FORM 10-Q/A
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, 1998
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- --------------
Commission file number 0-3658
------
THE FIRST AMERICAN FINANCIAL 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.)
114 East Fifth Street, Santa Ana, California 92701-4699
---------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(714)558-3211
----------------------------------------------------
(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 [_]
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 - 17,965,313 as of May 12, 1998
INFORMATION INCLUDED IN REPORT
------------------------------
Part I: Financial Information
Item 1. Financial Statements
A. Condensed Consolidated Balance Sheets
B. Condensed Consolidated Statements of 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
Part II: Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Items 1-3, and 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 FINANCIAL CORPORATION
----------------------------------------
(Registrant)
/s/ Thomas A. Klemens
---------------------
Thomas A. Klemens
Executive Vice President
Chief Financial Officer
(Principal Financial Officer and Duly
Authorized to Sign on Behalf of
Registrant)
Date: February 12, 1999
1
Part I: Financial Information
---------------------
Item 1. Financial Statements
--------------------
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
----------------------------------------
Condensed Consolidated Balance Sheets
-------------------------------------
(Unaudited)
March 31, 1998 December 31, 1997
-------------- -----------------
Assets
Cash and cash equivalents $ 211,687,000 $ 181,531,000
-------------- --------------
Accounts and accrued income receivable, net 169,159,000 128,017,000
-------------- --------------
Investments:
Deposits with savings and loan
associations and banks 26,428,000 29,029,000
Debt securities 140,933,000 151,503,000
Equity securities 20,481,000 13,904,000
Other long-term investments 36,419,000 35,047,000
-------------- --------------
224,261,000 229,483,000
-------------- --------------
Loans receivable 66,573,000 63,378,000
-------------- --------------
Property and equipment, at cost 390,776,000 323,065,000
Less-accumulated depreciation (161,195,000) (122,688,000)
-------------- --------------
229,581,000 200,377,000
-------------- --------------
Title plants and other indexes 146,975,000 100,626,000
-------------- --------------
Assets acquired in connection with claim
settlements (net of valuation reserves
of $10,199,000 and $11,135,000) 20,228,000 21,119,000
-------------- --------------
Deferred income taxes 16,943,000 31,563,000
-------------- --------------
Goodwill and other intangibles, net 134,142,000 132,361,000
-------------- --------------
Deferred policy acquisition costs 25,171,000 25,016,000
-------------- --------------
Other assets 54,235,000 54,673,000
-------------- --------------
$1,298,955,000 $1,168,144,000
============== ==============
Liabilities and Stockholders' Equity
Demand deposits $ 61,993,000 $ 62,475,000
-------------- --------------
Accounts payable and accrued liabilities 195,344,000 168,133,000
-------------- --------------
Deferred revenue 104,482,000 104,124,000
-------------- --------------
Reserve for known and incurred but not
reported claims 252,927,000 250,826,000
-------------- --------------
Income taxes payable 18,425,000 3,987,000
-------------- --------------
Notes and contracts payable 39,149,000 41,973,000
-------------- --------------
Minority interests in consolidated
subsidiaries 63,286,000 25,214,000
-------------- --------------
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 - 36,000,000 shares;
Outstanding - 17,581,000 and
17,374,000 shares 17,581,000 17,374,000
Additional paid-in capital 52,934,000 43,953,000
Retained earnings 386,968,000 344,645,000
Net unrealized gain on securities 5,866,000 5,440,000
-------------- --------------
463,349,000 411,412,000
-------------- --------------
$1,298,955,000 $1,168,144,000
============== ==============
2
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
----------------------------------------
Condensed Consolidated Statements of Income
-------------------------------------------
(Unaudited)
For the Three Months Ended
March 31
------------ ------------
1998 1997
------------ ------------
Revenues
Operating revenues $561,614,000 $376,425,000
Investment and other income 43,435,000 6,452,000
