Stewart Reports Updated Operating Results for the Second Quarter 2008
HOUSTON, Aug. 6 /PRNewswire-FirstCall/ -- Stewart Information Services Corporation (NYSE: STC - News) today reported updated results of operations for the second quarter and six months ended June 30, 2008. The update to the second quarter's and six months' earnings is related to the discovery of additional information subsequent to the Company's original earnings release on July 30, 2008 and prior to filing its quarterly report on Form 10-Q with the Securities and Exchange Commission. This additional information connected several independent claims to the same series of fraudulent transactions which resulted in the reclassification of the claims as a single large title claim. The impact of this title policy claim resulted in a pretax charge of $3.0 million ($2.0 million after taxes, or $0.11 per share) to the second quarter and six months ended June 30, 2008. The information presented herein has been updated, as necessary, to reflect the impact of this matter to the second quarter and six months ended June 30, 2008. There are no other updates to previously reported amounts. (Dollar amounts in the table below are in millions, except for per share figures.)
Second Quarter 2008(a) 2007 Total revenues $428.5 $573.4 Pretax (loss) earnings before minority interests (44.2) 19.2 Net (loss) earnings (28.6) 10.1 Net (loss) earnings per diluted share (1.58) 0.55 Six Months 2008(a) 2007(b) Total revenues $822.7 $1,105.1 Pretax (loss) earnings before minority interests (85.0) 14.6 Net (loss) earnings (53.9) 5.4 Net (loss) earnings per diluted share (2.98) 0.29 (a) The second quarter of 2008 includes pretax charges totaling $27.2 million ($17.7 million after taxes, or $0.98 per share) relating to a reserve adjustment of $10.0 million for prior policy years, $11.2 million relating to large claims and two agency defalcations, and a software impairment charge of $6.0 million. The first three months of 2008 includes an additional charge of $4.6 million ($3.0 million after taxes, or $0.17 per share) relating to an agency defalcation. (b) The first six months of 2007 includes a $3.2 million gain ($2.1 million after taxes, or $0.11 per diluted share) from the sale of two subsidiaries and a charge of $7.4 million ($4.8 million after taxes, or $0.26 per diluted share) relating to large claims.
The continuing decline in our orders resulting from the decrease in new and existing home sales, home prices, construction and lending in the second quarter of 2008, coupled with worsening policy claims payment experience and a software impairment charge, resulted in a pretax (and before minority interests) loss of $44.2 million compared with earnings of $19.2 million in the same quarter last year. The software impairment charge of $6.0 million relates to software developed, and now abandoned, in our REI segment for one of its subsidiaries.
Revenues in the second quarter of 2008 fell to $428.5 million, a decline of 25.3 percent from the $573.4 million in the same period last year. This reduction in revenues reflects the second quarter 2008 decline in our order volume resulting from decreases in existing home sales (down 16.7 percent), new home sales (down 33.2 percent) and existing home prices (down 15.8 percent) compared with the second quarter of 2007. Our international operations remained profitable, offsetting, in part, our loss in the second quarter of 2008 for U.S. operations.
Total revenues for the first half of 2008 were $822.7 million, down 25.6 percent from the same period in 2007. Overall, the Company reported a loss of $85.0 million before taxes and minority interests in the first half of 2008 compared with a profit of $14.6 million in the same period in 2007.
"We are responding strategically to this downturn by implementing cost reductions throughout the Company. We remain committed to our long-term strategies and restructuring efforts even in this extremely difficult real estate environment," said Malcolm S. Morris, co-chief executive officer and chairman. "We are progressing in our shared-services initiatives and have contracted several national relationships for savings in procurement. These initiatives and relationships, which range from accounting and information technology to procurement and human resources, have significant potential for process improvements and cost reductions. We are also consolidating many of our separate corporate entities to better serve our customers, streamline our administrative functions and reduce fixed costs.
"We are experiencing higher than expected payments of policy claims, which resulted in our taking a $10.0 million charge this quarter relating to prior policy years," added Morris. "However, we are continuing to make progress in reducing our risk exposure through the review and cancellation of higher-risk title agencies and by auditing potential title agencies prior to adding them to our agency network."
"We continue to respond to declining market conditions by aggressively reducing variable and fixed expenses," said Stewart Morris, Jr., co-chief executive officer and president. "In the second quarter of 2008, our employee count was reduced by 350, which brings our year-to-date reduction to 810, or 9.6 percent. Our total reduction in employee count is 2,400, or 24.6 percent, since December 31, 2006. We have also closed 68 unprofitable branch and office locations since the beginning of 2008.
