FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-3658
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THE FIRST AMERICAN CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Incorporated in California 95-1068610
-------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1 First American Way, Santa Ana, California 92707-5913
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(Address of principal executive offices) (Zip Code)
(714) 800-3000
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(Registrant's telephone number, including area code)
----------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
$1 par value - 65,159,669 shares as of May 10, 2001
INFORMATION INCLUDED IN REPORT
------------------------------
Part I: Financial Information
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets
B. Condensed Consolidated Statements of Income and Comprehensive
Income
C. Condensed Consolidated Statements of Cash Flows
D. Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
Items 1-5 have been omitted because they are not applicable with
respect to the current reporting period.
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.
THE FIRST AMERICAN CORPORATION
---------------------------------
(Registrant)
/s/ Thomas A. Klemens
---------------------------------
Thomas A. Klemens
Executive Vice President
Chief Financial Officer
/s/ Max O. Valdes
---------------------------------
Max O. Valdes
Vice President
Chief Accounting Officer
Date: May 17, 2001
2
Part I: Financial Information
---------------------
Item 1: Financial Statements
--------------------
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Condensed Consolidated Balance Sheets
-------------------------------------
March 31, 2001 December 31, 2000
---------------- ------------------
(unaudited)
Assets
Cash and cash equivalents $ 265,847,000 $ 300,905,000
-------------- --------------
Accounts and accrued income receivable, net 237,689,000 204,177,000
-------------- --------------
Income tax receivable 19,472,000
--------------
Investments:
Deposits with savings and loan associations and banks 37,097,000 31,900,000
Debt securities 202,078,000 209,407,000
Equity securities 54,525,000 58,720,000
Other long-term investments 100,191,000 92,703,000
-------------- --------------
393,891,000 392,730,000
-------------- --------------
Loans receivable 98,709,000 94,452,000
-------------- --------------
Property and equipment, at cost 687,239,000 662,198,000
Less- accumulated depreciation (243,981,000) (227,110,000)
-------------- --------------
443,258,000 435,088,000
-------------- --------------
Title plants and other indexes 294,718,000 290,072,000
-------------- --------------
Assets acquired in connection with claim settlements
(net of valuation reserves of $1,115,000 and $1,000,000) 28,527,000 27,846,000
-------------- --------------
Deferred income taxes 12,695,000 11,519,000
-------------- --------------
Goodwill and other intangibles, net 349,074,000 346,156,000
-------------- --------------
Other assets 96,001,000 77,320,000
-------------- --------------
$2,220,409,000 $2,199,737,000
============== ==============
Liabilities and Stockholders' Equity
Demand deposits $ 86,172,000 $ 81,289,000
-------------- --------------
Accounts payable and accrued liabilities 245,423,000 267,567,000
-------------- --------------
Deferred revenue 260,294,000 261,673,000
-------------- --------------
Reserve for known and incurred but not reported claims 284,097,000 284,607,000
-------------- --------------
Income taxes payable 9,113,000
-------------- --------------
Notes and contracts payable 212,892,000 219,838,000
-------------- --------------
Minority interests in consolidated subsidiaries 119,931,000 114,526,000
-------------- --------------
Mandatorily redeemable preferred securities of
the Company's subsidiary trust whose sole assets
are the Company's $100,000,000 8.5% deferrable
interest subordinated notes due 2012 100,000,000 100,000,000
-------------- --------------
Stockholders' equity:
Preferred stock, $1 par value
Authorized - 500,000 shares; outstanding - none
Common stock, $1 par value
Authorized - 180,000,000 shares
Outstanding - 64,873,000 and 63,887,000 shares 64,873,000 63,887,000
Additional paid-in capital 190,926,000 172,468,000
Retained earnings 643,797,000 628,913,000
Accumulated other comprehensive income 2,891,000 4,969,000
-------------- --------------
902,487,000 870,237,000
-------------- --------------
$2,220,409,000 $2,199,737,000
============== ==============
See notes to condensed consolidated financial statements.
