One each in Alabama, Colorado, Illinois, Kansas, Massachusetts, Minnesota, Ohio, Rhode Island and Washington D.C.
- --------------- (1) During 1995, the Company recognized an $813,000 extraordinary loss, net of income taxes of $437,000, related to the early retirement of its Senior Secured Notes.
(2) The Company acquired Nations Title Inc. and its wholly-owned subsidiaries on April 1, 1996. The selected financial data above includes the balance sheet accounts of Nations Title Inc. and subsidiaries at December 31, 1999, 1998, 1997 and 1996; and the results of its operations for the years ended December 31, 1999, 1998, 1997 and for the nine-month period ended December 31, 1996.
(3) During 1996 and 1997 the Company acquired certain real estate related ancillary service companies in various transactions. The selected financial data above includes the balance sheet accounts of the acquired companies as of December 31 of the year acquired and all subsequent years presented; and the results of their operations for the periods from the date of acquisition through December 31 of the acquisition year and for the years ended December 31 for all subsequent years presented.
(4) The Company acquired FNF Capital, Inc. and subsidiaries (formerly known as Granite Financial, Inc., "FNF Capital") on February 26, 1998. This acquisition has been accounted for as a pooling-of-interests. The selected financial data above includes the balance sheet accounts of FNF Capital at December 31, 1999, 1998, 1997 and 1996; and the results of its operations for the years ended December 31, 1999, 1998, 1997 and 1996. FNF Capital's financial position and results of operations for the years ended December 31, 1995 and prior were insignificant, and as such, the 1995 selected financial data above has not been restated to include FNF Capital.
(6) The Company completed the merger of its wholly-owned subsidiary ACS Systems, Inc. ("ACS") with and into Micro General Corporation (OTCBB:MGEN, "Micro General") on May 14, 1998. This transaction has been accounted for as a reverse merger of Micro General into ACS, with Micro General as the surviving legal entity. The selected financial data above includes the balance sheet accounts of Micro General at December 31, 1999 and 1998 and the results of its operations for the year ended December 31, 1999 and for the period from May 14, 1998 through December 31, 1998. The Company currently owns 69.3% of Micro General Corporation. See Note B of Notes to Consolidated Financial Statements.
- --------------- (1) Includes the impact of recording the Company's provision for claim losses at 6.0% as a percentage of title insurance premiums for the year ended December 31, 1999, compared to 6.5% for the nine-month period ended September 30, 1999.
The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition and results of operations of Fidelity National Financial, Inc. and subsidiaries (collectively, the "Company"). This discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto appearing elsewhere herein.
The following table presents certain financial and other data for the years indicated:
- develop and integrate advanced proprietary technologies that respond to the needs of customers in each of its markets;
- deliver quality customer service and provide its employees with extensive training and incentive and equity based compensation programs; and
Total revenue in 1999 increased 4.9% to $1,352.2 million from $1,288.5 million in 1998. Revenue in 1998 of $1,288.5 million reflected a 49.3% increase from 1997 revenue of $863.1 million. The increases in total revenue are primarily the result of strength in the Company's core title and real estate related operations, which were positively impacted by favorable market conditions leading to an increase in real estate activity. The increased real estate activity, combined with acquisitions of ancillary service companies and the integration of those ancillary service operations into the Company's core businesses, also contributed to increased revenue.
Title insurance premiums increased by 3.2% to $939.4 million in 1999 from $910.3 million in 1998. In 1998, title premiums increased by 47.8% to $910.3 million from $616.1 million in 1997. The premium increases from 1997 through 1999 are indicative of the favorable market conditions existing during the period. In 1999, refinance transactions declined from record levels in 1998 to levels consistent with historical norms due to interest rate increases caused by actions taken by the Federal Reserve Board. Increases in mortgage interest rates were partially offset by consumer confidence in the overall economy, which resulted in record home sales in 1999. As the volume of refinance transactions decreased, the market shifted from a refinance driven market to a more traditional market driven by new home purchases and resales. The Company also experienced a slight shift in its title premium mix from direct operations to agency operations during 1999.
