REGISTRATION NO. 333-66431
FILED PURSUANT TO RULE 424(B)(3)
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.
Listing
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 May 28, 1999, the closing price of our shares on the New York Stock
Exchange was $16.4375.
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 May 28, 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, 1998.
o Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1999.
o Our Current Reports on Form 8-K dated April 22, 1999 and May 19, 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.
<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.
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.
Recent Acquisitions
On April 9, 1999, we acquired Guaranty Title of Johnson County, Inc.,
Guarantee Title of Wyandotte County, Inc. and Guarantee Title of Leavenworth,
Inc., each of which is a title insurance company operating in and around the
Kansas City, Kansas metropolitan area. In connection with these acquisitions, we
issued 267,347 shares registered under this prospectus.
On April 13, 1999, we acquired Atlantic Title Company, Inc., a title
insurance company operating in Maine. In connection with this acquisition, we
issued 113,080 shares registered under this prospectus.
On May 28, 1999, we acquired ACE Information Services, Inc., a company
which provides tenant screening services having its business offices in Orlando,
Florida. In connection with this acquisition, we issued 96,427 shares registered
under this prospectus.
Summary Historical Consolidated
Financial Data
The following table sets forth summary historical consolidated financial
and other data for the five years ended December 31, 1998 and for the quarterly
periods ended March 31, 1998 and 1999. 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, 1998 and our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, each of
which is incorporated by reference in this prospectus.
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<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
1994 1995 1996 1997 1998 1999 1998
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues:
Operating revenues $1,362,524 $1,234,236 $1,587,895 $1,881,666 $2,802,190 $695,545 $568,802
Investment and other
income 19,447 23,031 26,398 27,257 75,138 11,381 43,435
1,381,971 1,257,267 1,614,293 1,908,923 2,877,328 706,926 612,237
Expenses:
Salaries and other
personnel costs 425,319 435,358 539,985 659,325 914,058 246,841 202,846
Premiums retained by
agents 533,598 413,444 516,593 563,137 773,030 210,568 140,045
Other operating expenses 234,102 261,185 329,525 421,056 611,332 152,065 138,587
Provision for title
losses and other claims 110,230 90,387 86,487 90,323 118,763 25,770 27,328
Depreciation and
amortization 21,039 20,892 27,503 38,489 59,804 16,574 13,809
Premium taxes 15,453 13,627 16,676 16,904 20,912 5,211 4,154
Interest 6,288 6,244 4,808 10,014 20,912 5,211 4,154
1,346,029 1,241,137 1,521,577 1,799,248 18,007 661,561 530,351
Income before income taxes
and minority interests 35,942 16,130 92,716 109,675 361,422 43,365 81,886
Income taxes 13,300 6,200 35,600 41,500 127,700 15,400 29,400
Income before minority
interests 22,642 9,930 57,116 68,175 233,722 29,965 52,486
Minority Interests 2,944 2,132 2,624 3,676 35,012 5,088 7,753
Net income $ 19,698 $ 7,798 $ 54,492 $ 64,499 $ 198,710 $ 24,877 $ 44,733
Earnings Per Share Data:
Basic<F1><F2><F3> $ 0.37 $ 0.16 $ 1.01 $ 1.18 $ 3.46 $ 0.41 $ 0.82
Diluted<F1><F2><F3> $ 0.37 $ 0.16 $ 1.00 $ 1.16 $ 3.32 $ 0.40 $ 0.79
<FN>
<F1> Adjusted to reflect the 1998 acquisitions accounted for under the pooling-of-interests method of accounting.
<F2> Based upon the weighted average number of common shares outstanding.
<F3> Adjusted to reflect our 3-for-1 stock split effected July 17, 1998.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
December 31, March 31,
1994 1995 1996 1997 1998 1999
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data<F1>:
Cash and invested assets $367,174 $340,616 $365,031 $411,717 $726,681 $660,877
Total assets $805,350 $855,156 $963,444 $1,153,635 $1,784,790 $1,802,374
Notes and contracts payable $89,631 $77,430 $71,428 $42,119 $130,193 $126,001
Mandatorily redeemable preferred
securities of our subsidiary trust
whose sole assets are our $100,000,000
8.5% deferrable interest subordinated
debentures due 2012 -- -- -- $100,000 $100,000 $100,000
Total shareholders' equity $293,056 $305,778 $356,379 $415,003 $731,915 $777,313
Other Data<F1>:
Loss ratio 8.1% 7.3% 5.4% 4.8% 4.2% 3.7%
Cash dividends per share<F1><F2> $0.13 $0.13 $0.15 $0.16 $0.22 $0.05
Ratio of debt to total 22.1% 19.0% 15.9% 7.2% 12.3% 11.4%
capitalization<F1><F3>
<FN>
<F1> Adjusted to reflect the 1998 acquisitions accounted for under the pooling-of-interests method of accounting.
<F2> Adjusted to reflect our 3-for-1 stock split effected July 17, 1998.
<F3> Total capitalization includes minority interests and mandatorily redeemable preferred securities of the Company's subsidiary
trust.
