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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2004

 

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 CORPORATION

(Exact name of registrant as specified in its charter)

 

Incorporated in California   95-1068610
(State or other jurisdiction of incorporation
or organization)		   (I.R.S. Employer
Identification No.)

 

1 First American Way, Santa Ana, California   92707-5913
(Address of principal executive offices)   (Zip Code)

 

(714) 800-3000

(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 ¨

 

Indicate by check mark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

 

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 - 88,960,577 shares as of April 28, 2004

 

Table of Contents

INFORMATION INCLUDED IN REPORT

 

Part I:

    Financial Information     

Item 1.

    Financial Statements     
     A. Condensed Consolidated Balance Sheets    3
     B. Condensed Consolidated Statements of Income and Comprehensive Income    4
     C. Condensed Consolidated Statements of Cash Flows    5
     D. Notes to Condensed Consolidated Financial Statements    6

Item 2.

    Management’s Discussion and Analysis of Financial Condition and Results of Operations    10

Item 3.

    Quantitative and Qualitative Disclosures About Market Risk    14

Item 4.

    Controls and Procedures    14

Part II:

    Other Information    15

Item 6.

    Exhibits and Reports on Form 8-K    15
     Items 1 – 5 have been omitted because they are not applicable with respect to the current reporting period.     

 

2

Table of Contents
Part 1: Financial Information

 

Item 1: Financial Statements

 

THE FIRST AMERICAN CORPORATION

AND SUBSIDIARY COMPANIES

 

Condensed Consolidated Balance Sheets

(in thousands, except percentage and share data)

 

     March 31, 2004
     December 31, 2003
  
     ($000)     ($000)  
     (unaudited)        

Assets

                 

Cash and cash equivalents

    $ 1,095,653     $ 1,113,530  
    
 

Accounts and accrued income receivable, net

      406,834       347,035  
    
 

Investments:

                 

Deposits with savings and loan associations and banks

      70,397       57,945  

Debt securities

      314,110       350,475  

Equity securities

      44,426       45,758  

Other long-term investments

      239,673       233,794  
    
 
       668,606       687,972  
    
 

Loans receivable, net

      107,428       105,228  
    
 

Property and equipment, at cost:

                 

Land

      43,315       43,327  

Buildings

      194,246       187,167  

Furniture and equipment

      288,175       286,337  

Capitalized software

      378,308       364,658  
    
 
       904,044       881,489  

Less-accumulated depreciation and amortization

      (416,879 )     (403,473 )
    
 
       487,165       478,016  
    
 

Title plants and other indexes

      436,527       426,086  
    
 

Deferred income taxes

      141,088       141,622  
    
 

Goodwill, net

      1,295,498       1,253,080  
    
 

Other assets

      331,508       339,542  
    
 
     $ 4,970,307     $ 4,892,111  
    
 

Liabilities and Stockholders’ Equity

                 

Demand deposits

    $ 73,592     $ 76,580  
    
 

Accounts payable and accrued liabilities

      714,552       819,015  
    
 

Deferred revenue

      727,312       719,503  
    
 

Reserve for known and incurred but not reported claims

      441,116       435,852  
    
 

Income taxes payable

      33,156       4,017  
    
 

Notes and contracts payable

      566,030       553,888  
    
 

Mandatorily redeemable preferred securities of the Company’s subsidiary trust whose sole assets are the Company’s $100,000 8.5% deferrable interest subordinated notes due 2012

      100,000       100,000  
    
 

Minority interests in consolidated subsidiaries

      324,700       303,736  
    
 

Commitments and contingencies

                 

Stockholders’ equity:

                 

Preferred stock, $1 par value Authorized - 500,000 shares; outstanding - none

                 

Common stock, $1 par value

Authorized - 180,000,000 shares

Outstanding - 81,446,000 and 78,826,000 shares

      81,446       78,826  

Additional paid-in capital

      528,943       463,610  

Retained earnings

      1,442,679       1,399,940  

Accumulated other comprehensive loss

      (63,219 )     (62,856 )
    
 
       1,989,849       1,879,520  
    
 
     $ 4,970,307     $ 4,892,111  
    
 

 

See notes to condensed consolidated financial statements.

