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From the Wires
LandAmerica Reports Third Quarter 2008 Results
Definitive Merger Agreement Signed with Fidelity National Financial, Inc.
By: PR Newswire
Nov. 10, 2008 08:01 AM
Third Quarter Third Quarter
2008 2007
(In millions, except per share data)
Total revenue $631.8 $906.8
Net loss $(599.6) $(20.8)
Net loss per diluted share $(39.45) $(1.28)
Nine Months Nine Months
2008 2007
(In millions, except per share data)
Total revenue $2,030.6 $2,860.4
Net loss $(673.8) $(8.2)
Net loss per diluted share $(44.33) $(0.49)
Commenting on LandAmerica's performance, Chairman and Chief Executive
Officer Chandler added, "We are also further strengthening our reserves by
approximately "On Merger Agreement Under the terms of the definitive agreement, which has been approved by
the boards of directors of both companies, LandAmerica shareholders will
receive 0.993 shares of Fidelity common stock for each share of LandAmerica
common stock issued and outstanding at the closing of the merger. The exchange
ratio will be reduced if the Company's sale of Centennial Bank, which is a
condition to closing the merger, results in net proceeds to the Company of
less than a threshold amount. The merger transaction will be immediately
preceded by a loan from certain of Fidelity's title insurance subsidiaries to
the Company and/or Fidelity, and/or a dividend to Fidelity, in an amount equal
to the book value, as of The transaction is subject to certain closing conditions, including the
approval of LandAmerica shareholders, antitrust and state regulatory
approvals, the sale of Centennial Bank, receipt of certain waivers under the
Company's revolving credit facility ("Credit Agreement") and Note Purchase and
Master Shelf Agreement with Prudential Investment Management, Inc. ("Note
Purchase Agreement") and the satisfaction of other closing conditions. The
merger agreement also provides that Fidelity can terminate the agreement on or
before In connection with the execution of the merger agreement, a subsidiary of
Fidelity also agreed to provide the Company with a Third Quarter Highlights (Unless otherwise indicated, all references to growth rate percentages below compare the results of the period to those of the prior year comparable period.) -- Pretax loss in third quarter 2008 included -- Non-cash impairment charges for third quarter 2008 included -- Tax expense of -- In third quarter 2008, total revenue decreased by 30.3% and direct revenue from title and non-title commercial operations declined by 40.1% because of the continued lower residential mortgage originations and lower commercial real estate activity. As estimated by the Mortgage Bankers Association, mortgage originations declined by approximately 22.4% in third quarter 2008. -- Based on continued adverse reported and paid claims trends over the
last six quarters, the Company has more heavily weighted the more recent
years' loss experience in the actuarial model and incorporated that data into
the assumptions and factors that determine ultimate expected loss experience
for all prior calendar years. This weighting further strengthened the
Company's reserves for policy and contract claims by approximately -- To reduce infrastructure cost, approximately 60 offices were closed
during third quarter 2008, bringing the total number of office closures to
around 420 since -- The quarterly dividend was suspended in
SEGMENT RESULTS
Title Operations
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $534.3 $791.0 (32.5)%
Pretax (losses) earnings before
non-cash charges $(114.4) $1.2 n/m
Non-cash charges $(217.9) - -
Pretax (losses) earnings after
non-cash charges $(332.3) $1.2 n/m
Average full-time equivalents 7,000 10,400 (32.7)%
Claims ratio 23.5% 9.9% 13.6 bps
bps - basis points
n/m - not meaningful
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $1,711.0 $2,487.1 (31.2)%
Pretax (losses) earnings before
non-cash charges $(194.9) $65.7 n/m
Non-cash charges $(217.9) - -
Pretax (losses) earnings after
non-cash charges $(412.8) $65.7 n/m
Average full-time equivalents 7,600 11,000 (30.9)%
Claims ratio 16.3% 8.6% 7.7 bps
bps - basis points
n/m - not meaningful
In the Title Operations segment, total revenue was negatively affected by
