UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2005
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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 18,088,228 April 29, 2005
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 | 22 | ||
| ITEM 4. | CONTROLS AND PROCEDURES | 22 | ||
| PART II. OTHER INFORMATION | ||||
| ITEM 1. | LEGAL PROCEEDINGS | 23 | ||
| ITEM 6. | EXHIBITS | 23 | ||
| SIGNATURE | 24 | |||
2
| ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS |
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| March 31, 2005 |
December 31, 2004 | |||||
| ASSETS |
||||||
| INVESTMENTS: |
||||||
| Fixed maturities available-for-sale—at fair value (amortized cost: 2005—$1,092.4; 2004—$1,075.8) |
$ | 1,109.4 | $ | 1,113.3 | ||
| Equity securities—at fair value (cost: 2005—33.0; 2004—$31.4) |
39.4 | 42.1 | ||||
| Federal funds sold |
2.2 | 4.5 | ||||
| Short term investments |
254.7 | 276.4 | ||||
| Total Investments |
1,405.7 | 1,436.3 | ||||
| CASH |
79.4 | 73.0 | ||||
| LOANS RECEIVABLE |
348.8 | 344.6 | ||||
| ACCRUED INTEREST RECEIVABLE |
17.9 | 16.4 | ||||
| NOTES AND ACCOUNTS RECEIVABLE |
||||||
| Notes (less allowance for doubtful accounts: 2005—$4.0; 2004—$4.1) |
16.2 | 16.5 | ||||
| Trade accounts receivable (less allowance for doubtful accounts: 2005—$8.8; 2004—$8.2) |
106.7 | 111.3 | ||||
| Total Notes and Accounts Receivable |
122.9 | 127.8 | ||||
| TAXES RECEIVABLE |
— | 12.2 | ||||
| PROPERTY AND EQUIPMENT—at cost (less accumulated depreciation and amortization: 2005—$196.9; 2004—$202.7) |
105.5 | 106.1 | ||||
| TITLE PLANTS |
94.3 | 93.9 | ||||
| GOODWILL |
571.0 | 568.5 | ||||
| INTANGIBLE ASSETS (less accumulated amortization 2005—$39.5; 2004—$32.5) |
204.8 | 213.0 | ||||
| DEFERRED INCOME TAXES |
153.6 | 149.5 | ||||
| OTHER ASSETS |
159.7 | 148.7 | ||||
| Total Assets |
$ | 3,263.6 | $ | 3,290.0 | ||
See Notes to Consolidated Financial Statements.
3
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
| March 31, 2005 |
December 31, 2004 |
|||||||
| LIABILITIES |
||||||||
| POLICY AND CONTRACT CLAIMS |
$ | 728.8 | $ | 715.5 | ||||
| DEPOSITS |
377.9 | 373.1 | ||||||
| ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
280.6 | 329.1 | ||||||
| NOTES PAYABLE |
466.5 | 465.4 | ||||||
| DEFERRED SERVICE ARRANGEMENTS |
187.8 | 202.4 | ||||||
| OTHER |
58.1 | 53.4 | ||||||
| Total Liabilities |
2,099.7 | 2,138.9 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| SHAREHOLDERS’ EQUITY |
||||||||
| Common stock, no par value, 45,000,000 shares authorized, shares issued and outstanding: 2005—18,088,228; 2004—17,962,527 |
492.9 | 491.5 | ||||||
| Accumulated other comprehensive loss |
(33.8 | ) | (17.6 | ) | ||||
| Retained earnings |
704.8 | 677.2 | ||||||
| Total Shareholders’ Equity |
1,163.9 | 1,151.1 | ||||||
| Total Liabilities and Shareholders’ Equity |
$ | 3,263.6 | $ | 3,290.0 | ||||
See Notes to Consolidated Financial Statements.
4
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In millions, except per share amounts)
(Unaudited)
| 2005 |
2004 | |||||
| REVENUE |
||||||
| Operating revenue |
$ | 814.7 | $ | 759.9 | ||
| Investment and other income |
20.1 | 16.5 | ||||
| Net realized investment gains |
0.8 | 3.1 | ||||
| 835.6 | 779.5 | |||||
| EXPENSES |
||||||
| Agents’ commissions |
324.6 | 342.9 | ||||
| Salaries and employee benefits |
247.3 | 213.8 | ||||
| General, administrative and other |
140.6 | 129.4 | ||||
| Provision for policy and contract claims |
49.2 | 39.0 | ||||
| Premium taxes |
9.7 | 9.6 | ||||
| Interest expense |
7.9 | 5.8 | ||||
| Amortization of intangibles |
7.0 | 4.7 | ||||
| Exit and termination costs |
— | 1.9 | ||||
| 786.3 | 747.1 | |||||
| INCOME BEFORE INCOME TAXES |
49.3 | 32.4 | ||||
| INCOME TAX EXPENSE |
19.0 | 11.5 | ||||
| NET INCOME |
$ | 30.3 | $ | 20.9 | ||
| NET INCOME PER COMMON SHARE |
$ | 1.70 | $ | 1.12 | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |
17.8 | 18.6 | ||||
| NET INCOME PER COMMON SHARE ASSUMING DILUTION |
$ | 1.68 | $ | 1.11 | ||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING DILUTION |
18.0 | 18.8 | ||||
See Notes to Consolidated Financial Statements.
