Our financial results for the year ended December 31, 2001 include the results of the former operations of Vista for the period from August 1, 2001, the acquisition date, through December 31, 2001. In the fourth quarter of 2001, we recorded certain non-recurring charges totaling $10.0 million, after applicable taxes.
Our financial results for the year ended December 31, 2000 include the operations of Chicago Title for the period from March 20, 2000, the merger date, through December 31, 2000. In the first quarter of 2000, we recorded certain non-recurring charges totaling $13.4 million, after applicable taxes.
Investments as of December 31, 2001 and 2000 include securities pledged to secure trust deposits of $319.1 million and $459.4 million, respectively.
In the first quarter of 2000, we recorded certain non-recurring charges totaling $13.4 million, after applicable income taxes.
In the second quarter of 2001, we recorded a $5.7 million, after-tax charge, reflected as a cumulative effect of a change in accounting principle, as a result of adopting EITF 99-20.
In the fourth quarter of 2001, we recorded certain non-recurring charges totaling $10.0 million, after applicable income taxes.
Factors Affecting Comparability. Our Consolidated Statements of Earnings for 2001 include the results of the former operations of Vista for the period from August 1, 2001, the acquisition date, through December 31, 2001 and include a full year of operations of Chicago Title as compared to a partial year in 2000. As a result, year over year comparisons may not be meaningful. In addition, during the second quarter of 2001, we recorded a $5.7 million, after-tax charge, reflected as a cumulative effect of a change in accounting principle, as a result of adopting EITF 99-20. Also, in the fourth quarter of 2001, we recorded certain non-recurring charges totaling $10.0 million, after applicable taxes. These charges relate to the discontinuation of small-ticket lease origination at FNF Capital and the wholesale international long distance business at Micro General, our majority-owned subsidiary.
Our Consolidated Statements of Earnings for 2000 include the results of operations of Chicago Title for the period from March 20, 2000, the merger date, through December 31, 2000. In 2000, we reviewed our existing non-title operations in connection with the merger and related transition and integration. As a result, during the first quarter of 2000 we recorded certain non-recurring charges totaling $13.4 million, after applicable taxes. These charges primarily relate to the revaluation of non-title assets, including our investment in Express Network, Inc., which was sold in the second quarter of 2000, and existing goodwill associated with Express Network and the write-off of obsolete software.
Net earnings for the year ended December 31, 2001 were $305.5 million, or $3.47 per diluted share as compared with net earnings for the corresponding periods in 2000 and 1999 of $108.3 million, or $1.62 per diluted share and $70.9 million, or $2.06 per diluted share.
full year in 2001 versus a partial year in 2000. Included in 2001 net realized gains is an other than temporary impairment loss of $7.5 million, of which $4.4 million relates to an impairment loss taken on Enron Corporation bonds. In 2000, interest and investment income was $87.2 million, compared with $32.0 million in 1999. The increase in interest and investment income earned during 2000 is primarily due to an increase in average invested assets from $547.4 million in 1999 to $1,650.0 million in 2000, primarily as a result of the Chicago Title acquisition. The tax equivalent yield in 2000, excluding realized losses, was 6.1%. Net realized losses in 2000 and 1999 were comparable at $201 and $76, respectively.
Other income represents revenue generated by Micro General, our majority-owned information-services subsidiary, FNF Capital, our equipment-leasing subsidiary and Express Network, Inc. Express Network was sold in the second quarter of 2000. Other income was $64.7 million in 2001, $82.8 million in 2000 and $109.9 million in 1999. The decrease in other income in 2001 and 2000 is due to the sale of Express Network in the second quarter of 2000 as well as decreases in externally generated revenue by Micro General.
Personnel costs include base salaries, commissions and bonuses paid to employees, and are one of our most significant operating expenses. These costs generally fluctuate with the level of orders opened and closed and with the mix of revenue. Personnel costs totaled $1,187.2 million, $845.3 million and $407.1 million for the years ended December 31, 2001, 2000 and 1999, respectively. Personnel costs as a percentage of total revenue have remained relatively consistent over the three-year period ended December 31, 2001. Those percentages were 30.6% in 2001, 30.8% in 2000 and 30.0% in 1999. We have taken significant measures to maintain appropriate personnel levels and costs relative to the volume and mix of business while maintaining customer service standards and quality controls. We will continue to monitor prevailing market conditions and will adjust personnel costs in accordance with activity.
