 7%. In 2001, rates remained relatively stable,
with rates reaching a high of 7.2% in May and reaching a low of 6.5% in
November. For the first six months of 2002, rates remained relatively stable,
with rates reaching a high of 7.2% in March and a low of 6.6% in June.
Operating in these mortgage interest rate environments, real estate activity
in the first six months of 2002 was strong. Refinancing transactions remained
strong in the first two quarters of 2002 compared to the same period in 2001.
Existing home sales increased 6.9% in the first six months of 2002 over the same
period in 2001. The ratio of refinancings to total loan applications was 46.5%
for the first six months of 2002 compared to 52.2% for the first six months of
2001.
TITLE REVENUES. Our revenues from the title segment increased 37.1% in the
first six months of 2002 over revenues for the same period in 2001.
In 2002, revenues from direct operations for the first six months increased
to $300.3 million or 26.9% over revenues for the first six months of 2001. The
number of direct closings we handled in 2002 increased 25.2% over those we
handled in 2001. Direct closings relate only to files closed by our underwriters
and subsidiaries and do not include closings from agents. The average revenue
per closing increased 1.1% in 2002 because of the slight reduction in
refinancings, which have lower premiums than regular transactions. There were no
major revenue rate changes in 2002 or 2001.
Premiums from agency operations increased 45.5% to $412.5 million in 2002.
This increase resulted primarily from increased refinancings and regular
transactions handled by agents nationwide. The largest increases were in
California, Texas and New York.
REI REVENUES. Real estate information segment revenues were $33.2 million in
2002 and $30.8 million in 2001. The increase in 2002 resulted primarily from
providing an increased number of post-closing services, flood services and
electronic mortgage documents resulting from the increase in real estate
transactions.
INVESTMENTS. Investment income decreased 3.4% in 2002 primarily because of
decreases in investment yields. We realized a gain on the sale of investment
real estate during the second quarter, but it was offset by a comparable
after-tax loss of $1.2 million on the sale of WorldCom bonds. Investment gains
in 2002 were realized as part of the on-going management of the investment
portfolio for the purpose of improving performance.
AGENT RETENTION. The amount of revenues retained by agents, as a percentage
of premiums from agents, was 81.7% and 81.6% in the years 2002 and 2001,
respectively. Amounts retained by title agents are based on contracts between
the agents and the title insurance underwriters of the Company. The percentage
that amounts retained by agents bear to agent revenues may vary from year to
year because of the geographical mix of agent operations and the volume of title
revenues.
EMPLOYEE COSTS. In 2002, employee costs for the combined business segments
increased 23.7% over 2001 costs. The number of persons employed by the Company
at June 30, 2002 and June 30, 2001 was approximately 7,200 and 6,300,
respectively. This increase in staff in 2002 was primarily the result of
acquisitions of new offices and additional staff in California.
In the REI segment, employee costs increased in 2002 and 2001 primarily due
to a continuing shift in focus to providing more post-closing services to
lenders. These services are significantly more labor intensive than other REI
services.
OTHER OPERATING EXPENSES. Other operating expenses for the combined business
segments increased 25.0% in 2002. The overall increase in these other operating
expenses in 2002 was in new offices, premium taxes, search fees and computer
expenses. Other operating expenses for the combined business segments also
include title plant expenses, travel, delivery costs, rent, business promotion,
telephone, supplies and policy forms. Most of these expenses follow, to varying
degrees, the changes in transaction volume and revenues.
Our labor and certain other operating costs are sensitive to inflation. To
the extent inflation causes an increase in the price of homes and other real
estate, premium revenues from the sale of these properties also increase.
Premiums are determined in part by the insured values of the transactions
handled by us.
-7-
TITLE LOSSES. Provisions for title losses, as a percentage of title insurance
revenues, were 4.4% in 2002 and 4.1% in 2001. The continued improvement in
industry trends in claims and a significant amount of refinancing transactions,
which result in lower loss exposure, have led to lower loss ratios in the last
five years.
