FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 1-12688 STEWART INFORMATION SERVICES CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 74-1677330 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1980 Post Oak Blvd., Houston TX 77056 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (713) 625-8100 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2002. Common 16,595,651 Class B Common 1,050,012
FORM 10-Q QUARTERLY REPORT Quarter Ended June 30, 2002 TABLE OF CONTENTS <TABLE> <CAPTION> Item No. Page - -------- ---- <S> <C> <C> Part I - FINANCIAL INFORMATION 1. Financial Statements 1 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 3. Quantitative and Qualitative Disclosures About Market Risk 9 Part II - OTHER INFORMATION 1. Legal Proceedings 10 4. Submission of Matters to a Vote of Security Holders 10 5. Other Information 10 6. Exhibits and Reports on Form 8-K 11 Signature 12 </TABLE> As used in this report, "we", "us", "our" and "Stewart" mean Stewart Information Services Corporation and our subsidiaries unless the context indicates otherwise.
STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 2002 and 2001 <TABLE> <CAPTION> SECOND QUARTER SIX MONTHS ---------------------- ---------------------- 2002 2001 2002 2001 -------- -------- -------- -------- ($000 Omitted) ($000 Omitted) <S> <C> <C> <C> <C> Revenues Title insurance: Direct operations 153,775 136,326 300,338 236,614 Agency operations 232,271 157,887 412,543 283,484 -------- -------- -------- -------- 386,046 294,213 712,881 520,098 Real estate information services 17,364 16,902 33,248 30,833 -------- -------- -------- -------- Total operating revenues 403,410 311,115 746,129 550,931 Investment income 4,593 4,500 9,496 10,045 Investment gains - net 235 45 587 398 -------- -------- -------- -------- 408,238 315,660 756,212 561,374 Expenses Amounts retained by agents 188,560 128,858 336,849 231,315 Employee costs 105,979 90,916 210,544 170,268 Other operating expenses 60,217 50,179 115,421 92,329 Title losses and related claims 16,702 11,917 31,068 21,512 Depreciation 5,243 4,770 10,628 9,497 Goodwill -- 828 -- 1,369 Interest 260 784 515 1,443 Minority interests 2,534 2,171 4,064 3,396 -------- -------- -------- -------- 379,495 290,423 709,089 531,129 -------- -------- -------- -------- Earnings before taxes 28,743 25,237 47,123 30,245 Income taxes 11,032 9,799 18,068 11,734 -------- -------- -------- -------- Net earnings 17,711 15,438 29,055 18,511 ======== ======== ======== ======== Average number of shares outstanding - assuming dilution (000) 17,935 15,385 17,945 15,327 Earnings per share - basic 1.00 1.01 1.63 1.22 Earnings per share - diluted 0.99 1.00 1.62 1.21 ======== ======== ======== ======== Comprehensive earnings: Net earnings 17,711 15,438 29,055 18,511 Changes in unrealized investment gains (losses), net of taxes of $2,103, $(590), $848 and $571 3,904 (1,095) 1,574 1,060 -------- -------- -------- -------- Comprehensive earnings 21,615 14,343 30,629 19,571 ======== ======== ======== ======== </TABLE> See notes to condensed consolidated financial statements. -1-
STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 <TABLE> <CAPTION> JUN 30 DEC 31 2002 2001 -------- -------- ($000 Omitted) <S> <C> <C> Assets Cash and cash equivalents 76,578 60,706 Short-term investments 58,591 56,267 Investments - statutory reserve funds 269,093 239,084 Investments - other 68,506 86,046 Receivables 47,573 52,036 Property and equipment 47,909 48,772 Title plants 39,419 37,715 Goodwill 55,983 52,971 Deferred income taxes -- 4,288 Other 41,929 39,978 -------- -------- 705,581 677,863 ======== ======== Liabilities Notes payable 15,765 13,794 Accounts payable and accrued liabilities 46,288 57,752 Deferred income taxes 859 -- Estimated title losses 209,966 202,544 Minority interests 9,721 9,233 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 133,911 133,157 Retained earnings 287,299 258,746 Accumulated other comprehensive earnings 5,503 4,149 Treasury stock - 316,900 shares at June 30, 2002 and 116,900 shares at December 31, 2001, at cost (3,731) (1,512) -------- -------- Total stockholders' equity ($23.97 per share at June 30, 2002) 422,982 394,540 -------- -------- 705,581 677,863 ======== ======== </TABLE> See notes to condensed consolidated financial statements. -2-
STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 <TABLE> <CAPTION> 2002 2001 ------- ------- ($000 Omitted) <S> <C> <C> Cash provided by operating activities (Note) 42,585 44,566 Investing activities: Purchases of property and equipment and title plants - net (10,918) (8,184) Proceeds from investments matured and sold 56,600 44,094 Purchases of investments (68,385) (40,187) Increases in notes receivable (1,202) (1,402) Collections on notes receivable 1,551 1,734 Cash received (paid) for the acquisition of subsidiaries - net 190 (6,661) ------- ------- Cash used by investing activities (22,164) (10,606) Financing activities: Distribution to minority interests (3,395) (2,590) Proceeds from issuance of stock 122 92 Proceeds from notes payable 1,452 8,633 Payments on notes payable (2,728) (5,089) ------- ------- Cash (used) provided by financing activities (4,549) 1,046 ------- ------- Increase in cash and cash equivalents 15,872 35,006 ======= ======= NOTE: Reconciliation of net earnings to the above amounts - Net earnings 29,055 18,511 Add (deduct): Depreciation and amortization 10,628 10,866 Provision for title losses in excess of payments 7,422 788 Provision for uncollectible amounts - net 918 (140) Decrease in accounts receivable - net 3,344 1,634 (Decrease) increase in accounts payable and accrued liabilities - net (7,483) 11,876 Minority interest expense 4,064 3,396 Equity in net earnings of investees (1,417) (1,159) Realized investment gains - net (587) (398) Stock bonuses 631 416 Increase in other assets (3,778) (2,095) Other - net (212) 871 ------- ------- Cash provided by operating activities 42,585 44,566 ======= ======= Supplemental information: Assets acquired (purchase method) Goodwill 1,699 9,138 Title plants 307 4,906 Other (1,216) 1,965 Liabilities assumed (453) (1,439) Common Stock acquired (issued) 2,721 (2,900) Debt issued to sellers (3,248) (5,009) ------- ------- Cash (received) paid for acquisitions (190) 6,661 ======= ======= </TABLE> See notes to condensed consolidated financial statements. -3-
STEWART INFORMATION SERVICES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1: Interim Financial Statements The financial information contained in this report for the three and six month periods ended June 30, 2002 and 2001, and as of June 30, 2002, is unaudited. In the opinion of our management, all adjustments necessary for a fair presentation of this information for all unaudited periods, consisting only of normal recurring accruals, have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts in the 2001 condensed consolidated financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. Note 2: Segment Information Our two reportable segments are title and real estate information. Selected financial information related to these segments follows: Real estate Title information Total ----- ----------- ----- ($000 Omitted) Revenues: - --------- Three months ended 6/30/02 390,874 17,364 408,238 6/30/01 298,758 16,902 315,660 Six months ended 6/30/02 722,964 33,248 756,212 6/30/01 530,541 30,833 561,374 Pretax earnings: - ---------------- Three months ended 6/30/02 26,740 2,003 28,743 6/30/01 22,884 2,353 25,237 Six months ended 6/30/02 43,682 3,441 47,123 6/30/01 27,298 2,947 30,245 Identifiable assets: - -------------------- 6/30/02 666,979 38,602 705,581 12/31/01 639,282 38,581 677,863 Note 3: Earnings Per Share Our basic earnings per share figures were calculated by dividing net earnings by the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the reporting period. The only potentially dilutive effect on earnings per share relates to our stock option plans. In calculating the effect of the options and determining a figure for diluted earnings per share, the average number of shares used in calculating basic earnings per share was increased by 158,000 and 140,000 for the three month periods ended June 30, 2002 and 2001, respectively and 152,000 and 148,000 for the six months ended June 30, 2002 and 2001, respectively. -4-
Note 4: Equity in Investees The amount of earnings from equity investments was $0.9 million and $1.0 million for the three month periods ended June 30, 2002 and 2001, respectively and $1.4 million and $1.2 million for the six month periods ended June 30, 2002 and 2001, respectively. These amounts are included in "title insurance revenues - direct operations" in the condensed consolidated statements of earnings and comprehensive earnings. Note 5: Changes in Accounting Principles In August 2001, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for Impairment or Disposal of Long-Lived Assets". This statement is effective for fiscal years beginning after December 15, 2001 and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS 144 will not have a material effect on our consolidated financial position or results of operations. Note 6: Goodwill and Intangible Assets - Adoption of SFAS No. 142 We adopted SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002 and stopped amortizing