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 Quarter Ended March 31, 2001 Commission File No. 1-13990
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LANDAMERICA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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, 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 the latest practicable date.
Common Stock, No Par Value 17,995,954 May 10, 2001
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LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX
Page No.
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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............................10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk....................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................13
Item 6. Exhibits and Reports on Form 8-K........................13
Signatures..............................................14
2
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
March 31, December 31,
ASSETS 2001 2000
------ ---- ----
INVESTMENTS:
Fixed maturities available-for-sale - at fair value
(amortized cost: 2001 - $807,664; 2000 - $800,504) $ 816,467 $ 796,842
Equity securities - at fair value (cost: 2001 - $4,293;
2000 - $4,285) 3,243 3,235
Mortgage loans (less allowance for doubtful accounts:
2001 - $249; 2000 - $139) 15,897 9,652
Invested cash 71,459 80,976
------------ ------------
Total Investments 907,066 890,705
CASH 28,580 42,375
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 2001 -
$2,720; 2000 - $2,230) 11,850 11,011
Premiums (less allowance for doubtful accounts: 2001
- $9,085; 2000 - $9,945) 40,511 36,857
Income tax recoverable - 4,479
------------ ------------
Total Notes and Accounts Receivable 52,361 52,347
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization: 2001 -
$105,114; 2000 - $92,715) 58,875 61,599
TITLE PLANTS 91,868 91,609
GOODWILL (less accumulated amortization: 2001 -
$34,823; 2000 - $32,072) 215,107 217,425
DEFERRED INCOME TAXES 136,105 139,006
OTHER ASSETS 126,972 123,891
------------ ------------
Total Assets $ 1,616,934 $ 1,618,957
============ ============
See accompanying notes.
3
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
March 31, December 31,
LIABILITIES 2001 2000
----------- ---- ----
POLICY AND CONTRACT CLAIMS $ 556,697 $ 556,798
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 152,488 178,681
NOTES PAYABLE 209,369 202,379
FEDERAL INCOME TAXES 455 -
OTHER 17,827 16,999
------------ ------------
Total Liabilities 936,836 954,857
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized 5,000,000 shares,
no shares of Series A Junior Participating Preferred
Stock issued or outstanding; 165,983 shares of 7%
Series B Cumulative Convertible Preferred Stock issued
and outstanding 13,256 175,700
Common stock, no par value, 45,000,000 shares authorized,
shares issued and outstanding: 2001 - 17,997,453; 2000
- 13,518,319 503,324 340,269
Accumulated other comprehensive gain (loss) 5,039 (4,712)
Retained earnings 158,479 152,843
------------ ------------
Total Shareholders' Equity 680,098 664,100
------------ ------------
Total Liabilities and Shareholders' Equity $ 1,616,934 $ 1,618,957
============ ============
See accompanying notes.
4
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(In thousands of dollars except per share amounts)
(Unaudited)
2001 2000
---- ----
REVENUES
Title and other operating revenues:
Direct operations $ 203,787 $ 164,920
Agency operations 222,309 228,859
------------ ------------
426,096 393,779
Investment income 12,918 12,773
(Loss) gain on sales of investments (409) 87
------------ ------------
438,605 406,639
------------ ------------
EXPENSES
Salaries and employee benefits 140,877 121,047
Agents' commissions 174,618 178,321
Provision for policy and contract claims 16,706 17,371
Interest expense 3,667 3,382
General, administrative and other 92,361 89,626
------------ ------------
428,229 409,747
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 10,376 (3,108)
INCOME TAX EXPENSE (BENEFIT)
Current 187 (484)
Deferred 3,548 (573)
------------ ------------
3,735 (1,057)
------------ ------------
NET INCOME (LOSS) 6,641 (2,051)
DIVIDENDS - PREFERRED STOCK (145) (1,925)
------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ 6,496 $ (3,976)
============ ============
NET INCOME (LOSS) PER COMMON SHARE $ 0.43 $ (0.30)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 15,148 13,442
NET INCOME (LOSS) PER COMMON SHARE ASSUMING DILUTION $ 0.36 $ (0.30)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION 18,608 13,442
See accompanying notes.
