REGISTRATION NO. 333-56521
FILED PURSUANT TO RULE 424(B)(3)
PROSPECTUS
3,000,000 COMMON SHARES
THE FIRST AMERICAN FINANCIAL CORPORATION
This prospectus (this "Prospectus") relates to the offering from time to
time by The First American Financial Corporation (the "Company"), a California
corporation, of up to 3,000,000 aggregate amount of its Common shares, $1.00 par
value (the "Shares"), upon terms to be determined at the time of each such
offering.
The Shares are to be offered directly by the Company in connection with the
acquisition from time to time of the assets of, or ownership interests in,
certain entities engaged in the same or similar lines of business as the Company
or any of its subsidiaries. The consideration for such acquisitions will consist
of Shares, cash, notes or other evidences of indebtedness, guarantees,
assumption of liabilities, tangible or intangible property, or a combination
thereof, as determined from time to time by negotiations between the Company and
the owners or controlling persons of the assets or ownership interests to be
acquired.
The Company contemplates that the specific terms of an acquisition will be
determined by negotiations between the Company and the owners or controlling
persons of the assets or ownership interests to be acquired. Factors taken into
account in selecting an acquisition include, among other relevant factors, the
quality and reputation of the business to be acquired, the assets, liabilities,
results of operations and cash flows of the business, the quality of its
management and employees, its earnings potential, the geographic locations of
the business and the current market value of the Shares. The Company anticipates
that Shares issued in any such acquisition will be valued at a price reasonably
related to the market value of the Shares, either at the time the terms of the
acquisitions are tentatively agreed upon, or at or about the time of closing, or
during the period or periods prior to the delivery of the Shares.
The Company does not expect that underwriting discounts or commissions will
be paid, except that finders fees may be paid to persons from time to time in
connection with specific acquisitions. Any person receiving such fees may be
deemed an "underwriter" within the meaning of the Securities Act of 1933 (the
"Securities Act").
Shares issued pursuant to this Prospectus, and any applicable supplement to
this Prospectus (a "Supplement") or post-effective amendment (a "Post-Effective
Amendment") may be reoffered pursuant hereto by the holders thereof (the
"Selling Shareholders") from time to time in transactions on the open market, in
negotiated transactions, through the writing of options on such Shares or
through a combination of such methods of sale, at negotiated prices, fixed
prices which may be changed, market prices prevailing at the time of sale or
prices relating to such prevailing prices. See "Selling Shareholders."
THE SHARES ARE TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"FAF." ON AUGUST 27, 1998, THE CLOSING PRICE OF THE SHARES ON THE NEW YORK STOCK
EXCHANGE WAS $30.
SEE "RISK FACTORS" BEGINNING ON PAGE 1 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS BEFORE MAKING AN INVESTMENT IN THE
SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 31, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549; and at the following Regional Offices of the Commission: New York
Regional Office, Seven World Trade Center, 13th Floor, Suite 1300, New York, New
York 10048; and Chicago Regional Office, Citicorp Center, 500 West Madison
Street, 14th Floor, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Commission also maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy statements and other
information regarding the Company. In addition, such reports, proxy statements
and other information can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, on which the Shares
listed.
This Prospectus constitutes part of a Registration Statement on Form S-4
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. In accordance with the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto. For further
information concerning the Company and the Shares offered hereby, reference is
hereby made to the Registration Statement and the exhibits and schedules filed
therewith which may be obtained at the Commission's offices whose addresses are
listed above. The Registration Statement has been filed electronically and may
be obtained at the Commission's Web site listed above. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
The documents listed in (1), (2), (3), (4), (5), (6), (7), (8), (9), (10)
and (11) below are incorporated by reference in this Prospectus, and all
documents filed by the Company with the Commission pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of any offering of securities made by
this Prospectus, shall be deemed to be incorporated by reference in this
Prospectus and to be part hereof from the date of filing of such documents. Any
statement contained herein, or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
so modified or superseded, to constitute a part of this Prospectus.
(1) The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997.
(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998.
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 1998.
(4) The Company's Report on Form 8-K dated January 23, 1998.
(5) The Company's Report on Form 8-K dated January 27, 1998.
(6) The Company's Report on Form 8-K dated March 18, 1998.
(7) The Company's Report on Form 8-K dated March 31, 1998.
(8) The Company's Report on Form 8-K dated April 7, 1998.
(9) The Company's Report on Form 8-K dated June 26, 1998.
