-----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, G0Eeufa3D/HhvzdnIkaba8Wvv4/5KZsUrHIH+PRkJTDMf0Vc9nhHtl8CC38NzJmp FK4ByEauRRnXz9qj6imaAQ== 0000892569-99-003071.txt : 19991117 0000892569-99-003071.hdr.sgml : 19991117 ACCESSION NUMBER: 0000892569-99-003071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL FINANCIAL INC CENTRAL INDEX KEY: 0001068843 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 330731548 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24961 FILM NUMBER: 99752778 BUSINESS ADDRESS: STREET 1: 17911 VON KARMAN AVENUE SUITE 240 CITY: IRVINE STATE: CA ZIP: 92614 BUSINESS PHONE: 9496224700 MAIL ADDRESS: STREET 1: 17911 VON KARMAN AVENUE SUITE 240 CITY: IRVINE STATE: CA ZIP: 92614 10-Q 1 FORM 10-Q PERIOD END SEPTEMBER 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1999 Commission File Number 0-24961 AMERICAN NATIONAL FINANCIAL, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) California 33-0731548 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 17911 Von Karman Avenue, Suite 240, Irvine, California 92614 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (949) 622-4700 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common stock, no par value, 7,150,000 shares as of November 12, 1999 Exhibit Index appears on page 11 of 12 sequentially numbered pages. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended September 30, 1999 TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION Page Number ----------- Item 1. Condensed Consolidated Financial Statements A. Condensed Consolidated Balance Sheets as of 3 September 30, 1999 and December 31, 1998 B. Condensed Consolidated Statements of Earnings 4 for the three-month and nine-month periods ended September 30, 1999 and 1998 C. Condensed Consolidated Statements of Comprehensive 5 Earnings for the three-month and nine-month periods ended September 30, 1999 and 1998 D. Condensed Consolidated Statements of Cash Flows 6 for the nine-month periods ended September 30, 1999 and 1998 E. Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Quantitative and Qualitative Market Risk Disclosures 10 Part II: OTHER INFORMATION Items 1, 2, 3, 4 and 5 of Part II have been omitted because they are not applicable with respect to the current reporting period. Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN NATIONAL FINANCIAL, INC. (Registrant) By: /s/ Carl A. Strunk -------------------------------------- Carl A. Strunk Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 15, 1999 2 3 Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents .................................................. $ 6,969,255 $10,344,987 Short-term investments, at cost, which approximates fair market value ...... 294,000 150,000 Accrued investment interest ................................................ 233,802 -- Trade receivable, net of allowance for doubtful accounts of $567,838 at September 30, 1999 and $1,895,684 at December 31, 1998 .... 6,635,193 8,575,808 Notes receivables, net ..................................................... 124,620 -- Deferred income taxes ...................................................... 3,114,430 2,395,298 Prepaid expenses and other current assets .................................. 1,201,928 2,909,388 ----------- ----------- Total current assets ................................................. 18,573,228 24,375,481 Other investments, available for sale, at fair market value .................. 14,032,958 -- Property and equipment, net .................................................. 7,733,376 4,010,187 Title plants ................................................................. 2,377,223 2,252,023 Intangibles, net of accumulated amortization of $839,909 in 1999 and $609,103 in 1998 ........................................................... 8,118,273 6,738,350 Total assets ......................................................... $50,835,058 $37,376,041 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses, including $59,018 to affiliates in 1999 and $126,630 in 1998 ............................... $ 4,488,001 $ 6,354,355 Customer advances .......................................................... 1,596,205 2,190,364 Current portion of long-term debt .......................................... 53,184 442,500 Current portion of obligations under capital leases with affiliates ........ 65,909 741,561 Current portion of obligations under capital leases with non-affiliates .... 173,026 115,643 Reserve for claim losses ................................................... 4,348,459 -- Income taxes payable ....................................................... 1,354,411 3,750,029 Due to affiliate ........................................................... 1,671,576 1,892,910 ----------- ----------- Total current liabilities ............................................ 13,750,771 15,487,362 Long term debt ............................................................... 2,004,656 -- Obligations under capital leases with affiliates ............................. 619,504 669,435 Obligations under capital leases with non-affiliates ......................... 1,219,042 1,321,070 ----------- ----------- Total liabilities .................................................... 17,593,973 17,477,867 Shareholders' equity: Preferred stock, no par value; authorized 5,000,000 shares; issued and outstanding, none ............................................. -- -- Common stock, no par value; authorized, 50,000,000 shares; issued and outstanding, 7,150,000 in 1999 and 4,917,096 in 1998 .......... -- -- Additional paid in capital ................................................. 21,745,777 12,324,264 Retained earnings .......................................................... 11,615,038 7,573,910 ----------- ----------- 33,360,815 19,898,174 Accumulated comprehensive earnings ......................................... (119,730) -- Total shareholders' equity ................................................. 33,241,085 19,898,174 ----------- ----------- Total liabilities and shareholders' equity ................................. $50,835,058 $37,376,041 =========== ===========
