-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oitaq/TwfQvbbZU2Dn2zSc0LMHtHOgdmr5gMulYgH+E2s7It/LfDzQogq6O+53a2 GVXYfup0hl3MeCED/94Z5Q== 0000891554-01-502174.txt : 20010425 0000891554-01-502174.hdr.sgml : 20010425 ACCESSION NUMBER: 0000891554-01-502174 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNALY MORTGAGE MANAGEMENT INC CENTRAL INDEX KEY: 0001043219 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 223479661 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-13447 FILM NUMBER: 1609137 BUSINESS ADDRESS: STREET 1: 1500 HARBOR ST CITY: WEEHAWKEN STATE: NJ ZIP: 07087 BUSINESS PHONE: 2012231900 MAIL ADDRESS: STREET 1: 1500 HARBOR BLVD CITY: WEEHAWKEN STATE: NJ ZIP: 07087 10-K/A 1 d25514_10k-a.txt FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000 OR 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: 1-13447 ANNALY MORTGAGE MANAGEMENT, INC. (Exact Name of Registrant as Specified in its Governing Instruments) MARYLAND 22-3479661 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation of organization) 12 East 41st Street, Suite 700 New York, New York 10017 (Address of Principal Executive Offices) (212) 696-0100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered Common Stock, par value $.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. At March 20, 2000 the aggregate market value of the voting stock held by non-affiliates of the Registrant was $284,040,669 The number of shares of the Registrant's Common Stock outstanding on March 20, 2001 was 25,696,459 DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive Proxy Statement dated March 26, 2000, issued in connection with the 2001 Annual Meeting of Stockholders of the Registrant to be held on May 17, 2001 are incorporated by reference into Part III. EXPLANATORY NOTE: This Form 10-K/A is being filed to correct the date of the auditor's report. ANNALY MORTGAGE MANAGEMENT, INC. 2000 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PAGE PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K 1 FINANCIAL STATEMENTS F-1 SIGNATURES 3 EXHIBIT INDEX 4 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: 1. Financial Statements. 2. Schedules to Financial Statements: All financial statement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto, included in Part II, Item 8, of this Annual Report on Form 10-K. 3. Exhibits: 3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 3.2 Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 3.3 Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to our Registration Statement on Form S-11(Registration No. 333-32913) filed with the Securities and Exchange Commission on September 17, 1997. 10.1 Purchase Agreement, dated February 12, 1997, between the Registrant and Freedman, Billings, Ramsey & Co., Inc. ("FBR") (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.2 Registration Rights Agreement, dated February 12, 1997, between the Registrant and FBR (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.3 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.4 Employment Agreement, effective as of January 27, 1997, between the Company and Michael A.J. Farrell (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.5 Employment Agreement, effective as of January 27, 1997, between the Company and Timothy J. Guba (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 1 10.6 Employment Agreement, effective as of January 27, 1997, between the Company and Wellington J. St. Claire (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.7 Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.8 Form of Purchase Agreement between the Company and the purchasers in the Direct Offering (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.9 Employment Agreement, effective as of November 1, 1997, between the Company and Kathryn F. Fagan (incorporated by reference to Exhibit 10.9 to our Form 10-K for the fiscal year ended December 31, 1997). 10.10 Employment Agreement, effective as of January 1, 2001, between the Company and Jennifer A. Stephens (incorporated by reference to Exhibit 10.10 to our Form 10-K for the fiscal year ended December 31, 2000). 23.1 Consent of Independent Accountants.* * Filed herewith. Exhibit Numbers 10.3-10.6, 10.9 and 10.10 are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K. (b) Reports on Form 8-K We have not filed any reports on Form 8-K during the last quarter of the period covered by this report. 2 Annaly Mortgage Management, Inc. Independent Auditors' Report Financial Statements Years Ended December 31, 2000, 1999 and 1998 F-1 Annaly Mortgage Management, Inc. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998: Balance Sheets 2 Statements of Operations 3 Statements of Stockholders' Equity 4 Statement of Cash Flows 5 Notes to Financial Statements 6-14 F-2 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Annaly Mortgage Management, Inc. We have audited the accompanying statements of financial condition of Annaly Mortgage Management, Inc. (the "Company") as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide are reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 , in conformity with accounting principles generally accepted in the United States of America. New York, New York February 5, 2001 F-3 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 2000 AND 1999 - --------------------------------------------------------------------------------