goodwill prospectively. Selected financial information reflects the pro forma earnings assuming the provisions of SFAS No. 142 had been applied prior to January 1, 2002: <TABLE> <CAPTION> SECOND QUARTER SIX MONTHS ------------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------ ($000 Omitted, except earnings per share) <S> <C> <C> <C> <C> Net Earnings: - ------------- Net earnings 17,711 15,438 29,055 18,511 Add back: Goodwill amortization, net of tax -- 819 -- 1,352 --------- -------- -------- --------- Pro forma net earnings 17,711 16,257 29,055 19,863 Basic earnings per share: - ------------------------- Net earnings 1.00 1.01 1.63 1.22 Add back: Goodwill amortization -- 0.05 -- 0.09 --------- -------- -------- --------- Pro forma net earnings 1.00 1.06 1.63 1.31 Diluted earnings per share: - --------------------------- Net earnings 0.99 1.00 1.62 1.21 Add back: Goodwill amortization -- 0.05 -- 0.09 --------- -------- -------- --------- Pro forma net earnings 0.99 1.05 1.62 1.30 </TABLE> -5-
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL Our primary business is title insurance. We issue policies on homes and other real property located in all 50 states, the District of Columbia and several foreign countries through more than 6,000 issuing locations. We also sell electronically delivered real estate services and information, as well as mapping products and geographic information systems, to domestic and foreign governments and private entities. Our business has two main segments: title and real estate information ("REI"). These segments are closely related due to the nature of their operations and common customers. The segments provide services throughout the United States through a network of offices, including both direct operations and agents. Although we conduct operations in several international markets, at current levels the contributions of the international markets are generally immaterial with respect to our consolidated financial results. CRITICAL ACCOUNTING POLICIES We believe the accounting policies that are the most critical to our financial statements, and that are subject to the most judgment, are those relating to title loss reserves, premium revenue recognition and recoverability of long-lived assets, such as goodwill and title plants. Title loss reserves represent the aggregate future payments, net of recoveries, that we expect to incur on policy losses and in costs to settle claims. The future title loss payments are difficult to estimate due to the complex nature of title claims, the length of time over which claims are paid, the significantly varying dollar amounts of individual claims and other factors. Loss provision amounts are based on reported claims, historical loss experience, title industry averages, the current legal environment and the types of policies written. The title loss reserve is continually reviewed and adjusted, as appropriate. Independent actuaries review the adequacy of the reserve on an annual basis. Premiums on title insurance written by our direct title operations are recognized as revenue at the time of the closing of the related real estate transaction. Premiums on title insurance policies written by agents are recognized primarily when policies are reported to us. We also accrue for unreported policies where reasonable estimates can be made based on historical reporting patterns of agents, current trends and known information about agents. We review the carrying values of title plants and other long-lived assets if certain events occur that may indicate impairment. Impairment is indicated when projected undiscounted cash flows over the estimated life of the assets are less than carrying values. If impairment is determined by management, the book amounts are written down to fair value by calculating the discounted value of projected cash flows. In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets", goodwill is tested for impairment annually and goodwill determined to be impaired is expensed to current operations. RESULTS OF OPERATIONS Generally, the principal factors that contribute to increases in our operating revenues for our title and REI segments include: o declining mortgage interest rates, which usually increase home sales and refinancing transactions; o rising home prices; o higher premium rates; o increased market share; o additional revenues from new offices and o increased revenues from commercial transactions. These factors may override the seasonal nature of the title business. Generally, the third quarter is the most active in terms of real estate sales and the first quarter is the least active. -6-