See accompanying notes to condensed consolidated financial statements 3 4 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended Nine months ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) Revenues: Net title service revenue -- related party .................... $12,136,141 $13,152,130 $40,855,466 $37,273,468 Escrow fees ................................................... 6,128,634 6,462,876 19,977,614 17,179,061 Other service charges ......................................... 2,890,695 4,056,035 9,771,597 10,981,228 Investment income, including realized gains and losses ........ 312,675 76,645 642,081 289,463 ----------- ----------- ----------- ----------- Total revenues .......................................... 21,468,145 23,747,686 71,246,758 65,723,220 ----------- ----------- ----------- ----------- Expenses: Personnel costs ............................................... 13,436,153 12,758,440 41,828,103 35,280,827 Other operating expenses includes $953,794 and $882,895 with affiliate for the three-month period ended September 30, 1999 and 1998, and $3,013,219 and $2,565,125 with affiliate for the nine-month period ended September 30, 1999 and 1998, respectively ............. 5,248,537 4,879,675 14,068,922 12,654,305 Title plant rent and maintenance .............................. 1,523,131 2,121,403 4,704,988 5,137,292 ----------- ----------- ----------- ----------- Total expenses .......................................... 20,207,821 19,759,518 60,602,013 53,072,424 ----------- ----------- ----------- ----------- Earnings before income taxes and minority interest in net earnings of consolidated subsidiary .................... 1,260,324 3,988,168 10,644,745 12,650,796 Provision for income taxes ...................................... 516,999 1,748,394 4,458,621 5,280,433 ----------- ----------- ----------- ----------- Earnings before minority interest in net earnings of consolidated subsidiary ....................................... 743,325 2,239,774 6,186,124 7,370,363 Minority interest in net earnings of consolidated subsidiary .... -- (849,786) -- (2,894,332) ----------- ----------- ----------- ----------- Net earnings .................................................... $ 743,325 $ 1,389,988 $ 6,186,124 $ 4,476,031 =========== =========== =========== =========== Basic net earnings .............................................. $ 743,325 $ 1,389,988 $ 6,186,124 $ 4,476,031 =========== =========== =========== =========== Basic earnings per share ........................................ $ 0.10 $ 0.49 $ 0.91 $ 1.55 =========== =========== =========== =========== Weighted average shares outstanding, basic basis ................ 7,150,000 2,834,750 6,773,022 2,889,995 =========== =========== =========== =========== Diluted net earnings ............................................ $ 743,325 $ 1,389,988 $ 6,186,124 $ 4,476,031 =========== =========== =========== =========== Diluted earnings per share ...................................... $ 0.10 $ 0.45 $ 0.91 $ 1.41 =========== =========== =========== =========== Weighted average shares outstanding, diluted basis .............. 7,150,000 3,123,209 6,816,697 3,178,454 =========== =========== =========== =========== Cash dividends per share ........................................ $ 0.10 $ -- $ 0.30 $ -- =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements 4 5 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Three months ended Nine months ended September 30, September 30, ----------------------- ------------------------ 1999 1998 1999 1998 --------- ---------- ---------- ---------- (Unaudited) (Unaudited) Net earnings .................................. $ 743,325 $1,389,988 $6,186,124 $4,476,031 --------- ---------- ---------- ---------- Other comprehensive loss: Unrealized losses on investments, net (1) ... (132,556) -- (119,730) -- --------- ---------- ---------- ---------- Comprehensive earnings ...................... $ 610,769 $1,389,988 $6,066,394 $4,476,031 ========= ========== ========== ==========