ASSETS 2000 1999 CASH AND CASH EQUIVALENTS $ 113,061 $ 71,918 MORTGAGE-BACKED SECURITIES - At fair value 1,978,219,376 1,437,792,631 RECEIVABLE FOR MORTGAGE-BACKED SECURITIES SOLD 44,933,631 46,402,360 ACCRUED INTEREST RECEIVABLE 11,502,482 6,857,683 OTHER ASSETS 260,238 197,896 --------------- --------------- TOTAL ASSETS $ 2,035,028,788 $ 1,491,322,488 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Repurchase agreements $ 1,628,359,000 $ 1,338,295,750 Payable for Mortgage-Backed Securities purchased 258,798,138 38,154,012 Accrued interest payable 8,314,414 6,682,687 Dividends payable 3,630,745 4,753,461 Accounts payable 284,105 164,100 --------------- --------------- Total liabilities 1,899,386,402 1,388,050,010 --------------- --------------- STOCKHOLDERS' EQUITY: Common stock: par value $.01 per share; 100,000,000 authorized, 14,522,978 and 13,581,316 shares issued and outstanding, respectively 145,230 135,813 Additional paid-in capital 147,844,861 140,262,657 Accumulated other comprehensive loss (13,044,259) (37,568,510) Retained earnings 696,554 442,518 --------------- --------------- Total stockholders' equity 135,642,386 103,272,478 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,035,028,788 $ 1,491,322,488 =============== ===============
See notes to financial statements. F-4 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - --------------------------------------------------------------------------------
2000 1999 1998 INTEREST INCOME: Mortgage-Backed Securities $ 109,739,302 $ 89,801,353 $ 89,985,526 Other interest income 11,104 10,641 105 ------------- ------------ ------------ Total interest income 109,750,406 89,811,994 89,985,631 INTEREST EXPENSE: Repurchase agreements 92,901,697 69,846,206 75,735,280 ------------- ------------ ------------ NET INTEREST INCOME 16,848,709 19,965,788 14,250,351 GAIN ON SALE OF MORTGAGE-BACKED SECURITIES 2,025,205 454,782 3,344,106 GENERAL AND ADMINISTRATIVE EXPENSES 2,286,626 2,281,290 2,105,534 ------------- ------------ ------------ NET INCOME 16,587,288 18,139,280 15,488,923 ------------- ------------ ------------ OTHER COMPREHENSIVE GAIN (LOSS): Unrealized gain (loss) on available-for-sale securities 26,549,456 (30,709,453) (5,083,920) Less reclassification adjustment for gains included in net income (2,025,205) (454,782) (3,344,106) ------------- ------------ ------------ Other comprehensive gain (loss) 24,524,251 (31,164,235) (8,428,026) ------------- ------------ ------------ TOTAL COMPREHENSIVE INCOME (LOSS) $ 41,111,539 $(13,024,955) $ 7,060,897 ============= ============ ============ NET INCOME PER SHARE: Basic $ 1.18 $ 1.41 $ 1.22 ============= ============ ============ Diluted $ 1.15 $ 1.35 $ 1.19 ============= ============ ============ AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 14,089,436 12,889,510 12,709,116 ============= ============ ============ Diluted 14,377,459 13,454,007 13,020,648 ============= ============ ============
See notes to financial statements. F-5 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - --------------------------------------------------------------------------------
Common Additional Other Stock Paid-in Comprehensive Retained Comprehensive Par Value Capital Income Earnings Income Total BALANCE, DECEMBER 31, 1997 $127,139 $132,705,765 $ -- $ 229,623 $ 2,023,751 $135,086,278 Net income -- -- 15,488,923 15,488,923 -- -- Other comprehensive income: Unrealized net losses on securities, net of reclassification adjustment -- -- (8,428,026) -- (8,428,026) -- ------------ Comprehensive income -- -- $ 7,060,897 -- -- 7,060,897 ============ Exercise of stock options 441 194,658 -- -- 195,099 Additional cost of initial public offering -- (130,248) -- -- (130,248) Stock buyback (1,096) (902,067) -- -- (903,163) Dividends declared for the year ended December 31, 1998, $1.22 per share -- -- (15,437,554) -- (15,437,554) -------- ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 126,484 131,868,108 280,992 (6,404,275) 125,871,309 Net income -- -- $ 18,139,280 18,139,280 -- Other comprehensive income: Unrealized net losses on securities, net of reclassification adjustment -- -- (31,164,235) -- (31,164,235) ------------ Comprehensive loss -- -- $(13,024,955) -- -- (13,024,955) ============ Exercise of stock options 572 232,704 -- -- 233,276 Proceeds from direct purchase 8,757 8,161,845 -- -- 8,170,602 Dividends declared for the year ended December 31, 1999, $1.38 per share -- -- (17,977,754) -- (17,977,754) -------- ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1999 135,813 140,262,657 442,518 (37,568,510) 103,272,478 Net income $ 16,587,288 16,587,288 Other comprehensive income: Unrealized net gains on securities, net of reclassification adjustment -- -- 24,524,251 -- 24,524,251 ------------ Comprehensive income -- -- $ 41,111,539 -- -- 41,111,539 ============ Exercise of stock options 475 198,287 -- -- 198,762 Proceeds from direct purchase 8,942 7,383,917 -- -- 7,392,859 Dividends declared for the year ended December 31, 2000, $1.15 per share -- -- (16,333,252) -- (16,333,252) -------- ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 2000 $145,230 $147,844,861 $ 696,554 $(13,044,259) $135,642,386 ======== ============ ============ ============ ============
