Exhibit 99.1
CONTACT: | ||||
Frank V. McMahon Vice Chairman and Chief Financial Officer | FOR | |||
IMMEDIATE | ||||
RELEASE | ||||
(714) 800-4401 |
THE FIRST AMERICAN CORPORATION REPORTS
RESULTS FOR THE SECOND QUARTER 2006
SANTA ANA, Calif., July 26, 2006 – The First American Corporation (NYSE: FAF), America’s largest provider of business information, today announced results for the second quarter ended June 30, 2006:
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
2006 (A) | 2005 (B) | 2006 (A) | 2005 (B) | |||||||||
Total revenues | $ | 2.17 billion | $ | 1.98 billion | $ | 4.17 billion | $ | 3.69 billion | ||||
Income before income taxes and minority interests | $ | 220.7 million | $ | 265.6 million | $ | 358.4 million | $ | 419.3 million | ||||
Net income | $ | 114.7 million | $ | 139.5 million | $ | 184.4 million | $ | 218.7 million | ||||
Net income per diluted share | $ | 1.16 | $ | 1.43 | $ | 1.86 | $ | 2.27 |
(A) | Results for the three and six months ended June 30, 2006, include a $22.0 million pretax charge, $13.7 million, or $0.14 per diluted share on an after-tax basis, for certain title insurance regulatory/litigation matters. |
(B) | Results for the three and six months ended June 30, 2005, include a $6.0 million pretax charge, $3.4 million, or $0.03 per diluted share on an after-tax basis, for merger and relocation-related charges at First Advantage Corporation. |
“Second quarter revenues were $2.17 billion, an increase of 9 percent over the same quarter of 2005, setting an all-time company high for second quarter revenues,” stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. “Year-to-date revenues of $4.17 billion increased 13 percent over the same period last year and also set an all-time company high for first-half-of-the-year revenues. This growth in revenues was achieved despite a drop in mortgage originations.”
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First American Reports Results for the Second Quarter 2006
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Summary of Operations
Mortgage originations decreased in the second quarter of 2006 when compared with the same period of the prior year. However, as a result of increases in market share and in the average revenues per title order closed at the company’s title insurance operations, as well as acquisition activity and organic growth at the company’s specialty insurance, property information, and risk mitigation and business solutions segments, total operating revenues increased when compared with the second quarter of 2005. Though strong, profits for the second quarter of 2006 did not keep pace with the revenue growth. Factors affecting results included a quarter-over-quarter increase in the loss provision rate for the title insurance operations, a $22.0 million charge for certain title insurance regulatory/litigation matters and continued investments in new business initiatives. Operating revenues for the three and six months ended June 30, 2006, were $2.10 billion and $4.05 billion, respectively. Operating revenues for the three and six months ended June 30, 2005, were $1.92 billion and $3.59 billion, respectively. Net income for the three and six months ended June 30, 2006, was $114.7 million, or $1.16 per diluted share, and $184.4 million, or $1.86 per diluted share. Net income for the three and six months ended June 30, 2005, was $139.5 million, or $1.43 per diluted share, and $218.7 million, or $2.27 per diluted share, respectively.
