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 September 30, 2002 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 (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 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 18,215,520 November 6, 2002
---------- ----------------
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX
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............................12
Item 3. Quantitative and Qualitative Disclosures
about Market Risk....................................15
Item 4. Controls and Procedures.................................15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................16
Item 6. Exhibits and Reports on Form 8-K........................16
Signatures..............................................18
Certifications..........................................19
2
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
September 30, December 31,
ASSETS 2002 2001
------ ---- ----
INVESTMENTS:
Fixed maturities available-for-sale - at fair value (amortized
cost: 2002 - $937,561; 2001 - $865,354) $ 992,947 $ 874,270
Equity securities - at fair value (cost - $11,257) 11,076 -
Mortgage loans (less allowance for doubtful accounts: 2002 -
$219; 2001 - $176) 1,042 1,536
Invested cash 91,352 133,185
-------------- --------------
Total Investments 1,096,417 1,008,991
CASH 28,399 35,585
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 2002 - $5,013;
2001 - $5,278) 10,358 8,773
Accounts receivable (less allowance for doubtful accounts:
2002 - $8,349; 2001 - $8,058) 54,904 58,564
-------------- --------------
Total Notes and Accounts Receivable 65,262 67,337
PROPERTY AND EQUIPMENT - at cost (less accumulated depreciation
and amortization: 2002 - $136,482; 2001 - $123,301) 62,530 62,015
TITLE PLANTS 97,096 96,580
GOODWILL (less accumulated amortization: 2001 - $37,588) 196,951 190,702
DEFERRED INCOME TAXES 127,593 142,543
OTHER ASSETS 121,561 103,728
-------------- --------------
Total Assets $ 1,795,809 $ 1,707,481
============== ==============
See accompanying notes.
3
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
September 30, December 31,
LIABILITIES 2002 2001
----------- ---- ----
POLICY AND CONTRACT CLAIMS $ 568,144 $ 561,438
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 209,151 187,308
FEDERAL INCOME TAXES 9,138 3,653
NOTES PAYABLE 187,573 208,595
OTHER 22,386 18,994
-------------- --------------
Total Liabilities 996,392 979,988
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Common stock, no par value, 45,000,000 shares authorized, shares
issued and outstanding: 2002 - 18,243,120; 2001 - 18,583,937 510,256 521,795
Accumulated other comprehensive loss (82) (3,647)
Retained earnings 289,243 209,345
-------------- --------------
Total Shareholders' Equity 799,417 727,493
-------------- --------------
Total Liabilities and Shareholders' Equity $ 1,795,809 $ 1,707,481
============== ==============
See accompanying notes.
4
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands of dollars except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Title and other operating revenues:
Direct operations $ 283,397 $ 250,665 $ 777,435 $ 724,271
Agency operations 332,018 277,367 993,256 770,983
---------- ---------- ---------- -----------
615,415 528,032 1,770,691 1,495,254
Investment income 13,214 12,507 39,027 38,289
(Loss) gain on sale of investments (16) 542 (39) (235)
---------- ---------- ---------- -----------
628,613 541,081 1,809,679 1,533,308
---------- ---------- ---------- -----------
EXPENSES
Salaries and employee benefits 172,135 164,148 495,438 470,733
Agents' commissions 264,195 219,426 788,150 607,976
Provision for policy and contract claims 25,650 20,789 72,089 58,805
Interest expense 3,098 2,943 9,389 9,925
Amortization of intangibles 79 2,475 324 7,328
Exit and termination costs - - 17,322 -
General, administrative and other 102,133 102,005 299,207 294,315
---------- ---------- ---------- -----------
567,290 511,786 1,681,919 1,449,082
---------- ---------- ---------- -----------
INCOME BEFORE INCOME TAXES 61,323 29,295 127,760 84,226
INCOME TAX EXPENSE (BENEFIT)
Current 7,803 5,332 31,049 23,869
Deferred 13,660 5,213 13,667 6,451
---------- ---------- ---------- -----------
21,463 10,545 44,716 30,320
---------- ---------- ---------- -----------
NET INCOME 39,860 18,750 83,044 53,906
DIVIDENDS - PREFERRED STOCK - - - (145)
---------- ---------- ---------- -----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 39,860 $ 18,750 $ 83,044 $ 53,761
========== ========== ========== ===========
NET INCOME PER COMMON SHARE $ 2.16 $ 1.02 $ 4.49 $ 3.12
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 18,418 18,418 18,511 17,240
NET INCOME PER COMMON SHARE ASSUMING DILUTION $ 2.15 $ 1.01 $ 4.45 $ 2.91
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
ASSUMING DILUTION 18,573 18,567 18,657 18,525
See accompanying notes.