See notes to financial statements. F-6 ANNALY MORTGAGE MANAGEMENT, INC. STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - --------------------------------------------------------------------------------
2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 16,587,288 $ 18,139,280 $ 15,488,923 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of mortgage premiums and discounts, net 2,646,753 6,103,239 8,235,371 Gain on sale of Mortgage-Backed Securities (2,025,205) (454,782) (3,344,106) Increase in accrued interest receivable (4,644,799) (98,310) (1,443,182) Decrease (increase) in other assets (62,342) 36,988 (100,958) Increase in accrued interest payable 1,631,727 1,630,061 60,179 Increase (decrease) in accounts payable 120,005 24,864 (62,740) ---------------- ---------------- ---------------- Net cash provided by operating activities 14,253,427 25,381,340 18,833,487 ---------------- ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Mortgage-Backed Securities (952,737,643) (559,695,956) (1,420,592,798) Proceeds from sale of Mortgage-Backed Securities 489,809,698 122,552,293 568,553,814 Principal payments on Mortgage-Backed Securities 168,516,759 362,657,549 486,337,605 ---------------- ---------------- ---------------- Net cash used in investing activities (294,411,186) (74,486,114) (365,701,379) ---------------- ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements 14,196,953,221 11,202,660,000 11,506,566,000 Principal payments on repurchase agreements (13,906,889,971) (11,144,874,250) (11,144,925,000) Proceeds from exercise of stock options 198,762 233,276 195,100 Proceeds from direct equity offering 7,392,859 8,170,602 -- Additional cost of initial public offering -- -- (130,248) Purchase of treasury stock -- -- (903,163) Dividends paid (17,455,969) (17,081,956) (14,376,949) ---------------- ---------------- ---------------- Net cash provided by financing activities 280,198,902 49,107,672 346,425,740 ---------------- ---------------- ---------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 41,143 2,898 (442,152) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 71,918 69,020 511,172 ---------------- ---------------- ---------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 113,061 $ 71,918 $ 69,020 ================ ================ ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 91,269,970 $ 68,216,145 $ 75,675,101 ================ ================ ================ NONCASH FINANCING ACTIVITIES: Net change in unrealized loss on available-for-sale securities $ 24,524,251 $ (31,164,235) $ (8,428,026) ================ ================ ================ Dividends declared, not yet paid $ 3,630,745 $ 4,753,461 $ 3,857,663 ================ ================ ================
See notes to financial statements F-7 ANNALY MORTGAGE MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Annaly Mortgage Management, Inc. (the "Company") was incorporated in Maryland on November 25, 1996. The Company commenced its operations of purchasing and managing an investment portfolio of Mortgage-Backed Securities on February 18, 1997, upon receipt of the net proceeds from the private placement of equity capital. An initial public offering was completed on October 14, 1997. A summary of the Company's significant accounting policies follows: Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand and money market funds. The carrying amounts of cash equivalents approximates their value. Mortgage-Backed Securities - The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans (collectively, "Mortgage-Backed Securities"). Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires the Company to classify its investments as either trading investments, available-for-sale investments or held-to-maturity investments. Although the Company generally intends to hold most of its Mortgage-Backed Securities until maturity, it may, from time to time, sell any of its Mortgage-Backed Securities as part of its overall management of its balance sheet. Accordingly, this flexibility requires the Company to classify all of its Mortgage-Backed Securities as available-for-sale. All assets classified as available-for-sale are reported at fair value, based on market prices provided by certain dealers who make markets in these financial instruments, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. Unrealized losses on Mortgage-Backed Securities that are considered other than temporary, as measured by the amount of decline in fair value