(10) The description of the Shares contained in the Company's Registration
Statement on Form 8-A registering its Common shares, par value $1.00 per
share, under Section 12(b) of the Exchange Act, dated November 19, 1993.
(11) The description of certain Rights to Purchase Series A Junior Participating
Preferred Shares which may be transferred with the Company's Common shares,
which description is contained in the Company's Registration Statement on
Form 8-A, under Section 12(b) of the Exchange Act, dated November 7, 1997.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED UPON FIVE BUSINESS DAYS' WRITTEN
OR ORAL REQUEST OF MARK R ARNESEN, VICE PRESIDENT AND SECRETARY, THE FIRST
AMERICAN FINANCIAL CORPORATION, 114 EAST FIFTH STREET, SANTA ANA, CALIFORNIA
92701-4642; TELEPHONE NUMBER (714) 558-3211.
FORWARD-LOOKING STATEMENTS
Except for historical information contained in this Prospectus and in the
documents incorporated in this Prospectus by reference, the matters discussed
herein and therein contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
suggested in the forward-looking statements, including, without limitation, the
effect of economic conditions, interest rates, market demand, competition and
other risks detailed herein and in the Company's other filings with the
Commission.
RISK FACTORS
In addition to the other information contained in this Prospectus,
investors should consider carefully the following risk factors before making an
investment in the Shares. To the extent any of the information contained or
incorporated by reference in this Prospectus constitutes a "forward-looking
statement" as defined in Section 21E(i)(1) of the Exchange Act, the risk factors
set forth below are cautionary statements identifying important factors that
could cause actual results to differ materially from those in the
forward-looking statement. See "Forward-Looking Statements."
VOLATILITY OF SHARE PRICE
The market price of the Shares could be subject to significant fluctuations
in response to variations in financial results or announcements of material
events by the Company or its competitors. Regulatory changes, developments in
the real estate services industry or changes in general conditions in the
economy or the financial markets could also adversely affect the market price of
the Shares.
CYCLICAL NATURE OF REAL ESTATE MARKET
Substantially all of the Company's title insurance, tax monitoring, credit
reporting, flood zone determination and property information business results
from resales and refinancings of real estate, including residential and
commercial properties, and from the construction and sale of new properties. The
Company's home warranty business results from residential resales and does not
benefit from refinancings or commercial transactions. Resales and refinancings
of residential properties constitute the major source of the Company's revenues.
Real estate activity is cyclical in nature and is affected greatly by the cost
and availability of long term mortgage funds. Real estate activity and, in turn,
the Company's revenue base, can be adversely affected during periods of high
interest rates and/or limited money supply. However, this adverse effect is
mitigated in part by the continuing diversification of the Company's operations
into areas outside of its traditional title insurance business.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
As a key component of its growth strategy, the Company has pursued and is
pursuing acquisitions in the real estate-related financial services industry.
Certain risks are inherent in an acquisition strategy, such as increasing
leverage and debt service requirements and combining disparate company cultures
and facilities, which could adversely affect the Company's financial position
and operating results. The success of any completed acquisition will depend in
part on the Company's ability to integrate effectively the acquired businesses
into the Company. This process may involve unforeseen difficulties and may
require a disproportionate amount of management's attention and the Company's
financial and other resources. No assurance can be given that additional
suitable acquisition candidates will be identified, financed and purchased on
acceptable terms, or that recent acquisitions or future acquisitions, if
completed, will be successful.
DEPENDENCE ON KEY PERSONNEL
The success of the Company is dependent upon the continued services of the
Company's senior management, particularly its President, Parker S. Kennedy, its
Chairman and Director, D. P. Kennedy, and its Executive Vice President and Chief
Financial Officer, Thomas A. Klemens. The loss of the services of any of these
individuals could have a material adverse effect on the Company's financial
position and results of operations. The Company's success also depends on its
ability to attract and retain other highly qualified managerial personnel.
YEAR 2000 COSTS
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day-to-day operations. The Company is evaluating the
Year 2000 issue as it relates to the Company's internal computer systems and
third party computer systems with which the Company interacts. The Company
expects to incur internal staff costs as well as consulting and other expenses
related to these issues; these costs will be expensed as incurred. In addition,
the appropriate course of action may include replacement or an upgrade of
certain systems or equipment at a substantial cost to the Company. There can be
no assurance that the Year 2000 issues will be resolved in 1998 or 1999. The
Company may incur significant costs in resolving its Year 2000 issues. If not
resolved, this issue could have a significant adverse impact on the Company's
operations.
