-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0tlJrC8icWoG87t+4z+gnNE3aqrtvizNJn8Zl6g3Jc0jd7r6IFnxjpUw4dLqRZp w2XlMjhNVeO4HlDszwgsuQ== 0000898430-96-001786.txt : 19960514 0000898430-96-001786.hdr.sgml : 19960514 ACCESSION NUMBER: 0000898430-96-001786 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST AMERICAN FINANCIAL CORP CENTRAL INDEX KEY: 0000036047 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 951068610 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03658 FILM NUMBER: 96562046 BUSINESS ADDRESS: STREET 1: 114 E FIFTH ST CITY: SANTA ANA STATE: CA ZIP: 92701-4699 BUSINESS PHONE: 7145583211 MAIL ADDRESS: STREET 1: 114 E FIFTH STREET CITY: SANTA ANA STATE: CA ZIP: 92701 FORMER COMPANY: FORMER CONFORMED NAME: FIRST AMERICAN TITLE INSURANCE & TRUST C DATE OF NAME CHANGE: 19690515 10-Q 1 FORM 10-Q 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, 1996 -------------- 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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 - 11,452,283 as of May 6, 1996 INFORMATION INCLUDED IN REPORT ------------------------------ Part I: Financial Information Item 1. Financial Statements A. Condensed Consolidated Statements of Income B. Condensed Consolidated Balance Sheets 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: May 9, 1996 1 Part I: Financial Information --------------------- Item 1. Financial Statements -------------------- THE FIRST AMERICAN FINANCIAL CORPORATION AND SUBSIDIARY COMPANIES ------------------------ Condensed Consolidated Statements of Income ------------------------------------------- (Unaudited)
For the Three Months Ended March 31 --------------------------- 1996 1995 ------------ ------------- REVENUES Operating revenues $340,879,000 $256,288,000 Investment and other income 6,497,000 4,866,000 ------------ ------------- 347,376,000 261,154,000 ------------ ------------- EXPENSES Salaries and other personnel costs 120,240,000 100,050,000 Premiums retained by agents 109,872,000 93,395,000 Other operating expenses 73,464,000 59,287,000 Provision for title losses and other claims 18,975,000 21,306,000 Depreciation and amortization 4,449,000 4,211,000 Interest 1,229,000 1,613,000 Minority interests 620,000 (20,000) ------------ ------------- 328,849,000 279,842,000 ------------ ------------- Income before premium and income taxes 18,527,000 (18,688,000) Premium taxes 3,545,000 2,821,000 ------------ ------------- Income (loss) before income taxes 14,982,000 (21,509,000) Income taxes 6,400,000 (8,800,000) ------------ ------------- Net income (loss) $ 8,582,000 $(12,709,000) ============ ============= Net income (loss) per share $ .75 $ (1.11) ============ ============= Cash dividends per share $ .15 $ .15 ============ ============= WEIGHTED AVERAGE NUMBER OF SHAREs 11,428,000 11,401,000 ============ =============
2 THE FIRST AMERICAN FINANCIAL CORPORATION AND SUBSIDIARY COMPANIES ------------------------ Condensed Consolidated Balance Sheets ------------------------------------- (Unaudited)
March 31, 1996 December 31, 1995 ------------------ ------------------ ASSETS Cash and cash equivalents $129,059,000 $145,902,000 ------------------ ------------------ Accounts and accrued income receivable, net 80,006,000 75,069,000 ------------------ ------------------ Investments: Deposits with savings and loan associations and banks 20,909,000 18,637,000 Debt securities 128,534,000 128,875,000 Equity securities 21,910,000 21,445,000 Other long-term investments 25,876,000 25,230,000 ------------------ ------------------ 197,229,000 194,187,000 ------------------ ------------------ Loans receivable 48,767,000 46,134,000 ------------------ ------------------ Property and equipment, at cost 197,234,000 192,496,000 Less- accumulated depreciation (75,665,000) (73,672,000) ------------------ ------------------ 121,569,000 118,824,000 ------------------ ------------------ Title plants and other indexes 84,537,000 82,454,000 ------------------ ------------------ Assets acquired in connection with claim settlements (net of valuation reserves of $12,160,000 and $11,246,000) 24,925,000 25,592,000 ------------------ ------------------ Deferred income taxes 36,879,000 39,994,000 ------------------ ------------------ Goodwill and other intangibles, net 71,738,000 71,825,000 ------------------ ------------------ Deferred policy acquisition costs 23,650,000 24,342,000 ------------------ ------------------ Other assets 53,261,000 49,455,000 ------------------ ------------------ $871,620,000 $873,778,000 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Demand deposits $ 44,826,000 $ 43,418,000 ------------------ ------------------ Accounts payable and accrued liabilities 79,773,000 80,938,000 ------------------ ------------------ Deferred revenue 101,554,000 104,315,000 ------------------ ------------------ Reserve for known and incurred but not reported claims 236,563,000 238,161,000 ------------------ ------------------ Income taxes payable 2,330,000 2,812,000 ------------------ ------------------ Notes and contracts payable 75,303,000 77,206,000 ------------------ ------------------ Minority interests in consolidated subsidiaries 21,532,000 24,161,000 ------------------ ------------------ Commitments and contingencies Stockholders' equity: Preferred stock, $1 par value Authorized - 500,000 shares; outstanding - none Common stock, $1 par value Authorized - 24,000,000 shares Outstanding - 11,459,000 and 11,411,000 shares 11,459,000 11,411,000 Additional paid-in capital 45,465,000 44,270,000 Retained earnings 249,956,000 243,093,000 Net unrealized gain on securities 2,859,000 3,993,000 ------------------ ------------------ 309,739,000 302,767,000 ------------------ ------------------ $871,620,000 $873,778,000 ================== ==================
