Back to GetFilings.com
1
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------- ----------
Commission file number 1-12688
STEWART INFORMATION SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 74-1677330
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1980 POST OAK BLVD., HOUSTON, TEXAS 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 625-8100
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1 PAR VALUE
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 2, 2001, 14,001,637 shares of Common Stock, $1 par value,
and 1,050,012 shares of Class B Common Stock, $1 par value, were outstanding.
The aggregate market value as of such date of the Common Stock (based upon the
closing sales price of the Common Stock of Stewart Information Services
Corporation, as reported by the NYSE on March 2, 2001) held by non-affiliates of
the Registrant was approximately $253,569,646.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Proxy Statement"),
relating to the annual meeting of the Registrant's stockholders to be held April
27, 2001, are incorporated by reference in Parts III and IV of this document.
- --------------------------------------------------------------------------------
2
FORM 10-K
ANNUAL REPORT
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
ITEM
NO. PAGE
----- ----
1. Business ................................................................................. 1
2. Properties ............................................................................... 4
3. Legal Proceedings ........................................................................ 5
4. Submission of Matters to a Vote of Security Holders ...................................... 5
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters .................... 6
6. Selected Financial Data .................................................................. 7
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations ............................................................................ 7
7A. Quantitative and Qualitative Disclosures About Market Risk ............................... 10
8. Financial Statements and Supplementary Data .............................................. 11
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................................ 11
PART III
10. Directors and Executive Officers of the Registrant ....................................... 12
11. Executive Compensation ................................................................... 12
12. Security Ownership of Certain Beneficial Owners and Management ........................... 12
13. Certain Relationships and Related Transactions ........................................... 12
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ......................... 13
Signatures ............................................................................... 14
3
PART I
ITEM 1. BUSINESS
Stewart's primary business is title insurance. Stewart issues policies through
more than 5,300 issuing locations on homes and other real property located in
all 50 states, the District of Columbia and several foreign countries. Stewart
also sells electronically delivered real estate services and information, as
well as mapping products and geographic information systems, to domestic and
foreign governments and private entities.
The Company's two segments of business are title and real estate information
("REI"). The segments significantly influence business to each other because of
the nature of their operations and their common customers. The segments provide
services through a network of offices, including both direct operations and
agents, throughout the United States. The operations in the several
international markets in which the Company does business are generally
insignificant to consolidated results.
The financial information related to these segments is discussed in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and is incorporated herein by reference.
TITLE
The title segment includes the functions of searching, examining, closing and
insuring the condition of the title to real property.
Examination and closing. The purpose of a title examination is to ascertain the
ownership of the property being transferred, what debts are owed on it and what
the title policy coverage will be. This involves searching for and examining
documents such as deeds, mortgages, wills, divorce decrees, court judgments,
liens, paving assessments and tax records.
At the closing or "settlement", the seller executes a deed to the new owner. The
buyer typically signs new mortgage documents. Closing funds are then disbursed
to the seller, the prior mortgage company, real estate brokers, the title
company and others. The documents are then recorded in the public records. A
title policy is generally issued to both the lender and new owner.
Title policies. Lenders in the USA generally require title insurance as a
condition to making a loan on real estate, including securitized lending. This
is to assure lenders of the priority of their lien position. The purchasers of
the property want the assurance given in their policy against claims that may
arise against their ownership. The face amount of the policy is normally the
purchase price or the amount of the related loan.
Title insurance is substantially different from other types of insurance. Fire,
auto, health and life insurance protect against losses and events in the future.
In contrast, title insurance seeks to eliminate most risks through the
examination and settlement process.
Investments. The Company has established policies and procedures to manage its
exposure to changes in the fair value of its investments. These policies include
an emphasis on credit quality, management of portfolio duration, maintaining or
increasing investment income through high coupon rates and actively managing
profile and security mix depending on market conditions. The Company has
classified all of its investments as available-for-sale.
Losses. Losses on policies occur because of a title defect not discovered during
the examination and settlement process. Other reasons for losses include
forgeries, misrepresentations, unrecorded construction liens, the failure to pay
off existing liens, mishandling of settlement funds, issuance by agents of
unauthorized coverages and other legal issues.
Some claimants seek damages in excess of policy limits. Such claims are based on
various legal theories usually alleging misrepresentation by an issuing office.
Although the Company vigorously defends against spurious claims, it has from
time to time incurred a loss in excess of policy limits.
Experience shows that most claims against policies and claim payments are made
in the first six years after the policy has been issued, although claims may be
made many years later. By their nature, claims are often complex, vary greatly
in dollar amounts and are affected by economic and market conditions and the
legal environment existing at the time of settlement of the claims.
Estimating future title loss payments is difficult because of the complex nature
of title claims, the long periods of time over which claims are paid,
significantly varying dollar amounts of individual claims and other factors.
-1-
4
The Company's liability for estimated title losses comprises both known claims
and other losses expected to be reported in the future. The amount of the
reserve represents the aggregate future payments, net of recoveries, that the
Company expects to incur on policy losses and in costs to settle claims.
Provisions are charged to income in the same year the related premium revenues
are recognized. The amounts provided are based on reported claims, historical
loss experience, title industry averages, current legal environment and types of
policies written.
Amounts shown as the Company's estimated liability for future loss payments are
continually reviewed for reasonableness and adjusted as appropriate. Independent
actuaries also review the adequacy of the liability amounts on an annual basis.
In accordance with industry practice, the amounts have not been discounted to
their present values.
Factors affecting revenues. Title revenues are closely related to the level of
activity in the real estate market and the prices at which real estate sales are
made. Real estate sales are directly affected by the availability and cost of
money to finance purchases. Other factors include demand by buyers, consumer
confidence and family incomes. These factors may override the seasonal nature of
the title business. Generally, the third quarter is the most active in terms of
real estate sales and the first quarter is the least active.
Selected information for the national real estate industry follows (2000 amounts
are preliminary):
2000 1999 1998
------ ------ ------
Housing starts - millions ................... 1.59 1.67 1.62
Housing resales - millions .................. 5.03 5.20 4.96
Housing resales - median sales price in
$ thousands ............................... 138.4 133.0 128.0
Customers. The primary sources of title business are attorneys, builders,
developers, lenders and real estate brokers. No one customer was responsible for
as much as ten percent of Stewart's title revenues in any of the last three
years. Titles insured included residential and commercial properties,
undeveloped acreage, farms and ranches.
Service, location, financial strength, size and related factors affect customer
acceptance. Increasing market share is accomplished primarily by providing
superior service. The parties to a closing are concerned with personal schedules
and the interest and other costs associated with any delays in the settlement.
The rates charged to customers are regulated to varying degrees by different
states.
Financial strength and stability of the title underwriter are important factors
in maintaining and increasing the Company's agency network. Out of the nation's
top four title insurers, Stewart earned the highest ratings awarded by the title
industry's leading rating companies. Stewart received an A" from Demotech, Inc.,
an A2 from Moodys, an A+ from Lace Financial and an A+ from Fitch.
Market share. Title insurance statistics are compiled annually by the title
industry's national association. Based on unconsolidated statutory net premiums
written for 1999 (2000 amounts are not available), Stewart Title Guaranty
Company ("Guaranty") is one of the leading individual title insurers in America.
Competitors include (names are abbreviated) Fidelity, First American, Land
America and Old Republic. As do most title insurers, Stewart also competes with
abstractors, attorneys who issue title opinions and attorney-owned title
insurance bar funds. A number of home builders, financial institutions, real
estate brokers and others own or control title insurance agents, some of which
issue policies underwritten by Guaranty. This "controlled" business also
provides competition for Stewart's agents.
Offices. The number of locations issuing Stewart policies was 5,354 at December
31, 2000, compared to 4,789 a year earlier and 4,249 two years earlier. Of these
totals 4,952, 4,425 and 3,933 were independent agents at December 31, 2000, 1999
and 1998, respectively.
Regulations. Title insurance companies are subject to extensive state
regulations covering rates, agent licensing, policy forms, trade practices,
reserve requirements, investments and the flow of funds between an insurer and
its parent or its subsidiaries and any similar related party transaction.
Kickbacks and similar practices are prohibited by certain state and federal
laws.
-2-
5
REAL ESTATE INFORMATION
The real estate information segment primarily provides electronic delivery of
services related to real estate transactions. These services include title
reports, flood determinations, property appraisals, mortgage documents, credit
reports and tax services. This segment also provides post-closing services to
lenders, including document retrievals, assignments, lien releases, recordation,
collateral reviews and loan pool certifications.
In addition, this segment provides services related to Section 1031 tax-deferred
exchanges, mapping, and construction and maintenance of title plants for county
clerks, tax assessors and title agencies.
Factors affecting revenues. As in the title segment, REI revenues are also
closely related to the level of activity in the real estate market.
Customers. The primary sources of REI business are lenders. Other customers
include title offices, real estate brokers, attorneys, municipalities and
courthouses. The most important factor affecting customer acceptance and market
share growth is superior customer service. Similar to the title operations, the
real estate information being provided by the companies in this segment are a
part of the closing process which is driven by personal schedules and the
interest and other costs associated with any delays in the settlement.
GENERAL
Technology. Stewart's automation products and services are increasing
productivity in the title office and speeding the real estate closing process
for lenders, real estate professionals and consumers. In the past, an order
typically required several individuals to search the title, retrieve and review
documents and finally create the actual commitment. Today, on a normal
subdivision file, one person can receive the order electronically and, on the
same screen, view the prior file, examine the index of documents, retrieve and
review electronically stored documents, prepare the commitment and deliver the
product.