GOVERNMENT REGULATION
The title insurance industry is subject to extensive governmental
regulation. Applicable laws and their interpretation vary from state to state
and are enforced with broad discretion. There can be no assurance that any
review of the Company's operations and business relationships by courts or other
regulatory authorities will not result in determinations that could adversely
affect the Company or that the regulatory environment will not change to
restrict the Company's existing or future operations.
THE FIRST AMERICAN FINANCIAL CORPORATION
OVERVIEW
The Company was organized in 1894 as Orange County Title Company,
succeeding to the business of two title abstract companies founded in 1889 and
operating in Orange County, California. In 1924, the Company commenced issuing
title insurance policies. In 1986, the Company began a diversification program
by acquiring and developing financial service businesses closely related to the
real estate transfer and closing process. The Company is a California
corporation whose executive offices are located at 114 East Fifth Street, Santa
Ana, California 92701-4642, and its telephone number is (714) 558-3211.
The Company, through its subsidiaries, is engaged in the business of
providing real estate-related financial and informational services to real
property buyers and mortgage lenders. The Company's products and services
include title insurance, tax monitoring, credit reporting, property data
services, flood certification, field inspection services, appraisal services,
mortgage loan servicing systems, mortgage document preparation and home warranty
services. The Company also provides investment, trust and thrift services.
Through growth and acquisitions, the Company believes it has become the
United States' largest provider of real estate-related financial and
informational services. The Company has assembled an array of companies which,
together, provide comprehensive services to the mortgage industry, commercial
and residential real estate developers, home buyers and other customers.
BUSINESS SEGMENTS
TITLE INSURANCE
Title insurance policies are insured statements of the condition of title
to real property, showing priority of ownership as indicated by public records,
as well as outstanding liens, encumbrances and other matters of record, and
certain other matters not of public record. Policies are issued based on a title
report prepared after a search of public records, maps, and documents and are
typically issued when a title is transferred.
Before issuing title policies, title insurers seek to limit their risk of
loss by accurately performing title searches and examinations. The major
expenses of a title company relate to such searches and examinations, the
preparation of preliminary reports or commitments and the maintenance of title
plants, and not from claim losses as in the case of property and casualty
insurers.
As of the date of this Prospectus, the Company, through its subsidiary,
First American Title Insurance Company, and its other subsidiaries, transacts
its title insurance business through a network of more than 300 branch offices
and more than 4,000 independent agents. In 1997, the Company's title insurance
operations generated $1.46 billion in operating revenues.
REAL ESTATE INFORMATION SERVICES
In recent years management has developed a strategy to be a "one-stop" real
estate information service company. To this end, in 1991 the Company acquired
what was believed to be the second largest tax service company, and in 1995
acquired what were believed to be, in each case, the largest mortgage credit
reporting company and the largest flood zone determination company, in the
United States.
In general, the Company's real estate information service products generate
higher margins than its title insurance products. The majority of pre-tax
profits generated by the Company from non-title business is derived from the
real estate services business, which generated $45.3 million in pre-tax profits
in 1997 and $331.4 million in operating revenues. Approximately 29% of the
Company's pre-tax profits in 1997 were derived from its real estate information
services businesses. These businesses are not regulated and hence not
constrained by dividend statutes enforceable by the states in which the Company
operates its title business or by constraints imposed by California on the
Company's trust and banking business.
First American Real Estate Information Services, Inc. ("FAREIS") has grown
from its tax service origins into a diversified mortgage services company.
FAREIS and its subsidiaries serve mortgage originators, mortgage servicers,
title companies, real estate attorneys and consumers as well as non-lending
entities. The business was initially established in 1987 to advise mortgage
lenders as to the status of tax payments on real property securing their loans.
The Company's real estate information services also includes mortgage and other
credit reporting services, flood zone determinations, mortgage loan servicing
systems, property inspections, appraisal services and mortgage document
preparation.
The tax service business includes both real estate tax reporting as well as
tax outsourcing and tax certification. The Company's tax service business
reports on approximately 11 million properties annually and is believed to be
the second largest provider of tax services to the real estate market. The
Company works with over 22,000 taxing authorities nationwide.