Operating Revenues
(in thousands)
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Financial Services | ||||||||||||||||
Title Insurance and Services: | ||||||||||||||||
Direct operations | $ | 806,979 | $ | 740,203 | $ | 1,492,301 | $ | 1,352,220 | ||||||||
Agency operations | 747,685 | 681,354 | 1,488,064 | 1,281,101 | ||||||||||||
1,554,664 | 1,421,837 | 2,980,365 | 2,633,321 | |||||||||||||
Specialty Insurance | 77,181 | 63,785 | 151,754 | 124,294 | ||||||||||||
1,631,845 | 1,485,622 | 3,132,119 | 2,757,615 | |||||||||||||
Information Technology | ||||||||||||||||
Mortgage Information | 137,643 | 150,499 | 272,069 | 292,972 | ||||||||||||
Property Information | 144,649 | 131,834 | 279,550 | 246,627 | ||||||||||||
Risk Mitigation and Business Solutions | 204,470 | 161,253 | 398,191 | 299,443 | ||||||||||||
486,762 | 443,586 | 949,810 | 839,042 | |||||||||||||
Eliminations | (18,194 | ) | (4,309 | ) | (29,543 | ) | (8,200 | ) | ||||||||
Total operating revenues | $ | 2,100,413 | $ | 1,924,899 | $ | 4,052,386 | $ | 3,588,457 | ||||||||
Financial Services
Operating revenues from direct title operations increased 9.0 percent and 10.4 percent for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to increases in the average
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First American Reports Results for the Second Quarter 2006
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revenues per order closed, offset in part by decreases in the number of title orders closed. The average revenues per order closed were $1,665 and $1,639 for the three and six months ended June 30, 2006, respectively, increases of 19.7 percent and 20.1 percent when compared with the same periods of the prior year. These increases were primarily due to a decrease in the mix of lower-premium refinance transactions, an increase in higher-premium resale and commercial activity, and appreciating home values. The company’s direct operations closed 484,700 and 910,700 title orders during the current three and six month periods, respectively, decreases of 8.9 percent and 8.1 percent when compared with the same periods of the prior year. These decreases were primarily due to the decline in mortgage originations, offset in part by market share gains that resulted from organic growth and acquisitions. Operating revenues from agency operations increased 9.7 percent and 16.2 percent for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to the same factors affecting direct title operations, as well as the timing of the reporting of agency remittances.
Information Technology
Mortgage information operating revenues decreased $12.9 million and $20.9 million for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These decreases were primarily due to the decline in mortgage originations and increases in estimated servicing life of the tax service loan portfolio due to a slowdown in prepayment speeds, which resulted in the deferral of a larger portion of the tax service fee in early years. Operating revenues for the property information segment increased $12.8 million, or 9.7 percent, and $32.9 million, or 13.4 percent, for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to the continued strength in this segment’s subscription-based information businesses, increased appraisal revenues resulting from market share growth and $0.9 million and $7.3 million of operating revenues contributed by new acquisitions for the respective periods, offset in part by the affects of the slowdown in mortgage originations. Risk mitigation and business solutions operating revenues increased $43.2 million, or 26.8 percent, and $98.7 million, or 33.0 percent, for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to $38.0 million and $82.3 million of operating revenues contributed by new acquisitions for the respective periods.
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First American Reports Results for the Second Quarter 2006
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2006 Outlook and Strategic Focus
“During the second half of 2006, efforts to further realize cost efficiencies and focus on sales of higher-margin products should help maintain steady profit margins,” Kennedy added. “We will look to further centralize corporate administrative functions to improve the efficiency of our company. In addition, the full benefits of many of our technology investments have yet to be realized. Many of our businesses are performing well in the current business environment and are well positioned to continue to experience growth. Finally, the margin contributions from many recent acquisitions are expected to improve in the second half of 2006.”
Teleconference/Webcast
First American’s second quarter results will be discussed in more detail on Wednesday, July 26, 2006, at 11 a.m. EDT, via teleconference. The dial-in number is (888) 955-3516 and the pass code is FIRST AMERICAN. The live audio webcast of the call and copies of the slide presentation will be available on First American’s Web site atwww.firstam.com/investor. An audio replay of the conference call will be available through Aug. 4, 2006, by dialing (203) 369-0365. An audio archive of the call will also be available for replay on First American’s Web site.
About First American
The First American Corporation (NYSE: FAF), a FORTUNE 500® company that traces its history to 1889, is America’s largest provider of business information. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people’s lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within five primary business segments, including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information, and Risk Mitigation and Business Solutions—a new segment that the company formed in 2005 by combining its Credit Information and Screening Information segments. With revenues of $8.1 billion in 2005, First American has approximately 2,100 offices throughout the United States and abroad. More information about the company and an archive of its press releases can be found atwww.firstam.com.
