10-Q

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

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

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

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

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	)		(28,375	)
Cash flows from financing activities:
Net change in demand deposits		(2,988	)		415
Proceeds from issuance of debt		11,399			7,030
Repayment of debt		(10,085	)		(8,548	)
Proceeds from exercise of stock options		13,162			4,502
Proceeds from the issuance of stock to employee benefit plans		2,762			1,774
Distributions to minority shareholders		(11,414	)		(10,031	)
Cash dividends		(12,218	)		(7,596	)
Cash used for financing activities		(9,382	)		(12,454	)
Net (decrease) increase in cash and cash equivalents		(17,877	)		42,011
Cash and cash equivalents - Beginning of year		1,113,530			900,863
- End of the first quarter	$	1,095,653		$	942,874
Supplemental information:
Cash paid during the quarter for:
Interest	$	4,738		$	6,357
Premium taxes	$	20,495		$	17,124
Income taxes	$	6,328		$	7,825
Noncash investing and financing activities:
Shares issued for employee benefit plans	$	50,279		$	42,272
Liabilities incurred in connection with company acquisitions	$	29,349		$	13,840
Company acquisitions in exchange for common stock	$	1,750		$	—

See notes to condensed consolidated financial statements.

5

THE FIRST AMERICAN 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 Securities and Exchange 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, 2003.

Note 2 – Earnings Per Share

(in thousands, except per share amounts)	For the Three Months Ended March 31
	2004		2003
Numerator:
Net Income-numerator for basic net income per share	$	54,956	$	87,580
Effect of dilutive securities Convertible debt - interest expense (net of tax)		1,675		1,723
Net Income - numerator for dilutive net income per share	$	56,631	$	89,303
Denominator
Weighted average shares-denominator For basic net income per share		79,323		74,159
Effect of dilutive securities:
Employee stock options		3,033		2,496
Convertible debt		8,296		8,443
Denominator for diluted net income per share		90,652		85,098
Basic net income per share	$	0.69	$	1.18
Diluted net income per share	$	0.62	$	1.05

For the three months ended March 31, 2004 and 2003, respectively, 0.3 million and 3.4 million stock options were excluded from the computation of diluted earnings per share due to their antidilutive effect.

6

Note 3 – Stock Options

Effective December 15, 2002, the Company adopted Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, which amends Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation” (SFAS 148). In accounting for its plans, the Company, as allowable under the provisions of SFAS 148, applies Accounting Principles Board Opinions No. 25, “Accounting for Stock issued to Employees.” As a result of this election, the Company does not recognize compensation expense for its stock option plans. Had the Company determined compensation cost based on the fair value for its stock options at grant date, net income and earnings per share would have been reduced to the pro forma amounts as follows:

	For the Three Months Ended March 31
(in thousands, except per share amounts)	2004		2003
Net income:
As reported	$	54,956	$	87,580
Pro forma	$	53,796	$	86,463
Earnings per share:
As reported
Basic	$	0.69	$	1.18
Diluted	$	0.62	$	1.05
Pro forma
Basic	$	0.68	$	1.17
Diluted	$	0.61	$	1.04

Note 4 – Business Combinations

During the three months ended March 31, 2004, the Company completed 16 acquisitions. These acquisitions were not material, individually or in the aggregate. Nine of the acquisitions have been included in the Company’s title insurance segment, one in the Company’s mortgage information segment and six in the Company’s screening information segment. The aggregate purchase price for the ten acquisitions included in the Company’s title insurance and mortgage information segments was $20.9 million in cash and $6.2 million in notes payable. The six acquisitions included in the Company’s screening information segment were completed by the Company’s publicly-traded subsidiary, First Advantage Corporation. The aggregate purchase price for these acquisitions was $7.0 million in cash, $6.5 million in notes payable and .5 million shares, valued at $9.7 million, of First Advantage’s Class A common stock. The purchase price of each acquisition was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis. As a result of the 16 acquisitions, the Company recorded approximately $37.8 million of goodwill and $4.3 million of intangible assets with definite lives. The Company is awaiting information necessary to finalize the purchase accounting adjustments for these acquisitions and the final purchase price allocations could change the recorded intangible asset and goodwill amounts. In accounting for the First Advantage shares issued for the acquisitions in the screening information segment, the Company, whose ownership interest was reduced to approximately 75 percent, recorded a pretax gain of $.7 million.

