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) FEBRUARY 9, 1999
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)
<PAGE>
ITEM 5. OTHER EVENTS.
See the attached Exhibit. The full impact of the change in the Registrant's
revenue recognition policy discussed in the attached press release is not
reasonably estimable at this time.
ITEM 7. EXHIBITS
99 Press Release of The First American Financial Corporation
dated February 9, 1999.
<PAGE>
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: February 10, 1999 By: /s/ Thomas A. Klemens
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Name: Thomas A. Klemens
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 99
CONTACT: Thomas A. Klemens
Executive Vice President &
Chief Financial Officer
(714) 558-3211 Ext. 7442
FIRST AMERICAN FINANCIAL REPORTS RECORD-SETTING RESULT
- FOURTH QUARTER RESULTS EXCEED ANALYSTS' ESTIMATES -
SANTA ANA, CALIF., FEB. 9, 1999
The First American Financial Corporation (NYSE: FAF), the leading provider of
real estate-related information products and services, announced today
record-breaking annual and fourth quarter revenues, net income and earnings per
share.
Net income for the fourth quarter of 1998 was $53.0 million, or 85 cents per
diluted share, representing a 156 percent increase over net income of $20.7
million, or 37 cents per diluted share, for the same period in 1997. The 1998
results were the highest of any previously reported fourth quarter and were
achieved despite a $6.2 million pre-tax charge ($3.8 million on an after-tax
basis, or 6 cents per diluted share) associated with the write-off of certain
capitalized software in the company's information services operations. Analysts'
consensus estimates for the fourth quarter of 1998 were 80 cents per diluted
share. Revenues for the fourth quarter of 1998 were $797.3 million, an increase
of 43 percent when compared with revenues of $557.0 million reported for the
same period last year.
The company's record-breaking 1998 profits were $178.9 million, or $2.99 per
diluted share, which represents an increase of 177 percent when compared with
1997 results of $64.5 million, or $1.16 per diluted share. Record-setting
revenues in 1998 totaled $2.84 billion, an increase of 49 percent when compared
with last year's revenues of $1.91 billion. These profits and revenues for the
year exclude a previously announced investment gain of $32.4 million, $19.8
million on an after-tax basis, or 33 cents per diluted share, relating to its
joint venture with Experian.
Full-year 1998 and 1997 results have been restated to reflect the company's
current year acquisitions accounted for as poolings of interests. In addition,
1997 per share amounts and shares outstanding have been adjusted for the
three-for-two stock split distributed on Jan. 15, 1998, and the three-for-one
stock split distributed on July 17, 1998.
With mortgage interest rates reaching their lowest level in five years, 1998
marked a banner year for the real estate industry. Mortgage loan originations
for the year were at record levels, sales of existing homes reached a record 4.8
million units and new home sales hit a 21-year record high, with housing values
growing at a pace slightly above inflation.
"First American excelled in 1998's strong real estate market, profiting from the
increased volume of real estate transactions nationwide and strong market share
gains," stated Parker S. Kennedy, president of The First American Financial
Corporation. "We are extremely excited about our prospects for 1999,
particularly in our newly established consumer risk management division and our
pending merger with National Information Group.
"We are committed to delivering strong operating results for our shareholders in
1999. We remain focused on our successful growth strategies which include
expanding our products to serve a new client base of businesses, employers,
landlords and consumers, as well as increasing market share and efficiencies;
enhancing our technological capabilities; and cost-effectively bundling and
delivering a full menu of information products to our mortgage customers."
It was also noted that during the first quarter of 1999, the company will
implement a change to its accounting policy for tax service contracts in
anticipation of the issuance of a Securities and Exchange Commission Staff
Accounting Bulletin regarding revenue recognition. The new accounting policy
will be adopted prospectively and apply to all new loans to be serviced
beginning Jan. 1, 1999. The change will provide for a more ratable recognition
of revenues and gross profit from tax service contracts, reducing the amount of
revenue and gross profit recognized at the inception of such agreements and
spreading it over the life of the contract. Although this accounting change will
likely cause a reduction in tax service revenues and earnings recognized in the
early years of each tax service contract, it is anticipated by the company that
starting in the second year following its adoption, this method will begin to
reduce the volatility in reported financial results arising from the inherent
cyclicality of the company's tax service business. This change will have no
impact on cash flow from operations.
The First American Financial Corporation, based in Santa Ana, Calif., is the
nation's leading provider of real estate-related information products and
services. The corporation's subsidiaries include First American Title Insurance
Company, a national and international title insurer; First American Real Estate
Information Services, Inc., which offers tax monitoring, credit reporting,
property data services, flood certification, field inspection services,
appraisal services, loss mitigation services, mortgage loan origination and
servicing systems, and mortgage document preparation nationally; First American
Home Buyers Protection Corporation, a home warranty company; and First American
Capital Management, an investment advisory firm. The corporation also operates
First American Trust Company and First Security Thrift Company in Southern
California. First American Financial has more than 17,000 employees in over 400
branches in the United States and abroad. Information about the company's
subsidiaries and an archive of its press releases can be found on the Internet
at http://www.firstam.com.
Any statements in this release looking forward in time involve risks and
uncertainties, including but not limited to the following risks: the effect of
interest rate fluctuations; changes in the performance of the real estate
markets; the effect of changing economic conditions; the demand for and the
acceptance of the company's products; and contingencies associated with the Year
2000 issue.