Trademarks. Stewart has developed numerous automation products and processes
which are crucial to both its title and REI segments. These systems automate
most facets of the real estate transaction. Among these trademarked products and
processes are AIM(R), Landata Title Plant(R), LANDSCAN(R), REI Mall(R),
RESource(R), Single-Seat Technology(TM), StarNet(R), SureClose(R) and Virtual
Underwriter(R).
Employees. Stewart and its subsidiaries employed 5,627 people at December 31,
2000.
-3-
6
ITEM 2. PROPERTIES
The Registrant and its wholly-owned subsidiary, Stewart Title Guaranty
Company and its subsidiaries ("Guaranty"), own or lease the following principal
properties:
Location Type Use Size Acquired In
- ------------------------ ---------------------- ----------------------- --------------- -------------
Houston, Texas Leased office building Executive office of the 250,215 sq. ft.
Registrant and Guaranty (1)
Houston, Texas Leased office building Office of Guaranty 41,361 sq. ft. (2)
Los Angeles, California Leased office building Office of Guaranty 33,609 sq. ft. (1)
San Diego, California Leased office building Office of Guaranty 28,363 sq. ft. (3)
Houston, Texas Leased office building Office of Guaranty 26,420 sq. ft. (4)
Dallas, Texas Leased office building Office of Guaranty 25,921 sq. ft (5)
Riverside, California Leased office building Office of Guaranty 20,968 sq. ft. (6)
San Antonio, Texas Leased office building Office of Guaranty 20,864 sq. ft. (3)
Concord, California Leased office building Office of Guaranty 18,916 sq. ft. (1)
Denver, Colorado Leased office building Office of Guaranty 15,935 sq. ft. (4)
Irvine, California Leased office building Office of Guaranty 15,502 sq. ft. (1)
Galveston, Texas Owned office building Office of Guaranty 50,000 sq. ft. 1905
San Antonio, Texas Owned office building Office of Guaranty 26,769 sq. ft. 1980 & 1982
Phoenix, Arizona Owned office building Office of Guaranty 24,459 sq. ft. 1981
Tucson, Arizona Owned office building Office of Guaranty 24,000 sq. ft. 1974
Phoenix, Arizona Owned office building Office of Guaranty 17,500 sq. ft. 1985
- ----------
(1) These leases terminate in 2004.
(2) This lease terminates in 2007.
(3) These leases terminate in 2005.
(4) These leases terminate in 2001.
(5) This lease terminates in 2009.
(6) This lease terminates in 2003.
The Registrant leases offices at approximately 444 locations. The
average term for all such leases is approximately four years. The leases expire
from 2001 to 2009. The Registrant believes it will not have any difficulty
obtaining renewals of leases as they expire or, alternatively, leasing
comparable property. The aggregate annual rental expense under all leases was
approximately $32,667,000 in 2000.
All buildings and equipment owned or leased by the Registrant are
considered by the Registrant to be well maintained, adequately insured and
generally sufficient for the Registrant's purposes. Substantially all of the
Registrant's owned real property above is subject to mortgages.
-4-
7
ITEM 3. LEGAL PROCEEDINGS
The Registrant is a party to routine lawsuits incidental to its
business, most of which involve disputed policy claims. In many of these suits,
the plaintiff seeks exemplary or treble damages in excess of policy limits based
on the alleged malfeasance of an issuing agent of the Registrant. The Registrant
does not expect that any of these proceedings will have a material adverse
effect on its consolidated financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-5-
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
(NYSE) under the symbol "STC". The following table sets forth the high and low
sales prices of the Common Stock for each fiscal period indicated, as reported
by NYSE. Amounts are restated for a two-for-one stock split in May 1999,
effected as a stock dividend.
HIGH LOW
--------- ---------
2000:
First quarter .................................. $ 15.88 $ 12.25
Second quarter ................................. 16.00 12.44
Third quarter .................................. 15.50 12.50
Fourth quarter ................................. 22.31 13.25
1999:
First quarter .................................. $ 31.38 $ 15.25
Second quarter ................................. 21.94 15.50
Third quarter .................................. 23.00 15.50
Fourth quarter ................................. 18.25 10.25
The Company paid regular quarterly cash dividends on its Common Stock
from 1972 through 1999. During 1999, the Board of Directors approved a plan to
repurchase up to 5 percent (680,000 shares) of the Company's outstanding Common
Stock. The Board also determined that the Company's regular quarterly dividend
should be discontinued in favor of returning those and additional funds to
stockholders through the stock repurchase plan. Under this plan, the Company
repurchased 116,900 shares of Common Stock during 2000. No cash dividends were
paid during 2000. The Company's Certificate of Incorporation provides that no
cash dividends may be paid on the Class B Common Stock.
The number of shareholders of record as of December 31, 2000 was 2,684.
As of March 2, 2001, the price of one share of the Company's Common Stock was
$18.11.
-6-
9
ITEM 6. SELECTED FINANCIAL DATA
(Ten year summary)
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------- -------- ------- ------- ------ ------- ------- ------- ------ -------
In Millions of Dollars
Total revenues ................ 935.5 1,071.3 968.8 708.9 656.0 534.6 611.1 683.6 540.7 385.5
Title segment:
Operating revenues ......... 861.2 991.6 899.7 657.3 609.4 496.0 599.5 672.9 530.3 372.3
Investment income .......... 21.8 20.3 18.5 15.9 14.5 13.6 12.4 10.3 10.3 11.1
Investment gain (losses) ... 0 0.3 0.2 0.4 0.1 1.0 (0.8) 0.4 0.1 2.1
Total revenues ............. 883.0 1,012.2 918.4 673.6 624.0 510.6 611.1 683.6 540.7 385.5
Pretax earnings ............ 5.6 43.6 73.2 29.2 22.5 10.8 13.8 37.6 21.2 1.1
REI segment (1):
Revenues ................... 52.5 59.0 50.4 35.3 32.0 24.0
Pretax earnings ............ (4.4) 3.0 3.1 (5.5) 0.4 (0.1)
Title loss provisions ......... 39.0 44.2 39.2 29.8 33.8 29.6 40.2 58.6 54.1 40.7
% of title operating revenues 4.5 4.5 4.4 4.5 5.6 6.0 6.7 8.7 10.2 10.9
Net earnings (2) .............. 0.6 28.4 47.0 15.3 14.4 7.0 9.7 23.7 14.6 1.7
Cash flow from operations ..... 31.9 57.9 86.5 36.0 38.3 20.6 27.7 54.3 36.3 18.6
Total assets .................. 563.4 535.7 498.5 417.7 383.4 351.4 325.2 313.9 251.9 219.1
Long-term debt ................ 15.4 6.0 8.9 11.4 7.9 7.3 2.5 3.0 4.2 6.8
Stockholders' equity (3) ...... 295.1 284.9 260.4 209.5 191.0 174.9 156.4 156.2 128.6 114.8
Per Share Data (4)
Average shares - diluted
(in millions) .............. 15.0 14.6 14.2 13.8 13.5 12.7 12.5 12.4 12.2 12.2
Net earnings - basic (2) ...... 0.04 1.96 3.37 1.12 1.08 0.56 0.78 1.93 1.20 0.14
Net earnings - diluted (2) .... 0.04 1.95 3.32 1.11 1.07 0.55 0.77 1.90 1.20 0.14
Stockholders' equity (3) ...... 19.61 19.39 18.43 15.17 14.17 13.68 12.59 12.69 10.55 9.42
Market price:
High ...................... 22.31 31.38 33.88 14.63 11.32 11.25 10.71 10.17 7.25 4.84
Low ....................... 12.25 10.25 14.25 9.38 9.82 7.57 7.19 6.25 4.34 2.59
Year end .................. 22.19 13.31 29.00 14.50 10.38 10.75 7.69 10.00 6.84 4.59
------- -------- ------- ------- ------ ------- ------- ------- ------ -------
(1) Prior to 1995, segment operations for real estate information services were
not reported separately from title operations and were less significant.
(2) Includes a fresh start tax credit of $1.3 million, or $.11 per share, in
1991.
(3) Includes unrealized gains and losses upon adoption of FAS 115 in 1993.
(4) Restated for a two-for-one stock split in May 1999 and a three-for-two
stock split in April 1994, effected as stock dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A comparison of the results of operations of the Company for 2000 with 1999 and
1999 with 1998 follows.
GENERAL. The Company's two segments of operations are title and real estate
information ("REI"). In general, the principal factors that contribute to
increases in the Company's operating revenues for both segments include
declining mortgage interest rates (which usually increase home sales and
refinancing transactions), rising home prices, higher premium rates, increased
market share, additional revenues from new offices and increased revenues from
commercial transactions. Although relatively few in number, large commercial
transactions typically yield higher premiums.
-7-
10
According to published industry data, interest rates for 30-year fixed
mortgages, excluding points, for the year 2000 averaged 8.1% as compared to 7.4%
in 1999. Rates averaged 6.9% in 1998.
The rates in 1998 were steady at slightly above or below the 7% mark
throughout the year. In 1999, rates stayed at about that same level until June
when they began a decided move upward. At year-end 1999, rates were just over
8%. In 2000, the upward trend continued, with rates reaching a peak of 8.5% in
May. Then, rates declined for seven consecutive months. At year-end 2000 rates
were 7.4%.
