<TABLE>
<CAPTION>
REGISTRATION NO. 333-53681
FILED PURSUANT TO RULE 424(B)(3)
PROSPECTUS
3,000,000 COMMON SHARES
THE FIRST AMERICAN FINANCIAL CORPORATION
Acquisition Consideration [GRAPHIC OMITTED]
Our Business
<S> <C>
o This prospectus covers up to 3,000,000 of our common shares which
we may offer from time to time as full or partial consideration for o We provide real estate-related
our acquisition of the assets or ownership interests of businesses financial and informational services
which primarily provide real estate-related financial and to real property buyers and mortgage
informational services. lenders.
o We will negotiate the terms of each acquisition transaction with Our Common Shares
the owners of the assets or ownership interests being acquired at
the time the particular acquisition transaction is undertaken. The common shares offered by this
prospectus will be listed for
Share Price trading on the New York Stock
Exchange.
o We will value the common shares issued pursuant to a particular
acquisition transaction at a price reasonably related to the market o The trading symbol for our common
value of the common shares at one of the following times: shares on the New York Stock
Exchange is "FAF."
o When the terms of the particular acquisition transaction are
tentatively agreed upon. o On January 27, 1999, the closing
price of our common shares on the
o When the particular acquisition transaction closes. New York Stock Exchange was $31-1/2.
o During the period or periods prior to the delivery of the
common shares.
An Investment in Our Company Entails Risk
o Before making an investment in our common shares, you should
consider carefully the "Risk Factors" beginning on page 1.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January 28, 1999.
<PAGE>
(inside cover page continued)
WHERE YOU CAN FIND MORE INFORMATION;
INCORPORATION BY REFERENCE
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy, upon payment of a fee set by the SEC, any document that we file
with the SEC at its public reference rooms in Washington, D.C. (450 Fifth
Street, N.W., 20549), New York, New York (Seven World Trade Center, 13th Floor,
Suite 1300, 10048) and Chicago, Illinois (Citicorp Center, 500 West Madison
Street, 14th Floor, Suite 1400, 60661). You may also call the SEC at
1-800-432-0330 for more information on the public reference rooms. Our filings
are also available to the public on the internet, through the SEC's EDGAR
database. You may access the EDGAR database at the SEC's web site at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about our
company, including information concerning its financial performance.
o Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
o Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31,
1998, June 30, 1998 and September 30, 1998.
o Current Reports on Form 8-K dated January 23, 1998, January 27, 1998, March
18, 1998, March 31, 1998, April 7, 1998, June 26, 1998 and October 22,
1998.
o The description of our common shares, $1.00 par value, contained in our
Registration Statement on Form 8-A, dated November 19, 1993, which
registers the shares under Section 12(b) of the Exchange Act.
o The description of Rights to Purchase Series A Junior Participating
Preferred Shares, which may be transferred with our common shares,
contained in our Registration Statement on Form 8-A, dated November 7,
1997, which registers the rights under Section 12(b) of the Exchange Act.
We are also incorporating by reference any additional documents that we
file with the SEC between the date of this prospectus and the earlier of (i) the
date on which all of the common shares offered pursuant to this prospectus are
resold by the persons or entities who or which acquire them from the company and
(ii) the date that is one year following the last date on which common shares
offered pursuant to this prospectus are issued.
This prospectus is part of a registration statement (on Form S-4) we have
filed with the SEC relating to our common shares registered under this
prospectus. As permitted by SEC rules, this prospectus does not contain all of
the information contained in the registration statement and accompanying
exhibits and schedules we file with the SEC. You may refer to the registration
statement, the exhibits and schedules for more information about us and our
common shares. The registration statement, exhibits and schedules are also
available at the SEC's public reference rooms or through its EDGAR database on
the internet.
You may obtain a copy of these filings at no cost by writing to us at The
First American Financial Corporation, 114 East Fifth Street, Santa Ana,
California 92701-4642, Attention: Mark R Arnesen, or by telephoning us at (714)
558-3211.
SPECIAL NOTE OF CAUTION REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained in (a) this prospectus, (b) any applicable
prospectus supplement and (c) the documents incorporated by reference into this
prospectus, may constitute "forward-looking statements" within the meaning of
the federal securities laws. 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 involve risks and uncertainties that may 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. Some of the important factors that
could cause our actual results, performance or financial condition to differ
materially from our expectations are:
o General volatility of the capital markets and the market price of our
common shares.
o Changes in the real estate market, interest rates or the general economy.
o Our ability to identify and complete acquisitions and successfully
integrate businesses we acquire.
o Our ability to employ and retain qualified employees.
o Our ability, and the ability of our significant vendors, suppliers and
customers, to achieve Year 2000 compliance. o Changes in government
regulations that are applicable to our regulated businesses.
o Changes in the demand for our products.
o Degree and nature of our competition.
o Consolidation among our customers.
