As filed with the Securities and Exchange Commission on March 5, 1999
Registration No. 333-66431
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
PRE-EFFECTIVE AMENDMENT
NO. 4 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE FIRST AMERICAN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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California 6361 95-1068610
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation of Organization) Classification Code No.) Identification No.)
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114 East Fifth Street
Santa Ana, California 92701-4642
(800) 854-3643
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Mark R Arnesen, Esq. (Copy to)
Secretary Neil W. Rust, Esq.
The First American Financial Corporation White & Case LLP
114 East Fifth Street 633 West Fifth Street
Santa Ana, California 92701 Los Angeles, California 90071
(714) 558-3211 (213) 620-7700
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as the
Registrant shall determine.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ] Registration
No._________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] Registration No._________
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CALCULATION OF REGISTRATION FEE
=================================================================================================================
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities Amount To Be Aggregate Price Aggregate Registration
To Be Registered Registered Per Unit(1) Offering Price(1) Fee(2)
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Common shares, $1.00 par value 3,000,000 shares $26.906 $80,718,750 $22,440
=================================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act, based on the average
of the high and low prices of the common shares registered on the New York
Stock Exchange as of October 26, 1998.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
3,000,000 COMMON SHARES
THE FIRST AMERICAN FINANCIAL CORPORATION
Acquisition Consideration
o This prospectus covers up to 3,000,000 of our common shares.
o We may offer these shares from time to time as full or partial
consideration for our acquisition of the assets or ownership interests of
businesses which primarily provide real estate-related financial and
informational services.
o We will negotiate the terms of each acquisition transaction with the owners
of the assets or ownership interests being acquired at the time the
particular acquisition transaction is undertaken.
Share Price
o We will value the shares issued in a particular acquisition
transaction at a price reasonably related to the market value of
the shares at one of the following times.
o When the terms of the particular acquisition transaction are
agreed upon.
o When the particular acquisition transaction closes.
o During the period or periods prior to the delivery of the shares.
An Investment in Our Company Entails Risk
o Before making an investment in our shares, you should consider carefully
the "Risk Factors" set forth beginning on page 1.
Our Business
o We provide real estate-related financial and informational services to real
property buyers and mortgage lenders.
o The shares offered by this prospectus will be listed for trading on the New
York Stock Exchange.
o The trading symbol for our shares on the New York Stock Exchange is "FAF."
o On , 1999, the closing price of our shares on the New York Stock
Exchange was $ .
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 , 1999.
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(inside cover page)
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. You may read and copy,
upon payment of a fee set by the SEC, any document that we file with the SEC at
any of its public reference rooms in the following locations.
450 Fifth Street, N.W.
Washington, D.C. 20549
Seven World Trade Center
13th Floor, Suite 1300
New York, New York 10048
Citicorp Center
500 West Madison Street
14th Floor, Suite 1400
Chicago, Illinois 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. This 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 Our Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
o Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1998, June 30, 1998 and September 30, 1998.
o Our 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,
October 22, 1998 and February 10, 1999.
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.
o Any additional documents that we file with the SEC between the date of
this prospectus and the earlier of the following dates.
o The date on which all of the shares offered by this prospectus
are resold by the persons or entities who or which acquire them
from us.
o The date that is one year after the last date on which shares
offered by this prospectus are issued by us.
This prospectus is part of a registration statement on Form S-4 which we
have filed with the SEC. As permitted by SEC rules, this prospectus does not
contain all of the information contained in the registration statement and
accompanying exhibits and schedules filed with the SEC. You may refer to the
registration statement, the exhibits and schedules for more information about us
and our 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.
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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.
Revenues may decline during periods when the demand for our products decreases
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 in the
following situations.
o When mortgage rates are high.
o When the mortgage fund supply is limited.
o When the United States economy is weak.
We believe that this trend will recur.
Earnings may be reduced 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. These businesses
generally 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 led to lower than expected earnings.
Business interruption, shutdown and liability because of Year 2000 problems
The following situations could occur as a result of the Year 2000 problem.
o Our information suppliers may be unable to provide us accurate data in
a timely manner.
o We may be unable to process information in an accurate and timely
manner.
o Our customers may be unable to receive and use our products and
services.
Each of these situations could result in the interruption or shutdown of
one or more of our businesses. Additionally, a disruption of telecommunications
and utilities as a result of the Year 2000 problem would most likely result in
the interruption or shutdown of one or more of our businesses. A 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 erroneous information resulting from the
Year 2000 problem 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 service 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. That could lead 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 the Year 2000 problem and our plans to address it,
please refer to "The First American Financial Corporation--Year 2000 Plan."