</FN>
</TABLE>
<PAGE>
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.
Substantially all of the phases of the plan, with the exception of the
implementation phase, have been completed. The implementation phase is expected
to be completed by June 30, 1999. However, all of the phases of the plan must be
revisited each time we acquire a new business. Accordingly, all phases of the
plan are still active.
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 $17.2 million in
implementing our Year 2000 plan. We expect to incur at least an additional $10
million to $20 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 will be expensed as incurred. Year 2000 plan costs
are being funded through operating cash flow.
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 ninety
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 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 following table sets forth, as of the date of this prospectus, the
following information.
o The name of each holder of shares that may be sold pursuant to this
prospectus.
o The number of our common shares that each selling shareholder owns as
of such date.
o The number of our common shares owned by each selling shareholder that
may be offered for sale from time to time pursuant to this prospectus.
o The number of our common shares to be held by each selling shareholder
assuming the sale of all the shares offered hereby.
o By footnote, any position or office held or material relationship with
The First American Financial Corporation or any of its affiliates
within the past three years, other than that of being a shareholder.
We may amend or supplement this prospectus from time to time to update the
disclosure set forth herein.
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares
to be Offered Shares Owned of Record
Shares Owned of Record for the Selling After Completion of the
Prior to the Offering Shareholder's Offering
Name of Selling Shareholder<F1> Number % Account Number %
<S> <C> <C> <C> <C> <C>
Joe F. Jenkins Sr. 0 less than 1 50,260 0 0
Joe F. Jenkins II (1) 0 less than 1 158,968 0 0
Douglas T. Tyler (2) 0 less than 1 58,119 0 0
Charles R. Oestreicher (3) 0 less than 1 28,270 0 0
Robert B. Patterson, Jr. 0 less than 1 28,270 0 0
Fred W. Oertel 0 less than 1 28,270 0 0
Bruce W. Bergen 0 less than 1 28,270 0 0
Ron Crawley 0 less than 1 96,427 0 0
<FN>
<F1> This prospectus may also be used by donees and pledgees of a named selling shareholder for selling shares received from a
named selling shareholder after the date of this prospectus.
<F2> Mr. Joe F. Jenkins II is the President of Guarantee Title of Wyandotte County, Inc. and Guarantee Title of Leavenworth, Inc.,
each of which are wholly-owned subsidiaries.
<F3> Mr. Tyler is the President of Guarantee Title of Johnson County, Ind., a wholly-owned subsidiary.
<F4> Mr. Oestreicher is the President of Atlantic Title Company, Inc., a wholly-owned subsidiary.
</FN>
</TABLE>
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<PAGE>
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time to
time by the selling shareholders. The selling shareholders will act
independently of 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. The sale price may be the
then prevailing market price or a price related thereto, a price set by formula,
which may be subject to change, or a negotiated price. The shares may be sold,
without limitation, by one or more of the following means of distribution.
o 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.
o Purchases by a broker-dealer as principal and resale by such broker-dealer
for its own account pursuant to this prospectus.
o A distribution in accordance with the rules of the New York Stock Exchange.
o Ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
o 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 a hedging transactions,
broker-dealers or other financial institutions may engage in short sales of the
shares in the course of hedging the positions they assume with selling
shareholders. The selling shareholders may also sell the shares short and
deliver the shares offered hereby to close out such short positions. The selling
shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions which require the delivery to
such broker-dealer or other financial institution of shares offered hereby,
which shares such broker-dealer or other financial institution may resell
pursuant to this prospectus, as supplemented or amended to reflect such
transaction. The selling shareholders may also pledge shares to a broker-dealer
or other financial institution, and, upon a default, such broker-dealer or other
financial institution may effect sales of the pledged shares pursuant to this
prospectus, as supplemented or amended to reflect such transaction. In addition,
any shares that qualify for sale pursuant to Rule 144 may, at the option of the
holder thereof, be sold under Rule 144 rather than pursuant to this prospectus.
Any broker-dealer participating in such transactions as agent may receive
commissions from the selling shareholders and/or purchasers of the shares
offered hereby. Usual and customary brokerage fees will be paid by the selling
shareholders. Broker-dealers may agree with the selling shareholders 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
shareholders, to purchase as principal any unsold shares at the price required
to fulfill the broker-dealer commitment to the selling shareholders.
Broker-dealers who acquire shares as principal may thereafter resell the 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 have 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
liabilities resulting therefrom. Among these liabilities for which
indemnification may be provided are those arising under the Securities Act of
1933.
At the time a particular offer of shares offered pursuant to this
prospectus is made, if required, a supplement to this prospectus 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 the following dates.
o The date one year from the date of issuance of such shares.
o Such date as all of the 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 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, 1998, 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>
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.
--------------------------
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
The First American Financial Corporation.......................................3
Selling Shareholders..........................................................15
Plan of Distribution..........................................................17
Legal Matters.................................................................18
Experts.......................................................................19
Prospectus
3,000,000 Common Shares
THE FIRST AMERICAN
FINANCIAL CORPORATION
Dated May 28, 1999