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. We qualify any such
forward-looking statements entirely by these cautionary factors.
<PAGE>
RISK FACTORS
In addition to the other information contained in this prospectus, you
should carefully consider the following risk factors before investing in our
company.
Reduction in revenues during periods when long-term mortgage rates are
high, the long-term mortgage fund supply is limited or the economy is weak
Our revenues decrease as the number of real estate transactions in which
our products are purchased decreases. We have found that the number of real
estate transactions in which our products are purchased decreases during periods
when (i) long-term mortgage rates are high, (ii) the long-term mortgage fund
supply is limited or (iii) the economy is weak. We believe that this trend will
recur.
Reduction in earnings if acquisition projections are inaccurate
Our earnings have improved since 1991 in large part because of our
acquisition and integration of non-title insurance businesses which have higher
margins than our title insurance businesses. The success or failure of each of
these acquisitions has depended in large measure upon the accuracy of our
projections. Our projections are not always accurate. Inaccurate projections
have, historically, reduced our revenues and increased our expenses thereby
reducing our earnings. We expect to continue acquiring non-title insurance
businesses and may suffer a reduction in earnings if our projections for any
such acquisition that is significant are inaccurate.
Business interruption, shutdown and liability because of Year 2000 problems
(i) The inability of our significant suppliers to provide accurate
information to us in a timely manner, (ii) our inability to accurately and
timely process information and (iii) the inability of our customers to receive
and use our products and services, in each case as a result of the inability of
information technology and embedded technology to properly recognize a year that
begins with "20" instead of "19" (the so-called Year 2000 or Y2K problem), may
result in business interruption in or shutdown of certain of our businesses.
Additionally, a widespread disruption of telecommunications and utilities as a
result of the Year 2000 problem would most likely result in business
interruption or shutdown. Business interruption and or shutdown, if prolonged,
would most likely result in financial loss, potential regulatory action, harm to
our reputation and potential legal liability.
To the extent we package or use such erroneous information and data
provided to us in our products and services, we may incur liability to others.
The degree of liability will depend in large measure upon the harm caused and
the particular product or services involved. For example, an error in monitoring
tax payments for a property under a tax service contract could result in the
imposition of a tax lien, thereby leading to a foreclosure proceeding against
the property, which in turn could result in harm to the property owner and
mortgage lender. By way of contrast, in our credit reporting business, we act as
a consumer reporting agency when we use data provided by credit bureaus. As
such, under the Fair Credit Reporting Act, we have no liability for inaccuracies
in information contained in credit reports so long as we use reasonable
procedures to assure the accuracy of such information.
For a discussion of our plans to address the Year 2000 problem, please
refer to "The First American Financial Corporation-Year 2000 Plan."
Changes in government regulation could prohibit or limit certain of our
operations
Our title insurance, home warranty, thrift, trust and investment businesses
are regulated by various governmental agencies. Many of our other businesses
operate within statutory guidelines. Changes in the applicable regulatory
environment or statutory guidelines could prohibit or restrict our existing or
future operations. Such restrictions may adversely affect our financial
performance.
THE FIRST AMERICAN FINANCIAL CORPORATION
Overview
We 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, we commenced issuing title insurance policies. In
1986, we began a diversification program by acquiring and developing financial
service businesses closely related to the real estate transfer and closing
process. We are a California corporation. Our executive offices are located at
114 East Fifth Street, Santa Ana, California 92701-4642, and our telephone
number is (714) 558-3211.
Through our subsidiaries, we are primarily engaged in the business of
providing real estate-related financial and informational services to real
property buyers and mortgage lenders. Our products and services include, but are
not limited to, 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. We also provide investment, trust and thrift services.
Through growth and acquisitions, we believe we have become the United
States' largest provider of real estate-related financial and informational
services. We have 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 insure the interests of owners and their lenders
in the title to real property against loss by reason of adverse claims to
ownership of, or to defects, liens, encumbrances or other matters affecting,
such title which exist at the time a title insurance policy is issued and which
were not excluded from the coverage of a title insurance policy.
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.