5
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands of dollars)
(Unaudited)
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 83,044 $ 53,906
Depreciation and amortization 13,921 26,276
Amortization of bond premium 2,870 2,134
Realized investment losses 39 235
Deferred income tax 13,667 6,451
Change in assets and liabilities, net of businesses acquired:
Notes receivable (1,585) (62)
Premiums receivable 5,460 (15,145)
Income taxes receivable/payable 5,485 15,400
Policy and contract claims 6,706 967
Accounts payable and accrued expenses (24,981) (45,115)
Other (3,928) (8,011)
----------- -----------
Net cash provided by operating activities 100,698 37,036
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment, net (13,753) (25,982)
Purchase of business, net of cash acquired (8,942) (16,227)
Change in cash surrender value 1,959 (1,476)
Cost of investments acquired:
Fixed maturities - available-for-sale (406,676) (282,885)
Equity securities (11,604) (8)
Proceeds from investment sales or maturities:
Fixed maturities - available-for-sale 331,132 244,840
Equity securities 346 -
Change in mortgage loans 494 (4,692)
----------- -----------
Net cash used in investing activities (107,044) (86,430)
----------- -----------
Cash flows from financing activities:
Proceeds from the sale of common shares 2,729 5,598
Cost of common shares repurchased (14,268) -
Repayment of cash surrender value loan (6,966) -
Dividends paid (3,146) (2,835)
Proceeds from issuance of notes payable 472 160,000
Payments on notes payable (21,494) (153,901)
----------- -----------
Net cash (used in) provided by financing activities (42,673) 8,862
------------ -----------
Net decrease in cash and invested cash (49,019) (40,532)
Cash and invested cash at beginning of period 168,770 123,351
----------- -----------
Cash and invested cash at end of period $ 119,751 $ 82,819
=========== ===========
See accompanying notes.
6
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(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, 2000 2,200,000 $175,700 13,518,319 $340,269 $ (4,712) $152,843 $ 664,100
Comprehensive income:
Net income - - - - - 53,906 53,906
Other comprehensive income, net of tax of
$6,703
Net unrealized gain on securities - - - - 17,160 - 17,160
--------
71,066
Common stock issued - - 236,485 5,598 - - 5,598
Preferred stock conversion (2,200,000) (175,700) 4,824,559 175,700 - - -
Preferred dividends (7%) - - - - - (145) (145)
Common dividends ($0.15/share) - - - - - (2,690) (2,690)
-------- -------- --------- -------- -------- -------- ---------
Balance - September 30, 2001 - $ - 18,579,363 $521,567 $ 12,448 $203,914 $ 737,929
======== ======== ========== ======== ======== ======== =========
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
======== ======== ========== ======== ========= ======== =========
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, 2001 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 2001 amounts have been reclassified to conform to the 2002
presentation.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Numerator:
Net income - numerator for diluted
earnings per share $39,860 $ 18,750 $ 83,044 $ 53,906
Less preferred dividends - - - 145
-------- -------- -------- --------
Numerator for basic earnings per share $ 39,860 $ 18,750 $ 83,044 $ 53,761
======== ======== ======== ========
Denominator:
Weighted average shares - denominator
for basic earnings per share 18,418 18,418 18,511 17,240
Effect of dilutive securities:
Assumed weighted average conversion of
preferred stock - - - 1,125
Employee stock options 155 149 146 160
-------- -------- -------- --------
Denominator for diluted earnings per
share 18,573 18,567 18,657 18,525
======== ======== ======== ========
Basic earnings per common share $2.16 $1.02 $4.49 $3.12
===== ===== ===== =====
Diluted earnings per common share $2.15 $1.01 $4.45 $2.91
===== ===== ===== =====
8
3. Commitments and Contingencies
For additional information, see Pending Legal Proceedings on pages F-29
and F-30 and Legal Proceedings on pages 12 and 13 of the Form 10-K for
the fiscal year ended December 31, 2001 and Legal Proceedings on page
16 of this Form 10-Q.