Other fees and revenue generally trend closely with the level and mix of business, as well as the performance of certain of the Company's title related subsidiaries. During 1996 and 1997, the Company acquired certain ancillary service companies in various separate transactions. The Company's strategy in making the ancillary service company acquisitions was to acquire previously existing entities in businesses it believed to be complementary to its core title and escrow businesses. Further, the Company sought to acquire companies with strong management and efficient operations in order to provide for a seamless transition from their being stand-alone operations to being subsidiaries of the Company and to prevent any disruption of the acquired companies' businesses, while minimizing integration costs. The integration of the ancillary service companies continues as expected and integration related costs have been negligible. The acquired ancillary service companies have been bundled with other existing lender services to form Fidelity National Lender Express Network ("FLEXNet"). Utilizing its extensive network as its primary distribution channel and FLEXNet as the platform to provide a comprehensive network of real estate related services, the Company has made a concerted effort to develop the ancillary service contribution to title and real estate related revenue. The Company has been able to leverage its core title and escrow businesses, national presence and proprietary technology in successfully expanding the market presence of its ancillary service businesses. FLEXNet provides a complete range of real estate transactional services, leading to increased other fees and revenue. These services include collection and trust activities, real estate information and technology services, trustee sale guarantees, credit reporting, attorney services, flood certification, tax monitoring, home warranty insurance, reconveyances, recordings, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. In addition to the impact of increased title and real estate related revenue, other fees and revenue have increased as a result of an increased contribution from Micro General Corporation (OTCBB:MGEN, "Micro General"), the Company's majority-owned information technology and telecommunication services subsidiary, and FNF Capital, Inc. (formerly known as Granite Financial, Inc., "FNF Capital"), the Company's leasing subsidiary. 1999 other fees and revenue were $260.6 million, an increase of $52.3 million, or 25.1%, over 1998 other fees and revenue of $208.3 million. In 1998, other fees and revenue increased $83.2 million, or 66.4%, to $208.3 million from $125.1 million in 1997.
Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. 1999 interest and investment income was $28.4 million compared to $39.6 million in 1998, a decrease of $11.2 million, or 28.3%. Average invested assets, excluding real estate, increased 13.4% to $547.4 million from $482.5 million in 1998. The tax equivalent yield in 1999, excluding net realized losses, was 6.2%. The decrease in investment income in 1999 from 1998 is the result of net realized losses in 1999 of ($76,000) compared to net realized gains in 1998 of $17.2 million, offset by an increase in interest and dividend income generated by the increased invested asset base and interest rate increases during the year. 1998 investment income increased $3.8 million, or 10.6%, to $39.6 million compared to $35.8 million in 1997. Average invested assets, excluding real estate, increased 28.6% to $482.5 million in 1998 from $375.1 million in 1997, while the tax equivalent yield remained at 5.5%. The increase in investment income in 1998 over 1997 is primarily the result of an increase in interest and dividend income generated by the increased invested asset base. Net realized gains from the sale of investment securities and other assets in 1998 were $17.2 million compared to $16.8 million in 1997, prior to applicable income taxes. Included in 1998 net realized gains is a gain from the conversion of the Company's investment in Data Tree Corporation of approximately $9.7 million. The primary components of 1997 net realized gains are the following: $10.4 million in capital gains from the sale of investment securities and other assets, $4.3 million in capital gain from the sale of the Company's former home office building, $1.3 million from the sale of a majority interest in
American Title Company and approximately $800,000 in capital gain from the sale of the Company's former small business investment company subsidiary, FNF Ventures, Inc.
The Company's operating expenses consist primarily of personnel costs, other operating expenses and agent commissions, which are incurred as orders are received and processed. Title insurance premiums, escrow fees and other fees and revenue are generally recognized as income at the time the underlying transaction closes. Certain other fees and revenue are recognized over the period the related services are provided. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have impacted margins and net earnings. The Company has implemented programs and taken the necessary actions to maintain expense levels consistent with revenue; however, a short time lag does exist in reducing variable costs and certain fixed costs are incurred regardless of revenue levels.
