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, 2004
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 17,783,845 November 3, 2004
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
| Page No. | ||||
| PART I. FINANCIAL INFORMATION |
||||
| ITEM 1. |
CONSOLIDATED FINANCIAL STATEMENTS: | |||
| Consolidated Balance Sheets | 3 | |||
| Consolidated Statements of Operations | 5 | |||
| Consolidated Statements of Cash Flows | 6 | |||
| Consolidated Statements of Changes in Shareholders’ Equity | 7 | |||
| Notes to Consolidated Financial Statements | 8 | |||
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14 | ||
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 25 | ||
| ITEM 4. |
CONTROLS AND PROCEDURES | 25 | ||
| ITEM 1. |
LEGAL PROCEEDINGS | 26 | ||
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 26 | ||
| ITEM 6. |
EXHIBITS | 27 | ||
| 28 | ||||
2
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
| September 30, 2004 |
December 31, 2003 | |||||
| ASSETS |
||||||
| INVESTMENTS |
||||||
| Fixed maturities available-for-sale—at fair value (amortized cost: 2004—$1,051,161; 2003—$997,240) |
$ | 1,092,994 | $ | 1,043,827 | ||
| Equity securities—at fair value (cost: 2004—$31,132; 2003—$26,262) |
38,162 | 33,462 | ||||
| Federal funds sold |
9,570 | 525 | ||||
| Invested cash |
227,152 | 177,771 | ||||
| Total Investments |
1,367,878 | 1,255,585 | ||||
| CASH |
63,812 | 52,877 | ||||
| LOANS RECEIVABLE (less allowance for doubtful accounts: 2004—$4,002; 2003—$3,316) |
330,139 | 260,471 | ||||
| ACCRUED INTEREST RECEIVABLE |
15,246 | 14,775 | ||||
| ACCOUNTS AND NOTES RECEIVABLE |
||||||
| Notes (less allowance for doubtful accounts: 2004—$3,667; 2003—$3,765) |
17,861 | 13,543 | ||||
| Trade accounts receivable (less allowance for doubtful accounts: 2004—$16,873; 2003—$12,681) |
99,353 | 94,632 | ||||
| Total Notes and Accounts Receivable |
117,214 | 108,175 | ||||
| PROPERTY AND EQUIPMENT—at cost (less accumulated depreciation and amortization: 2004—$195,218; 2003—$169,667) |
102,754 | 99,562 | ||||
| TITLE PLANTS |
98,008 | 99,534 | ||||
| GOODWILL |
532,089 | 426,724 | ||||
| INTANGIBLE ASSETS (less accumulated amortization 2004—$25,214; 2003—$6,982) |
207,962 | 156,669 | ||||
| DEFERRED INCOME TAXES |
145,841 | 134,235 | ||||
| OTHER ASSETS |
142,272 | 108,853 | ||||
| Total Assets |
$ | 3,123,215 | $ | 2,717,460 | ||
See Notes to Consolidated Financial Statements.
3
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
| September 30, 2004 |
December 31, 2003 |
|||||||
| LIABILITIES |
||||||||
| POLICY AND CONTRACT CLAIMS |
$ | 700,620 | $ | 659,571 | ||||
| DEPOSITS |
318,258 | 203,954 | ||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
261,021 | 276,938 | ||||||
| FEDERAL INCOME TAXES |
21,305 | — | ||||||
| NOTES AND CONTRACTS PAYABLE |
468,017 | 327,358 | ||||||
| DEFERRED SERVICE ARRANGEMENTS |
194,495 | 163,462 | ||||||
| OTHER |
43,224 | 41,699 | ||||||
| Total Liabilities |
2,006,940 | 1,672,982 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Common stock, no par value, 45,000,000 shares authorized, shares issued and outstanding: 2004—17,779,594; 2003—18,814,522 |
483,009 | 520,897 | ||||||
| Accumulated other comprehensive loss |
(16,285 | ) | (16,501 | ) | ||||
| Retained earnings |
649,551 | 540,082 | ||||||
| Total Shareholders’ Equity |
1,116,275 | 1,044,478 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 3,123,215 | $ | 2,717,460 | ||||
See Notes to Consolidated Financial Statements.
