- --------------- (1) Represents the number of locations in each state listed.
The information set forth below should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K. Per share data has been retroactively adjusted for stock dividends and splits since our inception. Certain reclassifications have been made to the prior year amounts to conform with the 2000 presentation.
(5) Investments as of December 31, 2000, include securities pledged to secure trust deposits of $459.4 million.
- --------------- (1) 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.
Net earnings for year ended December 31, 2000 were $108.3 million, or $1.78 per diluted share. Excluding the non-recurring, non-title related charges we recorded in the first quarter of 2000 of $13.4 million, or $0.22 per diluted share, net earnings for year ended December 31, 2000, were $121.7 million, or $2.00 per
The following table presents the calculation of earnings before amortization of cost in excess of net assets acquired and non-recurring charges. We believe that earnings before amortization of cost in excess of net assets acquired and non-recurring charges better reflects the operational performance of our business.
Total revenue in 2000 more than doubled to $2,742.0 million from $1,355.9 million in 1999. Total revenue in 1999 of $1,355.9 million reflects a 4.8% increase from 1998 revenue of $1,293.4 million. The
Trends in escrow and other title related fees are primarily related to title insurance activity generated by our direct operations. Escrow and other title related fees during the three-year period ended December 31, 2000, fluctuated in a pattern generally consistent with the fluctuation in direct title insurance premiums and order counts. Escrow and other title related fees were $459.1 million, $206.6 million and $215.3 million, respectively, during 2000, 1999 and 1998.
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 $845.3 million, $407.1 million and $394.3 million for the years ended December 31, 2000, 1999 and 1998, respectively. Personnel costs as a percentage of total revenue have remained relatively consistent over the three-year period ended December 31, 2000. Those percentages were 30.8% in 2000, 30.0% in 1999 and 30.5% in 1998. 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.
The provision for claim losses includes an estimate of anticipated title claims. The estimate of anticipated title claims is accrued as a percentage of title premium revenue based on our historical loss experience and other relevant factors. We monitor our claims loss experience on a continual basis and adjust the provision for claim losses accordingly. Based on our loss development studies, we believe that as a result of our underwriting and claims handling practices, as well as the refinancing business of prior years, we will maintain the claim loss trends we have experienced over the past several years. As such, our claim loss provision as a percentage of total title premiums was 5.0% in 2000, as compared with 5.6% in 1999 and 6.5% in 1998.
(2) 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, 2000, the Company holds a 28.3% 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 favorable development on prior year loss reserves during 2000 and 1999 was attributable to lower than expected payment levels on recent issue years which included a high proportion of refinance business.
Interest expense for the years ended December 31, 2000, 1999 and 1998 was $59.4 million, $15.6 million and $17.0 million, respectively. The increase in interest expense in 2000 as compared with 1999 is attributable to the increase in outstanding notes payable, primarily related to the financing of the Chicago Title merger, and an increase in certain indices on which our variable interest rates are based. The decrease in interest expense in 1999 as compared with 1998 is primarily due to the redemption of our Liquid Yield Option Notes in 1999. In addition, included in interest expense in 1998 is a $4.7 million interest charge relating to the settlement of an Internal Revenue Service examination for the tax years 1990 through 1994.
Amortization of cost in excess of net assets acquired was $35.0 million in 2000, $6.6 million in 1999 and $3.1 million in 1998. In connection with the merger of Chicago Title, we recorded cost in excess of net assets acquired of approximately $755.6 million. As a result, amortization of cost in excess of net assets acquired has increased accordingly.
In connection with the Chicago Title merger, we entered into a syndicated credit agreement. The credit agreement provides for three distinct credit facilities:
- $100.0 million, 18 month revolving credit facility due September 30, 2001;
- $450.0 million term loan facility with a 6 year amortization period, due March 19, 2006.
The credit agreement and other debt facilities impose certain affirmative and negative covenants on us relating to current debt ratings, certain financial ratios related to liquidity, net worth, capitalization, investments, acquisitions and restricted payments, and certain dividend restrictions. We are in compliance with all of our debt covenants as of December 31, 2000.
On January 24, 2001, we issued 8,050,000 shares of our common stock at a public offering price of $33.50 per share. Proceeds from this offering, net of underwriting discounts and commissions and other related expenses, were $256.2 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.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, contracts and hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.