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 we retain vary according to regional differences in real estate closing practices and state regulations.
The following table illustrates the relationship of agent premiums and agent commissions:
In connection with the Chicago Title merger on March 20, 2000, we assumed Chicago Title’s then outstanding reserve for claim losses.
Income tax expense as a percentage of earnings before income taxes for 2001, 2000 and 1999 was 40.1%, 44.2% and 39.9%, respectively. The fluctuation in income tax expense as a percentage of earnings before income taxes is attributable to our estimate of ultimate income tax liability, the impact of the non-recurring charges and the non-deductible goodwill recorded pursuant to the Chicago Title merger and the characteristics of net earnings - i.e., operating income versus investment income.
Cash Flows. Our cash requirements include debt service, operating expenses, taxes, capital expenditures, systems development, lease fundings, lease securitizations and dividends on our common stock. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities and bank borrowings through existing credit facilities. Our short- and long-term liquidity requirements are monitored regularly to match cash inflows with cash requirements. We forecast the daily needs of all of our subsidiaries and periodically review their short- and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying these projections.
• $100.0 million, 18 month revolving credit facility due September 30, 2001, which was repaid and terminated on January 24, 2001:
The credit agreement bears interest at a variable rate of interest based on the debt ratings assigned to us by certain independent agencies, and is unsecured. The current interest rate is LIBOR plus 1.125%. Amounts borrowed under the credit agreement were used to pay the cash portion of the merger consideration, to refinance previously existing indebtedness, to pay fees and expenses incurred in connection with the merger and to fund other general corporate purposes. As of December 31, 2001, $135.0 million was outstanding under our credit agreement and we have $250.0 million in borrowings available to us.
Financing Obligations. Our financing obligations generally include our credit agreement and other debt facilities and operating lease payments on certain of our premises and equipment. As of December 31, 2001, our required annual payments relating to these financing obligations are as follows:
Capital Stock Transactions. On January 24, 2001, we issued 8,855,000 shares of our common stock at a public offering price of $30.45 per share. Proceeds from this offering, net of underwriting discounts and commissions and other related expenses, were $256.3 million. Net proceeds of $100.0 million were used to repay in full and terminate the $100.0 million, 18 month revolving credit facility and net proceeds of $149.5 million were used to pay down in full the $250.0 million, 6 year revolving credit facility. The remainder of the cash proceeds are available for general corporate purposes.
Merger of CKE Restaurants, Inc. (“CKE”) and Santa Barbara Restaurant Group, Inc. (“SBRG”). On March 1, 2002, a merger between CKE and SBRG was consummated, whereby SBRG became a wholly-owned subsidiary of CKE. As a result of the merger, holders of SBRG common stock received .491 shares of CKE common stock for each whole share of SBRG common stock.
Revenue Recognition. Our title insurance premiums and escrow and other title related fees are recognized as revenue at the time of closing of the related transaction as the earnings process is considered complete. We recognize real estate related services and other income over the period the related services are provided.
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to income on a trade date basis. Unrealized gains or losses on fixed maturity and equity securities that are classified as available for sale, net of applicable deferred income taxes (benefits), are excluded from earnings and credited or charged directly to a separate component of stockholders’ equity. If any unrealized losses on fixed maturity or equity securities are deemed other than temporary, such unrealized losses are recognized as realized losses.
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”) and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet one of two criteria. The statement applies to all business combinations initiated after June 30, 2001.
In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the consolidated financial position of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
Net of income tax expense (benefit) of $3.8 million, $5.8 million and ($11.3) million for 2001, 2000 and 1999, respectively.
Net of income tax expense (benefit) of ($5.5) million, $198 and ($30) for 2001, 2000 and 1999, respectively.
As of December 31, 2001 and 2000 and for the years ended
Included in equity securities is an investment in CKE Restaurants, Inc. (“CKE”), with a cost basis of $6.7 million and a fair value of $5.7 million at December 31, 2001 and a cost basis of $6.7 million and a fair value of $1.7 million at December 31, 2000. Included in other long-term investments, and accounted for under the equity method of accounting, is an investment in Santa Barbara Restaurant Group, Inc. (“SBRG”) of $19.1 million and $21.5 million at December 31, 2001 and 2000, respectively. As of December 31, 2001, the Company owns approximately 1% and 37% of the outstanding common shares of CKE and SBRG, respectively. The Company’s Chief Executive Officer and Chairman of the Board of Directors also serves as Chairman of the Board of Directors at CKE and SBRG. In addition, the Company’s Vice Chairman of the Board of Directors also serves on the board of directors of both CKE and SBRG.