------------ ------------
605,049,000 382,877,000
------------ ------------
Expenses
Salaries and other personnel costs 199,122,000 140,787,000
Premiums retained by agents 140,045,000 122,193,000
Other operating expenses 135,000,000 84,470,000
Provision for title losses and other claims 27,328,000 18,592,000
Depreciation and amortization 13,706,000 6,475,000
Premium taxes 4,154,000 4,161,000
Interest 3,576,000 1,122,000
------------ ------------
522,931,000 377,800,000
------------ ------------
Income before income taxes and minority interests 82,118,000 5,077,000
Income taxes 29,400,000 1,900,000
------------ ------------
Income before minority interests 52,718,000 3,177,000
Minority interests 7,753,000 311,000
------------ ------------
Net income $ 44,965,000 $ 2,866,000
============ ============
Net income per share:
Basic $ 2.57 $ .17
============ ============
Diluted $ 2.49 $ .16
============ ============
Cash dividends per share $ .15 $ .12
============ ============
Weighted average number of shares:
Basic 17,466,000 17,351,000
============ ============
Diluted 18,072,000 17,733,000
============ ============
3
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
----------------------------------------
Condensed Consolidated Statements of Cash Flows
-----------------------------------------------
(Unaudited)
For the Three Months Ended
March 31
---------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 44,965,000 $ 2,866,000
Adjustments to reconcile net income to cash provided by (used for)
operating activities-
Provision for title losses and other claims 27,328,000 18,592,000
Depreciation and amortization 13,706,000 6,475,000
Minority interests in net income 7,753,000 311,000
Investment gain (Note 2) (32,449,000)
Other, net (2,287,000) (1,040,000)
Changes in assets and liabilities excluding effects of
company acquisitions and noncash transactions-
Claims paid, including assets acquired, net of recoveries (24,336,000) (16,953,000)
Net change in income tax accounts 28,829,000 (1,044,000)
(Increase) decrease in accounts and accrued income receivable (25,765,000) 1,753,000
Increase (decrease) in accounts payable and accrued liabilities 15,522,000 (13,874,000)
Decrease in deferred revenue (5,954,000) (1,344,000)
Other, net 5,495,000 (2,556,000)
------------ ------------
Cash provided by (used for) operating activities 52,807,000 (6,814,000)
------------ ------------
Cash flows from investing activities:
Net cash effect of company acquisitions (3,396,000) (10,884,000)
Net decrease in deposits with banks 2,601,000 2,116,000
Net increase in loans receivable (3,195,000) (2,275,000)
Purchases of debt and equity securities (15,625,000) (9,155,000)
Proceeds from sales of debt and equity securities 14,679,000 8,624,000
Proceeds from maturities of debt securities 5,594,000 6,504,000
Net decrease in other investments 1,001,000 369,000
Capital expenditures (21,539,000) (16,448,000)
Proceeds from sale of property and equipment 204,000 548,000
------------ ------------
Cash used for investing activities (19,676,000) (20,601,000)
------------ ------------
Cash flows from financing activities:
Net change in demand deposits (482,000) 3,213,000
Repayment of debt (4,954,000) (6,742,000)
Proceeds from exercise of stock options 1,007,000 (268,000)
Proceeds from issuance of stock to employee savings plan 4,096,000
Cash dividends (2,642,000) (2,088,000)
------------ ------------
Cash used for financing activities (2,975,000) (5,885,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 30,156,000 (33,300,000)
Cash and cash equivalents - Beginning of year 181,531,000 173,439,000
------------ ------------
- End of first quarter $211,687,000 $140,139,000
============ ============
Supplemental information:
Cash paid during the first quarter for:
Interest $ 1,129,000 $ 1,056,000
Premium taxes $ 4,223,000 $ 6,505,000
Income taxes $ 5,097,000 $ 4,197,000
Noncash investing and financing activities:
Shares issued for stock bonus plan $ 2,623,000 $ 2,185,000
Liabilities incurred in connection with company acquisitions $ 66,078,000 $ 3,011,000
Net unrealized gain (loss) on securities $ 426,000 $ (845,000)
Company acquisitions in exchange for common stock $ 1,462,000
4
THE FIRST AMERICAN FINANCIAL 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 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, 1997. Certain 1997 interim amounts have
been reclassified to conform with the 1998 presentation.