INCOME TAXES. The provision for federal and state income taxes represented
effective tax rates of 38.3% and 38.8% in 2002 and 2001, respectively.
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
GENERAL. According to published industry data, interest rates for 30-year
fixed mortgages, excluding points, for the three months ended June 30, 2002
averaged 6.8% as compared to 7.1% for the same period in 2001.
Because of a favorable mortgage interest rate environment, real estate
activity in the second quarter of 2002 was strong. Refinancing transactions
remained strong in the second quarter of 2002 compared to the same period in
2001. The ratio of refinancings to total loan applications was 42.7% for the
second quarter of 2002 compared to 47.4% for the second quarter of 2001.
Existing home sales increased 4.2% in the second quarter of 2002 over the same
period in 2001.
TITLE REVENUES. Our revenues from the title segment increased 31.2% in the
second quarter of 2002 over the same period in 2001.
Revenues from direct operations increased 12.8% to $153.8 million for the
second quarter of 2002 compared to the second quarter of 2001. The number of
direct closings we handled increased 7.8% in the second quarter of 2002 compared
to the same period in 2001. Direct closings relate only to files that our
underwriters and subsidiaries close and do not include closings by agents. The
average revenue per direct closing increased 4.5% in the second quarter of 2002
compared to the same period in 2001 because of the slight reduction in
refinancings which have lower premiums than regular transactions. There were no
major revenue rate changes in the second quarter of 2002 or 2001.
Premiums from agency operations increased 47.1% to $232.3 million for the
second quarter of 2002 compared to the same period in 2001. The increase
resulted primarily from increased refinancings and regular transactions handled
by agents nationwide. The largest increases were in California, Texas and New
York.
REI REVENUES. Real estate information revenues were $17.4 million for the
second quarter of 2002 and $16.9 million for the second quarter of 2001. The
increase resulted primarily from providing an increased number of post-closing
services, Section 1031 tax-deferred exchanges and electronic mortgage documents
resulting from the increase in real estate transactions.
INVESTMENTS. Investment income increased 6.2% in the second quarter of 2002
compared to the second quarter of 2001 primarily because of increases in
investment yields. We realized a gain on the sale of investment real estate
during the second quarter, but it was offset by a comparable after-tax loss of
$1.2 million on the sale of WorldCom bonds. Investment gains during this period
were realized as part of the ongoing management of the investment portfolio for
the purpose of improving performance.
AGENT RETENTION. The amounts retained by agents, as a percentage of premiums
from agents, were 81.2% and 81.6% in the second quarters of 2002 and 2001,
respectively. Amounts retained by title agents are based on contracts between
agents and our title insurance underwriters. 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 COSTS. Employee costs for the combined business segments increased
16.6% in the second quarter of 2002 compared to the same period in 2001. The
number of persons we employed at June 30, 2002 and June 30, 2001 was
approximately 7,200 and 6,300, respectively. The increase in staff was primarily
the result of acquisitions of new offices and additional staff in California.
In the REI segment, employee costs increased in the second quarter of 2002
over 2001 primarily due to a continuing shift in focus to providing more
post-closing services to lenders. These services are significantly more labor
intensive.
OTHER OPERATING EXPENSES. Other operating expenses for the combined business
segments increased 20.0% in the second quarter of 2002. The increase in other
operating expenses for the combined business segments during this period
resulted from new offices, premium taxes, computer expenses and search fees.
Other operating expenses also include title plant expenses, travel, delivery
costs, rent, business promotion, REI expenses, telephone, supplies and policy
forms. Most of these expenses follow, to varying degrees, the changes in
transaction volume and revenues.
-8-
Our labor and certain other operating costs are sensitive to inflation. To
the extent inflation causes increases in the prices of homes and other real
estate, premium revenues also increase. Premiums are determined in part by the
insured values of the transactions we handle.