3
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
------------------------------
Condensed Consolidated Statements of Income and Comprehensive Income
--------------------------------------------------------------------
(Unaudited)
For the Three Months Ended
March 31
--------------------------
2001 2000
------------ ------------
Revenues
Operating revenues $750,184,000 $635,865,000
Investment and other income 16,557,000 10,309,000
------------ ------------
766,741,000 646,174,000
------------ ------------
Expenses
Salaries and other personnel costs 274,819,000 250,204,000
Premiums retained by agents 189,407,000 167,122,000
Other operating expenses 191,088,000 166,360,000
Provision for title losses and other claims 36,490,000 30,123,000
Depreciation and amortization 24,433,000 17,416,000
Premium taxes 5,008,000 5,288,000
Interest 6,298,000 5,776,000
------------ ------------
727,543,000 642,289,000
------------ ------------
Income before income taxes and minority interests 39,198,000 3,885,000
Income taxes 13,500,000 800,000
------------ ------------
Income before minority interests 25,698,000 3,085,000
Minority interests 6,922,000 2,083,000
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Net income 18,776,000 1,002,000
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Other comprehensive income (loss) net of tax
Unrealized gain (loss) on securities (1,878,000) 863,000
Minimum pension liability adjustment (200,000) (100,000)
------------ ------------
(2,078,000) 763,000
------------ ------------
Comprehensive income $ 16,698,000 $ 1,765,000
============ ============
Net income per share:
Basic $ 0.29 $ 0.02
============ ============
Diluted $ 0.27 $ 0.02
============ ============
Cash dividends per share $ .06 $ .06
============ ============
Weighted average number of shares:
Basic 64,165,000 64,138,000
============ ============
Diluted 68,797,000 65,322,000
============ ============
See notes to condensed consolidated financial statements.
4
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(Unaudited)
For the Three Months Ended
March 31
----------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 18,776,000 $ 1,002,000
Adjustments to reconcile net income to cash
provided by (used for) operating activities-
Provision for title losses and other claims 36,490,000 30,123,000
Depreciation and amortization 24,433,000 17,416,000
Minority interests in net income 6,922,000 2,083,000
Other, net (608,000) 2,980,000
Changes in assets and liabilities excluding effects of
company acquisitions and noncash transactions-
Claims paid, including assets acquired, net of recoveries (37,681,000) (35,757,000)
Net change in income tax accounts 28,205,000 1,794,000
Increase in accounts and accrued income receivable (38,706,000) (3,245,000)
Decrease in accounts payable and accrued liabilities (17,595,000) (31,368,000)
Decrease in deferred revenue (874,000) (2,003,000)
Other, net (14,464,000) 9,918,000
------------ ------------
Cash provided by (used for) operating activities 4,898,000 (7,057,000)
------------ ------------
Cash flows from investing activities:
Net cash effect of company acquisitions/dispositions 2,282,000 (4,338,000)
Net (increase) decrease in deposits with banks (5,197,000) 8,000
Net (increase) decrease in loans receivable (4,257,000) 239,000
Purchases of debt and equity securities (6,677,000) (13,584,000)
Proceeds from sales of debt and equity securities 5,848,000 15,752,000
Proceeds from maturities of debt securities 9,083,000 4,605,000
Net increase in other investments (1,569,000) (4,133,000)
Capital expenditures (36,593,000) (32,132,000)
Proceeds from sale of property and equipment 392,000 949,000
------------ ------------
Cash used for investing activities (36,688,000) (32,634,000)
------------ ------------
Cash flows from financing activities:
Net change in demand deposits 4,883,000 (3,923,000)
Proceeds from issuance of debt 404,000
Repayment of debt (9,426,000) (4,950,000)
Proceeds from exercise of stock options 6,168,000 79,000
Repurchase of company shares (20,755,000)
Distributions to minority shareholders (1,001,000) (2,049,000)
Cash dividends (3,892,000) (3,801,000)
------------ ------------
Cash used for financing activities (3,268,000) (34,995,000)
------------ ------------
Net decrease in cash and cash equivalents (35,058,000) (74,686,000)
Cash and cash equivalents - Beginning of year 300,905,000 350,010,000
------------ ------------
- End of first quarter $265,847,000 $275,324,000
============ ============
Supplemental information:
Cash paid during the first quarter for:
Interest $ 5,777,000 $ 1,264,000
Premium taxes $ 4,368,000 $ 5,630,000
Income taxes $ 656,000 $ 4,504,000
Noncash investing and financing activities:
Shares issued for benefit plans $ 8,020,000 $ 226,000
Liabilities incurred in connection with company acquisitions $ 12,000,000 $ 14,927,000
Purchase of minority interest $ 516,000
Company acquisitions in exchange for common stock $ 4,768,000
See notes to condensed consolidated financial statements.
