<PAGE>
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, 1995
--------------
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 of incorporation (I.R.S. Employer
or organization) Identification No.)
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 X 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 - 11,430,122 as of May 9, 1995
<PAGE>
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
Vice President, Chief Financial Officer
(Principal Financial Officer and Duly
Authorized to Sign on Behalf of
Registrant)
Date: May 11, 1995
1
<PAGE>
Part I: Financial Information
---------------------
Item I: Financial Statements
--------------------
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31
----------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Revenues
Operating revenues $256,288,000 $368,604,000
Investment and other income 4,866,000 3,832,000
------------- ------------
261,154,000 372,436,000
------------- ------------
Expenses
Salaries and other personnel costs 100,050,000 110,320,000
Premiums retained by agents 93,395,000 145,912,000
Other operating expenses 59,287,000 58,591,000
Provision for title losses and other claims 21,306,000 29,663,000
Depreciation and amortization 4,211,000 4,610,000
Interest 1,613,000 1,568,000
Minority interests (20,000) 949,000
------------- ------------
279,842,000 351,613,000
------------- ------------
Income (loss) before premium and income taxes (18,688,000) 20,823,000
Premium taxes 2,821,000 4,325,000
------------- ------------
Income (loss) before income taxes (21,509,000) 16,498,000
Income taxes (8,800,000) 7,100,000
------------- ------------
Net income (loss) $(12,709,000) $ 9,398,000
============= ============
Net income (loss) per share $( 1.11) $ .82
============= ============
Cash dividends per share $ .15 $ .15
============= ============
Weighted average number of shares 11,401,000 11,416,000
============= ============
</TABLE>
2
<PAGE>
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
-------------- -----------------
<C> <C>
<S>
ASSETS
Cash and cash equivalents $102,948,000 $154,234,000
------------ ------------
Accounts and accrued income receivable, net 54,714,000 47,103,000
------------ ------------
Income tax receivable 13,756,000 7,324,000
------------ ------------
Investments:
Deposits with savings and loan associations and banks 19,900,000 18,538,000
Debt securities 140,518,000 149,190,000
Equity securities 22,913,000 21,813,000
Other long-term investments 24,332,000 25,224,000
------------ ------------
207,663,000 214,765,000
------------ ------------
Loans receivable, net 42,645,000 40,546,000
------------ ------------
Property and equipment, at cost 181,931,000 175,214,000
Less - accumulated depreciation (66,976,000) (64,659,000)
------------ ------------
114,955,000 110,555,000
------------ ------------
Title plants and other indexes 76,125,000 54,781,000
------------ ------------
Assets acquired in connection with claim settlements
(net of valuation reserves of $11,422,000 and $11,289,000) 24,803,000 27,223,000
------------ ------------
Deferred income taxes 38,938,000 43,726,000
------------ ------------
Goodwill and other intangibles, net 68,379,000 61,322,000
------------ ------------
Deferred policy acquisition costs 25,653,000 26,060,000
------------ ------------
Other assets 46,432,000 41,010,000
------------ ------------
$817,011,000 $828,649,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 38,485,000 $ 38,695,000
------------ ------------
Accounts payable and accrued liabilities 57,527,000 60,806,000
------------ ------------
Deferred revenue 113,599,000 117,828,000
------------ ------------
Reserve for known and incurred but not reported claims 212,757,000 206,743,000
------------ ------------
Notes and contracts payable 91,080,000 89,600,000
------------ ------------
Minority interests in consolidated subsidiaries 22,006,000 22,867,000
------------ ------------
Stockholders' equity:
Preferred stock, $1 par value
Authorized - 500,000 shares; Outstanding - None
Common stock, $1 par value
Authorized - 24,000,000 shares
Outstanding - 11,435,000 and 11,395,000 shares 11,435,000 11,395,000
Additional paid-in capital 44,398,000 44,013,000
Retained earnings 227,934,000 242,356,000
Net unrealized loss on securities (2,210,000) (5,654,000)
------------ ------------
281,557,000 292,110,000
------------ ------------
$817,011,000 $828,649,000
============ ============
</TABLE>
3
<PAGE>
THE FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