Other operating expenses consist of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums and title related revenue in lieu of franchise and other state taxes), postage and courier services, computer services, professional services, advertising expenses, general insurance, trade and notes receivable allowances and depreciation. The Company continues to be committed to cost control measures. In response to market conditions, the Company implemented aggressive cost control programs in order to maintain operating expenses at levels consistent with the levels of revenue; however, certain fixed costs are incurred regardless of revenue levels, resulting in year over year percentage fluctuations. The Company's cost control programs are designed to evaluate expenses, both current and budgeted, relative to existing and projected market conditions. Items considered include, but are not limited to, capital expenditures, service contracts, property requirements (e.g., renewal/termination of leases and relocation of offices), expected fluctuations in the number of personnel, the impact of technology and profitability. Additionally, the Company has centralized its purchasing function in order to obtain the most favorable prices/rates available for vendor provided products and services, which also facilitates a highly structured requisition/approval process and cost analysis program. Other operating expenses increased as a percentage of total revenue to 24.8% in 1999 from 20.0% in 1998, which had previously decreased from 21.9% in 1997. The primary components of the increase in 1999 are the impact of Micro General's business expansion, increased data processing and information technology costs and normal year over year price
Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions and the resulting percentage of agent premiums retained by the Company vary according to regional differences in real estate closing practices and state regulations.
- --------------- (1) On March 18, 1998, the Company announced that it had entered into an agreement to sell National Title Insurance of New York Inc. ("National") to American Title Company, a wholly-owned subsidiary of American National Financial, Inc. ("ANFI"), for $3.25 million, subject to regulatory approval and
certain other conditions. The purchase price was structured at a premium to book value. The Company currently holds a 29.2% interest in ANFI. National was acquired in April 1996, as part of the Nations Title Inc. acquisition, and has not been actively underwriting policies since that time. This transaction received regulatory approval on May 27, 1999 and closed on June 10, 1999. The Company recognized a gain of approximately $1.2 million prior to applicable income taxes, in connection with the sale of National. This gain has been reflected in the Consolidated Statement of Earnings for the year ended December 31, 1999.
The Company's Insurance Subsidiaries and UTCs collect premiums and pay claims and operating expenses. The Insurance Subsidiaries also have cash flow sources derived from investment income, repayments of principal and proceeds from sales and maturities of investments and dividends from subsidiaries. Positive cash flow from the Insurance Subsidiaries is invested primarily in short-term investments and medium-term bonds. Short-term investments held by the Company's Insurance Subsidiaries provide liquidity for projected claims and operating expenses.
In connection with the Merger, the Company has entered into an $800 million syndicated credit agreement ("Credit Agreement"). The Credit Agreement provides for three distinct credit facilities: a $100 million, 18-month revolving credit facility, a $250 million 6-year revolving credit facility and a $450 million term loan facility with a 6-year amortization period. The Credit Agreement is unsecured at a variable interest rate based on the debt ratings assigned to the Company by independent agencies. The initial interest rate is LIBOR plus 1.50%. Proceeds from the Credit Agreement are available and have been used to finance the cash portion of the Merger consideration, to refinance certain previously existing indebtedness, to pay fees and expenses incurred in connection with the Merger and to fund other general corporate purposes of the combined company. The Company believes that the terms of the Credit Agreement are favorable.
In February 1994, the Company issued zero coupon, convertible subordinated Liquid Yield Option Notes due February 2009 at an interest rate of 5.5% with a principal amount at maturity of $235,750,000. Net
1999, loans had been made in the amount of $7.25 million to purchase 484,000 shares of Company common stock at an average purchase price of $15.41 per share. There have been no significant purchases since December 31, 1999.
On August 1, 1999, the Company announced that it had signed an Agreement and Plan of Merger ("Merger Agreement") to purchase Chicago Title Corporation ("Chicago Title"), headquartered in Chicago, Illinois, for approximately $1.13 billion, or $52.00 per share of Chicago Title common stock, using approximately equal amounts of cash and Company common stock, subject to certain adjustments based on the average price of Company common stock, as defined in the Merger Agreement. Under the terms of the Merger Agreement, the allocation between cash and stock would be adjusted so Chicago Title stockholders would receive more than 50% of the outstanding stock of the combined company. Additionally, the price would be payable in shares of Company common stock or, upon election by Chicago Title stockholders, in cash, subject to proration as may be necessary to achieve the allocation between cash and stock described above. The Merger Agreement, which was amended on October 13, 1999 has been approved by the Boards of Directors of both companies, and was approved by the stockholders of both the Company and Chicago Title in February 2000. Following the receipt of requisite regulatory approvals and the satisfaction of other customary conditions, including amendments to the Company's Bylaws, Charter and Certificate of Incorporation, the transaction closed on March 20, 2000.