5
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(In thousands of dollars)
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) $ 6,641 $ (2,051)
Depreciation and amortization 8,573 9,039
Amortization of bond premium 1,143 732
Realized investment losses (gains) 409 (87)
Deferred income tax 187 (573)
Change in assets and liabilities, net of businesses acquired:
Notes receivable (839) 126
Premiums receivable (3,654) 277
Income taxes receivable/payable 4,934 (808)
Policy and contract claims (101) 1,545
Accounts payable and accrued expenses (26,193) (12,610)
Other (2,156) 1,492
------------ ------------
Net cash used in operating activities (11,056) (2,918)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment, net (3,357) (5,501)
Purchase of business, net of cash acquired (433) (5,106)
Cost of investments acquired:
Fixed maturities - available-for-sale (110,018) (39,506)
Equity securities (8) -
Mortgage loans (6,245) -
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 101,531 27,902
Mortgage loans - 3,104
------------ ------------
Net cash used in investing activities (18,530) (19,107)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of common shares 611 -
Cost of common shares repurchased - (4,533)
Repayment of cash surrender value loan (322) (903)
Dividends paid (1,005) (2,595)
Proceeds from issuance of notes payable 10,000 -
Payments on notes payable (3,010) (163)
------------ ------------
Net cash provided by (used in) financing activities 6,274 (8,194)
------------ ------------
Net decrease in cash and invested cash (23,312) (30,219)
Cash and invested cash at beginning of period 123,351 163,984
------------ ------------
Cash and invested cash at end of period $ 100,039 $ 133,765
============ ============
See accompanying notes.
6
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(In thousands of dollars except per share amounts)
(Unaudited)
Accumulated
Other Total
Preferred Stock Common Stock Comprehensive Retained Shareholders'
Shares Amounts Shares Amounts Income (Loss) Earnings Equity
------ ------- ------ ------- ------------- -------- ------
Balance - December 31, 1999 2,200,000 $ 175,700 13,680,421 $ 342,138 $ (31,135) $ 244,000 $ 730,703
Net loss - - - - - (2,051) (2,051)
Net unrealized gain on securities - - - - 3,420 - 3,420
---------
Comprehensive income 1,369
---------
Common stock retired - - (287,300) (4,533) - - (4,533)
Common stock issued - - 10,020 - - - -
Preferred dividends (7%) - - - - - (1,925) (1,925)
Common dividends ($0.05/share) - - - - - (670) (670)
---------- --------- ----------- --------- ------------ --------- ---------
Balance - March 31, 2000 2,200,000 $ 175,700 13,403,141 $ 337,605 $ (27,715) $ 239,354 $ 724,944
========== ========= =========== ========= ============ ========= =========
Balance - December 31, 2000 2,200,000 $ 175,700 13,518,319 $ 340,269 $ (4,712) $ 152,843 $ 664,100
Net income - - - - - 6,641 6,641
Net unrealized gain on securities - - - - 9,751 - 9,751
---------
Comprehensive income, net of tax of
$2,714 16,392
---------
Common stock issued - - 18,573 611 - - 611
Preferred stock conversion (2,034,017) (162,444) 4,460,561 162,444 - - -
Preferred dividends (7%) - - - - - (145) (145)
Common dividends ($0.05/share) - - - - - (860) (860)
---------- --------- ----------- --------- ------------ --------- ---------
Balance - March 31, 2001 165,983 $ 13,256 17,997,453 $ 503,324 $ 5,039 $ 158,479 $ 680,098
========== ========= =========== ========= ============ ========= =========
See accompanying notes
7
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share amounts)
1. 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, 2000 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.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended March 31,
2001 2000
---- ----
Numerator:
Net income (loss) - numerator for diluted
earnings per share $ 6,641 $ (2,051)
Less preferred dividends (145) (1,925)
---------- ----------
Numerator for basic earnings per share $ 6,496 $ (3,976)
========== ==========
Denominator:
Weighted average shares - denominator for
basic earnings per share 15,148 13,442
Effect of dilutive securities:
Assumed weighted average conversion of
preferred stock 3,176 -
Employee stock options 284 -
---------- ----------
Denominator for diluted earnings per share 18,608 13,442
========== ==========
Basic earnings (loss) per common share $ 0.43 $ (0.30)
========== =========
Diluted earnings (loss) per common share $ 0.36 $ (0.30)
========== =========
8
In accordance with accounting principles generally accepted in the
United States, the effect of dilutive securities was excluded from the
calculation of the diluted loss per common share in the first quarter
of 2000 as such inclusion would result in antidilution.