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 GENERAL. According to published industry data, interest rates for 30-year fixed mortgages, excluding points, for the six months ended June 30, 2002 averaged 6.9% as compared to 7.1% for the same period a year earlier. The rates at year-end 2001 were just over 7%. In 2001, rates remained relatively stable, with rates reaching a high of 7.2% in May and reaching a low of 6.5% in November. For the first six months of 2002, rates remained relatively stable, with rates reaching a high of 7.2% in March and a low of 6.6% in June. Operating in these mortgage interest rate environments, real estate activity in the first six months of 2002 was strong. Refinancing transactions remained strong in the first two quarters of 2002 compared to the same period in 2001. Existing home sales increased 6.9% in the first six months of 2002 over the same period in 2001. The ratio of refinancings to total loan applications was 46.5% for the first six months of 2002 compared to 52.2% for the first six months of 2001. TITLE REVENUES. Our revenues from the title segment increased 37.1% in the first six months of 2002 over revenues for the same period in 2001. In 2002, revenues from direct operations for the first six months increased to $300.3 million or 26.9% over revenues for the first six months of 2001. The number of direct closings we handled in 2002 increased 25.2% over those we handled in 2001. Direct closings relate only to files closed by our underwriters and subsidiaries and do not include closings from agents. The average revenue per closing increased 1.1% in 2002 because of the slight reduction in refinancings, which have lower premiums than regular transactions. There were no major revenue rate changes in 2002 or 2001. Premiums from agency operations increased 45.5% to $412.5 million in 2002. This increase resulted primarily from increased refinancings and regular transactions handled by agents nationwide. The largest increases were in California, Texas and New York. REI REVENUES. Real estate information segment revenues were $33.2 million in 2002 and $30.8 million in 2001. The increase in 2002 resulted primarily from providing an increased number of post-closing services, flood services and electronic mortgage documents resulting from the increase in real estate transactions. INVESTMENTS. Investment income decreased 3.4% in 2002 primarily because of decreases in investment yields. We realized a gain on the sale of investment real estate during the second quarter, but it was offset by a comparable after-tax loss of $1.2 million on the sale of WorldCom bonds. Investment gains in 2002 were realized as part of the on-going management of the investment portfolio for the purpose of improving performance. AGENT RETENTION. The amount of revenues retained by agents, as a percentage of premiums from agents, was 81.7% and 81.6% in the years 2002 and 2001, respectively. Amounts retained by title agents are based on contracts between the agents and the title insurance underwriters of the Company. The percentage that amounts retained by agents bear to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. EMPLOYEE COSTS. In 2002, employee costs for the combined business segments increased 23.7% over 2001 costs. The number of persons employed by the Company at June 30, 2002 and June 30, 2001 was approximately 7,200 and 6,300, respectively. This increase in staff in 2002 was primarily the result of acquisitions of new offices and additional staff in California. In the REI segment, employee costs increased in 2002 and 2001 primarily due to a continuing shift in focus to providing more post-closing services to lenders. These services are significantly more labor intensive than other REI services. OTHER OPERATING EXPENSES. Other operating expenses for the combined business segments increased 25.0% in 2002. The overall increase in these other operating expenses in 2002 was in new offices, premium taxes, search fees and computer expenses. Other operating expenses for the combined business segments also include title plant expenses, travel, delivery costs, rent, business promotion, telephone, supplies and policy forms. Most of these expenses follow, to varying degrees, the changes in transaction volume and revenues. Our labor and certain other operating costs are sensitive to inflation. To the extent inflation causes an increase in the price of homes and other real estate, premium revenues from the sale of these properties also increase. Premiums are determined in part by the insured values of the transactions handled by us. -7-
