-----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, OJbbWDZMkqKKtEoShOtbb8Nm80zzuKljWX6rACRUFBcBjHHsKPgy+ZoJPIIyBlpD 8KSdKdS/2tYav916Aif4CQ== /in/edgar/work/20000814/0001095811-00-002700/0001095811-00-002700.txt : 20000921 0001095811-00-002700.hdr.sgml : 20000921 ACCESSION NUMBER: 0001095811-00-002700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL FINANCIAL INC CENTRAL INDEX KEY: 0001068843 STANDARD INDUSTRIAL CLASSIFICATION: [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: 695613 BUSINESS ADDRESS: STREET 1: 1111 E. KATELLA AVENUE, SUITE 220 CITY: IRVINE STATE: CA ZIP: 92867 BUSINESS PHONE: 7142894300 MAIL ADDRESS: STREET 1: 1111 E. KATELLA AVENUE, SUITE 220 CITY: IRVINE STATE: CA ZIP: 92867 10-Q 1 e10-q.txt FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 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 June 30, 2000 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) 1111 E. Katella Avenue, Suite 220, Irvine, California 92867 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 289-4300 - -------------------------------------------------------------------------------- (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, 7,375,224 shares as of August 11, 2000 Exhibit Index appears on page 12 of 12 sequentially numbered pages. 2 FORM 10-Q QUARTERLY REPORT Quarter Ended June 30, 2000 TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION Page Number ----------- Item 1. Condensed Consolidated Financial Statements A. Condensed Consolidated Balance Sheets as of 3 June 30, 2000 and December 31, 1999 B. Condensed Consolidated Statements of Earnings 4 for the three-month and six-month periods ended June 30, 2000 and 1999 C. Condensed Consolidated Statements of Comprehensive 5 Earnings for the three-month and six-month periods ended June 30, 2000 and 1999 D. Condensed Consolidated Statements of Cash Flows 6 for the six-month periods ended June 30, 2000 and 1999 E. Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 8 Condition and Results of Operations Item 3. Quantitative and Qualitative Market Risk Disclosures 11 Part II: OTHER INFORMATION Items 1, 3 and 5 of Part II have been omitted because they are not applicable with respect to the current reporting period. 12 Item 2. Changes in Security 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 12
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) and Director Date: August 11, 2000 2 3 Part I: FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ (UNAUDITED) Current assets: Cash and cash equivalents ..................................................... $ 6,912 $ 3,361 Short-term investments, at cost, which approximates fair market value ......... 685 1,514 Accrued investment interest ................................................... 168 245 Trade receivables, net of allowance for doubtful accounts of $2,165 in 2000 and $2,097 in 1999 ........................................................... 5,770 4,526 Notes receivables, net ........................................................ 2,075 1,329 Deferred tax asset ............................................................ 2,221 2,082 Income tax receivable ......................................................... -- 1,128 Prepaid expenses and other current assets ..................................... 1,127 995 -------- -------- Total current assets ................................................... 18,958 15,180 Investment securities available for sale, at fair market value ................ 8,589 14,022 Property and equipment, net ................................................... 7,404 7,633 Title plants .................................................................. 2,677 2,377 Deposits with the Insurance Commissioner ...................................... 113 113 Intangibles, net of accumulated amortization of $1,207 in 2000 and $959 in 1999 11,791 7,999 -------- -------- Total assets ........................................................... $ 49,532 $ 47,324 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and other accrued expenses ................................... $ 4,570 $ 5,506 Customer advances ............................................................. 2,585 1,779 Current portion of long-term debt ............................................. 549 53 Current portion of obligations under capital leases with affiliates ........... 71 67 Current portion of obligations under capital leases with non-affiliates ....... 130 125 Reserve for claim losses ...................................................... 2,361 2,341 Income tax payable ............................................................ 507 -- Due to affiliate .............................................................. 2,241 1,642 -------- -------- Total current liabilities .............................................. 13,014 11,513 Long-term debt ................................................................ 3,627 1,991 Obligations under capital leases with affiliates .............................. 565 602 Obligations under capital leases with non-affiliates .......................... 1,121 1,187 -------- -------- Total liabilities ...................................................... 18,327 15,293 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, 7,326,085 in 2000 and 7,180,495 in 1999 ..................... -- -- Additional paid in capital .................................................... 22,395 21,884 Retained earnings ............................................................. 9,181 10,336 Accumulated other comprehensive loss .......................................... (371) (189) -------- -------- Total shareholders' equity ............................................. 31,205 32,031 -------- -------- Total liabilities and shareholders' equity ............................. $ 49,532 $ 47,324 ======== ========