In April 2004, the Company’s subsidiary, First American Real Estate Solutions LLC, purchased from Transamerica Corporation its 20% interest in the Company’s property data business, First American Real Estate Solutions LP, for a purchase price of $42 million in cash. The Company and Transamerica formed this limited partnership in 2000. This acquisition will increase goodwill by $21.2 million at the Company’s property information segment.

7

Note 5 – Segment Information

In January 2004, the Company combined its Title Insurance and Services and Trust and Other Services into one segment to better reflect the interaction within these businesses. This presentation is consistent with the way the operations of these businesses are evaluated. The prior year results have been reclassified to reflect the combination of these businesses. After the change, the Company has six reporting segments that fall within two primary business groups, Financial Services and Information Technology. The Financial Services Group includes Title Insurance and Services and Specialty Insurance. The Information Technology Group includes Mortgage Information, Property Information, Credit Information and Screening Information. Selected financial information by reporting segment is as follows:

For the three months ended March 31, 2004

(in thousands)	Revenues			Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services:
Title Insurance and Services	$	1,047,922		$	58,577		$	10,067	$	15,969
Specialty Insurance		50,726			12,444			519		646
		1,098,648			71,021			10,586		16,615
Information Technology:
Mortgage Information		156,625			30,347			6,075		10,143
Property Information		97,293			27,518			5,830		3,473
Credit Information		64,392			14,998			2,614		409
Screening Information		57,443			1,102			2,640		1,075
		375,753			73,965			17,159		15,100
		1,474,401			144,986			27,745		31,715
Corporate		(630	)		(33,856	)		1,625		3,842
	$	1,473,771		$	111,130		$	29,370	$	35,557

For the three months ended March 31, 2003

(in thousands)	Revenues		Income (loss) before income taxes and minority interests			Depreciation and amortization		Capital expenditures
Financial Services:
Title Insurance and Services	$	954,242	$	89,207		$	9,541	$	9,619
Specialty Insurance		48,584		5,839			422		204
		1,002,826		95,046			9,963		9,823
Information Technology:
Mortgage Information		141,877		45,797			3,795		2,556
Property Information		87,441		23,443			5,482		3,041
Credit Information		78,046		26,607			3,145		1,243
Screening Information		31,618		515			1,785		1,504
		338,982		96,362			14,207		8,344
		1,341,808		191,408			24,170		18,167
Corporate		167		(27,915	)		1,845		3,765
	$	1,341,975	$	163,493		$	26,015	$	21,932

Note 6 – Goodwill and Other Intangible Assets

The Company’s reporting units for purposes of the annual testing for impairment of goodwill are title insurance, home warranty, property and casualty insurance, trust and other services, mortgage origination products and services, mortgage servicing products and services, property information services, conventional credit information, sub-prime credit information, pre-employment and drug screening, tenant screening and motor vehicle reporting.

8

A reconciliation of the changes in the carrying amount of net goodwill, by operating segment, for the three months ended March 31, 2004, is as follows:

(in thousands)	Balance as of December 31, 2003		Acquired (Disposed of) During the Period		Adjustments		Balance as of March 31, 2004
Financial Services:
Title Insurance and Services	$	260,152	$	11,772		—	$	271,924
Specialty Insurance		19,794		—		—		19,794
Information Technology:
Mortgage Information		545,612		7,373	$	4,617		557,602
Property Information		150,399		—		—		150,399
Credit Information		72,450		—		—		72,450
Screening Information		204,673		18,656		—		223,329
	$	1,253,080	$	37,801	$	4,617	$	1,295,498

There have been no impairments of goodwill during the three months ending March 31, 2004. The Company had $114.3 million of intangible assets including in “Other assets” at March 31, 2004, with definite lives ranging from three to seven years. These assets, comprised primarily of customer lists and noncompete agreements, are being amortized in a manner consistent with periods prior to the adoption of SFAS 142.