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First American Reports Results for the Second Quarter 2006
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Forward-Looking Statements
Certain statements made in this press release, including those relating to profit margins in the second half of 2006, efficiencies achieved from centralizing of corporate administrative functions, benefits from technology investments, positioning of many of our businesses to experience growth and margin contribution from recent acquisitions, are forward looking. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include: interest rate fluctuations; changes in the performance of the real estate markets; limitations on access to public records and other data; general volatility in the capital markets; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company’s title insurance and services segment and certain other of the company’s businesses; consolidation among the company’s significant customers and competitors; the company’s continued ability to identify businesses to be acquired; changes in the company’s ability to integrate businesses which it acquires; and other factors described in Part I, Item 1A of the company’s annual report on Form 10-K for the year ended Dec. 31, 2005, and Part II, Item 1A of the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2006, in both cases as filed with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made. The company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
(Additional Financial Data Follows)
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First American Reports Results for the Second Quarter 2006
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Summary of Earnings
(in thousands, except per share amounts)
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
Total revenues | $ | 2,167,788 | $ | 1,983,975 | $ | 4,170,972 | $ | 3,688,459 | ||||
Income before income taxes and minority interests | $ | 220,704 | $ | 265,560 | $ | 358,429 | $ | 419,262 | ||||
Income taxes | $ | 82,800 | $ | 100,700 | $ | 132,200 | $ | 154,500 | ||||
Minority interests | $ | 23,243 | $ | 25,367 | $ | 41,873 | $ | 46,107 | ||||
Net income | $ | 114,661 | $ | 139,493 | $ | 184,356 | $ | 218,655 | ||||
Net income per share: | ||||||||||||
Basic | $ | 1.19 | $ | 1.47 | $ | 1.92 | $ | 2.35 | ||||
Diluted | $ | 1.16 | $ | 1.43 | $ | 1.86 | $ | 2.27 | ||||
Weighted average shares outstanding: | ||||||||||||
Basic | 96,563 | 94,639 | 96,212 | 93,106 | ||||||||
Diluted | 99,229 | 97,990 | 99,086 | 96,559 |
Summary Balance Sheet Information
(in thousands, except per share amounts)
June 30 2006 | December 31 2005 | |||||
Total stockholders’ equity | $ | 3,171,067 | $ | 3,006,547 | ||
Book value per share | $ | 32.95 | $ | 31.36 |
Summary Title Insurance Order Counts
From Direct Operations
Three Months Ended June 30 | ||||
2006 | 2005 | |||
Title orders opened: | ||||
April | 203,200 | 238,200 | ||
May | 230,900 | 247,500 | ||
June | 229,500 | 269,200 | ||
Second quarter total | 663,600 | 754,900 | ||
Title orders closed: | ||||
April | 144,700 | 165,400 | ||
May | 166,500 | 171,900 | ||
June | 173,500 | 194,900 | ||
Second quarter total | 484,700 | 532,200 | ||
(Additional Financial Data Follows)
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First American Reports Results for the Second Quarter 2006
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Selected Financial Data
(unaudited, in thousands)
Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
RESULTS OF OPERATIONS | ||||||||||||||||
Revenues | ||||||||||||||||
Operating revenues | $ | 2,100,413 | $ | 1,924,899 | $ | 4,052,386 | $ | 3,588,457 | ||||||||
Investment and other income | 60,016 | 55,027 | 110,103 | 94,331 | ||||||||||||
Gain on stock issued by subsidiary | 7,276 | 2,419 | 8,436 | 2,766 | ||||||||||||
Net realized investment gains | 83 | 1,630 | 47 | 2,905 | ||||||||||||