the decline in residential real estate transactions, lower property values, a
decrease in commercial revenue and a Responding to significant reductions in mortgage origination volumes, the
Company has aggressively cut operating costs in this segment. FTEs in third
quarter and the first nine months of 2008 were down by roughly a third from
the comparable periods in 2007. The reduction in FTEs lowered salary and
employee benefit costs by Additionally, before a The claims provision as a percentage of operating revenue for the Title
Operations segment was 23.5% in third quarter 2008, up from 9.9% in third
quarter 2007, reflecting In addition to the impairment of certain securities, non-cash charges
include impairments of goodwill and other intangibles of
Lender Services
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $61.0 $67.4 (9.5)%
Pretax earnings (losses) before
non-cash charges $3.7 $(2.7) n/m
Non-cash charges $(74.9) - -
Pretax losses after non-cash charges $(71.2) $(2.7) n/m
Average full-time equivalents 1,560 1,720 (9.3)%
n/m - not meaningful
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $197.3 $220.1 (10.4)%
Pretax earnings before non-cash charges $17.2 $11.1 n/m
Non-cash charges $(74.9) $(20.8) n/m
Pretax losses after non-cash charges $(57.7) $(9.7) n/m
Average full-time equivalents 1,550 1,780 (12.9)%
n/m - not meaningful
Before non-cash charges, the Lender Services segment generated pretax earnings in third quarter 2008 and the first nine months of 2008. Total revenue was negatively affected by lower volume in certain product lines of the mortgage origination businesses and the loan servicing business. The default management services business experienced higher volume due primarily to increased demand for lien monitoring, foreclosure and other related services as a result of the continuing downturn in the residential real estate market. The loan sub-servicing business experienced higher revenue primarily from new product offerings. Revenue was positively affected in 2007 by the acceleration of deferred revenue in the loan servicing business in first quarter 2007. Responding to significant reductions in mortgage origination volumes, the
Company reduced average FTEs third quarter 2008 compared to third quarter 2007
by approximately 160, resulting in salary and employee benefit cost reductions
of
Financial Services
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $13.0 $10.8 20.4%
Pretax earnings before non-cash charges $5.1 $4.0 27.5%
Non-cash charges $(0.5) - -
Pretax earnings after non-cash
charges $4.6 $4.0 15.0%
Average full-time equivalents 27 21 28.6%
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $37.8 $32.6 16.0%
Pretax earnings before non-cash charges $15.1 $14.1 7.1%
Non-cash charges $(0.5) - -
Pretax earnings after non-cash charges $14.6 $14.1 3.5%
Average full-time equivalents 27 21 28.6%
In the Financial Services segment, revenue increased primarily due to an increase in investment income and an increase in 1031 exchange business previously serviced in the Title Operations segment, offset in part by the non-cash impairment of certain securities. Pretax earnings also included the effect of increased interest expense from deposit liabilities. Average FTEs increased primarily to support the increase in 1031 exchange business.
Corporate and Other
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $23.5 $37.6 (37.5)%
Pretax losses before non-cash charges $(31.6) $(30.9) (2.3)%
Non-cash charges $(13.4) - -
Pretax losses after non-cash charges $(45.0) $(30.9) (45.6)%
Average full-time equivalents 1,000 1,170 (14.5)%
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $84.5 $120.6 (29.9)%
Pretax losses before non-cash charges $(86.9) $(79.5) (9.3)%
Non-cash charges $(13.4) - -
Pretax losses after non-cash charges $(100.3) $(79.5) (26.2)%
Average full-time equivalents 1,040 1,080 (3.7)%
Corporate and Other includes unallocated corporate expenses, residential
home warranty and inspection businesses and commercial property appraisal and
assessment businesses. Before non-cash charges, total revenue and pretax
losses were negatively affected by declines in the commercial operations and
in home warranty and property inspection businesses. The home warranty and
property inspection businesses are dependent on existing home sale volumes.