5
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
(Unaudited)
Note 1 - Basis of Condensed Consolidated Financial Statements
- -------------------------------------------------------------
The condensed consolidated financial information included in this report has
been prepared in conformity with the accounting principles and practices
reflected in the consolidated financial statements included in the annual report
filed with the Securities and Exchange Commission for the preceding calendar
year. All adjustments are of a normal recurring nature and are, in the opinion
of management, necessary to a fair statement of the consolidated results for the
interim periods. This report should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
Note 2 - Earnings Per Share
- ---------------------------
The Company's potential dilutive common shares are stock options, which are
reflected in diluted earnings per share by application of the treasury-stock
method, and convertible notes payable, which are reflected in diluted earnings
per share by the if-converted method. Certain of the stock options and all of
the convertible debt are antidilutive and have been excluded when calculating
diluted earnings per share. The dilutive effect of the stock options was
4,632,000 and 1,184,000 for the three months ended March 31, 2001 and 2000,
respectively.
Note 3 - Business Combinations
- ------------------------------
In February 2001, the Company announced the sale of its subsidiary, Contour
Software, Inc., to Ellie Mae(SM), Inc., in exchange for cash, notes and an
interest in Ellie Mae. As a result of the transaction, the Company recognized
a deferred gain of $14.2 million. Contour had been included in the Company's
real estate information segment.
During the three months ended March 31, 2001, the Company acquired three
companies. The purchase method of accounting was used for each of the
acquisitions. These acquisitions were individually not material and have been
included in the Company's title insurance segment. The aggregate purchase price
was $4.8 million in stock, $1.5 million in cash and $.2 million in forgiven
notes receivable.
In January 2001, the Company entered into a definitive agreement to acquire
Credit Management Solutions, Inc. (CMSI), a provider of credit automation
software and services that will be included in the Company's consumer
information segment. This stock-for-stock transaction is expected to close
during the second quarter 2001.
Note 4 - Segment Information
- ----------------------------
The Company's operations include three reportable segments. Selected financial
information about the Company's operations by segment is as follows:
Operating revenues:
Three Months Ended
March 31
-----------------------------------
($000)
2001 % 2000 %
-------- ------ -------- ------
Title Insurance $523,525 70 $446,546 70
Real Estate Information 162,233 22 128,757 20
Consumer Information 64,426 8 60,562 10
-------- ------ -------- ------
Total $750,184 100 $635,865 100
======== ====== ======== ======
6
Income before income taxes and minority interests:
Three Months Ended
March 31
-----------------------------------
($000)
2001 % 2000 %
-------- ------ -------- ------
Title Insurance $ 19,677 38 $ 6,252 34
Real Estate Information 27,514 54 2,864 15
Consumer Information 3,977 8 9,594 51
-------- ------ -------- ------
Total before corporate expenses 51,168 100 18,710 100
======== ====== ======== ======
Corporate expenses (11,970) (14,825)
-------- --------
Total $ 39,198 $ 3,885
======== ========
Note 5 - Subsequent Event
- -------------------------
On April 24, 2001, the Company sold $175 million of its 4.5% senior convertible
debentures due 2008. The Company also sold an additional $35 million of these
debentures in connection with the exercise of an over-allotment option. This
transaction was a private placement pursuant to Rule 144A and Regulation S under
the Securities Act of 1933. The Company has agreed to file a shelf registration
statement with the Securities and Exchange Commission covering resales of the
senior convertible debentures and the common shares issuable upon the conversion
within 90 days after the original issuance of the debentures. The debentures
are convertible into common shares of the Company at $28 per share and can be
converted, by the holders, at any time after the shelf registration statement is
declared effective. The Company may redeem some or all of the senior convertible
debentures at any time on or after April 15, 2004. The net proceeds of the
offering will be used to finance acquisitions of businesses, repay outstanding
indebtedness, buy out minority interests in existing subsidiaries and for
general corporate purposes.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Certain statements made in this 10-Q, including those relating to the effects of
eliminating high-cost contractors that are servicing claims in the Company's
home warranty business and anticipated cash requirements, are forward looking.