(1) Net of income tax benefit of ($60,393) and $0, and ($54,549) and $0 for the three-month and nine-month periods ended September 30, 1999 and 1998, respectively. See accompanying notes to condensed consolidated financial statements 5 6 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, ------------------------------ 1999 1998 ------------ ------------ (Unaudited) Cash flows from operating activities: Net earnings ................................................................... $ 6,186,124 $ 4,476,031 Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization .............................................. 1,738,258 1,012,362 Net increase in reserve for claim loss ..................................... 195,182 -- Unrealized losses in investments ........................................... (119,730) -- Minority interest in net earnings of consolidated subsidiary ............... -- 2,894,332 Gain on sale of property and equipment ..................................... (4,674) -- Changes in: Accounts receivable, net ................................................... 1,940,615 (2,096,897) Net increase in interest receivables ................................... (233,802) -- Prepaid expenses and other assets ...................................... 59,437 (277,444) Income taxes payable and deferred income taxes ......................... (3,114,750) 1,255,218 Accounts payable and other accrued expenses ............................ (2,581,354) 4,563,179 Due to affiliate ....................................................... (221,334) (1,411,170) Deposits with Insurance Commissioner ................................... -- (7,500) Customer advances ...................................................... (594,159) -- ------------ ----------- Total cash provided by operating activities: ........................ 3,249,813 10,408,111 ------------ ----------- Cash flows from investing activities: Advance to related party ....................................................... -- (1,531,169) Assets acquired, net of cash ................................................... 1,234,970 (160,000) Purchase of title plant ........................................................ (125,200) -- Collections of notes receivable ................................................ 155,643 -- Purchase of property and equipment ............................................. (5,554,271) (1,763,473) Proceeds from sale of real estate .............................................. 330,000 -- Additions to notes receivable .................................................. (280,259) -- Purchase of investments ........................................................ (11,223,053) (1,879,135) ------------ ----------- Total cash used in investing activities: ............................ (15,462,170) (5,333,777) ------------ ----------- Cash flows from financing activities: Borrowings ..................................................................... 2,080,000 (4,800,000) Repayment of long term debt .................................................... (464,660) -- Proceeds from stock options exercised .......................................... 219,717 -- Proceeds from issuance of common stock ......................................... 9,201,796 -- Payments under capital lease obligations ....................................... (770,228) (521,210) Dividends paid ................................................................. (1,430,000) -- ------------ ----------- Total cash used in investing activities: ............................ 8,836,625 (5,321,210) ------------ ----------- Increase in cash and cash equivalents .......................................... (3,375,732) (246,876) Cash and cash equivalents at the beginning of year ............................. 10,344,987 7,223,635 ------------ ----------- Cash and cash equivalents at end of year ....................................... $ 6,969,255 $ 6,976,759 ============ =========== Supplemental disclosure of cash flow information: Cash paid during the year: Interest ................................................................... 131,937 562,044 Income taxes ............................................................... 6,582,500 4,045,853 Non-cash financing activities: Dividends declared and unpaid .............................................. 715,000 --
See accompanying notes to condensed consolidated financial statements 6 7 Notes to Condensed Consolidated Financial Statements Note A - Basis of Financial Statements The financial information included in this report includes the accounts of American National Financial, Inc. and its subsidiaries (collectively, the "Company") and has been prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and the Prospectus dated February 12, 1999. Certain reclassifications have been made in the 1998 Condensed Consolidated Financial Statements to conform to classifications used in 1999. Note B - Dividends On September 29, 1999, the Company's Board of Directors declared a quarterly cash dividend of $.10 per share, payable on October 26, 1999, to stockholders of record on October 12, 1999. Note C - Investments Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. The Company invests primarily in high-grade bonds and certain equity securities. All securities are defined as available-for-sale securities under the provisions of Statement of Financial Accounting Standards No. ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and unrealized gains and losses are included in earnings. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Note D - Reserves for Claim Losses The Company's reserve for claim losses includes known claims as well as losses the Company expects to incur, net of recoupments. Each known claim is reserved for on the basis of a review by the Company as to the estimated amount of the claim and the cost required to settle the claim. Reserves for claims which are incurred but not reported are provided for at the time premium revenue is recognized based on historical loss experience, and other factors, including industry averages, claim loss history, current legal environment, geographic consideration and type of policy written. The occurrence of a significant major claim in any given period could have a material adverse effect on the Company's financial condition and results of operations for such period. Escrow losses are expensed when they become known and are included in other operating expenses. Note E - Acquisition On May 28, 1999, the Department of Insurance, State of New York, approved the acquisition of National Title Insurance of New York ("National"), a New York underwriter, by American Title Company a subsidiary of American National Financial Inc. from Fidelity National Financial, Inc. National Title Insurance Company of New York is licensed to issue title insurance policies in 35 states and the U.S. Virgin Islands. The $3.25 million dollar purchase price was paid in cash and the transaction was completed in June 1999. On April 1, 1999, the Company completed the purchase of a home office building located in Orange, California for $2,600,000. In connection with the purchase, the Company financed $2,080,000 in the form of a mortgage note payable to a financial institution that bears interest at the prime lending rate with principal payments in the amount of $4,432 payable monthly. The note matures on April 1, 2004. 7 8 Note F - Employee Stock Purchase Loan Plan On September 29, 1999, the Company's Board of Directors approved the adoption of the American National Financial, Inc. Employee Stock Purchase Loan Plan ("Employee Plan") and the Non-Employee Director Stock Purchase Loan Program ("Director Program"). The purpose of the Loan Plan and Loan Program is to provide key employees and directors with further incentive to maximize shareholder value. The Company authorized an aggregate of $2,000,000 in loans. Loan Plan and Loan Program funds must be used to make private or open market purchases of Company common stock through a broker-dealer designated by the Company. All loans are full recourse and unsecured, and will have a five-year term. Interest will accrue on the loans at a rate of 5% per annum due at maturity. Loans may be prepaid any time without penalty. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Factors That May Affect Operating Results The statements contained in this report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. It is important to note that the Company's actual results could differ materially from those in such forward-looking statements. The reader should consult the risk factors listed from time to time and other information disclosed in the Company's reports on Forms 10-K and filings under the Securities Act of 1933, as amended. Results of Operations Total revenue for the third quarter of 1999 decreased $2.3 million, or 9.6%, to $21.5 million from $23.7 million for the third quarter of 1998. Total revenue for the nine-month period ending September 30, 1999 increased $5.5 million, or 8.4%, to $71.2 million from $65.7 million for the comparable 1998 period. The decrease in total revenue for the three-month period ended September 30, 1999 is primarily the result of rising interest rates and the decrease in order count during the third quarter due to decline in refinance activity and a shift in the mix of business from a refinance driven market to a more traditional purchase and resale market. The increase for the nine-month period ended September 30, 1999 compared to corresponding 1998 period is the result of internal expansion and the favorable market conditions in the first six-months of 1999. The third quarter revenues weakened resulting in year over year increase. Additionally, the trends in revenues generated by operations of the Company's ancillary service subsidiaries were consistent with this decline as the demand for these services are constant with the trend in real estate activity. Net title service revenue decreased $1.0 million, or 7.7%, to $12.1 million from $13.2 million for the three-month period ending September 30, 1999, which is consistent with the current real estate market environment and the decline in third quarter orders. Net title service revenue increased $3.6 million, or 9.6% to $40.9 million from $37.3 million for the nine-month period ending September 30, 1999 and 1998. The average fee per file increased to $978 in the three-month period ended September 30, 1999 from $859 for the corresponding 1998 period. The increase in fee per file is indicative of a change in the percentage mix of title orders from refinance to resale. Escrow fees have followed the same trend as net title service revenue. Escrow fees decreased to $334,000, or 5.2%, from $6.5 million to $6.1 million for the three-month period ending September 30, 1999. For the nine-month period ending September 30, 1999 escrow fees increased $2.8 million, or 16.3%, to $20.0 million from $17.2 million. The increase in the nine-month period ending September 30, 1999 compared to the corresponding 1998 period is the result of favorable market conditions and the Company's expansions of escrow offices in the first six-months of 1999. Other fees and income also followed the same trend as net title service revenue, as would be expected. Other fees and income decreased 28.7% to $2.9 million in the third quarter of 1999 from $4.1 million in the third quarter of 1998. This decrease is consistent with the decline in orders and current seasonal decline in ancillary business. For the nine months ended September 30, 1999 other fees and income decreased 11.0% to $9.7 from $10.9 million for the comparable 1998 period. This decline is consistent with the current market activity. 