First American CREDCO, Inc. ("CREDCO"), the Company's mortgage credit
reporting entity, is believed by the Company to be the largest provider of these
services in the United States and processes over 600,000 credit reports per
month. CREDCO provides residential mortgage credit reports, prequalifying
reports, merged credit data, resident screening services, business reports,
credit scoring tools and personal credit reports. CREDCO has recently branched
into the consumer lending and risk scoring areas, providing credit reporting and
information management services to automobile dealers, consumers and home equity
lenders nationwide. Approximately 25% of CREDCO's 1997 revenues were from
non-real estate related sources.
The Company is the leading provider of flood zone determinations. Flood
reporting services consist of a broad range of information required by
regulatory agencies regarding properties in relation to flood zones. This
business currently processes over 400,000 flood determinations per month.
The property/field services business consists of processing single family
home inspections, conducting field interviews with delinquent mortgagors,
monitoring the condition of properties and assuring timely property
preservation. The Company's acquisition in December 1996 of Ward Associates
places the Company among the leaders in this business.
The appraisal services business utilizes leading technology to provide
national mortgage lenders with property-relative value assessments. The
appraisal services business operates throughout the United States. Electronic
appraisals are supplemented with qualified local appraisers.
In April 1996, the Company acquired the Excelis Mortgage Loan Servicing
System ("Excelis MLS"), now known as Excelis, Inc. Excelis MLS is the only
commercially available real-time on-line servicing system that has been
developed since 1990 to meet increasingly sophisticated market demands. The
software employs rules-based technology, which enables the user to customize the
system to fit its individual servicing criteria and policies.
In May 1997, the Company purchased all of the operations of Strategic
Mortgage Services, Inc. ("SMS"), other than SMS's flood zone determination
business. SMS is a leading provider of real estate information services to the
U.S. mortgage and title insurance industries. The acquired businesses include
SMS's credit division, which the Company believes is the third largest provider
of U.S. mortgage credit information; SMS's property appraisal division, which
the Company believes is the second largest provider of U.S. appraisal services;
SMS's title division, which provides title and closing services throughout the
United States, servicing primarily second mortgage originators; SMS's settlement
services business, which provides title plant systems and accounting services,
as well as escrow closing software, to the title industry; and a controlling
interest in what is believed by the Company to be the largest mortgage document
preparation firm.
On January 1, 1998, the Company and its real estate information service
subsidiaries (other than Excelis Inc.) (the "Real Estate Information
Subsidiaries") consummated a joint venture with Experian Information Solutions,
Inc. ("Experian"), pursuant to which First American Real Estate Solutions LLC
("FARES") was established. Under the joint venture, the Real Estate Information
Subsidiaries contributed substantially all of their assets and liabilities to
FARES in exchange for an 80% ownership interest and Experian transferred
substantially all of the assets and liabilities of its Real Estate Solutions
division ("RES") to FARES in exchange for a 20% ownership interest. The Company
believes that RES is the nation's foremost supplier of core real estate data,
providing, among other things, property valuation information, title
information, tax information and imaged title documents. As a result of this
joint venture, the Company believes that FARES is the nation's largest and most
diverse provider of information technology and decision support solutions for
the mortgage and real estate industries. See the Company's Report on Form 8-K
dated January 27, 1998, which is incorporated by reference herein.
On April 16, 1998, the Company acquired Contour Software, the largest
supplier of mortgage origination software to the mortgage loan industry.
On June 3, 1998, the Company acquired Data Tree Corporation, a supplier of
database management and document imaging systems to county recorders,
governmental agencies and the title industry. See also the Company's Report on
Form 8-K dated March 31, 1998 and incorporated by reference herein.
HOME WARRANTY
The Company currently owns 89.6% of its home warranty business, First
American Home Buyers Protection Corporation ("Home Buyers"), with the remaining
balance owned by current and former management of this subsidiary. The home
warranty business issues one-year warranties which protect homeowners against
defects in household systems and appliances such as plumbing, water heaters, and
furnaces. The warranties issued are for household systems and appliances only,
not for the homes themselves. The Company's home warranty business currently
operates in certain counties of Arizona, California, Nevada, North Carolina,
South Carolina, Texas, Utah and Washington. The Company's home warranty business
is one of the largest in the United States based on contracts under service,
with $46.9 million in operating revenues in 1997.
TRUST AND THRIFT
Since 1960, the Company has conducted a general trust business in Southern
California. In 1985, the Company formed a banking subsidiary into which its
subsidiary trust operation was merged. As of December 31, 1997, the trust
operations were administering fiduciary and custodial assets having a market
value in excess of $1.3 billion.
