EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

 

LOGO

THE FIRST AMERICAN CORPORATION REPORTS

FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2009

—Reports Earnings Per Diluted Share of 59 Cents—

—Executes Letter of Intent to Amend Experian Joint Venture that Would Facilitate 2010 Buy-in—

SANTA ANA, Calif., Oct. 29, 2009—The First American Corporation (NYSE: FAF), America’s largest provider of business information, today announced financial results for the third quarter ended Sept. 30, 2009.

Total revenues for the third quarter of 2009 were $1.6 billion, an increase of 3 percent relative to the third quarter of 2008. Net income was $55.4 million, or 59 cents per diluted share, compared with a net loss of $8.3 million, or 9 cents per diluted share, in the third quarter of 2008. Adjusted net income was $60.2 million, or 64 cents per diluted share, compared with adjusted net income of $17.6 million, or 19 cents per diluted share, in the third quarter of 2008. The current quarter results include, on an after-tax basis, intangible impairments of $6.5 million, or 7 cents per diluted share; employee separation and lease termination costs of $4.0 million, or 4 cents per diluted share; and spin-off-related costs of $2.4 million, or 2 cents per diluted share; offset in part by net realized investment gains of $3.1 million, or 3 cents per diluted share; and a reduction in the reserve for policy year 2009 claims losses of $5.0 million, or 5 cents per diluted share. Results for the third quarter of 2008 included net realized investment losses, employee separation and other restructuring costs, a reduction in employee benefit costs and a reduction in the reserve for estimated tax exposures totaling $26.3 million, or 28 cents per diluted share, net of tax.

Amendment to Joint Venture Agreement with Experian Information Solutions, Inc.

First American has executed a letter of intent with Experian Information Solutions, Inc. that would facilitate the purchase of Experian’s interest in the First American Real Estate Solutions LLC (FARES) joint venture by, among other matters, fixing the exercise price for 2010. The letter of intent provides for:

 

   

The buy-out of Experian’s indirect interest in FARES’ plant management and imaged document business for $48.0 million in cash (which is anticipated to occur in the fourth quarter);

 

   

Amending the buy-out arrangement to provide that, if exercised by either party in 2010, the exercise price will be $313.8 million in cash and would close on Dec. 31, 2010; and

 

   

The ability to substantially eliminate Experian’s veto rights if the buy-out option is exercised by either party.

 

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First American Reports Financial Results for the Third Quarter of 2009

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The arrangement remains subject to customary closing conditions, including the execution of definitive agreements. For the nine months ended Sept. 30, 2009, the noncontrolling interest expense related to Experian’s interest in the joint venture was approximately $43.8 million before taxes.

Current Quarter Highlights

 

   

Adjusted earnings per diluted share of 64 cents, or 59 cents before adjusting for intangible impairments, employee separation costs and lease termination costs, spin-off-related costs, net realized investment gains, and a reduction in the reserve for claim losses described above

 

   

Financial Services and Information Solutions Groups experienced pretax margin improvement relative to the third quarter of 2008

 

   

Cash flow from operations was $158.1 million in the third quarter, versus $115.4 million in the prior year

 

   

Debt-to-capital ratio was 20.1 percent as of Sept. 30, 2009

 

   

Letter of intent signed with Experian to amend joint venture agreement

 

   

Exchange offer commenced to acquire minority interest in First Advantage Corporation

“The company has made significant progress in our efforts to improve the flexibility of the organization and to effect our spin-off transaction,” stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. “We have substantially finalized the capital structures of both companies, commenced an exchange offer to acquire the minority interest in First Advantage and signed a letter of intent with Experian to fix the exercise price of the buy-out option for 2010. We are on track to meet our previously announced spin-off target of the first half of 2010 and, if all regulatory approvals come in timely, we expect to close on April 1.”