Risks and uncertainties exist which 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; general volatility in the capital markets; changes in
applicable government regulations; consolidation among the Company's significant
customers and competitors; legal proceedings commenced by the California
attorney general and related litigation; 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 the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, 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.
RESULTS OF OPERATIONS
Three months ended March 31:
OVERVIEW
High mortgage interest rates and seasonal factors in the fourth quarter of 1999
resulted in a low inventory of open orders going into the first quarter of 2000.
This, coupled with the relatively weak real estate economy present during the
first half of 2000, resulted in a significant decrease in revenues and profits
for the first half of 2000 when compared with the same period of the prior year.
During the second half of 2000, real estate activity began to increase as a
result of declining mortgage interest rates. New order counts in the latter
part of the third quarter began to show favorable comparisons with the same
period of 1999. This trend continued through the fourth quarter of 2000 and
resulted in a significant increase in revenues and profits for the second half
of 2000 when compared with the same period of the prior year, and in a high
inventory of open orders going into the first quarter of 2001. During the first
quarter of 2001, the continuation of lower mortgage interest rates resulted in a
significant increase in refinance transactions, which, coupled with the
relatively steady level of resale transactions, culminated in record-setting new
title order volume for the quarter. These factors, together with the positive
results of the Company's cost-containment programs, resulted in net income and
diluted EPS for the first quarter of 2001 of $18.8 million and $0.27 per diluted
share, respectively, which included a charge of $3.6 million, or $0.03 per
diluted share, related to the exit of the lender-placed insurance business.
Excluding this item, operational net income and diluted EPS for the first
quarter of 2001 were $20.5 million and $0.30, respectively, compared with net
income and diluted EPS for the first quarter of 2000 of $1.0 million and $0.02,
respectively.
OPERATING REVENUES
A summary by segment of the Company's operating revenues is as follows:
(in thousands, except percent)
2001 % 2000 %
-------- ------ -------- ------
Title Insurance:
Direct operations $289,271 39 $235,946 37
Agency operations 234,254 31 210,600 33
-------- ------ -------- ------
523,525 70 446,546 70
Real Estate Information 162,233 22 128,757 20
Consumer Information 64,426 8 60,562 10
-------- ------ -------- ------
Total $750,184 100 $635,865 100
======== ====== ======== ======
Title Insurance. Operating revenues from direct title operations increased
22.6% when compared with the same period of the prior year. This increase was
primarily attributable to an increase in the number of title orders closed by
the Company's direct operations, and to a lesser extent, an increase in the
average revenues per order closed. The Company's direct operations closed
270,100 title orders during the current quarter, an increase of 17.3% when
compared with 230,300 title orders closed during the
8
same period of the prior year. This increase was primarily due to the factors
mentioned above. The average revenues per order closed were $1,071 for the
current three-month period, as compared with $1,025 for the same period of the
prior year. This increase was primarily due to appreciating residential real
estate values, offset in part by a shift in closings from resale to refinance.
Operating revenues from agency operations increased 11.2% when compared with the
same period of the prior year. This increase was primarily due to the same
conditions that affected direct operations, offset in part the time lag in the
reporting of agency remittances.
Real Estate Information. Real estate information operating revenues increased
26.0% when compared with the same period of the prior year. This increase was
primarily attributable to the same economic factors affecting title insurance
mentioned above, and $8.2 million of operating revenues contributed by new
acquisitions.
Consumer Information. Consumer information operating revenues increased 6.4%
when compared with the same period of the prior year. This increase was
primarily attributable to operating revenues of $1.0 million contributed by new
acquisitions and an increased awareness and acceptance of this business
segment's products, offset in part by a $4.4 million reduction in operating
revenues at the Company's property and casualty division as a result of exiting
the lender-placed insurance business.
