SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (Date of earliest event reported) October 22, 1998
THE FIRST AMERICAN FINANCIAL CORPORATION
(Exact Name of the Registrant as Specified in Charter)
California 0-3658 95-1068610
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
114 East Fifth Street, Santa Ana, California 92701-4642
(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code (714) 558-3211
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events.
Year 2000 Disclosure
The Securities and Exchange Commission has issued interpretive guidance
regarding disclosure of Year 2000 issues and consequences, effective August 4,
1998 (the "Interpretation"). In accordance with the Interpretation, we provide
this disclosure to supplement the information contained in our 1997 Annual
Report on Form 10-K, our subsequent Quarterly Reports on Form 10-Q, each under
the Securities and Exchange Act of 1934, and our effective Registration
Statements under the Securities Act of 1933 which incorporate such reports by
reference.
Special Note of Caution Regarding Forward-Looking Statements
Certain statements contained in this document, particularly those
describing (1) our ability to assess and remediate the Year 2000 Problem by
implementing our Year 2000 plan, (2) our ability to implement our Year 2000 plan
in a timely manner, and (3) the costs resulting from implementation of our Year
2000 plan, may constitute "forward-looking statements" within the meaning of the
federal securities laws. When used in our documents or oral presentations, the
words "anticipate," "estimate," "expect," "objective," "projection," "forecast,"
"goal," or similar words are intended to identify forward-looking statements.
Forward-looking statements are based on our management's beliefs, assumptions,
and expectations of our future economic performance, taking into account the
information currently available to them. These statements are not statements of
historical fact. Forward-looking statements are subject to or may be impacted by
a number of factors, risks and uncertainties that could cause our actual
results, performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. In particular, give careful
consideration to the cautionary statements made in this document.
What is the Year 2000 Problem?
Much of today's information technology (e.g., computer systems) and
embedded technology (e.g., microcontrollers) identifies a particular year on the
basis of the last two digits of that year. For example, the year "1998" is
recognized by the digits "98." The inability of information technology and
embedded technology to properly recognize a year that begins with "20" instead
of "19," if not corrected, may result in the failure of systems (or the
production of erroneous results) which rely on information technology and
embedded technology. This failure of systems, production of erroneous results
and the resulting damages is commonly known as the "Year 2000 Problem."
How Does the Year 2000 Problem Impact the Company?
We are dependent, to a substantial degree, upon the proper functioning
of our computer systems as well as those of our vendors, suppliers and
customers. Most of our products and services rely on information and data
provided by others. Most of this information and data is provided electronically
and is dependent on information systems and telecommunications. For example, we
rely on governmental agencies to provide title and tax information. Similarly,
we deliver most of our products and services electronically. The inability of
our vendors and suppliers to provide accurate information in a timely manner,
our inability to accurately and timely process such information, the inability
of our customers to receive and use our products and services, and a general
disruption of telecommunications and utilities as a result of the Year 2000
Problem would most likely result in business interruption or shutdown, financial
loss, potential regulatory action, harm to our reputation and potential legal
liability.
What is our State of Readiness?
With the help of an outside consulting firm, we have created a Year
2000 Program Management Office and have adopted a five-step plan to address the
Year 2000 Problem. The five steps of our plan are: (1) awareness, (2)
inventory/assessment, (3) renovation, (4) testing, and (5) implementation. To
implement our plan, we have divided our company into "business units" comprised
of (a) the reporting regions of the title insurance subsidiaries, (b) the
subsidiary companies of our real estate information services business, (c) our
home warranty subsidiaries, (d) our trust and banking subsidiaries and (e) our
various other subsidiaries.
Our "awareness" phase involves communicating the nature and scope of
the Year 2000 Problem to the management of the business units in order to
engender strong management support for its resolution. Our
"inventory/assessment" phase involves the identification of our information
systems and non-information systems which require renovation or replacement to
become Year 2000 compliant. Our "renovation" phase involves the repair and/or
replacement of the systems identified in the prior phase. Our "testing" phase
involves the testing of repaired and replaced systems. Our "implementation"
phase involves the integration of tested systems into our daily operations.
All phases of our plan are currently active. The awareness phase will
continue throughout 1998 and 1999. June 30, 1998 was the target date for
completion of the inventory/assessment phase; that phase is substantially
complete. However, all of the phases of the plan must be revisited each time we
acquire a new business. Accordingly, the inventory/assessment phase remains
active. Based on our current knowledge, we have established the following target
dates: (1) December 31, 1998 for completion of renovation, (2) April 30, 1999
for completion of testing, and (3) June 30, 1999 for completion of
implementation. In each case, completion of the applicable phase is subject to
the limitation noted above for newly acquired business. We make no assurance
that we will be able to meet these target dates.
Our efforts to survey the Year 2000 readiness of our significant
vendors, suppliers and customers continues. To date, we have not received
sufficient information from these parties about their Year 2000 plans to predict
the outcome of their efforts. Even after responses are received, there can be no
assurance that the systems of our significant vendors, suppliers and customers
will be timely renovated.
What will it cost to implement the Year 2000 Plan?
To date we have spent approximately $5 million in implementing our Year
2000 plan. We expect to incur at least an additional $25 million to $35 million
in implementing our Year 2000 plan. About half the costs will be for hardware
and software replacement and about half will be for labor. The costs for
hardware and software will be capitalized over the estimated useful lives of the
hardware and software. Labor costs will be expenses incurred. Our Year 2000 plan
costs are being funded through operating cash flow.
Do we have Contingency Plans?
With the help of a professional disaster planner, we are in the process
of creating company-wide and business unit contingency plans for unexpected
systems failures as a result of the Year 2000 Problem. We hope to have our
contingency plans in effect by the end of 1998.
Will our Year 2000 Plan be reviewed?
We have engaged a consultant to review our Year 2000 plan. Under the
terms of this engagement, the consultant will (1) review the operations of (a)
the Year 2000 Program Management Office, (2) review our Year 2000 plan, and (3)
review the implementation of the Year 2000 plan at selected locations. From time
to time during the review, the consultant will report its findings to the Audit
Committee of our Board of Directors.
No Assurances
The costs to implement our Year 2000 plan and our target dates for
completion of the various phases of our Year 2000 plan are based on current
estimates. These estimates reflect numerous assumptions about future events,
including the continued availability of certain resources, the timing and
effectiveness of third party renovation plans and other factors. We can give no
assurance that these estimates will be achieved, and actual results could differ
materially from these estimates.
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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 hereunto duly authorized.
THE FIRST AMERICAN FINANCIAL CORPORATION
Date: October 22, 1998 By: /s/ Thomas A. Klemens
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Name: Thomas A. Klemens
Title: Executive Vice President and
Chief Financial Officer