During 1988, the Company, through a majority owned subsidiary, acquired an
industrial loan corporation (the "Thrift") that accepts thrift deposits and uses
deposited funds to originate and purchase loans secured by commercial properties
in Southern California. The loans made by the Thrift currently range in amount
from $20,000 to $1,105,000, with an average loan balance of $270,500. Loans are
made only on a secured basis, at loan-to-value percentages no greater than 75%.
The Thrift specializes in making commercial real estate loans and financing
commercial equipment leases. In excess of 93% of the Thrift's loans are made on
a variable rate basis. The average yield on the Thrift's loan portfolio as of
December 31, 1997, was 11%. The Thrift's average loan is 60 months in duration.
Current deposits total $62.5 million and the loan portfolio totals $65.5
million.
RECENT DEVELOPMENTS
On July 31, 1998, the Company acquired ShadowNet Mortgage Technologies, LLC
("ShadowNet"). In connection therewith, the Company issued 291,666 of the Shares
registered under the Registration Statement. ShadowNet is a provider of
electronic mortgage document delivery systems and will conduct its business
under the First American Nationwide Documents brand name.
On August 31, 1998, the Company acquired First American Loss Mitigation
Services, Inc. ("FALMS"). In connection therewith, the Company issued 31,837
Shares registered under the Registration Statement. FALMS is in the business of
limiting the liability of a note holder's financial losses on a loan, or the
dollar value of those losses in the event of such borrower's default, through
negotiation with the borrower for the reduction of credit liabilities,
preservation of collateral property, and management and marketing of such
property.
On August 31, 1998, the Company acquired Executive Reporting Services, Inc.
("ERS") and 75% of the issued and outstanding stock of its affiliate, CreditNet
Communications, Inc. ("CNC"). In connection with such transactions, the Company
issued 169,491 Shares and 58,953 Shares, respectively, registered under the
Registration Statement. ERS and CNC are both mortgage credit reporting
companies.
On August 31, 1998, the Company acquired CIC Inc. ("CIC"). In connection
therewith, the Company issued 522,034 Shares registered under the Registration
Statement. CIC provides pre-employment reporting services, including prior
employment verification, criminal records searches, motor vehicle reports,
credit reports, educational and professional license verification, credit
reports, workers' compensation records, and drug testing, for private and public
employers.
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical consolidated financial
and other data for the Company for the five years ended December 31, 1997 and
for the quarterly periods ended June 30, 1997 and 1998. The summary is qualified
in its entirety by reference to the financial statements and other information
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, incorporated by reference herein.
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<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended
June 30,
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
INCOME STATEMENT DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $1,379,781 $1,356,946 $1,227,185 $1,571,168 $1,860,205 $819,872 $1,257,077
Investment and other
income $18,645 $19,447 $23,031 $26,398 $27,256 $13,379 $52,255
------------ ------------- ------------- ------------- ------------- ------------ -----------
$1,398,426 $1,376,393 $1,250,216 $1,597,566 $1,887,461 $833,251 $1,309,332
Expenses:
Salaries and other
personnel costs $397,902 $423,328 $431,984 $531,250 $647,750 $298,599 $418,189
Premiums retained by
agents $504,375 $533,598 $413,444 $516,593 $563,137 $251,155 $335,027
Other operating
expenses $222,934 $232,532 $257,823 $322,709 $411,319 $175,649 $284,336
Provision for title
losses and other claims $125,588 $110,230 $90,387 $86,487 $90,323 $41,049 $59,531
Depreciation and
amortization $16,333 $19,796 $20,790 $27,242 $38,149 $18,141 $28,303
Interest $4,419 $6,267 $6,242 $4,796 $9,994 $3,660 $9,019
Minority interest $5,267 $2,944 $2,132 $2,624 $3,676 $1,294 $16,171
------------ -------------- ------------ ------------ ------------ ------------- ----------
$1,276,818 $1,328,695 $1,222,802 $1,491,701 $1,764,348 $789,547 $1,150,576
Income before premium