Direct financing leases securitized through the issuance of a debt security prior to the effective date of Statement of Financial Accounting Standards No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 125”) are accounted for as collateralized borrowings. The leases collateralizing the debt are recorded as direct financing leases assigned to lenders. The related debt is recorded as notes payable.
The Company’s securitizations are generally structured as follows: first, the Company sells a portfolio of lease receivables to a special purpose entity (“SPE”) which has been established for the limited purpose of buying and reselling the Company’s lease receivables; next, the SPE transfers the same receivables to a Trust (the “Trust”), and the Trust in turn issues interest-bearing asset-backed securities generally in an amount equal to the aggregate initial principal balance of the lease receivables, multiplied by an advance rate. At the close 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 residual interests in securitizations, which consists of (a) cash collateral account and (b) net excess cash flows. At December 31, 2001 and 2000, the Company’s remaining securitization facilities had an aggregate outstanding balance of $218.7 million and $218.1 million, respectively. Of those amounts, the remaining balance related to securitizations accounted for as sales were $79.6 million and $152.7 million at December 31, 2001 and 2000, respectively.
During 2001, all securitization transactions were structured such that sale accounting was not achieved. The related leases and debt continue to be recognized on the Company’s balance sheet.
sensitive securities including agency interest-only strips, whether purchased or retained in securitization and determining when these securities must be written down to fair value because of impairment. Adoption of EITF 99-20 requires the valuation of residual interests in securitizations to be recorded as a reduction to the carrying value of the residual interests through a charge to earnings when any portion of the decline in fair value is attributable to an impairment loss, rather than an unrealized loss in stockholders’ equity. As such, the Company recorded a charge of $5.7 million, net of income tax benefit of $3.0 million, in the second quarter of 2001.
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. The Company estimates the future rates of prepayments, delinquencies, defaults and default loss severity as they impact the amount and timing of the estimated cash flows. The Company uses a zero prepayment estimate because the lease contracts generally require the lessee to pay all or a majority of the lease payments due under the remaining lease term. The Company’s loss estimate is 2.5% to 4.5% of the lease net investment value, which is based on historical loss data for comparable leases and the specific characteristics of the leases originated by the Company. The Company’s default estimates resulted in a weighted average life of the pool of leases of between approximately 1.5 and 2.0 years.
The fair values of financial instruments presented in the applicable notes to the Company’s Consolidated Financial Statements are estimates of the fair values at a specific point in time using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. Therefore, the fair values presented are not necessarily indicative of amounts the Company could realize or settle currently. The Company does not necessarily intend to dispose of or liquidate such instruments prior to maturity.
Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life if maintained. Sales of title plants are reported at the amount received net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the carrying value of the title plant is diminished or impaired.
Impairment of intangible assets is monitored on a continual basis, and is assessed based on an analysis of the undiscounted cash flows generated by the underlying assets. In 2001, the Company recorded pre-tax asset impairment losses totaling $16.6 million, of which $13.5 million related to the Company’s decision to discontinue FNF Capital’s small-ticket lease origination business and $3.1 million related to Micro General’s decision to discontinue its wholesale international long distance business. These amounts are included as part of the $10.0 million after tax, non-recurring charges the Company recorded in the fourth quarter of 2001. In 2000, the Company recorded pre-tax impairment losses totaling $7.0 million, primarily relating to the write off of cost in excess of net assets acquired and capitalized software costs of non-title related businesses. These amounts are included as part of the $13.4 million after tax, non-recurring charges the Company recorded in the first quarter of 2000.
Basic earnings per share is computed by dividing net earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net earnings available to common stockholders plus the impact of assumed conversions of dilutive potential securities. The Company has granted certain options and warrants which have been treated as common share equivalents for purposes of calculating diluted earnings per share. The Liquid Yield Option Notes (“LYONs”) are considered other dilutive securities for purposes of calculating diluted earnings per share to the extent that they are not antidilutive.