Note 7 – Employee Benefit Plans

In December 2003, the Financial Accounting Standards Board revised Statement of Financial Accounting Standards No. 132, “Employers Disclosures About Pensions and Other Post Retirement Benefits” to require additional interim disclosures. The Company has implemented the revised disclosures in these financial statements.

Net periodic pension cost for the Company’s defined benefit pension and supplemental benefit plans includes the following components:

	For the Three Months Ended March 31
(in thousands)	2004			2003
Expense:
Service Cost	$	4,670		$	3,734
Interest Cost		6,354			5,081
Expected return on plan assets		(4,392	)		(3,511	)
Amortization of net transition obligation		(7	)		(6	)
Amortization of prior service cost (benefit)		(1,189	)		(951	)
Amortization of net loss		1,973			1,578
	$	7,410		$	5,925

The Company has contributed $3.9 million to its pension plans for the three months ended March 31, 2004 and expects to contribute an additional $42.3 million during the remainder of 2004. These contributions are both those required by funding regulations as well as discretionary contributions necessary to provide benefit payments to participants of certain of the Company’s non-qualified supplemental benefit plans.

Note 8 – Subsequent Event

On April 15, 2004, the Company redeemed for cash $1,176,000 of the $210,000,000 aggregate principal outstanding on its 4.5% Senior Convertible Debentures Due 2008. Prior to the redemption date, holders had converted an aggregate principal amount of $208,824,000 of debentures into 7,457,938 common shares of the Company at the fixed conversion price of $28 per share.

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements made in this 10-Q, including those relating to second quarter 2004 revenues and anticipated cash requirements, 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.

RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are those policies used in the preparation of the Company’s financial statements that require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosure of contingencies. A summary of these policies can be found in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

OVERVIEW

Decreases in mortgage originations during November and December of 2003, coupled with adverse weather conditions affecting home sales in December 2003, as well as in January and February of 2004, provided a typical seasonal pattern of real estate activity for the first quarter of 2004 not seen in the past few years. March new order counts for the Company’s direct title operations and the Company’s other real estate-related businesses improved significantly and should result in relatively strong revenues for the second quarter of 2004. Net income for the three months ended March 31, 2004, was $55.0 million, or $0.62 per diluted share. Net income for the three months ended March 31, 2003, was $87.6 million, or $1.05 per diluted share, and included a realized pretax gain on the merger of the Company’s Credit Online business with DealerTrack Holdings, Inc., of $13.1 million, $8.0 million on an after-tax basis, or $0.09 per diluted share. During the current quarter, the Company combined its Trust and Other Services segment with its Title Insurance segment. Prior year numbers have been reclassified to conform with the current year presentation.

10

OPERATING REVENUES

Set forth below is a summary of operating revenues for each of the Company’s segments.

	Three Months Ended March 31
	($000)
	2004		%	2003		%
Financial Services:
Title Insurance:
Direct operations	$	515,506	36	$	484,308	37
Agency operations		516,810	36		448,996	35
		1,032,316	72		933,304	72
Specialty Insurance		46,492	3		46,144	4
		1,078,808	75		979,448	76
Information Technology:
Mortgage Information		154,935	11		139,108	11
Property Information		91,977	6		82,280	6
Credit Information		62,452	4		62,528	5
Screening Information		57,361	4		31,594	2
		366,725	25		315,510	24
Total	$	1,445,533	100	$	1,294,958	100

Financial Services. Operating revenues from direct title operations increased 6.4% for the current quarter when compared with the same period of the prior year. This increase was primarily due to an increase in the average revenues per order closed, offset in part by a decrease in the number of title orders closed by the Company’s direct operations. The average revenues per order closed were $1,256 for the three months ended March 31, 2004, an increase of 18.2% when compared with $1,063 for the three months ended March 31, 2003. This increase was primarily attributable to a decreased mix of lower-margin refinance transactions, an increase in higher-margin commercial activity and appreciating home values. The Company’s direct operations closed 410,300 title orders during the current three month period, a decrease of 10.0% when compared with 455,700 title orders closed during the same period of the prior year. This decrease was primarily due to the more typical seasonal pattern of real estate activity experienced during the quarter. Operating revenues from agency operations increased 15.1% for the current quarter when compared with the same period of the prior year. This increase primarily reflected the strong closings experienced by the Company’s agents during the fourth quarter of 2003 and the subsequent lag in the reporting of agency remittances.