attributable to factors other than temporary, are recognized in income and the cost basis of the Mortgage-Backed Securities is adjusted. There were no such adjustments for the years ended December 31, 2000, 1999, and 1998. Interest income is accrued based on the outstanding principal amount of the Mortgage-Backed Securities and their contractual terms. Premiums and discounts associated with the purchase of the Mortgage-Backed Securities are amortized into interest income over the lives of the securities using the interest method. Mortgage-Backed Securities transactions are recorded on the trade date. Purchases of newly issued securities are recorded when all significant uncertainties regarding the characteristics of the securities are removed, generally shortly before settlement date. Realized gains and losses on Mortgage-Backed Securities transactions are determined on the specific identification basis. F-8 Credit Risk - At December 31, 2000 and 1999, the Company has limited its exposure to credit losses on its portfolio of Mortgage-Backed Securities by only purchasing securities issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"), or Government National Mortgage Association ("GNMA"). The payment of principal and interest on the FHLMC and FNMA Mortgage-Backed Securities are guaranteed by those respective agencies and the payment of principal and interest on the GNMA Mortgage-Backed Securities are backed by the full-faith-and-credit of the U.S. government. At December 31, 2000 and 1999, all of the Company's Mortgage-Backed Securities have an implied "AAA" rating. Income Taxes - The Company has elected to be taxed as a Real Estate Investment Trust ("REIT") and intends to comply with the provisions of the Internal Revenue Code of 1986, as amended (the "Code") with respect thereto. Accordingly, the Company will not be subjected to Federal income tax to the extent of its distributions to shareholders and as long as certain asset, income and stock ownership tests are met. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements - The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, as mended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date for FASB Statement No. 133, and No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, and as interpreted by the FASB and the Derivatives Implementation Group through Statement No. 133, Implementation Issues, as of January 1, 2000. The Company has no derivative instruments or any embedded derivative instruments that require bifurcation. Management has determined that the adoption of SFAS No. 133 has no material effect on the Company's financial statements. F-9 2. MORTGAGE-BACKED SECURITIES The following table pertains to the Company's Mortgage-Backed Securities classified as available-for-sale as of December 31, 2000, which are carried at their fair value:
Federal Federal Government Total Home Loan National National Mortgage- Mortgage Mortgage Mortgage Backed Corporation Association Association Securities Mortgage-Backed Securities, gross $ 1,029,045,622 $ 853,777,836 $ 85,143,889 $ 1,967,967,347 Unamortized discount (221,944) (767,116) -- (989,060) Unamortized premium 11,203,043 11,569,619 1,512,687 24,285,349 --------------- --------------- --------------- --------------- Amortized cost 1,040,026,721 864,580,339 86,656,576 1,991,263,636 Gross unrealized gains 2,220,525 798,984 -- 3,019,509 Gross unrealized losses (5,426,076) (9,503,333) (1,134,360) (16,063,769) --------------- --------------- --------------- --------------- Estimated fair value $ 1,036,821,170 $ 855,875,990 $ 85,522,216 $ 1,978,219,376 =============== =============== =============== =============== Gross Unrealized Gross Unrealized Estimated Fair Amortized Cost Gain Loss Value Adjustable Rate 1,475,409,337 12,565 (7,819,597) 1,467,602,305 Fixed Rate 515,854,299 3,006,944 (8,244,172) 510,617,071 --------------- --------------- --------------- --------------- Total $ 1,991,263,636 $ 3,019,509 $ (16,063,769) $ 1,978,219,376 =============== =============== =============== ===============
F-10 The following table pertains to the Company's Mortgage-Backed Securities classified as available-for-sale as of December 31, 1999, which are carried at their fair value:
Federal Federal Government Total Home Loan National National Mortgage- Mortgage Mortgage Mortgage Backed Corporation Association Association Securities Mortgage-Backed Securities, gross $ 454,711,462 $ 900,782,563 $ 97,423,038 $ 1,452,917,063 Unamortized discount (171,241) (964,133) -- (1,135,374) Unamortized premium 8,454,547 13,359,448 1,765,457 23,579,452 --------------- --------------- --------------- --------------- Amortized cost 462,994,768 913,177,878 99,188,495 1,475,361,141 Gross unrealized gains 359,888 1,171,250 -- 1,531,138 Gross unrealized losses (12,091,145) (22,966,353) (4,042,150) (39,099,648) --------------- --------------- --------------- --------------- Estimated fair value $ 451,263,511 $ 891,382,775 $ 95,146,345 $ 1,437,792,631 =============== =============== =============== =============== Gross Unrealized Gross Unrealized Estimated Fair Amortized Cost Gain Loss Value Adjustable Rate 971,900,023 1,531,138 (10,306,678) 963,124,483 Fixed Rate 503,461,118 -- (28,792,970) 474,668,148 --------------- --------------- --------------- --------------- Total $ 1,475,361,141 $ 1,531,138 $ (39,099,648) $ 1,437,792,631 =============== =============== =============== ===============