In connection with the Merger, the Company has entered into an $800 million syndicated credit agreement. The Credit Agreement provides for three distinct credit facilities: a $100 million, 18-month revolving credit facility, a $250 million 6-year revolving credit facility and a $450 million term loan facility with a 6-year amortization period. The Credit Agreement is unsecured at a variable interest rate based on the debt ratings assigned to the Company by independent agencies. The initial interest rate is LIBOR plus 1.50%. Proceeds from the Credit Agreement are available and have been used to finance the cash portion of the merger consideration, to refinance certain previously existing indebtedness, to pay fees and expenses incurred in connection with the merger and to fund other general corporate purposes of the combined company. The Company believes that the terms of the Credit Agreement are favorable.
December 15, 1998. The adoption of SOP 98-1 has not had a material impact on the Company's financial position, results of operations or financial reporting.
We have audited the accompanying Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1999 and 1998 and the related Consolidated Statements of Earnings, Comprehensive Earnings, Stockholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 1999. These Consolidated Financial Statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits.
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(2) Net of income tax expense (benefit) of ($30), $6,824 and $7,207 for 1999, 1998 and 1997, respectively.
Fidelity National Financial, Inc., through its principal subsidiaries (collectively, the "Company"), is one of the largest national underwriters engaged in the business of issuing title insurance policies and providing diversified real estate related services such as escrow, collection and trust activities, real estate information and technology services, trustee sale guarantees, credit reporting, attorney services, flood certification, tax monitoring, home warranty insurance, reconveyances, recordings, foreclosure publishing and posting services and exchange intermediary services in connection with real estate transactions. The Company does business in 49 states, the District of Columbia, Mexico, Puerto Rico and the U.S. Virgin Islands.
The Company's majority-owned information technology and telecommunication services subsidiary, Micro General Corporation (OTCBB:MGEN, "Micro General"), offers a complete range of information technology, telecommunication and eCommerce services.
The Company also originates, funds, purchases, sells, securitizes and services equipment leases for a broad range of businesses through its wholly-owned subsidiary FNF Capital, Inc. (formerly known as Granite Financial, Inc.).
The Company acquired the common stock of Alamo Title Holding Company and subsidiaries ("Alamo") on August 20, 1998, in exchange for approximately 2.2 million shares of Company common stock plus cash in lieu of fractional shares. Fidelity National Financial, Inc. common stock, as reported by the New
York Stock Exchange, closed at $33.13 on August 20, 1998. The transaction has been accounted for as a pooling-of-interests.
There have been no adjustments to the total net assets or stockholders' equity of the combining companies as a result of the poolings-of-interests. Certain reclassifications have been made to conform the financial statements of the combining companies to the Consolidated Financial Statements of the Company.
Other long-term investments, which consist of a limited partnership investment in an investment fund, as well as certain other debt instruments and equity investments, are carried at cost or on the equity method, as appropriate.
Leases are collateralized by equipment. In addition, lessees generally are required to personally guarantee lease payments. The Company's risk of loss is partially mitigated by recovering collateral and enforcing guarantees. However, the resale value of leased equipment generally declines at a rate greater than the principal of the lease. As a result, full recovery on defaulted leases and notes receivable is not usually possible.
One or more investors purchase these Bonds and Certificates and the proceeds from the sale of the Bonds and Certificates are used as consideration to purchase the lease receivables from the Company.
At the closing of each securitization that is accounted for as a sale, the Company removes from its Consolidated Balance Sheet the lease receivables held for sale and adds to its consolidated balance sheet (i) the cash received and (ii) the allocated cost of the Residuals which consists of (a) cash collateral account ("Cash Collateral Account") and (b) net excess cash flows. The excess of the cash received by the Company over the allocated cost of the lease receivables sold less transaction costs, equals the net gain on sale recorded by the Company.