TITLE LOSSES. Provisions for title losses, as a percentage of title insurance revenues, were 4.4% in 2002 and 4.1% in 2001. The continued improvement in industry trends in claims and a significant amount of refinancing transactions, which result in lower loss exposure, have led to lower loss ratios in the last five years. INCOME TAXES. The provision for federal and state income taxes represented effective tax rates of 38.3% and 38.8% in 2002 and 2001, respectively. THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 GENERAL. According to published industry data, interest rates for 30-year fixed mortgages, excluding points, for the three months ended June 30, 2002 averaged 6.8% as compared to 7.1% for the same period in 2001. Because of a favorable mortgage interest rate environment, real estate activity in the second quarter of 2002 was strong. Refinancing transactions remained strong in the second quarter of 2002 compared to the same period in 2001. The ratio of refinancings to total loan applications was 42.7% for the second quarter of 2002 compared to 47.4% for the second quarter of 2001. Existing home sales increased 4.2% in the second quarter of 2002 over the same period in 2001. TITLE REVENUES. Our revenues from the title segment increased 31.2% in the second quarter of 2002 over the same period in 2001. Revenues from direct operations increased 12.8% to $153.8 million for the second quarter of 2002 compared to the second quarter of 2001. The number of direct closings we handled increased 7.8% in the second quarter of 2002 compared to the same period in 2001. Direct closings relate only to files that our underwriters and subsidiaries close and do not include closings by agents. The average revenue per direct closing increased 4.5% in the second quarter of 2002 compared to the same period in 2001 because of the slight reduction in refinancings which have lower premiums than regular transactions. There were no major revenue rate changes in the second quarter of 2002 or 2001. Premiums from agency operations increased 47.1% to $232.3 million for the second quarter of 2002 compared to the same period in 2001. The increase resulted primarily from increased refinancings and regular transactions handled by agents nationwide. The largest increases were in California, Texas and New York. REI REVENUES. Real estate information revenues were $17.4 million for the second quarter of 2002 and $16.9 million for the second quarter of 2001. The increase resulted primarily from providing an increased number of post-closing services, Section 1031 tax-deferred exchanges and electronic mortgage documents resulting from the increase in real estate transactions. INVESTMENTS. Investment income increased 6.2% in the second quarter of 2002 compared to the second quarter of 2001 primarily because of increases in investment yields. We realized a gain on the sale of investment real estate during the second quarter, but it was offset by a comparable after-tax loss of $1.2 million on the sale of WorldCom bonds. Investment gains during this period were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. AGENT RETENTION. The amounts retained by agents, as a percentage of premiums from agents, were 81.2% and 81.6% in the second quarters of 2002 and 2001, respectively. Amounts retained by title agents are based on contracts between agents and our title insurance underwriters. The percentage that amounts retained by agents bears to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. EMPLOYEE COSTS. Employee costs for the combined business segments increased 16.6% in the second quarter of 2002 compared to the same period in 2001. The number of persons we employed at June 30, 2002 and June 30, 2001 was approximately 7,200 and 6,300, respectively. The increase in staff was primarily the result of acquisitions of new offices and additional staff in California. In the REI segment, employee costs increased in the second quarter of 2002 over 2001 primarily due to a continuing shift in focus to providing more post-closing services to lenders. These services are significantly more labor intensive. OTHER OPERATING EXPENSES. Other operating expenses for the combined business segments increased 20.0% in the second quarter of 2002. The increase in other operating expenses for the combined business segments during this period resulted from new offices, premium taxes, computer expenses and search fees. Other operating expenses also include title plant expenses, travel, delivery costs, rent, business promotion, REI expenses, telephone, supplies and policy forms. Most of these expenses follow, to varying degrees, the changes in transaction volume and revenues. -8-