3 THE FIRST AMERICAN FINANCIAL CORPORATION AND SUBSIDIARY COMPANIES ------------------------ Condensed Consolidated Statements of Cash Flows ----------------------------------------------- (Unaudited)
For the Three Months Ended March 31 1996 1995 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 8,582,000 $ (12,709,000) Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities- Provision for title losses and other claims 18,975,000 21,306,000 Depreciation and amortization 4,449,000 4,211,000 Minority interests in net income (loss) 620,000 (20,000) Other, net (784,000) 1,307,000 Changes in assets and liabilities excluding effects of company acquisitions and noncash transactions- Claims paid, including assets acquired, net of recoveries (19,859,000) (13,822,000) Net change in income tax accounts 2,991,000 (3,765,000) Increase in accounts and accrued income receivable (4,937,000) (3,795,000) Decrease in accounts payable and accrued liabilities (2,760,000) (7,365,000) Decrease in deferred revenue (2,761,000) (4,304,000) Other, net (2,057,000) (2,658,000) ------------- ------------- Cash provided by (used for) operating activities 2,459,000 (21,614,000) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Net cash effect of company acquisitions (1,548,000) (29,828,000) Net increase in deposits with banks (2,272,000) (362,000) Net increase in loans receivable (2,633,000) (2,099,000) Purchases of debt and equity securities (18,207,000) (3,533,000) Proceeds from sales of debt and equity securities 15,326,000 10,327,000 Proceeds from maturities of debt securities 1,013,000 6,366,000 Net decrease in other investments 257,000 1,220,000 Capital expenditures (6,940,000) (4,751,000) Proceeds from sale of property and equipment 638,000 37,000 ------------- ------------- Cash used for investing activities (14,366,000) (22,623,000) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net change in demand deposits 1,408,000 (210,000) Repayment of debt (4,597,000) (4,436,000) Purchase of Company shares (28,000) (690,000) Cash dividends (1,719,000) (1,713,000) ------------- ------------- Cash used for financing activities (4,936,000) (7,049,000) ------------- ------------- Net decrease in cash and cash equivalents (16,843,000) (51,286,000) Cash and cash equivalents- Beginning of year 145,902,000 154,234,000 - End of first quarter ------------- ------------- $129,059,000 $ 102,948,000 ============= ============= SUPPLEMENTAL INFORMATION: Cash paid during the first quarter for: Interest $ 1,209,000 $ 1,898,000 Premium taxes $ 3,529,000 $ 3,465,000 Income taxes $ 2,937,000 $ 1,122,000 Noncash investing and financing activities: Shares issued for stock bonus plan $ 1,271,000 $ 1,115,000 Liabilities incurred in connection with company acquisitions $ 4,393,000 $ 11,276,000 Net unrealized (loss) gain on securities $( 1,134,000) $ 3,444,000
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 on 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. Any statements in this report 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 change economic conditions; and the demand for and the acceptance of our products. This report should be read in conjunction with the Company's 1995 Annual Report to Stockholders and the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- RESULTS OF OPERATIONS Three months ended March 31: OVERVIEW Beginning in the second quarter 1994, increased mortgage interest rates caused a downward trend in new order counts and closings as refinance transactions came to a virtual halt. Due to seasonal considerations, this condition intensified at yearend 1994 resulting in a low inventory of new orders going into the first quarter 1995. As a result, operating revenues for the first quarter 1995 were adversely affected and the Company reported a first quarter 1995 loss of $12.7 million, or $1.11 per share. Mortgage interest rates peaked in January 1995 and decreased throughout the remainder of the year and into 1996, helped by an easing of monetary policy by the Federal Reserve Board. This, together with an improved real estate economy (including the beginnings of a modest recovery in California), contributed to an increase in closed transactions and operating revenues for the first quarter 1996 and resulted in net income of $8.6 million, or $0.75 per share. OPERATING REVENUES Set forth below is a summary of operating revenues for each of the Company's segments.