Operating in these mortgage interest rate environments and in strong
general economies, real estate activity in 1998 was very strong. In 1999,
existing home sales remained strong, increasing about 4.6%. However, refinancing
transactions dropped significantly during the second half of 1999. In 2000,
existing home sales declined about 3.7% from 1999. Refinancing transactions also
continued to decline in 2000. The annual average for refinancing to total loan
applications was 51.3% in 1998, 31.3% in 1999 and 19.6% in 2000. At the end of
2000, however, refinancings had increased to about 40%.
TITLE REVENUES. The Company's revenues from premiums, fees and other revenues
decreased 13.2% in 2000 over 1999, while increasing 10.2% in 1999 over 1998.
The number of direct closings handled by the Company decreased 7.4% in
2000 and 10.1% in 1999. The average revenue per closing increased 8.8% in 2000
and 14.7% in 1999 because of higher home prices, increased commercial
transactions, and due to the significant drop in 1999 in the number of
refinancings with their lower premiums. A 3% reduction in Texas title premium
rates became effective August 1, 1998. There were no other major revenue rate
changes in 2000, 1999 or 1998.
Premiums from agents decreased 20.6% to $494.6 million in 2000 and
increased 14.4% to $623.3 million in 1999 from $545.1 in 1998. The decrease in
2000 resulted primarily from declining refinancings and regular transactions
handled by agents nationwide. While premiums in nearly all states declined in
2000, the largest decreases were in California, Florida and Oregon. The increase
in 1999 was primarily attributable to the same factors affecting direct
operations mentioned above, along with the inherent delay in agents reporting
policies on 1998 transactions. At the end of 1998, refinancing transactions were
unusually high.
Other revenues in 2000 included $1.6 million in losses in an equity
investee startup operation. In 1999 other revenues included a $1.3 million
pretax gain resulting from a settlement of a lawsuit and a related sale of an
equity ownership in a title agency.
TITLE REVENUES BY STATE. The approximate amounts and percentages of consolidated
title revenues for the last three years were:
Amounts ($ millions) Percentages
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Texas ..................... 176 167 162 20 17 18
California ................ 111 158 156 13 16 17
New York .................. 67 73 67 8 7 7
Florida ................... 59 72 67 7 7 8
All Others ................ 448 522 448 52 53 50
------ ------ ------ ------ ------ ------
861 992 900 100 100 100
====== ====== ====== ====== ====== ======
REI REVENUES. Real estate information revenues were $52.5 million in 2000, $59.0
million in 1999 and $50.4 million in 1998. The decrease in 2000 resulted
primarily from decreased real estate transactions and fewer ongoing mapping and
title plant projects. The increase in 1999 was primarily due to a significant
number of new businesses started and additional income earned from existing
operations. The increases in 1999 were partially offset by a decrease in
business volume due to increases in mortgage interest rates.
INVESTMENTS. Investment income increased 7.5% in 2000 and 9.6% in 1999 primarily
because of increases in yields. Investment gains in 2000, 1999 and 1998 were
realized as part of the ongoing management of the investment portfolio for the
purpose of improving performance.
-8-
11
AGENT RETENTION. The amounts retained by agents, as a percentage of premiums
from agents, were 81.2%, 80.9% and 80.4% in the years 2000, 1999 and 1998,
respectively. Amounts retained by title agents are based on contracts between
agents and the title underwriters of the Company. The percentage that amounts
retained by agents bears to agent revenues may vary from year to year because of
the geographical mix of agent operations and the volume of title revenues.
SELECTED COST RATIOS (BY SEGMENT). The following table shows employee costs and
other operating expenses as a percentage of related title and real estate
information operating revenues for the last three years.
Employee costs (%) Other expenses (%)
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
Title ................... 29.7 25.1 24.6 18.4 15.4 14.4
REI ..................... 68.8 57.5 58.7 28.4 26.9 26.3
------ ------ ------ ------ ------ ------
These two categories of expenses are discussed below.
EMPLOYEE COSTS. Employee costs for the combined business segments increased 3.3%
in 2000 and 12.8% in 1999. The number of persons employed by the Company at
December 31, 2000, 1999 and 1998 was 5,627, 5,751 and 5,638, respectively. The
decrease in staff in 2000 was primarily the result of reductions in existing
operations in response to decreased volumes. These reductions were offset by
acquisitions and expansion in national marketing and technology operations. In
1999 the increase was primarily the result of acquisitions, increased REI volume
and the expansion of the Company's technology and national marketing operations.
In the REI segment, employee costs (and cost ratios) increased in 2000
primarily due to a shift in focus to provide more post-closing services to
lenders. These services are considerably more labor intensive. Certain REI
startup operations also increased expenses.
OTHER OPERATING EXPENSES. Other operating expenses for the combined business
segments increased 2.4% in 2000 and 18.3% in 1999. The overall increase in other
operating expenses for the combined business segments in 2000 was in new
offices, rent, search fees and provisions for regulatory actions brought against
the Company. These were offset partially by reductions in premium taxes and
certain REI expenses in response to volume decreases. In 1999 the increase was
caused primarily by a higher volume of services and products purchased for
resale, rent, the expense of new offices, business promotion and other REI
expenses. The year 1999 also included a $1.3 million charge resulting from a
lawsuit settlement in an REI operation.
Other operating expenses also include title plant expenses, travel,
delivery costs, telephone, supplies and policy forms. Most of these expenses
follow, to varying degrees, the changes in transaction volume and revenues.
The Company's labor and certain other operating costs are sensitive to
inflation. To the extent inflation causes increases in the prices of homes and
other real estate, premium revenues are also increased. Premiums are determined
in part by the insured values of the transactions handled by the Company.
TITLE LOSSES. Provisions for title losses, as a percentage of title premiums,
fees and other revenues, were 4.5%, 4.5% and 4.4% in 2000, 1999 and 1998,
respectively. The continued improvement in industry trends in claims and
increases in refinancing transactions, which result in lower loss exposure, have
led to lower loss ratios in recent years.
INCOME TAXES. The provision for federal and state income taxes represented
effective tax rates of 47.1%, 39.0% and 38.4% in 2000, 1999 and 1998,
respectively. The 2000 effective rate was higher primarily due to state income
taxes which were proportionately higher in relation to taxable income.
THE YEAR 2000 ISSUE. Information technology is a crucial part of the Company's
business. Accordingly, the Company completed a comprehensive Year 2000 ("Y2K")
readiness program that addressed challenges associated with the Y2K issue. The
Company encountered no major automation or business disruption due to Y2K issues
and continues to operate normally across all business units and geographies.
-9-
12
LIQUIDITY AND CAPITAL RESOURCES. Cash provided by operations was $31.9 million,
$57.9 million and $86.5 million in 2000, 1999 and 1998, respectively. Internally
generated cash flow has been the primary source of financing for additions to
property and equipment, expanding operations and other requirements. This source
may be supplemented by bank borrowings.
A substantial majority of consolidated cash and investments is held by
Stewart Title Guaranty Company (Guaranty) and its subsidiaries. Cash transfers
between Guaranty and its subsidiaries and the Company are subject to certain
legal restrictions. See Notes 3 and 4 to the consolidated financial statements.
The liquidity of the Company itself, excluding Guaranty and its
subsidiaries, is comprised of cash and investments aggregating $4.8 million and
short-term liabilities of $0.9 million at December 31, 2000. The Company knows
of no commitments or uncertainties which are likely to materially affect the
ability of the Company and its subsidiaries to fund cash needs.
The Company's capital resources, represented primarily by long-term
debt of $15.4 million and stockholders' equity of $295.1 million at December 31,
2000, are considered adequate.
FORWARD LOOKING STATEMENTS. All statements included in this report which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future are forward-looking statements. Such forward-looking
statements are subject to risks and uncertainties including, among other things,
changes in mortgage interest rates, employment levels, actions of competitors,
changes in real estate markets, general economic conditions and legislation,
primarily legislation related to insurance, and other risks and uncertainties
discussed in the Company's filings with the Securities and Exchange Commission.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion below about the Company's risk management strategies
includes forward-looking statements that are subject to risk and uncertainties.
Management's projections of hypothetical net losses in fair value of the
Company's market rate sensitive instruments should certain potential changes in
market rates occur, is presented below. While the Company believes that the
potential market rate changes are reasonably possible, actual results could
differ.
The Company's only material market risk in investments in financial
instruments is in its debt securities portfolio. The Company invests primarily
in marketable municipal, US Government, corporate and mortgage-backed debt
securities. The Company does not invest in financial instruments of a hedging or
derivative nature.
The Company has established policies and procedures to manage its
exposure to changes in the fair value of its investments. These policies include
an emphasis upon credit quality, management of portfolio duration, maintaining
or increasing investment income through high coupon rates and actively managing
profile and security mix depending upon market conditions. The Company has
classified all of its investments as available-for-sale.
The fair value of the Company's investments in debt securities at
December 31, 2000 was $252.3 million. Debt securities at December 31, 2000
mature, according to their contractual terms, as follows (actual maturities may
differ because of call or prepayment rights):
Amortized Fair
Cost Value
--------- --------
($000 Omitted)
In one year or less ..................... 10,078 10,174
After one year through five years ....... 66,975 68,253
After five years through ten years ...... 99,738 101,404
After ten years ......................... 57,766 56,407
Mortgage-backed securities .............. 15,657 16,047
--------- --------
250,214 252,285
========= ========
The Company believes its investment portfolio is diversified and
expects no material loss to result from the failure to perform by issuers of the
debt securities it holds. Investments made by the Company are not
collateralized. The mortgage-backed securities are insured by agencies of the US
Government.