Quarter ended December 31: 1998 1997
- -------------------------- ---- ----
Revenues $ 797,281,000 $ 556,966,000
Income before income
taxes and minority
interests $ 94,567,000 $ 36,967,000
Income taxes $ 32,700,000 $ 14,900,000
Minority interests $ 8,849,000 $ 1,389,000
Net income $ 53,018,000 $ 20,678,000
Net income per share:
Basic $ .88 $ .38
Diluted $ .85 $ .37
Average shares outstanding:
Basic 59,942,000 54,448,000
Diluted 62,690,000 56,041,000
Year ended December 31:
- -----------------------
Revenues $ 2,877,328,000 $ 1,908,923,000
Income before income
taxes and minority
interests $ 361,422,000 $ 109,675,000
Income taxes $ 127,700,000 $ 41,500,000
Minority interests $ 35,012,000 $ 3,676,000
Net income $ 198,710,000 $ 64,499,000
Net income per share:
Basic $ 3.46 $ 1.18
Diluted $ 3.32 $ 1.16
Average shares outstanding:
Basic 57,450,000 54,448,000
Diluted 59,822,000 55,717,000
Full-year 1998 and 1997 results have been restated to reflect the company's
current year acquisitions accounted for as poolings of interests. In addition,
1997 per share amounts and shares outstanding have been adjusted for the
three-for-two stock split distributed on Jan. 15, 1998 and the three-for-one
stock split distributed on July 17, 1998.
(Additional Financial Data on Following Page)
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Twelve Months Ended
December 31, December 31,
-------------------------- ---------------------------
1998 1997 1998 1997
-------------------------- ---------------------------
RESULTS OF OPERATIONS
<S> <C> <C> <C> <C>
REVENUES
Operating revenues $ 784,747,000 $ 549,755,000 $ 2,802,190,000 $ 1,881,666,000
Investment and other income 12,534,000 7,211,000 75,138,000<F1> 27,257,000
---------------- ---------------- ------------------ ------------------
797,281,000 556,966,000 2,877,328,000 1,908,923,000
---------------- ---------------- ------------------ ------------------
EXPENSES
Salaries and other personnel costs 254,616,000 184,182,000 914,058,000 659,325,000
Premiums retained by agents 220,416,000 167,023,000 773,030,000 563,137,000
Other operating expenses 170,095,000 126,052,000 611,332,000 421,056,000
Provision for title losses and other
claims 29,874,000 24,734,000 118,763,000 90,323,000
Depreciation and amortization 17,251,000 10,635,000 59,804,000 38,489,000
Premium taxes 5,895,000 4,349,000 20,912,000 16,904,000
Interest 4,567,000 3,024,000 18,007,000 10,014,000
---------------- ---------------- ------------------ ------------------
702,714,000 519,999,000 2,515,906,000 1,799,248,000
---------------- ---------------- ------------------ ------------------
Income before income taxes and
minority interests $ 94,567,000 $ 36,967,000 $ 361,422,000 $ 109,675,000
---------------- ---------------- ------------------ ------------------
---------------- ---------------- ------------------ ------------------
OPERATING REVENUES
Title Insurance:
Direct operations $ 311,179,000 $ 221,342,000 $ 1,097,989,000 $ 761,774,000
Agency operations 275,190,000 207,487,000 965,228,000 700,193,000
---------------- ---------------- ------------------ ------------------
586,369,000 428,829,000 2,063,217,000 1,461,967,000
Real Estate Information 176,947,000 102,652,000 656,018,000 352,833,000
Home Warranty 15,177,000 13,007,000 58,204,000 46,859,000
Trust and Banking 6,254,000 5,267,000 24,751,000 20,007,000
---------------- ---------------- ------------------ ------------------
Total operating revenues $ 784,747,000 $ 549,755,000 $ 2,802,190,000 $ 1,881,666,000
---------------- ---------------- ------------------ ------------------
---------------- ---------------- ------------------ ------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS
Title Insurance $ 73,547,000 $ 29,963,000 $ 227,906,000 $ 79,602,000
Real Estate Information 24,787,000 10,601,000 116,333,000 45,107,000
Home Warranty 2,799,000 2,584,000 11,406,000 8,871,000
Trust and Banking 1,509,000 1,039,000 7,156,000 4,062,000
---------------- ---------------- ------------------ ------------------
Total before corporate expenses and
minority interests 102,642,000 44,187,000 362,801,000 137,642,000
Corporate expenses 8,075,000 7,220,000 1,379,000 27,967,000
---------------- ---------------- ------------------ ------------------
Income before income taxes and
minority interests $ 94,567,000 $ 36,967,000 $ 361,422,000 $ 109,675,000
---------------- ---------------- ------------------ ------------------
---------------- ---------------- ------------------ ------------------
TITLE INSURANCE ORDER COUNTS FROM
DIRECT OPERATIONS
Total orders opened 410,000 298,800 1,585,400 1,173,300
Title orders closed 336,700 238,900 1,210,200 885,600
<FN>
<F1> Includes an investment gain of $32.4 million relating to the joint venture
agreement with Experian.
</FN>
</TABLE>
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