On January 3, 2001, the Company acquired International Data Management Corporation (“IDM”), a leading provider of real estate information services, for $20.8 million in cash. IDM’s real estate information databases contain over 100 million real property ownership and sales records from the continental United States. The databases are updated daily to reflect new sales, mortgage information and other changes in real property ownership. The acquisition was accounted for as a purchase and the Company is amortizing cost in excess of net assets acquired in connection with the acquisition on a straight-line basis over 15 years. See Note P.
On June 19, 2001 the Company acquired Risco, Inc. (“Risco”), the third largest multiple listing service vendor in the United States, for approximately $12.0 million in cash. The acquisition was accounted for as a purchase and the Company is amortizing the cost in excess of net assets acquired in connection with the acquisition on a straight-line basis over 15 years. See Note P.
Fixed maturity securities valued at approximately $38.1 million and $34.3 million were on deposit with various governmental authorities at December 31, 2001 and 2000, respectively, as required by law.
The carrying value of the Company’s investment in equity securities is fair value. As of December 31, 2001, gross unrealized gains and gross unrealized losses on equity securities were $5.7 million and $2.5 million, respectively. Gross unrealized gains and gross unrealized losses on equity securities were $4.0 million and $17.0 million, respectively, as of December 31, 2000.
During the years ended December 31, 2001, 2000 and 1999, gross realized gains on sales of fixed maturity securities considered available for sale were $16.5 million, $1.7 million and $384, respectively; and gross realized losses were $7.3 million, $586 and $277, respectively. Gross proceeds from the sale of fixed maturity securities considered available for sale amounted to $516.5 million, $289.6 million and $38.2 million during the years ended December 31, 2001, 2000 and 1999, respectively.
During the years ended December 31, 2001, 2000 and 1999, gross realized gains on sales of equity securities considered available for sale were $18.4 million, $8.9 million and $6.3 million, respectively; and gross realized losses were $36.1 million, $9.4 million and $7.2 million, respectively. Gross proceeds from the sale of equity securities amounted to $376.3 million, $50.4 million and $49.5 million during the years ended December 31, 2001, 2000 and 1999, respectively.
At December 31, 2001, the weighted average implicit rate of interest is approximately 12.8%.
The carrying value of the direct financing leases at December 31, 2001 and 2000 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 assigned to lender at December 31, 2001 and 2000 approximated the carrying value because the interest rate on the related Class A Lease-Backed Term Notes approximates current market rates.
On March 17, 1999, the Company’s Board of Directors approved the adoption of the Fidelity National Financial, Inc. Employee Stock Purchase Loan Plan (“Employee Plan”) and the Non-Employee Director Stock Purchase Loan Program (“Director Plan”). The purpose of the Employee Plan and Director Plan was to provide key employees and directors with further incentive to maximize stockholder value. Employee Plan and Director Plan funds were used to make private or open market purchases of Company common stock through a broker-dealer designated by the Company. All loans are full recourse and unsecured, and have a five-year term. Interest accrues on the loans at a rate of 5.0% per annum, due at maturity. These loans may be prepaid any time without penalty. The Company loaned an aggregate of $7.3 million to purchase 532,088 shares of Company common stock at an average purchase price of $13.63 per share. As of December 31, 2001 and 2000 $6.1 million and $6.7 million, respectively, of loans under these plans were outstanding.
The carrying value and estimated fair values of the Company’s notes receivable were as follows at December 31, 2001 and 2000:
The fair values of significant notes receivable are established using discounted cash flow analyses based on current market interest rates and comparison of rates being received to interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. All other notes receivable are not significant individually or in the aggregate, or are current and at market rates, and their carrying value approximates fair value.
$250.0 million, 6 year revolving credit facility due March 19, 2006; and
The credit agreement bears interest at a variable rate of interest based on the debt ratings assigned to the Company by certain independent agencies, and is unsecured. The current interest rate is LIBOR plus 1.125%. Amounts borrowed under the credit agreement were used to pay the cash portion of the merger consideration, to refinance previously existing indebtedness, to pay fees and expenses incurred in connection with the merger and to fund other general corporate purposes. As of December 31, 2001, $135.0 million was outstanding under the Company’s credit agreement and the Company had $250.0 million of borrowings available under its credit agreement.
The deferred tax assets and liabilities at December 31, 2001 and 2000 consist of the following:
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. In 2001, it was determined that the valuation allowance was no longer necessary due to current taxable income generated and future estimated taxable income. As such, the valuation allowance of $4.8 million was reversed during 2001.