The adjustable rate Mortgage-Backed Securities are limited by periodic caps (generally interest rate adjustments are limited to no more than 1% every six months) and lifetime caps. The weighted average lifetime cap was 11.5% and 10.6% at December 31, 2000 and 1999. During the year ended December 31, 2000, the Company realized $2,025,205 in gains from sales of Mortgage-Backed Securities. During the year ended December 31, 1999, the Company realized $563,259 in gains from sales of Mortgage-Backed Securities. Losses totaled $108,477 for the year ended December 31, 1999. During the year ended December 31, 1998, the Company realized $3,344,070 in gains from sales of Mortgage-Backed Securities. Losses totaled $9,964 for the year ended December 31, 1998 3. REPURCHASE AGREEMENTS The Company had outstanding $1,628,359,000 and $1,338,295,750 of repurchase agreements with a weighted average borrowing rate of 6.55% and 5.26% and a weighted average remaining maturity of 29 days and 20 days as of December 31, 2000 and 1999, respectively. At December 31, 2000 and 1999, Mortgage-Backed Securities actually pledged had an estimated fair value of $1,668,161,860 and $1,376,684,559, respectively. F-11 At December 31, 2000 and 1999, the repurchase agreements had the following remaining maturities: 2000 1999 Within 30 days $ 1,135,886,000 $ 1,197,416,250 30 to 59 days 363,810,000 25,767,000 60 to 89 days 48,845,000 -- 90 to 119 days -- 115,112,500 Over 120 days 79,818,000 -- --------------- --------------- $ 1,628,359,000 $ 1,338,295,750 =============== =============== 4. COMMON STOCK During the year ended December 31, 2000, 47,499 options were exercised at $198,762. Also, 894,163 shares were purchased in direct offerings, totaling $7,392,859. During the year ended December 31, 1999, 57,204 options were exercised at $233,276. Also, 875,688 shares were purchased in the dividend reinvestment and share purchase plan, totaling $8,170,602. During the Company's year ending December 31, 2000, the Company declared dividends to shareholders totaling $16,333,252, or $1.15 per share, of which $12,702,507 was paid during the year and $3,630,745 was paid on January 30, 2001. During the Company's year ending December 31, 1999, the Company declared dividends to shareholders totaling $17,977,754, or $1.38 per share, of which $13,224,293 was paid during the year and $4,753,461 was paid on January 27, 2000. 5. EARNINGS PER SHARE (EPS) In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting No. 128, Earnings Per Share (SFAS No. 128), which requires dual presentation of basic EPS and diluted EPS on the face of the income statement for all entities with complex capital structures. SFAS No. 128 also requires a reconciliation of the numerator and denominator of basic EPS and diluted EPS computation. For the year ended December 31, 2000, the reconciliation is as follows: Year Ended December 31, 2000 --------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount Net income $16,587,288 ----------- Basic EPS 16,587,288 14,089,436 $ 1.18 ====== Effect of dilutive securities: Dilutive stock options -- 288,023 ----------- ---------- Diluted EPS $16,587,288 14,377,459 $ 1.15 =========== ========== ====== Options to purchase 334,881 shares were outstanding during the year and were dilutive as the exercise price of between $4.00 and $8.13 was less than the average stock price for the year of $8.51. Options to F-12 purchase 568,926 shares of stock were outstanding and not considered dilutive. The exercise price of between $8.63 and $11.25 was greater than the average stock price for the year of $8.51. For the year ended December 31, 1999, the reconciliation is as follows: Year Ended December 31, 1999 --------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount Net income $18,139,280 ----------- Basic EPS 18,139,280 12,889,510 $ 1.41 ====== Effect of dilutive securities: Dilutive stock options -- 564,497 ----------- ---------- Diluted EPS $18,139,280 13,454,007 $ 1.35 =========== ========== ====== Options to purchase 708,380 shares were outstanding during the year and were dilutive as the exercise price (between $4.00 and $8.94) was less than the average stock price for the year for the Company of $9.58. Options to purchase 135,676 shares of stock were outstanding and not considered dilutive. The exercise price (between $10.00 and $11.25) was greater than the average stock price for the year of $9.58. For the year ended December 31, 1998, the reconciliation is as follows: For the Year Ended December 31, 1998 --------------------------------------- Income Shares Per-Share (Numerator) (Denominator) Amount Net income $15,488,923 ----------- Basic EPS 15,488,923 12,709,116 $ 1.22 ====== Effect of dilutive securities: Dilutive stock options 311,532 ----------- ---------- Diluted EPS $15,488,923 13,020,648 $ 1.19 =========== ========== ====== Options to purchase 446,084 shares were outstanding during the period (Note 6) and were dilutive as the exercise price (between $4.00 and $8.13) was less than the average stock price for the year for the Company of $9.36. Options to purchase 147,676 shares of stock were outstanding and not considered dilutive. The exercise price (between $10.00 and $11.28) was greater than the average stock price for the year of $9.36. 