See accompanying notes to condensed consolidated financial statements 3 4 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2000 1999 2000 1999 ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) Revenues: Net title service revenue -- related party ..................................... $11,247 $14,542 $20,936 $28,819 Escrow fees .................................................................... 5,686 7,190 10,542 13,849 Other service charges .......................................................... 3,746 3,314 6,609 6,707 Investment income .............................................................. 237 321 518 404 ------- ------- ------- ------- Total revenues ....................................................... 20,916 25,367 38,605 49,779 ------- ------- ------- ------- Expenses: Personnel costs ................................................................ 12,705 14,563 24,523 28,392 Other operating expenses includes $962 and $889 with affiliate for the three-month period ended June 30, 2000 and 1999, respectively, and $1,931 and $2,047 with affiliate for the six-month period ended June 30, 2000 and 1999, respectively ...................................... 5,674 4,641 10,974 8,820 Title plant rent and maintenance ............................................... 1,448 1,600 2,581 3,182 ------- ------- ------- ------- Total expenses ....................................................... 19,827 20,804 38,078 40,394 ------- ------- ------- ------- Earnings before income taxes ................................................... 1,089 4,563 527 9,385 Income taxes ................................................................... 446 1,916 216 3,942 ------- ------- ------- ------- Net earnings ................................................................... $ 643 $ 2,647 $ 311 $ 5,443 ======= ======= ======= ======= Basic earnings per share ....................................................... $ 0.09 $ 0.37 $ 0.04 $ 0.82 ======= ======= ======= ======= Weighted average shares outstanding, basic basis ............................... 7,312 7,150 7,270 6,606 ======= ======= ======= ======= Diluted earnings per share ..................................................... $ 0.09 $ 0.37 $ 0.04 $ 0.82 ======= ======= ======= ======= Weighted average shares outstanding, diluted basis ............................. 7,312 7,150 7,270 6,672 ======= ======= ======= ======= Cash dividends per share ....................................................... $ 0.20 $ 0.10 $ 0.20 $ 0.20 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements 4 5 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 ----- ------ ----- ------ (UNAUDITED) (UNAUDITED) Net earnings ................................ $ 643 $2,647 $ 311 $5,443 Other comprehensive (loss) gain - unrealized (loss) gain on investment, securities available for sale(1) .......... (189) 13 (182) 13 ----- ------ ----- ------ Comprehensive earnings ...................... $ 454 $2,660 $ 129 $5,456 ===== ====== ===== ======
(1) Net of income tax (benefit) expense of $(114) and $7, and $(107) and $7 for the three-month and six-month periods ended June 30, 2000 and 1999, respectively. See accompanying notes to condensed consolidated financial statements 5 6 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------------- 2000 1999 ------ -------- (UNAUDITED) Cash flows from operating activities: Net earnings ................................................... $ 311 $ 5,443 Adjustments to reconcile net earnings to cash provided by (used in) operating activities: Depreciation and amortization ................................ 1,242 1,052 Loss on sale of investments .................................. (139) -- Loss on disposal of equipment ................................ (9) -- Changes in: Accounts receivables, net ................................. (497) 1,121 Interest receivable ....................................... 77 -- Prepaid expenses and other assets ......................... (132) 169 Income taxes receivable (payable) and deferred income taxes 1,449 (3,185) Accounts payable and other accrued expenses ............... (936) (1,908) Reserve for claim loss .................................... 20 -- Due to (from) affiliates .................................. 599 (67) Customer advances ......................................... 806 169 ------- -------- Total cash provided by operating activities ........... 2,791 2,794 ------- -------- Cash flow from investing activities: Purchase of property and equipment ............................. (487) (4,991) Additions to notes receivable .................................. (770) (117) Collections on notes receivable ................................ 24 -- Proceeds from sales (purchase) of investment securities ........ 