Form 10-Q 2Q06
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
|
|
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the
Quarterly Period Ended June 30, 2006
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
|
|
|
THE
SECURITIES EXCHANGE ACT OF 1934
|
|
For
the
transition period from _____________ to _______________
Commission
File No.:
1-13990
LANDAMERICA
FINANCIAL GROUP, INC.
(Exact
name of registrant as specified in its charter)
Virginia
|
54-1589611
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
101
Gateway Centre Parkway
Richmond,
Virginia
|
23235-5153
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(804)
267-8000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large
accelerated filerx Accelerated
filer o Non-accelerated
filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common
Stock, No Par Value
|
17,050,307
shares
|
July
27, 2006
|
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
|
INDEX
|
|
|
|
Page
No.
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
|
ITEM
1.
|
CONSOLIDATED
FINANCIAL STATEMENTS:
|
|
|
|
|
|
Consolidated
Balance Sheets
|
3
|
|
|
|
|
Consolidated
Statements of Operations
|
5
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
6
|
|
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity
|
7
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
8
|
|
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
24
|
|
|
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
40
|
|
|
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
40
|
|
|
|
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
41
|
|
|
|
ITEM
1A.
|
RISK
FACTORS
|
41
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
41
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
42
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
43
|
|
|
|
ITEM
6.
|
EXHIBITS
|
44
|
|
|
|
SIGNATURE
|
46
|
PART
I. FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED
FINANCIAL STATEMENTS
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
millions)
(Unaudited)
|
|
June
30,
|
|
December
31,
|
|
ASSETS
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
INVESTMENTS:
|
|
|
|
|
|
Fixed
maturities available-for-sale - at fair value (amortized cost:
2006-
$1,192.6; 2005 -
$1,154.2)
|
|
$
|
1,176.3
|
|
$
|
1,163.5
|
|
Equity
securities - at fair value (cost: 2006 -
$97.5; 2005 -
$94.5)
|
|
|
108.6
|
|
|
102.4
|
|
Federal
funds sold
|
|
|
10.5
|
|
|
4.2
|
|
Short
term investments
|
|
|
415.4
|
|
|
484.6
|
|
|
|
|
|
|
|
|
|
Total
Investments
|
|
|
1,710.8
|
|
|
1,754.7
|
|
|
|
|
|
|
|
|
|
CASH
|
|
|
80.9
|
|
|
89.1
|
|
|
|
|
|
|
|
|
|
LOANS
RECEIVABLE
|
|
|
451.7
|
|
|
437.9
|
|
|
|
|
|
|
|
|
|
ACCRUED
INTEREST RECEIVABLE
|
|
|
18.3
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
NOTES
AND ACCOUNTS RECEIVABLE
|
|
|
|
|
|
|
|
Notes
(less allowance for doubtful accounts: 2006 -
$3.9; 2005 -
$4.3)
|
|
|
15.9
|
|
|
16.0
|
|
Trade
accounts receivable (less allowance for doubtful accounts: 2006
-
$10.9; 2005 -
$7.9)
|
|
|
131.1
|
|
|
124.6
|
|
|
|
|
|
|
|
|
|
Total
Notes and Accounts Receivable
|
|
|
147.0
|
|
|
140.6
|
|
|
|
|
|
|
|
|
|
TAXES
RECEIVABLE
|
|
|
21.4
|
|
|
-
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT - at cost (less accumulated depreciation and amortization:
2006-
$212.5; 2005 -
$209.5)
|
|
|
107.9
|
|
|
114.4
|
|
|
|
|
|
|
|
|
|
TITLE
PLANTS
|
|
|
94.6
|
|
|
93.9
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
594.6
|
|
|
584.3
|
|
|
|
|
|
|
|
|
|
INTANGIBLE
ASSETS (less accumulated amortization 2006 - $73.8; 2005 -
$61.3)
|
|
|
145.2
|
|
|
156.3
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
136.3
|
|
|
130.2
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
198.8
|
|
|
174.0
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
3,707.5
|
|
$
|
3,695.0
|
|
See
Notes
to Consolidated Financial Statements.
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
millions, except share amounts)
(Unaudited)
|
|
June
30,
|
|
December
31,
|
|
LIABILITIES
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
POLICY
AND CONTRACT CLAIMS
|
|
$
|
714.0
|
|
$
|
697.6
|
|
|
|
|
|
|
|
|
|
DEPOSITS
|
|
|
588.6
|
|
|
547.2
|
|
|
|
|
|
|
|
|
|
ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
|
|
|
364.1
|
|
|
399.1
|
|
|
|
|
|
|
|
|
|
NOTES
PAYABLE
|
|
|
466.3
|
|
|
479.3
|
|
|
|
|
|
|
|
|
|
DEFERRED
SERVICE ARRANGEMENTS
|
|
|
216.8
|
|
|
211.2
|
|
|
|
|
|
|
|
|
|
TAXES
PAYABLE
|
|
|
-
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
68.3
|
|
|
64.0
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
2,418.1
|
|
|
2,416.5
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, no par value, 45,000,000 shares authorized, shares issued
and
outstanding: 2006 - 17,071,307; 2005 -
17,291,213
|
|
|
425.6
|
|
|
443.1
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive loss
|
|
|
(57.0
|
)
|
|
(42.3
|
)
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
920.8
|
|
|
877.7
|
|
|
|
|
|
|
|
|
|
Total
Shareholders’ Equity
|
|
|
1,289.4
|
|
|
1,278.5
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
3,707.5
|
|
$
|
3,695.0
|
|
|
|
|
|
|
|
|
|
See
Notes
to Consolidated Financial Statements.
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
THREE
MONTHS AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(In
millions, except per share amounts)
(Unaudited)
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(as
restated)
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
971.1
|
|
$
|
952.4
|
|
$
|
1,873.4
|
|
$
|
1,765.9
|
|
Investment
and other income
|
|
|
32.5
|
|
|
24.4
|
|
|
62.2
|
|
|
45.7
|
|
Net
realized investment (losses) gains
|
|
|
(1.5
|
)
|
|
0.3
|
|
|
(0.6
|
)
|
|
1.1
|
|
|
|
|
1,002.1
|
|
|
977.1
|
|
|
1,935.0
|
|
|
1,812.7
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agents’
commissions
|
|
|
404.2
|
|
|
371.6
|
|
|
787.3
|
|
|
696.2
|
|
Salaries
and employee benefits
|
|
|
288.8
|
|
|
282.9
|
|
|
565.5
|
|
|
530.2
|
|
General,
administrative and other
|
|
|
173.3
|
|
|
197.8
|
|
|
341.5
|
|
|
338.4
|
|
Provision
for policy and contract claims
|
|
|
50.9
|
|
|
46.8
|
|
|
101.3
|
|
|
91.5
|
|
Premium
taxes
|
|
|
11.9
|
|
|
10.6
|
|
|
22.3
|
|
|
20.3
|
|
Interest
expense
|
|
|
9.3
|
|
|
8.1
|
|
|
18.9
|
|
|
16.0
|
|
Amortization
of intangibles
|
|
|
6.3
|
|
|
7.7
|
|
|
12.6
|
|
|
14.7
|
|
Write-off
of intangible and long-lived assets
|
|
|
-
|
|
|
-
|
|
|
9.7
|
|
|
-
|
|
|
|
|
944.7
|
|
|
925.5
|
|
|
1,859.1
|
|
|
1,707.3
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
57.4
|
|
|
51.6
|
|
|
75.9
|
|
|
105.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
TAX EXPENSE
|
|
|
21.8
|
|
|
21.4
|
|
|
26.6
|
|
|
42.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME
|
|
$
|
35.6
|
|
$
|
30.2
|
|
$
|
49.3
|
|
$
|
63.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE
|
|
$
|
2.13
|
|
$
|
1.72
|
|
$
|
2.92
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
|
|
16.7
|
|
|
17.6
|
|
|
16.9
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME PER COMMON SHARE ASSUMING DILUTION
|
|
$
|
2.06
|
|
$
|
1.70
|
|
$
|
2.82
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ASSUMING
DILUTION
|
|
|
17.3
|
|
|
17.8
|
|
|
17.5
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
DIVIDENDS DECLARED PER COMMON SHARE
|
|
$
|
0.18
|
|
$
|
0.15
|
|
$
|
0.36
|
|
$
|
0.30
|
|
See
Notes
to Consolidated Financial Statements.
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
SIX
MONTHS ENDED JUNE 30, 2006 AND 2005
(In
millions)
(Unaudited)
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
income
|
|
$
|
49.3
|
|
$
|
63.4
|
|
Depreciation
and amortization
|
|
|
27.7
|
|
|
29.2
|
|
Write-off
of intangible and long-lived assets
|
|
|
9.7
|
|
|
-
|
|
Amortization
of bond premium
|
|
|
2.5
|
|
|
3.2
|
|
Net
realized investment losses (gains )
|
|
|
0.6
|
|
|
(1.1
|
)
|
Deferred
income tax expense
|
|
|
2.4
|
|
|
7.4
|
|
Change
in assets and liabilities, net of businesses acquired:
|
|
|
|
|
|
|
|
Accounts
and notes receivable
|
|
|
(9.6
|
)
|
|
(8.4
|
)
|
Income
taxes receivable/payable
|
|
|
(40.1
|
)
|
|
7.8
|
|
Accounts
payable and accrued expenses
|
|
|
(35.5
|
)
|
|
8.9
|
|
Policy
and contract claims
|
|
|
16.4
|
|
|
22.4
|
|
Deferred
service arrangements
|
|
|
3.8
|
|
|
(9.5
|
)
|
Other
|
|
|
2.2
|
|
|
(1.8
|
)
|
Net
cash provided by operating activities
|
|
|
29.4
|
|
|
121.5
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Purchase
of title plant, property and equipment, net
|
|
|
(28.5
|
)
|
|
(15.9
|
)
|
Purchase
of business, net of cash acquired
|
|
|
(8.7
|
)
|
|
(25.7
|
)
|
Investments
in unconsolidated subsidiaries
|
|
|
(0.8
|
)
|
|
(11.2
|
)
|
Change
in cash surrender value of life insurance
|
|
|
(1.7
|
)
|
|
(1.6
|
)
|
Change
in short-term investments
|
|
|
69.2
|
|
|
(10.2
|
)
|
Cost
of investments acquired:
|
|
|
|
|
|
|
|
Fixed
maturities
|
|
|
(230.3
|
)
|
|
(209.1
|
)
|
Equity
securities
|
|
|
(14.1
|
)
|
|
(7.0
|
)
|
Proceeds
from investment sales or maturities:
|
|
|
|
|
|
|
|
Fixed
maturities
|
|
|
187.3
|
|
|
157.3
|
|
Equity
securities
|
|
|
12.4
|
|
|
6.2
|
|
Net
change in federal funds sold
|
|
|
(6.3
|
)
|
|
4.2
|
|
Change
in loans receivable
|
|
|
(14.3
|
)
|
|
(42.7
|
)
|
Net
cash used in investing activities
|
|
|
(35.8
|
)
|
|
(155.7
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Net
change in deposits
|
|
|
41.4
|
|
|
40.9
|
|
Proceeds
from the exercise of options and incentive plans
|
|
|
1.4
|
|
|
5.5
|
|
Tax
benefit of stock options exercised
|
|
|
0.6
|
|
|
-
|
|
Cost
of common shares repurchased
|
|
|
(24.6
|
)
|
|
(9.1
|
)
|
Dividends
paid
|
|
|
(6.2
|
)
|
|
(5.3
|
)
|
Proceeds
from issuance of notes payable
|
|
|
11.9
|
|
|
12.4
|
|
Payments
on notes payable
|
|
|
(26.3
|
)
|
|
(5.2
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
(1.8
|
)
|
|
39.2
|
|
Net
(decrease) increase in cash
|
|
|
(8.2
|
)
|
|
5.0
|
|
Cash
at beginning of period
|
|
|
89.1
|
|
|
73.0
|
|
Cash
at end of period
|
|
$
|
80.9
|
|
$
|
78.0
|
|
See
Notes
to Consolidated Financial Statements.
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
SIX
MONTHS ENDED JUNE 30, 2006 AND 2005
(In
millions, except per share amounts)
(Unaudited)
|
|
Common
Stock
|
|
Accumulated
Other Comprehensive
|
|
Retained
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
Amounts
|
|
Income
(Loss)
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-
December 31, 2004 (as restated)
|
|
|
18.0
|
|
$
|
491.5
|
|
$
|
(17.6
|
)
|
$
|
723.8
|
|
$
|
1,197.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
63.4
|
|
|
63.4
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on securities - net of tax benefit $(1.9)
|
|
|
-
|
|
|
-
|
|
|
(3.9
|
)
|
|
-
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of call options, net of tax
|
|
|
-
|
|
|
(0.7
|
)
|
|
-
|
|
|
-
|
|
|
(0.7
|
)
|
Common
stock retired
|
|
|
(0.2
|
)
|
|
(9.1
|
)
|
|
-
|
|
|
-
|
|
|
(9.1
|
)
|
Stock
options and incentive plans
|
|
|
0.3
|
|
|
7.5
|
|
|
-
|
|
|
-
|
|
|
7.5
|
|
Common
dividends ($0.30/share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(5.3
|
)
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
- June 30, 2005 (as restated)
|
|
|
18.1
|
|
|
489.2
|
|
|
(21.5
|
)
|
|
781.9
|
|
|
1,249.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
-
December 31, 2005
|
|
|
17.3
|
|
|
443.1
|
|
|
(42.3
|
)
|
|
877.7
|
|
|
1,278.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
49.3
|
|
|
49.3
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on securities - net of tax benefit $(7.9)
|
|
|
-
|
|
|
-
|
|
|
(14.7
|
)
|
|
-
|
|
|
(14.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock retired
|
|
|
(0.4
|
)
|
|
(24.6
|
)
|
|
-
|
|
|
-
|
|
|
(24.6
|
)
|
Stock
options and incentive plans
|
|
|
0.2
|
|
|
7.1
|
|
|
-
|
|
|
-
|
|
|
7.1
|
|
Common
dividends ($0.36/share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6.2
|
)
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
- JUNE 30,
2006
|
|
|
17.1
|
|
$
|
425.6
|
|
$
|
(57.0
|
)
|
$
|
920.8
|
|
$
|
1,289.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes
to Consolidated Financial Statements.
LANDAMERICA
FINANCIAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM
FINANCIAL INFORMATION
|
The
accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted
in
the United States for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They
do not
include all information and notes required by generally accepted
accounting principles for complete financial statements. These statements
should be read in conjunction with the Consolidated Financial Statements
and notes thereto included in the Annual Report on Form 10-K of
LandAmerica Financial Group, Inc. for the year ended December 31,
2005. In
the opinion of management, all adjustments (including normal and
recurring
adjustments) considered neces-sary for a fair presentation of this
infor-mation have been reflected. Operating results for the interim
periods are not necessarily indicative of results for a full
year.
|
|
When
used in these notes, the terms “LandAmerica,” “we,” “us” or “our” means
LandAmerica Financial Group, Inc. and all entities included in our
Consolidated Financial Statements.
|
|
Certain
2005 amounts have been reclassified to conform to the 2006
presentation.
|
Restatement
On
February 13, 2006, we announced that we would restate previously filed financial
results to correct the accounting for policy and contract claims reserves.
The
error resulted in a net understatement of reported earnings. We have restated
the consolidated financial statements contained herein for the six months ended
June 30, 2005. The restatement had no effect on our net cash provided by or
used
in operating, investing or financing activities. For further information refer
to Note 1 to the Notes to Consolidated Financial Statements on Form 10-K for
the
year ended December 31, 2005.
The
following tables set forth the effects of the restatement within our previously
reported Consolidated Balance Sheet and Consolidated Statements of
Operations:
|
|
For
the Six Months Ended
June
30, 2005
|
|
|
|
As
Previously
Reported
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
(In
millions)
|
|
Effects
on Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
$
|
146.3
|
|
$
|
118.2
|
|
Total
assets
|
|
|
3,422.0
|
|
|
3,393.9
|
|
Policy
and contract claims
|
|
|
746.4
|
|
|
666.2
|
|
Total
liabilities
|
|
|
2,224.5
|
|
|
2,144.3
|
|
Shareholders’
equity
|
|
|
1,197.5
|
|
|
1,249.6
|
|
|
|
For
the Three Months Ended
June
30, 2005
|
|
For
the Six Months Ended
June
30, 2005
|
|
|
|
As
Previously
Reported
|
|
As
Restated
|
|
As
Previously
Reported
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share amounts)
|
|
Effects
on Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for policy and contract claims
|
|
$
|
50.9
|
|
$
|
46.8
|
|
$
|
100.1
|
|
$
|
91.5
|
|
Income
before income taxes
|
|
|
47.5
|
|
|
51.6
|
|
|
96.8
|
|
|
105.4
|
|
Income
taxes
|
|
|
19.9
|
|
|
21.4
|
|
|
38.9
|
|
|
42.0
|
|
Net
income
|
|
|
27.6
|
|
|
30.2
|
|
|
57.9
|
|
|
63.4
|
|
Net
income per common share
|
|
$
|
1.57
|
|
$
|
1.72
|
|
$
|
3.28
|
|
$
|
3.60
|
|
Net
income per common share assuming dilution
|
|
$
|
1.56
|
|
$
|
1.70
|
|
$
|
3.25
|
|
$
|
3.56
|
|
Prior
to
January 1, 2006, we accounted for share-based compensation plans in accordance
with the provisions of APB Opinion No. 25, Accounting
for Stock Issued to Employees,
as
permitted by SFAS No. 123. Accordingly, no compensation expense was recognized
for our stock options since all options granted had an exercise price equal
to
the market value of the underlying stock on the date of grant. There were no
new
options granted during 2005 or the first half of 2006.
The
following pro forma information for the three and six months ended June 30,
2005
shows net income and earnings per basic and diluted share if compensation
expense for our employee stock options had been determined on a fair value
method of accounting:
|
|
Pro
forma
|
|
|
|
Three
Months Ended
June
30, 2005
|
|
Six
Months Ended
June
30, 2005
|
|
|
|
(as
restated)
|
|
|
|
|
|
|
|
|
|
(In
millions, except per share amounts)
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
30.2
|
|
$
|
63.4
|
|
Add:
Stock-based employee compensation included in reported net income,
net of
related tax effects
|
|
|
0.7
|
|
|
1.2
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
|
|
(0.7
|
)
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
Pro
forma net income
|
|
$
|
30.2
|
|
$
|
63.3
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
1.72
|
|
$
|
3.60
|
|
Basic
- pro forma
|
|
$
|
1.72
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
Diluted
- as reported
|
|
$
|
1.70
|
|
$
|
3.56
|
|
Diluted
- pro forma
|
|
$
|
1.70
|
|
$
|
3.55
|
|
Recent
Accounting Pronouncements
On
July
13, 2006, the Financial Accounting Standards Board finalized Interpretation
No.
48, Accounting
for Uncertainty in Income Taxes
(“FIN
48”). The Interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109, Accounting
for Income Taxes.
FIN 48
is effective for fiscal years beginning after December 15, 2006. We are
currently evaluating the impact that adopting FIN 48 will have on our financial
statements.
2. EARNINGS
PER SHARE
The
following table sets forth the computation of basic and diluted earnings per
share:
|
|
Three
Months Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(as
restated)
|
|
|
|
(In
millions, except per share amounts)
|
|
Numerator:
|
|
|
|
Net
income - numerator for basic and diluted earnings per
share
|
|
$
|
35.6
|
|
$
|
30.2
|
|
$
|
49.3
|
|
$
|
63.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares - denominator for basic earnings per share
|
|
|
16.7
|
|
|
17.6
|
|
|
16.9
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debt
|
|
|
0.5
|
|
|
-
|
|
|
0.5
|
|
|
-
|
|
Employee
stock options
|
|
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted earnings per share
|
|
|
17.3
|
|
|
17.8
|
|
|
17.5
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
2.13
|
|
$
|
1.72
|
|
$
|
2.92
|
|
$
|
3.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$
|
2.06
|
|
$
|
1.70
|
|
$
|
2.82
|
|
$
|
3.56
|
|
3. INCOME
TAXES
Our
effective income tax rate, which includes a provision for state income and
franchise taxes for non-insurance subsidiaries, was 38.0% for second quarter
2006, 41.5% for second quarter 2005, 35.0% for the first half of 2006 and 39.8%
for the first half of 2005. The difference in the effective tax rate was due
primarily to changes in the ratio of permanent differences to income before
taxes and the mix of state taxes related to our non-insurance subsidiaries.
4. INVESTMENTS
Effective
January 1, 2006, we have adopted the Financial Accounting Standards Board
(“FASB”) Staff Position Nos. 115-1 and 124-1 (“FSPs”) which address the
determination as to when an investment is considered impaired, whether that
impairment is other than temporary, and the measurement of the impairment loss.
The FSPs also provide guidance on the accounting subsequent to the recognition
of an other-than-temporary impairment and require additional disclosures about
unrealized losses that have not been recognized as other-than-temporary
impairments. The guidance amends FASB Statement No. 115, Accounting
for Certain Investments in Debt and Equity Securities.
The
adoption did not have a material effect on our financial
statements.
Gross
unrealized losses and fair value aggregated by investment category and length
of
time that individual securities have been in a continuous unrealized loss
position were as follows:
|
|
June
30, 2006
|
|
|
|
Less
Than 12 Months
|
|
12
Months or More
|
|
Total
|
|
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
(In
millions)
|
|
Fixed
maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
treasuries and U.S. government corporations and agencies
|
|
$
|
16.1
|
|
$
|
(0.2
|
)
|
$
|
5.6
|
|
$
|
(0.2
|
)
|
$
|
21.7
|
|
$
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States
and political subdivisions
|
|
|
164.5
|
|
|
(3.3
|
)
|
|
44.6
|
|
|
(1.8
|
)
|
|
209.1
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
maturities issued by foreign governments
|
|
|
3.0
|
|
|
(0.1
|
)
|
|
0.3
|
|
|
-
|
|
|
3.3
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
utilities
|
|
|
3.2
|
|
|
(0.1
|
)
|
|
0.4
|
|
|
-
|
|
|
3.6
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
securities
|
|
|
300.0
|
|
|
(9.0
|
)
|
|
77.1
|
|
|
(2.8
|
)
|
|
377.1
|
|
|
(11.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities
|
|
|
87.0
|
|
|
(3.1
|
)
|
|
71.8
|
|
|
(3.2
|
)
|
|
158.8
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
2.1
|
|
|
-
|
|
|
0.5
|
|
|
(0.1
|
)
|
|
2.6
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
31.9
|
|
|
(3.5
|
)
|
|
0.6
|
|
|
(0.2
|
)
|
|
32.5
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
607.8
|
|
$
|
(19.3
|
)
|
$
|
200.9
|
|
$
|
(8.3
|
)
|
$
|
808.7
|
|
$
|
(27.6
|
)
|
As
of
June 30, 2006, we held 1,078 securities with a total estimated fair value of
$808.7 million which had gross unrealized losses of $27.6 million. Of the 1,078
securities, 238
were
in a
continuous unrealized loss position for greater than one year and had a total
estimated fair value of $200.9 million and gross unrealized losses of $8.3
million. Almost all of the unrealized losses on the fixed maturity securities
were due to rising interest rates.
In
connection with the previously announced redomestication of our principal
underwriters to Nebraska, in the first quarter of 2007, we expect a significant
dividend from one of our underwriters to the parent, LandAmerica Financial
Group, Inc. The dividend will be funded by liquidating part of our fixed income
portfolio. As we no longer have the intent to hold certain fixed income
securities to recovery, we impaired 33 securities in our fixed income portfolio
and realized a loss of $1.6 million during the quarter ended June 30, 2006.
The
remaining securities with unrealized losses in excess of twelve months are
investment grade long-term bonds that we have the intent and the ability to
hold
to recovery.
Except
as
noted above, we have concluded that none of the available-for- sale securities
with unrealized losses at June 30, 2006, has experienced an other-than-temporary
impairment. This conclusion was based on a number of factors including: (1)
the
significance of the decline, (2) whether the securities were rated below
investment grade, and (3) how long the securities have been in an unrealized
loss position, and (4) our ability and intent to retain the investment for
a
sufficient period of time for it to recover.
At
June
30, 2006, no industry group comprised more than 10 percent of our investment
portfolio. This portfolio is widely diversified among various geographic regions
in the United States, and is not dependent on economic stability of one
particular region.
At
June
30, 2006, we did not hold any fixed maturity securities in any single issuer
which exceeded 10 percent of shareholder’s equity other than securities issued
or guaranteed by the U.S. government.
5. PENSIONS
AND OTHER POST-RETIREMENT BENEFITS
The
following presents the estimated net pension expense recorded in the financial
statements for each of the three and six-month periods ending June 30, 2006,
and
2005. The 2006 information is based on preliminary data provided by our
independent actuaries.
The
amounts are as follows:
|
|
Three
Months Ended June 30,
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(In
millions)
|
|
Components
of net pension expense:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.2
|
|
$
|
0.2
|
|
Interest
cost
|
|
|
3.6
|
|
|
3.5
|
|
|
0.9
|
|
|
0.8
|
|
Expected
return on plan assets
|
|
|
(4.5
|
)
|
|
(3.9
|
)
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized transition obligation
|
|
|
-
|
|
|
-
|
|
|
0.3
|
|
|
0.3
|
|
Prior
service cost recognized
|
|
|
-
|
|
|
-
|
|
|
0.1
|
|
|
0.1
|
|
Recognized
loss
|
|
|
1.8
|
|
|
1.0
|
|
|
0.2
|
|
|
-
|
|
Gain
or loss due to settlement or curtailment
|
|
|
1.0
|
|
|
2.2
|
|
|
-
|
|
|
-
|
|
Net
pension expense
|
|
$
|
1.9
|
|
$
|
2.8
|
|
$
|
1.7
|
|
$
|
1.4
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(In
millions)
|
|
Components
of net pension expense:
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
-
|
|
$
|
-
|
|
$
|
0.5
|
|
$
|
0.4
|
|
Interest
cost
|
|
|
7.2
|
|
|
7.0
|
|
|
1.8
|
|
|
1.6
|
|
Expected
return on plan assets
|
|
|
(9.0
|
)
|
|
(7.8
|
)
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized transition obligation
|
|
|
-
|
|
|
-
|
|
|
0.6
|
|
|
0.6
|
|
Prior
service cost recognized
|
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
0.2
|
|
Recognized
loss
|
|
|
3.6
|
|
|
2.0
|
|
|
0.3
|
|
|
-
|
|
Gain
or loss due to settlement or curtailment
|
|
|
2.0
|
|
|
2.2
|
|
|
-
|
|
|
-
|
|
Net
pension expense
|
|
$
|
3.8
|
|
$
|
3.4
|
|
$
|
3.4
|
|
$
|
2.8
|
|
|
On
December 31, 2004, we froze the accumulation of benefits available
under
our principal pension plan.
|
|
Weighted-average
assumptions used to determine net cost for each of the three and
six-month
periods ending June 30, 2006, and 2005 are as
follows:
|
|
|
Pension
Benefits
|
|
Other
Benefits
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.50
|
%
|
|
6.00
|
%
|
|
5.50
|
%
|
|
6.00
|
%
|
Expected
return on plan assets
|
|
|
8.25
|
%
|
|
8.00
|
%
|
|
N/A
|
|
|
N/A
|
|
Rate
of compensation increase
|
|
|
N/A
|
|
|
N/A
|
|
|
3.50
|
%
|
|
3.50
|
%
|
6. COMMITMENTS
AND CONTINGENCIES
Pending
Legal Proceedings
General
We
are
involved in certain litigation arising in the ordinary course of our businesses.
Although the ultimate outcome of these matters cannot be ascertained at this
time and the results of legal proceedings cannot be predicted with certainty,
we
believe, based on current knowledge, that the resolution of these matters will
not have a material adverse effect on our financial position or results of
operations.
Litigation
Not in the Ordinary Course of Business
On
May 9,
2000, Romeo Jergess filed a putative class action suit (the “Jergess Suit”) in
the United States District Court for the Eastern District of Michigan, Southern
Division (Case No. 00-72124) against Transnation Title Insurance Company
(“Transnation”), a subsidiary of LandAmerica. The suit alleged that
Transnation’s rate for an owner’s title insurance policy, charged in accordance
with rates for new construction filed with the Insurance Bureau of the State
of
Michigan, were less than the rate paid by the lender for a simultaneously issued
lender’s title insurance policy, and that the lower rate paid by the
builder/developer for the owner’s policy involved an illegal kickback for a
referral and an illegal splitting of fees in violation of the Real Estate
Settlement Procedures Act (“RESPA”). On April 27, 2001, a similar suit was filed
by Elaine Miller (the “Miller Suit”) in the same court (Case No. 01-71647)
against Lawyers Title Insurance Corporation (“Lawyers Title”), a subsidiary of
LandAmerica. The plaintiffs in both suits sought an unspecified amount of
damages equal to three times the amount of the charge for each simultaneously
issued lender’s title insurance policy in connection with a new home purchase
commencing with the period one year before the filing of each complaint, plus
costs, interest and attorneys’ fees. Transnation and Lawyers Title engaged a
forensic accountant to review plaintiffs’ estimate that the charges collected
for such policies by Transnation and Lawyers Title from the class as originally
defined was approximately $15.0 million. The Jergess Suit and the Miller Suit
were consolidated on July 18, 2002 with cases pending against First American
Title Insurance Company and Chicago Title Insurance Company. On December 5,
2002, the court certified a class defined as all individuals who, during the
period commencing prior to one year of the filing of the applicable suit and
ending on October 30, 2002, purchased a newly constructed one to four family
dwelling or condominium and were charged for a lender’s title insurance policy
allegedly in violation of RESPA. On February 12, 2003, the United States Court
of Appeals for the Sixth Circuit denied Transnation’s and Lawyers Title’s
petitions for an interlocutory appeal of the class certification order. On
October 30, 2003, the judge ordered that individuals otherwise meeting the
class
definition, but who closed transactions involving relevant policies between
October 31, 2002 through October 30, 2003, would not be subject to a statute
of
limitations defense raised by Transnation Title or Lawyers Title between October
30, 2003 and October 31, 2004. On October 28, 2004,
Transnation
and Lawyers Title stipulated to an order that individuals otherwise meeting
the
class definition, but who closed transactions involving relevant policies
between October 31, 2002 through October 30, 2004, would not be subject to
a
statute of limitations defense raised by Transnation or Lawyers Title between
October 30, 2004 and October 31, 2005. The court reserved decision on a Motion
to proceed to trial with the certified class as originally defined. On January
13, 2005, the court denied Transnation’s and Lawyers Title’s motion to dismiss
the case for lack of standing. On February 7, 2005, the court dismissed without
prejudice Transnation’s and Lawyers Title’s Motion for Partial Summary Judgment
with respect to those members of the class covered by the affiliated business
exception under RESPA with the court indicating that the parties could resubmit
the motion with additional information. On April 21, 2005, Transnation and
Lawyers Title filed various Motions for Summary Judgment and Limine with respect
to multiple issues. The parties participated in nonbinding mediation beginning
May 3, 2005. On May 19, 2005, Transnation and Lawyers Title entered into a
binding term sheet to settle the consolidated suits. The parties entered into
a
final Settlement Agreement incorporating the provisions of the Term Sheet on
February 8, 2006. The Settlement Agreement provides for the dismissal with
prejudice of all claims by plaintiffs against Transnation and Lawyers Title
and
a release of all claims by plaintiffs except claims under their title policies.
The court granted Motions for Preliminary Approval on February 10, 2006. A
final
settlement/fairness hearing was held on May 16, 2006. The settlement was
approved and no appeal was filed. Pursuant to the Settlement Agreement,
Transnation and Lawyers Title, who did not admit any liability in the
settlement, made a single aggregate payment of $10.3 million out of an
established reserve into a settlement fund established for the benefit of
eligible class members.
On
June
22, 2004, Gateway Title Company, Inc., Commonwealth Land Title Company, Inc.
and
LandAmerica Financial Group, Inc. (“Plaintiffs”) filed a Complaint, subsequently
amended by a First Amended Complaint filed June 25, 2004, in the Superior Court
of California, County of Los Angeles, Central District (the “Court”), against
the Mercury Company and its affiliates Financial Title, Alliance Title,
Investors Title and various individuals including Joseph DiChiacchio, a former
manager of LandAmerica (Case No. BC 317441) (collectively, the “Defendants”).
The lawsuit claims substantial monetary and punitive damages for unfair
competitive business practices in conjunction with Plaintiffs’ loss of over 300
employees in California, most of which appears to have occurred within an
approximately twenty-four month period. On August 12, 2004, the Court granted
a
Temporary Restraining Order, followed by a Preliminary Injunction granted
September 27, 2004, against the Defendants based upon a showing of significant
likelihood of Plaintiffs prevailing on the merits combined with irreparable
harm
to Plaintiffs if injunctive relief did not issue. The injunctive relief
generally prohibited the solicitation of Plaintiffs’ employees. The preliminary
injunctive relief has now expired. On December 13, 2004, Alliance Title Company,
Inc., Financial Title Company, Inc., Roberto Olivera and Ray Arias filed a
Cross-Complaint for unfair competitive business practices. On December 13,
2004,
Mr. DiChiacchio also filed a Cross-Complaint alleging similar claims, including
back wages and additional bonus payments. Plaintiffs
are
disputing and intend to vigorously defend the Cross-Complaints. A mandatory
settlement conference was held on August 1, 2005 and voluntary mediation on
September 7, 2005. After completion of discovery, a jury trial began in early
May 2006 and, as of the date of this filing, the jury is deliberating. Assuming
liability, Plaintiffs’ expert witnesses on damages have estimated total damages
in the range of $52.0 million. Defendants’ expert witnesses on damages have
estimated total damages to Plaintiffs ranging between $5.0 million and $24.0
million. Management believes that damages caused to Plaintiffs by Defendants
exceed any claim of offset raised in the Cross-Complaints.
We
are
defendants in a number of purported class action cases pending in various states
that include allegations that certain consumers were overcharged for title
insurance and/or related services. The dollar amount of damages sought has
generally not been specified in these cases except for jurisdictional limits.
We
intend to vigorously defend these actions.
Regulatory
Investigations and Inquiries
We
have
received certain information requests and subpoenas from various regulatory
authorities relating to our business practices and the title insurance industry.
As detailed below, a number of these inquiries focus on captive reinsurance,
among other matters.
Captive
reinsurance involves the provision of reinsurance by a reinsurance company
that
is owned by another entity, typically a lender, developer or other party that
is
a provider of real estate-related services. From the inception of our captive
reinsurance programs in 1997 through 2004, reinsurance premiums paid by us
to
captive reinsurers totaled approximately $12.0 million. The revenues from these
programs were not material to our results of operations. We voluntarily
terminated our captive reinsurance arrangements as of February 2005,
notwithstanding our belief that we had operated the programs in accordance
with
applicable law. In addition, as set out on pages 18 and 19, we settled certain
of these investigations without admitting any liability.
Specifically,
we have received the following regulatory inquiries:
In
2004,
the Office of the Attorney General of the State of New York (“NYAG”) initiated
an investigation into the business practices of companies engaged in the title
insurance business. We have received subpoenas and requests from the NYAG
seeking information and documents related to certain industry business
practices, including, among other things, competitive market practices, the
compensation of title insurance agents and producers by underwriters, and
captive and other reinsurance arrangements, and we continue to respond to those
subpoenas and requests. The Company is participating in settlement discussions
with the NYAG and the insurance department of the State of New York with regard
to alleged violations of New York Insurance Law that they perceive as a result
of the NYAG’s investigation.
We
also
received initial inquiries in 2004 and responded to or continue to respond
to
inquiries regarding the title industry’s business practices from the following
state
agencies:
the California Department of Insurance and the Colorado Division of Insurance
regarding captive reinsurance; the insurance departments of North Carolina
and
Pennsylvania as part of their review of competitive market practices and agent
compensation in the title insurance industry; and the State of Washington Office
of Insurance Commissioner regarding captive reinsurance, potential illegal
inducements and rebates by title insurance companies and title insurance
rates.
Additionally,
in 2005, we received and responded to or continue to respond to inquiries
regarding the title industry’s business practices from the following state
agencies: the California Department of Real Estate regarding captive
reinsurance; the California Department of Insurance regarding our community
development and investment, California title plants, and examinations of our
adherence to filed premium rates and claims handling practices, including
whether refunds of overcharges to certain consumers may be required; the
Colorado Attorney General regarding captive reinsurance; the Colorado Department
of Insurance regarding affiliated business arrangements; the Connecticut
Department of Insurance regarding producer compensation and captive reinsurance
arrangements; the Florida Department of Financial Services regarding affiliated
business arrangements; the Hawaii Insurance Division regarding producer
compensation arrangements and captive reinsurance; the Idaho Department of
Insurance regarding captive reinsurance and premium splits between agent and
underwriter; the Massachusetts Attorney General regarding reinsurance and the
title insurance market; the Minnesota Department of Commerce regarding captive
and other reinsurance arrangements; the Tennessee Department of Insurance
regarding producer compensation arrangements and competitive market practices
of
Title Insurance Company of America, and requiring the submission of an
attestation regarding any finite reinsurance arrangements existing in that
state; and regulatory departments from seven other states, excluding those
that
have been settled, regarding captive reinsurance arrangements. We also received
and responded in 2005 to a request for information from the United States
Department of Housing and Urban Development in conjunction with its
investigation involving various builders, lenders and real estate brokers in
connection with their participation in captive reinsurance companies.
In
2006,
we received and are responding to an Administrative Subpoena from the Minnesota
Department of Commerce with regard to a market examination. The insurance
department of the State of New York has commenced a market conduct exam and
indicated its intent to determine the Company’s adherence to filed premium
rates, including whether refunds of overcharges to certain consumers may be
required. The Maryland Department of Insurance has requested captive reinsurance
information. The California Department of Insurance has requested information
regarding any technology arrangements with settlement services
providers.
We
also
reached agreements with the insurance departments of the states of California
and Arizona in 2005 and Virginia and Nevada in 2006 to settle filed or potential
claims regarding captive reinsurance and other regulatory matters except
overcharges of certain consumers in California, without admitting any liability.
These four states accounted for approximately 80% of our captive reinsurance
business.
In
June
2005, we established reserves of $19.0 million to cover anticipated exposure
to
regulatory matters nationwide, an amount which includes the settlements with
the
California, Arizona, Nevada and Virginia departments of insurance. Based on
actual settlements, we released $6.7 million of this reserve back into earnings
in fiscal year 2005. The remaining reserve at June 30, 2006 was approximately
$6.1 million.
Also,
in
addition to or in connection with the above-referenced inquiries, multiple
states, including California, Florida, Louisiana, Nevada, New Mexico, Texas
and
New York, are examining pricing levels and/or competition in the title insurance
industry, with a view to determining whether prices are justified, and if not,
to implement rate changes, including potential reductions.
On
April
27, 2006, notice was issued that the Texas Commissioner will begin the hearing
of the current Texas title rate case on August 16, 2006. In the course of
prehearing discovery, the Department has sought and we have provided statistical
data and testimony relating to the types and level of expenses for both
underwriters and agents, captive reinsurance, rebating and other practices that
may have the effect of raising the expenses of title insurers and agents.
On
June
30, 2006, the Acting Superintendent of Insurance for New Mexico issued an
Interim Order that the 2006 title insurance rates announced in a March 2006
order and scheduled to take effect on July 1, 2006 are to be implemented on
an
interim basis, subject to later revision if it is ultimately determined that
the
rates should be reduced and subject to refund.
Subsequent
to a June 19, 2006 hearing of the Nevada Division of Insurance, on July 3,
2006
the Nevada Division of Insurance issued an additional request for information
to
the title industry, and advised that a Commissioner order will be issued in
fall
2006 relating to title insurance. That order may result in further rate
proceedings and rate changes as a result of those proceedings or may address
potential changes in the rate filing process.
On
July
3, 2006, California issued a Notice of Proposed Action which sets forth proposed
regulations governing the rating of title insurance and related services,
including the imposition of interim rate reductions and future filing of
mandated statistical plans that would impose substantially higher costs on
title
insurance operations in California, and provides for a hearing on August 30,
2006.
On
July
17, 2006, the Florida Office of Insurance Regulation announced the completion
of
a review of title insurance regulation in the state and said the information
from the study would be used to begin a full review of title insurance rates
charged in Florida. The Florida Office of Insurance Regulation is presently
developing a rule to govern the upcoming rate analysis and rate setting
process.
We
may
receive additional subpoenas and/or requests for information in the future
from
state or federal government agencies. We will evaluate, and we intend to
cooperate in connection with, all such subpoenas and requests.
Based
on
the information known to management at this time, it is not possible to predict
the outcome of any of the currently pending governmental inquiries and
investigations into the title insurance industry’s market, business practices,
pricing levels, and other matters described above, or the market’s response
thereto. However, any material change in our business practices may have an
adverse effect on our business, operating results and financial
condition.
Other
Commitments and Contingencies
We
had
guarantees of indebtedness of others of approximately $3.7 million at June
30,
2006 and $3.9 million at December 31, 2005
Our
industrial bank subsidiary regularly commits to fund real estate loans. The
amount of such commitments was not material as of June 30, 2006.
In
December 2004, the Board of Directors approved a share repurchase program with
an expiration of February 2006 that authorized us to repurchase up to one
million shares of our common stock at a cost not to exceed $60.0 million. During
the fourth quarter 2005, we fully executed that share repurchase program. As
a
result, in October 2005, the Board of Directors approved a share repurchase
program expiring July 2007 that authorized us to repurchase an additional 1.25
million shares of our common stock. We have repurchased 375,000 shares during
the first six months of 2006 at an average price of $65.49 per share. At June
30, 2006, we had approximately 812,000 shares remaining in our authorized
repurchase program.
8.
|
WRITE-OFF
OF INTANGIBLE AND OTHER LONG-LIVED
ASSETS
|
In
January 2006, we announced our plan to relocate and consolidate our national
headquarters and shared resources operations. In connection with this move,
we
intend to sell our existing headquarters building and related assets. As a
result, we wrote down the building and related assets to the fair value less
cost to sell. We have estimated that the impairment charge for the write down
is
approximately $9.7 million, which has been reflected in our results of
operations for the six months ended June 30, 2006.
We
are
engaged in the business of providing title insurance as well as a broad array
of
real estate transaction-related services. We have three reporting segments
that
fall within three primary business segments, Title Operations, Lender Services
and Financial
Services.
The remaining immaterial reportable segments have been combined into a group
called Corporate and Other.
Based
on
changes in our organizational structure and the combination of service offerings
in our Lender Services segment, we have reclassified LandAmerica One Stop,
Inc.’s services operations, which provide title and closing services to national
lenders, to the Lender Services segment from the Title Operations segment.
Amounts from 2005 have been reclassified to conform to the 2006 presentation.
Title
Operations includes title insurance policies, escrow and closing services,
and
other real estate transaction management services for the residential and
commercial market.
Lender
Services provides services consisting primarily of title and closing, real
estate tax processing, flood zone certifications, mortgage loan subservicing,
consumer mortgage credit reporting and default management services for the
lender market.
Financial
Services consists of Orange County Bancorp and its wholly-owned subsidiary,
Centennial Bank, a California industrial bank primarily engaged in the business
of providing real estate loans in the Southern California market.
Corporate
and Other includes home warranty, residential inspection and commercial
appraisals and assessments, as well as the unallocated portion of the corporate
expenses related to our corporate offices in Richmond, Virginia and unallocated
interest expense.
We
provide title services through direct operations and agents throughout the
United States. We also offer title insurance in Mexico, Europe, Canada, the
Caribbean and Latin America. Commercial assessment services are provided in
Europe. The international operations account for less than 1 percent of our
income before income taxes. Tax-related services are offered nationwide.
Appraisal services are provided in 48 states.
The
following tables provide selected financial information about our operations
by
segment for the three and six-month periods ending June 30, 2006, and
2005:
|
|
Three
Months Ended June 30,
|
|
|
|
Operating
Revenue
|
|
Personnel
Cost
|
|
Depreciation
|
|
Amortization
of Intangible
Assets
|
|
Income
Before
Taxes
|
|
|
|
(In
millions)
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Title
Operations
|
|
$
|
882.0
|
|
$
|
240.6
|
|
$
|
5.6
|
|
$
|
3.1
|
|
$
|
72.8
|
|
Lender
Services
|
|
|
59.7
|
|
|
23.5
|
|
|
1.2
|
|
|
2.6
|
|
|
6.5
|
|
Financial
Services
|
|
|
0.3
|
|
|
0.6
|
|
|
-
|
|
|
0.1
|
|
|
4.4
|
|
Corporate
and Other
|
|
|
29.1
|
|
|
24.1
|
|
|
0.5
|
|
|
0.5
|
|
|
(26.3
|
)
|
Total
|
|
$
|
971.1
|
|
$
|
288.8
|
|
$
|
7.3
|
|
$
|
6.3
|
|
$
|
57.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
(as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
Operations
|
|
$
|
861.7
|
|
$
|
241.3
|
|
$
|
5.2
|
|
$
|
3.0
|
|
$
|
61.8
|
|
Lender
Services
|
|
|
64.9
|
|
|
22.3
|
|
|
1.1
|
|
|
3.8
|
|
|
8.5
|
|
Financial
Services
|
|
|
0.3
|
|
|
0.6
|
|
|
-
|
|
|
0.1
|
|
|
2.8
|
|
Corporate
and Other
|
|
|
25.5
|
|
|
18.7
|
|
|
1.4
|
|
|
0.8
|
|
|
(21.5
|
)
|
Total
|
|
$
|
952.4
|
|
$
|
282.9
|
|
$
|
7.7
|
|
$
|
7.7
|
|
$
|
51.6
|
|
|
|
Six
Months Ended June 30,
|
|
|
|
Operating
Revenue
|
|
Personnel
Cost
|
|
Depreciation
|
|
Amortization
of
Intangible
Assets
|
|
Income
Before
Taxes
|
|
|
|
(In
millions)
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Title
Operations
|
|
$
|
1,701.0
|
|
$
|
468.8
|
|
$
|
11.2
|
|
$
|
5.5
|
|
$
|
123.4
|
|
Lender
Services
|
|
|
117.5
|
|
|
48.1
|
|
|
2.3
|
|
|
5.2
|
|
|
8.8
|
|
Financial
Services
|
|
|
0.5
|
|
|
1.2
|
|
|
-
|
|
|
0.1
|
|
|
8.4
|
|
Corporate
and Other
|
|
|
54.4
|
|
|
47.4
|
|
|
1.6
|
|
|
1.8
|
|
|
(64.7
|
)
|
Total
|
|
$
|
1,873.4
|
|
$
|
565.5
|
|
$
|
15.1
|
|
$
|
12.6
|
|
$
|
75.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
(as restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
Operations
|
|
$
|
1,577.2
|
|
$
|
449.9
|
|
$
|
10.1
|
|
$
|
5.3
|
|
$
|
108.2
|
|
Lender
Services
|
|
|
143.1
|
|
|
44.3
|
|
|
2.1
|
|
|
7.6
|
|
|
34.3
|
|
Financial
Services
|
|
|
0.4
|
|
|
1.2
|
|
|
-
|
|
|
0.2
|
|
|
5.7
|
|
Corporate
and Other
|
|
|
45.2
|
|
|
34.8
|
|
|
2.3
|
|
|
1.6
|
|
|
(42.8
|
)
|
Total
|
|
$
|
1,765.9
|
|
$
|
530.2
|
|
$
|
14.5
|
|
$
|
14.7
|
|
$
|
105.4
|
|
10. SUBSEQUENT
EVENT
On
July
28, 2006, we entered into a Note Purchase and Master Shelf Agreement (the “Note
Purchase Agreement”) with Prudential Investment Management, Inc. (“Prudential”)
and the other purchasers thereunder. Under the Note Purchase Agreement, we
will
issue, on or prior to August 31, 2006, $50.0 million of our Senior Notes, Series
D (the “Series D Notes”) to the Series D Note purchasers and, on or prior to
November 17, 2006, issue $100.0 million of our Senior Notes, Series E (the
“Series E Notes”) to the Series E Note purchasers. In addition, the Note
Purchase Agreement contains provisions
for
an
uncommitted shelf facility by which we may issue, on or prior to July 28, 2009,
up to $75.0 million of our Senior Notes (the “Shelf Notes”) to Prudential, upon
mutually acceptable terms and conditions as may be agreed upon at the time
of
issuance.
The
Series D Notes and Series E Notes will mature on the tenth anniversary of their
issuance and will bear interest at a rate of 6.66% and 6.70% per annum,
respectively. Shelf Notes, if issued, will bear interest at a to-be-determined
per annum rate and will have maturities of no more than ten years. The Note
Purchase Agreement, which governs the Series D Notes, Series E Notes and Shelf
Notes, contains certain restrictive covenants, including a minimum debt to
capitalization ratio and debt service ratio.
We
will
use the proceeds from the sale of the Series D Notes to pay our 7.16% Senior
Notes, Series A that mature on August 31, 2006. The proceeds from the sale
of
the Series E Notes will be used to pay a percentage of the cash portion of
the
purchase price in connection with our pending acquisition of Capital Title
Group, Inc.
On
July
28, 2006, we entered into a Revolving Credit Agreement (the “Credit Agreement”)
with SunTrust Bank, as administrative agent, issuing bank and swingline lender,
and the other lenders party thereto. The Credit Agreement established a new,
five-year revolving credit arrangement that replaced our previously existing
five-year revolving credit arrangement that we entered into as of November
6,
2003.
The
Credit Agreement establishes a credit facility in the aggregate principal amount
of up to $200.0 million, which is the same amount established under the
previously existing revolving credit arrangement. As of July 28, 2006, there
were no borrowings outstanding under the Credit Agreement. The Credit Agreement
contains certain restrictive covenants, including a minimum debt to capital
ratio, an interest coverage ratio and maintenance of consolidated net worth
requirement. With the respect to the consolidated net worth requirement,
consolidated net worth cannot be less than an amount equal to the sum of (1)
85%
of the consolidated net worth at December 31, 2005 plus (2) 50% of consolidated
net income on a cumulative basis for each succeeding quarter starting with
the
quarter ending March 31, 2006 plus (3) 100% of the amount by which total
shareholders’ equity is increased as a result of any public or private common
stock offerings, excluding issuances of stock options and restricted stock
to
employees.
ITEM
2. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Overview
Our
long-term goal is to enhance our position as one of the largest providers of
real estate transaction services. To accomplish this objective, we have expanded
operations through internal growth and selective strategic acquisitions. Our
business operations are organized under three primary business segments: Title
Operations, Lender Services and Financial Services. Other business operations
not required to be reported separately are reported in a category called
Corporate and Other. Based
on
changes in the organizational structure and combination of service offerings
in
the Lender Services segment, we have reclassified our LandAmerica OneStop
services operations, which provide title and closing services to national
lenders, to the Lender Services segment from the Title Operations segment.
Amounts from 2005 have been reclassified to conform to the 2006 presentation.
A
description of these segments, including certain key factors impacting these
businesses, are provided in Note 9 to Consolidated Financial Statements included
herein and in our Annual Report on Form 10-K for the year ended December 31,
2005 as filed with the Securities and Exchange Commission on March 9, 2006.
Also, starting with first quarter 2006, we are providing direct operating
revenue from our commercial operations as opposed to the previous definition
of
commercial revenue as being premiums from policies providing coverage over
$1
million in liability.
Critical
Accounting Estimates
The
preparation of our financial statements requires management to make estimates
and judgments that affect the reported amounts of certain assets, liabilities,
revenue, expenses and related disclosures surrounding contingencies and
commitments. A summary of our significant critical accounting estimates can
be
found in Management’s Discussion and Analysis in our Annual Report on Form 10-K
for the year ended December 31, 2005 as filed with the Securities and Exchange
Commission. Actual results could differ from these estimates.
Results
of Operations
Operating
Revenue
The
following table provides a
summary
of our operating revenue for the three and six-month periods ended June 30,
2006
and 2005:
|
|
Three
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
(as
restated)
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
|
|
|
|
|
|
|
|
Direct
Operations
|
|
$
|
376.7
|
|
|
38.8
|
%
|
$
|
397.5
|
|
|
41.7
|
%
|
Agency
Operations
|
|
|
505.3
|
|
|
52.0
|
|
|
464.2
|
|
|
48.8
|
|
|
|
|
882.0
|
|
|
90.8
|
|
|
861.7
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
59.7
|
|
|
6.2
|
|
|
64.9
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
0.3
|
|
|
-
|
|
|
0.3
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
29.1
|
|
|
3.0
|
|
|
25.5
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
971.1
|
|
|
100.0
|
%
|
$
|
952.4
|
|
|
100.0
|
%
|
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
(as
restated)
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
|
|
|
|
|
|
|
|
Direct
Operations
|
|
$
|
717.5
|
|
|
38.3
|
%
|
$
|
706.1
|
|
|
40.0
|
%
|
Agency
Operations
|
|
|
983.5
|
|
|
52.5
|
|
|
871.1
|
|
|
49.3
|
|
|
|
|
1,701.0
|
|
|
90.8
|
|
|
1,577.2
|
|
|
89.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
117.5
|
|
|
6.3
|
|
|
143.1
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
0.5
|
|
|
-
|
|
|
0.4
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
54.4
|
|
|
2.9
|
|
|
45.2
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,873.4
|
|
|
100.0
|
%
|
$
|
1,765.9
|
|
|
100.0
|
%
|
Title
Operations - Operating
revenue from direct title operations decreased $20.8 million, or 5.2%, from
second quarter 2005 to second quarter 2006 and increased $11.4 million, or
1.6%,
in the first half of 2006 over the comparable period in 2005.
During
second quarter 2006, direct operating revenue decreased as a result of a decline
in order volume which was partially offset by an increase in the direct
operating revenue per closed order and strong commercial activity. During the
first half of 2006, direct operating revenue increased due to an increase in
the
direct operating revenue per closed order and strong commercial activity which
more than offset a decline in order volume. Closed orders from our
direct
title operations decreased 23.6% in second quarter 2006 from second quarter
2005, while direct operating revenue per closed order increased 24.1%. Closed
orders for the first half of 2006 decreased 16.3% while the direct operating
revenue per closed order increased 21.4%. Revenue from direct commercial
operations was $98.0 million for second quarter 2006, an increase of 10.1%
from
$89.0 million in second quarter 2005 and $185.5 million for the first half
of
2006, an increase of 18.7% from $156.3 million in the first half of
2005.
Operating
revenue from agency title operations increased $41.1 million, or 8.9%, in second
quarter 2006 over second quarter 2005. Operating revenue from agency title
operations increased $112.4 million, or 12.9%, in the first half of 2006 over
the first half of 2005. Growth in the agency business, particularly in certain
southeastern and southwestern markets, contributed to the increase in agency
revenue.
Lender
Services - Operating
revenue in second quarter 2006 decreased $5.2 million, or 8.0%, compared to
second quarter 2005. Operating revenue in the first half of 2006 decreased
$25.6
million, or 17.9%, compared to the first half of 2005. Results for 2005 included
accelerated deferred revenue related to our tax and flood business of $6.9
million and $32.7 million in the second quarter and first half of 2005,
respectively. Results for 2006 were impacted by growth in the loan subservicing
and title and closing businesses offset in part by lower volume in the credit
services business.
Corporate
and Other -
Operating revenue in the Corporate and Other segment increased by $3.6 million,
or 14.1%, in second quarter 2006 over second quarter 2005 and increased by
$9.2
million, or 20.3%, in the first half of 2006 over the same period in 2005.
Direct commercial revenue from our appraisal and assessment business was $14.3
million in second quarter 2006 compared to $12.8 million in second quarter
2005.
Direct commercial revenue from our appraisal and assessment business was $26.5
million in the first half of 2006 compared to $22.3 million in the first half
of
2005.
Investment
and Other Income
Investment
and other income increased $8.1 million, or 33.2%, in second quarter 2006 over
second quarter 2005 and
$16.5
million, or 36.1% in the first half of 2006 over the first half of
2005.
The
Financial Services segment generated $2.9 million of additional investment
income in second quarter 2006 over second quarter 2005, and $5.7 million of
additional investment income in the first half of 2006 over the first half
of
2005. These increases were due to an increase in the portfolio of loans
receivable and investments. The remaining increase was primarily attributable
to
higher dividend income from a shift in the portfolio toward equity securities
and an increase in interest rates on fixed income securities combined with
higher fixed income investment balances as of June 30, 2006 compared to the
same
period 2005.
Net
Realized Investment Gains
Net
realized investment (losses) gains were $(1.5) million in second quarter 2006
compared to $0.3 million in second quarter 2005 and $(0.6) million in the first
half of 2006 compared to $1.1 million in the first half of 2005. We recognized
approximately $1.6 million of
realized
losses in second quarter 2006 on fixed income securities that were deemed to
be
other-than-temporarily impaired. For further details, see Note 4 of the Notes
to
Consolidated Financial Statements in Part I, Item 1 of this report.
Salary
and Employee Benefits
The
following table provides a summary of our salary and employee benefit costs
for
the three and six-month periods ending June 30, 2006 and 2005:
|
|
Three
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
$
|
240.6
|
|
|
83.3
|
%
|
$
|
241.3
|
|
|
85.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
23.5
|
|
|
8.1
|
|
|
22.3
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
0.6
|
|
|
0.2
|
|
|
0.6
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
24.1
|
|
|
8.4
|
|
|
18.7
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
288.8
|
|
|
100.0
|
%
|
$
|
282.9
|
|
|
100.0
|
%
|
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
$
|
468.8
|
|
|
82.9
|
%
|
$
|
449.9
|
|
|
84.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
48.1
|
|
|
8.5
|
|
|
44.3
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
1.2
|
|
|
0.2
|
|
|
1.2
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
47.4
|
|
|
8.4
|
|
|
34.8
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
565.5
|
|
|
100.0
|
%
|
$
|
530.2
|
|
|
100.0
|
%
|
Title
Operations - Title
Operations salary and employee benefit costs decreased by $0.7 million, or
0.3%,
in second quarter 2006 from second quarter 2005 and increased $18.9 million,
or
4.2%, in the first half of 2006 over the first half of 2005. Average Full Time
Equivalent (“FTE”) counts for the Title Operations segment were 10,505 in second
quarter 2006 versus 10,771 in second quarter 2005, or a decrease of 2.5%. FTEs
for the Title Operations segment increased to 10,563 in the first half of 2006
from 10,447 in the first half of 2005, or an increase
of
1.1%.
The remaining increase in salary is due to average wage increases and increased
benefit costs.
Lender
Services -
Lender
Services salary and employee benefit costs increased by $1.2 million, or 5.4%,
in second quarter 2006 compared to second quarter 2005 due to an increase in
average wages. Salary and employee benefit costs increased by $3.8 million,
or
8.6%, in the first half of 2006 compared to the first half of 2005 due to an
increase in average wages and FTE counts.
Corporate
and Other
-
Corporate and Other salary and employee benefit costs increased $5.4 million,
or
28.9%, in second quarter 2006 over second quarter 2005 and $12.6 million, or
36.2%, in the first half of 2006 over the first half of 2005 which was primarily
due to headcount and salary increases in the operating units of our home
warranty, residential inspection and commercial appraisal and assessment
businesses and headcount and salary increases related to our investment in
technology resources.
Agent
Commissions
The
following table provides a summary of agent commissions and related revenue
in
the Title Operations segment for the three and six-month periods ending June
30,
2006 and 2005:
|
|
Three
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(Dollars
in millions)
|
|
Agent
commissions
|
|
$
|
404.2
|
|
$
|
371.6
|
|
$
|
787.3
|
|
$
|
696.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agent
revenue
|
|
$
|
505.3
|
|
$
|
464.2
|
|
$
|
983.5
|
|
$
|
871.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Retained by agents
|
|
|
80.0
|
%
|
|
80.0
|
%
|
|
80.0
|
%
|
|
79.9
|
%
|
The
commission rate varies by the geographic area in which the commission was paid
and by individual agent agreement.
Provision
for Policy and Contract Claims
We
review
our claims experience quarterly, and in conjunction with our outside actuaries,
evaluate the adequacy of our claims reserve. We consider factors such as
historical timing of claims reported and historical timing of claims paid over
the period in which policies are effective against actual experience by year
of
policy issue to determine the amount of claims liability required for each
year
for which policies are outstanding. We also consider the impact of current
trends in marketplace activity, including refinance activity, which may shorten
the time
period
a
policy is outstanding, bankruptcies and individual large claims attributable
to
any particular period in determining the expected liability associated with
each
year.
Based
on
our review of the underlying claims data and trends therein, we have provided
for claims losses using approximately 5.3% and 5.0% of operating revenue from
the Title Operations segment for the second quarters of 2006 and 2005,
respectively, and approximately 5.5% and 5.3% of operating revenue from the
Title Operations segment for the first half of 2006 and 2005. The increase
in
the claims provision ratio was primarily due to upward development in the 2005
and 2004 policy years. Since there is an extended time period for which we
are
liable, slight changes in current claims experience can result in a significant
impact in the amount of liability required for potential Incurred But Not
Reported (“IBNR”) claims. We believe that we have reserved appropriately for all
reported and IBNR claims at June 30, 2006 based on the results of the actuarial
evaluation and evaluation of any known trend.
Write-off
of Intangible and Other Long-Lived Assets
In
connection with our plan to relocate and consolidate our national headquarters
and shared resources operations, we wrote down our existing building and related
assets by approximately $9.7 million. For further details, see Note 8,
“Write-off of Intangible and Other Long-Lived Assets” of the Notes to
Consolidated Financial Statements in Part I, Item I of this report.
Amortization
Amortization
expense decreased by $1.4 million in second quarter 2006 compared to second
quarter 2005 and by $2.1 million in the first half of 2006 compared to the
first
half of 2005. The decreases are primarily the result of the write-off of
customer relationship intangibles assets in 2005 of $37.6 million within our
Lender Services segment. We are amortizing the intangible assets acquired as
part of these businesses over their estimated useful lives.
Interest
Expense
Interest
expense increased by $1.2 million in second quarter 2006 compared to second
quarter 2005 and by $2.9 million in the first half of 2006 compared to the
first
half of 2005. The increase was related to increases in interest-bearing deposits
and borrowings at Centennial Bank, our industrial bank subsidiary. We anticipate
that interest expense will continue to exceed prior period levels throughout
2006.
Premium
Taxes
Insurance
companies are generally not subject to state income or franchise taxes. However,
they are subject to a “premium tax” on certain operating revenue, depending on
the state. The tax rates and amounts that are subject to tax vary from state
to
state. Premium taxes as a percentage of total title insurance revenue were
approximately 1.3% and 1.2% in the second quarters of 2006 and 2005,
respectively, and 1.3% in both the first halves of 2006 and 2005.
General,
Administrative and Other
The
following table provides a summary of our general, administrative and other
costs for the three and six month periods ending June 30, 2006 and
2005:
|
|
Three
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
$
|
121.2
|
|
|
69.9
|
%
|
$
|
144.3
|
|
|
72.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
26.8
|
|
|
15.5
|
|
|
29.8
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
0.4
|
|
|
0.2
|
|
|
0.6
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
24.9
|
|
|
14.4
|
|
|
23.1
|
|
|
11.7
|
|
Total
|
|
$
|
173.3
|
|
|
100.0
|
%
|
$
|
197.8
|
|
|
100.0
|
%
|
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Dollars
in millions)
|
|
Title
Operations
|
|
$
|
237.0
|
|
|
69.4
|
%
|
$
|
239.9
|
|
|
70.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
Services
|
|
|
54.7
|
|
|
16.0
|
|
|
55.7
|
|
|
16.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Services
|
|
|
0.6
|
|
|
0.2
|
|
|
0.9
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other
|
|
|
49.2
|
|
|
14.4
|
|
|
41.9
|
|
|
12.4
|
|
Total
|
|
$
|
341.5
|
|
|
100.0
|
%
|
$
|
338.4
|
|
|
100.0
|
%
|
Title
Operations - Title
Operations general and administrative expenses decreased by $23.1 million,
or
16.0%, in second quarter 2006 from second quarter 2005 and $2.9 million, or
1.2%, in the first half of 2006 from the first half of 2005. General and
administrative expenses in second quarter and the first half of 2005 included
$19.0 million of accrued legal costs related to captive reinsurance inquiries
and $10.3 million for the settlement of a class action lawsuit. Before these
items, general and administrative costs increased $6.2 million from second
quarter 2005 to second quarter 2006 and $26.4 million in the first half of
2006
from the first half of 2005. The increase in general and administrative costs
quarter over quarter was due primarily to increased legal costs associated
with
state regulatory inquiries. The increase from the first half of 2006 over the
first half of 2005 was due to increased fees from outside services as a result
of higher volumes of operating revenue and increased legal costs associated
with
state regulatory inquiries.
Lender
Services - Lender
Services general and administrative expenses decreased by $3.0 million in second
quarter 2006 from the comparable period in 2005 and $1.0 million in the first
half of 2006 from the comparable period in 2005. The decrease in general and
administrative expenses from second quarter 2005 to second quarter 2006 was
due
to lower expenses as a result of lower volume.
Corporate
and Other
-
Corporate and Other general and administrative expenses increased by $1.8
million, or 7.8%, in second quarter 2006 and
$7.3
million, or 17.4%, in the first half of 2006 over the
comparable periods in 2005. The increase in general and administrative expenses
from the first half of 2006 compared to the first half of 2005 was primarily
related to increased data processing costs as we focus on technology initiatives
and higher operating expenses related to our commercial assessment business
as a
result of higher volumes.
Income
Taxes
Our
effective income tax rate, which includes a provision for state income and
franchise taxes for non-insurance subsidiaries, was 35.0% for the first half
of
2006 and 39.8% for the first half of 2005. The difference in the effective
tax
rate was due primarily to changes in the ratio of permanent differences to
income before taxes and the mix of state taxes related to our non-insurance
subsidiaries.
Net
Income
Our
reported net income was $35.6 million or $2.06 per share on a diluted basis
for
second quarter 2006, compared to a net income of $30.2 million or $1.70 per
share on a diluted basis for second quarter 2005. Our reported net income was
$49.3 million or $2.82 per share on a diluted basis for first half 2006,
compared to a net income of $63.4 million or $3.56 per share on a diluted basis
for first half 2005.
To
supplement our consolidated financial statements presented on a GAAP basis,
we
use additional non-GAAP measures of operating revenue, income before income
taxes, net income, and earnings per common share adjusted to exclude certain
costs, expenses, gains or losses we believe appropriate to enhance an overall
understanding of our past financial performance and also our prospects for
the
future. These adjustments to our GAAP results are made with the intent of
providing both management and investors a more complete understanding of our
underlying operational results and trends and our marketplace performance.
In
addition, these non-GAAP results are among the primary indicators management
uses as a basis for planning and forecasting future periods. Adjusted operating
revenue, adjusted income before income taxes, adjusted net income, and adjusted
earnings per common share assuming dilution are not measures of performance
defined by GAAP and should not be considered in isolation or as a substitute
for
operating revenue, income before income taxes, net income, or earnings per
common share assuming dilution, which have been prepared in accordance with
GAAP. Reconciliations of these financial measures to consolidated operating
results are as follows:
|
|
Quarter
Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(as
restated)
|
|
|
|
(In
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue, as reported
|
|
$
|
971.1
|
|
$
|
952.4
|
|
$
|
1,873.4
|
|
$
|
1,765.9
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of accelerated deferred revenue
|
|
|
-
|
|
|
(6.9
|
)
|
|
-
|
|
|
(32.7
|
)
|
Adjusted
operating revenue
|
|
$
|
971.1
|
|
$
|
945.5
|
|
$
|
1,873.4
|
|
$
|
1,733.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes, as reported
|
|
$
|
57.4
|
|
$
|
51.6
|
|
$
|
75.9
|
|
$
|
105.4
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off
of intangible and other long-lived assets
|
|
|
-
|
|
|
-
|
|
|
9.7
|
|
|
-
|
|
Captive
reinsurance legal reserve
|
|
|
-
|
|
|
19.0
|
|
|
-
|
|
|
19.0
|
|
Settlement
of class action suit
|
|
|
-
|
|
|
10.3
|
|
|
-
|
|
|
10.3
|
|
|
|
|
57.4
|
|
|
80.9
|
|
|
85.6
|
|
|
134.7
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of accelerated deferred revenue
|
|
|
-
|
|
|
(6.9
|
)
|
|
-
|
|
|
(32.7
|
)
|
Adjusted
income before income taxes
|
|
$
|
57.4
|
|
$
|
74.0
|
|
$
|
85.6
|
|
$
|
102.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income, as reported
|
|
$
|
35.6
|
|
$
|
30.2
|
|
$
|
49.3
|
|
$
|
63.4
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off
of intangible and other long-lived assets
|
|
|
-
|
|
|
-
|
|
|
6.3
|
|
|
-
|
|
Captive
reinsurance legal reserve
|
|
|
-
|
|
|
14.6
|
|
|
-
|
|
|
14.6
|
|
Settlement
of class action suit
|
|
|
-
|
|
|
6.7
|
|
|
-
|
|
|
6.7
|
|
|
|
|
35.6
|
|
|
51.5
|
|
|
55.6
|
|
|
84.7
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of accelerated deferred revenue
|
|
|
-
|
|
|
(4.1
|
)
|
|
-
|
|
|
(19.6
|
)
|
Adjusted
net income
|
|
$
|
35.6
|
|
$
|
47.4
|
|
$
|
55.6
|
|
$
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share assuming dilution, as reported
|
|
$
|
2.06
|
|
$
|
1.70
|
|
$
|
2.82
|
|
$
|
3.56
|
|
Add
back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off
of intangible and other long-lived assets
|
|
|
-
|
|
|
-
|
|
|
0.36
|
|
|
-
|
|
Captive
reinsurance legal reserve
|
|
|
-
|
|
|
0.82
|
|
|
-
|
|
|
0.82
|
|
Settlement
of class action suit
|
|
|
-
|
|
|
0.37
|
|
|
-
|
|
|
0.37
|
|
|
|
|
2.06
|
|
|
2.89
|
|
|
3.18
|
|
|
4.75
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of accelerated deferred revenue
|
|
|
-
|
|
|
(0.23
|
)
|
|
-
|
|
|
(1.10
|
)
|
Adjusted
net income per common share assuming dilution
|
|
$
|
2.06
|
|
$
|
2.66
|
|
$
|
3.18
|
|
$
|
3.65
|
|
EBITDA
We
have
refined our measurement for the evaluation of our results to the basis of
earnings before interest, taxes, depreciation, net revenue deferrals and
amortization (“EBITDA”). EBITDA is not a measure of performance defined by GAAP
and should not be considered in isolation or as a substitute for net
income which has been prepared in accordance with GAAP.
EBITDA,
as presented, may not be comparable to the calculation of similarly titled
measures reported by other companies. We believe that EBITDA provides useful
information to investors because it is an indicator of our operating
performance. While amortization expense is an operating expense under GAAP,
this
expense represents the non-current allocation of intangible assets acquired
in
prior periods. Additionally, while net revenue deferrals are a reduction
of
revenue and profits in the current period, these reductions represent a non-cash
allocation of revenue to future periods for certain of our home warranty
and
flood and tax servicing products. Reconciliations of these financial measures
to
our net income are as follows:
|
|
Quarter
Ended June 30,
|
|
Six
Months Ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
(as
restated)
|
|
|
|
(as
restated)
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
82.4
|
|
$
|
80.2
|
|
$
|
125.8
|
|
$
|
141.1
|
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
9.3
|
|
|
8.1
|
|
|
18.9
|
|
|
16.0
|
|
Tax
expense
|
|
|
21.8
|
|
|
21.4
|
|
|
26.6
|
|
|
42.0
|
|
Change
in net revenue deferrals
|
|
|
2.1
|
|
|
5.1
|
|
|
3.3
|
|
|
(9.5
|
)
|
Depreciation
expense
|
|
|
7.3
|
|
|
7.7
|
|
|
15.1
|
|
|
14.5
|
|
Amortization
expense
|
|
|
6.3
|
|
|
7.7
|
|
|
12.6
|
|
|
14.7
|
|
Net
Income
|
|
$
|
35.6
|
|
$
|
30.2
|
|
$
|
49.3
|
|
$
|
63.4
|
|
Liquidity
and Capital Resources
Cash
provided by operating activities was $29.4 million for the first half of 2006
compared to $121.5 million provided by operating activities for the first half
of 2005. The change in operating cash flow was due to the timing of income
tax
payments and payments for accounts payable and accrued expenses. The principal
non-operating uses of cash for the first halves of 2006 and 2005 were capital
expenditures, additions to the investment portfolio, loans receivable, common
stock repurchased and the repayment of debt. The net of all activities was
a
decrease in cash of $8.2 million for the first half of 2006 and an increase
in
cash of $5.0 million for the second half of 2005. At June 30, 2006, we held
cash
of $80.9 million and investments of $1,710.8 million.
On
March
29, 2006, we announced we had executed an agreement to purchase Capital Title
Group, Inc., a title insurance underwriter, agent, and settlement services
provider, subject to approval by Capital Title’s shareholders and receipt of all
required regulatory approvals. The purchase price of approximately $251 million
will consist of 80% cash and 20% in our common stock. We expect that
approximately 50% of the
cash
portion of the purchase price will be funded by available cash and 50% from
additional borrowings. The 50 percent from available cash may initially include
short-term borrowings that may be repaid from the anticipated increase in net
assets available for distribution to us from our consolidated insurance
subsidiaries in the future.
On
July
28, 2006, we entered into a Note Purchase and Master Shelf Agreement (the “Note
Purchase Agreement”) with Prudential Investment Management, Inc. (“Prudential”)
and the other purchasers thereunder. Under the Note Purchase Agreement, we
will
issue, on or prior to August 31, 2006, $50.0 million of our Senior Notes, Series
D (the “Series D Notes”) to the Series D Note purchasers and, on or prior to
November 17, 2006, issue $100.0 million of our Senior Notes, Series E (the
“Series E Notes”) to the Series E Note purchasers. In addition, the Note
Purchase Agreement contains provisions for an uncommitted shelf facility by
which we may issue, on or prior to July 28, 2009, up to $75.0 million of our
Senior Notes (the “Shelf Notes”) to Prudential, upon mutually acceptable terms
and conditions as may be agreed upon at the time of issuance.
The
Series D Notes and Series E Notes will mature on the tenth anniversary of their
issuance and will bear interest at a rate of 6.66% and 6.70% per annum,
respectively. Shelf Notes, if issued, will bear interest at a to-be-determined
per annum rate and will have maturities of no more than ten years. The Note
Purchase Agreement, which governs the Series D Notes, Series E Notes and Shelf
Notes, contains certain restrictive covenants, including a minimum debt to
capitalization ratio and debt service ratio.
We
will
use the proceeds from the sale of the Series D Notes to pay our 7.16% Senior
Notes, Series A that mature on August 31, 2006. The proceeds from the sale
of
the Series E Notes will be used to pay a percentage of the cash portion of
the
purchase price in connection with our pending acquisition of Capital Title
Group, Inc.
On
July
28, 2006, we entered into a Revolving Credit Agreement (the “Credit Agreement”)
with SunTrust Bank, as administrative agent, issuing bank and swingline lender,
and the other lenders party thereto. The Credit Agreement established a new,
five-year revolving credit arrangement that replaced our previously existing
five-year revolving credit arrangement that we entered into as of November
6,
2003.
The
Credit Agreement establishes a credit facility in the aggregate principal amount
of up to $200.0 million, which is the same amount established under the
previously existing revolving credit arrangement. As of July 28, 2006, there
were no borrowings outstanding under the Credit Agreement. The Credit Agreement
contains certain restrictive covenants, including a minimum debt to capital
ratio, an interest coverage ratio and maintenance of consolidated
net worth requirement.
With
the
respect to the consolidated net worth requirement, consolidated net worth cannot
be less than an amount equal to the sum of (1) 85% of the consolidated net
worth
at December 31, 2005 plus (2) 50% of consolidated net income on a cumulative
basis for each succeeding quarter starting with the quarter ending March 31,
2006 plus (3) 100% of the amount by which total shareholders’ equity is
increased as a result of any public or private common stock offerings, excluding
issuances of stock options and restricted stock to employees.
In
June
2006, we completed the process of redomesticating our three principal title
insurance subsidiaries, Commonwealth Land Title Insurance Company, Lawyers
Title
Insurance Corporation and Transnation Title Insurance Company from the States
of
Pennsylvania, Virginia
and
Arizona, respectively, to the State of Nebraska. The redomestication of these
title insurance subsidiaries is expected to result in streamlined regulatory,
tax and statutory accounting functions derived from having these subsidiaries
subject to the same laws and regulations. Under Nebraska insurance laws and
regulations, approximately $100 million of the net assets of our consolidated
insurance subsidiaries are available during the remainder of 2006 for ordinary
dividends, loans or advances to us. The redomestication of these subsidiaries
is
expected to increase the cumulative amount of surplus that is available to
pay
dividends to us by the aggregate amount that these subsidiaries’ total statutory
claims reserves exceed GAAP claims reserves after income taxes, subject to
certain annual limitations and any approval that may be required by the Nebraska
Department of Insurance. As of December 31, 2005, statutory claims reserves
exceeded GAAP claims reserves by approximately $237 million before income taxes.
We anticipate that any such additional dividends will be used for general
corporate purposes, including but not limited to the repayment of debt,
acquisitions and the repurchase of our common stock.
In
December 2005, we filed a Shelf Registration Statement on Form S-3 for up
to
$400.0 million of our debt and/or equity securities. We may from time to
time
issue debt and equity securities as market conditions permit and our financing
needs arise.
In
December 2004, the Board of Directors approved a share repurchase program
with
an expiration of February 2006 that authorized us to repurchase up to one
million shares of our common stock at a cost not to exceed $60.0 million.
During
the fourth quarter 2005, we fully executed that share repurchase program.
As a
result, in October 2005, the Board of Directors approved a share repurchase
program expiring July 2007 that authorized us to repurchase an additional
1.25
million shares of our common stock. We have repurchased 375,000 shares during
the first six months of 2006 at an average price of $65.49 per share. At
June
30, 2006, we had approximately 812,000 shares remaining in our authorized
repurchase program.
Our
industrial bank maintains an allowance for loan losses related to our loans
receivable. During second quarter 2006, we did not experience a significant
change in the underlying components of the allowance for loan losses or the
balance in total. There have been no significant changes in the underlying
rationale for management’s provision for loan losses or significant changes in
asset quality.
Interest
Rate Risk
The
following table provides information about our financial instruments that are
sensitive to changes in interest rates. For investment securities, the table
presents principal cash flows and related weighted interest rates by expected
maturity dates. Actual cash flows could differ from the expected
amounts.
Interest
Rate Sensitivity
|
|
Principal
Amount by Expected Maturity
|
|
Average
Interest Rate
|
|
(Dollars
in millions)
|
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
and
After
|
|
Total
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value
|
|
$
|
15.7
|
|
$
|
43.3
|
|
$
|
54.1
|
|
$
|
73.5
|
|
$
|
50.4
|
|
$
|
493.6
|
|
$
|
730.6
|
|
$
|
713.4
|
|
Average
yield
|
|
|
5.36
|
%
|
|
4.75
|
%
|
|
4.36
|
%
|
|
4.76
|
%
|
|
4.84
|
%
|
|
5.37
|
%
|
|
5.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable
available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value
|
|
|
5.7
|
|
|
8.4
|
|
|
26.6
|
|
|
16.9
|
|
|
20.6
|
|
|
375.0
|
|
|
453.2
|
|
|
454.1
|
|
Average
yield
|
|
|
3.72
|
%
|
|
4.24
|
%
|
|
4.24
|
%
|
|
4.30
|
%
|
|
4.24
|
%
|
|
4.37
|
%
|
|
4.34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
Receivable*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
Value
|
|
|
0.9
|
|
|
1.0
|
|
|
0.5
|
|
|
3.2
|
|
|
5.7
|
|
|
444.0
|
|
|
455.3
|
|
|
449.9
|
|
Average
Yield
|
|
|
8.74
|
%
|
|
9.16
|
%
|
|
7.77
|
%
|
|
8.01
|
%
|
|
15.01
|
%
|
|
6.82
|
%
|
|
6.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8.8
|
|
|
8.8
|
|
|
8.8
|
|
Average
yield
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3.30
|
%
|
|
3.30
|
%
|
|
|
|
|
*Excludes
reserves, discounts and other
costs.
|
Long-term
debt was $466.3 million at June 30, 2006, bearing interest at a weighted average
rate of 4.77%. Additionally, interest-bearing passbook and certificate of
deposit liabilities were $327.6 million at June 30, 2006 at an interest rate
of
4.51%.
Regulatory
Investigations and Inquiries
We
have
received certain information requests and subpoenas from various regulatory
authorities relating to our business practices and the title insurance industry.
As detailed below, a number of these inquiries focus on captive reinsurance,
among other matters.
Captive
reinsurance involves the provision of reinsurance by a reinsurance company
that
is owned by another entity, typically a lender, developer or other party that
is
a provider of real estate-related services. From the inception of our captive
reinsurance programs in 1997 through 2004, reinsurance premiums paid by us
to
captive reinsurers totaled approximately $12.0 million. The revenues from these
programs were not material to our results of operations. We voluntarily
terminated our captive reinsurance arrangements as of February 2005,
notwithstanding our belief that we had operated the programs in accordance
with
applicable law. In addition, as set out on page 38, we settled certain of these
investigations without admitting any liability.
Specifically,
we have received the following regulatory inquiries:
In
2004,
the Office of the Attorney General of the State of New York (“NYAG”) initiated
an investigation into the business practices of companies engaged in the title
insurance business. We have received subpoenas and requests from the NYAG
seeking information and documents related to certain industry business
practices, including, among other things, competitive market practices, the
compensation of title insurance agents and producers by underwriters, and
captive and other reinsurance arrangements, and we continue to respond to those
subpoenas and requests. The Company is participating in settlement discussions
with the NYAG and the insurance department of the State of New York with regard
to alleged violations of New York Insurance Law that they perceive as a result
of the NYAG’s investigation.
We
also
received initial inquiries in 2004 and responded to or continue to respond
to
inquiries regarding the title industry’s business practices from the following
state agencies: the California Department of Insurance and the Colorado Division
of Insurance regarding captive reinsurance; the insurance departments of North
Carolina and Pennsylvania as part of their review of competitive market
practices and agent compensation in the title insurance industry; and the State
of Washington Office of Insurance Commissioner regarding captive reinsurance,
potential illegal inducements and rebates by title insurance companies and
title
insurance rates.
Additionally,
in 2005, we received and responded to or continue to respond to inquiries
regarding the title industry’s business practices from the following state
agencies: the California Department of Real Estate regarding captive
reinsurance; the California Department of Insurance regarding our community
development and investment, California title plants, and examinations of our
adherence to filed premium rates and claims handling practices, including
whether refunds of overcharges to certain consumers may be required; the
Colorado Attorney General regarding captive reinsurance; the Colorado Department
of Insurance regarding affiliated business arrangements; the Connecticut
Department of Insurance regarding producer compensation and captive reinsurance
arrangements; the Florida Department of Financial Services regarding affiliated
business arrangements; the Hawaii Insurance Division regarding producer
compensation arrangements and captive reinsurance; the Idaho Department of
Insurance regarding captive reinsurance and premium splits between agent and
underwriter; the Massachusetts Attorney General regarding reinsurance and the
title insurance market; the Minnesota Department of Commerce regarding captive
and other reinsurance arrangements; the Tennessee Department of Insurance
regarding producer compensation arrangements and competitive market practices
of
Title Insurance Company of America, and requiring the submission of an
attestation regarding any finite reinsurance arrangements existing in that
state; and regulatory departments from seven other states, excluding those
that
have been settled, regarding captive reinsurance arrangements. We also received
and responded in 2005 to a request for information from the United States
Department of Housing and Urban Development in conjunction with its
investigation involving various builders, lenders and real estate brokers in
connection with their participation in captive reinsurance companies.
In
2006,
we received and are responding to an Administrative Subpoena from the Minnesota
Department of Commerce with regard to a market examination. The insurance
department of the State of New York has commenced a market conduct exam and
indicated its
intent
to
determine the Company’s adherence to filed premium rates, including whether
refunds of overcharges to certain consumers may be required. The Maryland
Department of Insurance has requested captive reinsurance information. The
California Department of Insurance has requested information regarding any
technology arrangements with settlement services providers.
We
also
reached agreements with the insurance departments of the states of California
and Arizona in 2005 and Virginia and Nevada in 2006 to settle filed or potential
claims regarding captive reinsurance and other regulatory matters except
overcharges of certain consumers in California, without admitting any liability.
These four states accounted for approximately 80% of our captive reinsurance
business.
In
June
2005, we established reserves of $19.0 million to cover anticipated exposure
to
regulatory matters nationwide, an amount which includes the settlements with
the
California, Arizona, Nevada and Virginia departments of insurance. Based on
actual settlements, we released $6.7 million of this reserve back into earnings
in fiscal year 2005. The remaining reserve at June 30, 2006 was approximately
$6.1 million.
Also,
in
addition to or in connection with the above-referenced inquiries, multiple
states, including California, Florida, Louisiana, Nevada, New Mexico, Texas
and
New York, are examining pricing levels and/or competition in the title insurance
industry, with a view to determining whether prices are justified, and if not,
to implement rate changes, including potential reductions.
On
April
27, 2006, notice was issued that the Texas Commissioner will begin the hearing
of the current Texas title rate case on August 16, 2006. In the course of
prehearing discovery, the Department has sought and we have provided statistical
data and testimony relating to the types and level of expenses for both
underwriters and agents, captive reinsurance, rebating and other practices
that
may have the effect of raising the expenses of title insurers and agents.
On
June
30, 2006, the Acting Superintendent of Insurance for New Mexico issued an
Interim Order that the 2006 title insurance rates announced in a March 2006
order and scheduled to take effect on July 1, 2006 are to be implemented on
an
interim basis, subject to later revision if it is ultimately determined that
the
rates should be reduced and subject to refund.
Subsequent
to a June 19, 2006 hearing of the Nevada Division of Insurance, on July 3,
2006
the Nevada Division of Insurance issued an additional request for information
to
the title industry, and advised that a Commissioner order will be issued in
fall
2006 relating to title insurance. That order may result in further rate
proceedings and rate changes as a result of those proceedings or may address
potential changes in the rate filing process.
On
July
3, 2006, California issued a Notice of Proposed Action which sets forth proposed
regulations governing the rating of title insurance and related services,
including the imposition of interim rate reductions and future filing of
mandated statistical plans that would impose substantially higher costs on
title
insurance operations in California, and provides for a hearing on August 30,
2006.
On
July
17, 2006, the Florida Office of Insurance Regulation announced the completion
of
a review of title insurance regulation in the state and said the information
from the study would be used to begin a full review of title insurance rates
charged in Florida. The Florida Office of Insurance Regulation is presently
developing a rule to govern the upcoming rate analysis and rate setting
process.
We
may
receive additional subpoenas and/or requests for information in the future
from
state or federal government agencies. We will evaluate, and we intend to
cooperate in connection with, all such subpoenas and requests.
Based
on
the information known to management at this time, it is not possible to predict
the outcome of any of the currently pending governmental inquiries and
investigations into the title insurance industry’s market, business practices,
pricing levels, and other matters described above, or the market’s response
thereto. However, any material change in our business practices may have an
adverse effect on our business, operating results and financial
condition.
Forward-Looking
and Cautionary Statements
We
caution readers that the statements contained herein regarding our future
financial condition, results of operations, future business plans, operations,
opportunities, or prospects, including any factors which may affect future
earnings, are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are based upon management’s current knowledge and
assumptions about future events and involve risks and uncertainties that could
cause actual results, performance or achievements to be materially different
from anticipated results, performance or achievements, expressed or implied
by
such forward-looking statements. Such risks and uncertainties include: (i)
our
results of operations and financial condition are susceptible to changes in
mortgage interest rates and general economic conditions; (ii) changes to the
participants in the secondary mortgage market could affect the demand for title
insurance products; (iii) we are subject to government regulation; (iv)
heightened regulatory scrutiny of the Company and the title insurance industry,
including the pricing of title insurance products and services, could materially
and adversely affect its business, operating results, and financial condition;
(v) we may not be able to fuel our growth through acquisitions; (vi) our
inability to integrate and manage successfully our acquired businesses could
adversely affect our business, operating results, and financial condition;
(vii)
regulatory non-compliance, fraud, or defalcations by our title insurance agents
or employees could adversely affect our business, operating results, and
financial condition; (viii) competition in our industry affects our revenue;
(ix) significant industry changes and new product and service introductions
require timely and cost-effective responses; (x) our litigation risks include
substantial claims by large classes of claimants; (xi) key accounting and
essential product delivery systems are concentrated in a few locations; (xii)
provisions of our articles of incorporation and bylaws, our shareholder rights
plan, and applicable state corporation and insurance laws could limit another
party’s ability to acquire us and could deprive shareholders of the opportunity
to obtain a takeover premium for shares of common stock owned by them; (xiii)
our future success depends on our ability to continue to attract and retain
qualified employees; and (xiv) our conduct of business in foreign markets
creates financial and operational risks and uncertainties that may materially
and adversely affect our business,
operating
results, and financial condition. For more details on factors that may cause
actual results to differ materially from such forward-looking statements, see
our Annual Report on Form 10-K for the year ended December 31, 2005, and other
reports from time to time filed with or furnished to the Securities and Exchange
Commission.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES
ABOUT
MARKET RISK
The
information required by this Item is set forth under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Risk” in Part I, Item 2 of this report. There are no other
material changes to the disclosure on this matter made in our Annual Report
on
Form 10-K for the year ended December 31, 2005.