6. LONG TERM STOCK INCENTIVE PLAN The Company has adopted a long term stock incentive plan for executive officers, key employees and nonemployee directors (the "Incentive Plan"). The Incentive Plan authorizes the Compensation F-13 Committee of the Board of Directors to grant awards, including incentive stock options as defined under section 422 of the Code ("ISOs") and options not so qualified ("NQSOs"). The Incentive Plan authorizes the granting of options or other awards for an aggregate of the greater of 500,000 shares or 9.95% of the outstanding shares of the Company's common stock. The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost for the Incentive Plan has been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123. For the Company's pro forma net earnings, the compensation cost will be amortized over the vesting period of the options. The Company's net earnings per share would have been reduced to the pro forma amounts indicated below: December 31, --------------------------------------- 2000 1999 1998 Net earnings - as reported $16,587,288 $18,139,280 $15,488,925 Net earnings - pro forma 16,468,550 18,010,908 15,280,631 Earnings per share - as reported $1.18 $1.41 $1.22 Earnings per share - pro forma $1.17 $1.40 $1.20 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in the year ended December 31, 2000: dividend yield of 12.69%; expected volatility of 28.33%; risk-free interest rate of 5.16%; and the weighted average expected lives of nine years. For the year ended December 31, 1999, dividend yield of 15%; expected volatility of 32%; risk-free interest rate of 5.61%; and the weighted average expected lives of seven years. For the year ended December 31, 1998, dividend yield of 10%; expected volatility of 33%; risk-free interest rate of 5.56%; and expected lives of seven years. Information regarding options at December 31, 2000 is as follows:
Weighted Average Exercise Shares Price -------------------- Outstanding, January 1, 2000 844,056 $8.03 Granted ( 36,500 ISOs, 86,000 NQSOs) 122,500 8.00 Exercised (15,250) 9.17 Expired (47,499) 4.18 -------- ----- Outstanding, December 31, 2000 903,807 ======== Weighted average fair value of options granted during the year (per share) $ 0.43 ========
F-14 Information regarding options at December 31, 1999 is as follows:
Weighted Average Exercise Shares Price -------------------- Outstanding, January 1, 1999 593,760 $7.42 Granted (298,068 ISOs, 545,988 NQSOs) 307,500 8.63 Exercised (57,204) 4.08 Expired -- -- -------- ----- Outstanding, December 31, 1999 844,056 $8.03 ======== ===== Weighted average fair value of options granted during the year (per share) $ 0.63 ========
Information regarding options at December 31, 1998 is as follows:
Weighted Average Exercise Shares Price -------------------- Outstanding, January 1, 1998 348,500 $6.42 Granted (240,326 ISOs, 46,500 NQSOs) 289,384 8.17 Exercised (44,124) 4.34 Expired -- -- -------- ----- Outstanding, December 31, 1998 593,760 $7.42 ======== ===== Weighted average fair value of options granted during the year (per share) $ 1.99 ========
The following table summarizes information about stock options outstanding at December 31, 2000: Weighted Average Options Remaining Contractual Exercise Price Outstanding Life (Yrs.) $ 4.00 65,128 1 7.94 116,250 10 8.13 269,753 8 8.63 300,000 9 8.94 6,250 2 9.06 6,250 3 10.00 131,500 1 10.75 6,250 2 11.25 2,426 2 ------- --- 903,807 6.9 ======= === At December 31, 2000, 1999 and 1998, 341,013, 162,389 and 56,241 options were vested and not exercised, respectively. 7. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. Statement No. 130 requires the reporting of comprehensive income in addition to net income from operations. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income. The Company at December 31, 2000 and 1999 held securities classified as available-for-sale. At December 31, 2000, the net unrealized losses totaled $13,044,259 and at December 31, 1999, the net unrealized losses totaled $37,568,510. F-15 8. LEASE COMMITMENTS The Corporation has a noncancelable lease for office space, which commenced in April 1998 and expires in December 2007. The Corporation's aggregate future minimum lease payments are as follows: 2001 $ 97,868 2002 100,515 2003 110,261 2004 113,279 2005 116,388 2006 119,590 2007 122,888 --------- Total remaining lease payments $ 780,789 ========= 9. RELATED PARTY TRANSACTION Included in "Other Assets" on the Balance sheet is an investment in Annaly International Money Management, Inc. On June 24, 1998, the Company acquired 99,960 nonvoting shares, at a cost of $49,980. The officers and directors of Annaly International Money Management Inc. are also officers and directors of the Company. 