Residuals are recorded at estimated fair value and accounted for as available for sale securities. Changes in the fair value of the Residuals are recorded as unrealized gains or losses, net of applicable deferred income taxes (benefits), and are excluded from earnings and credited or charged directly to a separate component of stockholders' equity. Included in accumulated other comprehensive earnings (loss) at December 31, 1999 and 1998 are net unrealized gains (losses) of ($914,000) and $0, respectively, related to Residuals. The Company is not aware of an active market for the purchase or sale of Residuals at this time. Accordingly, the Company estimates the fair value of the Residuals by calculating the present value of the estimated expected future excess cash flows received by the Company after being released by the Trust (cash out method) using a discount rate of approximately 12%, which management believes is commensurate with the risks involved.
In future periods, the Company may increase the carrying value of the Residuals if the actual performance of the lease receivables results in an estimated fair value higher than the original estimate. If the
actual performance of the lease receivables results in an estimated fair value that is lower than the original estimate, a decrease in the carrying value of the Residuals may be required.
In the ordinary course of business, the Company reinsures certain risks with other insurers for the purpose of limiting its maximum loss exposure and also assumes reinsurance for certain risks of other insurers for the purpose of earning additional revenue. The Company also cedes a portion of certain policy and other liabilities
Title insurance premiums, escrow fees and certain other fees and revenue are recognized as revenue at the time of closing of the related transaction as the earnings process is considered complete.
Other fees and revenue includes revenue derived from the operations of Micro General and FNF Capital, as well as non-title related revenue from other subsidiaries and other title related revenue not included in title insurance premiums or escrow fees.
The Company declared a 10% stock dividend on December 17, 1997 to stockholders of record on December 29, 1997, distributed January 14, 1998. On December 13, 1998, the Company declared a 10% stock dividend to stockholders of record on December 28, 1998, distributed January 12, 1999. The par value of the additional shares of common stock issued in connection with the stock dividends was credited to common stock and a like amount charged to retained earnings as of December 31, 1998 and 1997, respectively. Fractional shares were paid in cash.
All data with respect to earnings per share, dividends per share and share information, including price per share where applicable, in the Consolidated Financial Statements and Notes thereto have been retroactively adjusted to reflect all stock dividends and splits. Additionally, all data impacted has been restated for acquisitions accounted for as poolings-of-interests.
The following table presents the calculation of basic and diluted earnings per share for each of the years in the three-year period ended December 31, 1999:
The carrying value of the Company's investment in equity securities is fair value. As of December 31, 1999, gross unrealized gains and gross unrealized losses on equity securities were $8,381,000 and $9,239,000, respectively. Gross unrealized gains and gross unrealized losses on equity securities were $22,464,000 and $10,025,000, respectively, as of December 31, 1998.
The change in unrealized gains and losses on equity securities for the years ended December 31, 1999, 1998 and 1997 was ($13,297,000), ($23,443,000), and $12,756,000, respectively.
Included in equity securities is an investment in a certain equity security, CKE Restaurants, Inc., with a cost basis of $2,341,000 and a fair value of $3,685,000 at December 31, 1999 and a cost basis of $2,341,000 and a fair value of $18,462,000 at December 31, 1998.
Direct financing leases at December 31, 1999 and 1998 consist of the following:
At December 31, 1999, the weighted average implicit rate of interest is approximately 11.35%.
The carrying value of the direct financing leases at December 31, 1999 and 1998 approximates fair value because of the short-term period that these leases are held before sale or securitization or, in certain cases, because the interest rate approximates current market rates. The fair value of the direct financing leases
The Company has completed seven securitization facilities that provide for aggregate funding limits of approximately $546,000,000 and $354,000,000 as of December 31, 1999 and 1998, respectively. Three of the securitization facilities, GF Funding IV, GF Funding V and GF Funding VII, are revolving facilities. GF Funding I and VI are accounted for as collateralized borrowings. See Note G.