4. New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001 and
included guidance on the initial recognition and measurement of
goodwill and other intangible assets arising from business combinations
completed after June 30, 2001. Under SFAS No. 142, goodwill and other
intangible assets with indefinite lives will no longer be amortized but
will be subject to annual impairment tests. Other intangible assets
with indefinite lives consist of the Company's title plants.
On January 1, 2002, the Company adopted SFAS No. 142 which is expected
to increase annual net earnings by approximately $6.9 million in 2002.
The Company tested goodwill for impairment using the process prescribed
in SFAS No. 142. The test performed indicated that no goodwill
impairment existed at January 1, 2002.
The following table provides comparative earnings and earnings per
share had the non-amortization provisions of SFAS No. 142 been adopted
for the periods presented:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Reported net income $ 39,860 $ 18,750 $ 83,044 $ 53,906
Goodwill amortization, net of tax - 1,585 - 4,957
---------- ---------- ---------- ----------
Adjusted net income $ 39,860 $ 20,335 $ 83,044 $ 58,863
========== ========== ========== ==========
Basic earnings per share:
Reported net income $ 2.16 $ 1.02 $ 4.49 $ 3.12
Goodwill amortization - .09 - .29
---------- ---------- ---------- ----------
Adjusted net income $ 2.16 $ 1.11 $ 4.49 $ 3.41
========== ========== ========== ==========
Diluted earnings per share:
Reported net income $ 2.15 $ 1.01 $ 4.45 $ 2.91
Goodwill amortization - .09 - .27
---------- ---------- ---------- ----------
Adjusted net income $ 2.15 $ 1.10 $ 4.45 $ 3.18
========== ========== ========== ==========
9
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long Lived Assets, which addresses
financial accounting and reporting for the impairment or disposal of
long-lived assets. The adoption of the Statement did not have a
material impact on the Company's financial position and results of
operations.
5. Exit and Termination Costs
On May 31, 2002, the Company entered into a joint venture agreement
with The First American Corporation to combine their real estate
valuation operations. Under the terms of the agreement, the Company
contributed its former Primis (currently operating as "OneStop")
residential appraisal production division, which it acquired in 2000,
to First American's eAppraiseIT subsidiary. In connection with the
transaction, the Company exited the residential appraisal production
business which had been unprofitable and recorded a second quarter
charge of $14,132 for exit, termination and other costs. This amount
was comprised of $4,635 related to lease termination costs, $2,209
related to employee severance costs and $7,288 related to the write
down to estimated net realizable value of assets determined not to be
redeployable and other miscellaneous exit costs. In the first quarter
of 2002, the Company recorded $3,190 of exit and termination costs
related to the closing of certain offices and reduction in workforce of
its real estate valuation operations. Of the amounts accrued, $3,764
had been paid as of September 30, 2002, leaving $7,598 which the
Company expects to be substantially paid by December 31, 2006.