------------------------
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31
---------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (12,709,000) $ 9,398,000
Adjustments to reconcile net income (loss) to cash (used for)
provided by operating activities-
Provision for title losses and other claims 21,306,000 29,663,000
Depreciation and amortization 4,211,000 4,610,000
Minority interests in net income (loss) (20,000) 949,000
Other, net 1,307,000 1,720,000
Changes in assets and liabilities excluding effects of
company acquisitions and noncash transactions-
Claims paid, including assets acquired, net of recoveries (13,822,000) (26,768,000)
Net change in income tax accounts (3,765,000) (6,352,000)
(Increase) decrease in accounts and accrued income receivable (3,795,000) 748,000
Decrease in accounts payable and accrued liabilities (7,365,000) (8,907,000)
(Decrease) increase in deferred revenue (4,304,000) 7,488,000
Other, net (2,658,000) (4,620,000)
------------- ------------
Cash (used for) provided by operating activities (21,614,000) 7,929,000
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash effect of company acquisitions (29,828,000) (587,000)
Net (increase) decrease in deposits with banks (362,000) 2,136,000
Net increase in loans receivable (2,099,000) (3,746,000)
Purchases of debt and equity securities (3,533,000) (11,483,000)
Proceeds from sales of debt and equity securities 10,327,000 4,432,000
Proceeds from maturities of debt securities 6,366,000 5,325,000
Net decrease in other investments 1,220,000 49,000
Capital expenditures (4,751,000) (9,268,000)
Proceeds from sale of property and equipment 37,000 125,000
------------- ------------
Cash used for investing activities (22,623,000) (13,017,000)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand deposits (210,000) 1,427,000
Repayment of debt (4,436,000) (2,829,000)
Purchase of Company shares (690,000) (710,000)
Cash dividends (1,713,000) (1,722,000)
------------- ------------
Cash used for financing activities (7,049,000) (3,834,000)
------------- ------------
Net decrease in cash and cash equivalents (51,286,000) (8,922,000)
Cash and cash equivalents - Beginning of year 154,234,000 130,298,000
------------- ------------
- End of first quarter $102,948,000 $121,376,000
============= ============
SUPPLEMENTAL INFORMATION:
Cash paid during the first quarter for:
Interest $ 1,898,000 $ 1,405,000
Premium taxes $ 3,465,000 $ 6,855,000
Income taxes $ 1,122,000 $ 15,633,000
Noncash investing and financing activities:
Shares issued for stock bonus plan $ 1,115,000 $ 1,910,000
Liabilities incurred in connection with company acquisitions $ 11,276,000 $ 1,812,000
Net unrealized gain (loss) on securities $ 3,444,000 $ (1,806,000)
Company acquisitions in exchange for common stock $ 2,284,000
Increase in equity due to reduction of
long-term debt of ESOT $ 650,000
</TABLE>
4
<PAGE>
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. Certain
1994 interim amounts have been reclassified to conform with the 1995 interim
presentation. This report should be read in conjunction with the Company's 1994
Annual Report to Stockholders and the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
Note 2 - Acquisitions
- ----------------------
On January 3, 1995, the Company completed the acquisitions of Credco, Inc., a
national mortgage credit reporting company and Flood Data Services, Inc.
("FDSI"), a nationwide flood certification firm, for a combined purchase price
of $32 million in cash and notes.
These acquisitions have been accounted for by the purchase method of accounting
and, accordingly, the purchase price of each has been allocated to their
respective assets acquired and liabilities assumed based on estimated fair
values at the date of acquisition. The excess purchase price of $5.7 million
over the estimated fair value of the net assets of Credco, Inc. has been
recorded as goodwill and is being amortized over a 40-year period. The primary
asset of FDSI is an index of maps and other records with a fair value of $21.1
million which provides information as to whether or not a property is in a
governmentally delineated Special Flood Hazard Area. Since this properly
maintained index has an indefinite life and will not diminish in value with the
passage of time, no provision will be made for depreciation. Accordingly, this
index has been included with title plants in the Company's Condensed
Consolidated Balance Sheet at March 31, 1995.
