The Company's strategies are to (i) maximize operating profits by increasing its share of the title insurance business in the markets it serves; (ii) effectively manage operating expenses through the real estate cycle; (iii) minimize net claim payments and (iv) continue a value-added acquisition and diversification strategy. The Company intends to execute these strategies by continuing to implement the following elements:
The Company also earns income from its non-title related operations and from its investment portfolio. See Notes C and O of Notes to Consolidated Financial Statements.
Interest expense is incurred by the Company in financing its capital asset purchases, lease originations, certain acquisitions and certain general corporate purposes. Interest expense consists of interest related to the Company's outstanding debt and the amortization of original issue discount and debt issuance costs related to the Liquid Yield Option Notes due 2009 ("LYONs") issued in February 1994. Interest expense on non-LYONs debt totaled $15.2 million, $12.8 million and $7.0 million for the years 1999, 1998 and 1997, respectively. The LYONs-related component of interest expense amounted to $445,000, $4.2 million and $5.3 million for 1999, 1998 and 1997, respectively. Included in 1998 interest expense is $4.7 million of interest relating to the settlement of an Internal Revenue Service examination for the tax years 1990 through 1994. Excluding the interest expense related to the tax examination, the fluctuation in interest expense in 1999 compared to 1998 can be attributed to an increase in non-LYONs debt and related interest rates, offset by the redemption and conversion of LYONs in 1999. The increase in 1998 over 1997 can be attributed to an increase in non-LYONs debt outstanding offset by more favorable interest rates in 1998 than 1997 and the conversion of LYONs during 1998. See "Recent Developments" and Note G of Notes to Consolidated Financial Statements.
Recent Developments. The Company completed the merger of its wholly-owned subsidiary ACS Systems, Inc. ("ACS") with and into Micro General Corporation for 4.6 million shares of Micro General common stock valued at $1,297,000, on May 14, 1998. Micro General provides small to medium size businesses within the real estate industry with software, systems integration and communication services including telecommunications hardware, long distance reselling, computer hardware and system software reselling, consulting services, technical services, Internet services, electronic commerce and title and escrow software applications. Micro General will continue to provide the above listed services to the Company at preferred customer rates. This transaction has been accounted for as a reverse merger of Micro General into ACS, with Micro General as the surviving legal entity. The Company currently owns 69.3% of Micro General Corporation. See Note B of Notes to Consolidated Financial Statements.
The Company's Board of Directors declared a cash dividend of $.10 per share on March 17, 2000, which will be payable on May 30, 2000 to stockholders of record as of April 10, 2000.
Statutorily calculated net worth determines the maximum insurable amount under any single title insurance policy. As of January 1, 2000, the Company's self-imposed single policy maximum insurable amounts, which comply with all statutory limitations, for Fidelity Title, Fidelity New York and Alamo Title were $60.0 million, $95.0 million and $16.5 million, respectively. The self-imposed single policy maximum insurable amount for Nations New York was $16.0 million.
In 1996, Granite Financial, Inc. (now known as FNF Capital, Inc., "Granite") adopted a Stock Option Plan ("Granite Plan", now issuable in Company common stock) allowing for the issuance of qualified and non-qualified stock options to purchase an aggregate of 347,000 shares of common stock to directors, officers,
The Company generates a significant amount of title insurance premiums in California and Texas, 30.8% and 19.1% in 1999, 33.1% and 19.6% in 1998 and 32.9% and 20.8% in 1997, respectively.
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, including certain derivative instruments embedded in other contracts, (collectively, "derivatives") and for 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. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES