Definitive Merger Agreement Signed with Fidelity National Financial, Inc.
$462.4 Million Non-Cash Charges Reflect Poor Current Market Conditions
RICHMOND, Va., Nov. 10 /PRNewswire-FirstCall/ -- LandAmerica Financial
Group, Inc. (NYSE: LFG) announces operating results for the third quarter and
nine months ended September 30, 2008.
Third Quarter Third Quarter
2008 2007
(In millions, except per share data)
Total revenue $631.8 $906.8
Net loss $(599.6) $(20.8)
Net loss per diluted share $(39.45) $(1.28)
Nine Months Nine Months
2008 2007
(In millions, except per share data)
Total revenue $2,030.6 $2,860.4
Net loss $(673.8) $(8.2)
Net loss per diluted share $(44.33) $(0.49)
Commenting on LandAmerica's performance, Chairman and Chief Executive
Officer Theodore L. Chandler, Jr. said, 'This quarter we are taking a market
value-driven, non-cash write-down of goodwill, other intangible assets,
certain investments and deferred tax assets of $462 million.'
Chandler added, 'We are also further strengthening our reserves by
approximately $90 million to account for adverse claims development. We
continue to aggressively reduce our cost infrastructure to adjust for these
exceptionally difficult real estate and credit markets and, as a result,
incurred $12 million of exit and termination charges this quarter.'
'On November 7, 2008, we signed a definitive merger agreement with
Fidelity National Financial, Inc. to join the Fidelity family of companies.
We believe that this combination is in the best interests of our shareholders,
customers and employees and look forward to bringing the strength of our
combined capabilities to the marketplace.'
Merger Agreement
Under the terms of the definitive agreement, which has been approved by
the boards of directors of both companies, LandAmerica shareholders will
receive 0.993 shares of Fidelity common stock for each share of LandAmerica
common stock issued and outstanding at the closing of the merger. The exchange
ratio will be reduced if the Company's sale of Centennial Bank, which is a
condition to closing the merger, results in net proceeds to the Company of
less than a threshold amount. The merger transaction will be immediately
preceded by a loan from certain of Fidelity's title insurance subsidiaries to
the Company and/or Fidelity, and/or a dividend to Fidelity, in an amount equal
to the book value, as of September 30, 2008, of the statutory surplus of
Commonwealth Land Title Insurance Company and/or Lawyers Title Insurance
Corporation. The proceeds from the loans and/or dividend will be used to
repay outstanding indebtedness under the Company's revolving credit facility,
private placement senior notes and/or existing Fidelity debt.
The transaction is subject to certain closing conditions, including the
approval of LandAmerica shareholders, antitrust and state regulatory
approvals, the sale of Centennial Bank, receipt of certain waivers under the
Company's revolving credit facility ('Credit Agreement') and Note Purchase and
Master Shelf Agreement with Prudential Investment Management, Inc. ('Note
Purchase Agreement') and the satisfaction of other closing conditions. The
merger agreement also provides that Fidelity can terminate the agreement on or
before November 21, 2008 if its remaining due diligence investigation causes
it to determine, in its sole discretion, that it would be inadvisable to
consummate the merger.
In connection with the execution of the merger agreement, a subsidiary of
Fidelity also agreed to provide the Company with a $30 million stand-by credit
facility for the Company's 1031 exchange subsidiary secured by auction rate
securities held by that subsidiary. The stand-by credit facility cannot be
drawn upon until the expiration of Fidelity's due diligence contingency on
November 21, 2008.
Third Quarter Highlights
(Unless otherwise indicated, all references to growth rate percentages
below compare the results of the period to those of the prior year comparable
period.)
-- Pretax loss in third quarter 2008 included $306.7 million of non-cash
impairment charges related to goodwill, certain intangible assets and
investment securities. These charges stem from the current weakness in the
real estate and financial markets.
-- Non-cash impairment charges for third quarter 2008 included $224.9
million for goodwill and other intangibles reflecting the Company's depressed
share price as a result of the severe downturn in U.S. mortgage markets.
-- Tax expense of $155.7 million in third quarter 2008 included a non-cash
charge to income tax expense for a valuation allowance of $272.7 million
placed against deferred tax assets in accordance with current accounting
standards which do not allow for the assumption of future income when in a
three-year cumulative loss position. As the real estate market improves and
the Company no longer has a three-year cumulative loss, the current valuation
allowance will be evaluated for reversal.
-- In third quarter 2008, total revenue decreased by 30.3% and direct
revenue from title and non-title commercial operations declined by 40.1%
because of the continued lower residential mortgage originations and lower
commercial real estate activity. As estimated by the Mortgage Bankers
Association, mortgage originations declined by approximately 22.4% in third
quarter 2008.
-- Based on continued adverse reported and paid claims trends over the
last six quarters, the Company has more heavily weighted the more recent
years' loss experience in the actuarial model and incorporated that data into
the assumptions and factors that determine ultimate expected loss experience
for all prior calendar years. This weighting further strengthened the
Company's reserves for policy and contract claims by approximately $90
million.
-- To reduce infrastructure cost, approximately 60 offices were closed
during third quarter 2008, bringing the total number of office closures to
around 420 since January 1, 2007. Staffing levels were reduced during the
quarter by approximately 940 average full-time equivalents ('FTEs') to 9,270
FTEs at September 30, 2008. This represents a cumulative reduction in
headcount of approximately 5,260, or 37.3%, since January 1, 2007, before the
effect of acquisitions and divestitures.
-- The quarterly dividend was suspended in November 2008 to preserve
capital in the severe cyclical downturn.
SEGMENT RESULTS
Title Operations
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $534.3 $791.0 (32.5)%
Pretax (losses) earnings before
non-cash charges $(114.4) $1.2 n/m
Non-cash charges $(217.9) - -
Pretax (losses) earnings after
non-cash charges $(332.3) $1.2 n/m
Average full-time equivalents 7,000 10,400 (32.7)%
Claims ratio 23.5% 9.9% 13.6 bps
bps - basis points
n/m - not meaningful
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $1,711.0 $2,487.1 (31.2)%
Pretax (losses) earnings before
non-cash charges $(194.9) $65.7 n/m
Non-cash charges $(217.9) - -
Pretax (losses) earnings after
non-cash charges $(412.8) $65.7 n/m
Average full-time equivalents 7,600 11,000 (30.9)%
Claims ratio 16.3% 8.6% 7.7 bps
bps - basis points
n/m - not meaningful
In the Title Operations segment, total revenue was negatively affected by
the decline in residential real estate transactions, lower property values, a
decrease in commercial revenue and a $19.6 million non-cash impairment of
certain securities. Revenue in 2007 included several large commercial
transactions in the second quarter totaling approximately $17 million.
Responding to significant reductions in mortgage origination volumes, the
Company has aggressively cut operating costs in this segment. FTEs in third
quarter and the first nine months of 2008 were down by roughly a third from
the comparable periods in 2007. The reduction in FTEs lowered salary and
employee benefit costs by $71.0 million, or 32.0%, in third quarter 2008 and
by 33.7% to $490.1 million in the first nine months of 2008 from the
comparable periods in 2007.
Additionally, before a $60.5 million non-cash contingent liability
reserve, general, administrative and other expenses decreased by $20.7
million, or 16.7%, in third quarter 2008 from third quarter 2007 and by $75.7
million, or 19.8%, in the first nine months of 2008 from the comparable period
in 2007.
The claims provision as a percentage of operating revenue for the Title
Operations segment was 23.5% in third quarter 2008, up from 9.9% in third
quarter 2007, reflecting $5.1 million of large claims activity incurred and an
increase in the frequency of claims reported for policy years 2005 through
2007, which resulted in upward development in the estimated provision for
those policy years.
In addition to the impairment of certain securities, non-cash charges
include impairments of goodwill and other intangibles of $137.8 million.
Lender Services
Third Quarter Third Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $61.0 $67.4 (9.5)%
Pretax earnings (losses) before
non-cash charges $3.7 $(2.7) n/m
Non-cash charges $(74.9) - -
Pretax losses after non-cash charges $(71.2) $(2.7) n/m
Average full-time equivalents 1,560 1,720 (9.3)%
n/m - not meaningful
Nine Months Nine Months Percent
2008 2007 Change
(Dollars in millions)
Total revenue $197.3 $220.1 (10.4)%
Pretax earnings before non-cash charges $17.2 $11.1 n/m
Non-cash charges $(74.9) $(20.8) n/m
Pretax losses after non-cash charges $(57.7) $(9.7) n/m
Average full-time equivalents 1,550 1,780 (12.9)%
n/m - not meaningful
Before non-cash charges, the Lender Services segment generated pretax
earnings in third quarter 2008 and the first nine months of 2008. Total
revenue was negatively affected by lower volume in certain product lines of
the mortgage origination businesses and the loan servicing business. The
default management services business experienced higher volume due primarily
to increased demand for lien monitoring, foreclosure and other related
services as a result of the continuing downturn in the residential real estate
market. The loan sub-servicing business experienced higher revenue primarily
from new product offerings. Revenue was positively affected in 2007 by the
acceleration of deferred revenue in the loan servicing business in first
quarter 2007.
Responding to significant reductions in mortgage origination volumes, the
Company reduced average FTEs third quarter 2008 compared to third quarter 2007
by approximately 160, resulting in salary and employee benefit cost reductions
of $2.0 million, or 8.2%, in third quarter 2008 from third quarter 2007.
Third quarter 2008 FTEs included an increase along with demand for new loan
sub-servicing products and additional demand for default management services,
appraisal and subservicing products.