Information Technology. Operating revenues for the mortgage information segment, excluding $39.3 million of operating revenues contributed by new acquisitions, decreased 16.9% for the current quarter when compared with the same period of the prior year. This decrease primarily reflected the slowdown in real estate activity due to the re-emergence of seasonal patterns. Operating revenues for the property information segment, excluding $6.9 million of operating revenues contributed by new acquisitions, increased 3.4% when compared with the same period of the prior year. This increase reflected the continued strength in the property information segment’s subscription-based information businesses, offset in part by the affects of the slowdown in real estate activity. The property information segment’s subscription-based information businesses are less cyclical and not as dependent on mortgage originations as the Company’s other real estate-related businesses. Operating revenues for the credit information segment, excluding from the prior year’s quarter $2.4 million of operating revenues due to the previously announced merger of the Company’s Credit Online business with DealerTrack Holdings, Inc. in the latter part of the first quarter of 2003, increased 3.6% when compared with the same period of the prior year. This increase was primarily due to the growth in this segment’s non-mortgage related credit information businesses. Screening information operating revenues increased 81.6% for the three months ended March 31, 2004, when compared with the same period of the prior year. This increase was primarily attributable to $17.1 million of operating revenues contributed by new acquisitions.

11

INVESTMENT AND OTHER INCOME

Investment and other income, which now includes the revenues from the Company’s trust and financial services businesses, totaled $26.9 million for the three months ended March 31, 2004, a decrease of $7.6 million, or 21.9%, when compared with the same period of the prior year. This decrease primarily reflected a $5.3 million reduction in earnings from affiliated companies, which are accounted for under the equity method of accounting, and lower yields on the Company’s cash equivalents and investment portfolio.

NET REALIZED INVESTMENT GAINS

Net realized investment gains totaled $1.3 million and $12.5 million for the three months ended March 31, 2004, and 2003, respectively. The prior year quarter included a $13.1 million realized investment gain associated with the merger of the Company’s Credit Online business with DealerTrack Holdings, Inc.

TOTAL OPERATING EXPENSES

Financial Services. Salaries and other personnel costs for the Financial Services group, which primarily reflects the title insurance segment, were $328.9 million for the three months ended March 31, 2004, an increase of $34.2 million when compared with the same period of the prior year. Excluding the affect of new acquisitions, the increase was $9.3 million, or 3.2%.

Although order counts were lower this quarter compared with the same period of the prior year, the Company experienced a significant increase in order counts in the latter part of the current quarter, and the increase in personnel costs was primarily attributable to labor costs associated with processing this increasing inventory of orders at the title insurance operations. Salaries and other personnel costs as a percentage of operating revenues for the Financial Services group were 30.5% for the three months ended March 31, 2004, and 30.1% for the same period of the prior year.

Agents retained $424.2 million, or 82.1% of title premiums generated by agency operations for the three months ended March 31, 2004, which compares with $365.7 million, or 81.5% for the same period of the prior year. The change in the percentage of title premiums retained by agents was due to regional variances (i.e., the agency share varies from region to region and thus the geographical mix of agency revenues causes this variation).

Other operating expenses for the Financial Services group, which primarily reflect the title insurance segment, were $182.6 million for the three months ended March 31, 2004, an increase of $20.8 million when compared with the same period of the prior year. Excluding the affects of company acquisitions, the increase was $5.1 million, or 3.2%, and was primarily the result of incremental costs incurred to service the increasing inventory of orders at the title insurance operations. Other operating expenses as a percentage of operating revenues for the Financial Services group were 16.9% for the three months ended March 31, 2004, and 16.5% for the same period of the prior year.