5
<PAGE>
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 of 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 of 1995. As a result, operating revenues for the
quarter decreased 30.5% when compared with the record first quarter of 1994. In
response to the adverse market conditions, the Company began to consolidate
operating units and match staffing levels to the reduced order volumes. This
resulted in staff reductions of 22.0% from April 1994 through February 1995.
However, these cost reductions were not commensurate with the unprecedented
revenue declines resulting in a first quarter net loss of $12.7 million, or
$1.11 per share. As interest rates stabilized in late February, coupled with
the emergence of spring, new orders have intensified in the resale and new home
sale sector of the business.
OPERATING REVENUES
Set forth below is a summary of operating revenues for each of the Company's
segments.
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
($000)
1995 % 1994 %
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Title Insurance:
Direct operations $104,291 41 $153,258 42
Agency operations 115,026 45 178,811 48
-------- --- -------- ---
219,317 86 332,069 90
Real Estate Information 26,105 10 27,463 7
Home Warranty 7,389 3 6,135 2
Trust and Banking 3,477 1 2,937 1
-------- --- -------- ---
Total $256,288 100 $368,604 100
======== === ======== ===
</TABLE>
TITLE INSURANCE. Operating revenues from direct operations decreased 32.0% when
compared with the same period of the prior year. This decrease was primarily
attributable to a 36.4% reduction in the number of title orders closed by the
Company's direct operations, offset in part by an increase in the average
revenue per order closed. The Company's direct operations closed 135,300 title
orders during the current quarter, as compared with the 212,800 title orders
closed during the same period of the prior year. The average revenues per order
closed were $771 for the current quarter, as compared with $720 for the same
period of the prior year. This increase was primarily due to a lower than usual
average revenues per order closed in the prior year due to the numerous
refinance closings. Operating revenues from agency operations decreased 35.7%
when compared with the same period of the prior year. This decrease was
primarily attributable to the same factors affecting direct operations mentioned
above.
REAL ESTATE INFORMATION. Real estate information operating revenues decreased
4.9% when compared with the same period of the prior year. This decrease was
primarily due to the same factors affecting title insurance mentioned above,
offset in part by $9.6 million of operating revenues contributed by new
acquisitions.
6
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations (continued)
- ----------------------
HOME WARRANTY. Home warranty operating revenues increased 20.4% when compared
with the same period of the prior year. This increase was primarily
attributable to improvements in certain of the residential resale markets in
which this business segment operates as well as successful geographic expansion.
INVESTMENT AND OTHER INCOME
Investment and other income increased $1.0 million, or 27.0% when compared with
the same period of the prior year. This increase was primarily attributable to
a 7.8% increase in the average investment portfolio balance, a 0.7% increase in
yields and $0.4 million of capital losses incurred in the first quarter 1994.
TOTAL OPERATING EXPENSES
TITLE INSURANCE. Salaries and other personnel costs ("personnel expenses") were
$81.8 million, a decrease of 15.6% when compared with personnel expenses of
$96.9 million for the same period of the prior year. This decrease was
primarily due to personnel reductions that commenced during the beginning of the
second quarter 1994 in order to match staffing levels to reduced order volumes.
Agents retained $93.4 million, or 81.2%, and $145.9 million, or 81.6%, of the
title premiums generated by agency operations for the first quarter 1995 and
1994, 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 slight variation in the percentage amount of title
premiums retained by agents.
Other operating expenses were $43.0 million, a decrease of 8.9% when compared
with the same period of the prior year. This decrease was primarily
attributable to a decline in incremental costs associated with processing orders
due to the reduction in business activity, partially offset by general price
level increases as well as acquisition activity.
The provision for title losses as a percentage of title insurance operating
revenues was 7.6% for the current quarter and 7.8% for the same period of the
prior year. The decrease in the current quarter was primarily due to an
improvement in the Company's loss experience.
REAL ESTATE INFORMATION. Real estate information personnel and other operating
expenses were $26.0 million, an increase of 53.8% when compared with the $16.9
million for the same period of the prior year. This increase was primarily due
to $9.0 million of personnel and other operating expenses attributable to
acquisitions as well as general price level increases, offset in part by
personnel reductions and cost containment programs.
