LANDAMERICA FINANCIAL GROUP INC - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2003

COMMISSION FILE NO. 1-13990

LANDAMERICA FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Virginia	54-1589611
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 Gateway Centre Parkway Richmond, Virginia	23235-5153
(Address of principal executive offices)	(Zip Code)

(804) 267-8000 (Registrant's telephone number, including area code)

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 filer (as defined in Rule 12b-2 of the Exchange Act).

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 Stock, No Par Value 18,622,517 November 10, 2003

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

INDEX

Page No.

PART I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements:

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in

Shareholders’ Equity

Notes to Consolidated Financial Statements

Item 2.

Management's Discussion and

Analysis of Financial Condition

and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures

about Market Risk

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Item 5.

Other Information

Item 6.

Exhibits and Reports on Form 8-K

Signatures

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

(Unaudited)

ASSETS	September 30, 2003	December 31, 2002

INVESTMENTS:
Fixed maturities available-for-sale - at fair value (amortized cost: 2003 - $927,056; 2002 - $937,159)	$979,932	$991,494
Equity securities – at fair value (cost: 2003 - $25,244; 2002 - $23,395)	30,301	23,669
Mortgage loans (less allowance for doubtful accounts: 2003 - $164; 2002 - $119)	1,536	1,172
Invested cash	338,303	183,517

Total Investments	1,350,072	1,199,852

CASH	36,281	42,363

NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 2003 - $2,540; 2002 - $4,454)	13,204	10,109
Accounts receivable (less allowance for doubtful accounts: 2003 - $7,153; 2002 - $6,102)	74,405	69,549

Total Notes and Accounts Receivable	87,609	79,658

PROPERTY AND EQUIPMENT - at cost (less accumulated depreciation and amortization: 2003 - $145,737; 2002 - $136,438)	70,677	60,851

TITLE PLANTS	101,370	96,995

GOODWILL	238,672	201,658

DEFERRED INCOME TAXES	110,315	111,883

OTHER ASSETS	162,439	117,572

Total Assets	$2,157,435	$1,910,832

See accompanying notes.

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

(Unaudited)

LIABILITIES	September 30, 2003	December 31, 2002

POLICY AND CONTRACT CLAIMS	$631,581	$574,467

ACCOUNTS PAYABLE AND ACCRUED EXPENSES	236,347	236,612

FEDERAL INCOME TAXES	29,891	17,549

NOTES PAYABLE	188,848	188,476

OTHER	35,169	30,108

Total Liabilities	1,121,836	1,047,212



COMMITMENTS AND CONTINGENCIES (Note 4)



SHAREHOLDERS’ EQUITY

Common stock, no par value, 45,000,000 shares authorized, shares issued and outstanding: 2003 – 18,619,755; 2002 – 18,348,944	516,382	509,540

Accumulated other comprehensive income (loss)	1,963	(198)

Retained earnings	517,254	354,278

Total Shareholders’ Equity	1,035,599	863,620

Total Liabilities and Shareholders’ Equity	$2,157,435	$1,910,832

See accompanying notes.

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(In thousands of dollars except per share amounts)

(Unaudited)

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
REVENUES
Title and other operating revenues:
Direct operations	$410,861	$283,397	$1,103,787	$777,435
Agency operations	479,420	332,018	1,317,268	993,256
	890,281	615,415	2,421,055	1,770,691
Investment income	12,661	13,214	39,036	39,027
Gain (loss) on sale of investments	3,865	(16)	7,036	(39)
	906,807	628,613	2,467,127	1,809,679
EXPENSES
Salaries and employee benefits	230,715	172,135	633,861	495,438
Agents’ commissions	384,386	264,195	1,055,147	788,150
Provision for policy and contract claims	52,428	25,650	136,037	72,089
Interest expense	3,083	3,098	9,131	9,389
Exit and termination costs	(2)	-	(534)	17,322
General, administrative and other	138,165	102,212	374,714	299,531
	808,775	567,290	2,208,356	1,681,919
INCOME BEFORE INCOME TAXES	98,032	61,323	258,771	127,760

INCOME TAX EXPENSE (BENEFIT)
Current	35,063	7,803	91,159	31,049
Deferred	(458)	13,660	187	13,667
	34,605	21,463	91,346	44,716
NET INCOME	$63,427	$39,860	$167,425	$83,044

NET INCOME PER COMMON SHARE	$3.44	$2.16	$9.12	$4.49

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING	18,424	18,418	18,355	18,511

NET INCOME PER COMMON SHARE ASSUMING DILUTION	$3.40	$2.15	$9.02	$4.45

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING DILUTION	18,677	18,573	18,563	18,657

See accompanying notes.