Three Months Ended March 31 ---------------------------------------- ($000) 1996 % 1995 % --------- ----- -------- ----- Title Insurance: Direct Operations $137,490 40 $104,291 41 Agency Operations 136,364 40 115,026 45 --------- ----- -------- ----- $273,854 80 219,317 86 Real Estate Information 54,394 16 26,105 10 Home Warranty 8,739 3 7,389 3 Trust and Banking 3,892 1 3,477 1 --------- ----- -------- ----- Total $340,879 100 $256,288 100 ========= ===== ======== =====
TITLE INSURANCE. Operating revenues from direct operations increased 31.8% when compared with the same quarter of the prior year. This increase was primarily attributable to a 31.3% increase in the number of title orders closed by the Company's direct operations. The Company's direct operations closed 177,600 title orders during the current quarter, as compared with 135,300 title orders closed during the same period of the prior year. This increase was primarily attributable to the factors mentioned above. Operating revenues from agency operations increased 18.6% when compared with the same period of the prior year. This increase was primarily due to the same factors affecting direct operations, offset in part by the effects of the seasonal pattern of residential resale activity, which is more pronounced in the agency concentrated midwest and eastern sectors of the country, and by the inherent delay in reporting by agents. REAL ESTATE INFORMATION. Real estate operating revenues increased 108.4% when compared with the same period of the prior year. This increase was primarily due to the same factors affecting title insurance, as well as increases in market penetration, primarily by the Company's flood determination and credit reporting divisions. HOME WARRANTY. Home warranty operating revenues increased 18.3% 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. 6 INVESTMENT AND OTHER INCOME Investment and other income increased $1.6 million, or 33.5%, when compared with the same period of the prior year. This increase was primarily attributable to an increase in equity in earnings of affiliates and gains on the sales of certain investments, partially offset by a 12.3% reduction in the average investment portfolio balance. TOTAL OPERATING EXPENSES TITLE INSURANCE. Salaries and other personnel costs were $95.1 million, an increase of 16.3% when compared with the same period of the prior year. This increase was primarily due to the costs incurred processing the high number of title orders opened with the Company's direct operations, offset in part by personnel efficiencies. The Company's direct operations opened 272,500 orders during the first quarter 1996, an increase of 43.0% when compared with the 190,600 orders opened during the same period of the prior year. Agents retained $109.9 million, or 80.6%, and $93.4 million, or 81.2%, of the title premiums generated by agency operations for the first quarter 1996 and 1995, 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 $49.8 million, an increase of 15.8% when compared with the same period of the prior year. This increase was primarily attributable to the incremental costs associated with processing the high number of title orders opened during the current quarter, offset in part by successful cost containment programs. The provision for title losses as a percentage of title insurance operating revenues was 4.9% for the current quarter and 7.6% for the same period of the prior year. The decrease in the current quarter was primarily due to an ongoing improvement in the Company's loss experience. REAL ESTATE INFORMATION. Real estate information personnel and other operating expenses were $38.3 million, an increase of 47.4% when compared with the same period of the prior year. This increase was primarily due to costs incurred servicing the increase in business volume as well as costs incurred expanding the flood determination and credit reporting divisions, partially offset by cost containment programs. HOME WARRANTY. Home warranty personnel and other operating expenses were $2.7 million, an increase of 8.0% when compared with the same period of the prior year. This increase was primarily attributable to costs incurred servicing the increased business volume, offset in part by cost containment programs. The provision for home warranty losses expressed as a percentage of home warranty operating revenues was 51.7% and 54.2% for the first quarter 1996 and 1995, respectively. The decrease in loss ratio was primarily attributable to a decrease in the average number of claims per contract. 7 Management's Discussion and Analysis of Financial Condition and Results of - -------------------------------------------------------------------------- Operations (continued) - ---------------------- PRETAX PROFITS (LOSSES) Set forth below is a summary of pretax profits (losses) for each of the Company's segments.