5,437 (31) Repayments of title plant ...................................... -- (125) Acquisitions of subsidiaries, net of cash received ............. (2,747) 1,204 ------- -------- Total cash provided by (used in) investing activities . 1,457 (4,060) ------- -------- Cash flow from financing activities: Borrowings ..................................................... -- 2,080 Repayment of long-term debt .................................... -- (443) Proceeds from short term investments ........................... 829 -- Proceeds from stock options exercised .......................... -- 220 Proceeds from issuance of common stock ......................... 511 9,202 Payments from sale of real estate .............................. -- 330 Payments on long-term debt ..................................... (477) (9) Payments of capital lease obligations .......................... (94) (725) Dividends paid ................................................. (1,466) (715) ------- -------- Total cash provided by (used in) financing activities . (697) 9,940 ------- -------- Increase in cash and cash equivalents .......................... 3,551 8,674 Cash and cash equivalents at beginning of period ............... 3,361 10,345 ------- -------- Cash and cash equivalents at end of period ..................... $ 6,912 $ 19,019 ======= ========
See accompanying notes to condensed consolidated financial statements 6 7 AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------- 2000 1999 ---- ------ (UNAUDITED) Supplemental disclosure of cash flow information: Cash paid during the year: Interest .......................................... $222 $ 89 Income taxes ...................................... $ -- $6,341 Non-cash investing activities: Title plant acquired under capital lease ............. $ -- $ 75 Non-cash financing activities: Dividend declared and unpaid ......................... $733 $ 715
See accompanying notes to condensed consolidated financial statements 7 8 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. The Condensed Consolidated Financial Statement for the three-month period ended June 30, 2000 reflect the impact of the current year acquisitions of Bancserv, Inc., Pioneer Land Title Corporation and Emerald Mortgagee Assistance Company and were accounted for under the purchase accounting method. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Note B - State Banking Department The State Banking Department, State of Arizona ("State Banking Department") delivered their report of Examination of American Title Insurance of Arizona, Inc. (formerly known as Nations Title Insurance of Arizona, Inc.) as of and for the three-year period ending October 31, 1998, on March 4, 1999. The report as forwarded to the Company by State Banking Department indicates that the Company may not be in compliance with certain State Banking Department Regulations. The State Banking Department provided the Company with an opportunity to present additional information prior to making their final determination as to compliance. The Company subsequently provided additional information to the State Banking Department for review. On June 14, 2000, the Company received the Report of Examination dated April 18, 2000. The report as forwarded to the Company by State Banking Department, indicates the Company made significant progress in complying with State Banking Regulation. The Company must correct and resolve all remaining outstanding issues and implement corrective measures that comply with State Banking Regulation by August 22, 2000. The Company does not believe that resolution of this matter will have a material impact upon the financial statement of the Company. Note C - Dividends On June 26, 2000, the Company's Board of Directors declared a quarterly cash dividend of $.10 per share, payable on July 21, 2000, to stockholders of record on July 7, 2000. Note D - Employee and Non-Employee Director Stock Purchase Loan Programs In September 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 purchase 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 $2.0 million in loans. All loans are full recourse and unsecured, and have a five-year term. Interest accrues on the loans at a rate of six and one quarter percent (6 1/4%) per annum due at maturity. Loans may be repaid any time without penalty. Through March 31, 2000, additional loans were made in the amount of $613,000 to purchase 152,640 shares of the Company's common stock at an average purchase price of $3.99 per share. The total amount of loans outstanding at June 30, 2000 was $1,866,000 to purchase 469,407 shares of the Company's common stock at an average purchase price of $3.98 per share. 