6. Minimum Pension Liability
In the nine months ended September 30, 2002, two factors affected the
Company's pension plan. Equity markets have declined which resulted in
a decrease in the fair value of plan assets. In addition, the discount
rate decreased during the year which resulted in an increase in the
pension liability. As a result of these facts, in accordance with
Financial Accounting Standards Board (FASB) Statement No. 87,
Employer's Accounting for Pensions, the Company has recorded an
additional minimum pension liability adjustment of $26.5 million, net
of tax at September 30, 2002. The adjustment is included in other
comprehensive loss and is a direct charge to stockholders' equity with
no effect on net income.
7. Subsequent Event
On October 8, 2002 the Company reached a final settlement with the
State of California in the defendant class action lawsuit filed in the
Sacramento County Superior Court by the California Attorney General
against the Company and the Company's principal competitors in
California. Pursuant to the settlement, the Company will pay $1.6
million to the California Attorney General and a total of $8.0 million
in the form of (i) cash payments to former escrow customers that meet
certain eligibility requirements and file
10
timely claims and (ii) discounts on future escrow and title insurance
services to eligible customers as agreed to in the settlement.
The Company recorded a reserve for the $1.6 million payment in prior
periods as the case developed. A charge of $660,000 was recorded in the
third quarter of 2002 for estimated cash refund payments to former
customers. Discounts on future escrow and title services will be
treated as reductions of revenue during the period in which they occur.
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Operating Revenues
Operating revenues for the third quarter of 2002 were $615.4 million compared to
$528.0 million in the third quarter of 2001, an increase of 16.6%. Direct
revenues increased 13.1% and agency revenues increased 19.7% in the third
quarter of 2002 compared to the same period in 2001. Revenue increases reflected
a continued strength in the level of refinancing transactions as a result of a
favorable mortgage rate environment.
Operating revenues for the nine-month period ended September 30, 2002 increased
18.4% to $1.8 billion from $1.5 billion in the comparable period of 2001. The
factors discussed under the quarterly discussion above also affected the first
nine months of 2002 compared to the same period of 2001.
Direct orders opened in company offices totaled 352,900 and 830,600 in the third
quarter and first nine months of 2002 compared to 250,400 and 761,700 in the
comparable periods of 2001. Direct orders closed in company offices totaled
202,900 and 543,900 in the third quarter and first nine months of 2002 compared
to 176,600 and 521,600 in the comparable periods of 2001.
Investment Income
Investment income in the first nine months of 2002 was $39.0 million compared to
$38.3 million in the first nine months of 2001. Although the reported amounts
were similar, the 2002 amount reflects a lower yield in a higher investment base
compared to 2001.
Expenses
Operating expenses for the third quarter of 2002 were $567.3 million compared to
$511.8 million for the third quarter of 2001 and were $1.7 billion in the first
nine months of 2002 compared to $1.5 billion in the first nine months of 2001.
Salaries and employee benefits increased slightly in the 2002 periods over the
prior year periods principally as a result of continued high staffing levels
required by higher business volumes and higher levels of variable pay associated
with the increased revenue and improved profitability. Operating expenses
excluding one-time charges of $17.3 million for exit and termination costs were
$1.7 billion in the first nine months of 2002 compared to $1.5 billion in the
first nine months of 2001. This increase of $215.5 million was composed
primarily of an increase of $180.2 million in agents' commissions. Other
expenses increasing in the first nine months of 2002 compared to the same period
of 2001 were largely related to the increased business volume and included
salary and related expense and premium tax. On January 1, 2002, the Company
adopted SFAS 142 Goodwill and Other Intangible Assets which provided that
goodwill no longer be amortized, resulting in a $6.6 million decrease in expense
for the first nine months of 2002 compared to the first nine months of 2001.
12
Effective May 31, 2002, the Company entered into a joint venture with The First
American Corporation, contributing its residential appraisal production division
to the venture. The venture is expected to be the nation's largest provider of
real estate valuation services. In connection with this transaction, the Company
recorded a one time charge of $14.1 million as discussed in Note 5 to the
Consolidated Financial Statements included elsewhere in this report.