ITEM
4. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
An
evaluation was performed under the supervision and with the participation of
our
management, including our Chief Executive Officer, or CEO, and Chief Financial
Officer, or CFO, of the effectiveness of our disclosure controls and procedures
as of June 30, 2006. Based on that evaluation, our management, including our
CEO
and CFO, concluded that our disclosure controls and procedures are effective
to
ensure that information required to be disclosed by us in reports that we file
or submit under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported as specified in the SEC's rules and forms,
and is accumulated and communicated to our management, including our CEO and
CFO, to allow timely decisions regarding required disclosure.
Remediation
of Material Weakness in Internal Control
As
reported in our 2005 Form 10-K, we determined that we did not maintain effective
controls over the reconciliation of claims payment and recovery data used to
support the estimate of our policy and contract claims reserve. During the
first
quarter of 2006, we enhanced our professional staff responsible for the claims
reserve analysis and implemented controls surrounding the claims data
reconciliation and system report reliance. We believe that these changes in
controls can be applied consistently and appropriately in future periods and
that the implementation of these enhanced controls has effectively remediated
the material weakness in controls described above.
Changes
in Internal Controls
There
were no changes in our internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f), identified in connection with the
evaluation of our controls performed during the quarter ended June 30, 2006
that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
The
information contained in Note 6 “Commitments and Contingencies” of the Notes to
Consolidated Financial Statements filed as Part I, Item 1 of this Quarterly
Report on Form 10-Q is incorporated herein by reference.
ITEM
1A. RISK
FACTORS
Our
business is subject to various risks, including the risks described in our
2005
Form 10-K and the risk described below. Our business, operating results and
financial condition could be materially and adversely affected by any of these
risks. Please note that additional risks not presently known to us or that
we
currently deem immaterial may also impair our business and
operations.
Changes
to the participants in the secondary mortgage market could affect the demand
for
title insurance products.
The
demand for our title insurance products and services depends upon, among other
things, the volume of commercial and residential real estate transactions,
including mortgage refinancing transactions. In turn, the volume of commercial
and residential real estate transactions, depends in part upon the requirement
of participants in the secondary mortgage market, who purchase large volumes
of
real estate loans secured by commercial and residential real property (including
but not limited to Federal National Mortgage Association, the Federal Home
Loan
Mortgage Corporation and the Government National Mortgage Association), that
title insurance policies be obtained on such real property. Therefore, changes
to the composition of the participants in the secondary mortgage market or
their
requirements that title insurance policies be obtained could adversely affect
the demand for our title insurance products.
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
(c)
|
The
following table sets forth the details of purchases of common stock
under
our share purchase plans and our Executive Voluntary Deferral Plan
and
Outside Directors Deferral Plan that occurred in the second quarter
of
2006:
|
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number of Shares
Purchased
as Part of
Publicly
Announced
Plans
or Programs
|
Maximum
Number of
Shares
that May Yet
Be
Purchased Under
the
Plans or Programs
|
|
|
|
|
|
April
1 through April 30, 2006
|
58,084
|
$68.21
|
57,000
|
1,544,875
|
May
1 through May 31, 2006
|
67,009
|
$66.63
|
66,000
|
1,477,866
|
June
1 through June 30, 2006
|
66,329
|
$63.72
|
66,000
|
1,411,537
|
|
(1)
|
A
total of 2,422 shares of our common stock were purchased in connection
with two employee benefit plans during the second quarter 2006. These
repurchases were made in open-market transactions on behalf of a
trust
maintained by us for the Executive Voluntary Deferral Plan and the
Outside
Directors Deferral Plan.
|
|
(2)
|
On
October 26, 2005, we announced an additional share purchase plan
providing
for the purchase of up to 1,250,000 shares of our common stock expiring
at
the end of July 2007. As of June 30, 2006, we had purchased a total
of
438,000 shares authorized under this purchase
plan.
|
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The
Annual Meeting of Shareholders of the Company (the “Meeting”) was held on May
16, 2006.
b) At
the
Meeting, the shareholders elected four directors to serve three-year terms.
The
voting with respect to each nominee was as follows:
Nominee
|
Votes
For
|
Votes
Withheld
|
|
|
|
Janet
A. Alpert
|
15,990,635
|
284,762
|
Gale
K. Caruso
|
16,026,089
|
249,308
|
Michael
Dinkins
|
15,725,966
|
549,431
|
John
P. McCann
|
16,162,495
|
112,902
|
The
terms
of office of the following directors continued after the meeting: Theodore
L.
Chandler, Jr., Charles H. Foster, Jr., Robert F. Norfleet, Jr., Robert T.
Skunda, Julious P. Smith, Jr., Thomas G. Snead, Jr., Eugene P. Trani and
Marshall B. Wishnack.
c) The
shareholders also approved an amendment to the Company’s Articles of
Incorporation to revise the Article pertaining to directors as noted
below:
Article
Pertaining to Directors
|
Votes
For
|
16,068,165
|
Votes
Against
|
103,693
|
Abstain
|
103,539
|
d) Additionally,
at the Meeting the shareholders approved an amendment to the Company’s Articles
of Incorporation to revise the Article pertaining to indemnification as noted
below:
Article
Pertaining to Indemnification
|
|
|
Votes
For
|
16,029,357
|
Votes
Against
|
130,868
|
Abstain
|
115,172
|
e) Finally,
at the Meeting the shareholders ratified Ernst & Young LLP as the Company’s
independent registered public accounting firm for the 2006 fiscal year as noted
below:
Appointment
of Independent Registered Public Accountants
|
|
|
Votes
For
|
15,834,432
|
Votes
Against
|
397,672
|
Abstain
|
43,293
|
ITEM
5. OTHER
INFORMATION
Note
Purchase and Master Shelf Agreement
On
July
28, 2006, we entered into a Note Purchase and Master Shelf Agreement (the “Note
Purchase Agreement”) with Prudential Investment Management, Inc. (“Prudential”)
and the other purchasers thereunder. Under the Note Purchase Agreement, we
will
issue, on or prior to August 31, 2006, $50.0 million of our Senior Notes, Series
D (the “Series D Notes”) to the Series D Note purchasers and, on or prior to
November 17, 2006, issue $100.0 million of our Senior Notes, Series E (the
“Series E Notes”) to the Series E Note purchasers. In addition, the Note
Purchase Agreement contains provisions for an uncommitted shelf facility by
which we may issue, on or prior to July 28, 2009, up to $75.0 million of our
Senior Notes (the “Shelf Notes”) to Prudential, upon mutually acceptable terms
and conditions as may be agreed upon at the time of issuance.
The
Series D Notes and Series E Notes will mature on the tenth anniversary of their
issuance and will bear interest at a rate of 6.66% and 6.70% per annum,
respectively. Shelf Notes, if issued, will bear interest at a to-be-determined
per annum rate and will have maturities of no more than ten years. The Note
Purchase Agreement, which governs the Series D Notes, Series E Notes and Shelf
Notes, contains certain restrictive covenants, including a minimum debt to
capitalization ratio and debt service ratio.
We
will
use the proceeds from the sale of the Series D Notes to pay our 7.16% Senior
Notes, Series A that mature on August 31, 2006. The proceeds from the sale
of
the Series E Notes will be used to pay a percentage of the cash portion of
the
purchase price in connection with our pending acquisition of Capital Title
Group, Inc.
Revolving
Credit Agreement
On
July
28, 2006, we entered into a Revolving Credit Agreement (the “Credit Agreement”)
with SunTrust Bank, as administrative agent, issuing bank and swingline lender,
and the other lenders party thereto. The Credit Agreement established a new,
five-year revolving credit arrangement that replaced our previously existing
five-year revolving credit arrangement that we entered into as of November
6,
2003.
The
Credit Agreement establishes a credit facility in the aggregate principal amount
of up to $200.0 million, which is the same amount established under the
previously existing revolving credit arrangement. As of July 28, 2006, there
were no borrowings outstanding under the Credit Agreement. The Credit Agreement
contains certain restrictive covenants, including a minimum debt to capital
ratio, an interest coverage ratio and maintenance of consolidated net worth
requirement. With the respect to the consolidated net worth requirement,
consolidated net worth cannot be less than an amount equal to the sum of (1)
85%
of the consolidated net worth at December 31, 2005 plus (2) 50% of consolidated
net income on a cumulative basis for each succeeding quarter starting with
the
quarter ending March 31, 2006 plus (3) 100% of the amount by which total
shareholders’ equity is increased as a result of any public or private common
stock offerings, excluding issuances of stock options and restricted stock
to
employees.
A
copy of
the Credit Agreement is attached as Exhibit 10.1 to this report.
ITEM
6. EXHIBITS
Exhibit
No.
|
|
Document
|
|
|
|
4.1
|
|
Note
Purchase and Master Shelf Agreement, dated as of July 28, 2006, by
and
among the Registrant and the purchasers named therein, with accompanying
forms of 6.66% Senior Note, Series D, due 2016, 6.70% Senior Note,
Series
E, due 2016 and Shelf Note. The foregoing exhibits need not be filed
herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. The
Registrant, by signing this Report on Form 10-Q, agrees to furnish
the
Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long-term debt
of the
Registrant and its consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to be filed
that
authorizes a total amount of securities not in excess of 10% of the
total
assets of the Registrant and its subsidiaries on a consolidated
basis.
|
|
|
|
10.1
|
|
Revolving
Credit Agreement, dated July 28, 2006 between the Registrant and
SunTrust
Bank, as Administrative Agent for a syndicate of financial institutions
named therein.*
|
Exhibit
No.
|
|
Document |
|
|
|
10.2
|
|
Amendment
dated July 24, 2006 to the LandAmerica Financial Group, Inc. Executive
Voluntary Deferral Plan, as amended and restated.* The LandAmerica
Financial Group, Inc. Executive Voluntary Deferral Plan, as amended
and
restated effective January 1, 2005 is incorporated by reference to
Exhibit
10.2 of the Registrant’s Current Report on Form 8-K, dated February 21,
2006, File No. 1-13990.
|
31.1
|
|
Rule
13a-14(a) Certification of Chief Executive Officer*
|
|
|
|
31.2
|
|
Rule
13a-14(a) Certification of Chief Financial Officer*
|
|
|
|
32.1
|
|
Statement
of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350*
|
|
|
|
32.2
|
|
Statement
of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350*
|
|
|
|
*Filed
herewith.
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
LANDAMERICA
FINANCIAL GROUP, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
August 2, 2006
|
|
/s/
Christine R. Vlahcevic
|
|
|
|
Christine
R. Vlahcevic
|
|
|
|
Senior
Vice President-
|
|
|
|
Corporate
Controller
|
|
|
|
(Principal
Accounting Officer)
|
|
EXHIBIT
INDEX
No.
|
Description
|
|
|
4.1
|
Note
Purchase and Master Shelf Agreement, dated as of July 28, 2006, by
and among the Registrant and the purchasers named therein, with
accompanying forms of 6.66% Senior Note, Series D, due 2016, 6.70%
Senior
Note, Series E, due 2016 and Shelf Note. The foregoing exhibits need
not
be filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K.
The Registrant, by signing this Report on Form 10-Q, agrees to furnish
the
Securities and Exchange Commission, upon its request, a copy of any
instrument which defines the rights of holders of long-term debt
of the
Registrant and its consolidated subsidiaries, and for any unconsolidated
subsidiaries for which financial statements are required to be filed
that
authorizes a total amount of securities not in excess of 10% of the
total
assets of the Registrant and its subsidiaries on a consolidated
basis.
|
|
|
10.1
|
Revolving
Credit Agreement, dated July 28, 2006 between the Registrant and
SunTrust
Bank, as Administrative Agent for a syndicate of financial institutions
named therein.*
|
|
|
10.2
|
Amendment
dated July 24, 2006 to the LandAmerica Financial Group, Inc. Executive
Voluntary Deferral Plan, as amended and restated.* The LandAmerica
Financial Group, Inc. Executive Voluntary Deferral Plan, as amended
and
restated effective January 1, 2005 is incorporated by reference to
Exhibit
10.2 of the Registrant’s Current Report on Form 8-K, dated February 21,
2006, File No. 1-13990.
|
31.1
|
Rule
13a-14(a) Certification of Chief Executive Officer
|
|
|
31.2
|
Rule
13a-14(a) Certification of Chief Financial Officer
|
|
|
32.1
|
Statement
of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350
|
|
|
32.2
|
Statement
of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350
|
*
Filed
herewith.