INVESTMENT AND OTHER INCOME
Investment and other income totaled $16.6 million and $10.3 million for the
first quarter 2001 and 2000, respectively. This increase was primarily due to
an increase of $2.2 million in interest and dividend income and increased
earnings of $4.6 million from the Company's affiliated companies, which are
accounted for under the equity method of accounting.
TOTAL OPERATING EXPENSES
Title Insurance. Salaries and other personnel costs were $188.2 million, an
increase of 8.7% when compared with the same period of the prior year.
Excluding new acquisitions, the increase was $10.3 million, or 5.9%. This
increase was primarily due to an increase in staff costs in the production area
caused by the significant increase in new orders. The Company's direct
operations opened a record-setting 434,700 orders during the first quarter of
2001, an increase of 39.7% when compared with the 311,200 orders opened during
the same period of the prior year.
Agents retained $189.4 million, or 80.9%, and $167.1 million, or 79.4%, of the
title premiums generated by agency operations for the first quarter 2001 and
2000, respectively. The percentage of title premiums retained by agents varies
from region to region. Accordingly, the geographical mix of revenues from
agency operations accounts for the variation in the percentage amount of title
premiums retained by agents.
Other operating expenses were $100.2 million for the current quarter, an
increase of 23.3% when compared with the same period of the prior year.
Excluding new acquisitions, the increase was $16.4 million, or 20.2%. This
increase was primarily attributable to the incremental costs associated with
processing the significant increase in new orders during the current quarter.
The provision for title losses as a percentage of title insurance operating
revenues was 3.7% for the current period and 3.3% for the same period of the
prior year. The increase in loss percentage reflects the slight increase in
claims experience due to the continued strength in resale closings, which are
generally more claims intensive.
Premium taxes for title insurance were $4.6 million for the current quarter and
$4.7 million for the same quarter of the prior year. Expressed as a percentage
of title insurance operating revenues, premium taxes were approximately 0.9% for
the current quarter and 1.1% for the same quarter of the prior year. Premium
tax rates vary from state to state. Accordingly, the geographical mix of title
insurance premiums accounts for the fluctuation in rate.
Real Estate Information. Real estate information personnel and other operating
expenses were $126.2 million, an increase of $11.1 million, or 9.6% when
compared with the same period of the prior year. Excluding acquisitions, the
increase was $6.5 million, or 5.6%. This increase was primarily due to the
significant increase in business volume.
Consumer Information. Consumer information personnel and other operating
expenses were $45.9 million, an increase of $6.6 million, or 16.9% when
compared with the same period of the prior year. Excluding acquisitions, the
increase was $5.6 million, or 14.3%. This increase was primarily attributable
to a $3.6 million charge related to the exit of the Company's lender-placed
insurance business, an increase of $0.7 million associated with the opening of a
new service center in the state of Texas required to support the expansion of
the Company' home warranty business.
9
The provision for consumer information losses principally reflects home warranty
claims. The provision for home warranty losses, expressed as a percentage of
home warranty operating revenues, was 56.2% for the current quarter and 47.4%
for the same period of the prior year. This increase was primarily attributable
to an increase in the average number of claims per contract, which was primarily
due to the expansion of this business into new geographical markets. The
Company's management has embarked on a program of eliminating high-cost
contractors that are servicing claims. These efforts are expected to result in
lower claim costs per contract in future periods.
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
A summary by segment of the Company's income before income taxes and minority
interests is as follows:
Three Months Ended
March 31
---------------------------------------
(in thousands, except percent)
2000 % 1999 %
-------- ------ -------- ------
Title Insurance $ 19,677 38 $ 6,252 34
Real Estate Information 27,514 54 2,864 15
Consumer Information 3,977 8 9,594 51
-------- ------ -------- ------
Total before corporate 51,168 100 18,710 100
====== ======
Corporate (11,970) (14,825)
-------- --------
Total $ 39,198 $ 3,885
======== ========
In general, the title insurance business is a lower profit margin business when
compared to the Company's other segments. The lower profit margins reflect the
high cost of producing title evidence, whereas the corresponding revenues are
subject to regulatory and competitive pricing restraints. Due to this
relatively high proportion of fixed costs, title insurance profit margins
generally improve as closed order volumes increase. In addition, title
insurance profit margins are affected by the composition (residential or
commercial) and type (resale, refinancing or new construction) of real estate
activity. Profit margins from resale and new construction transactions are
generally higher than from refinancing transactions, because in many states
there are premium discounts on, and cancellation rates are higher for, refinance
transactions. Title insurance profit margins are also affected by the percentage
of operating revenues generated by agency operations. Profit margins from direct
operations are generally higher than from agency operations due primarily to the
large portion of the premium that is retained by the agent. Real estate
information pretax profits are generally unaffected by the type of real estate
activity, but increase or decrease based on the volume of residential real
estate loan transactions. Consumer information profits are unaffected by real
estate or mortgage interest rate activity and increase as the level of business
volume increases.