HOME WARRANTY. Home warranty personnel and other operating expenses were $2.5
million, an increase of 13.6% when compared with the $2.2 million for the same
period of the prior year. This increase was primarily due to costs incurred
servicing the increase in business volume. The provision for home warranty
losses expressed as a percentage of home warranty operating revenues was 54.2%
and 51.6% for the first quarter 1995 and 1994, respectively. The increased loss
ratio was primarily attributable to an increase in the average number of claims
per contract.
7
<PAGE>
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.
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------------
($000)
1995 % 1994 %
--------- ---- -------- ----
<S> <C> <C> <C> <C>
Title Insurance $(14,561) 108 $14,392 55
Real Estate Information (1,380) 10 9,568 37
Home Warranty 1,528 (11) 1,399 5
Trust and Banking 932 (7) 677 3
-------- --- ------- ---
Total before corporate (13,481) 100 26,036 100
=== ===
Corporate (5,207) (5,213)
-------- -------
Total $(18,688) $20,823
======== =======
</TABLE>
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, and profit margins from
commercial transactions are generally higher than from residential 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 $2.8 million, a decrease of 34.9% when compared with the $4.3
million for the same period of the prior year. This decrease corresponds to the
relative decrease 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 40.9% for the current quarter and 43.0% for
the first quarter 1994. The decrease in effective rate was primarily
attributable to a decrease in state income taxes resulting from the Company's
non-insurance subsidiaries' decrease in contribution to pretax profit.
NET INCOME
Net loss for the first quarter 1995 was $12.7 million, or $1.11 per share,
compared with net income for the first quarter 1994 of $9.4 million, or $.82 per
share.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations (continued)
- ----------------------
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents decreased $51.3 million and $8.9 million for the
three months ended March 31, 1995 and 1994, respectively. The decrease in the
current period was primarily attributable to cash used for operating activities
and the net cash effect of company acquisitions. On January 3, 1995, the
Company acquired Credco, Inc., a national mortgage credit reporting company, and
Flood Data Services, Inc., a nationwide flood certification firm, for a
combined purchase price of $31.5 million in cash and $0.5 million in notes. The
decrease in the prior year period was primarily due to capital expenditures, an
increase in loans receivable and the repayment of debt, offset in part by cash
provided by operating activities.
Notes and contracts payable as a percentage of total capitalization increased to
23.1% at March 31, 1995, from 22.1% at December 31, 1994. The increase was
primarily due to a reduction in equity caused by the net loss for the current
period.
Management believes that all of its anticipated cash requirements for the
immediate future will be met from internally generated funds.
9
<PAGE>
Part II: Other Information
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The annual meeting of shareholders of the Company (the "Meeting")
was held on Wednesday, April 26, 1995.
(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.
<TABLE>
<CAPTION>
Name of Nominee Votes For Votes Withheld Broker Nonvotes
--------------- --------- -------------- ---------------
<S> <C> <C> <C>
George L. Argyros 8,288,723 370,465 554,602
J. David Chatham 8,616,276 42,912 554,602
William G. Davis 8,285,641 373,547 554,602
James L. Doti 8,287,041 373,147 554,602
Lewis W. Douglas, Jr. 8,615,435 43,753 554,602
Paul B. Fay, Jr. 8,615,639 43,549 554,602
Frank C. Harrington 8,615,339 43,849 554,602
D.P. Kennedy 8,615,806 43,382 554,602
Parker S. Kennedy 8,615,806 43,382 554,602
Robert B. McLain 8,616,444 42,744 554,602
Anthony R. Moiso 8,289,284 369,904 554,602
R.J. Munzer 8,615,419 43,769 554,602
Frank E. O'Bryan 8,613,673 45,515 554,602
Roslyn B. Payne 8,612,994 46,194 554,602
Virginia M. Ueberroth 8,612,445 42,743 554,602
</TABLE>
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
(4) Amendment No. 3 dated as of March 31, 1995, to Amendment and
Restatement dated as of April 28, 1993, of Credit Agreement
dated as of April 21, 1992.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarterly period
covered by this report.
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -------------------------------------------------------
<C> <S>
(4) Amendment No. 3 dated as of March 31, 1995, to Amendment
and Restatement dated as of April 28, 1993, of Credit
Agreement dated as of April 21, 1992.
