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, 2005
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 001-13585
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.
On May 2, 2005, there were 94,432,251 shares of Common stock outstanding.
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 | 13 | ||
| Item 4. | Controls and Procedures | 13 | ||
| Part II: | Other Information | |||
| Item 1. | Legal Proceedings | 13 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 14 | ||
| Item 6. | Exhibits | 14 | ||
| Items 3 through 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 THE COMPANY’S OWNERSHIP IN FIRST ADVANTAGE CORPORATION AFTER THE CONTRIBUTION OF ITS CREDIT INFORMATION GROUP, PENSION PLAN CONTRIBUTIONS, CASH REQUIREMENTS, THE MICHIGAN CLASS ACTION AND ROUTINE LEGAL PROCEEDINGS ARE FORWARD LOOKING. RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE: INTEREST RATE FLUCTUATIONS; CHANGES IN THE PERFORMANCE OF THE REAL ESTATE MARKETS; LIMITATIONS ON ACCESS TO PUBLIC RECORDS AND OTHER DATA; GENERAL VOLATILITY IN THE CAPITAL MARKETS; CHANGES IN APPLICABLE GOVERNMENT REGULATIONS; 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, 2004, 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.
2
Part I: Financial Information
| Item 1: | Financial Statements |
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheets
(in thousands except par value)
| March 31, 2005 |
December 31, 2004 |
|||||||
| ($000) | ($000) | |||||||
| (unaudited) | ||||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 1,431,485 | $ | 1,336,643 | ||||
| Accounts and accrued income receivable, net |
469,645 | 438,365 | ||||||
| Income taxes receivable |
— | 34,074 | ||||||
| Investments: |
||||||||
| Deposits with savings and loan associations and banks |
106,767 | 94,445 | ||||||
| Debt securities |
786,637 | 705,674 | ||||||
| Equity securities |
46,518 | 46,190 | ||||||
| Other long-term investments |
317,534 | 305,571 | ||||||
| 1,257,456 | 1,151,880 | |||||||
| Loans receivable, net |
96,882 | 101,341 | ||||||
| Property and equipment, net |
605,560 | 593,401 | ||||||
| Title plants and other indexes |
506,804 | 497,430 | ||||||
| Deferred income taxes |
42,290 | 39,886 | ||||||
| Goodwill, net |
1,713,802 | 1,605,879 | ||||||
| Other assets |
419,278 | 409,466 | ||||||
| $ | 6,543,202 | $ | 6,208,365 | |||||
| Liabilities and Stockholders’ Equity |
||||||||
| Demand deposits |
$ | 614,294 | $ | 399,429 | ||||
| Accounts payable and accrued liabilities |
737,500 | 883,761 | ||||||
| Deferred revenue |
724,001 | 729,537 | ||||||
| Reserve for known and incurred but not reported claims |
566,293 | 526,516 | ||||||
| Income taxes payable |
3,704 | — | ||||||
| Notes and contracts payable |
741,625 | 732,770 | ||||||
| Deferrable interest subordinated notes |
100,000 | 100,000 | ||||||
| Minority interests in consolidated subsidiaries |
383,046 | 372,788 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $1 par value Authorized - 500 shares; outstanding - none |
||||||||
| Common stock, $1 par value: |
||||||||
| Authorized - 180,000 shares Outstanding – 94,748 and 90,058 shares |
94,748 | 90,058 | ||||||
| Additional paid-in capital |
907,132 | 757,931 | ||||||
| Retained earnings |
1,758,740 | 1,696,636 | ||||||
| Accumulated other comprehensive loss |
(87,881 | ) | (81,061 | ) | ||||
| 2,672,739 | 2,463,564 | |||||||
| $ | 6,543,202 | $ | 6,208,365 | |||||
See notes to condensed consolidated financial statements.