Changes in government regulation could prohibit or limit 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.
SPECIAL NOTE OF CAUTION REGARDING
FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus, any applicable supplement
to this prospectus and the documents incorporated by reference into this
prospectus, may constitute "forward-looking statements" within the meaning of
the federal securities laws. The following or similar words are intended to
identify forward-looking statements in our documents.
o "anticipate"
o "believe"
o "estimate"
o "expect"
o "objective"
o "projection"
o "forecast"
o "goal"
Forward-looking statements are based on our management's expectations
regarding our future economic performance and take into account only the
information currently available. These statements are not statements of
historical fact. Various factors could cause our actual results, performance or
financial condition to differ materially from the expectations expressed or
implied in any forward-looking statements. Some of these factors are listed
below.
o General volatility of the capital markets and the market price of our
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.
We qualify all forward-looking statements contained in our documents by
these cautionary factors.
THE FIRST AMERICAN FINANCIAL CORPORATION
History and Contact Information
We organized in 1894 as Orange County Title Company, succeeding to the
businesses 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.
Our telephone number is (714) 558-3211.
Our Businesses
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. The following is a list of our major
products and services.
o Title insurance.
o Tax monitoring.
o Credit reporting.
o Property data services.
o Flood certification.
o Field inspection services.
o Appraisal services.
o Mortgage loan servicing systems.
o Mortgage document preparation.
o Home warranty services.
o Investment services.
o Trust services.
o Thrift services.
Client Base
Through growth and acquisitions, we believe we have become the United
States' largest provider of real estate-related financial and informational
services. We sell our services and products to the following, non-exclusive,
client base.
o The mortgage industry.
o Commercial and residential real estate developers.
o Home buyers.
Business Segments
Title Insurance
Title insurance policies insure the interests of owners and their lenders
in the title to real property against loss by as a result of the following.
o Adverse claims to ownership.
o Defects in title.
o Liens.
o Encumbrances.
o Other matters affecting the title.
A title policy insures against such matters which exist at the time the
policy is issued. In contrast to property and casualty insurers, claim losses
are not a major expense of title insurance.
Before issuing title policies, title insurers seek to limit their risk of
loss by accurately performing title searches and examinations. Matters found
which effect title are then excluded from the scope of coverage unless they can
be removed to the satisfaction of the title insurer. 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. A title
plant is the accumulated data upon which a title insurer relies when conducting
title searches and examinations. Through our subsidiary, First American Title
Insurance Company and its subsidiaries, we transact our title insurance business
through a network of more than 300 branch offices and more than 4,000
independent agents. In 1998, our title insurance operations generated $2.06
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. That business generated $103.1 million in pre-tax profits in
1998 and $598.8 million in operating revenues. Approximately 28% of our pre-tax
profits in 1998 were derived from our real estate information services
businesses. With the exception of our home warranty business, these businesses
are not regulated. As a result, they are not subject to the 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. has grown from its tax service origins into a diversified
mortgage services company. First American Real Estate Information and its
subsidiaries sell services and products to the following, non-exclusive, client
base.
o Mortgage originators.
o Mortgage servicers.
o Title companies.
o Real estate attorneys.
o Consumers.
The tax service business was established in 1987 to advise mortgage lenders
as to the status of tax payments on the real property securing their loans. Now
First American Real Estate Information provides the following, non-exclusive,
list of real estate information services.
o Tax services
o Mortgage and other credit reporting services.
o Flood zone determinations.
o Mortgage loan servicing systems.
o Property inspections.
o Appraisal services.
o Mortgage document preparation.
The tax service business includes real estate tax reporting, tax
outsourcing and tax certification. The 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. This makes it the largest provider of mortgage credit reports
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 performing 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, now
known as Excelis, Inc. Excelis is believed to be the only commercially available
real-time on-line servicing system that has been developed since 1990. 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., other than its flood zone determination business. Strategic
Mortgage Services was a leading provider of real estate information services to
the U.S. mortgage and title insurance industries. The acquired businesses were
integrated into our existing operations. These business included the following.
o Strategic Mortgage Services' credit division.
o Strategic Mortgage Services' property appraisal division.
o Strategic Mortgage Services' title division, which provided title and
closing services throughout the United States, servicing primarily
second mortgage originators.
o Strategic Mortgage Services' settlement services business, which
provides title plant systems and accounting services, as well as
escrow closing software, to the title industry.
o A controlling interest in one of the largest mortgage document
preparation businesses in the United States.