3. Commitments and Contingencies
For additional information, see Pending Legal Proceedings on pages F-29
through F-31 and Legal Proceedings on pages 13 through 15 of the Form
10-K for the year ended December 31, 2000, and Legal Proceedings on
page 13 of this Form 10-Q.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Operating Revenues
The Company reported operating revenue for the quarter ended March 31, 2001 of
$426.1 million, which was an increase of 8.2% over the $393.8 million reported
in the comparable quarter of 2000. The overall increase is the result of
increased volumes of residential resale and refinancing transactions, reflecting
a favorable interest rate environment which began in December 2000. Direct
revenues grew 23.6% from $164.9 million in the first quarter of 2000 to $203.8
million in the first quarter of 2001. Due to the time lag in reporting, agency
revenue was down slightly in the first quarter of 2001 compared to 2000.
The open order count registered for the first quarter of 2001 was almost 66.2%
ahead of the count registered for the fourth quarter of 2000 and 48.6% ahead of
the first quarter of 2000. In addition, the March order count was the strongest
since October 1998, when the Company experienced its all time high, monthly open
order count.
Investment Income
Investment income was $12.9 million in the first quarter of 2001 compared to
$12.8 million in the first quarter of 2000. The increase was attributable to the
effects of a larger investment base offset by slightly reduced yields.
Expenses
Operating expenses for the first quarter of 2001 totaled $428.2 million compared
to $409.7 million in the first quarter of 2000. Agents' commissions decreased
$3.7 million between the 2000 and 2001 quarters in direct relation to the
decrease in agency revenue. Salary and related expenses were $140.9 million in
the first quarter of 2001 compared to $121.0 million for the 2000 period which
constitutes an increase of $19.8 million or 16%. This increase was due to an
increase in variable compensation associated with the increase in direct revenue
and the inclusion of recent acquisitions in the current quarter. Average same
store staffing levels decreased to 7,900 in the 2001 quarter from 8,200 in the
first quarter of 2000.
The provision for policy and contract claims decreased $0.7 million from the
first quarter of 2000 to the first quarter of 2001 as a result of recognition of
continued improvement in the Company's loss experience.
10
Net Income
The Company reported a net income of $6.6 million, or $0.36 per share on a
diluted basis, for the quarter ended March 31, 2001, compared to a net loss of
$2.1 million, or $0.30 per share on a diluted basis, for the quarter ended March
31, 2000. The 2001 first quarter results included a $0.3 million, or $0.01 per
diluted share net of tax loss from the sale of investments.
In accordance with generally accepted accounting principles, the effect of
dilutive securities was excluded from the calculation of the diluted loss per
common share in the first quarter of 2000 as such inclusion would result in
antidilution.
Liquidity and Capital Resources
Cash used in operating activities for the three months ended March 31, 2001 was
$11.1 million. As of March 31, 2001, the Company held cash and invested cash of
$97.3 million and fixed maturity securities of $816.5 million.
In addition, the Company has $32 million available under a credit facility which
was unused at March 31, 2001.
The Company believes that it will have sufficient liquidity and capital
resources to meet both its short and long term capital needs.
Interest Rate Risk
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities, the table presents principal cash flows and related weighted
interest rates by expected maturity dates. Actual cash flows could differ from
the expected amounts.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
(dollars in thousands)
2006 and Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Assets:
Taxable available-for-sale
securities:
Book value $ 9,129 $ 32,146 $ 41,112 $ 31,941 $ 48,435 $ 315,110 $477,873 $482,861
Average yield 6.8% 6.3% 6.1% 7.1% 7.0% 7.1%
Non-taxable available-for-
sale securities:
Book value 1,269 7,928 16,041 20,771 29,566 203,395 278,970 286,949
Average yield 4.4% 4.4% 5.0% 4.8% 4.6% 5.1%
Preferred stock:
Book value - - - - - 50,821 50,821 46,657
Average yield - - - - - 7.6%
11
The Company also has long-term debt of $205.5 million bearing interest at 6.79%
at March 31, 2001. A 0.25% change in the interest rate would affect income
before income taxes by approximately $0.5 million annually.