SFAS 133 was amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB No. 133" ("SFAS 137"). SFAS 137 defers the effective date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133, as amended by SFAS 137 and Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities -- an amendment of SFAS 133." ("SFAS 138"), is effective for our first quarter in the fiscal year ending December 31, 2001, and does not have a material effect on our financial position or results of operations.
In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS 140"). SFAS 140 revises the accounting standards for securitizations and other transfers of financial assets and collateral and requires certain disclosures. SFAS 140 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. Adoption of SFAS 140 will not have a material effect on our financial statements.
Emerging Issues Task Force No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", ("EITF 99-20") sets forth the rules for
We have audited the accompanying Consolidated Balance Sheets of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2000 and 1999 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, 2000. 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.
The Company includes the accounts of its majority-owned information-services subsidiary, Micro General Corporation (NASDAQ: MGEN, "Micro General") in its consolidated results. As of December 31, 2000, the Company owns 65.7% of Micro General.
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All material intercompany profits, transactions and balances have been eliminated. The Company's investments in non-majority-owned partnerships and affiliates are accounted for on the equity method. The Company's financial results for the year ended December 31, 2000 include the operations of Chicago Title Corporation ("Chicago Title") for the period from March 20, 2000, the merger date, through December 31, 2000. See Note B.
All dollars presented in the accompanying Consolidated Financial Statements are in thousands, except per share amounts and unless indicated otherwise.
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, market, or on the equity method, as appropriate.
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 which 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.
The Company's leases are accounted for as direct financing leases. Under this method, the amount by which gross lease rentals exceed the cost of the related assets, less the estimated recoverable residual value at the expiration of the lease, is recognized as income from direct financing leases over the life of the lease using the interest method. Interest is accrued only if deemed collectible. Direct financing leases which the Company has both the intent and ability to hold to maturity are classified as held to maturity. Direct financing leases originated principally for the purpose of selling in the near term are classified as available for sale and are
The Company establishes an allowance for credit losses to provide for expected losses in the Company's existing portfolio of leases and leases transferred on a recourse basis. The allowance for credit losses is based on the Company's historical and expected loss experience, industry knowledge and other economic factors. The ultimate obligation for defaults and delinquencies related to leases transferred on a recourse basis is measured and recorded at the time of transfer.
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 is not usually possible.
Residual interests in securitizations ("Residuals") of lease receivables in a trust are recorded as a result of the sale of lease receivables through securitization. The 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 lease receivables to a trust ("Trust"), and the Trust in turn issues interest bearing asset-backed securities ("Bonds and Certificates"), generally in an amount equal to the aggregate initial principal balance of the lease receivables multiplied by an advance rate. The Company typically sells these lease receivables at face value and with limited recourse relating to defaulted loans, prepayments, and certain representations and warranties provided by the Company to the Trust in the form of Bonds and Certificates. 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.
over the allocated cost of the lease receivables sold less transaction costs, equals the net gain on sale recorded by the Company.
During 2000 and 1999, the Company sold equipment leases and loans in securitization transactions. In all those securitizations, the Company retained servicing responsibilities and subordinated interests. The Company receives annual servicing fees approximating $6.00 per serviced contract and rights to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. The
Intangible assets include cost in excess of net assets acquired, capitalized software costs and capitalized debt offering costs, and are amortized on a straight-line basis over three to forty years. At December 31, 2000, FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
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 under agent fidelity, excess of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys' fees and expenses) exceeding the retained amounts, the reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in
Other income represents revenue generated from the operations of Micro General, FNF Capital and Express Network, Inc. ("ENI"), which was sold in the second quarter of 2000.
The following table presents the computation of basic and diluted earnings per share::
On March 20, 2000, Chicago Title Corporation ("Chicago Title") merged with and into the Company pursuant to an Agreement and Plan of Merger, dated August 1, 1999, as amended on October 13, 1999. Pursuant to the merger agreement, Chicago Title stockholders received aggregate merger consideration valued at approximately $1.1 billion. The merger consideration was paid in the form of 1.7673 shares of Company common stock and $26.00 in cash for each share of Chicago Title common stock, resulting in the issuance of approximately 38.8 million shares of Company common stock valued at an average price during the applicable trading period of $13.1771 per share and the payment of approximately $570.2 million in cash. The merger was accounted for as a purchase.
Selected unaudited pro forma combined results of operations for the years ended December 31, 2000 and 1999, assuming the merger had occurred as of January 1, 2000 and January 1, 1999, and using actual general and administrative expenses prior to the merger, are set forth below:
Fixed maturity securities valued at approximately $34.3 million and $16.3 million were on deposit with various governmental authorities at December 31, 2000 and 1999, respectively, as required by law.