Three Months Ended March 31 ------------------------------------ ($000) 1996 % 1995 % ---------- ----- --------- ----- Title Insurance $ 8,159 33 $(14,561) 108 Real Estate Information 13,782 55 (1,380) 10 Home Warranty 2,288 9 1,528 (11) Trust and Banking 779 3 932 (7) ---------- ----- --------- ----- Total before corporate 25,008 100 (13,481) 100 ===== ===== Corporate (6,481) (5,207) ---------- --------- Total $18,527 $(18,688) ========== =========
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. PREMIUM TAXES Premium taxes were $3.5 million, an increase of 25.7% when compared with the same period of the prior year. This increase corresponds to the relative increase in title insurance premium revenues. Premium taxes as a percentage of title insurance operating revenues remained constant at 1.3%. INCOME TAXES The effective income tax rate was 42.7% for the current quarter and 40.9% for the first quarter 1995. The increase in effective rate was primarily attributable to an increase in state income taxes resulting from the Company's non-insurance subsidiaries' increase in contribution to pretax profits. NET INCOME Net income for the current quarter was $8.6 million, or $0.75 per share, compared with a net loss for the first quarter 1995 of $12.7 million, or $1.11 per share. 8 Management's Discussion and Analysis of Financial Condition and Results of - -------------------------------------------------------------------------- Operations (continued) - ---------------------- LIQUIDITY AND CAPITAL RESOURCES Total cash and cash equivalents decreased $16.8 million and $51.3 million for the three months ended March 31, 1996 and 1995, respectively. The decrease for the current period was primarily attributable to capital expenditures and the repayment of debt. The decrease in the prior year period was primarily due to cash used for operating activities and the net cash effect of company acquisitions. Notes and contracts payable as a percentage of total capitalization decreased to 18.5% at March 31, 1996, from 19.1% at December 31, 1995. The decrease was primarily due to the net income contribution to equity as well as the reduction of debt. Management believes that all of its anticipated cash requirements for the immediate future will be met from internally generated funds. 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 Wednesday, April 24, 1996. (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 8,388,070 309,651 J. David Chatham 8,686,804 10,917 William G. Davis 8,364,345 333,376 James L. Doti 8,682,792 14,929 Lewis W. Douglas, Jr. 8,369,728 327,993 Paul B. Fay, Jr. 8,666,893 30,828 D.P. Kennedy 8,667,975 29,746 Parker S. Kennedy 8,686,188 11,533 Robert B. McLain 8,667,674 30,047 Anthony R. Moiso 8,388,165 309,556 R. J. Munzer 8,368,371 329,350 Frank E. O'Bryan 8,674,706 23,015 Roslyn B. Payne 8,682,955 14,766 Virginia M. Ueberroth 8,685,204 12,517 (c) At the Meeting, the holders of a majority of the Company's Common shares voted "FOR" the proposal to approve the Company's 1996 Stock Option Plan. The results of the voting of this proposal are set forth below. Votes For Votes Against Votes Withheld Broker Nonvotes --------- ------------- -------------- --------------- 5,685,955 1,605,748 158,070 1,247,948 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 (10) The First American Financial Corporation 1996 Stock Option Plan, incorporated by reference herein from definitive Proxy Statement dated March 25, 1996. (27) Financial Data Schedule. (b) Reports on Form 8-K The Company filed a report on Form 8-K dated April 23, 1996 (the "Form 8-K"), subsequent to the quarterly period covered by this report. The Form 8-K contains Item 5, describing the Company's acquisition of certain assets and liabilities of Residential Information Services Limited Partnership. 10 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- (10) The First American Financial Corporation 1996 Stock Option Plan, incorporated by reference herein from definitive Proxy Statement dated March 25, 1996 (27) Financial Data Schedule 11 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 5
7 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 128,534,000 0 0 21,910,000 0 0 197,229,000 129,059,000 0 23,650,000 871,620,000 236,563,000 0 0 0 75,303,000 11,459,000 0 0 298,280,000 871,620,000 340,879,000 5,894,000 603,000 0 18,975,000 0 0 14,982,000 6,400,000 8,582,000 0 0 0 8,582,000 .75 0 0 0 0 0 0 0 0
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