2,167,788 | 1,983,975 | 4,170,972 | 3,688,459 | |||||||||||||
Expenses | ||||||||||||||||
Salaries and other personnel costs | 656,373 | 601,487 | 1,295,868 | 1,149,972 | ||||||||||||
Premiums retained by agents | 597,899 | 539,665 | 1,196,197 | 1,025,624 | ||||||||||||
Other operating expenses | 483,134 | 413,774 | 913,521 | 777,347 | ||||||||||||
Provision for title losses and other claims | 125,360 | 99,857 | 241,104 | 190,634 | ||||||||||||
Depreciation and amortization | 50,525 | 37,202 | 98,658 | 72,949 | ||||||||||||
Premium taxes | 17,507 | 15,413 | 34,966 | 28,943 | ||||||||||||
Interest | 16,286 | 11,017 | 32,229 | 23,728 | ||||||||||||
1,947,084 | 1,718,415 | 3,812,543 | 3,269,197 | |||||||||||||
Income before income taxes and minority interests | $ | 220,704 | $ | 265,560 | $ | 358,429 | $ | 419,262 | ||||||||
INCOME BEFORE INCOME TAXES AND | ||||||||||||||||
Financial Services | ||||||||||||||||
Title Insurance and Services | $ | 136,418 | $ | 166,518 | $ | 213,857 | $ | 246,066 | ||||||||
Specialty Insurance | 14,595 | 12,356 | 26,623 | 21,498 | ||||||||||||
151,013 | 178,874 | 240,480 | 267,564 | |||||||||||||
Information Technology | ||||||||||||||||
Mortgage Information | 33,041 | 41,417 | 62,630 | 71,849 | ||||||||||||
Property Information | 38,159 | 41,688 | 68,789 | 77,292 | ||||||||||||
Risk Mitigation and Business Solutions | 30,757 | 23,793 | 54,949 | 48,083 | ||||||||||||
101,957 | 106,898 | 186,368 | 197,224 | |||||||||||||
Total before corporate expenses and minority interest | 252,970 | 285,772 | 426,848 | 464,788 | ||||||||||||
Corporate | (32,266 | ) | (20,212 | ) | (68,419 | ) | (45,526 | ) | ||||||||
Income before income taxes and minority interests | $ | 220,704 | $ | 265,560 | $ | 358,429 | $ | 419,262 | ||||||||
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First American Reports Results for the Second Quarter 2006
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Segment Margins
(unaudited)
(in thousands, except percentages)
Three Months Ended June 30 | ||||||||||||||||||
Total revenues | Pretax (A) | Margins | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||
Financial Services | ||||||||||||||||||
Title Insurance and Services | $ | 1,603,417 | $ | 1,460,457 | $ | 136,418 | $ | 166,518 | 8.5 | % | 11.4 | % | ||||||
Specialty Insurance | 81,668 | 67,504 | 14,595 | 12,356 | 17.9 | % | 18.3 | % | ||||||||||
$ | 1,685,085 | $ | 1,527,961 | $ | 151,013 | $ | 178,874 | 9.0 | % | 11.7 | % | |||||||
Information Technology | ||||||||||||||||||
Mortgage Information | $ | 139,112 | $ | 152,557 | $ | 33,041 | $ | 41,417 | 23.8 | % | 27.1 | % | ||||||
Property Information | 150,702 | 140,800 | 38,159 | 41,688 | 25.3 | % | 29.6 | % | ||||||||||
Risk Mitigation and Business Solutions | 205,847 | 163,922 | 30,757 | 23,793 | 14.9 | % | 14.5 | % | ||||||||||
$ | 495,661 | $ | 457,279 | $ | 101,957 | $ | 106,898 | 20.6 | % | 23.4 | % | |||||||
Six Months Ended June 30 | ||||||||||||||||||
Total revenues | Pretax (A) | Margins | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||
Financial Services | ||||||||||||||||||
Title Insurance and Services | $ | 3,067,566 | $ | 2,698,378 | $ | 213,857 | $ | 246,066 | 7.0 | % | 9.1 | % | ||||||
Specialty Insurance | 160,316 | 131,548 | 26,623 | 21,498 | 16.6 | % | 16.3 | % | ||||||||||
$ | 3,227,882 | $ | 2,829,926 | $ | 240,480 | $ | 267,564 | 7.5 | % | 9.5 | % | |||||||
Information Technology | ||||||||||||||||||
Mortgage Information | $ | 275,251 | $ | 296,661 | $ | 62,630 | $ | 71,849 | 22.8 | % | 24.2 | % | ||||||
Property Information | 290,161 | 262,744 | 68,789 | 77,292 | 23.7 | % | 29.4 | % | ||||||||||
Risk Mitigation and Business Solutions | 400,436 | 304,723 | 54,949 | 48,083 | 13.7 | % | 15.8 | % | ||||||||||
$ | 965,848 | $ | 864,128 | $ | 186,368 | $ | 197,224 | 19.3 | % | 22.8 | % | |||||||
(A) - Income before income tax, minority interest and corporate expenses
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