"In addition, we are responding to the consumer in these tough markets," said Morris. "We announced a simplification of our rate structure in California to better serve our customers. Also in this quarter, we formed a new multi-state foreclosure trustee company that will allow us to offer nationwide default services. We remain on track for site conversions of legacy production systems to our new, but proven, web-based production systems this year. A recent fire in an office where we have implemented our paperless technology reinforced our commitment to long-term investment in our web-based production system and SureClose®, our transaction management technology. Within hours of the fire, the office was up and running remotely via the internet and closings continued with no loss of service or files," said Morris.
Stewart Information Services Corporation is a customer-driven, technology-enabled, strategically competitive, real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries throughout the United States and in international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at http://www.stewart.com.
This press release may contain forward-looking statements, which include all statements other than statements of historical facts. Forward-looking statements are not guarantees of performance and no assurance can be given that Stewart's expectations will be achieved. In particular, historical order counts do not necessarily indicate future revenues since Stewart cannot predict the number of orders that will result in closings.
STEWART INFORMATION SERVICES CORPORATION STATEMENTS OF EARNINGS (In thousands of dollars, except per share amounts) Three months ended Six months ended June 30 June 30 2008 2007 2008 2007 Revenues Title insurance: Direct operations 200,688 270,428 381,275 500,042 Agency operations 213,513 276,434 404,566 548,688 Real estate information 11,302 16,497 26,018 33,030 Investment income 7,456 9,168 15,534 18,219 Investment and other (losses) gains - net (4,412) 902 (4,709) 5,124 428,547 573,429 822,684 1,105,103 Expenses Amounts retained by agencies 174,562 222,752 330,124 445,142 Employee costs 146,076 179,096 298,039 355,888 Other operating expenses 86,412 105,241 173,248 198,884 Title losses and related claims 49,595 35,117 79,316 66,976 Depreciation and amortization 8,950 10,149 18,041 20,034 Impairment of other assets. 6,011 - 6,011 - Interest 1,121 1,874 2,936 3,542 472,727 554,229 907,715 1,090,466 (Loss)earnings before taxes and minority interests (44,180) 19,200 (85,031) 14,637 Income tax (benefit) expense (17,526) 5,541 (34,288) 2,921 Minority interests 1,934 3,535 3,137 6,354 Net (loss) earnings (28,588) 10,124 (53,880) 5,362 (Loss) earnings per diluted share (1.58) 0.55 (2.98) 0.29 Average number of diluted shares (000) 18,092 18,351 18,069 18,340 Segment information: Title revenues 417,245 556,932 795,787 1,068,873 Title pretax (loss) earnings before minority interests (35,763) 19,862 (77,308) 11,807 REI revenues 11,302 16,497 26,897 36,230 REI pretax (loss) earnings before minority interests (8,417) (662) (7,723) 2,830 Selected financial information: Cash (used) provided by operations (15,862) 31,922 (47,309) 16,806 Title loss payments - net of recoveries 38,981 22,424 69,463 47,877 Changes in other comprehensive earnings - net of taxes (7,654) (286) (7,496) 547 Number of title orders opened (000): April 48.4 59.0 May 43.1 60.7 June 38.9 58.1 Quarter 130.4 177.8 Number of title orders closed (000): Quarter 93.5 125.1 June 30 Dec 31 2008 2007 Stockholders' equity 694,959 754,059 Number of shares outstanding (000) 18,146 18,031 Book value per share 38.30 41.82 STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed) (In thousands of dollars) June 30 Dec 31 2008 2007 Assets Cash and cash equivalents 102,900 109,239 Short-term investments 57,212 79,780 Investments - statutory reserve funds 503,152 518,586 Investments - other 83,721 98,511 Receivables - premiums from agencies 37,968 48,040 Receivables - other 105,373 93,335 Allowance for uncollectible amounts (12,352) (11,613) Property and equipment 86,411 96,457 Title plants 79,027 78,245 Goodwill 209,879 208,824 Intangible assets 12,986 17,157 Other assets 103,986 105,413 1,370,263 1,441,974 Liabilities Notes payable 116,799 108,714 Accounts payable and accrued liabilities 93,501 122,167 Estimated title losses 450,229 441,324 Minority interests 14,775 15,710 675,304 687,915 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 143,472 141,196 Retained earnings 543,238 597,118 Accumulated other comprehensive earnings 12,346 19,842 Treasury stock (4,097) (4,097) Total stockholders' equity 694,959 754,059 1,370,263 1,441,974