Revenue from commercial operations within Corporate and Other was Average FTEs decreased by 14.5% in third quarter 2008 compared to third
quarter 2007. The decline in FTEs was in response to lower business volume
and lowered salary and employee benefit costs by In addition to Income Taxes The effective income tax rate was (21.1)% in the first nine months of 2008
compared to 13.2% in the first nine months of 2007. In compliance with
financial accounting standards, which require companies to evaluate and value
their deferred tax assets, the Company has determined that a valuation
allowance should be placed against its net deferred tax asset. This resulted
in a third quarter non-cash charge to income tax expense of Liquidity As more fully discussed in the Company's Form 10-Q for the period ended
The effects of the severe downturn also resulted in the Company's
violation at The Company is currently in discussions with its lenders to obtain a waiver and amendment to the Note Purchase Agreement and Credit Agreement. Any agreement reached with its lenders could result in new terms which are less favorable than current terms under the existing agreements and could involve a reduction in availability of funds, an increase in interest rates and shorter maturities, among other things. If the Company is not successful in securing waivers and amendments, it may need to seek new financing arrangements from other lenders. Such alternative financing arrangements may be unavailable to the Company or available on terms substantially less favorable than its existing credit facilities. Although the transaction with Fidelity is structured to repay the Company's Note Purchase Agreement and its Credit Agreement and the Company has taken and continues to take actions to address its liquidity and capital resource issues, there can be no assurances that the Company can negotiate an acceptable solution with its lenders or obtain alternative financing, that the Company's liquidity and capital resources will be sufficient to meet its short-term and long-term needs or that the Company will be able to consummate the merger with Fidelity. If the Company's efforts to address the above issues or to consummate the merger with Fidelity are unsuccessful, there could be a material adverse effect on the Company's business and financial position. About LandAmerica Financial Group, Inc. LandAmerica Financial Group, Inc. is a leading provider of real estate
transaction services with offices nationwide and a vast network of active
agents. LandAmerica serves its agent, residential, commercial and lender
customers throughout Additional Information About the Proposed Merger In connection with the proposed merger, Fidelity will file with the SEC a Registration Statement on Form S-4 that will include a proxy statement of LandAmerica that also constitutes a prospectus of Fidelity. LandAmerica will mail the proxy statement/prospectus to its shareholders. Fidelity and LandAmerica urge investors and security holders to read the proxy statement/prospectus regarding the proposed merger when it becomes available because it will contain important information. You may obtain copies of all documents filed with the SEC regarding this transaction, free of charge, at the SEC's website at www.sec.gov. You may also obtain these documents, free of charge, from Fidelity's website at www.fnf.com under the tab "Investor Relations" and then under the item "SEC Filings". You may also obtain these documents, free of charge, from LandAmerica's website at www.landam.com under the heading "Investor Information" and then under the tab "SEC Filings". Fidelity, LandAmerica and their respective directors, executive officers
and certain other members of management and employees may be soliciting
proxies from LandAmerica's shareholders in favor of the merger. Information
regarding the persons who may, under the rules of the SEC, be deemed
participants in the solicitation of such shareholders in connection with the
proposed merger will be set forth in the proxy statement/prospectus when it is
filed with the SEC. You can find information about Fidelity's executive
officers and directors in its definitive proxy statement filed with the SEC on
Segment Results
(In millions)
Quarter Ended September 30, 2008
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $202.8 $61.0 $0.8 $23.5 $288.1
Agency operations 342.0 - - - 342.0
Investment income (10.5) - 12.2 - 1.7
Total revenue 534.3 61.0 13.0 23.5 631.8
Agents' commissions 277.3 - - - 277.3
Interest expense on
bank deposits and
FHLB borrowings - - 6.7 - 6.7
Net revenue 257.0 61.0 6.3 23.5 347.8
Salaries and employee
benefits 151.1 22.3 0.9 22.9 197.2
General, administrative
and other 163.7 30.7 0.7 19.4 214.5
Claims provision 128.3 1.3 - 3.3 132.9
Depreciation and
amortization 8.0 3.0 0.1 4.7 15.8
Interest expense on
notes payable 0.4 - - 6.0 6.4
Impairment of intangible
and long-lived assets 137.8 74.9 - 12.2 224.9
Earnings (loss) before
income taxes $(332.3) $(71.2) $4.6 $(45.0) $(443.9)