Our labor and certain other operating costs are sensitive to inflation. To the extent inflation causes increases in the prices of homes and other real estate, premium revenues also increase. Premiums are determined in part by the insured values of the transactions we handle. TITLE LOSSES. For the second quarter, provisions for title losses, as a percentage of title insurance revenues, were 4.3% in 2002 and 4.1% in 2001. The continued improvement in industry trends in claims and increases in refinancing transactions, which result in lower loss exposure, have led to lower loss ratios in recent years. INCOME TAXES. The provision for federal and state income taxes represented effective tax rates of 38.4% and 38.8% in the second quarters of 2002 and 2001, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations was $42,585 and $44,566 for the six month periods ended June 30, 2002 and 2001, respectively. Internally generated cash flow has been the primary source of financing for additions to property and equipment, expanding operations and other capital requirements. This source of financing may be supplemented by bank borrowings. We do not have any material source of liquidity and financing that involves off-balance sheet arrangements. A substantial majority of consolidated cash and investments is held by Stewart Title Guaranty Company and its subsidiaries. Cash transfers between Stewart Title Guaranty Company and its subsidiaries are subject to certain legal restrictions. See notes 3 and 4 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2001. Our liquidity, excluding Stewart Title Guaranty Company and its subsidiaries, is comprised of cash and investments aggregating $16.5 million and short-term liabilities of $574,000 at June 30, 2002. We know of no commitments or uncertainties that are reasonably likely to materially affect our ability, or the ability of our subsidiaries, to fund our short-term or long-term cash needs. We consider our capital resources, represented primarily by notes payable of $15.8 million and stockholders' equity of $423.0 million at June 30, 2002, to be adequate. We are not aware of any trends, either favorable or unfavorable that would materially affect the notes payable or the stockholders' equity and we do not expect any material changes to the cost of such resources. However, significant acquisitions in the future could materially affect the notes payable balance. FORWARD-LOOKING STATEMENTS. All statements included in this report, other than statements of historical fact, addressing activities, events or developments that we expect or anticipates will or may occur in the future, are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties including, among other things, changes in mortgage interest rates, employment levels, actions of competitors, changes in real estate markets, general economic conditions, legislation (primarily legislation related to title insurance) and other risks and uncertainties discussed in our filings with the Securities and Exchange Commission. Item 3: Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our investment strategies, types of financial instruments held or the risks associated with such instruments which would materially alter the market risk disclosures made in our Annual Statement on Form 10-K for the year ended December 31, 2001. -9-
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are a party to routine lawsuits incidental to our business, most of which involve disputed policy claims. In many of these suits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) Our Annual Meeting of Stockholders was held on April 26, 2002 for the purpose of electing our board of directors. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition to management's solicitations. (c) Brief description of each matter voted upon: Election of directors. A. Directors Elected by Common Stockholders: Number of Shares ------------------------------ Votes For Votes Withheld ---------- -------------- Lloyd Bentsen, III 14,613,873 80,350 Nita B. Hanks 14,621,705 72,518 Dr. E. Douglas Hodo 14,608,203 86,020 Gov. John P. LaWare 14,623,993 70,230 Dr. W. Arthur Porter 14,621,032 73,191 B. Directors Elected by Class B Common Stockholders: Number of Shares ------------------------------ Votes For Votes Withheld ---------- -------------- Max Crisp 1,050,012 0 Paul W. Hobby 1,050,012 0 Malcolm S. Morris 1,050,012 0 Stewart Morris, Jr. 1,050,012 0 ITEM 5. OTHER INFORMATION We paid regular quarterly cash dividends on our common stock from 1972 through 1999. During 1999, our Board of Directors approved a plan to repurchase up to 5 percent (680,000 shares) of our