4
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands of dollars except per share amounts)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| REVENUES |
||||||||||||||||
| Operating revenues |
$ | 858,195 | $ | 890,281 | $ | 2,521,901 | $ | 2,421,055 | ||||||||
| Investment and other income |
18,207 | 12,661 | 51,839 | 39,036 | ||||||||||||
| Net realized investment gains |
154 | 3,865 | 4,295 | 7,036 | ||||||||||||
| 876,556 | 906,807 | 2,578,035 | 2,467,127 | |||||||||||||
| EXPENSES |
||||||||||||||||
| Agents’ commissions |
366,156 | 384,386 | 1,065,230 | 1,055,147 | ||||||||||||
| Salaries and employee benefits |
248,754 | 230,715 | 718,986 | 633,861 | ||||||||||||
| General, administrative and other |
138,307 | 125,302 | 408,426 | 340,791 | ||||||||||||
| Provision for policy and contract claims |
45,672 | 52,428 | 131,384 | 136,037 | ||||||||||||
| Interest expense |
6,378 | 3,083 | 19,194 | 9,131 | ||||||||||||
| Premium taxes |
9,954 | 11,564 | 30,458 | 31,521 | ||||||||||||
| Amortization of intangibles and capitalized software |
7,052 | 1,299 | 17,326 | 2,402 | ||||||||||||
| Write-off of intangible assets |
654 | — | 910 | — | ||||||||||||
| Exit and termination costs |
1,354 | (2 | ) | 6,748 | (534 | ) | ||||||||||
| 824,281 | 808,775 | 2,398,662 | 2,208,356 | |||||||||||||
| INCOME BEFORE INCOME TAXES |
52,275 | 98,032 | 179,373 | 258,771 | ||||||||||||
| INCOME TAX EXPENSE (BENEFIT) |
||||||||||||||||
| Current |
25,579 | 35,063 | 80,727 | 91,159 | ||||||||||||
| Deferred |
(6,820 | ) | (458 | ) | (17,229 | ) | 187 | |||||||||
| 18,759 | 34,605 | 63,498 | 91,346 | |||||||||||||
| NET INCOME |
$ | 33,516 | $ | 63,427 | $ | 115,875 | $ | 167,425 | ||||||||
| NET INCOME PER COMMON SHARE |
$ | 1.90 | $ | 3.44 | $ | 6.36 | $ | 9.12 | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
17,669 | 18,424 | 18,219 | 18,355 | ||||||||||||
| NET INCOME PER COMMON SHARE ASSUMING DILUTION |
$ | 1.88 | $ | 3.40 | $ | 6.31 | $ | 9.02 | ||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING DILUTION |
17,804 | 18,677 | 18,373 | 18,563 | ||||||||||||
See Notes to Consolidated Financial Statements.
5
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(In thousands of dollars)
(Unaudited)
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 115,875 | $ | 167,425 | ||||
| Depreciation and amortization |
37,415 | 15,157 | ||||||
| Amortization of bond premium |
5,796 | 4,529 | ||||||
| Provision for losses |
131,384 | 136,037 | ||||||
| Claims paid (net of recoveries) |
(91,768 | ) | (78,923 | ) | ||||
| Exit and termination costs |
6,748 | (534 | ) | |||||
| Write-off of intangible assets |
910 | — | ||||||
| Realized investment gains |
(4,295 | ) | (7,036 | ) | ||||
| Deferred income tax (benefit) expense |
(17,229 | ) | 187 | |||||
| Equity in earnings of unconsolidated subsidiaries |
(10,007 | ) | (13,915 | ) | ||||
| Change in assets and liabilities, net of businesses acquired: |
||||||||
| Accounts and notes receivable |
(10,252 | ) | (162 | ) | ||||
| Income taxes receivable/payable |
17,429 | 12,311 | ||||||
| Accounts payable and accrued expenses |
(43,640 | ) | (9,737 | ) | ||||
| Deferred service arrangements |
19,852 | (979 | ) | |||||
| Other |
(9,599 | ) | 12,147 | |||||
| Net cash provided by operating activities |
148,619 | 236,507 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment, net |
(19,997 | ) | (20,867 | ) | ||||
| Purchase of business, net of cash acquired |
(114,209 | ) | (77,865 | ) | ||||
| Investments in unconsolidated subsidiaries |
(16,890 | ) | (8,768 | ) | ||||
| Dividends received from unconsolidated subsidiaries |
8,163 | 8,300 | ||||||
| Change in cash surrender value of life insurance |
(1,754 | ) | (2,180 | ) | ||||
| Cost of investments acquired: |
||||||||
| Fixed maturities |
(394,872 | ) | (413,040 | ) | ||||
| Equity securities |
(13,801 | ) | (7,572 | ) | ||||
| Proceeds from investment sales or maturities: |
||||||||
| Fixed maturities |
331,683 | 425,788 | ||||||
| Equity securities |
11,894 | 6,000 | ||||||
| Net change in federal funds sold |
(9,045 | ) | — | |||||
| Change in loans receivable |
(69,808 | ) | ||||||