Through our subsidiary, First American Title Insurance Company, and other
subsidiaries, we transact our title insurance business through a network of more
than 300 branch offices and more than 4,000 independent agents. In 1997, our
title insurance operations generated $1.46 billion in operating revenues.
Real Estate Information Services
In recent years we have developed a strategy to become a "one-stop" real
estate information service company. To that end, in 1991 we acquired one of the
largest tax service companies in the United States. In 1995 we acquired one of
the largest flood zone determination companies in the United States and one of
the largest mortgage credit reporting companies in the United States.
In general, our real estate information service products generate higher
margins than our title insurance products. The majority of pre-tax profits
generated from our non-title insurance 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 our pre-tax profits
in 1997 were derived from our real estate information services businesses. With
the exception of our home warranty business, these businesses are not regulated
and hence are not constrained by dividend statutes enforceable by the states in
which we operate our title insurance and home warranty businesses or by
constraints imposed by California on our trust and banking business.
Our wholly-owned subsidiary, 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. Now FAREIS's real estate information
services 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. FAREIS's tax service business reports on
approximately 13 million properties annually and works with over 22,000 taxing
authorities nationwide. Overall, we believe it to be the second largest provider
of tax services to the real estate market in the United States.
The credit reporting business processes over 800,000 mortgage credit
reports per month and is the largest provider of mortgage reporting services in
the United States. This business has recently expanded to include consumer risk
management, providing tenant and pre-employment screening services, business
reports, credit scoring tools and personal credit reports to landlords,
employers, automobile dealers and consumers.
We are the leading provider of flood zone determinations in the United
States. 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 600,000 flood zone 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. Our acquisition in December 1996 of Ward Associates places us
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, we acquired the Excelis Mortgage Loan Servicing System
("Excelis MLS"), now known as Excelis, Inc. Excelis MLS is believed to be 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, we purchased all of the operations of Strategic Mortgage
Services, Inc. ("SMS"), other than its flood zone determination business. SMS
was a leading provider of real estate information services to the U.S. mortgage
and title insurance industries. The acquired businesses, which have been
integrated into our existing operations, included SMS's credit division; SMS's
property appraisal division; SMS's title division, which provided 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 one of the largest mortgage
document preparation businesses in the United States.
On January 1, 1998, together with our real estate information service
subsidiaries (other than Excelis Inc.) (the "Real Estate Information
Subsidiaries"), we 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. We
believe 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, we believe 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 also our Current Report on Form 8-K,
dated January 27, 1998, which is incorporated by reference in this prospectus.
On April 16, 1998, we acquired Contour Software which supplies mortgage
loan origination software to the mortgage industry. Contour offers a complete
line of software products for every facet of mortgage lending, from
qualification to servicing.
On June 3, 1998, we acquired Data Tree Corporation, a supplier of database
management and document imaging systems to county recorders, other governmental
agencies and the title industry. See also our Current Report on Form 8-K, dated
March 31, 1998, which is incorporated by reference in this prospectus.
Home Warranty
We currently own 90.4% of our home warranty business, First American Home
Buyers Protection Corporation ("Home Buyers"), with the balance owned by current
and former management of that 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. Our home warranty business currently operates in certain
counties of Arizona, California, Nevada, North Carolina, South Carolina, Texas,
Utah and Washington and 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, we have conducted a general trust business in Southern
California. In 1985, we formed a banking subsidiary into which our 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, through a majority owned subsidiary, we 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, we acquired ShadowNet Mortgage Technologies, LLC
("ShadowNet"). In connection therewith, we issued 291,666 shares registered
pursuant to this prospectus. ShadowNet is a provider of electronic mortgage
document preparation and delivery systems and now conducts business under the
First American Nationwide Documents brand-name.
On August 31, 1998, we acquired First American Loss Mitigation Services,
Inc. ("FALMS"). In connection therewith, we issued 31,837 shares registered
pursuant to this prospectus. 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, we 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, we issued
169,491 shares and 58,953 shares, respectively, registered pursuant to this
prospectus. ERS and CNC are both mortgage credit reporting companies.
On August 31, 1998, we acquired CIC Inc. ("CIC"). In connection therewith,
we issued 522,034 shares registered pursuant to this prospectus. CIC provides
pre-employment reporting services, including prior employment verification,
criminal records searches, motor vehicle reports, credit reports, educational
and professional license verification, workers' compensation records, and drug
testing, for private and public employers.