On January 1, 1998, we entered into a joint venture with Experian
Information Solutions, Inc. Under the joint venture, we caused our real estate
information service subsidiaries other than Excelis to contribute substantially
all of their assets and liabilities to First American Real Estate Solutions LLC,
a newly formed entity, in exchange for an 80% ownership interest. Experian in
turn transferred substantially all of the assets and liabilities of its Real
Estate Solutions division to First American Real Estate Solutions in exchange
for a 20% ownership interest. We believe that Experian's Real Estate Solutions
division was the nation's foremost supplier of core real estate data. This data
consists, among other things, of the following.
o Property valuation information.
o Title information.
o Tax information.
o Imaged title documents.
As a result of this joint venture, we believe that First American Real Estate
Solutions 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.
On July 31, 1998, we acquired ShadowNet Mortgage Technologies, LLC.
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 CIC Inc. CIC provides pre-employment
reporting services to private and public employers. CIC's services include the
following.
o Prior employment verification.
o Criminal records searches.
o Motor vehicle reports.
o Credit reports.
o Educational and professional license verification.
o Workers' compensation records.
o Drug testing.
On September 30, 1998, we acquired The Registry, Inc., Southcoast
Industries, Inc., Trans Registry Corporation, Crim Check America, Inc. and Trans
Registry Limited. These businesses provide landlords with data on prospective
tenants in order to allow them to better make an informed screening decision.
This data typically includes the following.
o A report of prior unlawful detainer actions against the prospective
tenant.
o An employment verification.
o A credit report.
o A rental payment history.
Home Warranty
We currently own 90.4% of our home warranty business, First American Home
Buyers Protection Corporation. The balance is 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.
Our home warranty business is one of the largest in the United States based on
contracts under service, with $58.2 million in operating revenues in 1998.
Trust and Thrift
Since 1960, we have conducted a general trust business in Southern
California. In 1985, we formed First American Trust Company, a banking
subsidiary, into which our subsidiary trust operation was merged. As of December
31, 1998, the trust operations were administering fiduciary and custodial assets
having a market value in excess of $1.8 billion.
In 1988, through First American Title Guaranty Holding Company, a majority
owned subsidiary, we acquired First Security Thrift Company. First Security
accepts thrift deposits and uses deposited funds to originate and purchase loans
secured by commercial properties in Southern California. The loans made by First
Security currently range in amount from $20,000 to $1,105,000. The average loan
balance is $270,500. Loans are made only on a secured basis, at loan-to-value
percentages no greater than 75%. First Security specializes in making commercial
real estate loans and financing commercial equipment leases. In excess of 93% of
First Security's loans are made on a variable rate basis. The average yield on
First Security's loan portfolio as of December 31, 1997, was 11%. First
Security's average loan is 60 months in duration. Current deposits total $62.5
million and the loan portfolio totals $65.5 million.
Summary Historical Consolidated Financial Data
The following table sets forth summary historical consolidated financial
and other data 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.
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Nine Months Ended
Year Ended December 31, September 30,
1993 1994 1995 1996 1997 1997 1998
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(Dollars in thousands, except per share data)
Income Statement Data:
Revenues:
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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
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$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 $62,091 $18,945 $7,587 $53,589 $64,709 $41,954 $145,919
taxes
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
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(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.
</TABLE>
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December 31, September 30,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
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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%
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(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.
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Recent Developments
Effective January 1, 1999, we implemented a change to our revenue
recognition accounting policy for tax service contracts. The new accounting
policy was adopted prospectively and applies to all new loans serviced beginning
January 1, 1999. Prior to January 1, 1999, we recognized revenues from tax
service contracts over the estimated duration of the contracts as the related
servicing costs were estimated to occur. The majority of the servicing costs,
approximately 70%, are incurred in the year the contract is executed, with the
remaining 30% incurred over the remaining service life of the contract. The new
policy provides for a more ratable recognition of revenues, reducing the amount
recognized at the inception of the contract and recognizing it over the expected
service period. The amortization rates applied to recognize the revenues assume
a 10-year contract life and are adjusted to reflect prepayments. The resulting
rates by year (starting with year one) are 32%, 24%, 14%, 9%, 7%, 5%, 4%, 2%, 2%
and 1%. We periodically review our tax service contract portfolio to determine
if there have been changes in contract lives and/or changes in the number and/or
timing of prepayments; accordingly, we may adjust the rates to reflect current
trends. We estimate that adoption of this new policy will result in a decrease
in diluted earnings per share for 1999 of $0.25 to $0.35. This estimate is
heavily dependent on the volume of tax service contracts entered into in 1999.