The provision for policy losses and other claims primarily represents title insurance claims, home warranty claims and property and casualty insurance claims. For the title insurance segment, the claims provision as a percentage of title insurance operating revenues was 4.1% for the current quarter and 4.0% for the same period of the prior year. For the home warranty segment, the claims provision as a percentage of home warranty operating revenues was 48.6% for the current quarter, up from 44.2% for the same period of the prior year. This increase was primarily due to an increase in the average cost per claim, attributable to geographic expansion. In the property and casualty insurance segment, the provision for losses as a percentage of property and casualty insurance operating revenues was 58.5% for the current quarter, down from 78.9% for the same quarter of the prior year. The relatively high rate for the prior year quarter reflected high claims activity, which resulted primarily from insured property damaged in Southern California as a result of extraordinarily high winds, experienced during the beginning of the first quarter of 2003.

Premium taxes, which relate to the title insurance and specialty insurance segments, were $12.5 million and $10.5 million for the three months ended March 31, 2004 and 2003, respectively. This increase was primarily due to the relative increase in title insurance premiums. Premium taxes as a percentage of title insurance and specialty insurance operating revenues were 1.2% for the three months ended March 31, 2004 and 1.1% for the three months ended March 31, 2003. This slight variation was primarily due to the composition and geographical mix of the operating revenues (i.e., tax rates and bases vary from state to state).

Information Technology. Information technology personnel and other operating expenses were $278.6 million for the three months ended March 31, 2004, an increase of $53.9 million when compared with the same period of the prior year. Excluding acquisitions, the increase was $3.0 million, or 1.3%. This increase was primarily due to costs incurred at the Company’s tax service division to integrate new customers, costs incurred to service the

12

increase in non-real estate related business volume, costs incurred to integrate new acquisitions and increased technology costs. Personnel and other operating expenses as a percentage of operating revenues for the Information Technology group were 76.0% for the three months ended March 31, 2004 and 71.2% for the same period of the prior year.

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)
	2004			%	2003			%
Financial Services:
Title Insurance	$	58,577		40	$	89,207		47
Specialty Insurance		12,444		9		5,839		3
		71,021		49		95,046		50
Information Technology:
Mortgage Information		30,347		21		45,797		24
Property Information		27,518		19		23,443		12
Credit Information		14,998		10		26,607		14
Screening Information		1,102		1		515		0
		73,965		51		96,362		50
Total before corporate expenses		144,986		100		191,408		100
Corporate expenses		(33,856	)			(27,915	)
Total	$	111,130			$	163,493

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. Most of the businesses included in the Information Technology group are database intensive, with a relatively high proportion of fixed costs. As such, profit margins generally improve as revenues increase. Revenues for the mortgage and property information segments, like the title insurance segment, are primarily dependent on the level of real estate activity and the cost and availability of mortgage funds. Revenues for the credit information segment are in part impacted by real estate activity, but also by the consumer and automobile sectors. Corporate expenses totaled $33.9 million for the current quarter, an increase of $5.9 million when compared with the same period of the prior year. This increase was primarily due to increased technology costs and higher general costs associated with the support effort needed to service the Company’s expanded national and international operations

INCOME TAXES

The effective income tax rate (income tax expense as a percentage of pretax income after minority interest expense) was 40.5% for the three months ended March 31, 2004, and 39.0% for the same period of the prior year. The increase in effective rate was primarily attributable to changes in the ratio of permanent differences to pretax profits. A large portion of the Company’s minority interest is attributable to a limited liability company subsidiary, that for tax purposes, is treated as a partnership; and accordingly, no income taxes have been provided.

13

MINORITY INTERESTS

Minority interest expense was $18.8 million for the three months ended March 31, 2004, a decrease of $1.1 million when compared with the same period of the prior year. This decrease was primarily attributable to the decrease in operating results of the Company’s joint venture with Experian.

NET INCOME

Net income for the three months ended March 31, 2004, was $55.0 million, or $0.62 per diluted share. Net income for the three months ended March 31, 2003, was $87.6 million, or $1.05 per diluted share. The prior year quarter included a realized pretax gain on the merger of the Company’s Credit Online business with DealerTrack Holdings, Inc. of $13.1 million, $8.0 million on an after-tax basis, or $0.09 per diluted share.