-10-
13
Based on the Company's debt securities portfolio and interest rates at
December 31, 2000, a 100 basis point increase in interest rates would result in
a decrease of approximately $12.4 million, or 4.8%, in the fair value of its
portfolio. Changes in interest rates may affect the fair value of the debt
securities portfolio and may result in unrealized gains or losses. Gains or
losses would only be realized upon the sale of the investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be provided in this item is included in the
Consolidated Financial Statements of the Company, including the Notes thereto,
attached hereto as pages F-2 to F-16, and such information is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-11-
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the directors of the Company will be included
in the proxy statement for the 2001 Annual Meeting of Stockholders (the "Proxy
Statement") to be filed within 120 days after December 31, 2000, and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be included in the
Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information, if any, regarding beneficial ownership of the Common Stock
will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions
will be included in the Proxy Statement and is incorporated herein by reference.
-12-
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The financial statements and financial statement schedules filed as part of
this report are listed in the "Index to Consolidated Financial Statements"
on Page F-1 hereof.
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated financial
statements or related notes.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 2000.
(c) Exhibits
3.1 - Certificate of Incorporation of the Registrant, as amended
March 19, 2001
3.2 - By-Laws of the Registrant, as amended March 13, 2000
4. - Rights of Common and Class B Common Stockholders (incorporated
by reference to Exhibits 3.1 and 3.2 hereto)
* 10.1 - Summary of agreements as to payment of bonuses to certain
executive officers
* 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended
July 24, 1990 and October 30, 1992, between the Registrant and
certain executive officers (incorporated by reference herein
from Exhibit 10.2 of Annual Report on Form 10-K for the fiscal
year ended December 31, 1997)
* 10.3 - Stewart Information Services Corporation 1999 Stock Option
Plan (incorporated by reference herein from Exhibit 10.3 of
Annual Report on Form 10-K for the fiscal year ended December
31, 1999)
21. - Subsidiaries of the Registrant
23. - Consent of Independent Certified Public Accountant, including
consent to incorporation by reference of their reports into
previously filed Securities Act registration statements
*Indicates a management contract or compensation plan.
-13-
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
STEWART INFORMATION SERVICES CORPORATION
(Registrant)
By: Malcolm S. Morris
---------------------------------------------------------
Malcolm S. Morris, Co-Chief Executive Officer
and Chairman of the Board of Directors
By: Stewart Morris, Jr.
---------------------------------------------------------
Stewart Morris, Jr. Co-Chief Executive Officer
President and Director
By: Max Crisp
---------------------------------------------------------
Max Crisp, Vice President-Finance, Secretary-Treasurer,
Director and Principal Financial and Accounting Officer
Dated: March 19, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
Max Crisp Director March 19, 2001
- ------------------------------------- --------------
(Max Crisp)
Nita B. Hanks Director March 19, 2001
- ------------------------------------- --------------
(Nita B. Hanks)
E. Douglas Hodo Director March 19, 2001
- ------------------------------------- --------------
(E. Douglas Hodo)
Malcolm S. Morris Director March 19, 2001
- ------------------------------------- --------------
(Malcolm S. Morris)
Stewart Morris, Jr. Director March 19, 2001
- ------------------------------------- --------------
(Stewart Morris, Jr.)
-14-
17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Stewart Information Services Corporation and Subsidiaries'
Consolidated Financial Statements:
Independent Auditors' Report F-2
Consolidated Statements of Earnings, Retained Earnings and Comprehensive
Earnings for the years ended December 31, 2000, 1999 and 1998 F-3
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-6
Financial Statement Schedules:
Schedule I - Financial Information of the Registrant (Parent Company) S-1
Schedule II - Valuation and Qualifying Accounts S-5
F-1
18
Independent Auditors' Report
To the Board of Directors and Stockholders
of Stewart Information Services Corporation:
We have audited the consolidated financial statements of Stewart Information
Services Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Stewart
Information Services Corporation and subsidiaries at December 31, 2000 and 1999,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedules when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Houston, Texas
February 13, 2001
F-2
19
CONSOLIDATED STATEMENTS OF EARNINGS, RETAINED EARNINGS AND COMPREHENSIVE
EARNINGS
Year ended December 31 ............................................ 2000 1999 1998
---------- ---------- ----------
($000 Omitted)
REVENUES
Title premiums, fees and other revenues ....................... 861,185 991,649 899,673
Real estate information services .............................. 52,463 59,039 50,372
Investment income ............................................. 21,814 20,300 18,515
Investment gains - net ........................................ 23 266 201
---------- ---------- ----------
935,485 1,071,254 968,761
EXPENSES
Amounts retained by agents .................................... 401,761 504,201 438,338
Employee costs ................................................ 292,276 283,073 250,966
Other operating expenses ...................................... 173,038 168,975 142,826
Title losses and related claims ............................... 38,999 44,187 39,226
Depreciation and amortization ................................. 20,951 18,068 14,584
Interest ...................................................... 2,266 1,298 1,424
Minority interests ............................................ 5,048 4,887 5,070
---------- ---------- ----------
934,339 1,024,689 892,434
Earnings before taxes ............................................. 1,146 46,565 76,327
Income taxes ...................................................... 540 18,143 29,289
---------- ---------- ----------
NET EARNINGS ...................................................... 606 28,422 47,038
Retained earnings at beginning of year ............................ 209,454 190,363 145,140
Cash dividends on Common Stock ($.00, $.16 and $.14 per share) .... -- (2,158) (1,815)
Stock dividend .................................................... -- (7,173) --
---------- ---------- ----------
Retained earnings at end of year .................................. 210,060 209,454 190,363
========== ========== ==========
Average number of shares outstanding - assuming dilution
(000 omitted) .................................................. 14,980 14,606 14,154
Earnings per share - basic ........................................ .04 1.96 3.37
EARNINGS PER SHARE - DILUTED ...................................... .04 1.95 3.32
========== ========== ==========
Comprehensive earnings:
Net earnings ...................................................... 606 28,422 47,038
Changes in unrealized investment gains (losses), net of taxes of
$2,985, ($5,269) and $858 ...................................... 5,544 (9,785) 1,593
---------- ---------- ----------
COMPREHENSIVE EARNINGS ............................................ 6,150 18,637 48,631
========== ========== ==========
See notes to consolidated financial statements.
F-3
20
CONSOLIDATED BALANCE SHEETS
December 31 2000 1999
- ----------- -------- --------
($000 Omitted)
ASSETS
Cash and cash equivalents ..................................................... 35,728 36,803
Short-term investments ........................................................ 53,748 65,583
Investments in debt and equity securities, at market:
Statutory reserve funds ................................................... 206,150 186,917
Other ..................................................................... 52,242 57,711
-------- --------
258,392 244,628
Receivables:
Notes ..................................................................... 17,184 8,429
Premiums from agents ...................................................... 16,590 17,478
Other ..................................................................... 28,392 27,052
Less allowance for uncollectible amounts .................................. (5,127) (4,379)
-------- --------
57,039 48,580
Property and equipment, at cost:
Land ...................................................................... 2,172 2,062
Buildings ................................................................. 7,779 6,531
Furniture and equipment ................................................... 133,288 118,047
Less accumulated depreciation and amortization ............................ (97,780) (81,671)
-------- --------
45,459 44,969
Title plants, at cost ......................................................... 32,491 26,258
Real estate, at lower of cost or net realizable value ......................... 2,196 2,073
Investments in investees, on an equity basis .................................. 11,780 5,370
Goodwill, less accumulated amortization of $10,468 and $8,661 ................. 36,693 30,963
Deferred income taxes ......................................................... 7,352 12,378
Other assets .................................................................. 22,570 18,136
-------- --------
563,448 535,741
======== ========
LIABILITIES
Notes payable, including $15,439 and $5,971 long-term portion ................. 32,543 19,054
Accounts payable and accrued liabilities ...................................... 38,617 41,303
Estimated title losses ........................................................ 190,298 183,787
Minority interests ............................................................ 6,901 6,673
Contingent liabilities and commitments
STOCKHOLDERS' EQUITY
Common - $1 par, authorized 30,000,000, issued and outstanding
14,001,645 and 13,645,527 .................................................. 14,118 13,646
Class B Common - $1 par, authorized 1,500,000, issued and outstanding
1,050,012 .................................................................. 1,050 1,050
Additional paid-in capital .................................................... 69,485 64,430
Retained earnings ............................................................. 210,060 209,454
Accumulated other comprehensive earnings (loss) ............................... 1,888 (3,656)
Treasury stock - 116,900 Common shares, at cost ............................... (1,512) --
-------- --------
Total stockholders' equity ($19.61 and $19.39 per share) ............... 295,089 284,924
-------- --------
563,448 535,741
======== ========
See notes to consolidated financial statements.