Assuming the new accounting policy had been consistently applied in prior years,
we would have reported diluted earnings per share of $1.12, $0.42, $0.17, $0.90
and $1.02 for the years ended December 31, 1993, 1994, 1995, 1996 and 1997,
respectively. Actual reported earnings per share for the years ended December
31, 1993, 1994, 1995, 1996 and 1997, respectively, were $1.26, $0.37, $0.16,
$1.00 and $1.16.
Year 2000 Plan
What is the Year 2000 Problem?
Many of today's computer systems identify a particular year on the basis of
the last two digits of that year. For the purposes of this discussion, "computer
systems" includes information systems generally and devices which rely on
imbedded technology, e.g. microprocessors. For example, the year "1998" is
recognized by the digits "98." The inability of computer systems to properly
recognize a year that begins with "20" instead of "19," if not corrected, may
result in the failure of or the production of erroneous results within the
computer system. 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, taxing authorities, 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 the following five-step plan to
address the Year 2000 Problem.
o Awareness.
o Inventory/Assessment.
o Renovation.
o Testing.
o Implementation.
Our "awareness" phase involves communicating the nature and scope of the
Year 2000 Problem to the management of each of the business units described
below 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.
To implement our plan, we have divided our company into the following
"business units."
o The reporting regions of the title insurance subsidiaries.
o The subsidiary companies of our real estate information services
business.
o Our home warranty subsidiaries.
o Our trust and banking subsidiaries.
o Our various other subsidiaries.
The awareness phase will continue throughout 1999. The inventory/assessment
phase is substantially complete. However, this phase and the other phases must
be revisited each time we acquire a new business.
December 31, 1998 was the initial target date for completion of renovation.
The following progress on the renovation phase had been made as of December 31,
1998.
o 79% of our business units had completed 80% or more of their
renovations.
o 61% percent of our business units had completed 90% or more of their
renovations.
o 24% had met the target date and completed 100% of their renovations.
We plan to complete the renovation phase for all business units as soon as
practicable.
Based on our current knowledge, we have established April 30, 1999 as the
target date for completion of testing and 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 expenditures approximating $11 million in
implementing our Year 2000 plan. We expect to incur at least an additional $20
million to $30 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
December 31, 1998. The company-wide plan and the contingency plans for
eighty-two percent of our business units were complete by December 31, 1998. 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 is performing the following services.
o Review of the operations of the Year 2000 Program Management Office.
o Review of our Year 2000 plan.
o Review of the implementation of the Year 2000 plan at selected
locations.
From time to time during the review, the consultant is reporting its
findings to the Audit Committee of our Board of Directors.
No Assurances
The costs to implement our Year 2000 plan and our target dates for
completion of the various phases of our Year 2000 plan are based on current
estimates. These estimates reflect numerous assumptions about future events,
including the continued availability of certain resources, the timing and
effectiveness of third party renovation plans and other factors. We can give no
assurance that these estimates will be achieved, and actual results could differ
materially from these estimates.
SELLING SHAREHOLDERS
The holders of the shares issued under this prospectus may reoffer the
shares using this prospectus. The selling shareholders may reoffer the shares 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. They
may reoffer the shares at negotiated prices, fixed prices which may be changed,
market prices prevailing at the time of sale or prices relating to such
prevailing market prices. The selling shareholders may effect such transactions
by selling the shares to or through broker-dealers. The broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling shareholders, the purchasers of shares for whom such broker-dealer
may act as agent or to whom they may sell as principal or both. We will not
receive any part of the proceeds from the resale by the selling shareholders of
any shares under to this prospectus. We will bear all expenses other than
selling discounts and commissions and fees and expenses of the selling
shareholders in connection with the registration of the shares being reoffered
by the selling shareholders.
The identity of the selling shareholders, the number of shares to be sold
by the selling shareholders and the price per share will be determined at the
time of the consummation of the particular transaction. Specific information
regarding the transaction, the identity of the selling shareholders and the
number of shares to be resold may be provided at the time of such transaction by
means of a supplement or a post-effective amendment to this prospectus, as
applicable.