Note 2 - Business Combinations
- ------------------------------
On January 1, 1998, the Company formed a limited liability corporation (LLC)
with Experian Group (Experian). The purpose of the LLC is to combine certain
operations of the Company's subsidiary, First American Real Estate Information
Services, Inc., with Experian's Real Estate Solutions division (RES). The LLC
is 80% owned by the Company and 20% owned by Experian. RES is a supplier of
core real estate data, providing, among other things, property valuation
information, title and tax information and imaged title documents. This
business combination has been accounted for under the purchase method of
accounting, and accordingly, the purchase price was allocated to the assets
acquired and liabilities assumed based on the estimated fair values at January
1, 1998. In addition, as a result of the transaction, the Company recognized an
investment gain of $32.4 million in the first quarter 1998. The operating
results of the LLC are included in the Company's consolidated financial
statements commencing January 1, 1998. Assuming the combination had occurred
January 1, 1997, pro forma revenues, net income, net income per diluted share
would have been $404.9 million, $2.1 million and $.12, respectively, for the
three months ended March 31, 1997. Pro forma results for the current period are
not presented because the combination occurred January 1, 1998.
In addition, during the three months ended March 31, 1998, the Company also
acquired 2 companies in the title insurance business for an aggregate of $0.3
million in cash, $0.7 million in notes and 86,000 shares of the Company's common
stock. These acquisitions were individually not material. Each of these
acquisitions was accounted for under the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on estimated fair values. As a result of the
acquisitions, the Company recorded approximately $1.7 million in goodwill.
Goodwill is amortized on a straight-line basis over its estimated useful life of
20-30 years. The operating results of the acquired companies were included in
the Company's consolidated financial statements from their respective
acquisitions dates. Assuming these acquisitions had occurred January 1, 1997,
pro forma revenues, net income, net income per diluted share would have been
$606.3 million, $45.0 million and $2.49 respectively, for the three months ended
March 31, 1998, and $406.3 million, $2.2 million and $.13, respectively, for
the three months ended March 31, 1997 (the 1997 pro forma results include the
business combination mentioned above). All pro forma results include
amortization of goodwill and interest expense on acquisition debt. The pro forma
results are not necessarily indicative of the operating results that would have
been obtained had the acquisitions occurred at the beginning of the periods
presented, nor are they necessarily indicative of future operating results.
Note 3 - Other Comprehensive Income
- -----------------------------------
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
the reporting of comprehensive income in addition to net income. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Currently, the only comprehensive
income item that affects the Company is unrealized gains and losses on debt and
equity securities.
The Company reported net unrealized gains of $0.4 million and net unrealized
losses of $0.8 million for the three month period ended March 31, 1998 and 1997,
respectively. Accordingly, comprehensive income for the two respective periods
was $45.4 million and $2.0 million.
Note 4 - Subsequent Events
- --------------------------
On March 31, 1998, the Company entered into an agreement to acquire Data Tree
Corporation, a California company in the business of providing database
management and document imaging systems to county recorders, governmental
agencies and the title industry. This transaction is expected to close during
the second quarter 1998 and will be accounted for using the purchase method of
accounting.
On April 7, 1998, the Company issued and sold $100.0 million of 7.55%
debentures, due April 1, 2028. The 30-year bonds were issued at 99.456% of the
principal amount. Net proceeds will be used for general corporate purposes,
including, without limitation, repayment of certain debt and the financing of
the construction of new corporate facilities.
On April 16, 1998, the Company acquired California-based Contour Software, a
supplier of mortgage origination software and services to the mortgage loan
industry. This acquisition was not material and will be reflected in the
Company's second quarter 1998 financial statements and will be accounted for
using the pooling of interests method of accounting.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
Any statements in this document looking forward in time involve risks and
uncertainties, including but not limited to the following risks: the effect of
interest rate fluctuations; changes in the performance of the real estate
markets; the effect of changing economic conditions; the demand for and the
acceptance of the Company's products; and contingencies associated with the Year
2000 issue.
