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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 June 30, 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 – 88,584,921 shares as of August 3, 2004

 

Table of Contents

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
     Item 4.    Controls and Procedures
Part II:    Other Information
     Item 1.    Legal Proceedings
     Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Securities
     Item 4.    Submission of Matters to a Vote of Security Holders
     Item 6.    Exhibits and Reports on Form 8-K
          Items 3 and 5 have been omitted because they are not applicable with respect to the current reporting period.

 

CERTAIN STATEMENTS MADE IN THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING THOSE RELATING TO ANTICIPATED CASH REQUIREMENTS, ROUTINE LEGAL PROCEEDINGS AND THE NEW YORK CLASS ACTION 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; 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, 2003, 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.

 

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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)

(unaudited)

 

     June 30, 2004
     December 31, 2003
  
     ($000)     ($000)  

Assets

                 

Cash and cash equivalents

    $ 1,026,786     $ 1,113,530  
    
 

Accounts and accrued income receivable, net

      444,771       347,035  
    
 

Investments:

                 

Deposits with savings and loan associations and banks

      80,067       57,945  

Debt securities

      359,149       350,475  

Equity securities

      42,898       45,758  

Other long-term investments

      254,550       233,794  
    
 
       736,664       687,972  
    
 

Loans receivable, net

      108,012       105,228  
    
 

Property and equipment, at cost:

                 

Land

      45,636       43,327  

Buildings

      216,014       187,167  

Furniture and equipment

      326,080       286,337  

Capitalized software

      400,902       364,658  
    
 
       988,632       881,489  

Less-accumulated depreciation and amortization

      (466,032 )     (403,473 )
    
 
       522,600       478,016  
    
 

Title plants and other indexes

      453,576       426,086  
    
 

Deferred income taxes

      123,407       141,622  
    
 

Goodwill, net

      1,465,318       1,253,080  
    
 

Other assets

      417,950       339,542  
    
 
     $ 5,299,084     $ 4,892,111  
    
 

Liabilities and Stockholders’ Equity

                 

Demand deposits

    $ 69,292     $ 76,580  
    
 

Accounts payable and accrued liabilities

      748,834       819,015  
    
 

Deferred revenue

      763,365       719,503  
    
 

Reserve for known and incurred but not reported claims

      471,047       435,852  
    
 

Income taxes payable

      85,644       4,017  
    
 

Notes and contracts payable

      452,408       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

      318,402       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 – 88,885,000 and 78,826,000 shares

      88,885       78,826  

Additional paid-in capital

      726,782       463,610  

Retained earnings

      1,545,879       1,399,940  

Accumulated other comprehensive loss

      (71,454 )     (62,856 )
    
 
       2,290,092       1,879,520  
    
 
     $ 5,299,084     $ 4,892,111  
    
 

 

See notes to condensed consolidated financial statements.

 

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Table of Contents

THE FIRST AMERICAN CORPORATION

AND SUBSIDIARY COMPANIES

 

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share amounts)

(unaudited)

 

     For the Three Months Ended
June 30
     For the Six Months Ended
June 30
  
     2004
     2003
     2004
     2003
  

Revenues

                                 

Operating revenues

    $ 1,685,098     $ 1,503,352     $ 3,130,631     $ 2,798,310  

Investment and other income

      36,237       37,992       63,144       72,464  

Net realized investment gains

      2,718       1,587       4,049       14,132  
    
 
 
 
       1,724,053       1,542,931       3,197,824       2,884,906  
    
 
 
 

Expenses

                                 

Salaries and other personnel costs

      534,622       439,769       1,008,397       846,986  

Premiums retained by agents

      458,502       408,784       882,736       774,493  

Other operating expenses

      372,438       327,804       713,277       621,191  

Provision for policy losses and other claims

      85,686       79,403       157,107       146,642  

Depreciation and amortization

      31,326       26,555       60,696       52,570  

Premium taxes

      13,090       12,010       25,630       22,466  

Interest

      9,198       8,853       19,660       17,312  
    
 
 
 
       1,504,862       1,303,178       2,867,503       2,481,660  
    
 
 
 

Income before income taxes and minority interests

      219,191       239,753       330,321       403,246  

Income taxes

      79,300       83,100       116,700       139,100  
    
 
 
 

Income before minority interests

      139,891       156,653       213,621       264,146  

Minority interests

      23,365       29,177       42,139       49,090  
    
 
 
 

Net income

      116,526       127,476       171,482       215,056  
    
 
 
 

Other comprehensive income, net of tax

                                 

Unrealized gain (loss) on securities

      (7,585 )     3,653       (5,998 )     3,220  

Minimum pension liability adjustment

      (650 )     (1,950 )     (2,600 )     (5,050 )
    
 
 
 
       (8,235 )     1,703       (8,598 )     (1,830 )
    
 
 
 

Comprehensive income

    $ 108,291     $ 129,179     $ 162,884     $ 213,226  
    
 
 
 

Net income per share (Note 2):

                                 

Basic

    $ 1.32     $ 1.67     $ 2.05     $ 2.86  
    
 
 
 

Diluted

    $ 1.27     $ 1.47     $ 1.90     $ 2.53  
    
 
 
 

Cash dividends per share

    $ .15     $ .10     $ .30     $ .20  
    
 
 
 

Weighted average number of shares (Note 2):

                                 

Basic

      88,071       76,420       83,697       75,289