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 8 9 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 revenues for the second quarter ended June 30, 2000 decreased 17.5% to $20.9 million from $25.3 million in the comparable 1999 period. Total revenues for the six-month period ended June 30, 2000 decreased 22.5% to $38.6 million from $49.8 million for the same prior year period. The decrease in total revenue for both the three-month and six-month periods ended June 30, 2000, respectively is coincident with interest rate increases caused by actions taken by the Federal Reserve Board beginning in mid-1999. These rate increases have resulted in a significant decline in refinancing transactions, which have impacted the Company's order count and premium volume. Net Title Service Revenue. Net title service revenue decreased $3.3 million, or 22.7%, and $7.9 million or 27.4%, for the three-month and six-month periods ended June 30, 2000, respectively, as the result of a decrease in open title orders and the decline in the refinance business. The average fee per file increased to $1,060 in 2000 compared with $957 in the comparable 1999 period. The fee per file increase is indicative of a change in the mix of title orders closing in a refinance market to the higher fee per file resale business. Escrow Fees. Escrow fees for the second quarter of 2000 decreased $1.5 million, or 20.9% to $5.7 million from $7.2 million in the second quarter of 1999. For the six months ended June 30, 2000, escrow fees were $10.5 million, a decrease of $3.3 million, or 23.9%, from escrow fees of $13.9 million in the first six months of 1999. Escrow fees are primarily related to title insurance activity generated by the Company's direct operations. The decrease in escrow fees is primarily the result of market conditions relating to the refinance activity, the recent interest rate increases and the decrease in closed title orders. Other Service Charges. Other service charges trend closely with the level and mix of business, as well as the performance of certain Company title-related subsidiaries. Other service charges for the second quarter of 2000 increased $432,000, or 13.0% to $3.7 million from $3.3 million in the comparable 1999 period. The slight increase in the three-month period ended June 30, 2000 can be attributed to the contribution of the recent acquisitions during 2000 and the Company's strategy to strengthen its ancillary service business. Other services charges totaled $6.6 million for the six-month period ended June 30, 2000, a decrease of $98,000, or 1.5% from other service charges of $6.7 million for the 1999 period. The Company continues to leverage its core title and escrow businesses and national presence to successfully expand ancillary service businesses. Investment Income. Investment and interest income are primarily a function of securities markets and interest rates. Prior to 1999 the Company primarily invested in interest bearing accounts and certificates of deposits. During 1999 the Company strengthened its balance sheet with the acquisition of National Title Insurance of New York, Inc. ("National"), proceeds from the Initial Public Offering ("IPO") and the shift to a fixed income portfolio. Investment income in the second quarter of 2000 decreased $84,000 or 26.2% to $237,000 from $321,000 in the corresponding 1999 period. The decrease in investment and interest income earned in the second quarter ended June 30, 2000 is primarily the result of liquidation of certain securities available for sale for the purpose of acquisitions. Investment and interest income for the six-month period ended June 30, 2000 totaled $518,000 compared with $404,000 in the comparable 1999 period, an increase of 28.2%. The Company's operating expenses consist primarily of personnel and other operating expenses, which are incurred as orders are received and processed. Net title service revenue and certain other fees are recognized as income at the time the transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. Personnel Costs. Personnel costs include base salaries, commissions and bonuses paid to employees and are the most significant operating expense incurred by the Company. Personnel costs, as a percentage of total revenue, increased to 60.7% for the three-month period ended June 30, 2000 compared with 57.4% for the corresponding period in 1999. For the six-month periods ended June 30, 2000 and 1999, personnel expenses as a percentage of total revenue were 63.5% and 57.0%, respectively. Personnel costs totaled $12.7 million and $14.6 million for the three-month periods ended March 31, 2000 and 1999, respectively and $24.5 million and $28.4 million for the six-month periods ended June 30, 2000 and 1999, respectively. These expenses fluctuate with the level of orders opened and closed and the mix of revenue. Personnel expenses have increased as a percentage of total revenue due to the result of higher percentages of personnel costs in the businesses acquired in fiscal year 2000. The Company continues to monitor the prevailing market conditions and attempts to respond as necessary. 9 10 Other Operating Expenses. Other operating expenses consist of facilities expenses, escrow losses, postage and courier services, data processing expense, general insurance, trade and notes receivable allowance and depreciation. Other operating expense increased as a percentage of total revenue to 27.1% in the three-month periods ended June 30, 2000, compared with 18.3% for the corresponding 1999 period. Other operating expenses as a percentage of total revenue increased to 28.4% for the six-month period ended June 30, 2000 compared with 17.7% for the corresponding 1999 period. The increase in the three and six-month periods can be attributed to expenses related to the Company's non-title operations, primarily Bancserv, Inc., Emerald Mortgagee Assistance Company and Pioneer Land Title Corporation, which were all acquired in 2000. Other operating expenses totaled $5.7 million and $4.6 million, for the three-month periods ended June 30, 2000 and 1999, respectively. For