RESULTS OF OPERATIONS
Three months ended March 31:
OVERVIEW
Low mortgage interest rates and an improving national real estate economy
resulted in relatively strong revenues for the first quarter 1997. However,
first quarter 1997 profits were adversely affected by the need for title
operations to increase staffing levels in order to service the substantial
increase in residential orders which subsequently closed in the second quarter
1997. Furthermore, the Company's information services operations experienced
higher overhead in the quarter as they integrated acquisitions and transitioned
new accounts to their systems. Favorable real estate conditions continued
throughout 1997 and, coupled with market share increases in all of the Company's
primary business segments, culminated in the best year overall in the Company's
history. Starting in the fourth quarter 1997 and into the first quarter 1998,
lower mortgage interest rates and higher consumer confidence lead to
record-setting residential resale activity as well as a substantial increase in
refinance transactions nationwide. This, coupled with the particularly strong
California real estate market, contributed to record-setting revenues, net
income and net income per share for the first quarter 1998. Net income and net
income per diluted share for the first quarter 1998 (excluding an investment
gain of $19.6 million on an after-tax basis) was $25.4 million and $1.40,
respectively. See Note 2 to the condensed consolidated financial statements for
a description of the investment gain.
OPERATING REVENUES
Set forth below is a summary of operating revenues for each of the Company's
segments.
Three Months Ended
March 31
-------------------------------
($000)
1998 % 1997 %
-------- --- -------- ---
Title Insurance:
Direct operations $225,719 40 $147,674 39
Agency operations 176,536 32 152,106 40
-------- --- --------- ---
402,255 72 299,780 79
Real Estate Information 140,360 25 62,047 17
Home Warranty 13,173 2 10,068 3
Trust and Banking 5,826 1 4,530 1
-------- --- -------- ---
Total $561,614 100 $376,425 100
======== === ======== ===
Title Insurance. Operating revenues from direct title operations increased
52.8% 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 as well as an increase in the average revenues
per order closed. The Company's direct operations closed 260,600 title orders
during the current quarter, an increase of 43.6% when compared with 181,500
title orders closed during the same period of the prior year. This increase was
primarily due to the factors mentioned above, primarily the strong real estate
market in California, a state heavily concentrated with direct operations, as
well as an increase in the Company's national market share. The average revenues
per order closed were $866 for the current three month period, as compared with
$814 for the same period of the prior year. This increase was primarily due to
appreciating residential real estate values. Operating revenues from agency
operations increased 16.1% when compared with the same period of the prior year.
This increase was primarily due to the same factors affecting direct operations
mentioned above, offset in part by the inherent delay in reporting by agents.
6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
Real Estate Information. Real estate information operating revenues increased
126.2% 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, as well as $38.2 million of operating revenues contributed by
new acquisitions.
Home Warranty. Home warranty operating revenues increased 30.8% when compared
with the same period of the prior year. This increase was primarily
attributable to improvements in the residential resale markets in which this
business segment operates.
INVESTMENT AND OTHER INCOME
Investment and other income totaled $43.4 million and $6.5 million for the first
quarter 1998 and 1997, respectively. The increase of $36.9 was primarily
attributable to an investment gain of $32.4 million relating to the joint
venture agreement with Experian (see Note 2 to the condensed consolidated
financial statements), other investment gains of $3.4 million, and $1.0 million
increase in equity in earnings of unconsolidated subsidiaries.
TOTAL OPERATING EXPENSES
Title Insurance. Salaries and other personnel costs were $144.9 million, an
increase of 33.2% when compared with the same period of the prior year. This
increase was primarily due to costs incurred servicing the record-setting number
of orders opened during the period, offset in part by personnel efficiencies.
The Company's direct operations opened 397,800 title orders during the current
period, an increase of 53.9% when compared with the same period of the prior
year.
Agents retained $140.0 million, or 79.3%, and $122.2 million, or 80.3%, of the
title premiums generated by agency operations for the first quarter 1998 and
1997, 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 $68.0 million, an increase of 28.1% when compared
with the same period of the prior year. This increase was primarily
attributable to the impact of certain incremental costs associated with
processing the record-setting title order volume, as well as marginal price
level increases.
The provision for title losses as a percentage of title insurance operating
revenues was 3.9% for the current period and 3.8% for the same period of the
prior year. This relatively constant loss percentage was due to stable claims
experience.