10. INTEREST RATE RISK The primary market risk to the Company is interest rate risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company's control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with the interest-bearing liabilities, by affecting the spread between the interest-earning assets and interest-bearing liabilities. Changes in the level of interest rates also can affect the value of the mortgage-backed securities and the Company's ability to realize gains from the sale of these assets. The Company seeks to manage the extent to which net income changes as a function of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings. In addition, although the Company has not done so to date, the Company may seek to mitigate the potential impact on net income of periodic and lifetime coupon adjustment restrictions in the portfolio of mortgage-backed securities by entering into interest rate agreements such as interest rate caps and interest rate swaps. Changes in interest rates may also have an effect on the rate of mortgage principal prepayments and, as a result, prepayments on mortgage-backed securities. The Company will seek to mitigate the effect of changes in the mortgage principal repayment rate by balancing assets purchased at a premium with assets purchased at a discount. To date, the aggregate premium exceeds the aggregate discount on the mortgage-backed securities. As a result, prepayments, which result in the expensing of unamortized premium, will reduce net income compared to what net income would be absent such prepayments. F-16 11. SUBSEQUENT EVENT The Company completed a secondary offerings of 9,800,000 shares of company common stock on January 29, 2001. The aggregate net proceeds to the Company after deducting expenses are estimated to be $87.4 million. The underwriters exercised an option to purchase 1,350,000 additional shares of common stock to cover over-allotments on February 22, 2001, providing the Company with additional net proceeds of $12.1 million. 12. SUMMARIZED QUARTERLY RESULTS (UNAUDITED) The following is a presentation of the quarterly results of operations for the year ended December 31, 2000.
Quarters Ending ------------------------------------------------------------ March 31, June 30, September 30, December 31, 2000 2000 2000 2000 Interest income from Mortgage- Backed Securities and cash $24,616,782 $25,734,520 $28,239,125 $31,159,979 Interest expense on repurchase agreements 19,292,954 21,453,016 24,779,096 27,376,631 ----------- ----------- ----------- ----------- Net interest income 5,323,828 4,281,504 3,460,029 3,783,348 Gain on sale of Mortgage-Backed Securities 106,853 64,774 872,949 980,629 General and administrative expenses 582,319 507,322 526,881 670,104 ----------- ----------- ----------- ----------- Net income $ 4,848,362 $ 3,838,956 $ 3,806,097 $ 4,093,873 =========== =========== =========== =========== Net income per share: Basic $ 0.35 $ 0.27 $ 0.27 $ 0.28 =========== =========== =========== =========== Dilutive $ 0.35 $ 0.26 $ 0.26 $ 0.28 =========== =========== =========== =========== Average number of shares outstanding: Basic 13,660,539 14,039,741 14,238,680 14,413,578 =========== =========== =========== =========== Dilutive 13,971,112 14,631,940 14,529,142 14,702,189 =========== =========== =========== ===========
F-17 The following is a presentation of the quarterly results of operations for the year ended December 31, 1999.
Quarters Ending ------------------------------------------------------------ March 31, June 30, September 30, December 31, 1999 1999 1999 1999 Interest income from Mortgage- Backed Securities and cash $22,014,941 $22,264,930 $22,161,272 $23,370,851 Interest expense on repurchase agreements 17,151,041 16,865,824 17,232,086 18,597,255 ----------- ----------- ----------- ----------- Net interest income 4,863,900 5,399,106 4,929,186 4,773,596 Gain on sale of Mortgage-Backed Securities 64,560 25,853 97,656 266,713 General and administrative expenses 610,004 561,010 513,600 596,676 ----------- ----------- ----------- ----------- Net income $ 4,318,456 $ 4,863,949 $ 4,513,242 $ 4,443,633 =========== =========== =========== =========== Net income per share: Basic $ 0.34 $ 0.38 $ 0.35 $ 0.33 =========== =========== =========== =========== Dilutive $ 0.33 $ 0.37 $ 0.35 $ 0.32 =========== =========== =========== =========== Average number of shares outstanding: Basic 12,657,884 12,697,338 12,745,416 13,383,426 =========== =========== =========== =========== Dilutive 12,952,822 13,110,275 13,025,096 13,992,414 =========== =========== =========== ===========
F-18 The following is a presentation of the quarterly results of operations for the year ended December 31, 1998.