5
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In millions)
(Unaudited)
| 2005 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 30.3 | $ | 20.9 | ||||
| Depreciation and amortization |
13.8 | 10.9 | ||||||
| Amortization of bond premium |
1.7 | 2.1 | ||||||
| Net realized investment gains |
(0.8 | ) | (3.1 | ) | ||||
| Deferred income tax expense (benefit) |
4.2 | (5.8 | ) | |||||
| Change in assets and liabilities, net of businesses acquired: |
||||||||
| Accounts and notes receivable |
4.6 | (1.3 | ) | |||||
| Income taxes receivable/payable |
12.4 | 12.9 | ||||||
| Accounts payable and accrued expenses |
(49.1 | ) | (44.3 | ) | ||||
| Policy and contract claims |
13.3 | 10.7 | ||||||
| Deferred service arrangements |
(14.6 | ) | 1.8 | |||||
| Other |
0.9 | (0.4 | ) | |||||
| Net cash provided by operating activities |
16.7 | 4.4 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment, net |
(5.9 | ) | (7.2 | ) | ||||
| Purchase of business, net of cash acquired |
(0.9 | ) | (21.5 | ) | ||||
| Investments in unconsolidated subsidiaries |
(8.3 | ) | (3.8 | ) | ||||
| Change in cash surrender value of life insurance |
(0.3 | ) | (1.8 | ) | ||||
| Change in short-term investments |
21.7 | 55.9 | ||||||
| Cost of investments acquired: |
||||||||
| Fixed maturities |
(94.7 | ) | (143.0 | ) | ||||
| Equity securities |
(4.3 | ) | (5.9 | ) | ||||
| Proceeds from investment sales or maturities: |
||||||||
| Fixed maturities |
77.4 | 111.6 | ||||||
| Equity securities |
3.5 | 5.4 | ||||||
| Net change in federal funds sold |
2.3 | (1.7 | ) | |||||
| Change in loans receivable |
(4.5 | ) | (35.6 | ) | ||||
| Net cash used in investing activities |
(14.0 | ) | (47.6 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net change in deposits |
4.8 | 32.0 | ||||||
| Proceeds from the exercise of options and incentive plans |
0.6 | 5.5 | ||||||
| Cost of common shares repurchased |
— | (2.7 | ) | |||||
| Dividends paid |
(2.7 | ) | (1.9 | ) | ||||
| Proceeds from issuance of notes payable |
5.4 | 5.0 | ||||||
| Payments on notes payable |
(4.4 | ) | (3.1 | ) | ||||
| Net cash provided by financing activities |
3.7 | 34.8 | ||||||
| Net increase (decrease) in cash |
6.4 | (8.4 | ) | |||||
| Cash at beginning of period |
73.0 | 52.9 | ||||||
| Cash at end of period |
$ | 79.4 | $ | 44.5 | ||||
See Notes to Consolidated Financial Statements.
6
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In millions, except per share amounts)
(Unaudited)
| Common Stock |
Accumulated Income (Loss) |
Retained Earnings |
Total Equity |
||||||||||||||||
| Shares |
Amounts |
||||||||||||||||||
| BALANCE—December 31, 2003 |
18.8 | $ | 520.9 | $ | (16.5 | ) | $ | 540.1 | $ | 1,044.5 | |||||||||
| Comprehensive income: |
|||||||||||||||||||
| Net income |
— | — | — | 20.9 | 20.9 | ||||||||||||||
| Other comprehensive income |
|||||||||||||||||||
| Net unrealized gains on securities, net of tax of $3.5 |
— | — | 6.6 | — | 6.6 | ||||||||||||||
| 27.5 | |||||||||||||||||||
| Common stock retired |
(0.1 | ) | (2.7 | ) | — | — | (2.7 | ) | |||||||||||
| Stock option and incentive plans |
0.2 | 6.9 | — | — | 6.9 | ||||||||||||||