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. As of December 31, 2001, the Company holds a 20.0% 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 has been named in class action lawsuits alleging irregularities and violations of law in connection with title and escrow practices. Four lawsuits are currently pending. Three previously filed lawsuits have been dismissed. One of the existing lawsuits is filed by the Attorney General of the State of California and others on behalf of the California Controller, the California Insurance Commissioner and the California general public against an alleged defendant class consisting of the entire title and escrow industry in California. The other three suits are filed by private parties in State court in Los Angeles. In February 2000 the Company reached a settlement of the claims alleged by the California Insurance Commissioner. Although the settlement required the Company to make a monetary payment, it did not require the Company to pay any fine or penalty. The Company is significantly advanced in settlement negotiations, which the Company believes will result in settlement or resolution of the remaining cases in calendar year 2002. The Company does not believe that the resolution of these lawsuits will have a material impact on the Company.
In conducting its operations, the Company routinely holds customers’ assets in escrow, pending completion of real estate transactions. Certain of these 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 our customers which amounted to $4.4 billion at December 31, 2001. As a result of holding these customers’ assets in escrow, the Company has ongoing programs for realizing economic benefits during the year through favorable borrowing and vendor arrangements with the various banks. There were no investments or loans outstanding as of December 31, 2001 related to these arrangements.
Rent expense incurred under operating leases during the years ended December 31, 2001, 2000 and 1999 was $108.8 million, $86.5 million and $36.2 million, respectively.
The combined statutory capital and surplus of the Company’s title insurance subsidiaries was $514.7 million, $461.4 million and $163.5 million as of December 31, 2001, 2000 and 1999, respectively. The combined statutory earnings of the Company’s title insurance subsidiaries were $162.5 million, $87.2 million and $43.6 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The Company’s underwritten title companies are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth. Minimum net worth of $7.5 million, $2.5 million and $3.0 million is required for Fidelity National Title Company, Fidelity National Title Company of California and Chicago Title Company, respectively. The Company is in compliance with all of its respective minimum net worth requirements at December 31, 2001.
On March 17, 1999, the Company’s Board of Directors approved an increase to the number of shares of outstanding Company common stock authorized for purchase under the Company’s previously announced purchase program. The additional authorization permitted the Company to purchase up to 4,400,000 shares. On September 13, 1999, the Company announced that its Board of Directors had approved a second increase of 2,200,000 shares, bringing the total number of shares of outstanding Company common stock authorized for purchase to 6,600,000. During December 31, 1999, the Company had purchased 5,930,000 shares at an average purchase price of $13.81 per share totaling $81.9 million. In January 2000 the Company purchased another 43,120 shares of its common stock at an average purchase price of $12.76 per share totaling $551. In March 2000, the Company retired all of its 13,282,000 shares held as treasury stock totaling $136.8 million.
On January 24, 2001, the Company issued 8,855,000 shares of its common stock at a public offering price of $30.45 per share. Proceeds from this offering, net of underwriting discounts and commissions and other related expenses, were $256.3 million. Net proceeds were primarily used to pay down existing indebtedness. See Note G.
transactions depending on market conditions and other factors. As of December 31, 2001, the Company has repurchased a total of 1,000,000 shares of common stock for $22.9 million, at an average price of $22.93 per share.
In 1994, stockholders approved the adoption of the 1993 Stock Plan (“1993 Plan”). The number of shares of common stock reserved for issuance under the 1993 Plan is 1,207,882. The per share option price is determined at the date of grant, provided that the price for incentive stock options shall not be less than 100% of their market value or award stock shares. The 1993 Plan also contains an automatic grant of non-qualified stock options to non-employee directors at an exercise price equal to 100% of fair value at date of grant, and the right to exercise such options shall vest equally over three years. Stock options granted under the 1993 plan are exercisable subject to the terms and conditions set by the Board of Directors, however, options shall be exercisable no earlier than six months nor later than 10 years following the grant date.