FINANCIAL SERVICES GROUP

“Throughout the year we made significant progress restructuring our company and we remain committed to continued improvement in our pretax operating margin,” said Dennis J. Gilmore, chief executive officer of the company’s Financial Services Group. “Our strategic plan calls for us to focus in 2010 on a number of concrete value creation opportunities, including agency profitability, increasing market share in under-penetrated markets, continued leveraging of our unique offshore capabilities, optimization of our investment portfolio, rationalizing our domestic footprint and capitalizing on a gradual recovery in commercial and international markets.”

Current Quarter Highlights:

 

   

Title Insurance and Services segment pretax income was $58.5 million, compared with pretax loss of $33.7 million in the prior year

 

   

Specialty Insurance segment pretax income was $7.4 million, compared with $0.3 million in the prior year

 

   

Title Insurance and Services ultimate loss ratio for policy year 2009 reduced from 6.5 percent to 6.0 percent due to improved claims experience in policy year 2009

 

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First American Reports Financial Results for the Third Quarter of 2009

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Title Insurance and Services. During the third quarter of 2009, total revenues in the Title Insurance and Services segment were $997.0 million, a 2 percent increase from the same quarter of 2008. The increase reflected the relatively high number of remittances received from agents during the current quarter and an increase in investment income, offset by lower direct revenue. The company’s direct operations closed 362,200 title orders for the third quarter of 2009, an increase of 12 percent, when compared with 323,200 title orders closed in the third quarter of 2008. Average revenue per direct title order continued to increase throughout the year, rising to $1,423 in the third quarter of 2009.

Salary and other personnel costs were $276.7 million, an 11 percent decrease, compared with the third quarter of 2008, primarily due to a reduction in base salary expense and bonus expense resulting from staff reductions. Other operating expenses were $220.7 million, a decrease of 9 percent, compared with the third quarter of 2008. The decrease was primarily due to lower occupancy costs as a result of the consolidation of certain title branches and other cost-containment programs.

The loss provision for title claims during the third quarter of 2009 was 5.1 percent of operating revenues, compared with 7.4 percent in the third quarter of 2008. The current quarter rate reflects the ultimate loss ratio for policy year 2009, which was reduced from 6.5 percent to 6.0 percent, with no reserve estimate adjustments required for prior policy years. Management lowered the expected claims rate for 2009 to 6.0 percent as a result of better than anticipated claims experience for the 2009 policy year.

Pretax income for the Title Insurance and Services segment was $58.5 million in the third quarter of 2009, compared with a pretax loss of $33.7 million in the third quarter of 2008. Results for the current quarter include net realized investment gains of $5.5 million and a reduction in reserve for claim losses of $8.4 million offset by employee separation costs of $1.5 million and lease termination costs of $2.5 million. Results for the third quarter of 2008 include net realized investment losses, employee separation costs and lease termination costs totaling $58.9 million.

Specialty Insurance. Total revenues at First American’s Specialty Insurance segment were $71.1 million in the third quarter of 2009, a 2 percent decrease relative to the third quarter of 2008, reflecting a decline in business volume at both the property and casualty insurance business and the home warranty business. Pretax income was $7.4 million in the third quarter of 2009, compared with $0.3 million in the third quarter of 2008. Results for the third quarter of 2008 include net realized investment losses of $3.1 million.

INFORMATION SOLUTIONS GROUP

“The Information Solutions Group increased revenue, pretax earnings and pretax margins relative to the third quarter of 2008,” said Frank V. McMahon, chief executive officer of the company’s Information Solutions Group. “Additionally, the amendment of our joint venture with Experian and our exchange offer to First Advantage shareholders are expected to provide enhanced operating and financial flexibility going forward. Our strong year-to-date sales and marketing activity contributed to our third quarter results, and we expect our ongoing investment in new product development to generate top-line growth in future periods.”