TITLE LOSSES. For the second quarter, provisions for title losses, as a
percentage of title insurance revenues, were 4.3% in 2002 and 4.1% in 2001. The
continued improvement in industry trends in claims and increases in refinancing
transactions, which result in lower loss exposure, have led to lower loss ratios
in recent years.
INCOME TAXES. The provision for federal and state income taxes represented
effective tax rates of 38.4% and 38.8% in the second quarters of 2002 and 2001,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $42,585 and $44,566 for the six month periods
ended June 30, 2002 and 2001, respectively. Internally generated cash flow has
been the primary source of financing for additions to property and equipment,
expanding operations and other capital requirements. This source of financing
may be supplemented by bank borrowings. We do not have any material source of
liquidity and financing that involves off-balance sheet arrangements.
A substantial majority of consolidated cash and investments is held by
Stewart Title Guaranty Company and its subsidiaries. Cash transfers between
Stewart Title Guaranty Company and its subsidiaries are subject to certain legal
restrictions. See notes 3 and 4 to our consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2001.
Our liquidity, excluding Stewart Title Guaranty Company and its subsidiaries,
is comprised of cash and investments aggregating $16.5 million and short-term
liabilities of $574,000 at June 30, 2002. We know of no commitments or
uncertainties that are reasonably likely to materially affect our ability, or
the ability of our subsidiaries, to fund our short-term or long-term cash needs.
We consider our capital resources, represented primarily by notes payable of
$15.8 million and stockholders' equity of $423.0 million at June 30, 2002, to be
adequate. We are not aware of any trends, either favorable or unfavorable that
would materially affect the notes payable or the stockholders' equity and we do
not expect any material changes to the cost of such resources. However,
significant acquisitions in the future could materially affect the notes payable
balance.
FORWARD-LOOKING STATEMENTS. All statements included in this report, other
than statements of historical fact, addressing activities, events or
developments that we expect 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, legislation (primarily legislation related
to title insurance) and other risks and uncertainties discussed in our filings
with the Securities and Exchange Commission.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our investment strategies, types of
financial instruments held or the risks associated with such instruments which
would materially alter the market risk disclosures made in our Annual Statement
on Form 10-K for the year ended December 31, 2001.
-9-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to routine lawsuits incidental to our 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. We do not expect that any of these proceedings
will have a material adverse effect on our consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Our Annual Meeting of Stockholders was held on April 26, 2002 for the
purpose of electing our board of directors. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and
there was no solicitation in opposition to management's solicitations.
(c) Brief description of each matter voted upon:
Election of directors.
A. Directors Elected by Common Stockholders:
Number of Shares
------------------------------
Votes For Votes Withheld
---------- --------------
Lloyd Bentsen, III 14,613,873 80,350
Nita B. Hanks 14,621,705 72,518
Dr. E. Douglas Hodo 14,608,203 86,020
Gov. John P. LaWare 14,623,993 70,230
Dr. W. Arthur Porter 14,621,032 73,191
B. Directors Elected by Class B Common Stockholders:
Number of Shares
------------------------------
Votes For Votes Withheld
---------- --------------
Max Crisp 1,050,012 0
Paul W. Hobby 1,050,012 0
Malcolm S. Morris 1,050,012 0
Stewart Morris, Jr. 1,050,012 0
ITEM 5. OTHER INFORMATION
We paid regular quarterly cash dividends on our common stock from 1972
through 1999. During 1999, our Board of Directors approved a plan to repurchase
up to 5 percent (680,000 shares) of our outstanding common stock. Our Board also
decided to discontinue our regular quarterly dividend in favor of returning
those and additional funds to stockholders' equity through the stock repurchase
plan. Under this plan, we repurchased 116,900 shares of common stock during
2000. We did not repurchase any shares of our common stock in 2001 or in the
first six months of 2002.