(27) Financial Data Schedule.
</TABLE>
11
<PAGE>
Composite Conformed Copy
Exhibit 4
AMENDMENT NO. 3
AMENDMENT NO. 3 dated as of March 31, 1995 to the AMENDMENT AND
RESTATEMENT dated as of April 28, 1993 of CREDIT AGREEMENT dated as of April 21,
1992 between THE FIRST AMERICAN FINANCIAL CORPORATION (the "Company"), the
-------
lenders party thereto (the "Lenders") and THE CHASE MANHATTAN BANK (NATIONAL
-------
ASSOCIATION), as agent (the "Agent") for the Lenders (such Amendment and
-----
Restatement, as amended by Amendment No. 1 thereto dated as of March 31, 1994
and Amendment No. 2 thereto dated as of November 22, 1994, being herein called
the "Credit Agreement").
----------------
The Company has requested that the Lenders agree to certain amendments
of the Credit Agreement. The Lenders are willing to do so on the terms and
conditions contained herein.
Accordingly, the parties hereto hereby agree as follows :
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement shall
-----------
have the same meanings when used herein.
SECTION 2. AMENDMENTS OF CREDIT AGREEMENT. Effective as of March 31,
------------------------------
1995 but subject to Section 3 hereof, the Credit Agreement is hereby amended as
follows:
A. Section 1.01 of the Credit Agreement is amended by (1) deleting
the definition of "Fixed Charge Coverage Ratio" and (2) inserting the following
new defined terms in the appropriate alphabetical order:
"Available Cash" shall mean, for any Computation Date, the sum of the
--------------
following (without duplication): (a) cash, Permitted Investments and
balances in operating deposit accounts with banks held by the Company and
Non-Regulated First Tier Subsidiaries as at such Computation Date that are
not subject to any Liens (provided that such cash, Permitted Investments
and balances held by any Non-Regulated First-Tier Subsidiary shall be taken
into account only if and to the extent an amount equal to the aggregate
amount thereof may be distributed by such Subsidiary to the Company on such
Computation Date and thereafter during the next succeeding Computation
Period under any legal, regulatory, contractual or other restrictions on
distributions by such Subsidiary to the Company) plus (b) the aggregate of
the Dividend Capacity Amounts for the Regulated First-Tier Subsidiaries for
such Computation Period minus (or plus, in the case of a negative number)
(c) the sum of (1) the aggregate principal amount of the New Revolving
Credit Loans outstanding on such Computation Date minus (2) the aggregate
principal amount of the New Revolving Credit Loans outstanding on the last
day of the fiscal quarter of the Company next preceding the fiscal quarter
in which such Computation Date occurs minus (or plus, in the case of a
negative number) (d) the sum of (1) the aggregate principal amount of loans
and advances made to the Company by Regulated First-Tier Subsidiaries
outstanding on such Computation Date minus (2) the aggregate principal
amount of such loans and advances outstanding on the last day of the fiscal
quarter of the Company next preceding the fiscal quarter in which such
Computation Date occurs plus (e) the sum of (without duplication) (1) the
aggregate amount of payments made by the Company in cash during the fiscal
quarter of the Company ending on such Computation Date in respect of
acquisitions made as permitted by Section 8.05(a) hereof plus (2) capital
contributions made by the Company to its Subsidiaries during such fiscal
quarter plus (3) Dividend Payments made during such fiscal quarter plus (4)
payments made by the Company pursuant to its 401(k) Savings Plan during
such fiscal quarter to match contributions made by participants in such
Plan plus (5) payments made by the Company during such fiscal quarter to
its Employee Stock Ownership Trust to fund repurchases by such Trust of
shares of capital stock of the Company (except that the sum provided for in
this clause (e) shall not exceed the aggregate of the amounts subtracted
pursuant to clauses (c) and (d) above in determining Available Cash for
such Computation Date); provided that none of the calculations provided for
by clauses (c), (d) and (e) above shall be taken into account in
determining Available Cash for the Computation Date occurring on March 31,
1995.
"Computation Period" shall mean each period of four consecutive fiscal
------------------
quarters of the Company, the first of which shall commence on April 1,
1995.