3
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, |
||||||||
| 2005 |
2004 |
|||||||
| (unaudited) | ||||||||
| Revenues |
||||||||
| Operating revenues |
$ | 1,663,558 | $ | 1,445,533 | ||||
| Investment and other income |
39,304 | 26,907 | ||||||
| Net realized investment gains |
1,622 | 1,331 | ||||||
| 1,704,484 | 1,473,771 | |||||||
| Expenses |
||||||||
| Salaries and other personnel costs |
548,485 | 473,775 | ||||||
| Premiums retained by agents |
485,959 | 424,234 | ||||||
| Other operating expenses |
363,573 | 340,839 | ||||||
| Provision for policy losses and other claims |
90,777 | 71,421 | ||||||
| Depreciation and amortization |
35,747 | 29,370 | ||||||
| Premium taxes |
13,530 | 12,540 | ||||||
| Interest |
12,711 | 10,462 | ||||||
| 1,550,782 | 1,362,641 | |||||||
| Income before income taxes and minority interests |
153,702 | 111,130 | ||||||
| Income taxes |
53,800 | 37,400 | ||||||
| Income before minority interests |
99,902 | 73,730 | ||||||
| Minority interests |
20,740 | 18,774 | ||||||
| Net income |
79,162 | 54,956 | ||||||
| Other comprehensive income, net of tax |
||||||||
| Unrealized (loss) gain on securities |
(6,159 | ) | 1,587 | |||||
| Minimum pension liability adjustment |
(661 | ) | (1,950 | ) | ||||
| (6,820 | ) | (363 | ) | |||||
| Comprehensive income |
$ | 72,342 | $ | 54,593 | ||||
| Net income per share: |
||||||||
| Basic |
$ | 0.86 | $ | 0.69 | ||||
| Diluted |
$ | 0.83 | $ | 0.62 | ||||
| Cash dividends per share |
$ | 0.18 | $ | 0.15 | ||||
| Weighted average number of shares: |
||||||||
| Basic |
91,574 | 79,323 | ||||||
| Diluted |
95,131 | 90,652 | ||||||
See notes to condensed consolidated financial statements.
4
THE FIRST AMERICAN CORPORATION
AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
| For the Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 79,162 | $ | 54,956 | ||||
| Adjustments to reconcile net income to cash provided by operating activities- |
||||||||
| Provision for policy losses and other claims |
90,777 | 71,421 | ||||||
| Depreciation and amortization |
35,747 | 29,370 | ||||||
| Minority interests in net income |
20,740 | 18,774 | ||||||
| Net realized investment gains |
(1,622 | ) | (1,331 | ) | ||||
| Other, net |
(10,731 | ) | (8,680 | ) | ||||
| Changes in assets and liabilities excluding effects of company acquisitions and noncash transactions- |
||||||||
| Claims paid, net of recoveries |
(84,574 | ) | (66,288 | ) | ||||
| Net change in income tax accounts |
44,697 | 31,554 | ||||||
| Increase in accounts and accrued income receivable |
(25,170 | ) | (53,789 | ) | ||||
| Decrease in accounts payable and accrued liabilities |
(92,942 | ) | (65,909 | ) | ||||
| (Decrease) increase in deferred revenue |
(5,536 | ) | 7,452 | |||||
| Other, net |
5,918 | 9,005 | ||||||
| Cash provided by operating activities |
56,466 | 26,535 | ||||||
| Cash flows from investing activities: |
||||||||
| Net cash effect of company acquisitions/dispositions |
(59,937 | ) | (28,721 | ) | ||||
| Net decrease (increase) in deposits with banks |
4,105 | (12,452 | ) | |||||
| Net decrease (increase) in loans receivable |
4,459 | (2,200 | ) | |||||
| Purchases of debt and equity securities |
(105,022 | ) | (20,279 | ) | ||||
| Proceeds from sales of debt and equity securities |
6,699 | 49,010 | ||||||
| Proceeds from maturities of debt securities |
23,337 | 4,408 | ||||||
| Net decrease in other investments |
19,688 | 5,611 | ||||||
| Capital expenditures |
(46,355 | ) | (35,557 | ) | ||||
| Purchases of capitalized data |
(4,925 | ) | (4,169 | ) | ||||
| Proceeds from sale of property and equipment |
3,437 | 905 | ||||||
| Cash used for investing activities |
(154,514 | ) | (43,444 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net change in demand deposits |
214,865 | 37,043 | ||||||
| Proceeds from issuance of debt |
< | |||||||