Quarter Ended September 30, 2007
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $326.9 $67.3 $0.2 $35.6 $430.0
Agency operations 444.0 - - - 444.0
Investment income 20.1 0.1 10.6 2.0 32.8
Total revenue 791.0 67.4 10.8 37.6 906.8
Agents' commissions 357.4 - - - 357.4
Interest expense on
bank deposits and
FHLB borrowings - - 5.7 - 5.7
Net revenue 433.6 67.4 5.1 37.6 543.7
Salaries and employee
benefits 222.1 24.3 0.7 25.1 272.2
General, administrative
and other 123.9 41.2 0.3 30.7 196.1
Claims provision 76.1 1.1 - 3.2 80.4
Depreciation and
amortization 10.1 3.5 0.1 2.8 16.5
Interest expense on
notes payable 0.2 - - 6.7 6.9
Earnings (loss) before
income taxes $1.2 $(2.7) $4.0 $(30.9) $(28.4)
Nine Months Ended September 30, 2008
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $678.5 $196.7 $2.8 $78.6 $956.6
Agency operations 1,017.5 - - - 1,017.5
Investment income 15.0 0.6 35.0 5.9 56.5
Total revenue 1,711.0 197.3 37.8 84.5 2,030.6
Agents' commissions 825.1 - - - 825.1
Interest expense on
bank deposits and
FHLB borrowings - - 18.7 - 18.7
Net revenue 885.9 197.3 19.1 84.5 1,186.8
Salaries and employee
benefits 490.1 70.8 2.8 73.2 636.9
General, administrative
and other 367.2 96.9 1.4 60.9 526.4
Claims provision 276.9 3.4 - 8.6 288.9
Depreciation and
amortization 25.6 9.0 0.3 12.3 47.2
Interest expense on
notes payable 1.1 - - 17.6 18.7
Impairment of intangible
and long-lived assets 137.8 74.9 - 12.2 224.9
Earnings (loss) before
income taxes $(412.8) $(57.7) $14.6 $(100.3) $(556.2)
Nine Months Ended September 30, 2007
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $1,106.3 $219.1 $0.6 $111.5 $1,437.5
Agency operations 1,319.3 - - - 1,319.3
Investment income 61.5 1.0 32.0 9.1 103.6
Total revenue 2,487.1 220.1 32.6 120.6 2,860.4
Agents' commissions 1,062.4 - - - 1,062.4
Interest expense on
bank deposits and
FHLB borrowings - - 15.1 - 15.1
Net revenue 1,424.7 220.1 17.5 120.6 1,782.9
Salaries and employee
benefits 738.9 78.6 2.4 76.1 896.0
General, administrative
and other 382.4 114.1 0.8 82.9 580.2
Claims provision 207.4 5.2 - 9.0 221.6
Depreciation and
amortization 29.7 11.1 0.2 11.3 52.3
Interest expense on
notes payable 0.6 - - 20.8 21.4
Impairment of intangible
and long-lived assets - 20.8 - - 20.8
Earnings (loss) before
income taxes $65.7 $(9.7) $14.1 $(79.5) $(9.4)
Summary of Operations
(In millions, except per share data and order information)
(Unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Operating revenue $630.1 $874.0 $1,974.1 $2,756.8
Investment and other income 20.9 26.6 77.9 89.0
Net realized investment (losses) gains (19.2) 6.2 (21.4) 14.6
TOTAL REVENUE 631.8 906.8 2,030.6 2,860.4
Agents' commissions 277.3 357.4 825.1 1,062.4
Salaries and employee benefits 197.2 272.2 636.9 896.0
General, administrative and other 214.5 196.1 526.4 580.2
Provision for policy and contract
claims 132.9 80.4 288.9 221.6
Depreciation and amortization 15.8 16.5 47.2 52.3
Interest expense 13.1 12.6 37.4 36.5
Impairment of intangible and
long-lived assets 224.9 - 224.9 20.8
TOTAL EXPENSES 1,075.7 935.2 2,586.8 2,869.8
Loss before income taxes (443.9) (28.4) (556.2) (9.4)
Income tax expense (benefit) 155.7 (7.6) 117.6 (1.2)
Net loss $(599.6) $(20.8) $(673.8) $(8.2)
Net loss per common share $(39.45) $(1.28) $(44.33) $(0.49)
Weighted average number of common
shares outstanding 15.2 16.2 15.2 16.7
Net loss per common share
assuming dilution $(39.45) $(1.28) $(44.33) $(0.49)
Weighted average number of common
shares outstanding assuming
dilution 15.2 16.2 15.2 16.7
Other selected information:
Cash flow (used in) provided
by operations $(73.2) $(28.7) $(171.5) $84.0
Title claims paid $67.5 $46.7 $174.5 $136.8
Direct revenue per direct
order closed $2,000 $2,200 $1,900 $2,200
Direct orders opened (in thousands):
July 57.5 85.0
August 52.7 82.2
September 52.8 66.0
Total direct orders opened 163.0 233.2 616.9 810.9
Total direct orders closed 112.7 161.3 398.1 544.7
Condensed Balance Sheets
(In millions, except share amounts)
September 30, December 31,
2008 2007
(Unaudited)
ASSETS
Investments $1,256.5 $1,444.6
Cash 63.2 98.2
Loans receivable 720.8 638.4
Accrued interest receivable 12.4 16.8
Notes and accounts receivable 123.7 150.6
Income taxes receivable 33.7 22.7
Property and equipment, net 108.9 133.4
Title plants 101.4 102.4
Goodwill and intangible assets, net 674.0 904.3
Deferred income taxes - 120.1
Other assets 230.5 222.2
Total assets $3,325.1 $3,853.7
LIABILITIES
Policy and contract claims $982.5 $876.5
Deposits 707.9 564.5
Accounts payable and accrued liabilities 309.2 365.3
Notes payable 569.4 579.5
Deferred service arrangements 184.4 199.9
Other liabilities 86.4 67.3
Total liabilities 2,839.8 2,653.0
SHAREHOLDERS' EQUITY
Common stock, no par value, 45,000,000 shares
authorized, shares issued and outstanding:
2008 - 15,476,306; 2007 - 15,351,550 339.2 335.4
Accumulated other comprehensive loss (61.6) (26.2)
Retained earnings 207.7 891.5
Total shareholders' equity 485.3 1,200.7
Total liabilities and shareholders'
equity $3,325.1 $3,853.7