8 9 Interest and investment income increased 306.5% to $313,000 in the third quarter ending September 30, 1999, from $77,000 in the third quarter of 1998. Investment income for the nine-months ended September 30, 1999 totaled $642,000 compared to $289,000 in the comparable 1998 period, an increase of 122.0%. The increase in interest and investment income is the result of the increase in the Company's investment portfolio resulting from the acquisition of National and an increase in other invested assets. The Company's operating expenses consist primarily of personnel costs, other operating expenses and title plant maintenance. Net title service revenue, escrow fees and the majority of other fees and revenue are recognized as income at the time the underlying transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. Personnel costs include both base salaries and commissions paid to employees, and are the most significant operating expenses incurred by the Company. These costs generally fluctuate with the level of orders opened and closed and with the mix of revenues. Personnel costs, as a percentage of total revenue, increased to 62.6% for the three-month period ended September 30, 1999 compared to 53.7% for the corresponding 1998 period. For the nine-month period ending September 30, 1999 and 1998, personnel expenses as a percentage of total revenue were 58.7% and 53.7% respectively. The increase in the nine-month period ended September 30, 1999 was the result of favorable market conditions during the first six-months that did not continue into the third quarter. Management believes that recent staff reductions have brought employee headcounts in line with current order openings. The Company continues to monitor the market conditions and remains aggressive to adjust personnel costs to levels consistent with revenues. Personnel costs totaled $13.4 and $12.8 for the quarters ended September 30, 1999 and 1998, respectively, and $41.8 million and $35.3 million for the nine-month periods ended September 30, 1999 and 1998, respectively. Other operating expenses consist primarily of facilities expenses, escrow losses, provision for claim losses, courier services, computer services, professional services, general insurance, interest expense, trade and notes receivable allowances and depreciation. Other operating expenses increased as a percentage of total revenue to 24.4% in the third quarter of 1999 from 20.5% in the third quarter of 1998. Other operating expenses as a percentage of total revenue increased to 19.7% for the nine-month periods ended September 30, 1999 compared to 19.3% for the 1998 period. The fluctuation in the year over year increases can be attributed to expenses related to start-up costs associated with the National Title Insurance Company of New York, Inc. acquisition and expansion costs during the first six months of 1999. The Company implemented and remains committed to aggressive cost control programs which will maintain operating expense levels consistent with the levels of revenue reduction. Other operating expenses totaled $5.2 million in the third quarter of 1999 compared to $4.9 million in the third quarter of 1998. For the nine-month periods ended September 30, 1999 and 1998, other operating expenses totaled $14.1 million and $12.7 million, respectively. Title plant maintenance expenses decreased as a percentage of total revenue to 7.1% for the three-month period ended September 30, 1999, compared to 8.9% for the comparable 1998 period. The reduction as a percentage of total revenue is the result of the current year contract negotiations which reduced plant access costs and is consistent with the levels of revenue production. For the nine-month periods ended September 30, 1999 and 1998, title plant maintenance as a percentage of total revenue were 6.6% and 7.8%, respectively. Title plant maintenance totaled $1.5 million and $2.1 million for the quarters ended September 30, 1998 and 1998 respectively, and $4.7 million and $5.1 million for the nine-month periods ended September 30, 1999 and 1998, respectively. Income tax expense for the three-month and nine-month period ended September 30, 1999 and 1998, as a percentage of earnings before income taxes was 41.0% and 43.8%, respectively. Income tax expense for the nine-month periods ended September 30, 1999 and 1998 was 41.9% and 41.7%, respectively. The fluctuations in income tax expense as a percentage of earnings before income taxes are attributable to the Company's estimate of ultimate tax liability and the characteristics of net income, i.e. operating income versus investment income, taxable versus non-taxable. Liquidity and Capital Resources The Company's current cash requirements include debt service, debt relating to capital leases, personnel, operating expenses, taxes and dividends on its common stock. The Company believes that all anticipated cash requirements for current operations will be met from internally generated funds and existing cash resources. As a holding company, the Company receives cash from its subsidiaries in the form of reimbursement for operating and other administrative expenses. Positive cash flow from the insurance subsidiary is invested primarily in long-term investments. The insurance subsidiary is restricted by state regulations