the six - -month periods ended June 30, 2000 and 1999, other operating expenses totaled $11.0 million and $8.8 million, respectively. In response to market conditions, the Company implemented aggressive cost control programs in order to maintain operating expenses consistent with levels of revenue; however, certain fixed costs are incurred regardless of revenue levels, resulting in quarter over quarter and year over year percentage fluctuations. The Company continues to review operating expenses and will evaluate expenses relative to existing and projected market conditions. Title Plant Rent and Maintenance Expense. Title plant rent and maintenance expense totaled $1.4 million and $1.6 million for the three-month periods ended June 30, 2000 and 1999, respectively, and $2.6 million and $3.2 million for the six-month periods ended June 30, 2000 and 1999, respectively. Title plant rent and maintenance expense increased as a percentage of total revenue to 6.9% from 6.3% in the three-month periods ended June 30, 2000 and 1999, respectively, and 6.7% from 6.4% for the comparable six-month periods. The relatively comparable year over year increases in title plant expense is primarily a result of various contract renegotiations within several counties in California and Arizona resulting in maintaining consistent cost reductions for the Company. Income tax expense for the three-month and six-month periods ended June 30, 2000 and 1999, as a percentage of earnings before income taxes was 41.0% and 42.0%, respectively. Income tax expense for the six-month periods ended June 30, 2000 and 1999 was 41.0% and 42.0%, respectively. Fluctuations in income tax expense as a percentage of earnings before income taxes can occur and would be attributable to the effect of state income taxes on the Company's primary subsidiary the wholly-owned underwritten title company and the ancillary service companies; a change in the amount and the characteristics of net income, operating income versus investment income; and the tax treatment of certain items. Liquidity and Capital Resources The Company's current cash requirements include debt service, debt relating to capital leases, personnel and other 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. The Company's cash requirements include expenses relating to the development of National's business. While the Company presently has in place much of the infrastructure (principally consisting of personnel) that will be used for this development, management believes that additional cash resources will be required. The development of direct sales operations for the expansion of National would require more cash resources than developing these operations using agency relationships. Cash requirements for the development of National are expected to be met from current cash balances and internally generated funds. One source of the Company's funds is distributions from its subsidiaries. As a holding company, the Company may receive cash from its subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses it incurs. The Company's underwritten title company collects premiums and fees and pays underwriting fees and operating expenses. The underwritten title company is restricted only to the extent of maintaining minimum levels of working capital and net worth, but are not restricted by state regulations or banking authorities in their ability to pay dividends and make distributions. National is subject to regulations that restrict its ability to pay dividends or make other distributions of cash or property to its parent company without prior approval from the Department of Insurance of the State of New York. The maximum amount of dividends which can be paid by National to shareholders without prior approval of the Insurance Commissioner is subject to restrictions. No dividends, including all dividends paid in the preceding twelve months, which exceed 10% of the outstanding capital shares can be paid without prior approval unless after deducting dividends the Company has surplus to policyholders at least equal to the greater of 50% of its reinsurance reserves or 50% of the minimum capital required. Additionally, dividends are further limited to the Company's earned surplus. 10 11 The Company's other subsidiary operations collect revenue and pay operating expenses; however, they are not regulated by insurance regulatory or banking authorities. Positive cash flow from the underwritten title companies and other subsidiary operations is invested primarily in cash and cash equivalents. In December 1998, the Company entered into an agreement to purchase a home office building in Orange, CA for $2.6 million. On April 14, 1999 the Company completed the purchase of the home office building. The Company financed $2.1 million, secured by a first trust deed. The terms of the note require monthly interest payments at prime and monthly principal payments of $4,000. The note matures on April 1, 2004. In June 2000, the Company completed the relocation of its executive and other related operation offices to the home office building. Year 2000 Our operational and financial systems successfully handled the transition into Year 2000. All operations were fully functional on January 1, 2000. No communication interruptions were identified with any customers or vendors. Although no Y2K related problems are anticipated, we are continuing to monitor all systems throughout the first quarter 2001. Item 3. Quantitative and Qualitative Market Risk Disclosures The Company's Consolidated Balance Sheets includes a substantial amount of assets and liabilities whose fair values are subject to market risks. The following sections address the significant market risks associated with the Company's financial activities for the six-month periods ended June 30, 2000. Interest Rate Risk The Company's fixed maturity investments and borrowings are subject to interest rate risk. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. Equity Price Risk The carrying values of investments subject to equity price risks are based on quoted market prices or management's estimates of fair value as of the balance sheet date. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. Part II: OTHER INFORMATION Item 2. Changes in Securities The following table sets forth the range of high and low closing prices for the common stock on the NASDAQ Stock Exchange High Low ------- ------- January 1, 2000 through August 11, 2000: $3.9375 $2.7500 On August 11, 2000, the last reported sale price of the common stock on the NASDAQ Stock Exchange was $3.03 per share. As of August 11, 2000, the Company had less than 800 shareholders of record. Item 4. On June 27, 2000 the Company held its Annual Meeting of Shareholders pursuant to a Notice and Proxy Statement dated May 18, 2000. At the meeting, shareholders elected Michael C. Lowther, William P. Foley, II, Wayne D. Diaz, Carl A. Strunk, Dennis R. Duffy, Barbara A. Ferguson, Bruce Elieff and Matthew K. Fong as Directors by a vote of 6,728,876 for and 16,444 withheld, as recommended by management. 11 12 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: Exhibit 10.18 Charter of the Audit Committee of the American National Financial, Inc. Board of Directors Exhibit 11 Computation of Basic and Diluted Earnings Per Share Exhibit 27 Financial Data Schedule - June 30, 2000 (b) Reports on Form 8-K: None. 12 EX-10.18 2 ex10-18.txt EXHIBIT 10.18 1 EXHIBIT "10.18" CHARTER OF THE AUDIT COMMITTEE OF THE AMERICAN NATIONAL FINANCIAL, INC. BOARD OF DIRECTORS, INC. I. Audit Committee Purpose The Audit Committee (hereinafter sometimes referred to as the "Committee") is appointed by the Board of Directors (the "Board") to assist the Board in fulfilling its oversight responsibilities. The Audit Committee's primary duties and responsibilities are to: o Monitor the integrity of the Company's financial reporting process and systems of internal controls regarding finance, and accounting. o Monitor the independence and performance of the Company's independent auditors and internal auditing department. o Provide an avenue of communication among the independent auditors, management, the internal auditing department, and the Board of Directors. The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. The Audit Committee has the ability to retain, at the Company's expense, legal, accounting or other consultants or experts it deems necessary in the performance of its duties. II. Audit Committee Composition and Meetings Audit Committee members shall meet the requirements of the National Association of Securities Dealers Automated Quotation ("NASDAQ"). The Audit Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent non-executive directors, free from any relationship that would interfere with the exercise of his or her independent judgment. The NASDAQ requires annual written affirmation of the Audit Committee independence. The criteria for assessing independence are: 2 I. Former employees and family members of former employees. Must be a minimum of three years since employment with the Company, except that NASDAQ rules allow one former employee or one family member of a former employee, with less than three years separation, to be an audit committee member if it is determined by the Board to be in the Company's best interest. II. Business Relationships. If a director's employer receives revenue in excess of $200,000 per year, or five (5%) percent of its total revenue from the Company, the director is not considered independent. III. Cross-directorships. An audit committee member's compensation cannot be impacted by an employee of the Company. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Committee shall have accounting or related financial management expertise. Audit Committee members shall be appointed by the Board on recommendation of the Nominating Committee. If the Chairman of the Audit Committee (the "Committee Chairman") is not designated or present, the members of the Committee may designate a Committee Chairman by majority vote of the Committee membership. The Committee shall meet at least four times annually, or more frequently as circumstances dictate. The Audit Committee Chairman shall prepare and/or approve an agenda in advance of each meeting. The Committee should meet privately in executive session at least annually with management, the director of the internal auditing department, the independent auditors, and as a committee to discuss any matters that the Committee or each of these groups believe should be discussed. In addition, the Committee, or at least its Committee Chairman, should communicate with management and the independent auditors quarterly to review the Company's financial statements and significant findings based upon the auditors limited review procedures. III. Audit Committee Responsibilities and Duties Review Procedures I. Review and reassess the adequacy of this Charter at least annually. Submit the charter to the Board for approval and have the document published at least every three years in accordance with Securities and Exchange Commission ("SEC") regulations. 