12
<PAGE>
"Computation Date" shall mean the last day of each fiscal quarter of
----------------
the Company, the first of which shall occur on March 31, 1995.
"Dividend Capacity Amount" shall mean, when used with respect to any
------------------------
Regulated First-Tier Subsidiary, for any Computation Period, the maximum
amount of dividends that such Subsidiary is permitted to pay to the Company
on the first day of such Computation Period on the shares of capital stock
of such Subsidiary held by the Company under the laws and regulations
applicable to such Subsidiary determined in accordance with the statutory
or regulatory accounting principles applicable to such Subsidiary (and
taking account of any orders, decrees, memoranda of understanding and other
actions by, or agreements with, the Applicable Bank Regulatory Authority or
Applicable Insurance Regulatory Authority, as the case may be, having
jurisdiction over such Subsidiary and any contractual or other restrictions
affecting the payment of dividends by such Subsidiary); provided that, for
purposes of this definition, (a) statutory or regulatory limitations on the
payment of dividends by such Subsidiary based on the surplus or retained
earnings of such Subsidiary determined as of the last day of the fiscal
year of such Subsidiary next preceding such Computation Period shall be
determined (if the Computation Date next preceding such Computation Period
is later than such last day) as of such Computation Date and (b) statutory
or regulatory limitations on the payment of dividends by such Subsidiary
based on the net income of such Subsidiary for a period comprising one or
more fiscal years of such Subsidiary next preceding such Computation Period
shall be determined (if the Computation Date next preceding such
Computation Period is later than the last day of the last such fiscal year)
for a period having a duration equal to the same number of months in such
fiscal year or fiscal years but ending on such Computation Date.
"Non-Regulated First-Tier Subsidiary" shall mean any Subsidiary of the
-----------------------------------
Company (other than a Regulated First-Tier Subsidiary) owned directly by
the Company.
"Pro Forma Fixed Charge Coverage Ratio" shall mean, as at the first
-------------------------------------
day of any each Computation Period, the ratio of (a) Available Cash for the
Computation Date next preceding such Computation Period to (b) Pro Forma
Fixed Charges for such Computation Period.
"Pro Forma Fixed Charges" shall mean, for any Computation Period, the
-----------------------
sum of the following (without duplication): (a) all payments of principal
of Indebtedness scheduled to be made by the Company and the Non-Regulated
First-Tier Subsidiaries during such Computation Period plus (b) all
----
payments of interest in respect of Indebtedness of the Company and the Non-
Regulated First-Tier Subsidiaries estimated to be made during such
Computation Period (determined, in the case of any such interest payable on
a floating rate basis during such Computation Period, at the applicable
floating rate as in effect on the Computation Date next preceding such
Computation Period) plus (c) net Federal, state and local income taxes
payable (or minus net Federal, state and local income taxes receivable) by
the Company as of such Computation Date plus (d) Dividend Payments
estimated to be made during such Computation Period (such estimate to take
account of changes in the outstanding shares of capital stock of the
Company, the respective rates at which dividends are payable on such shares
and other factors affecting the amount of Dividend Payments to become
effective during such Computation Period all to the extent such changes
have been approved by the Board of Directors of the Company prior to such
Computation Period).
"Regulated First-Tier Subsidiary" shall mean any Subsidiary of the
-------------------------------
Company that is an Insurance Company directly owned by the Company or a
Bank Subsidiary directly owned by the Company.
B. Section 8.01 of the Credit Agreement is amended by inserting the
following at the end of the last sentence of said Section 8.01:
(such certificate to include, with respect to said Section 8.11, (I) a
description in reasonable detail of the assumptions underlying the
estimates used in determining Pro Forma Fixed Charges for the Computation
Period commencing on the day next following the last day of such fiscal
period or fiscal year and a certification that such assumptions and
estimates are reasonable and were made in good faith and (II) if such
Computation Period commences on or after July 1, 1995, a description in
reasonable detail of any material differences between such assumptions and
the corresponding assumptions underlying the estimates used in determining
Pro Forma Fixed Charges for the then next preceding Computation Period and
the reasons therefor)
13
<PAGE>
C. Section 8.09 of the Credit Agreement is amended to read as
follows:
8.09 Stockholders' Equity. The Company will not permit Stockholders'
--------------------
Equity to be less than $265,000,000 at any time.