Premium taxes for title insurance were $4.0 million for both the first quarter
1998 and 1997. Expressed as a percentage of title insurance operating revenues,
premium taxes were 1.0% for the first quarter 1998 and 1.3% for the first
quarter 1997. The decrease in percentage was primarily due to changes in the
geographical mix of title insurance operating revenues, as well as changes in
the Company's non-insurance title subsidiaries' contribution to revenues.
Real Estate Information. Real estate information personnel and other operating
expenses were $105.8 million, an increase of 110.1% when compared with the same
period of the prior year. This increase was primarily due to $33.2 million of
costs associated with new acquisitions, costs incurred servicing the increased
business volume and slightly higher overhead costs attributable to the
integration of the new acquisitions.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
Home Warranty. Home warranty personnel and other operating expenses were $4.2
million, an increase of 29.6% when compared with the same period of the prior
year. This increase was primarily attributable to costs incurred servicing the
increased business volume and expansion into other states. The provision for
home warranty losses expressed as a percentage of home warranty operating
revenues was 51.4% and 58.2% for the first quarter 1998 and 1997, respectively.
The decrease in loss ratio was primarily due to a decrease in the average number
of claims per contract.
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
Set forth below is a summary of income before income taxes and minority
interests for each of the Company's segments.
Three Months Ended
March 31
--------------------------------
($000)
1998 % 1997 %
------- --- ------- ---
Title Insurance $30,261 52 $ (57) (1)
Real Estate Information 23,535 40 7,823 76
Home Warranty 3,026 5 1,636 16
Trust and Banking 1,588 3 915 9
------- --- ------- ---
Total before corporate 58,410 100 10,317 100
=== ===
Corporate 23,708 (5,240)
------- -------
Total $82,118 $ 5,077
======= =======
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 as the volume of residential real estate loan transactions
increase. Included in corporate for the three months ended March 31, 1998 was an
investment gain of $32.4 million (See Note 2 to the condensed consolidated
financial statements).
INCOME TAXES
The effective income tax rate was 35.8% for the current quarter and 37.4% 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 income before
income taxes.
MINORITY INTERESTS
Minority interest expense was $7.8 million and $0.3 million for the first
quarter 1998 and 1997, respectively. The increase of $7.5 million was primarily
attributable to the strong operating results of the Company's recently formed
80% joint venture with Experian, as well as the strong operating results of
other less than 100% owned subsidiaries
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations (Continued)
-------------------------
NET INCOME
Net income for the current quarter was $45.0 million, or $2.49 per diluted
share, which included an investment gain of $32.4 million, or $1.09 per diluted
share, compared with net income of $2.9 million, or $0.16 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents increased $30.2 million for the three months
ended March 31, 1998, and decreased $33.3 million for the same period of the
prior year. The increase for the current period was primarily due to cash
generated by operating activities, offset in part by capital expenditures and
repayment of debt. The decrease for the prior year period was primarily
attributable to cash used for operating activities, capital expenditures and
repayment of debt.
Notes and contracts payable as a percentage of total capitalization decreased to
5.9% at March 31, 1998, from 7.3% at December 31, 1997. The decrease was
primarily attributable to net income for the period and an increase in minority
interest in consolidated subsidiaries (primarily due to the joint venture with
Experian).
The Company's management has initiated a program to evaluate the Year 2000 issue
as it relates to its internal computer systems and third party computer systems
with which the Company interacts. The Company is currently in the inventory and
assessment phase of the program, with the remaining phases (renovation, testing
and implementation) expected to be completed by midyear 1999. The Company has
incurred to date nominal costs related to this issue. The majority of the costs
are expected to be incurred in the final three phases of the program. These
costs, which include internal staff costs as well as consulting and other
expenses, will be expensed as incurred. At this time, the Company is unable to
reasonably estimate the total costs for the Year 2000 issue.
On April 7, 1998, the Company issued and sold $100.0 million of 7.55% senior
debentures, due April 1, 2028. The 30-year bonds were issued at 99.456% of the
principal amount. Net proceeds will be used for general corporate purposes,
including, without limitation, repayment of certain debt and the financing of
the construction of new corporate facilities.
Management believes that all of its anticipated cash requirements for the
immediate future will be met from internally generated funds and proceeds from
the issuance and sale of its 30-year bonds.
