The following information should be read in conjunction with the consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Form 10-K.
The Company's revenues include net title service revenue (which also includes trustee sale guarantee fees), escrow fees, and other fees and revenues. The Company's operations generate escrow fees from holding and disbursing funds and documents in connection with the closing of real estate transactions. Escrow fees generally fluctuate in a pattern consistent with the fluctuation in net title service revenue. Other fees and revenue primarily consist of real estate information fees, reconveyance fees, recording fees and appraisal fees, and include fees related to the Company's STAR product. Other fees and revenue trend closely with the level of title and escrow business.
Beginning in October 2000, ATC entered into an Issuing Agency Agreement with CTIC under which ATC pays CTIC an underwriting fee equal to 11% of gross title premiums received.
Favorable interest rates in 1997, 1998 and through early 1999 triggered refinancing activity at then record levels. The overall economic environment, stable mortgage interest rates and strength in real estate market, especially California, the Company's primary market were positive factors. However, 30-year fixed mortgage rates began to climb during the last half of 1999 and continued into 2000, eliminating the volume of refinance activity experienced in the 1998.
Net Title Service Revenue. Net title service revenue decreased $7.8 million or 15.2% to $43.6 million from $51.4 million in 1999. In 1999, net title service revenue decreased by 1.4% to $51.4 million from $52.1 million in 1998. The decrease in 2000 net title service revenue is consistent with the current real estate environment and the decline in closed title orders during 2000. The average fee per file increased to $1,109 in
In February 2000, the purchased 100% of the stock of Pioneer, a New York corporation providing title and escrow services in the state of New York. The purchase price was $1.8 million, payable $360,000 in cash and a $1.4 million promissory note with interest at 6.6% per annum, to be paid in equal annually installments over a five-year period. The balance of the promissory note at December 31, 2000 was $1.4 million. This transaction has been accounted for as a purchase.
In February 2000, the Company purchased 100% of the membership interests of EMAC, a full service provider of release and assignment document preparation, document retrieval and special title assistance located in Colorado. The purchase price was $1.9 million, $1.7 million was paid in cash, subject to certain purchase price adjustments based on the combined equity of EMAC and American Research Services, its affiliate, and 58,500 shares of the Company common stock. This transaction has been accounted for as a purchase.
The statutory capital and surplus of National was $3.3 million and $2.5 million as of December 31, 2000 and 1999. The statutory earnings of the National was $684,000 and $426,000 for the year ended December 31, 2000 and 1999.
In June 1999, shareholders approved the adoption of the Stock Option Plan ("1999 Option Plan"). Under the terms of the 1999 Option Plan, the Company may grant stock options to certain executives, key employees and branch managers of the Company and its subsidiaries. The purpose of the 1999 Plan is to attract, retain and reward key employees and to provide incentives to those persons to improve operations and increase profits. Individuals to whom options are granted may reduce the exercise price of such options by electing to defer a portion of their annual bonuses which would otherwise be payable in cash. The maximum number of shares for which options may be granted to any one person during any one calendar year under the 1999 Plan is two hundred thousand (200,000) shares. The number of shares reserved for issuance under the 1999 Plan and subsequent amendments is 1,775,000 shares of common stock. The per share option price is determined at the grant date. The option price may be less than the fair market value of the common stock at the date of grant to reflect the application of the optionee's deferred bonus, if applicable. Options granted under the 1999 Option Plan, shall be fully vested after three years and be exercisable in such installments and for such periods as may be fixed at the time of grant, however, in no event should any stock options extend for a period in excess of 10 years from the date of grant.
The following table sets forth options outstanding and exercisable by price range as of December 31, 2000:
Pro forma information regarding net earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the minimum fair value method of that Statement. The minimum fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions. There were no options granted in 1998. The risk free interest rate used for options granted during 2000 and 1999 was 6.28% and 5.19%. The expected dividend yield used for 2000 and 1999 was 10%. The weighted average expected life of 7 years was used for 2000 and 1999. The volatility factor for 2000 and 1999 was 48% and 80%, respectively.
ATC leases a title plant from a subsidiary of FNFI. See Note 11. Additionally, the Company reimburses subsidiaries of FNFI for expenses incurred on its behalf. Such reimbursements aggregated $3.8 million, $3.8 million and $4.2 million for years ended December 31, 2000, 1999 and 1998, respectively.