 

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First American Reports Financial Results for the Third Quarter of 2009

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Current Quarter Highlights:

 

   

Information Solutions Group generated revenues of $526.3 million, a 5.1 percent increase relative to the prior year

 

   

Information Solutions Group pretax income was $83.5 million, a 23.0 percent increase relative to the prior year

 

   

Letter of intent signed with Experian to amend joint venture agreement

 

   

Exchange offer commenced to acquire minority interest in First Advantage Corporation

Information and Outsourcing Solutions. Total revenues at the Information and Outsourcing Solutions segment were $227.7 million in the third quarter of 2009, a 25 percent increase from the prior year. The increase primarily reflected market share gains in many lines of business and an increase in volume of appraisal and the default-related businesses due to the higher level of loan loss mitigation and foreclosure-related activity in the market. Pretax income during the quarter was $43.9 million, a 40 percent increase from the prior year.

Data and Analytic Solutions. Total revenues at the Data and Analytic Solutions segment were $129.3 million in the third quarter of 2009, a 1 percent decrease relative to the third quarter of 2008. Revenues associated with sales of property information (including custom fulfillment projects) and Multiple Listing Service (MLS) software products were down relative to the same period in the prior year. These decreases were primarily due to the impact of market conditions on mortgage banking and real estate clients. In addition, the segment’s revenues were impacted by the consolidation of several large clients. These decreases were offset in part by increased demand for title and document products due to improved loan origination activity. Continued emphasis on cost containment also offset the impact of the overall decrease in revenues. Pretax income was $21.3 million in the third quarter of 2009, a 41 percent increase relative to the third quarter of 2008.

Risk Mitigation and Business Solutions. Total revenues at the Risk Mitigation and Business Solutions segment were $169.3 million in the third quarter of 2009, a 10 percent decrease relative to the third quarter of 2008. The decrease is directly related to the downturn in domestic and international hiring, weakness in the credit markets and the overall economic slowdown, which led to declines in revenues in the employer, multi-family and investigative/litigation support lines of business. These declines were offset to an extent by increased revenues in 2009 due to improvements in the segment’s lead generation business. Pretax income was $18.3 million in the third quarter of 2009, compared with $21.4 million in the third quarter of 2008.

 

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First American Reports Financial Results for the Third Quarter of 2009

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Teleconference/Webcast

First American’s third quarter results will be discussed in more detail on Thursday, Oct. 29, 2009, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (888) 469-1088. Callers from outside the United States may dial (517) 308-9315. The pass code for the event is FIRST AMERICAN. The live audio webcast of the call and the accompanying slide presentation will be available on First American’s Web site at www.firstam.com/investor. An audio replay of the conference call will be available through Nov. 5, 2009, by dialing (203) 369-3077. An audio archive of the call and the accompanying financial presentation will also be available for replay on First American’s investor Web site.

About First American

The First American Corporation (NYSE: FAF) is a FORTUNE 500® company that traces its history to 1889. With total revenues of approximately $6.2 billion in 2008, it is America’s largest provider of business information. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people’s lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within five primary business segments, including: Title Insurance and Services, Specialty Insurance, Information and Outsourcing Solutions, Data and Analytic Solutions, and Risk Mitigation and Business Solutions. More information about the company and an archive of its press releases can be found at www.firstam.com.

Web Site Disclosure

First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its direct title insurance operations, which are posted approximately 20 days after the end of each month.

Additional Information

First American has filed a Registration Statement on Form S-4 and Schedule TO and may file other documents with the Securities and Exchange Commission (SEC) in connection with the proposed First Advantage transaction. First Advantage stockholders should read those filings, and any other filings made by the company with the SEC in connection with the transaction, as they contain important information. These documents, as well as the company’s other public SEC filings, can be obtained without charge at the SEC’s Web site at www.sec.gov and at the company’s Web site at www.firstam.com.