The change in unrealized gains (losses) on equity securities for the years ended December 31, 2000, 1999 and 1998 was ($12.2) million, ($13.3) million and ($23.4) million, respectively.
Net realized gains (losses) included in interest and investment income amounted to ($201), ($76) and $17.2 million for the years ended December 31, 2000, 1999 and 1998, respectively. There were no individually significant net realized gains or losses in 2000 or 1999. Net realized gains in 1998 include a gain of approximately $9.7 million related to the conversion of the Company's investment in Data Tree Corporation common stock to common stock of First American Corporation. All amounts are before applicable income taxes.
During the years ended December 31, 2000, 1999 and 1998, gross realized gains on sales of equity securities considered available for sale were $8.9 million, $6.3 million and $32.6 million, respectively; and gross realized losses were $9.4 million, $7.2 million and $11.0 million, respectively. Gross proceeds from the sale of equity securities amounted to $50.4 million, $49.5 million and $108.6 million during the years ended December 31, 2000, 1999 and 1998, respectively.
The Company has completed eight securitization facilities that provide for aggregate funding limits of approximately $646.0 million and $546.0 million as of December 31, 2000 and 1999, respectively. Three of the securitization facilities, GF Funding IV, GF Funding V and GF Funding VII, are revolving facilities. GF Funding I and VI and FNF Funding IX are accounted for as collateralized borrowings. GF Funding I matured during 2000, GF Funding VI was redeemed during 2000 and GF Funding VII was closed during 2000. See Note G.
The carrying value of the Company's notes payable, excluding Lease-Backed notes payable approximated estimated fair values, at December 31, 2000 and 1999. The fair value of the Company's fixed rate and variable rate notes payable is estimated using discounted cash flow analyses based on current market interest rates and comparison of interest rates being paid to the Company's current incremental borrowing rates for similar types of borrowing arrangements.
Also included in notes payable in the Consolidated Balance Sheets as of December 31, 1999 were $2.1 million of Class A Lease-Backed Term Note due 2001. See Note D. The GFI Class A Lease-Backed Note bears interest at 6.33% and was paid in full in July 2000. The carrying value of the GFI Class A Lease-Backed term note approximates fair value at December 31, 1999 since the interest rate paid on the GFI Class A Lease-Backed Note approximates market rates.
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.
Subsequent to December 31, 2000, the Company issued 8,050,000 shares of its common stock at a public offering price of $33.50 per share. Proceeds from this offering, net of underwriting discounts and commissions and other related expenses, were $256.2 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.
In February 1994, the Company issued zero coupon, convertible subordinated Liquid Yield Option Notes ("LYONs") due February 2009 at an interest rate of 5.5% with a principal amount at maturity of $235.8 million. Net proceeds to the Company were approximately $101.0 million. The proceeds were used for investment and general corporate purposes. The amount of LYONs outstanding on December 31, 1998 was $124.1 million. On February 15, 1999, the Company redeemed, pursuant to the terms of the LYONs indenture, its outstanding Liquid Yield Option Notes due 2009 for $581.25 per $1,000 maturity value. Additionally, the LYONs holders had the right to convert the outstanding LYONs to 28.077 shares of Company common stock per $1,000 maturity value of LYONs at any time. As of February 15, 1999, $123.7 million maturity value of LYONs had converted to 3,473,000 shares of common stock, adding approximately $70.0 million to equity while reducing outstanding notes payable by a like amount. The remaining $432 of maturity value was redeemed for cash of approximately $251.
Principal maturities, excluding the $249.5 million of syndicated credit agreement borrowings repaid subsequent to December 31, 2000, are as follows (dollars in thousands):
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 Company.
The favorable development on prior years loss reserves during 2000 and 1999 was attributable to lower than expected payment levels on recent issue years which included a high proportion of refinance business.
The Company has been named as a defendant in five class action lawsuits alleging irregularities and violations of title and escrow practices. One of these suits was filed by the Attorney General of the State of California on behalf of the California Controller and the California Department of Insurance against the entire title and escrow industry in California. The other four were filed by private law firms in State and Federal courts in San Francisco and in Los Angeles. In February 2000 the Company reached a settlement of the lawsuit filed by the California Department of Insurance. The settlement does not call for any fine or penalty to be paid by the Company. Two of the other lawsuits brought by private firms have been dismissed. The Company is vigorously defending the remaining lawsuits. The Company does not believe that the resolution of these lawsuits will have a material impact on the Company.