F-4
21
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 2000 1999 1998
- ---------------------- -------- -------- --------
($000 Omitted)
Cash provided by operating activities (note) .................................. 31,913 57,875 86,467
Investing activities:
Purchases of property equipment and title plants - net .................... (19,191) (25,307) (20,473)
Proceeds from investments matured and sold ................................ 87,325 46,536 65,770
Purchases of investments .................................................. (80,702) (82,338) (104,017)
Increases in notes receivable ............................................. (10,535) (6,118) (2,316)
Collections on notes receivable ........................................... 1,733 5,826 2,141
Proceeds from sale of equity investment - net ............................. -- 6,009 --
Cash paid for equity in investees ......................................... (6,863) (1,783) (80)
Cash paid for acquisitions of subsidiaries - net .......................... (9,475) (5,243) (5,806)
-------- -------- --------
Cash used by investing activities ............................................. (37,708) (62,418) (64,781)
Financing activities:
Dividends paid ............................................................ -- (2,158) (1,815)
Purchases of treasury stock ............................................... (1,512) -- --
Distribution to minority interests ........................................ (4,814) (4,071) (4,031)
Proceeds from issuance of stock ........................................... 19 65 1,543
Proceeds of notes payable ................................................. 16,856 10,056 9,150
Payments on notes payable ................................................. (5,829) (7,429) (12,041)
-------- -------- --------
Cash provided (used) by financing activities .................................. 4,720 (3,537) (7,194)
-------- -------- --------
(Decrease) increase in cash and cash equivalents .............................. (1,075) (8,080) 14,492
-------- -------- --------
Note: Reconciliation of net earnings to the above amounts
Net earnings .............................................................. 606 28,422 47,038
Add (deduct):
Depreciation and amortization .......................................... 20,951 18,068 14,584
Provisions for title losses in excess of payments ...................... 6,511 11,474 14,185
Decrease (increase) in receivables - net ............................... 576 (1,291) (13,222)
(Decrease) increase in payables and accrued liabilities - net ......... (3,138) (3,039) 17,176
Minority interest expense .............................................. 5,048 4,887 5,070
Equity in net losses (earnings) of investees ........................... 596 (1,072) (1,477)
Other - net ............................................................ 763 426 3,113
-------- -------- --------
Cash provided by operating activities ....................................... 31,913 57,875 86,467
======== ======== ========
Supplemental information:
Income taxes paid .......................................................... 528 16,018 26,511
Interest paid .............................................................. 1,687 1,187 1,478
Assets acquired (purchase method):
Goodwill ................................................................ 7,528 8,805 6,637
Title plants ............................................................ 5,239 354 484
Other ................................................................... 3,645 4,612 2,899
Liabilities assumed ........................................................ (2,000) (1,169) (2,514)
Common Stock issued ........................................................ (4,937) (7,359) (1,700)
-------- -------- --------
Cash paid for acquisitions .................................................... 9,475 5,243 5,806
======== ======== ========
See notes to consolidated financial statements.
F-5
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Three years ended December 31, 2000)
NOTE 1
GENERAL. Stewart Information Services Corporation, through its subsidiaries
(collectively, the Company), is primarily engaged in the title insurance
business. The Company also provides real estate information services. The
Company operates through a network of direct and agent offices throughout the
United States. Approximately 33 percent of consolidated title revenues are
generated in Texas and California. The operations in the international markets
in which the Company does business are generally insignificant to consolidated
results.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. The accompanying financial
statements were prepared by management which is responsible for their integrity
and objectivity. The statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP), including
management's best judgments and estimates. Actual results could differ from
estimates.
B. RECLASSIFICATIONS. Certain prior year amounts in the consolidated financial
statements have been reclassified for comparative purposes. Net earnings, as
previously reported, were not affected.
C. CONSOLIDATION. The consolidated financial statements include all subsidiaries
in which the Company owns more than 50% voting rights in electing directors.
Unconsolidated investees, owned 20% through 50%, and over which the Company
exercises significant influence, are accounted for by the equity method. All
significant intercompany accounts and transactions are eliminated, and provision
is made for minority interests.
D. STATUTORY ACCOUNTING. The accounts of Stewart Title Guaranty Company
(Guaranty) and other title insurance underwriters owned by the Company are
maintained on a statutory basis, in accordance with practices prescribed or
permitted by regulatory authorities. The statutory accounts are restated in
consolidation to conform to GAAP.
In restating to GAAP, the amounts for statutory premium reserve and
reserve for reported title losses are eliminated and, in substitution, amounts
are established for estimated title losses (see below). The net effect, after
providing for deferred income taxes, is included in consolidated retained
earnings. In calculating the amount owed on federal income tax returns, the
statutory premium reserve and reserve for reported title losses must be
discounted to their present values.
E. REVENUE RECOGNITION. Operating revenues from direct title operations are
considered earned at the time of the closing of the related real estate
transactions. Premiums on title insurance policies written by agents are
recognized primarily when policies are reported to the Company, with certain
accruals for unreported policies. Accruals are based primarily on historical
reporting patterns of agents and other relevant factors.
Revenues from services rendered in providing real estate information
are considered earned at the time the service is performed or the work product
is delivered to the customer.
F. TITLE LOSSES AND RELATED CLAIMS. Estimating future title loss payments is
difficult because of the complex nature of title claims, the long periods of
time over which claims are paid, significantly varying dollar amounts of
individual claims and other factors. The Company's liability for estimated title
losses comprises both known claims and other losses expected to be reported in
the future. The amount of the reserve represents the aggregate future payments,
net of recoveries, that the Company expects to incur on policy losses and in
costs to settle claims. Provisions are charged to income in the same year the
related premium revenues are recognized. The amounts provided are based on
reported claims, historical loss experience, title industry averages, current
legal environment and types of policies written.
Amounts shown as the Company's estimated liability for future loss
payments are continually reviewed for reasonableness and adjusted as
appropriate. Independent actuaries also review the adequacy of the liability
amounts on an annual basis. In accordance with industry practice, the amounts
have not been discounted to their present values.
G. INCOME TAXES. Deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the tax bases and the book
carrying values for certain assets and liabilities. Valuation allowances are
provided as may be appropriate. Enacted tax rates are used in calculating
amounts.
H. CASH EQUIVALENTS. Cash equivalents are highly liquid investments that are
convertible to cash or mature on a daily basis as part of the Company's
management of day-to-day operating cash.
F-6
23
I. SHORT-TERM INVESTMENTS. Short-term investments comprise time deposits with
banks and savings and loan associations, federal government obligations, money
market accounts and other investments maturing in less than one year. The
carrying values of the investments approximate their fair values.
J. INVESTMENTS. The Company has classified its investment portfolio as
available-for-sale. Realized gains and losses on sales of investments are
determined using the specific identification method. Net unrealized gains and
losses on securities, net of applicable deferred taxes, are included in
stockholders' equity. Any other than temporary declines in fair values of
securities are charged to earnings.
K. PROPERTY AND EQUIPMENT. Depreciation is computed principally using the
straight-line method at the following rates: buildings - 30 to 40 years and
furniture and equipment - 3 to 10 years. Maintenance and repairs are expensed as
incurred while improvements are capitalized. Gains and losses are recognized at
disposal.
L. TITLE PLANTS. Title plants include compilations of a county's official land
records, prior examination files, copies of prior title policies, maps and
related materials which are geographically indexed to a specific property. The
costs of acquiring existing title plants and creating new ones, prior to the
time such plants are placed in operation, are capitalized. Such costs are not
amortized because there is no indication of any loss of value. The costs of
maintaining and operating title plants are expensed as incurred. Gains and
losses on sales of copies of title plants or interests in title plants are
recognized at the time of sale.
M. GOODWILL. Goodwill is the excess of the purchase price over the fair value of
net assets of subsidiaries acquired and is amortized using the straight-line
method by charges to earnings generally over 20 to 40 years.
N. LONG-LIVED ASSETS. The Company continuously reviews the carrying values of
goodwill, title plants and other long-lived assets for possible impairment. In
reviewing for impairment, the Company considers adverse market or other
conditions. Impairment is indicated when projected undiscounted cash flows over
the estimated life of the assets are less than carrying values. If impairment is
determined by management, the book amounts are written down to fair value by
calculating the discounted value of projected cash flows.
O. FAIR VALUES. The fair values of financial instruments, including cash and
cash equivalents, short-term investments, notes receivable, notes payable and
accounts payable, are determined by reference to various market data and other
valuation techniques, as appropriate. The fair values of these financial
instruments approximate their carrying values. Investments in debt and equity
securities are carried at their fair values.
P. ESCROW FUNDS. Funds are routinely held in segregated escrow bank accounts
pending the closing of real estate transactions. This results in a contingent
liability to the Company. These accounts are not included in the consolidated
balance sheets.
Q. DERIVATIVES AND HEDGING. The Company does not invest in hedging or derivative
instruments nor does it intend to do so in the future. Accordingly, FAS 133
"Accounting for Derivative Instruments and Hedging Activities" (as amended),
which is effective January 1, 2001 for the Company, is expected to have no
impact on the consolidated financial statements.
F-7
24
NOTE 2
INCOME TAXES. The following reconciles federal income taxes computed at the
statutory rate with income taxes as reported.