3 II. Review the Company's annual audited financial statements prior to filing or distribution. Review should include discussion with management and independent auditors of significant issues regarding accounting principles, practices, and judgments. III. In consultation with the management, the independent auditors, and the internal auditors, consider the integrity of the Company's financial reporting processes and controls. Discuss significant financial risk exposures and the steps management has taken to monitor, control, and report such exposures. Review significant findings prepared by the independent auditors and the internal auditing department together with management's responses. IV. Review with financial management and the independent auditors the Company's quarterly financial results prior to the release of earnings and/or the Company's quarterly financial statements prior to filing or distribution. Discuss any significant changes to the Company's accounting principles and any items required to be communicated by the independent auditors in accordance with SAS 61 (see item 9 below). The Committee Chairman may represent the entire Audit Committee for purposes of this review. Independent Auditors V. The independent auditors are ultimately accountable to the Audit Committee and the Board. The Committee shall review the independence and performance of the auditors and annually recommend to the Board the appointment of the independent auditors or approve any discharge of auditors when circumstances warrant. VI. Approve the fees and other significant compensation to be paid to the independent auditors. Review and approve requests for significant management consulting engagements to be performed by the independent auditors' firm and be advised of any other significant study undertaken at the request of management that is beyond the scope of the audit engagement letter. VII. On an annual basis, the Committee shall review and discuss with the independent auditors all significant relationships they have with the Company that could impair the auditors' independence. VIII. Review the independent auditors' audit plan. Discuss scope, staffing, locations, reliance upon management, and internal audit and general audit approach. IX. Prior to releasing the year-end earnings, discuss the results of the audit with the independent auditors. Discuss certain matters required to be communicated to audit committees in accordance with AICPA SAS 61. 4 X. Consider the independent auditors' judgments about the quality and appropriateness of the Company's accounting principles as applied in its financial reporting. Internal Audit Department and Legal Compliance XI. Review the budget, plan, changes in plan, activities, organizational structure, and qualifications of the internal audit department, as needed. XII. Review the appointment, performance, and replacement of the senior internal audit executive. XIII. Review significant reports prepared by the internal audit department together with management's response and follow-up to these reports. XIV. On at least an annual basis, review with the Company's counsel, any legal matters that could have a significant impact on the organization's financial statements, the Company's compliance with applicable laws and regulations, and inquiries received from regulators or governmental agencies. Other Audit Committee Responsibilities XV. Annually prepare a report to stockholders as required by the SEC. The report should be included in the Company's annual proxy statement. XVI. Perform any other activities consistent with this Charter, the Company's by-laws, and governing law, as the Committee or the Board deems necessary or appropriate. XVII. Maintain minutes of meetings and periodically report to the Board on significant results of the foregoing activities. EX-11 3 ex11.txt EXHIBIT 11 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 ------ ------ ------ ------ Net earnings, basic basis ......... $ 643 $2,647 $ 311 $5,443 ====== ====== ====== ====== Weighted average basic shares ..... 7,312 7,150 7,270 6,606 ------ ------ ------ ------ Basic earnings per share .......... $ 0.09 $ 0.37 $ 0.04 $ 0.82 ====== ====== ====== ====== Diluted net earnings .............. $ 643 $2,647 $ 311 $5,443 ====== ====== ====== ====== Weighted average shares outstanding during the period, basic basis .. 7,312 7,150 7,270 6,606 Effect of dilutive options ........ -- -- -- 66 ------ ------ ------ ------ Weighted average shares outstanding during the period, diluted basis 7,312 7,150 7,270 6,672 ====== ====== ====== ====== Diluted earnings per share ........ $ 0.09 $ 0.37 $ 0.04 $ 0.82 ====== ====== ====== ======
EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 7,597 8,589 7,935 2,165 0 18,958 10,569 3,165 49,532 13,014 0 0 0 0 31,205 49,532 38,605 38,605 0 38,078 0 0 0 527 216 0 0 0 0 311 .04 .04
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