Title insurance companies, including underwriters, underwritten title companies and independent agents, are subject to extensive regulation under applicable state laws. Each insurance underwriter is usually subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and investment policies. The laws of most states in which the Company transacts business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact
Pursuant to statutory accounting requirements of the various states in which the Company's title insurance subsidiaries are licensed, they must defer a portion of premiums earned as an unearned premium reserve for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined on a quarterly basis by statutory formula based upon either the age, number of policies and dollar amount of policy liabilities underwritten or the age and dollar amount of statutory premiums written. As of December 31, 2000, the combined statutory unearned premium reserve required and reported for the Company's title insurance subsidiaries was $698.7 million.
The insurance commissioners of their respective states of domicile regulate the Company's title insurance subsidiaries. Regulatory examinations usually occur at three-year intervals, and certain of these examinations are currently ongoing. The Auditor Division of the Controller of the State of California is currently conducting an examination of the funds due the State of California under various escheatment regulations for the years ended on and prior to December 31, 1998. The Company has received a preliminary copy of the report and is continuing discussions with the Auditor Division of the Controller of the State of California to quantify amounts due, if any. Management does not believe that the examinations performed by the insurance regulators or the Auditor Division of the Controller of the State of California will have a material impact on the Company's financial position, results of operations, or combined capital and surplus.
The Company's title 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. During 2001, the Company's title insurance subsidiaries could pay dividends or make other distributions to the Company of $107.5 million.
The combined statutory capital and surplus of the Company's title insurance subsidiaries was $463.1 million, $163.5 million and $164.3 million as of December 31, 2000, 1999 and 1998, respectively. The combined statutory earnings of the Company's title insurance subsidiaries were $88.9 million, $43.6 million and $37.8 million for the years ended December 31, 2000, 1999 and 1998, 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 FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
In January 2000 the Company purchased another 39,200 shares of its common stock at an average purchase price of $14.04 per share totaling $551. In March 2000, the Company retired all of its 12.1 million shares held as treasury stock totaling $136.8 million.
In 1987, stockholders approved the adoption of an Employee Stock Purchase Plan ("ESPP"). Under the terms of the ESPP and subsequent amendments, eligible employees may voluntarily purchase, at current market prices, shares of the Company's common stock through payroll deductions. Pursuant to the ESPP, employees may contribute an amount between 5% and 15% of their base salary and certain commissions. The Company contributes varying amounts as specified in the ESPP. During the years ended December 31, 2000, 1999 and 1998, 593,997, 631,596 and 282,216 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $18.16, $16.77 and $29.42 per share, respectively. The Company contributed $4.0 million or the equivalent of 219,326 shares for the year ended December 31, 2000; $3.3 million or the equivalent of 193,923 shares for the year ended December 31, 1999 and $2.0 million or the equivalent of 67,407 shares for the year ended December 31, 1998 in accordance with the employer's matching contribution.
of $1.50 for each dollar of employee contribution up to six percent of the employee's base salary, subject to the Company's return on equity for the year. The Company's cost for this plan was $8.2 million for the period from April 1, 2000 to December 31, 2000. Effective January 1, 2001, this plan was merged with and into the 401(k) Plan.
The Company's 1987 Stock Option Plan ("1987 Option Plan") expired in December 1997. Options generally had a term of five to 11 years from date of grant, became exercisable at the discretion of the Board of Directors and were priced at not less than the fair market value on the date of grant. A total of 1,811,824 shares were available for grants of options under this plan.
In 1992, stockholders approved the adoption of the 1991 Stock Option Plan ("1991 Option Plan"). The number of shares reserved for issuance under the 1991 Option Plan and subsequent amendments is 4,148,776 shares of common stock, which may be newly issued or treasury shares. The per share option price is determined at the date of grant. The option price may be less than the fair market value of the common stock at the date of grant to reflect the application of the optionee's deferred bonus, if applicable. Options granted under the 1991 Option Plan shall be exercisable in such installments and for such periods as may be fixed at the time of grant, but in no event shall any stock options extend for a period in excess of 12 years from the date of grant. This plan allows for exercise prices with a fixed discount from the quoted market price.