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(In thousands of dollars)

(Unaudited)

	2003	2002
Cash flows from operating activities:
Net income	$167,425	$83,044
Depreciation and amortization	15,157	13,921
Amortization of bond premium	4,529	2,870
Realized investment (gains) losses	(7,036)	39
Deferred income tax	187	13,667
Change in assets and liabilities, net of businesses acquired:
Notes receivable	(3,057)	(1,585)
Premiums receivable	2,895	5,460
Income taxes receivable/payable	12,311	5,485
Policy and contract claims	57,114	6,706
Accounts payable and accrued expenses	(9,737)	(24,981)
Other	(3,749)	(3,928)
Net cash provided by operating activities	236,039	100,698
Cash flows from investing activities:
Purchase of property and equipment, net	(20,867)	(13,753)
Purchase of business, net of cash acquired	(77,865)	(8,942)
Change in cash surrender value	(2,180)	1,959
Cost of investments acquired:
Fixed maturities – available-for-sale	(413,040)	(406,676)
Equity securities	(7,572)	(11,604)
Proceeds from investment sales or maturities:
Fixed maturities – available-for-sale	425,788	331,132
Equity securities	6,000	346
Change in mortgage loans	(364)	494
Net cash used in investing activities	(90,100)	(107,044)
Cash flows from financing activities:
Proceeds from the sale of common shares	9,542	2,729
Cost of common shares repurchased	(2,700)	(14,268)
Repayment of cash surrender value loan	-	(6,966)
Dividends paid	(4,449)	(3,146)
Proceeds from issuance of notes payable	2,873	472
Payments on notes payable	(2,501)	(21,494)
Net cash provided by (used in) financing activities	2,765	(42,673)
Net increase (decrease) in cash and invested cash	148,704	(49,019)
Cash and invested cash at beginning of period	225,880	168,770
Cash and invested cash at end of period	$374,584	$119,751

See accompanying notes.

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

(In thousands of dollars except per share amounts)

(Unaudited)

			Accumulated
			Other		Total
	Common Stock		Comprehensive	Retained	Shareholders’
	Shares	Amounts	Income (Loss)	Earnings	Equity
BALANCE – December 31, 2001	18,583,937	$521,795	$(3,647)	$209,345	$727,493
Comprehensive income:
Net income	-	-	-	83,044	83,044
Other comprehensive income, net of tax of $1,282
Net unrealized gains on securities	-	-	30,088	-	30,088
Minimum pension liability adjustment	-	-	(26,523)	-	(26,523)
					86,609
Common stock retired	(449,450)	(14,268)	-	-	(14,268)
Stock option and incentive plans	108,633	2,729	-	-	2,729
Common dividends ($0.17/share)	-	-	-	(3,146)	(3,146)
BALANCE – September 30, 2002	18,243,120	$510,256	$ (82)	$289,243	$799,417
BALANCE – December 31, 2002	18,348,944	$509,540	$ (198)	$354,278	$863,620
Comprehensive income:
Net income	-	-	-	167,425	167,425
Other comprehensive income, net of tax of $1,163
Net unrealized gains on securities	-	-	2,161	-	2,161

Common stock retired	(62,000)	(2,700)	-	-	(2,700)
Stock option and incentive plans	332,811	9,542	-	-	9,542
Common dividends ($0.24/share)	-	-	-	(4,449)	(4,449)
BALANCE – September 30, 2003	18,619,755	$516,382	$ 1,963	$517,254	$1,035,599

See accompanying notes.

LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands of dollars except per share amounts)

Interim Financial Information

The unaudited consolidated financial information included in this report has been prepared in conformity with the accounting principles and practices reflected in the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934. This report should be read in conjunction with the aforementioned Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of this information have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year.

Certain 2002 amounts have been reclassified to conform to the 2003 presentation.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
Numerator:
Net income – numerator for diluted earnings per share	$63,427	$39,860	$167,425	$83,044

Denominator:
Weighted average shares – denominator for basic earnings per share	18,424	18,418	18,355	18,511

Effect of dilutive securities:
Employee stock options	253	155	208	146

Denominator for diluted earnings per share	18,677	18,573	18,563	18,657

Basic earnings per common share	$3.44	$2.16	$9.12	$4.49

Diluted earnings per common share	$3.40	$2.15	$9.02	$4.45

Shareholders’ Equity

Pro forma information regarding net income and earnings per share is required by the Financial Accounting Standards Board (FASB) Statements of Financial Accounting Standards No. (SFAS) 123, as amended by SFAS 148, Accounting for Stock-Based Compensation – Transition and Disclosure, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement.

The following pro forma information shows the Company’s net income and earnings per basic and diluted share:

Three Months Ended

September 30,

Nine Months Ended

September 30,

2003

2002