LIQUIDITY AND CAPITAL RESOURCES

Total cash and cash equivalents decreased $17.9 million for the three months ended March 31, 2004, and increased $42.0 million for the three months ended March 31, 2003. The decrease for the current year period was primarily due to capital expenditures, cash paid for company acquisitions, cash dividends and payments to minority shareholders, offset in part by cash provided by operating activities and proceeds received from the exercise of stock options. The increase for the prior year period was due primarily to cash provided by operating activities, offset in part by capital expenditures, cash paid for company acquisitions, payments to minority shareholders and cash dividends.

Notes and contracts payable as a percentage of total capitalization decreased to 22.3% at March 31, 2004 from 23.0% at December 31, 2003. This decrease was primarily due to an increase in equity due primarily to the net income for the current period.

On April 15, 2004, the Company redeemed for cash $1,176,000 of the $210,000,000 aggregate principal outstanding on its 4.5% Senior Convertible Debentures Due 2008. Prior to the redemption date, holders had converted an aggregate principal amount of $208,824,000 of debentures into 7,457,938 common shares of the Company at the fixed conversion price of $28 per share. Assuming the conversion had occurred prior to the end of the current quarter, notes and contracts payable as a percentage of total capitalization would have been, on a pro-forma basis, 15.3% at March 31, 2004.

Management believes that all of its anticipated operating cash requirements for the immediate future will be met from internally generated funds.

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary exposure to market risk relates to interest rate risk associated with certain financial instruments. Although the Company monitors its risk associated with fluctuations in interest rates, it does not currently use derivative financial instruments to hedge these risks.

The Company is also subject to equity price risk as related to its equity securities. Although the Company has operations in certain foreign countries, these operations, in the aggregate, are not material to the Company’s financial condition or results of operations.

There have been no material changes in the Company’s risk since filing its Form 10-K for the year ended December 31, 2003.

Item 4 – Controls and Procedures

The Company’s President and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, have concluded that, as of the end of the fiscal quarter covered by this report on Form 10-Q, the Company’s disclosure controls and procedures were effective to provide reasonable assurances that information

14

required to be disclosed in the reports filed or submitted under such Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There was no change in the Company’s internal control over financial reporting during the quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: Other Information

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

(31	)(a)	Certification by Chief Executive Officer Pursuant to Rule 13a – 14(a) under the Securities Act of 1934.
(31	)(b)	Certification by Chief Financial Officer Pursuant to Rule 13a – 14(a) under the Securities Act of 1934.
(32	)(a)	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
(32	)(b)	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

(b) Reports on Form 8-K

During the quarterly period covered by this report, the Company furnished reports on Form 8-K dated February 11, 2004 (reporting on fourth quarter and full year 2003 earnings) and on March 23, 2004 (announcing that the Company’s board of directors had approved the redemption of Company’s 4.50% Senior Convertible Debentures Due 2008, and that the Company intended to redeem such debentures on April 15, 2004) and filed a report on Form 8-K on March 24, 2004 (clarifying the terms of the redemption of Company’s 4.50% Senior Convertible Debentures Due 2008 regarding the interest payable on such debentures).

15

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 CORPORATION (Registrant)
	/s/ Thomas A. Klemens
	Thomas A. Klemens Senior Executive Vice President, Chief Financial Officer
	/s/ Max O. Valdes
Date: May 10, 2004	Max O. Valdes Vice President, Chief Accounting Officer

16

EXHIBIT INDEX

Exhibit No.	Description	Sequentially Numbered Page
(31)(a)	Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Act of 1934.
(31)(b)	Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Act of 1934.
(32)(a)	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
(32)(b)	Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

17

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Parker S. Kennedy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The First American Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2004

/s/ Parker S. Kennedy

Parker S. Kennedy

President, Chief Executive Officer and Chairman

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Thomas A. Klemens, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The First American Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2004

/s/ Thomas A. Klemens

Thomas A. Klemens

Senior Executive Vice President,

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of The First American Corporation (the “Company”) for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Parker S. Kennedy, chief executive officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Parker S. Kennedy

Parker S. Kennedy

President, Chief Executive Officer and Chairman

May 10, 2004

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q of The First American Corporation (the “Company”) for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas A. Klemens, chief financial officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Thomas A. Klemens

Thomas A. Klemens

Senior Executive Vice President

Chief Financial Officer

May 10, 2004

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.