9
Part II: Other Information
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The annual meeting of shareholders (the "Meeting") of The First
American Financial Corporation (the "Company") was held on
Thursday, April 23, 1998.
(b) The names of the persons who were nominated to serve as directors
of the Company for the ensuing year are listed below, together with
a tabulation of the results of the voting with respect to each
nominee. Each of the persons named was nominated by management of
the Company and all such nominees were elected.
Name of Nominee Votes For Votes Withheld
--------------- --------- --------------
George L. Argyros 13,117,545 166,772
Gary J. Beban 13,124,129 160,188
J. David Chatham 13,124,134 160,183
William G. Davis 13,123,593 160,724
James L. Doti 13,123,279 161,038
Lewis W. Douglas, Jr. 13,099,469 184,848
Paul B. Fay, Jr. 13,098,509 185,808
Dale F. Frey 13,125,084 159,233
D. P. Kennedy 13,123,346 160,971
Parker S. Kennedy 13,122,961 161,356
Anthony R. Moiso 13,124,408 159,909
R. J. Munzer 13,088,940 195,377
Frank E. O'Bryan 11,696,790 1,587,527
Roslyn B. Payne 13,105,818 178,499
D. Van Skilling 13,124,554 159,763
Virginia M. Ueberroth 13,124,408 159,909
(c) At the Meeting, the proposal to amend the Company's 1996 Stock
Option Plan (to increase by 1,000,000 the number of Common shares
available for grant thereunder) was approved by the holders of a
majority of the Company's Common shares represented at the Meeting
and entitled to vote.
Votes For Votes Against Votes Withheld Broker Nonvotes
--------- ------------- -------------- ---------------
7,342,100 3,343,215 107,741 2,491,261
No other matters were voted upon at the Meeting or during the
quarter for which this report is filed.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
(2) Agreement and Plan of Merger, dated as of March 27, 1998, by
and among The First American Financial Corporation, Image
Acquisition Corp., Data Tree Corporation and Harish Chopra,
incorporated by reference herein from Exhibit 2.1 of
Registration Statement on Form S-4 dated May 7, 1998.
10
Item 6. Exhibits and Reports on Form 8-K (Continued).
---------------------------------------------
(10)(a) Contribution and Joint Venture Agreement By and Among The
First American Financial Corporation and Experian
Information Solutions, Inc., et al., dated November 30,
1997, incorporated by reference herein from Exhibit (10)(a)
from Quarterly Report on Form 10Q for the quarter ended
March 31, 1998.
(10)(b) Operating Agreement for First American Real Estate
Solutions LLC, a California Limited Liability Company, By
and Among The First American Real Estate Information
Services, Inc. and Experian Information Solutions, Inc., et
al., dated November 30, 1997, incorporated by reference
herein from Exhibit (10)(b) from Quarterly Report on Form
10Q for the quarter ended March 31, 1998.
(10)(c) FAREISI Transition Agreement, incorporated by reference
herein from Exhibit (10)(c) from Quarterly Report on Form
10Q for the quarter ended March 31, 1998.
(10)(d) Data License Agreement, incorporated by reference herein
from Exhibit (10)(d) from Quarterly Report on Form 10Q for
the quarter ended March 31, 1998.
(10)(e) Interim Operating Agreement By and Among The First American
Financial Corporation and Experian Information Solutions,
Inc., et al., dated November 30, 1997, incorporated by
reference herein from Exhibit (10)(e) from Quarterly Report
on Form 10Q for the quarter ended March 31, 1998.
(10)(f) Experian Transition Agreement, incorporated by reference
herein from Exhibit (10)(f) from Quarterly Report on Form
10Q for the quarter ended March 31, 1998.
(10)(g) Reseller Services Agreement, incorporated by reference
herein from Exhibit (10)(g) from Quarterly Report on Form
10Q for the quarter ended March 31, 1998.
(10)(h) Amendment to Reseller Services Agreement For Resales to
Consumers, incorporated by reference herein from Exhibit
(10)(h) from Quarterly Report on Form 10Q for the quarter
ended March 31, 1998.
(10)(i) Trademark License Agreement, incorporated by reference
herein from Exhibit (10)(i) from Quarterly Report on Form
10Q for the quarter ended March 31, 1998.