Quarters Ending ------------------------------------------------------------ March 31, June 30, September 30, December 31, 1998 1998 1998 1998 Interest income from Mortgage- Backed Securities and cash $20,078,721 $23,761,953 $24,008,567 $22,136,390 Interest expense on repurchase agreements 16,313,474 20,177,580 20,765,301 18,478,925 ----------- ----------- ----------- ----------- Net interest income 3,765,247 3,584,373 3,243,266 3,657,465 Gain on sale of Mortgage-Backed Securities 1,427,084 295,875 993,630 627,517 General and administrative expenses 484,181 493,718 528,240 599,185 ----------- ----------- ----------- ----------- Net income $ 4,708,150 $ 3,386,530 $ 3,708,656 $ 3,685,797 =========== =========== =========== =========== Net income per share: Basic $ 0.37 $ 0.27 $ 0.29 $ 0.29 =========== =========== =========== =========== Dilutive $ 0.36 $ 0.26 $ 0.29 $ 0.29 =========== =========== =========== =========== Average number of shares outstanding: Basic 12,727,405 12,757,674 12,704,194 12,648,116 =========== =========== =========== =========== Dilutive 12,923,195 12,959,771 12,785,765 12,731,192 =========== =========== =========== ===========
****** F-19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. ANNALY MORTGAGE MANAGEMENT, INC. Date: April 23, 2001 By: /s/ Michael A. J. Farrell Michael A. J. Farrell Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature Title Date /s/ KEVIN P. BRADY Director April 23, 2001 Kevin P. Brady /s/ SPENCER I. BROWNE Director April 23, 2001 Spencer Browne /s/ KATHRYN F. FAGAN Chief Financial Officer and Treasurer April 23, 2001 (principal financial and accounting officer) Kathryn F. Fagan /s/ MICHAEL A.J. FARRELL Chairman of the Board, Chief Executive Officer April 23, 2001 and Director (principal executive officer) Michael A. J. Farrell Director Jonathan D. Green /s/ TIMOTHY J. GUBA President, Chief Operating Officer and Director April 23, 2001 Timothy J. Guba /s/ JOHN A. LAMBIASE Director April 23, 2001 John A. Lambiase Director Donnell A. Segalas /s/ WELLINGTON J. ST. CLAIRE Vice Chairman of the Board and Director April 23, 2001 Wellington J. St. Claire
3 EXHIBIT INDEX
Exhibit Exhibit Description Sequentially Number Numbered Page 3.1 Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 3.2 Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 3.3 Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on September 17, 1997. 10.1 Purchase Agreement, dated February 12, 1997, between the Registrant and Friedman, Billings, Ramsey & Co., Inc. ("FBR") (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913), filed with the Securities and Exchange Commission on August 5, 1997). 10.2 Registration Rights Agreement, dated February 12, 1997, between the Registrant and FBR (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.3 Long-Term Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.4 Employment Agreement, effective as of January 27, 1997, between the Company and Michael A.J. Farrell (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.5 Employment Agreement, effective as of January 27, 1997, between the Company and Timothy J. Guba (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.6 Employment Agreement, effective as of January 27, 1997, between the Company and Wellington J. St. Claire (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.7 Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.8 Form of Purchase Agreement between the Company and the purchasers in the Direct Offering (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-11 (Registration No. 333-32913) filed with the Securities and Exchange Commission on August 5, 1997). 10.9 Employment Agreement, effective, (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement to 1997 Form 10-K the fiscal year ended December 31, 1997), effective as of November 1, 1997, between the Company and Kathryn F. Fagan. 10.10 Employment Agreement, effective as of January 1, 2001, between the Company and Jennifer A. Stephens (incorporated by reference to Exhibit 10.10 to our Form 10-K for the fiscal year ended December 31, 2000). 23.1 Consent of Independent Accountants.*
* Filed herewith. 4 EX-23.1 2 d25514_ex23-1.txt CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Registration Statements Nos. 333-86401, 333-58054 and 333-58586 of Annaly Mortgage Management, Inc. on Form S-3 and appearing in the Annual Report on Form 10K-A for the year ended December 31, 2000. Deloitte & Touche LLP New York, New York April 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----