 

3

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THE FIRST AMERICAN CORPORATION

AND SUBSIDIARY COMPANIES

 

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share amounts)

 

     For the Three Months Ended
March 31
  
     2004
     2003
  
     (unaudited)  

Revenues

                 

Operating revenues

    $ 1,445,533     $ 1,294,958  

Investment and other income

      26,907       34,472  

Net realized investment gains

      1,331       12,545  
    
 
       1,473,771       1,341,975  
    
 

Expenses

                 

Salaries and other personnel costs

      473,775       407,217  

Premiums retained by agents

      424,234       365,709  

Other operating expenses

      340,839       293,387  

Provision for policy losses and other claims

      71,421       67,239  

Depreciation and amortization

      29,370       26,015  

Premium taxes

      12,540       10,456  

Interest

      10,462       8,459  
    
 
       1,362,641       1,178,482  
    
 

Income before income taxes and minority interests

      111,130       163,493  

Income taxes

      37,400       56,000  
    
 

Income before minority interests

      73,730       107,493  

Minority interests

      18,774       19,913  
    
 

Net income

      54,956       87,580  
    
 

Other comprehensive income, net of tax

                 

Unrealized gain (loss) on securities

      1,587       (433 )

Minimum pension liability adjustment

      (1,950 )     (3,100 )
    
 
       (363 )     (3,533 )
    
 

Comprehensive income

    $ 54,593     $ 84,047  
    
 

Net income per share (Note 2):

                 

Basic

    $ 0.69     $ 1.18  
    
 

Diluted

    $ 0.62     $ 1.05  
    
 

Cash dividends per share

    $ .15     $ .10  
    
 

Weighted average number of shares (Note 2):

                 

Basic

      79,323       74,159  
    
 

Diluted

      90,652       85,098  
    
 

 

See notes to condensed consolidated financial statements.

 

4

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THE FIRST AMERICAN CORPORATION

AND SUBSIDIARY COMPANIES

 

Condensed Consolidated Statements of Cash Flows

(in thousands)

 

     For the Three Months
Ended
March 31,
  
     2004
     2003
  
     (unaudited)  

Cash flows from operating activities:

                 

Net income

    $ 54,956     $ 87,580  

Adjustments to reconcile net income to cash provided by operating activities-

                 

Provision for policy losses and other claims

      71,421       67,239  

Depreciation and amortization

      29,370       26,015  

Minority interests in net income

      18,774       19,913  

Net realized investment gains

      (1,331 )     (12,545 )

Other, net

      (8,680 )     (15,343 )

Changes in assets and liabilities excluding effects of company acquisitions and noncash transactions-

                 

Claims paid, net of recoveries

      (66,288 )     (63,604 )

Net change in income tax accounts

      31,554       49,298  

Increase in accounts and accrued income receivable

      (53,789 )     (49,014 )

Decrease in accounts payable and accrued liabilities

      (65,909 )     (27,878 )

Increase in deferred revenue

      7,452       16,450  

Other, net

      9,005       (15,271 )
    
 

Cash provided by operating activities

      26,535       82,840  
    
 

Cash flows from investing activities:

                 

Net cash effect of company acquisitions/dispositions

      (28,721 )     (9,929 )

Net (increase) decrease in deposits with banks

      (12,452 )     12,224  

Net (increase) decrease in loans receivable

      (2,200 )     51  

Purchases of debt and equity securities

      (11,865 )     (59,904 )

Proceeds from sales of debt and equity securities

      49,010       37,547  

Proceeds from maturities of debt securities

      4,408       12,772  

Net decrease in other investments

      5,611       5,009  

Capital expenditures

      (35,557 )     (21,932 )

Purchases of capitalized data

      (4,169 )     (4,820 )

Proceeds from sale of property and equipment

      905       607  
    
 

Cash used for investing activities

      (35,030 )