The provision for policy and contract claims was $25.7 million in the third
quarter of 2002 compared to $20.8 million in the third quarter of 2001. In the
nine months ended September 30, 2002 this provision was $72.1 million compared
to $58.8 million in the comparable period of 2001. These increases are primarily
the result of a higher level of business written in the 2002 periods compared to
the 2001 periods.
Net Income
LandAmerica reported net income of $39.9 million, or $2.15 per share on a
diluted basis, for the third quarter of 2002, compared to net income of $18.8
million, or $1.01 per share on a diluted basis, for the third quarter of 2001.
On a pretax basis, the 2002 quarter was benefited by the reduction in goodwill
amortization of $2.1 million.
For the nine months ended September 30, 2002, net income was $83.0 million, or
$4.45 per share on a diluted basis, compared to $53.9 million, or $2.91 per
share on a diluted basis, for the first nine months of 2001. On a pretax basis,
the 2002 period reflected $17.3 million for exit and termination costs and a
reduction of goodwill amortization of $6.6 million.
Liquidity and Capital Resources
Cash provided by operations in the nine-month periods ended September 30, 2002
and 2001 were $100.7 million and $37.0 million, respectively. As of September
30, 2002, the Company held cash and invested cash of $119.8 million, fixed
maturity securities of $992.9 million and equity securities of $11.1 million.
In December 2001 the board of directors approved a program allocating $25.0
million to repurchase up to 1.25 million shares or 7% of the Company's
outstanding common stock over the following twelve months. Through September 30,
2002, 449,450 shares at a cost of $14.3 million had been repurchased.
In view of the historic ability of the Company to generate strong, positive cash
flows and its strong cash position and relatively conservative capitalization
structure, management believes that the Company will have sufficient liquidity
and adequate capital resources to meet both its short- and long-term capital
needs. In addition, the Company has $114.5 million available under a credit
facility which was unused at September 30, 2002.
13
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)
2007 and
2002 2003 2004 2005 2006 after Total Fair Value
---- ---- ---- ---- ---- ----- ----- ----------
Assets:
Taxable
available-for-sale
securities:
Book value $ 10,334 $ 34,004 $ 30,385 $ 48,072 $ 50,028 $357,294 $530,117 $ 558,055
Average yield 5.2% 5.8% 5.8% 6.5% 5.8% 6.5%
Non-taxable
available-for-sale
securities:
Book value 1,125 17,033 21,231 31,331 21,111 306,934 398,765 426,222
Average yield 5.5% 4.9% 4.4% 4.4% 4.5% 4.6%
Preferred stock:
Book value - - - - - 8,679 8,679 8,670
Average yield - - - - - 8.7%
The Company also has long-term debt of $187.6 million bearing weighted average
interest at 6.4% at September 30, 2002. A .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 Quarterly Report on Form 10-Q includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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
14
statements. Further, any such statement is specifically qualified in its
entirety by the cautionary statements set forth in the following paragraph.
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.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
provide assurance that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods required
by the Securities and Exchange Commission. Within the 90 day period prior to the
filing of this report, an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures was carried out
under the supervision and with the participation of management, including the
Company's Chief Executive Officer and Chief Financial Officer. Based on and as
of the date of such evaluation, the aforementioned officers concluded that the
Company's disclosure controls and procedures were effective. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the date of this
evaluation.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On or about September 5, 2002, Thomas Branick and Andra Campbell filed a
representative suit on behalf of the public in the Superior Court of Los
Angeles, California, Central District (Case No. BC 2811015) against Lawyers
Title Company, a subsidiary of the Company. The complaint pleads causes of
action for unfair competition (Cal. Bus. & Prof. Codess.17200, et seq.) and
unfair business practices (Cal. Bus. & Prof. Codess.17500 et. seq.) and
generally alleges that Lawyers Title Company improperly charged its customers
for recording documents incident to real estate transactions and overcharged its
customers for administrative fees. Plaintiffs seek injunctive relief and
restitution. Lawyers Title Company has filed a demurrer and a motion to strike
the complaint. At this early stage in the litigation, no estimate of the amount
or range of loss that could result from an unfavorable outcome can be made.