2000 1999 1998
------- ------- -------
($000 Omitted)
Expected income taxes at 35% ................. 401 16,298 26,714
State income taxes ........................... 343 1,900 2,932
Tax effect of permanent differences:
Tax-exempt interest ...................... (1,909) (1,951) (1,779)
Nondeductible items ...................... 745 616 661
Equity loss (income) ..................... 208 (375) (517)
Minority interests ....................... 1,767 1,710 1,775
Non-taxable income ....................... (1,044) (469) (703)
Other - net .............................. 29 414 206
------- ------- -------
Income taxes ................................. 540 18,143 29,289
======= ======= =======
Effective income tax rate (%) ................ 47.1 39.0 38.4
======= ======= =======
Deferred tax assets and liabilities at December 31, 2000 and 1999 were as
follows:
2000 1999
------- -------
($000 Omitted)
Deferred tax assets:
Book over tax title loss provisions ......... 2,498 5,942
Unrealized losses on investments ............ -- 1,968
Accruals not currently deductible ........... 939 964
Net operating loss carryforwards ............ 833 892
Allowance for uncollectible amounts ......... 1,001 655
Book over tax depreciation .................. 2,034 1,499
Investments in partnerships ................. 706 68
Other ....................................... 1,922 2,064
------- -------
9,933 14,052
Less valuation allowance .................... (1,008) (1,008)
------- -------
8,925 13,044
Deferred tax liabilities:
Unrealized gains on investments ............. (1,017) --
Other ....................................... (556) (666)
------- -------
(1,573) (666)
------- -------
Net deferred tax asset .......................... 7,352 12,378
======= =======
The Company's valuation allowance relates to portions of certain
subsidiary net operating loss carryforwards and other deferred tax assets.
Management believes it is more likely than not that future earnings will be
sufficient to permit the Company to realize net deferred tax assets.
Deferred tax expense was $2,041,000, $3,524,000 and $4,142,000 in 2000,
1999 and 1998, respectively.
NOTE 3
RESTRICTIONS ON CASH AND INVESTMENTS. The statutory reserve funds included in
the accompanying financial statements are maintained to comply with legal
requirements for statutory premium reserves and state deposits. These funds are
not available for any other purpose.
F-8
25
A substantial majority of investments and cash at each year end was
held by the Company's title insurer subsidiaries. Generally, the types of
investments a title insurer can make are subject to legal restrictions.
Furthermore, the transfer of funds by a title insurer to its parent or
subsidiary operations, as well as other related party transactions, are
restricted by law and generally require the approval of state insurance
authorities.
NOTE 4
DIVIDEND RESTRICTIONS. Substantially all of the consolidated retained earnings
at each year end was represented by the retained earnings of Guaranty, which
owns directly or indirectly substantially all of the subsidiaries included in
the consolidation.
Guaranty cannot pay a dividend in excess of certain limits without the
approval of the Texas Insurance Commissioner. The maximum dividend which can be
paid without such approval in 2001 is $39,020,000. Guaranty paid dividends
significantly less than the maximum legal limits in 2000, 1999 and 1998.
Dividends from Guaranty were also voluntarily restricted primarily to
maintain statutory surplus and liquidity at competitive levels. The ability of a
title insurer to pay claims can significantly affect the decision of lenders and
other customers when buying a policy from a particular insurer.
NOTE 5
INVESTMENTS. The amortized costs and market values of investments in debt and
equity securities at December 31 follow:
2000 1999
------------------ -------------------
Amortized Market Amortized Market
cost value cost value
--------- -------- --------- --------
($000 Omitted)
Debt securities:
Municipal ....................... 132,405 134,894 134,390 133,160
Mortgage-backed ................. 15,657 16,047 8,806 8,509
US Government ................... 22,056 22,661 33,484 32,740
Corporate and utilities ......... 80,096 78,683 68,445 64,902
Equity securities ................... 5,273 6,107 5,115 5,317
------- ------- ------- -------
255,487 258,392 250,240 244,628
======= ======= ======= =======
Gross unrealized gains and losses at December 31 were:
2000 1999
------------------ -------------------
Amortized Market Amortized Market
cost value cost value
--------- -------- --------- --------
($000 Omitted)
Debt securities:
Municipal ......................... 2,753 264 1,028 2,258
Mortgage-backed ................... 418 28 42 339
US Government ..................... 607 2 85 829
Corporate and utilities ........... 1,427 2,840 201 3,744
Equity securities ..................... 1,335 501 641 439
----- ----- ----- -----
6,540 3,635 1,997 7,609
===== ===== ===== =====
F-9
26
Debt securities at December 31, 2000 mature, according to their
contractual terms, as follows (actual maturities may differ because of call or
prepayment rights):
Amortized Market
cost value
--------- --------
($000 Omitted)
In one year or less ........................ 10,078 10,174
After one year through five years .......... 66,975 68,253
After five years through ten years ......... 99,738 101,404
After ten years ............................ 57,766 56,407
Mortgage-backed securities ................. 15,657 16,047
------- -------
250,214 252,285
======= =======
The Company believes its investment portfolio is diversified and
expects no material loss to result from the failure to perform by issuers of the
debt securities it holds. Investments made by the Company are not
collateralized. The mortgage-backed securities are insured by agencies of the US
Government.
NOTE 6
INVESTMENT INCOME. Income from investments and realized gains and losses from
sales of investments for the three years follow:
2000 1999 1998
------- ------- -------
($000 Omitted)
Income:
Debt securities .................................... 13,770 12,837 12,143
Short-term investments, cash equivalents
and other ........................................ 8,044 7,463 6,372
------- ------- -------
21,814 20,300 18,515
======= ======= =======
Realized gains and losses:
Gains .............................................. 823 536 1,923
Losses ............................................. (800) (270) (1,722)
------- ------- -------
23 266 201
======= ======= =======
The sales of securities resulted in proceeds of $51,066,000 in 2000,
$32,380,000 in 1999 and $54,368,000 in 1998.
Expenses assignable to investment income were insignificant. There were
no significant investments at December 31, 2000 that did not produce income
during the year.
NOTE 7
NOTES PAYABLE.
2000 1999
------ ------
($000 Omitted)
Banks
Primarily unsecured, 5.9% to 9.5%, varying payments ......... 30,146 16,900
Other than banks ................................................ 2,397 2,154
------ ------
32,543 19,054
====== ======
The above notes are due $17,104,000 in 2001, $4,472,000 in 2002,
$2,409,000 in 2003, $3,170,000 in 2004, $873,000 in 2005 and $4,515,000
subsequent to 2005.
F-10
27
NOTE 8
ESTIMATED TITLE LOSSES. Provisions accrued, payments made and liability balances
for the three years follow:
2000 1999 1998
-------- -------- --------
($000 Omitted)
Balances at January 1 ................. 183,787 171,763 156,791
Provisions ........................ 38,999 44,187 39,226
Payments .......................... (32,338) (32,628) (25,041)
Reserve balances acquired ......... -- 550 787
Decrease in salvage ............... (150) (85) --
-------- -------- --------
Balances at December 31 ............... 190,298 183,787 171,763
======== ======== ========
Provisions include amounts related to the current year of approximately
$38,815,000, $43,869,000 and $39,087,000 for 2000, 1999 and 1998, respectively.
Payments related to the current year, including escrow and other loss payments,
were approximately $8,515,000, $8,501,000 and $5,977,000 in 2000, 1999 and 1998,
respectively.
NOTE 9
COMMON STOCK AND CLASS B COMMON STOCK. Holders of Common and Class B Common
Stock have the same rights, except no cash dividends may be paid on Class B
Common Stock. The two classes of stock vote separately when electing directors
and on any amendment to the Company's certificate of incorporation that affects
the two classes unequally.
A provision of the by-laws requires an affirmative vote of at least
two-thirds of the directors to elect officers or to approve any proposal which
may come before the directors. This provision cannot be changed without a
majority vote of each class of stock.
Holders of Class B Common Stock may, with no cumulative voting rights,
elect four directors if 1,050,000 or more shares of Class B Common Stock are
outstanding; three directors if between 600,000 and 1,050,000 shares are
outstanding; and none if less than 600,000 shares of Class B Common Stock are
outstanding. Holders of Common Stock, with cumulative voting rights, elect the
balance of the nine directors.
Class B Common Stock may, at any time, be converted by its shareholders
into Common Stock on a share-for-share basis, but all of the holders of Class B
Common Stock have agreed among themselves not to convert their stock prior to
January 2005. Such conversion is mandatory on any transfer to a person not a
lineal descendant (or spouse, trustee, etc. of such descendant) of William H.
Stewart.
At December 31, 2000 and 1999, there were 145,820 shares (cost
$233,000) of Common Stock held by a subsidiary of the Company. These shares are
considered retired but may be issued from time to time in lieu of new shares.
On May 21, 1999 the Company effected a two-for-one stock split recorded
in the form of a stock dividend. All share and per share data presented in the
consolidated financial statements have been restated for the effects of the
stock split.
F-11
28
NOTE 10
CHANGES IN COMMON STOCK. Changes in stock and additional paid-in capital for the
three years follow:
CLASS B ADDITIONAL
COMMON COMMON PAID-IN
STOCK STOCK CAPITAL
------- ------- ----------
($000 Omitted)
Balances at December 31, 1997 ...................... 6,381 525 52,922
Acquisitions ................................... 41 -- 1,083
Stock bonuses and other ........................ 17 -- 560
Exercise of stock options ...................... 101 -- 1,442
Tax benefit of stock options exercised ......... -- -- 828
Foreign currency translation ................... -- -- 51
------- ------- -------
Balances at December 31, 1998 ...................... 6,540 525 56,886
Stock dividend ................................. 6,648 525 --
Acquisitions ................................... 441 -- 6,918
Stock bonuses and other ........................ 14 -- 599
Exercise of stock options ...................... 3 -- 62
Tax benefit of stock options exercised ......... -- -- 30
Foreign currency translation ................... -- -- (65)
------- ------- -------
Balances at December 31, 1999 ...................... 13,646 1,050 64,430
Acquisitions ................................... 430 -- 4,507
Stock bonuses and other ........................ 41 -- 545
Exercise of stock options ...................... 1 -- 18
Tax benefit of stock options exercised ......... -- -- 1
Foreign currency translation ................... -- -- (16)
------- ------- -------
Balances at December 31, 2000 ...................... 14,118 1,050 69,485
======= ======= =======
NOTE 11
STOCK OPTIONS. A summary of the status of the Company's fixed stock option plans
for the three years follows:
Exercise
Shares (1) prices (1)(2)
--------- --------------
($)
December 31, 1997 ................... 436,200 7.60
Granted ......................... 90,600 18.84
Exercised ....................... (202,800) 7.61
Forfeited ....................... (10,400) 7.91
-------- -----
December 31, 1998 ................... 313,600 10.84
Granted ......................... 86,800 19.70
Exercised ....................... (6,500) 10.08
Forfeited ....................... (1,500) 10.00
-------- -----
December 31, 1999 ................... 392,400 12.81
Granted ......................... 86,100 13.00
Exercised ....................... (1,500) 13.00
Forfeited ....................... (6,800) 13.57
-------- -----
December 31, 2000 ................... 470,200 12.83
======== =====
(1) Restated for a two-for-one stock split in May 1999.