and income taxes $121,608 $47,698 $27,414 $105,865 $123,113 $43,704 $158,756
Premium taxes $17,617 $15,453 $13,627 $16,676 $16,904 $8,722 $9,385
--------- ------- ------- --------- ---------- ------ ---------
Income before income
taxes $103,991 $32,245 $13,787 $89,189 $106,209 $34,982 $149,371
Income taxes $41,900 $13,300 $6,200 $35,600 $41,500 $13,600 $59,300
--------- ------- ------ ------- ------- ------- -------
Income before cumulative
effect of a change in
accounting for income $62,091 $18,945 $7,587 $53,589 $64,709 $21,382 $90,071
taxes
Cumulative effect of a
change in accounting for $4,200 -- -- -- -- -- --
income taxes --------- ----------- ---------- --------- ---------- ---------- ----------
Net income $66,291 $18,945 $7,587 $53,589 $64,709 $21,382 $90,071
EARNINGS PER SHARE
DATA:
Basic <F1><F3> $1.30 $0.37 $0.15 $1.04 $1.24 $0.41 $1.69
Diluted <F1><F3> $1.30 $0.37 $0.15 $1.03 $1.21 $0.40 $1.63
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Cash and invested assets $359,127 $368,999 $340,089 $364,620 $411,014 $610,702
Total assets $786,448 $828,649 $873,778 $979,794 $1,168,144 $1,598,282
Notes and contracts payable $85,022 $89,600 $77,206 $71,257 $41,973 $145,032
Guaranteed preferred -- -- -- -- $100,000 $100,000
beneficial interests in the
Company's junior
subordinated deferrable
interested debentures
Total stockholders' equity $283,718 $292,110 $302,767 $352,465 $411,412 $576,926
OTHER DATA:
Loss ratio 9.1% 8.1% 7.4% 5.5% 4.9% 4.7%
Ratio of debt to total
capitalization <F2> 21.5% 22.1% 19.1% 16.0% 7.3% 16.0%
Cash dividends per share <F3> $0.11 $0.13 $0.13 $0.15 $0.17 $0.05
- -----------------------
<FN>
<F1> Based upon the weighted average number of common shares outstanding.
<F2> Capitalization includes minority interests and junior subordinated
deferrable interest debentures.
<F3> Adjusted to reflect the Company's 3-for-1 stock split effected July 17,
1998.
</FN>
</TABLE>
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth as of the date of this Prospectus, the name
of each of the Selling Shareholders, the number of Shares that each such Selling
Shareholder owns as of such date, the number of Shares owned by each Selling
Shareholder that may be offered for sale from time to time by this Prospectus,
the number of Shares to be held by each such Selling Shareholder assuming the
sale of all the Shares offered hereby and, by footnote, any position or office
held or material relationship with the Company or any of its affiliates within
the past three years other than as a result of the ownership of Shares. The
Company may amend or supplement this Prospectus from time to time to update the
disclosure set forth therein.
<TABLE>
<CAPTION>
===================================== ================================= ================ ================================
NUMBER OF
SHARES TO BE SHARES OWNED OF RECORD
SHARES OWNED OF RECORD OFFERED FOR AFTER COMPLETION OF THE
PRIOR TO THE OFFERING THE SELLING OFFERING
SHAREHOLDER'S
NAME OF SELLING SHAREHOLDER NUMBER PERCENTAGE ACCOUNT NUMBER PERCENTAGE
- -------------------------------------- --------------------------------- ---------------- ---------------------------------
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
E. Kent Forest <F1> 0 * 188,254 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Julie B. Jensen 0 * 28,519 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Kim C. Hills 0 * 2,481 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Jerry W. Burns 0 * 3,195 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Matt L. Evans 0 * 3,439 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Jeff B. Davis 0 * 1,278 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Tom D. Stubbs 0 * 1,278 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Bruce Berg <F2> 0 * 365,424 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Joseph Namia 0 * 78,305 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Ann T. Namia 0 * 78,305 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
Bruce J. Frey 0 * 31,837 0 0.00%
- -------------------------------------- ----------------- --------------- ---------------- ----------------- ---------------
- --------------------
<FN>
* Less than one percent.
(1) Mr. Kent is the Divisional President of CNC, a direct, partially-owned
subsidiary of the Company.
(2) Mr. Berg is the Divisional President of CIC, a direct, wholly-owned
subsidiary of the Company.