In 2001, stockholders approved the adoption of the 2001 Stock Incentive Plan (“2001 Plan”). The 2001 Plan authorized up to 2,200,000 shares of common stock, plus an additional 220,000 shares of common stock on the date of each annual meeting of stockholders of the Company, for issuance under the terms of the 2001 Plan. The 2001 Plan provides for grants of “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended, nonqualified stock options, rights to purchase shares of common stock (“Purchase Rights”) and deferred shares. The term of options may not exceed 10 years from the date of grant (five years in the case of an incentive stock option granted to 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 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). The option exercise price for each share granted pursuant to a nonqualified stock option may be less than the fair value of the common stock at the date of grant to reflect the application of the optionee’s deferred bonus, if applicable. The 2001 Plan allows for exercise prices with a fixed discount from the quoted market price only for those key employees of the Company who applied deferred bonuses expensed in 2001.
common stock of 47% was used for options granted in 2001 and 50% was used for options granted in 2000 and 1999. The expected dividend yield used for 2001, 2000 and 1999 was 1.5%, 1.2% and 2.0%, respectively. A weighted average expected life of five years was used for 2001 and 2000 and seven years was used in 1999. The weighted average fair value of each option granted during 2001, 2000 and 1999 was $10.20, $6.67 and $7.89, respectively.
The following table sets forth the funded status of the Pension Plan and amounts reflected in the Company’s Consolidated Balance Sheets as of December 31, 2001 and 2000:
The principal weighted average assumptions used in the actuarial calculations of projected benefit obligations and net periodic pension expense for 2001 and 2000 are as follows: discount rate of 7.25%; expected return on Pension Plan assets of 9.0%; and rate of compensation increase of 4.5%.
The components of net periodic (income) expense included in the results of operations for 2001 and from the period April 1, 2000 through December 31, 2000 are as follows:
The accrued cost of the accumulated postretirement benefit obligation included in the Company’s Consolidated Balance Sheets at December 31, 2001 and 2000 is as follows:
The Company’s postretirement health care and life insurance costs included in the results of operations for 2001 and from the period April 1, 2000 through December 31, 2000 are as follows:
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 business and other activities. This credit risk is in the form of guarantees and support agreements.
The Company generates a significant amount of title insurance premiums in California and Texas. In 2001, 2000 (on an unaudited pro forma basis, assuming the Chicago Title merger had been consummated on January 1, 2000) and 1999, California and Texas accounted for 24.8% and 13.4%, 20.6% and 14.6% and 30.8% and 19.1% of total title premiums, respectively.
FNF Capital’s leases are originated through a network of approximately 50 independent lease originators located throughout the United States. One single lease originator accounted for more than 10% of the leases funded by the Company during the year ended December 31, 2001 and no single lease originator accounted for more than 10% of the leases funded by the Company during the year ended December 31, 2000. Transactions generated by the Company’s ten largest independent lease originators accounted for approximately 45.7% and 36.0% of leases funded during the years ended December 31, 2001 and 2000, respectively.
FNF Capital approved contingent fundings of approximately $9.7 million and $55.3 million in leases at December 31, 2001 and 2000, respectively.
Concentrations of credit risk with respect to notes receivable are limited because a number of diverse entities make up the Company’s notes receivable base, thus spreading the credit risk. The Company controls credit risk through credit approvals, credit limits and monitoring procedures. The Company performs in-depth credit evaluations for all notes and requires guarantees and/or collateral, if deemed necessary.
During 2000, as a result of the merger with Chicago Title, 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.
Summarized financial information concerning the Company’s reportable segments is shown in the following table. The amounts reported for Chicago Title for 2000 reflect only the period from March 20, 2000, the merger date, through December 31, 2000. Reportable segments are determined based on the organizational structure and types of products and services from which each reportable segment derives its revenue.
This segment, consisting of various real estate related 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
The corporate segment consists of the operations of the parent holding company, as well as the operations of Micro General Corporation, FNF Capital, Inc. and Express Network, Inc., which was sold in the second quarter of 2000, as well as the issuance and repayment of corporate debt obligations. The non-recurring, after tax, charges of $10.0 million in 2001 and $13.4 million in 2000 primarily relate to the corporate segment.
SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is generally effective for fiscal periods beginning after December 15, 2001 and the amortization provisions of SFAS No. 142 are effective for acquisitions subsequent to June 30, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the year ended December 31, 2001 was $54.2 million ($46.1 million, excluding the $8.0 million write-off associated with the discontinuance of two businesses in the fourth quarter of 2001).
In October 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment of Long-Lived Assets” (“SFAS No. 144”) which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While SFAS No. 144 supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” it retains many of the fundamental provisions of that statement. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company expects that the adoption of SFAS No. 144 will not have a material impact on its financial statements.