On September 30, 1998, we acquired substantially all of the assets of the
Kitsap County, Jefferson County and Pacific County offices of Charter Title
Corporation (the "CTC Businesses"). In connection therewith, we issued 105,896
shares registered pursuant to this prospectus. The CTC Businesses offer title
insurance in their respective Washington State counties.
On September 30, 1998, we acquired all of the outstanding minority
interests in its partially-owned subsidiary First American Nationwide Documents
LLP ("FAND"). In connection therewith, we issued 100,158 shares registered
pursuant to this prospectus. FAND provides mortgage document preparation
services.
On October 1, 1998, we acquired The Registry, Inc., Southcoast Industries,
Inc. ("SII"), Trans Registry Corporations ("TRC"), Crim Check America, Inc. and
Trans Registry Limited (each a "Registry Entity" and collectively the "Registry
Entities"). In connection therewith, we issued 1,113,580 shares registered
pursuant to this prospectus. The Registry Entities provide landlords with data
on prospective tenants in order to allow them to better make an informed
screening decision; such data typically includes a report of prior unlawful
detainer actions against the prospective tenant, employment verification, a
credit report and rental payment history.
On November 1, 1998, we acquired 17.5% of Tower City Title Agency, Inc.
("Tower City"). In connection therewith, we issued 55,168 shares registered
pursuant to this prospectus. Tower City offers titles insurance, with a focus on
the non-conforming loan market, in the northern region of Ohio and the region
surrounding the Cleveland metropolitan area. Tower City also has a loan
processing department which services small mortgage companies.
On November 1, 1998, we acquired a 50% membership interest in RELS LLC. In
connection therewith, we issued 384,092 shares registered pursuant to this
prospectus. RELS LLC does business through its wholly-owned subsidiaries,
Valuation Information Technologies LLC ("VIT") and RELS Reporting Services LLC
("RELS Reporting"). VIT is a provider of real property appraisals. RELS
Reporting provides borrower credit reporting, employment and income information
to mortgage lenders.
On December 1, 1998, we acquired EHG, Incorporated ("EHG"). In connection
therewith, we issued 50,000 shares registered pursuant to this prospectus. EHG
does business through its wholly-owned subsidiary, Midwest Title Insurance, Inc.
("MTI"). MTI is a title insurance agency operating in the Illinois portion of
the greater St. Louis metropolitan area.
On December 1, 1998, we acquired all of the assets of Waco-McLennan County
Abstract & Title Company ("Waco"). In connection therewith, we issued 73,231
shares registered pursuant to this prospectus. Waco is a title insurance company
operating in McLennan county, Texas.
Summary Historical Consolidated Financial Data
The following table sets forth summary historical consolidated financial
and other data for The First American Financial Corporation for the five years
ended December 31, 1997 and for the quarterly periods ended September 30, 1997
and 1998. The summary is qualified in its entirety by reference to the financial
statements and other information contained in our Annual Report on Form 10-K for
the year ended December 31, 1997 and our Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, each of which is incorporated by reference in
this prospectus.
[The rest of this page has been intentionally left blank.]
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
Year Ended December 31, September 30,
1993 1994 1995 1996 1997 1997 1998
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Operating revenues $1,379,781 $1,356,946 $1,227,185 $1,571,168 $1,860,205 $1,315,053 $2,000,055
Investment and other income $18,645 $19,447 $23,031 $26,398 $27,256 $20,046 $62,578
---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,398,426 $1,376,393 $1,250,216 $1,597,566 $1,887,461 $1,335,099 $2,062,633
Expenses:
Salaries and other personnel
costs $397,902 $423,328 $431,984 $531,250 $647,750 $467,033 $650,082
Premiums retained by agents $504,375 $533,598 $413,444 $516,593 $563,137 $396,114 $552,614
Other operating expenses $222,934 $232,532 $257,823 $322,709 $411,319 $290,417 $433,214
Provision for title losses and
other claims $125,588 $110,230 $90,387 $86,487 $90,323 $65,589 $88,889
Depreciation and amortization $16,333 $19,796 $20,790 $27,242 $38,149 $25,578 $42,323
Interest $4,419 $6,267 $6,242 $4,796 $9,994 $6,972 $13,412
Minority interest $5,267 $2,944 $2,132 $2,624 $3,676 $2,287 $26,163
---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,276,818 $1,328,695 $1,222,802 $1,491,701 $1,764,348 $1,253,990 $1,806,697
Income before premium and income
taxes $121,608 $47,698 $27,414 $105,865 $123,113 $81,109 $255,936
Premium taxes $17,617 $15,453 $13,627 $16,676 $16,904 $12,555 $15,017
Income before income taxes $103,991 $32,245 $13,787 $89,189 $106,209 $68,554 $240,919
Income taxes $41,900 $13,300 $6,200 $35,600 $41,500 $26,600 $95,000
Income before cumulative effect
of a change in accounting for
income taxes $62,091 $18,945 $7,587 $53,589 $64,709 $41,954 $145,919
Cumulative effect of a change in
accounting for income taxes $4,200 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $66,291 $18,945 $7,587 $53,589 $64,709 $41,954 $145,919
Earnings Per Share Data:
Basic (1)(2) $1.30 $0.37 $0.15 $1.04 $1.24 $0.81 $2.67
Diluted (1)(2) $1.30 $0.37 $0.15 $1.03 $1.21 $0.79 $2.56
</TABLE>
- ----------------
(1) Based upon the weighted average number of common shares outstanding.