D. Section 8.11 of the Credit Agreement is amended to read as
follows:
8.11 Pro Forma Fixed Charge Coverage Ratio. The Company will not
-------------------------------------
permit the Pro Forma Fixed Charge Coverage Ratio for the Computation Period
commencing on the first day of any fiscal quarter of the Company to be less
than 1.4 to 1.
E. Each reference in the Credit Agreement to the Credit Agreement
(including references such as "herein", "hereunder" and the like) is amended to
refer to the Credit Agreement as amended hereby and (unless the context
otherwise requires) to this Amendment.
F. Except as hereby expressly amended, the Credit Agreement shall
remain in full force and effect.
SECTION 3. EFFECTIVENESS OF AMENDMENTS. The amendments provided for
---------------------------
by Section 2 hereof shall become effective upon the satisfaction of the
following conditions precedent (except, other than in the case of the condition
precedent specified in clause (a) below, to the extent waived by or with the
consent of the Majority Lenders): (a) the execution and delivery by the Agent
of a counterpart of this Amendment and the receipt by the Agent of counterparts
of this Amendment executed and delivered by the Company and Lenders constituting
the Majority Lenders; (b) the receipt by the Agent of evidence satisfactory to
Milbank, Tweed, Hadley & McCloy of the due authorization, execution and delivery
by the Company of this Amendment; and (c) the receipt by the Agent of a
certificate of a senior officer of the Company to the effect that no Default
under the Credit Agreement (as amended hereby) has occurred and is continuing.
The Agent will advise the Company and the Lenders when such conditions have been
so satisfied (or waived as aforesaid).
SECTION 4. EXPENSES. The Company hereby confirms its obligations
--------
under Section 11.03(a)(ii) of the Credit Agreement with respect to the
reasonable out-of-pocket costs and expenses of the Agent (including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy)
in connection with the negotiation, preparation, execution and delivery of this
Amendment).
SECTION 5. COUNTERPARTS. This Amendment may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Amendment by
executing any such counterpart.
SECTION 6. NEW YORK LAW. This Amendment shall be governed by and
------------
construed in accordance with the laws of the State of New York.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
THE FIRST AMERICAN FINANCIAL
CORPORATION
By /s/ Thomas A. Klemens
-----------------------
Title: Vice President/Chief Financial Officer
By /s/ Parker S. Kennedy
-----------------------
Title: President
THE CHASE MANHATTAN BANK, N.A.
By /s/ Robert A. Foster
----------------------
Title:
FIRST INTERSTATE
BANK OF CALIFORNIA
By /s/ Marla W. Johnson
----------------------
Title: Vice President
IMPERIAL BANK
By /s/ Paul Krupela
------------------
Title: Vice President
SANWA BANK CALIFORNIA
By /s/ Art Dunbar
----------------
Title: Vice President
UNION BANK
By /s/ D.S. Lambell
------------------
Title: Vice President
NBD BANK
By /s/ Richard J. Johnsen
------------------------
Title: Vice President
15
<PAGE>
THE CANADA LIFE
ASSURANCE COMPANY
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee on behalf
of The Canada Life Assurance Company
By
--------------------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.,
as Agent
By /s/ Robert A. Foster
--------------------------------------
Title:
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 140,518,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 22,913,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 207,663,000
<CASH> 102,948,000
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 25,653,000
<TOTAL-ASSETS> 817,011,000
<POLICY-LOSSES> 212,757,000
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 91,080,000
<COMMON> 11,435,000
0
0
<OTHER-SE> 270,122,000
<TOTAL-LIABILITY-AND-EQUITY> 817,011,000
256,288,000
<INVESTMENT-INCOME> 4,866,000
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 21,306,000
<UNDERWRITING-AMORTIZATION> 1,224,000
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> (21,509,000)
<INCOME-TAX> (8,800,000)
<INCOME-CONTINUING> (12,709,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,709,000)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
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<CUMULATIVE-DEFICIENCY> 0
</TABLE>