The selling shareholders and any broker-dealers who act in connection with
the sale of shares hereunder may be deemed to be an "underwriter" within the
meaning of the Securities Act. Any commissions received by them and profit on
any resale of such shares as principal may be deemed to be underwriting
discounts and commissions under the Securities Act. We intend to comply with the
public disclosure requirements of the Securities Act and the regulations
thereunder. Accordingly, Rule 144 or Rule 145 under the Securities Act may be
available for use by holders of the shares offered hereby to effect transfers of
the shares, subject to compliance with the remaining provisions of such rules.
LEGAL MATTERS
The validity of the shares offered by this prospectus 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>
(outside back cover page)
o We have not authorized anyone to give you
any information that differs from the
information in this prospectus. If you
receive any different information, you
should not rely on it.
o The delivery of this prospectus shall not,
under any circumstances, create an
implication that The First American
Financial Corporation is operating under
the same conditions that it was operating
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.
--------------------------
Prospectus
3,000,000 Common Shares
THE FIRST AMERICAN
FINANCIAL CORPORATION
Table of Contents
Where You Can Find More Information;
Incorporation by Reference.................(i)
Risk Factors.................................1
Special Note of Caution Regarding
Forward-Looking Statements...................2 Dated , 1999
The First American Financial Corporation.....3
Selling Shareholders........................14
Legal Matters...............................15
Experts.....................................15
<PAGE>
Part II
Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Subject to certain limitations, Section 317 of the California Corporations
Code provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
proceeding (other than an action by or in the right of the corporation to
procure a judgment in its favor) by reason of the fact that the person is or was
an agent (which term includes officers and directors) of the corporation,
against expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was unlawful.
The California indemnification statute set forth in Section 317 of the
California Corporations Code (noted above) is nonexclusive and allows a
corporation to expand the scope of indemnification provided, whether by
provisions in its Bylaws or by agreement, to the extent authorized in the
corporation's articles.
The Restated Articles of Incorporation of the Registrant provide that: "The
liability of the directors of the Corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law." The effect
of this provision is to exculpate directors from any liability to the
Registrant, or anyone claiming on the Registrant's behalf, for breaches of the
directors' duty of care. However, the provision does not eliminate or limit the
liability of a director for actions taken in his capacity as an officer. In
addition, the provision applies only to monetary damages and is not intended to
impair the rights of parties suing on behalf of the Registrant to seek equitable
remedies (such as actions to enjoin or rescind a transaction involving a breach
of the directors' duty of care or loyalty).
The Bylaws of the Registrant provide that, subject to certain
qualifications, "(i) The corporation shall indemnify its Officers and Directors
to the fullest extent permitted by law, including those circumstances in which
indemnification would otherwise be discretionary; (ii) the corporation is
required to advance expenses to its Officers and Directors as incurred,
including expenses relating to obtaining a determination that such Officers and
Directors are entitled to indemnification, provided that they undertake to repay
the amount advanced if it is ultimately determined that they are not entitled to
indemnification; (iii) an Officer or Director may bring suit against the
corporation if a claim for indemnification is not timely paid; (iv) the
corporation may not retroactively amend this Section 1 in a way which is adverse
to its Officers and Directors; (v) the provisions of subsections (i) through
(iv) above shall apply to all past and present Officers and Directors of the
corporation." "Officer" includes the following officers of the Registrant:
Chairman of the Board, President, Vice President, Secretary, Assistant
Secretary, Chief Financial Officer, Treasurer, Assistant Treasurer and such
other officers as the board shall designate from time to time. "Director" of the
Registrant means any person appointed to serve on the Registrant's board of
directors either by its shareholders or by the remaining board members.
Each of the Registrant's 1996 Stock Option Plan,1997 Directors' Stock Plan,
401(k) Savings Plan, Pension Plan, Pension Restoration Plan and Employee Profit
and Stock Ownership Plan (for purposes of this paragraph, each individually, the
"Plan") provides that, subject to certain conditions, "The Company shall,
through the purchase of insurance or otherwise, indemnify each member of the
Board (or board of directors of any Affiliate), each member of the
[Compensation] Committee, and any [other] employees to whom any responsibility
with respect to the Plan is allocated or delegated, from and against any and all
claims, losses, damages, and expenses, including attorneys' fees, and any
liability, including any amounts paid in settlement with the Company's approval,
arising from the individual's action or failure to act, except when the same is
judicially determined to be attributable to the gross negligence or willful
misconduct of such person."