Forward-Looking Statements

 

     Certain statements made in this press release, including but not limited to those related to the company’s potential acquisition of the minority interests in First American Real Estate Solutions LLC and First Advantage Corporation, and the effects of each on the Information Solutions Group’s operating and financial flexibility, the consummation and timing of the company’s previously announced spin-off, the

 

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First American Reports Financial Results for the Third Quarter of 2009

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     Financial Services Group’s strategic plan for 2010, and growth due to the Information Solutions Group’s investment in new product development, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may contain the words “believe,” “anticipate,” “expect,” “plan,” “predict,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases. 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; heightened scrutiny by legislators and regulators of the company’s title insurance and services segment and certain other of the company’s businesses; the inability to consummate the spin-off transaction or to consummate it in the form originally proposed as a result of, among other factors, the inability to obtain necessary regulatory approvals, the failure to obtain the final approval of the company’s board of directors, the inability to obtain third party consents or undesirable concessions or accommodations required to be made to obtain such consents, the landscape of the real estate and mortgage credit markets, market conditions, the inability to transfer assets into the entity being spun-off or unfavorable reactions from customers, ratings agencies, investors or other interested persons; the inability to realize the benefits of the proposed spin-off transaction as a result of the factors described immediately above, as well as, among other factors, increased borrowing costs, competition between the resulting companies, unfavorable reactions from employees, the inability of the Financial Services company to pay the anticipated level of dividends, the triggering of rights and obligations by the transaction or any litigation arising out of or related to the separation; consolidation among the company’s significant customers and competitors; changes in the company’s ability to integrate businesses which it acquires; unfavorable economic conditions; impairments in the company’s goodwill or other intangible assets; losses in the company’s investment portfolio; expenses of and funding obligations to the company’s pension plan; weakness in the commercial real estate market and increases in the amount or severity of commercial real estate transaction claims; and other factors described in Part I, Item 1A of the company’s annual report on Form 10-K for the year ended Dec. 31, 2008, as updated in Part II, Item 1A of the company’s quarterly reports on Form 10-Q for the quarters ended March 31 and June 30, 2009, in each case as 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.

Use of Non-GAAP Financial Measures

 

     This news release contains certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including adjusted net income and adjusted earnings per diluted share, which are adjusted to exclude net realized investment gains or losses, employee separation costs, facilities and other restructuring charges, reserve strengthening and adjustments and certain intangible impairments. Although these exclusions represent actual gains, losses or expenses to the company, they may mask the periodic income and financial and operating trends associated with the company’s business. To compensate for the inherent limitations of these non-GAAP measures, the company uses them in conjunction with the corresponding GAAP measures.

 

     The company is presenting these non-GAAP financial measures because they provide the company’s management and investors with additional insight into the operational performance of the company relative to earlier periods and relative to the company’s competitors. The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this news release, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

 

Media Contact:

   Investor Contact:

Carrie Gaska

Corporate Communications

The First American Corporation

(714) 250-3298 • cgaska@firstam.com

  

Mark Seaton

Investor Relations

The First American Corporation

(714) 250-4264 • mseaton@firstam.com

 

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First American Reports Financial Results for the Third Quarter of 2009

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The First American Corporation

Summary of Financial Results and Selected Information

(in thousands, except per share amounts and title orders)

(unaudited)

 

     For the Three Months Ended
September 30
    For the Nine Months Ended
September 30
     2009    2008     2009    2008

Total revenues

   $ 1,565,482    $ 1,518,970      $ 4,480,676    $ 4,863,146

Income before income taxes

   $ 113,001    $ 823      $ 348,427    $ 134,006

Income taxes provision (benefit)

   $ 41,719    $ (1,033   $ 128,252    $ 47,960

Net income

   $ 71,282    $ 1,856      $ 220,175    $ 86,046

Less: Net income attributable to noncontrolling interests

     15,920      10,196        58,516      45,463
                            

Net income (loss) attributable to The First American Corporation (FAC)

   $ 55,362    $ (8,340   $ 161,659    $ 40,583
                            

Net income (loss) attributable to FAC stockholders:

          

Basic

   $ 0.59    $ (0.09   $ 1.73    $ 0.44

Diluted

   $ 0.59    $ (0.09   $ 1.72    $ 0.44

Weighted average common shares outstanding:

          

Basic

     93,448      92,659        93,243      92,388

Diluted

     94,525      92,659        94,075      93,172

Title orders opened

     446,800      438,600        1,576,100      1,566,200

Title orders closed

     362,200      323,200        1,169,500      1,114,000

Paid title claims

     78,409      76,307        227,317      218,237

 

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First American Reports Financial Results for the Third Quarter of 2009

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The First American Corporation

Condensed Consolidated Balance Sheets

(in thousands, except share data)

(unaudited)

 

     September 30,
2009
    December 31,
2008
 

Assets

    

Cash and cash equivalents

   $ 1,095,922      $ 934,945   
                

Accounts and accrued income receivable, net

     511,508        558,946   
                

Income tax receivable

     20,825        61,678   
                

Investments:

    

Deposits with savings and loan associations and banks

     122,826        182,117   

Debt securities

     1,661,523        1,718,320   

Equity securities

     119,004        110,126   

Other long-term investments

     380,930        371,157   
                
     2,284,283        2,381,720   
                

Loans receivable, net

     162,240        151,692   
                

Property and equipment, net

     605,549        665,305   
                

Title plants and other indexes

     692,963        685,090   
                

Deferred income taxes

     100,923        149,473   
                

Goodwill

     2,614,209        2,594,738   
                

Other intangible assets, net

     271,256        298,411   
                

Other assets

     257,682        248,057   
                
   $ 8,617,360      $ 8,730,055   
                

Liabilities and Stockholders’ Equity

    

Demand deposits

   $ 1,175,249      $ 1,298,221   

Accounts payable and accrued liabilities

     925,051        994,093   

Deferred revenue

     710,053        728,844   

Reserve for known and incurred but not reported claims

     1,286,221        1,355,392   

Notes and contracts payable

     809,589        868,274   

Deferrable interest subordinated notes

     100,000        100,000   
                
     5,006,163        5,344,824   
                

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—93,357,000 and 92,963,000 shares

     93,579        92,963   

Additional paid-in capital

     815,458        801,228   

Retained earnings

     2,200,501        2,099,654   

Accumulated other comprehensive loss

     (193,776     (296,195
                

Total FAC stockholders’ equity

     2,915,762        2,697,650   
                

Noncontrolling interests

     695,435        687,581   
                

Total equity

     3,611,197        3,385,231   
                
   $ 8,617,360      $ 8,730,055   
                

 

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First American Reports Financial Results for the Third Quarter of 2009

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The First American Corporation

Condensed Consolidated Statement of Income and Comprehensive Income

(in thousands, except per share amounts)

(unaudited)

 

     For the Three Months Ended
September 30
    For the Nine Months Ended
September 30
 
     2009    2008     2009     2008  

Revenues

         

Operating revenues

   $ 1,510,181    $ 1,513,073      $ 4,333,149      $ 4,776,890   

Investment and other income

     50,195      56,098        163,150        182,346   

Gain on stock issued by subsidiary

     —        —          —          1,325   

Net realized investment losses

     5,106      (50,201     (15,623     (97,415
                               
     1,565,482      1,518,970        4,480,676        4,863,146   
                               

Expenses

         

Salaries and other personnel costs

     466,320      513,710        1,405,123        1,654,224   

Premiums retained by agents

     363,408      347,379        881,571        1,088,492   

Other operating expenses

     439,326      445,102        1,316,367        1,373,722   

Provision for policy losses and other claims

     97,181      121,903        291,188        343,885   

Depreciation and amortization

     62,260      59,993        165,794        177,219   

Premium taxes

     10,350      12,487        26,766        36,773   

Interest

     13,636      17,573        45,440        54,825   
                               
     1,452,481      1,518,147        4,132,249        4,729,140   
                               

Income before income taxes

     113,001      823        348,427        134,006   

Income taxes provision (benefit)