Forward-Looking and Cautionary Statements
Certain information contained in this Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Among other things, these statements relate to the financial condition, results
of operation and business of the Company. In addition, the Company and its
representatives may from time to time make written or oral forward-looking
statements, including statements contained in other filings with the Securities
and Exchange Commission and in its reports to shareholders. These
forward-looking statements are generally identified by phrases such as "the
Company expects," "the Company believes" or words of similar import. These
forward-looking statements involve certain risks and uncertainties and other
factors that may cause the actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Further, any such
statement is specifically qualified in its entirety by the following cautionary
statements.
In connection with the title insurance industry in general, factors that may
cause actual results to differ materially from those contemplated by such
forward-looking statements include the following: (i) the costs of producing
title evidence are relatively high, whereas premium revenues are subject to
regulatory and competitive restraints; (ii) real estate activity levels have
historically been cyclical and are influenced by such factors as interest rates
and the condition of the overall economy; (iii) the value of the Company's
investment portfolio is subject to fluctuation based on similar factors; (iv)
the title insurance industry may be exposed to substantial claims by large
classes of claimants and (v) the industry is regulated by state laws that
require the maintenance of minimum levels of capital and surplus and that
restrict the amount of dividends that may be paid by the Company's insurance
subsidiaries without prior regulatory approval.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
Item 3. Quantitative and Qualitative Disclosures
about Market Risk
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk" in Item 2 of this report.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 22, 2001, the Norwest suit reported in the Registrant's Form 8-K
filed on January 24, 2001, was dismissed with prejudice with respect to
Commonwealth Land Title Insurance Company, a wholly owned subsidiary of
Registrant, and its current and former employees named as defendants.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
--------
Exhibit No. Document
----------- --------
11 Statement re: Computation of Earnings Per Share.
b) Reports on Form 8-K
-------------------
Form 8-K, filed January 26, 2001, reporting under Item 5 that Commonwealth
Land Title Insurance Company, a wholly-owned subsidiary of the Company
("Commonwealth"), negotiated the settlement of a lawsuit filed on November
3, 1998 by Norwest Mortgage, Inc. and Norwest Funding, Inc. in the Superior
Court for the County of Los Angeles, California, on behalf of itself and
its current or former employees named as defendants.
Form 8-K, filed January 30, 2001, reporting under Item 5 (i) that the
Company issued a press release on January 30, 2001 relating to its
operating results for the fourth quarter and fiscal year ended December 31,
2000; (ii) that the Company issued a press release on October 31, 2000
announcing the acquisition of Primis, Inc.; and (iii) that the Company
received notification in January 2001 that Reliance Insurance Company
("Reliance") intended to engage in an underwritten offering of 4,039,473
shares of common stock that were issued to it in February 1998 in
connection with the Company's acquisition of all of the outstanding capital
stock of Commonwealth and Transnation Title Insurance Company from Reliance
(the "Acquisition"), plus an additional 3,668,383 shares of common stock
that it would receive upon conversion of shares of preferred stock issued
to it in connection with the Acquisition.
Form 8-K, filed February 16, 2001, reporting under Item 7 the filing of an
Underwriting Agreement dated February 15, 2001, between the Company,
Reliance and Credit Suisse First Boston Corporation, Morgan Stanley & Co.
Incorporated and Bear, Stearns & Co. Inc.
Form 8-K, filed February 26, 2001, reporting under Item 5 that Reliance
sold 7,707,856 shares of the Company's common stock pursuant to an
underwritten offering.
13
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LANDAMERICA FINANCIAL GROUP, INC.
---------------------------------
(Registrant)
Date: May 11, 2001 /s/ Charles Henry Foster, Jr.
-------------------- -----------------------------------------
Charles Henry Foster, Jr.
Chairman and Chief Executive Officer
Date: May 11, 2001 /s/ G. William Evans
-------------------- -----------------------------------------
G. William Evans
Executive Vice President and Chief
Financial Officer
14
EXHIBIT INDEX
No. Description
--- -----------
11 Statement Re: Computation of Earnings Per Share