(10)(j) Amendment to Section 5.1 of The First American Financial
Corporation 1996 Stock Option Plan, incorporated by
reference herein from definitive Proxy Statement dated
March 23, 1998.
(27) Financial Data Schedule, incorporated by reference herein
from Exhibit (27) from Quarterly Report on Form 10Q for
the quarter ended March 31, 1998.
(b) Reports on Form 8-K
During the quarterly period covered by this report, the
Company filed reports on Form 8-K dated January 23, 1998
(reporting on the declaration and payment of a "3 for 2"
stock split and amendment of the Company's articles of
incorporation to increase the authorized number of Common
shares in connection therewith), January 27, 1998
(reporting on the formation of a joint venture between the
Company and Experian Information Solutions, Inc.), March
18, 1998 (reporting on the Company's having entered into a
definitive agreement to acquire Contour Software, Inc.),
and March 31, 1998 (reporting on the Company's having
entered into a definitive agreement to acquire Data Tree
Corporation). Subsequent to such quarterly period, the
Company filed a report on Form 8-K dated April 7, 1998
(reporting on the Company's issuance of $100,000,000
aggregate principal amount of 7.55% senior debentures due
2028).
11
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
(2) Agreement and Plan of Merger, dated as of March 27, 1998, By and
Among The First American Financial Corporation, Image Acquisition
Corp., Data Tree Corporation and Harish Chopra, incorporated by
reference herein from Exhibit 2.1 of Registration Statement on
Form S-4 dated May 7, 1998, incorporated by reference herein from
Exhibit (2) from Quarterly Report on Form 10Q for the quarter
ended March 31, 1998.
(10)(a) Contribution and Joint Venture Agreement By and Among The First
American Financial Corporation and Experian Information
Solutions, Inc., et al., dated November 30, 1997, incorporated
by reference herein from Exhibit (10)(a) from Quarterly Report on
Form 10Q for the quarter ended March 31, 1998.
(10)(b) Operating Agreement for First American Real Estate Solutions LLC,
a California Limited Liability Company, By and Among The First
American Real Estate Information Services, Inc. and Experian
Information Solutions, Inc., et al., dated November 30, 1997,
incorporated by reference herein from Exhibit (10)(b) from
Quarterly Report on Form 10Q for the quarter ended March 31,
1998.
(10)(c) FAREISI Transition Agreement, incorporated by reference herein
from Exhibit (10)(c) from Quarterly Report on Form 10Q for the
quarter ended March 31, 1998.
(10)(d) Data License Agreement, incorporated by reference herein from
Exhibit (10)(d) from Quarterly Report on Form 10Q for the quarter
ended March 31, 1998.
(10)(e) Interim Operating Agreement By and Among The First American
Financial Corporation and Experian Information Solutions, Inc.,
et al., dated November 30, 1997, incorporated by reference herein
from Exhibit (10)(e) from Quarterly Report on Form 10Q for the
quarter ended March 31, 1998.
(10)(f) Experian Transition Agreement, incorporated by reference herein
from Exhibit (10)(f) from Quarterly Report on Form 10Q for the
quarter ended March 31, 1998.
(10)(g) Reseller Services Agreement, incorporated by reference herein
from Exhibit (10)(g) from Quarterly Report on Form 10Q for the
quarter ended March 31, 1998.
(10)(h) Amendment to Reseller Services Agreement For Resales to
Consumers, incorporated by reference herein from Exhibit (10)(h)
from Quarterly Report on Form 10Q for the quarter ended March 31,
1998.
(10)(i) Trademark License Agreement, incorporated by reference herein
from Exhibit (10)(i) from Quarterly Report on Form 10Q for the
quarter ended March 31, 1998.
(10)(j) Amendment to Section 5.1 of The First American Financial
Corporation 1996 Stock Option Plan, incorporated by reference
herein from definitive Proxy Statement dated March 23, 1998,
incorporated by reference herein from Exhibit (10)(j) from
Quarterly Report on Form 10Q for the quarter ended March 31,
1998.
(27) Financial Data Schedule, incorporated by reference herein from
Exhibit (27) from Quarterly Report on Form 10Q for the quarter
ended March 31, 1998.
12