The following table presents certain information related to the Company's securitization facilities at December 31, 1999 and 1998:
The carrying value and estimated fair values of the Company's notes receivable were as follows at December 31, 1999 and 1998:
Principal maturities, excluding Lease-Backed notes payable, are as follows (dollars in thousands):
carrying value of the Class A and Class B Certificates approximates fair value at December 31, 1999 and 1998 due to the fact that the interest rate paid on the Class A and Class B Certificates approximates market rates.
The Company's Lease-Backed notes payable do not have contractually scheduled principal payments. The required principal payments vary based on lease collections, recovery of collateral and other factors.
Total income tax expense (benefit) for the years ended December 31, 1999, 1998 and 1997 was allocated as follows:
The Company's 1995 and 1996 Federal income tax returns are currently under examination by the Internal Revenue Service. Based on information currently available, management does not believe the outcome of these examinations will have a material impact on the financial condition or results of operations of the Company.
- --------------- (1) On March 18, 1998, the Company announced that it had entered into an agreement to sell National Title Insurance of New York Inc. ("National") to American Title Company, a wholly-owned subsidiary of American National Financial, Inc. ("ANFI"), for $3.25 million, subject to regulatory approval and certain other conditions. The purchase price was structured at a premium to book value. The Company currently holds a 29.2% interest in ANFI. National was acquired in April 1996, as part of the Nations Title Inc. acquisition, and has not been actively underwriting policies since that time. This transaction received regulatory approval on May 27, 1999 and closed on June 10, 1999. The Company recognized a gain of approximately $1.2 million prior to applicable income taxes, in connection with the sale of National. This gain has been reflected in the Consolidated Statement of Earnings for the year ended December 31, 1999.
Management believes that no actions, other than those listed below, depart from customary litigation incidental to the business of the Company and that the resolution of all such litigation will not have a material adverse effect on the Company.
In conducting its operations, the Company routinely holds customers' assets in trust, pending completion of real estate transactions. Such amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets. The Company has a contingent liability relating to proper disposition of these balances for its customers which amounted to $524.1 million at December 31, 1999.
Rent expense incurred under operating leases during the years ended December 31, 1999, 1998 and 1997 was $36,167,000, $32,609,000 and $29,730,000, respectively. Included in rent expense for 1999, 1998 and 1997 is $88,000, $485,000 and $523,000, respectively, paid to related parties.
practices, establishing reserve and capital and surplus as regards policyholders ("capital and surplus") requirements, defining suitable investments for reserves and capital and surplus and approving rate schedules. In 1998, the National Association of Insurance Commissioners approved codified accounting practices that changed the definition of what constitutes prescribed statutory accounting practices and will result in changes to the accounting policies that insurance enterprises use to prepare their statutory financial statements commencing in 2001. The Company is currently evaluating the impact of the rules.
The Insurance Subsidiaries are regulated by the insurance commissioners of their respective states of domicile. Regulatory examinations usually occur at three year intervals. Examinations are currently in progress for Fidelity Title (1998), Fidelity New York (1998) and Nations Title Insurance of New York Inc. ("Nations New York", 1998). The Company has not received preliminary reports of examination for Fidelity Title, Fidelity New York or Nations New York, as the examinations are currently ongoing. The Department of Insurance of the State of California has also recently completed a market conduct examination of Fidelity Title. Additionally, the Auditor Division of the Controller of the State of California ("Controller") is currently conducting an examination of the funds due the State of California under various escheatment regulations for the years ended December 31, 1998 and prior. The Company has received a preliminary copy of the Controller's report and is continuing discussion with the Controller to quantify amounts due, if any. The Company does not believe that either the examinations performed by the insurance regulators or the Controller will have a material impact on its financial position, its results of operations or its combined capital and surplus.