</FN>
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
The Shares covered by this Prospectus may be offered and sold from time to
time by the Selling Shareholders. The Selling Shareholders will act
independently of the Company in making decisions with respect to the timing,
manner and price of each sale. The Selling Shareholders may sell the Shares
being offered hereby on the New York Stock Exchange, or otherwise, at prices and
under terms then prevailing or at prices related to the then current market
price, at varying prices or at negotiated prices. The Shares may be sold,
without limitation, by one or more of the following means of distribution: (a) a
block trade in which the broker-dealer so engaged will attempt to sell Shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction; (b) purchases by a broker-dealer as principal and
resale by such broker-dealer for its own account pursuant to this Prospectus;
(c) a distribution in accordance with the rules of the New York Stock Exchange;
(d) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (e) in privately negotiated transactions. To the extent
required, this Prospectus may be amended and supplemented from time to time to
describe a specific plan of distribution.
In connection with distributions of the Shares or otherwise, the Selling
Shareholders may enter into hedging transactions with broker-dealers or other
financial institutions. In connection with such transactions, broker-dealers or
other financial institutions may engage in short sales of the Shares in the
course of hedging the positions they assume with Selling Shareholders. The
Selling Shareholders may also sell the Shares short and deliver the Shares
offered hereby to close out such short positions. The Selling Shareholders may
also enter into option or other transactions with broker-dealers or other
financial institutions which require the delivery to such broker-dealer or other
financial institution of Shares offered hereby, which Shares such broker-dealer
or other financial institution may resell pursuant to this Prospectus (as
supplemented or amended to reflect such transaction). The Selling Shareholders
may also pledge Shares to a broker-dealer or other financial institution, and,
upon a default, such broker-dealer or other financial institution, may effect
sales of the pledged Shares pursuant to this Prospectus (as supplemented or
amended to reflect such transaction). In addition, any Shares that qualify for
sale pursuant to Rule 144 may, at the option of the holder thereof, be sold
under Rule 144 rather than pursuant to this Prospectus.
Any broker-dealer participating in such transactions as agent may receive
commissions from the Selling Shareholder and/or purchasers of the Shares offered
hereby (and, if it acts as agent for the purchaser of such Shares, from such
purchaser). Usual and customary brokerage fees will be paid by the Selling
Shareholder. Broker-dealers may agree with the Selling Shareholder to sell a
specified number of Shares at a stipulated price per Share, and, to the extent
such a broker-dealer is unable to do so acting as agent for the Selling
Shareholder, to purchase as principal any unsold Shares at the price required to
fulfill the broker-dealer commitment to the Selling Shareholder. Broker-dealers
who acquire Shares as principal may thereafter resell such Shares from time to
time in transactions (which may involve cross and block transactions and which
may involve sales to and through other broker-dealers, including transactions of
the nature described above) in the market, in negotiated transactions or
otherwise at market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay to, or receive from the
purchasers of such Shares commissions computed as described above.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only though registered
or licensed brokers or dealers. In addition, in certain states the Shares may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Company has advised the Selling Shareholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of Shares in the
market and to the activities of the Selling Shareholders and their affiliates.
In addition, the Company will make copies of this Prospectus available to the
Selling Shareholders and has informed them of the need for delivery of copies of
this Prospectus to purchasers at or prior to the time of any sale of the Shares
offered hereby. The Selling Shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the Shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of Shares is made, if required, a Prospectus
Supplement will be distributed that will set forth the number of Shares being
offered and the terms of the offering, including the name of any underwriter,
dealer or agent, the purchase price paid by any underwriter, any discount,
commission and other item constituting compensation, any discount, commission or
concession allowed or re- allowed or paid to any dealer, and the proposed
selling price to the public.
The Company has agreed to keep the Registration Statement of which this
Prospectus constitutes a part effective in respect of Shares issued pursuant
thereto until the first to occur of (i) the date one year from the date of
issuance of such Shares and (ii) such time as all of Shares offered by the
Selling Shareholders listed above have been sold; the Company intends to
de-register any of the Shares not sold by the Selling Shareholders after such
time.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by White & Case LLP, Los Angeles, California.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1997, have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
***
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR AN APPLICABLE SUPPLEMENT Prospectus
OR POST EFFECTIVE AMENDMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY 3,000,000 Common Shares
OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES, IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THE FIRST AMERICAN
------------------ FINANCIAL CORPORATION
TABLE OF CONTENTS
Available Information......................(i)
Incorporation of Documents by Reference....(i)
Forward-Looking Statements................(ii)
Risk Factors.................................1
The First American Financial Corporation.....2
Selling Shareholders.........................9
Plan of Distribution........................10
Legal Matters...............................11 Dated August 31, 1998
Experts.....................................11