(2) Adjusted to reflect our 3-for-2 stock split effected January 15, 1998 and
our 3-for-1 stock split effected July 17, 1998.
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
1993 1994 1995 1996 1997 1998
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and invested assets $359,127 $368,999 $340,089 $364,620 $411,014 $651,911
Total assets $786,448 $828,649 $873,778 $979,794 $1,168,144 $1,708,894
Notes and contracts payable $85,022 $89,600 $77,206 $71,257 $41,973 $132,215
Mandatorily redeemable preferred
securities of the Company's
subsidiary trust whose sole
assets are the Company's
$100,000,000 8.5% deferrable
interest subordinated
debentures due 2012 -- -- -- -- $100,000 $100,000
Total shareholders' equity $283,718 $292,110 $302,767 $352,465 $411,412 $651,242
Other Data:
Loss ratio 9.1% 8.1% 7.4% 5.5% 4.9% 4.4%
Cash dividends per share(2) $0.11 $0.13 $0.13 $0.15 $0.17 $0.16
Ratio of debt to total
capitalization(3) 21.5% 22.1% 19.1% 16.0% 7.3% 13.5%
</TABLE>
- -----------------------
(2) Adjusted to reflect our 3-for-2 stock split effected January 15, 1998 and
our 3-for-1 stock split effected July 17, 1998.
(3) Capitalization includes minority interests and junior subordinated
deferrable interest debentures.
Year 2000 Plan
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 First American?
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. Our principal information and data suppliers are title plant operators,
agents, brokers, governmental agencies (e.g., taxing authorities and recording
offices) and credit bureaus. 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, lien and tax
information, and credit bureaus to provide credit and background information.
Similarly, we deliver most of our products and services electronically. Our
principal customers are mortgage lenders and other financial institutions.
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 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. December
31, 1998 was the initial target date for completion of renovation. As of such
date, (1) seventy-nine percent of our business units had completed eighty
percent of more of their renovations, (2) sixty-one percent of our business
units had completed ninety-percent or more of their respective renovation effort
and (3) twenty-four percent had met the target date and completed one hundred
percent of their respective renovation effort. We plan to complete the
renovation phase as soon as practicable. Based on our current knowledge, we have
established the following general target dates for the remaining phases: (1)
April 30, 1999 for completion of testing and (2) 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 businesses. Additionally, a
limited number of business units have target dates for renovation, testing and
implementation that are later than the general dates described above. 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 incurred expenses approximating $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 and amortized over their estimated
useful lives. Labor and other related costs will be expensed as incurred. Our
Year 2000 plan costs are being funded through operating cash flow. To date, we
have not had to defer any of our information technology plans as a result of our
Year 2000 plan.
Do we have Contingency Plans?
Company-wide and business unit contingency plans for unexpected systems
failures as a result of the Year 2000 Problem were targeted to be in effect by
the end of 1998. The company-wide plan and the contingency plans for eighty-two
percent of our business units have been completed. We are currently working to
complete the balance of the business unit contingency plans.
Review of our Year 2000 Plan
We engaged a consultant to review our Year 2000 plan. Under the terms of
this engagement, the consultant (1) reviewed the operations of the Year 2000
Program Management Office, (2) reviewed our Year 2000 plan, and (3) reviewed the
implementation of the Year 2000 plan at selected locations. From time to time
during the review, the consultant reported its findings to the Audit Committee
of our Board of Directors. We are in the process of negotiating to engage the
same consultant to perform follow-up review.
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.