In 1998, options were granted at an exercise price of $19.72 to key employees of the Company who applied deferred bonuses expensed in 1997 amounting to $1.8 million to the exercise price. The exercise price of these options decreases approximately $.32 per year through 2003 and $.20 per share from 2004 through 2009, at which time the exercise price will be $16.90. Options were granted in 1999 at an exercise price of $9.63 to key employees of the Company who applied deferred bonuses expensed in 1998 amounting to $4.9 million to the exercise price. The exercise price of these options decreases approximately $.35 per year through 2004 and $.22 per share from 2005 through 2010, at which time the exercise price will be $6.53. In 2000, options were granted at an exercise price of $6.75 to key employees of the Company who applied deferred bonuses expensed in 1999 amounting to $4.4 million to the exercise price. The exercise price of these options decreases approximately $.35 per year through 2005 and $.22 per share from 2006 through 2011, at which time the exercise price will be $3.65. Additionally, the Company recorded compensation expense relating to the price decrease of $473, $460 and $282, for the years ended December 31, 2000, 1999 and 1998, respectively.
In connection with the 1998 acquisition of FNF Capital (formerly known as "Granite"), which was accounted for as a pooling-of-interests, the Company assumed 685,714 options outstanding under Granite's existing stock option plan ("Granite Plan"). The Granite Plan provides that qualified stock options be granted at an exercise price equal to fair market value on the date of the grant, and must be at least 110% of fair market value when granted to a 10% or more stockholder. The term of all qualified stock options granted under the Granite Plan may not exceed 10 years, except the term of qualified stock options granted to a 10% or FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
During 1998, stockholders approved the adoption of the 1998 Stock Incentive Plan ("1998 Plan"). The 1998 Plan authorizes up to 3,320,000 shares of common stock, plus an additional 220,000 shares of common stock on the date of each annual meeting of the stockholders of the Company, for issuance under the terms of the 1998 Plan. The 1998 Plan provides for grants of "incentive stock options" as defined in Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options and rights to purchase shares of common stock ("Purchase Rights"). The term of options may not exceed 10 years from the date of grant (five 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 Board of Directors.
In connection with the Chicago Title merger, the Company also assumed Chicago Title's noncontributory defined contribution plan and noncontributory defined benefit pension plan (the "Pension Plan").
Contributions to the noncontributory defined contribution plan are based upon salary and length of service with the Company. Contributions are invested in a group of mutual funds as directed by the employee. The Company's cost for this plan was $2.0 million for the period from April 1, 2000 to December 31, 2000. Effective January 1, 2001, this plan was terminated.
The Pension Plan covers certain Chicago Title employees. The benefits are based on years of service and the employee's average monthly compensation in the highest 60 consecutive calendar months during the 120 months ending at retirement or termination. The Company's funding policy is to contribute annually at least the minimum required contribution under the Employee Retirement Income Security Act (ERISA). Contributions are intended to provide not only for benefits accrued to date, but also for those expected to be earned in the future. The Company made no contribution for the period from April 1, 2000 to December 31,
2000. Effective January 1, 2001, the Pension Plan was frozen and future contributions of Pension Plan benefits will terminate.
The following table sets forth the funded status of the Pension Plan and amounts reflected in the Company's Consolidated Balance Sheet as of December 31, 2000:
Under Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the measurement date shall be as of the date of the financial statements, or if used consistently from year to year, as of a date not more than three months prior to that date. The Company's measurement date is September 30.
The principal weighted average assumptions used in the actuarial calculations of projected benefit obligations and net periodic pension expense for 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%.
Under Statement of Financial Accounting Standards No. 106, "Accounting for Postretirement Benefits Other Than Pensions," the measurement date shall be as of the date of the financial statements, or if used
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) AS OF DECEMBER 31, 2000 AND 1999 AND FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
FNF Capital's leases are originated through a network of approximately 50 independent lease originators located throughout the United States. No single lease originator accounted for more than 10% of the leases funded by the Company during the years ended December 31, 2000 and 1999. Transactions generated by the Company's ten largest independent lease originators accounted for approximately 36.0% and 24.0% of leases funded during the years ended December 31, 2000 and 1999, respectively.
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 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 described above. These services include document recording services on a nationwide basis, tax qualifying property exchange services, property appraisal services, tax monitoring services, home warranty insurance, credit reporting, real estate referral services, flood monitoring
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards for derivative instruments, contracts and hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value.
In September 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS 140"). SFAS 140 revises the accounting standards for securitizations and other transfers of financial assets and collateral and requires certain disclosures. SFAS 140 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after March 31, 2001. Adoption of SFAS 140 will not have a material effect on the Company's financial statements.