The Registrant's Deferred Compensation Plan (for purposes of this
paragraph, the "Plan") provides that, "To the extent permitted by applicable
state law, the Company shall indemnify and save harmless the Committee and each
member thereof, the Board of Directors and any delegate of the Committee who is
an employee of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims arising out
of their discharge in good faith of responsibilities under or incident to the
Plan, other than expenses and liabilities arising out of willful misconduct.
This indemnity shall not preclude such further indemnities as may be available
under insurance purchased by the Company or provided by the Company under any
bylaw, agreement or otherwise, as such indemnities are permitted under state
law."
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
Item 21. Exhibits and Financial Statement Schedules.
4.1. Description of the Registrant's capital stock in Article Sixth of the
Restated Articles of Incorporation of The First American Financial
Corporation, incorporated by reference to Exhibit 3.1 of the Registrant's
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 dated
July 28, 1998.
4.2. Rights Agreement, incorporated by reference to Exhibit 4 of the
Registrant's Registration Statement on Form 8-A dated November 7, 1997.
5. Opinion of counsel regarding legality.
23.1. Consent of independent accountants.
23.2. Consent of counsel (contained in Exhibit 5).
24. Power of Attorney.
Item 23. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during the period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into this prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
* * *
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Pre-Effective Amendment No. 4 to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of
Santa Ana, state of California, on March 5, 1999.
THE FIRST AMERICAN FINANCIAL
CORPORATION
By: /s/ Parker S. Kennedy
------------------------------------------
Parker S. Kennedy, President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 4 to Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Date: March 5, 1999 By: /s/ D.P. Kennedy
---------------------------
D.P. Kennedy, Chairman
and Director
Date: March 5, 1999 By: /s/ Parker S. Kennedy
---------------------------
Parker S. Kennedy,
President and Director
Date: March 5, 1999 By: /s/ Thomas A. Klemens
---------------------------
Thomas A. Klemens,
Executive Vice President,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 4 to Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Date: March 5, 1999 By: /s/ George L. Argyros *
--------------------------------------------------
George L. Argyros, Director
Date: March 5, 1999 By: /s/ Gary J. Beban *
--------------------------------------------------
Gary J. Beban, Director
Date: March 5, 1999 By: /s/ J. David Chatham *
--------------------------------------------------
J. David Chatham, Director
Date: March 5, 1999 By: /s/ William G. Davis *
--------------------------------------------------
William G. Davis, Director
Date: March 5, 1999 By: /s/ James J. Doti *
--------------------------------------------------
James L. Doti, Director
Date: March 5, 1999 By: /s/ Lewis W. Douglas, Jr. *
--------------------------------------------------
Lewis W. Douglas, Jr., Director
Date: March 5, 1999 By: /s/ Paul B. Fay, Jr. *
--------------------------------------------------
Paul B. Fay, Jr., Director
Date: March 5, 1999 By: /s/ Dale F. Frey *
--------------------------------------------------
Dale F. Frey, Director
Date: March 5, 1999 By: /s/ Anthony R. Moiso *
--------------------------------------------------
Anthony R. Moiso, Director
Date: March 5, 1999 By: /s/ Frank O'Bryan *
--------------------------------------------------
Frank O'Bryan, Director
Date: March 5, 1999 By: /s/ Roslyn B. Payne *
--------------------------------------------------
Roslyn B. Payne, Director
Date: By:
--------------------------------------------------
D. Van Skilling, Director
Date: March 5, 1999 By: /s/ Virginia Ueberroth *
--------------------------------------------------
Virginia Ueberroth, Director
*By:/s/ Mark R Arnesen
-------------------
Mark R Arnesen
Attorney-in-Fact
<PAGE>
Exhibit Index
Exhibit
Number Description
4.1. Description of the Registrant's capital stock in Article Sixth of the
Restated Articles of Incorporation of The First American Financial
Corporation, incorporated by reference to Exhibit 3.1 of the
Registrant's Post-Effective Amendment No. 1 to Registration Statement
on Form S-4 dated July 28, 1998.
4.2. Rights Agreement, incorporated by reference to Exhibit 4 of the
Registrant's Registration Statement on Form 8-A dated November 7,
1997.
5. Opinion of counsel regarding legality (previously filed).
23.1. Consent of independent accountants (previously filed).
23.2. Consent of counsel (contained in Exhibit 5) (previously filed).
24. Power of Attorney (previously filed).