INCOME TAXES
The Company's effective income tax rate (income tax expense as a percentage of
pretax income after minority interest expense) was 41.8% for the current quarter
and 44.4% for the same period of the prior year. The decrease in effective rate
was primarily attributable to changes in the ratio of permanent differences to
pretax income. A large portion of the minority interest expense is attributable
to a limited liability company subsidiary, which for tax purposes, is treated as
a partnership. Accordingly, no income taxes have been provided for that portion
of the minority interest expense.
MINORITY INTERESTS
Minority interest expense was $6.9 million and $2.1 million for the first
quarter 2001 and 2000, respectively. This increase was primarily attributable
to the increase in the operating results of the Company's joint venture with
Experian.
NET INCOME
Net income for the current quarter was $18.8 million, or $0.27 per diluted
share, compared with net income of $1.0 million, or $0.02 per diluted share, for
the same period of the prior year.
10
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents decreased $35.1 million and $74.7 million for
the three months ended March 31, 2001, and 2000, respectively. The decrease for
the current year period was primarily due to capital expenditures and the
repayment of debt. The decrease for the prior year period was primarily due to
capital expenditures and repurchases of company shares.
Notes and contracts payable as a percentage of total capitalization decreased to
15.9% at March 31, 2001, from 16.9% at December 31, 2000. The decrease was
primarily due to an increase in total equity due primarily to net income and
shares issued in connection with company acquisitions and employee benefit plans
during the current period.
In April 2001, the Company completed the sale of $210 million aggregate
principal amount of its 4.5% senior convertible debentures due 2008. The
debentures will be convertible into common stock of the Company at a conversion
price of $28 per share. The proceeds from the sale are expected to be used for
company acquisitions, the repayment of outstanding indebtedness, to buy out
minority interests in existing subsidiaries and for general corporate purposes.
See footnote 5 to the condensed consolidated financial statements for additional
information.
Management believes that all of its operational cash requirements for the
immediate future will be met from internally generated funds and from the
proceeds from the sale of the senior convertible debentures.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's primary exposure to market risk relates to interest rate risk
associated with certain other financial instruments. Although the Company
monitors its risk associated with fluctuations in interest rates, it does not
currently use derivative financial instruments to hedge these risks.
The Company is also subject to equity price risk as related to its equity
securities. Although the Company has operations in certain foreign countries,
these operations, in the aggregate, are not material to the Company's financial
condition or results of operations.
There have been no material changes in the Company's risk since filing its Form
10K for the year ended December 31, 2000.
11
Part II: Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(b) Reports on Form 8-K
During the quarterly period covered by this report, the Company
filed a report on Form 8-K dated January 31, 2001 (disclosing
Agreement and Plan of Merger dated as of January 30, 2001, among
The First American Corporation, Rusti Corp. and Credit Management
Solutions, Inc.) and a report on Form 8-K dated February 20, 2001
(reporting on fourth quarter and full year 2000 earnings).
Subsequent to such quarterly period, the Company filed reports on
Form 8-K dated April 11, 2001 (announcing the Company's earnings
expectation for the first quarter 2001); April 16, 2001
(reporting on the Company's plan to offer senior convertible
debentures); May 7, 2001 (reporting on the Company's having
reached agreements to sell its senior convertible debentures),
May 8, 2001 (reporting on first quarter 2001 earnings), May 10,
2001 (reporting on an increase in the Company's quarterly cash
dividends) and May 17, 2000 (reporting on deferral of the gain on
the sale of its Contour Software subsidiary).
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