An additional 200,000 shares of treasury stock was acquired in the second
quarter of 2002 as a result of the consolidation of a majority owned subsidiary
which was previously held as an equity method investment. The treasury stock is
held as collateral to a note payable of the Company.
-10-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3.1 - Certificate of Incorporation of the Registrant, as amended March
19, 2001 (incorporated by reference in this report from Exhibit 3.1
of Annual Report on Form 10-K for the fiscal year ended December
31, 2000)
3.2 - By-Laws of the Registrant, as amended March 13, 2000
(incorporated by reference in this report from Exhibit 3.2 of
Annual Report on Form 10-K for the fiscal year ended December
31, 2000)
4. - Rights of Common and Class B Common Stockholders
* 10.1 - Summary of agreements as to payment of bonuses to certain executive
officers (incorporated by reference in this report from Exhibit
10.1 of Annual Report on Form 10-K for the fiscal year ended
December 31, 2001)
* 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July
24, 1990 and October 30, 1992, between the Registrant and certain
executive officers (incorporated by reference in this report from
Exhibit 10.2 of Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
* 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan
(incorporated by reference in this report from Exhibit 10.3 of
Annual Report on Form 10-K for the fiscal year ended December 31,
1999)
* 10.4 - Stewart Information Services Corporation 2002 Stock Option Plan for
Region Managers (incorporated by reference in this report from
Exhibit 10.4 of Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002)
99.1 - Details of Investments at June 30, 2002 and December 31, 2001
99.2 - Certificate of Co-Chief Executive Officers pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002
99.3 - Certificate of Co-Chief Executive Officers pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002
99.4 - Certificate of Chief Financial Officer pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002
* A management compensation plan, contract or arrangement.
There were no reports on Form 8-K filed during the quarter ended June 30,
2002.
-11-
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, we have
duly caused this report to be signed on our behalf by the undersigned thereunto
duly authorized.
Stewart Information Services Corporation
----------------------------------------
(Registrant)
August 9, 2002
- ----------------
Date
/s/ MAX CRISP
----------------------------------------
Max Crisp
(Executive Vice President and Chief
Financial Officer, Secretary-Treasurer,
Director and Principal Financial and
Accounting Officer)
-12-
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 - Certificate of Incorporation of the Registrant, as amended March
19, 2001 (incorporated by reference in this report from Exhibit 3.1
of Annual Report on Form 10-K for the fiscal year ended December
31, 2000)
3.2 - By-Laws of the Registrant, as amended March 13, 2000
(incorporated by reference in this report from Exhibit 3.2 of
Annual Report on Form 10-K for the fiscal year ended December
31, 2000)
4. - Rights of Common and Class B Common Stockholders
* 10.1 - Summary of agreements as to payment of bonuses to certain executive
officers (incorporated by reference in this report from Exhibit
10.1 of Annual Report on Form 10-K for the fiscal year ended
December 31, 2001)
* 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July
24, 1990 and October 30, 1992, between the Registrant and certain
executive officers (incorporated by reference in this report from
Exhibit 10.2 of Annual Report on Form 10-K for the fiscal year
ended December 31, 1997)
* 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan
(incorporated by reference in this report from Exhibit 10.3 of
Annual Report on Form 10-K for the fiscal year ended December 31,
1999)
* 10.4 - Stewart Information Services Corporation 2002 Stock Option Plan for
Region Managers (incorporated by reference in this report from
Exhibit 10.4 of Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002)
99.1 - Details of Investments at June 30, 2002 and December 31, 2001
99.2 - Certificate of Co-Chief Executive Officers pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002
99.3 - Certificate of Co-Chief Executive Officers pursuant to Section
906(a) of the Sarbanes-Oxley Act of 2002
99.4 - Certificate of Chief Financial Officer pursuant to Section 906(a)
of the Sarbanes-Oxley Act of 2002
* A management compensation plan, contract or arrangement.