Lawyers Title Insurance Corporation, Commonwealth Land Title Company and two
other subsidiaries of the Company are named as defendants in a complaint filed
on October 24, 2002 in the Superior Court of Los Angeles, California (Case No.
BC 284006), by Charles R. L. Anderson against Greenpoint Financial Corporation
and numerous others. The complaint alleges, on behalf of the plaintiff and all
others similarly situated, that the defendant mortgage lenders and title
companies have committed acts of unfair competition (Cal. Bus. & Prof. Code
Section 17200 et seq.) by charging reconveyance fees in excess of the amount
permitted under California law (Cal. Civ. Code Section 2941). Plaintiff seeks
injunctive relief, restitution, costs of suit and attorneys' fees. As of the
filing of this Form 10-Q, the Company's subsidiaries have not been served with
the complaint. The suit is still in its initial stages, and at this time no
estimate of the amount or range of loss that could result from an unfavorable
outcome can be made.
For additional information on legal proceedings, see Note 7 of Notes to
Consolidated Financial Statements included in Part I, Item 1 of this report and
the description of the Company's Form 8-K, dated October 8, 2002, included in
Part II, Item 6(b) of this report.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit No. Document
----------- --------
10.1 LandAmerica Financial Group, Inc.Outside Directors
Deferral Plan, as amended and restated April 24,
2002
16
10.2 LandAmerica Financial Group, Inc. Executive Voluntary
Deferral Plan, as amended and restated April 24,
2002
11 Statement Re: Computation of Earnings Per Share
99.1 Statement of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350
99.2 Statement of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350
b) Reports on Form 8-K
Form 8-K, dated August 13, 2002, reporting under Items 7 and 9 thereof
the delivery to the Securities and Exchange Commission of executed
sworn statements of the Company's Principal Executive Officer and
Principal Financial Officer pursuant to the order of the Commission
dated June 27, 2002.
Form 8-K, dated October 8, 2002, reporting under Item 5 that the
Company had reached a final settlement with the State of California in
the defendant class action lawsuit filed in the Sacramento County
Superior Court by the California Attorney General against the Company
and the Company's principal competitors in California. The agreement
reached with the State of California settled all outstanding claims
against the Company and certain of its subsidiaries for alleged
violations of California Business and Professions Code sections 17200
et. seq. and 17500 during the period from May 19, 1995 until the date
of entry of final judgment approving the settlement.
17
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: November 12, 2002 /s/ Charles H. Foster, Jr.
------------------------- ---------------------------------------
Charles H. Foster, Jr.
Chairman and Chief Executive Officer
Date: November 12, 2002 /s/ G. William Evans
------------------------- ---------------------------------------
G. William Evans
Chief Financial Officer
18
CERTIFICATIONS
I, Charles H. Foster, Jr., Chairman and Chief Executive Officer of LandAmerica
Financial Group, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of LandAmerica
Financial Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Charles H. Foster, Jr.
-----------------------------------
Charles H. Foster, Jr.
Chairman and Chief Executive Officer
19
CERTIFICATIONS
I, G. William Evans, Chief Financial Officer of LandAmerica Financial Group,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of LandAmerica
Financial Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 12, 2002
/s/ G. William Evans
----------------------------------
G. William Evans
Chief Financial Officer
20
EXHIBIT INDEX
Exhibit
No. Document
--- --------
10.1 LandAmerica Financial Group, Inc. Outside Directors Deferral
Plan, as amended and restated April 24, 2002
10.2 LandAmerica Financial Group, Inc. Executive Voluntary Deferral
Plan, as amended and restated April 24, 2002
11 Statement Re: Computation of Earnings Per Share
99.1 Statement of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350
99.2 Statement of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350