in their ability to pay dividends and make distributions. The Company's ancillary service subsidiaries collect revenue and pay operating expenses, however, they are not regulated by 9 10 insurance regulatory or banking authorities. Year 2000 Information technology is an integral part of the Company's business. The Company also recognizes the critical nature of and the technological challenges associated with the Year 2000 issue. The Year 2000 issue ("Y2K") results from computer programs and computer hardware that utilize only two digits to identify a year in the date field, rather than four digits. If such programs or hardware are not modified or upgraded information systems could fail, lock up, or in general fail to perform according to normal expectations. The Company has implemented a program and committed both personnel and other resources to determine the extent of potential Y2K issues. Included within the scope of this program are systems used in title plants, title policy processing, escrow production, claims processing, real estate related services, financial management, human resources, payroll and infrastructure. In addition to a review of internal systems, the Company has initiated formal communications with third parties with which it does business in order to determine whether or not they are Y2K compliant and the extent to which the Company may be vulnerable to third parties' failure to become Y2K compliant. The Company continues the process of identifying Y2K compliant issues in its systems, equipment and processes. The Company is making changes to such systems, updating or replacing such equipment, and modifying such processes to make them Y2K compliant. The Company has developed a four-phase program to become Y2K compliant. Phase I is, "Plan Preparation and Identification of the Problem." This is a continuing phase that will extend beyond the year 2000 itself. Phase II is, "Plan Execution and Remediation." Phase III is, "Testing." Phase IV is, "Maintaining Y2K Compliance." The Company will be substantially Y2K compliant by the end of November 1999. The status of the Y2K compliance program is monitored by senior management of the Company and by the Audit Committee of the Company's Board of Directors. The costs of the Y2K related efforts incurred to date have not been material, and the estimate of remaining costs to be incurred is not considered to be material. Due to the complexities of estimating the cost of modifying applications to become Y2K compliant and the difficulties in assessing third parties', including various local governments upon which the Company relies upon to provide title-related data, ability to become Y2K compliant, estimates may be subject to change. Management of the Company believes that its electronic data processing and information systems will be Y2K compliant; however, there can be no assurance all of the Company's systems will be Y2K compliant, or the costs to be Y2K compliant will not exceed management's current expectations, or that the failure of such systems to be Y2K compliant will not have a material adverse effect on the Company's business. The Company believes that functions currently performed with the assistance of electronic data processing equipment could be performed manually or outsourced if certain systems were determined not to be Y2K compliant on or after January 1, 2000. The Company has substantially completed a contingency plan in the event that any systems are not Y2K compliant. This entire section, "Year 2000 Issues", is hereby designated a "Year 2000 Readiness Disclosure", as defined in the Year 2000 Information and Readiness Disclosure Act. Item 3. Quantitative and Qualitative Market Risk Disclosures The Company does not believe that there have been any material changes in market risks since year-end other than the recent increases in interest rates. 10 11 Part II: OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 11 Computation of Basic and Diluted Earnings Per Share Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: None. 11 EX-11 2 COMPUTATION OF BASIC & DILUTED EARNINGS PER SHARE 1 EXHIBIT 11 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES COMPUTATION OF BASIC AND DILUTED EARNINGS PER SHARE (In thousands, except per share data)
Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 ------ ------ ------ ------ Net earnings, basic basis .......... $ 743 $1,390 $6,186 $4,476 ====== ====== ====== ====== Weighted average basic shares ...... 7,150 2,835 6,773 2,890 ------ ------ ------ ------ Basic earnings per share ........... $ .10 $ .49 $ .91 $ 1.55 ====== ====== ====== ====== Diluted net earning, basic basis ... $ 743 $1,390 $6,186 $4,476 ====== ====== ====== ====== Weighted average shares outstanding during the period, basic basis ..... 7,150 2,835 6,773 2,890 Effect of dilutive options ......... -- 288 44 288 ------ ------ ------ ------ Weighted average shares outstanding during the period, diluted basis ... 7,150 3,123 6,817 3,178 ====== ====== ====== ====== Diluted earnings per share ......... $ .10 $ .45 $ .91 $ 1.41 ====== ====== ====== ======
12 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 7,263,255 14,032,958 7,327,651 567,838 0 18,573,228 10,932,633 3,199,257 50,835,058 13,750,771 0 0 0 0 21,745,777 50,835,058 71,246,758 71,246,758 0 60,602,013 0 0 0 10,644,745 4,458,621 6,186,124 0 0 0 6,186,124 .91 .91
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