Forward-Looking Statements The Company cautions readers that the statements contained herein regarding the Company's future financial condition, results of operations, future business plans, operations, opportunities or prospects, including any factors which may affect future earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance or achievements to be materially different from any anticipated results, performance or achievements, expressed or implied by such forward-looking statements. Such risks and uncertainties include: -- the Company's results of operations and financial condition are susceptible to changes in mortgage interest rates, the availability of mortgage financing and general economic conditions; -- changes to the participants in the secondary mortgage market could affect the demand for title insurance products; -- the Company is subject to government regulation; -- heightened regulatory scrutiny of the Company and the title insurance industry, including any future resulting reductions in the pricing of title insurance products and services, could materially and adversely affect the Company's business, operating results and financial condition; -- adverse market conditions, including the illiquidity of our auction rate securities, may significantly affect the Company's ability to meet its liquidity needs; -- adverse changes in general business or economic conditions generally or specifically in the principal markets in which the Company does business could adversely impact the Company's business; -- the Company may not be able to fuel its growth through acquisitions; -- the Company's inability to integrate and manage successfully its acquired businesses could adversely affect its business, operating results and financial condition; -- customer loss and business disruption as a result of the pendency of the LandAmerica/Fidelity merger, including without limitation difficulties in maintaining relationships with employees, and merger-related expenses, may be greater than expected; -- completion of the merger is subject to the satisfaction of various conditions to closing set forth in the definitive merger agreement between the Company and Fidelity, including without limitation receipt of the Company's shareholder approval, and the merger may not be completed on the anticipated schedule or at all; -- if the merger is completed, the success of the LandAmerica/Fidelity merger is subject to risks and uncertainties, including without limitation the risk that Fidelity may not be able to achieve the expected cost savings, synergies and other strategic benefits from the proposed transaction or may take longer to achieve the cost savings, synergies and benefits than expected, and the integration of the Company with Fidelity's operations may not be successful or may be materially delayed or may be more costly or difficult than expected; -- regulatory non-compliance, fraud or defalcations by the Company's title insurance agents or employees could adversely affect its business, operating results and financial condition; -- competition in the Company's industry affects its revenue; -- significant industry changes and new product and service introductions require timely and cost-effective responses; -- the Company's litigation risks include substantial claims by large classes of claimants; -- the Company's claims experience may require it to increase its provision for title losses or to record additional reserves, either of which may adversely affect its earnings; -- key accounting and essential product delivery systems are concentrated in a few locations; -- provisions of the Company's articles of incorporation and bylaws and applicable state corporation, insurance and banking laws could limit another party's ability to acquire the Company and could deprive shareholders of the opportunity to obtain a takeover premium for shares of common stock owned by them; -- the Company's future success depends on its ability to continue to attract and retain qualified employees; -- the Company's conduct of business in foreign markets creates financial and operational risks and uncertainties that may materially and adversely affect its business, operating results and financial condition; and -- various external factors including general market conditions, governmental actions, economic reports and shareholder activism may affect the trading volatility and price of the Company's common stock. For a description of factors that may cause actual results to differ materially from such forward-looking statements, see the Company's Annual Report on Form 10-K for the full year 2007 and other reports from time to time filed with or furnished to the Securities and Exchange Commission. The Company cautions investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. The Company undertakes no obligation to update any forward-looking statements made in this release. SOURCE LandAmerica Financial Group, Inc.
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