(2) Weighted average
F-12
29
At December 31, 2000, 1999 and 1998 there were 470,200, 380,012 and
280,700 options, respectively, exercisable. The weighted average fair values of
options granted during the years 2000, 1999 and 1998 were $7.51, $8.50 and
$7.18, respectively.
The following summarizes information about fixed stock options
outstanding and exercisable at December 31, 2000:
Range of exercise prices ($)
9.75 to 18.78 to
4.59 13.00 20.22 Total
---------- ---------- ---------- ----------
Shares .................... 90,000 211,400 168,800 470,200
Remaining contractual
life - years (1) ........ 1.0 5.0 6.3 4.7
Exercise price ($) (1) .... 4.59 11.22 19.29 12.83
---------- ---------- ---------- ----------
(1) Weighted average
The Company applies APB 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost is recognized for its fixed
stock option plans. Under FAS 123, compensation cost is recognized for the fair
value of the employees' purchase rights, which is estimated using the
Black-Scholes model. The Company assumed a dividend yield of 0%, an expected
life of five to ten years for each option, expected volatility of 39.9% and a
risk-free interest rate of 5.8% for 2000.
Had compensation cost for the Company's plans been determined
consistent with FAS 123, the Company's net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below:
2000 1999 1998
--------- --------- ---------
($000 Omitted)
Net earnings:
As reported .......................... 606 28,422 47,038
Pro forma ............................ 186 27,943 46,615
Earnings per share: (1)
Net earnings - basic .................. .04 1.96 3.37
Net earnings - diluted ................ .04 1.95 3.32
Pro forma - assuming dilution ......... .01 1.91 3.30
--------- --------- ---------
(1) Restated for a two-for-one stock split in May 1999.
NOTE 12
EARNINGS PER SHARE. The Company's basic earnings per share was calculated by
dividing net earnings by the weighted average number of shares of Common Stock
and Class B Common Stock outstanding during the reporting period.
To calculate diluted earnings per share, the number of shares
determined above was increased by assuming the issuance of all dilutive shares
during the same reporting period. The treasury stock method was used in
calculating the additional number of shares. The only potentially dilutive
effect on earnings per share for the Company is related to its stock option
plans.
In calculating the effect of the options and determining diluted
earnings per share, the average number of shares used in calculating basic
earnings per share was increased by 106,000 in 2000, 125,000 in 1999 and 182,000
in 1998.
F-13
30
NOTE 13
LEASES. The Company's expense for leased office space was $32,667,000 in 2000,
$28,194,000 in 1999 and $23,131,000 in 1998. These are noncancelable, operating
leases expiring over the next nine years. The future minimum lease payments are
as follows (stated in thousands of dollars):
2001 ............................. 30,182
2002 ............................. 23,405
2003 ............................. 19,119
2004 ............................. 12,054
2005 ............................. 4,135
2006 and after ................... 4,884
------
93,779
======
NOTE 14
CONTINGENT LIABILITIES AND COMMITMENTS. The Company is contingently liable for
disbursements of escrow funds held by agents in certain cases where specific
insured closing guarantees have been issued.
Various takeout commitments approximated $3,801,000 at December 31,
2000. Management believes adequate provisions have been made for any losses
resulting from these commitments.
NOTE 15
REINSURANCE. As is the industry practice, the Company cedes risks to other title
insurance underwriters. However, the Company remains liable if the reinsurer
should fail to meet its obligations. The Company also assumes risk from other
underwriters. Payments and recoveries on reinsured losses were insignificant
during the three years ended December 31, 2000. The total amount of premiums for
assumed and ceded risks was less than one percent of title premiums, fees and
other revenues in each of the last three years.
NOTE 16
EQUITY IN INVESTEES. Certain summarized aggregate financial information for
investees follows:
2000 1999 1998
------ ------ ------
($000 Omitted)
For the year:
Revenues ..................... 37,757 29,164 85,706
Net earnings ................. 602 3,278 5,360
As of December 31:
Total assets ................. 19,183 13,234
Stockholders' equity ......... 10,026 5,230
------ ------ ------
The excess of the purchase price over the Company's share of equity
acquired in its investees is amortized on a basis similar to goodwill.
NOTE 17
SEGMENT INFORMATION. The Company's two reportable segments are title and real
estate information (REI). The segments significantly influence business to each
other because of the nature of their operations and their common customers. Both
segments serve the real estate and mortgage industries.
The title segment provides services needed in transferring the title in
a real estate transaction. These services include searching, examining and
closing the title to real property. This segment of the Company also insures the
condition of the title.
The REI segment primarily provides services related to real estate
transactions through electronic delivery. These services include title reports,
flood determinations, property appraisals, mortgage documents, credit reports
and tax services. This segment also provides post-closing services to lenders,
including document retrievals, assignments, lien releases, recordation,
collateral reviews and loan pool certifications.
F-14
31
In addition, this segment provides services related to Section 1031
tax-deferred exchanges, mapping, and construction and maintenance of title
plants for county clerks, tax assessors and title agencies.
Under the Company's internal reporting and accountability systems, most
general corporate expenses are incurred by and charged to the title segment.
Technology operating costs are also charged to the title segment, except for
direct expenditures related to the REI segment. All investment income is
included in the title segment as it is generated primarily from the investments
of the title underwriting operations.
Title REI Total
--------- --------- ---------
($000 Omitted)
Revenues:
2000 ............................... 883,022 52,463 935,485
1999 ............................... 1,012,215 59,039 1,071,254
1998 ............................... 918,389 50,372 968,761
Depreciation and amortization:
2000 ............................... 16,283 4,668 20,951
1999 ............................... 13,911 4,157 18,068
1998 ............................... 11,480 3,104 14,584
Pretax earnings:
2000 ............................... 5,591 (4,445) 1,146
1999 ............................... 43,615 2,950(1) 46,565
1998 ............................... 73,198 3,129 76,327
Identifiable assets:
2000 ............................... 525,045 38,403 563,448
1999 ............................... 496,191 39,550 535,741
--------- --------- ---------
(1) Includes a pretax charge of $1,319,000 resulting from the settlement of a
lawsuit.
NOTE 18
QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
Mar 31 June 30 Sept 30 Dec 31
-------- -------- -------- --------
($000 Omitted, except per share)
Revenues:
2000 .................................. 208,203 224,670 239,004 263,608
1999 .................................. 247,878 296,093 266,381 260,902
Net earnings:
2000 .................................. (3,354) 1,874 1,758 328
1999 .................................. 9,600 11,726 6,098 998
Earnings per share - diluted: (1)
2000 .................................. (.23) .13 .12 .02
1999 .................................. .67 .80 .41 .07
-------- -------- -------- --------
(1) Restated for a two-for-one stock split in May 1999.
F-15
32
STEWART TITLE GUARANTY COMPANY
STEWART TITLE INSURANCE COMPANY
Principal Underwriters of Stewart Information Services Corporation
UNCONSOLIDATED STATUTORY BALANCE SHEETS
From statutory Annual Statements as filed (unaudited)
Stewart Title Stewart Title
December 31, 2000 Guaranty Company Insurance Company
- ----------------- ---------------- -----------------
($000 Omitted)
Admitted assets
Bonds ........................................................ 222,807 24,339
Stocks - investments in affiliates ........................... 130,098 1,847
Stocks - other ............................................... 7,145 --
Cash and bank deposits ....................................... 35,041 2,386
Short-term investments ....................................... 2,297 999
Title plants ................................................. 4,221 166
Title insurance premiums, fees and other receivables ......... 10,557 896
Other ........................................................ 17,392 1,369
------- -------
429,558 32,002
======= =======
Liabilities, surplus and other funds
Reserve for title losses ..................................... 33,902 6,526
Statutory premium reserve .................................... 182,509 9,569
Other ........................................................ 18,046 1,634
------- -------
234,457 17,729
Surplus as regards policyholders (Note) .......................... 195,101 14,273
------- -------
429,558 32,002
======= =======
Consolidated stockholder's equity (unaudited), based on accounting principles
generally accepted in the United States of America (GAAP), for Stewart Title
Guaranty Company at December 31, 2000 ($000 omitted)............... 249,730
=======
Note: The amount shown above for stockholder's equity exceeds policyholder
surplus primarily because under GAAP the statutory premium reserve and reserve
for reported title losses are eliminated and estimated title loss reserves are
substituted, net of applicable income taxes.