The Insurance Subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior approval from the Department of Insurance of their respective states of domicile. In the case of Fidelity Title, the total amount of dividends and distributions made in any twelve-month period may not exceed the greater of 10% of capital and surplus as regards policyholders as of the last day of the preceding year or net earnings for the twelve-month period ending the last day of the preceding year. Fidelity New York's total amount of dividends and distributions is limited to capital and surplus, excluding capital stock and surplus resulting from unrealized gains on investments, less fifty percent of statutory premium reserve as of the last day of the preceding year and capital contributions received in the latest five-year period. The total amount of dividends and distributions made in any twelve-month period by Alamo Title may not exceed the greater of 20% of capital and surplus as of the last day of the preceding year or net earnings for the twelve-month period ending the last day of the preceding year. As of January 1, 2000, Fidelity Title could pay dividends or make other distributions to the Company of $17.2 million, Fidelity New York could pay dividends or make other distributions to the
Employee benefits include an employee stock purchase plan, five stock option plans and a 401(k) plan.
The Board of Directors, or a committee consisting of two or more members of the Board of Directors, will administer the 1998 Plan (the "Administrator"). The Administrator will have the full power and authority to interpret the 1998 Plan, select the recipients of options and Purchase Rights, determine and authorize the type, terms and conditions of, including vesting provisions, and the number of shares subject to grants under the 1998 Plan, and adopt, amend and rescind rules relating to the 1998 Plan. The term of options may not exceed 10 years from the date of grant (5 years in the case of a person who owns or is deemed to own more than 10% of the total combined voting power of all classes of stock of the Company). The option exercise price for each share granted pursuant to an incentive stock option may not be less than 100% of the fair market value of a share of common stock at the time such option is granted (110% of fair market value in the case of an incentive stock option granted to a person who owns more than 10% of the combined voting power of all classes of stock of the Company). There is no minimum purchase price for shares of common stock purchased pursuant to a Purchase Right, and any such purchase price shall be determined by the Administrator. The maximum number of shares for which options or Purchase Rights may be granted to any one person during any one calendar year under the 1998 Plan is 300,000 and in no event shall the aggregate number of shares subject to incentive stock options exceed 1,000,000. The aggregate fair market value of the common stock (determined as of the date of grant) with respect to incentive stock options granted under the 1998 Plan or any other stock option plan of the Company that become exercisable for the first time by any optionee during any calendar year may not exceed $100,000.
A summary of the Company's stock option activity, and related information for the years ended December 31, 1999, 1998 and 1997 is as follows:
require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
The following supplemental cash flow information is provided with respect to interest and tax payments, as well as certain non-cash investing and financing activities.
In the normal course of business the Company and certain of its subsidiaries enter into off-balance sheet credit risk associated with certain aspects of its title insurance policies and other activities. This credit risk is in the form of guarantees and support agreements. The Company believes that this credit risk is adequately secured.
FNF Capital approved contingent fundings of approximately $60,000,000 and $67,900,000 in leases at December 31, 1999 and 1998, respectively.
During 1999, the Company restructured its business segments to more accurately reflect a change in the Company's current operating structure. All previously reported segment information has been restated to be consistent with the current presentation.
The Company's Consolidated Financial Statements as of December 31, 1999 and 1998 and for the three years ended December 31, 1999, include five reportable segments. Reportable segments are determined based on the organizational structure and types of products and services from which each reportable segment derives its revenue.
- --------------- (1) Intersegment revenue represented 29% of Micro General's total revenue in 1999.
This segment, consisting of various real estate information and ancillary service subsidiaries, offers the complementary specialized products and services required to execute and close a real estate transaction that are not offered by the title insurance segment described above. These services include document recording services on a nationwide basis, tax qualifying property exchange services, property appraisal services, tax
Micro General Corporation is a full service enterprise solutions provider offering a complete range of information technology and telecommunication services including systems integration, application development, real estate industry applications and eCommerce. Micro General Corporation was not included in the Company's Consolidated Financial Statements until the second quarter of 1998.
The corporate segment includes the operations of the parent holding company. These operations consist of certain investment activities and the issuance and repayment of corporate debt obligations.
an available-for-sale security, or a foreign-currency-denominated forecasted transaction. It requires changes in the fair value of a derivative instrument and the changes in fair value of assets or liabilities hedged by that instrument to be included in earnings. To the extent that the hedge transaction is effective, earnings are equally offset by both investments. Currently, changes in the fair value of derivative instruments and hedged items are reported in accumulated other comprehensive earnings (loss).