SELLING SHAREHOLDERS
The following table sets forth, as of the date of this prospectus, the name
of each holder of shares issued pursuant to this prospectus, 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 us or any of our
affiliates within the past three years other than as a result of the ownership
of shares. We may amend or supplement this prospectus from time to time to
update the disclosure set forth therein.
<TABLE>
<CAPTION>
Number of Shares to Shares Owned of Record
Shares Owned of Record be Offered for After Completion
Prior to the Offering for the Selling of the Offering
Shareholder's
Name of Selling Shareholder Number Percentage Account Number Percentage
<S> <C> <C> <C> <C> <C>
E. Kent Forest (1) 0 * 188,254 0 0.00%
Julie B. Jensen 0 * 20,519 0 0.00%
Kim C. Hills 0 * 1,982 0 0.00%
Jerry W. Burns 0 * 3,195 0 0.00%
Matt L. Evans 0 * 2,639 0 0.00%
Jeff B. Davis 0 * 1,128 0 0.00%
Tom D. Stubbs 0 * 1,078 0 0.00%
Bruce Berg (2) 0 * 357,700 0 0.00%
Bruce J. Frey 0 * 31,837 0 0.00%
Lelia A. Hilmer 0 * 890 0 0.00%
Lelia A. Hilmer Family Trust 0 * 88,195 0 0.00%
Samuel Trust 0 * 37,798 0 0.00%
Wayne Hilmer 0 * 100,000 0 0.00%
Stephen Rabbitt 0 * 15,535 0 0.00%
Evan Barnett (3) 0 * 18,778 0 0.00%
Nevel DeHart (4) 0 * 12,803 0 0.00%
Catherine MacPhaille (5) 0 * 37,556 0 0.00%
Tower City Title Agency, Inc. (7) 0 * 55,168 0 0.00%
Wally Gorski 0 * 25,000 0 0.00%
George Edward 0 * 25,000 0 0.00%
St. Paul Trust 0 * 542,025 0 0.00%
S & L Trust 0 * 260,000 0 0.00%
</TABLE>
- ----------------------------------
* Less than one percent.
(1) Mr. Forest is the Divisional President of CNC, a direct, partially-owned
subsidiary.
(2) Mr. Berg is the Divisional President of CIC, a direct, wholly-owned
subsidiary.
(3) Mr. Barnett is the Divisional President of each Registry Entity and a
Director of SII and TRC, all of which are direct, wholly-owned
subsidiaries.
(4) Mr. DeHart is a Senior Vice President and Sales Manger of each Registry
Entity, all of which are direct, wholly-owned subsidiaries.
(5) Ms. MacPhailler is a Senior Vice President and Divisional Chief Financial
Officer of each Registry Entity, all of which are direct, wholly-owned
subsidiaries.
(6) Shanks, Tritter & Associates, P.C. is currently paid a monthly retainer for
legal services by FAND and purchases goods and services therefrom.
(7) We own 17.5% of Tower City.
(8) Norwest Mortgage, Inc. directly or indirectly owns 50% of RELS LLC, a
subsidiary.
<PAGE>
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling shareholders. As used in this section, "selling
shareholders" includes donees and pledgees selling shares received from a named
selling shareholder after the date of this prospectus. The selling shareholders
will act independently of us 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 hares 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.
We have 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, we 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.
We have 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; we intend to de-register any of the shares not sold
by the selling shareholders after such time.
LEGAL MATTERS
The validity of our common shares offered hereby will be passed upon for us
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>
<TABLE>
(outside back cover page)
<S> <C>
o We have not authorized anyone to give you
any information that differs from the
information in this prospectus. If you Prospectus
receive any different information, you
should not rely on it.
o The delivery of this prospectus shall not,
under any circumstances, create an 3,000,000 Common Shares
implication that The First American
Financial Corporation is operating under
the same conditions that it was operating [GRAPHIC OMITTED]
under when this prospectus was written.
Do not assume that the information
contained in this prospectus is correct at
any time past the date indicated.
o 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.
o This prospectus does not constitute an
offer to sell, or the solicitation of an
offer to buy, the securities to which it
relates in any circumstances in which such
offer or solicitation is unlawful.
THE FIRST AMERICAN
__________________________ FINANCIAL CORPORATION
Table of Contents
Where You Can Find More Information;
Incorporation by Reference.................(i)
Special Note of Caution Regarding
Forward-Looking Statements................(ii)
Risk Factors.................................1 Dated January 28, 1999
The First American Financial Corporation.....2
Selling Shareholders........................11
Plan of Distribution........................13
Legal Matters...............................14
Experts.....................................14
</TABLE>