F-16
33
SCHEDULE I
STEWART INFORMATION SERVICES CORPORATION
(PARENT COMPANY)
INCOME AND RETAINED EARNINGS INFORMATION
Year Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
(In thousands)
Revenues
Investment income ............................................ $ 374 $ 442 $ 583
Other income ................................................. 11 1 --
--------- --------- ---------
385 443 583
Expenses
Employee costs ............................................... 189 123 229
Other operating expenses ..................................... 2,084 2,840 3,006
Depreciation and amortization ................................ 33 106 92
--------- --------- ---------
2,306 3,069 3,327
Loss before taxes and equity in earnings of investees ........... (1,921) (2,626) (2,744)
Income taxes (benefit) .......................................... (419) (811) (566)
Equity in earnings of investees ................................. 2,108 30,237 49,216
--------- --------- ---------
Net income ...................................................... 606 28,422 47,038
Retained earnings at beginning of year .......................... 209,454 190,363 145,140
Cash dividends on Common Stock ($.00, $.16 and $.14 per
share) ...................................................... -- (2,158) (1,815)
Stock dividend .................................................. -- (7,173) --
--------- --------- ---------
Retained earnings at end of year ................................ $ 210,060 $ 209,454 $ 190,363
========= ========= =========
See accompanying note to financial statements.
S-1
34
SCHEDULE I
(CONTINUED)
STEWART INFORMATION SERVICES CORPORATION
(PARENT COMPANY)
BALANCE SHEET INFORMATION
December 31,
----------------------
2000 1999
--------- ---------
(In thousands)
Assets
Cash and cash equivalents .............................................................. $ 376 $ --
--------- ---------
Short-term investments ................................................................. 4,408 6,762
--------- ---------
Receivables:
Notes, including $4,300 and $6,618 from affiliates ................................... 4,869 7,168
Other, including $2,500 and $11,846 from affiliates .................................. 2,650 12,079
Less allowance for uncollectible amounts ............................................. (20) (20)
--------- ---------
7,499 19,227
Furniture and equipment at cost ........................................................ 251 246
Less accumulated depreciation .......................................................... (145) (115)
--------- ---------
106 131
Title plants, at cost .................................................................. 48 48
Investments in investees ............................................................... 280,544 259,328
Other assets ........................................................................... 4,693 4,556
--------- ---------
$ 297,674 $ 290,052
========= =========
Liabilities
Notes payable, including $ - and $ - from affiliates ................................. $ 417 $ 1,097
Accounts payable and accrued liabilities ............................................. 2,168 4,031
Contingent liabilities and commitments
Stockholders' equity
Common - $1 par, authorized 30,000,000, issued and outstanding 14,001,645 and
13,645,527........................................................................... 14,118 13,646
Class B Common - $1 par, authorized 1,500,000 and outstanding 1,050,012 ................ 1,050 1,050
Additional paid-in capital ............................................................. 69,485 64,430
Retained earnings (1) .................................................................. 210,060 209,454
Accumulated other comprehensive earnings (loss) ........................................ 1,888 (3,656)
Treasury stock - 116,900 Common shares, at cost ........................................ (1,512) --
--------- ---------
Total stockholders' equity ($19.61 and $19.39 per share) ........................ 295,089 284,924
--------- ---------
$ 297,674 $ 290,052
========= =========
(1) Includes undistributed earnings of subsidiaries of $213,805 in 2000 and
$212,249 in 1999.
See accompanying note to financial statements.
Schedule continued on following page.)
S-2
35
SCHEDULE I
(CONTINUED)
STEWART INFORMATION SERVICES CORPORATION
(PARENT COMPANY)
CASH FLOWS INFORMATION
Year Ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(In thousands)
Cash used by operating activities (Note) ..................... $ (5,701) $ (2,978) $ (2,805)
Cash flow from investing activities:
Proceeds from investments matured and sold ................ 2,354 4,677 --
Purchases of investments, excluding mortgage loans ........ -- -- (2,438)
Dividends received from unconsolidated subsidiaries ....... 8,090 5,090 7,633
Increases in mortgages and other notes receivable ......... (75) (542) (300)
Collections on mortgages and other notes receivable ....... 56 303 265
Cash paid for the acquisition of subsidiaries ............. (2,175) (4,470) (2,500)
-------- -------- --------
Cash provided by investing activities ........................ 8,250 5,058 2,660
-------- -------- --------
Cash flow from financing activities:
Dividends paid ............................................ -- (2,158) (1,815)
Proceeds of notes payable ................................. -- -- 417
Payments on notes payable ................................. (680) -- --
Proceeds from issuance of stock ........................... 19 65 1,543
Purchases of treasury stock ............................... (1,512) -- --
-------- -------- --------
Cash (used) provided by financing activities ................. (2,173) (2,093) 145
-------- -------- --------
(Decrease) increase in cash and cash equivalents ............. $ 376 $ (13) $ --
======== ======== ========
Note: Reconciliation of net income to the above amounts
Net income ................................................ $ 606 $ 28,422 $ 47,038
Add (deduct):
Depreciation and amortization .......................... 33 106 92
Increase in accounts receivable - net .................. (1,714) (727) (1,060)
(Decrease) increase in accounts payable and accrued
liabilities - net ................................... (1,863) 905 508
Equity in net earnings of investees .................... (2,108) (30,237) (49,216)
Stock bonuses paid ..................................... 586 613 577
Other - net ............................................ (1,241) (2,060) (744)
-------- -------- --------
Cash used by operating activities ......................... $ (5,701) $ (2,978) $ (2,805)
======== ======== ========
Supplemental information:
Income taxes paid ....................................... -- -- --
Interest paid ........................................... -- -- --
Noncash transactions:
Forgiveness of debt from affiliate ....................... 4,913 -- --
See accompanying note to financial statements.
(Schedule continued on following page.)
S-3
36
SCHEDULE I
(CONTINUED)
STEWART INFORMATION SERVICES CORPORATION
(PARENT COMPANY)
NOTE TO FINANCIAL STATEMENT INFORMATION
The Registrant operates as a holding company transacting substantially
all business through its subsidiaries. The consolidated financial statements for
the Registrant and its subsidiaries are included in Part II, Item 8 of Form
10-K. The Parent Company financial statements should be read in conjunction with
the aforementioned consolidated financial statements and notes thereto and
financial statement schedules.
Certain amounts in the 1999 and 1998 Parent Company financial
statements have been reclassified for comparative purposes. Net earnings, as
previously reported, were not affected.
Total dividends received from subsidiaries for 2000, 1999 and 1998 were
$90,000, $13,090,000 and $90,000, respectively.
S-4
37
SCHEDULE II
STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 2000
Col. C
Col. A Col. B Additions Col. D Col. E
---------------- -------------- ------------------------------- -------------- --------------
Balance Charged Charged to
at to other Balance
beginning cost and accounts -Deductions- at end
Description of period expenses (describe) described of period
---------------- -------------- -------------- -------------- -------------- --------------
Stewart Information Services
Corporation and subsidiaries:
Year ended December 31, 1998:
Estimated title losses ................. $ 156,791,382 $ 39,226,182 $ 787,000(C) $ 25,041,558(A) $ 171,763,006
Allowance for uncollectible amounts .... 5,551,849 2,110,000 -- 2,859,144(B) 4,802,705
Year ended December 31, 1999:
Estimated title losses ................. 171,763,006 44,186,778 550,000(C) 32,712,781(A) 183,787,003
Allowance for uncollectible amounts .... 4,802,705 792,000 -- 1,215,232(B) 4,379,473
Year ended December 31, 2000:
Estimated title losses ................. 183,787,003 38,999,295 -- 32,488,157(A) 190,298,141
Allowance for uncollectible amounts .... 4,379,473 2,130,000 -- 1,382,655(B) 5,126,818
Stewart Information Services
Corporation - Parent:
Year ended December 31, 1998:
Allowance for uncollectible amounts ..... $ 20,000 -- -- -- $ 20,000
Year ended December 31, 1999:
Allowance for uncollectible amounts ..... 20,000 -- -- -- 20,000
Year ended December 31, 2000:
Allowance for uncollectible amounts ..... 20,000 -- -- -- 20,000
(A) Represents payments of policy losses and loss adjustment expenses during the
year, less salvage collections.
(B) Represents uncollectible accounts written off.
(C) Represents estimated title loss reserve acquired.
S-5
38
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
3.1 - Certificate of Incorporation of the Registrant, as amended March
19, 2001
3.2 - By-Laws of the Registrant, as amended March 13, 2000
4. - Rights of Common and Class B Common Stockholders (incorporated
by reference to Exhibits 3.1 and 3.2 hereto)
10.1 - Summary of agreements as to payment of bonuses to certain
executive officers
10.2 - Deferred Compensation Agreements dated March 10, 1986, amended
July 24, 1990 and October 30, 1992, between the Registrant and
certain executive officers (incorporated by reference herein
from Exhibit 10.2 of Annual Report on Form 10-K for the fiscal
year ended December 31, 1997)
10.3 - Stewart Information Services Corporation 1999 Stock Option Plan
(incorporated by reference herein from Exhibit 10.3 of Annual
Report on Form 10-K for the fiscal year ended December 31, 1999)
21. - Subsidiaries of the Registrant
23. - Consent of Independent Certified Public Accountant, including
consent to incorporation by reference of their reports into
previously filed Securities Act registration statements