     41,719      (1,033     128,252        47,960   
                               

Net income

     71,282      1,856        220,175        86,046   

Less: Net income attributable to noncontrolling interests

     15,920      10,196        58,516        45,463   
                               

Net income (loss) attributable to FAC

     55,362      (8,340     161,659        40,583   
                               

Net income (loss) attributable to FAC stockholders:

         

Basic

   $ 0.59    $ (0.09   $ 1.73      $ 0.44   
                               

Diluted

   $ 0.59    $ (0.09   $ 1.72      $ 0.44   
                               

Cash dividends per share

   $ 0.22    $ 0.22      $ 0.66      $ 0.66   
                               

Weighted average number of shares:

         

Basic

     93,448      92,659        93,243        92,388   
                               

Diluted

     94,525      92,659        94,075        93,172   
                               

Net Income

   $ 71,282    $ 1,856      $ 220,175      $ 86,046   
                               

Other comprehensive income (loss), net of tax

         

Unrealized gain (loss) on securities

     14,733      (27,942     66,022        (78,751

Unrealized gain on securities for which credit-related portion was recocognized in net realized investment gains

     2,369      —          130        —     

Foreign currency translation adjustments

     13,859      (23,221     31,434        (19,321

Minimum pension liability adjustment

     3,690      2,049        11,068        6,215   
                               

Total other comprehensive income (loss), net of tax

     34,651      (49,114     108,654        (91,857
                               

Comprehensive income

     105,933      (47,258     328,829        (5,811

Less: Comprehensive income attributable to noncontrolling interests

     17,278      8,101        64,751        34,341   
                               

Comprehensive income (loss) attributable to FAC

   $ 88,655    $ (55,359   $ 264,078      $ (40,152
                               

 

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First American Reports Financial Results for the Third Quarter of 2009

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The First American Corporation

Segment Information

(in thousands, except percentages)

(unaudited)

 

     For the Three Months Ended September 30
     Total revenues    Pretax (A)     Margins
     2009    2008    2009    2008     2009    2008

Financial Services

                

Title Insurance and Services

   $ 996,998    $ 977,857    $ 58,523    $ (33,716   5.9%    -3.4%

Specialty Insurance

     71,086      72,758      7,438      316      10.5%    0.4%
                                      
   $ 1,068,084    $ 1,050,615    $ 65,961    $ (33,400   6.2%    -3.2%
                                      

Information Solutions

                

Information and Outsourcing Solutions

   $ 227,659    $ 181,845    $ 43,900    $ 31,407      19.3%    17.3%

Data and Analytic Solutions

     129,317      130,936      21,319      15,136      16.5%    11.6%

Risk Mitigation and Business Solutions

     169,309      188,064      18,313      21,365      10.8%    11.4%
                                      
   $ 526,285    $ 500,845    $ 83,532    $ 67,908      15.9%    13.6%
                                      
     For the Nine Months Ended September 30
     Total revenues    Pretax (A)     Margins
     2009    2008    2009    2008     2009    2008

Financial Services

                

Title Insurance and Services

   $ 2,724,335    $ 3,159,233    $ 120,877    $ (27,519   4.4%    -0.9%

Specialty Insurance

     205,705      225,376      16,862      17,491      8.2%    7.8%
                                      
   $ 2,930,040    $ 3,384,609    $ 137,739    $ (10,028   4.7%    -0.3%
                                      

Information Solutions

                

Information and Outsourcing Solutions

   $ 686,043    $ 566,695    $ 165,033    $ 128,870      24.1%    22.7%

Data and Analytic Solutions

     402,630      411,393      77,175      55,834      19.2%    13.6%

Risk Mitigation and Business Solutions

     550,465      588,327      58,689      64,453      10.7%    11.0%
                                      
   $ 1,639,138    $ 1,566,415    $ 300,897    $ 249,157      18.4%    15.9%
                                      

 

(A)— (Loss) income before income tax, minority interest and corporate expenses

 

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