outstanding common stock. Our Board also decided to discontinue our regular quarterly dividend in favor of returning those and additional funds to stockholders' equity through the stock repurchase plan. Under this plan, we repurchased 116,900 shares of common stock during 2000. We did not repurchase any shares of our common stock in 2001 or in the first six months of 2002. An additional 200,000 shares of treasury stock was acquired in the second quarter of 2002 as a result of the consolidation of a majority owned subsidiary which was previously held as an equity method investment. The treasury stock is held as collateral to a note payable of the Company. -10-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K <Table> <S> <C> <C> 3.1 - Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 3.2 - By-Laws of the Registrant, as amended March 13, 2000 (incorporated by reference in this report from Exhibit 3.2 of Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4. - Rights of Common and Class B Common Stockholders * 10.1 - Summary of agreements as to payment of bonuses to certain executive officers (incorporated by reference in this report from Exhibit 10.1 of Annual Report on Form 10-K for the fiscal year ended December 31, 2001) * 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July 24, 1990 and October 30, 1992, between the Registrant and certain executive officers (incorporated by reference in this report from Exhibit 10.2 of Annual Report on Form 10-K for the fiscal year ended December 31, 1997) * 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan (incorporated by reference in this report from Exhibit 10.3 of Annual Report on Form 10-K for the fiscal year ended December 31, 1999) * 10.4 - Stewart Information Services Corporation 2002 Stock Option Plan for Region Managers (incorporated by reference in this report from Exhibit 10.4 of Quarterly Report on Form 10-Q for the quarter ended March 31, 2002) 99.1 - Details of Investments at June 30, 2002 and December 31, 2001 99.2 - Certificate of Co-Chief Executive Officers pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.3 - Certificate of Co-Chief Executive Officers pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.4 - Certificate of Chief Financial Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 </Table> * A management compensation plan, contract or arrangement. There were no reports on Form 8-K filed during the quarter ended June 30, 2002. -11-
SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized. Stewart Information Services Corporation ---------------------------------------- (Registrant) August 9, 2002 - ---------------- Date /s/ MAX CRISP ---------------------------------------- Max Crisp (Executive Vice President and Chief Financial Officer, Secretary-Treasurer, Director and Principal Financial and Accounting Officer) -12-
INDEX TO EXHIBITS <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION ------- ----------- <S> <C> <C> 3.1 - Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 3.2 - By-Laws of the Registrant, as amended March 13, 2000 (incorporated by reference in this report from Exhibit 3.2 of Annual Report on Form 10-K for the fiscal year ended December 31, 2000) 4. - Rights of Common and Class B Common Stockholders * 10.1 - Summary of agreements as to payment of bonuses to certain executive officers (incorporated by reference in this report from Exhibit 10.1 of Annual Report on Form 10-K for the fiscal year ended December 31, 2001) * 10.2 - Deferred Compensation Agreements dated March 10, 1986, amended July 24, 1990 and October 30, 1992, between the Registrant and certain executive officers (incorporated by reference in this report from Exhibit 10.2 of Annual Report on Form 10-K for the fiscal year ended December 31, 1997) * 10.3 - Stewart Information Services Corporation 1999 Stock Option Plan (incorporated by reference in this report from Exhibit 10.3 of Annual Report on Form 10-K for the fiscal year ended December 31, 1999) * 10.4 - Stewart Information Services Corporation 2002 Stock Option Plan for Region Managers (incorporated by reference in this report from Exhibit 10.4 of Quarterly Report on Form 10-Q for the quarter ended March 31, 2002) 99.1 - Details of Investments at June 30, 2002 and December 31, 2001 99.2 - Certificate of Co-Chief Executive Officers pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.3 - Certificate of Co-Chief Executive Officers pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 99.4 - Certificate of Chief Financial Officer pursuant to Section 906(a) of the Sarbanes-Oxley Act of 2002 </Table> * A management compensation plan, contract or arrangement.