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The First American Corporation Reports Financial Results for the First Quarter of 2008- Reports Income Per Diluted Share of 32 Cents -
SANTA ANA, Calif., May 1 /PRNewswire-FirstCall/ -- The First American Corporation NYSE: FAF, America's largest provider of business information, today announced financial results for the first quarter ended March 31, 2008.
Current Quarter Highlights
-- Total revenues of $1.7 billion in the first quarter of 2008, a 21.9
percent decrease from the prior year.
-- Net income of $29.3 million (32 cents per diluted share) in the first
quarter of 2008, compared with $67.7 million (68 cents per diluted
share) in the first quarter of 2007, when adjusted for the net impact
of one-time items in 2007 totaling $16.1 million (16 cents per diluted
share).
-- Continued revenue growth in international title operations.
-- Strong pretax margins in the Information and Outsourcing Solutions
segment, despite ongoing difficult market conditions.
-- Corporate-wide focus on cost-containment initiatives.
Consolidated Review Total revenues for the first quarter of 2008 were $1.7 billion, a decrease of 22 percent relative to the first quarter of 2007. Net income was $29.3 million in the first quarter of 2008, a decrease of 57 percent, compared with adjusted net income of $67.7 million in the first quarter of 2007. Income per diluted share was 32 cents in the first quarter of 2008, down 53 percent, versus an adjusted income per diluted share of 68 cents in the first quarter of 2007. First quarter 2007 net income numbers are adjusted to exclude certain net realized investment gains and other one-time items totaling $16.1 million, after tax, or 16 cents per diluted share. Including these items, net income and income per diluted share for the first quarter of 2008 decreased 65.0 percent and 61.9 percent, respectively, from prior year totals of $83.8 million and 84 cents, respectively. "The company continues to be impacted by the slowdown in real estate and mortgage activity," stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. "But in response, we continue to aggressively pursue the companywide cost-reduction efforts that began in 2007. We also are pleased to report that we are making progress on the planned separation of our Financial Services and Information Solutions businesses." First Quarter Segment Review The company has reorganized its two business groups and underlying segments to reflect how the assets and operations will be divided and managed once the separation of its Information Solutions and Financial Services businesses is consummated. Effective this quarter, the company will present the following five business segments:
Financial Services Group
-- Title Insurance and Services: The Title Insurance and Services
segment's principal product is policies of title insurance on
residential and commercial property. This segment also accommodates
tax-deferred exchanges of real estate and provides escrow services,
investment advisory services, trust services, lending and deposit
products, and other related products and services.
-- Specialty Insurance: The Specialty Insurance segment's primary
business focus is in providing residential service contracts that cover
many of the major systems and appliances in homes against failures that
occur as a result of normal usage during the coverage period, and in
offering property and casualty insurance.
Information Solutions Group
-- Information and Outsourcing Solutions: The Information and Outsourcing
Solutions segment focuses on providing a wide range of products and
services to the lender and mortgage markets, including tax monitoring,
flood zone certification and monitoring, asset valuation and management
services, default management services, and loan administration and
production services.
-- Data and Analytic Solutions: The company's Data and Analytic Solutions
segment provides licenses and analyzes data relating to mortgage
securities and loans and real property, offers risk management and
collateral assessment analytics and provides database management and
automated appraisal services to various businesses, in particular to
businesses operating in the real estate industry and to consumers
interested in real estate. The company's Data and Analytic Solutions
segment's primary customers are commercial banks; mortgage lenders and
brokers; investment banks; fixed income investors; real estate agents;
property and casualty insurance companies; title insurance companies;
and licensees in government, legal servicing, property and casualty
insurance, and consumer-direct. The data offered by this segment
include loan information, property characteristic information, maps and
aerial imaging, and images of publicly recorded documents relating to
real property. This segment also manages databases of title and tax
records, known as title plants, which are used primarily by title
insurance companies in the issuance of title insurance policies.
-- Risk Mitigation and Business Solutions: The company's Risk Mitigation
and Business Solutions segment is comprised entirely of First Advantage
Corporation, a public company whose shares of Class A common stock
trade on NASDAQ Global Market under the ticker symbol FADV. First
Advantage operates in six primary business groups: lender services,
data services, dealer services, employer services, multifamily
services, and investigative and litigation support services.
Financial Services Group "We continue to manage our cost structure in the Financial Services Group, as we navigate through the difficult real estate and mortgage markets," stated Dennis J. Gilmore, First American's chief operating officer and future chief executive officer of the Financial Services company. "We remain focused on streamlining both our direct and agency title operations by centralizing administrative functions, leveraging our technology and rationalizing our cost structure." Title Insurance and Services. During the first quarter of 2008, operating revenues in the Title Insurance and Services segment were $1.0 billion, a 26 percent decrease from the same quarter of 2007. Factors contributing to these results were a decline in the number of title orders closed, a decrease in the average revenue per order closed and the reduction of certain agency relationships. Average revenue per direct title order was $1,419, a 3 percent decline relative to the first quarter of 2007. The company's direct operations closed 389,600 title orders for the first quarter of 2008, a decrease of 15 percent when compared with 458,900 title orders closed in the first quarter of 2007. Salary and other personnel costs were $342.0 million, a 16 percent decrease compared with the first quarter of 2007, primarily due to staff reductions. The company reduced staff by approximately 4,600 since the end of the first quarter of 2007, including nearly 1,000 during the first quarter of 2008. Included in salary and other personnel costs for the first quarter of 2008 were $1.4 million of employee separation costs. Other operating expenses were $242.7 million, a decrease of 8 percent compared with the first quarter of 2007. The decrease was primarily due to a reduction in title production costs, lower occupancy costs and other cost-containment programs. Other operating expenses include $3.1 million of lease termination costs incurred during the first quarter of 2008. The loss provision for claims during the quarter was 6.2 percent of operating revenues, versus 7.1 percent in the first quarter of 2007. The current quarter rate reflects the expected claims experience for policy year 2008, with no reserve adjustments required for prior policy years. Pretax income for the Title Insurance and Services segment was $2.9 million in the first quarter of 2008, a decrease of 95 percent relative to the first quarter of 2007. Specialty Insurance. Total revenues at First American's Specialty Insurance segment were $76.1 million in the first quarter of 2008, a 6 percent decrease relative to the first quarter of 2007. The decline was primarily due to a decrease in property and casualty insurance revenues. Pretax income was $8.5 million in the first quarter of 2008, a 29 percent decrease relative to the first quarter of 2007. Information Solutions Group "In spite of difficult market conditions, the Information Solutions Group was able to produce a pretax margin of 17.1 percent in the first quarter of 2008, which compares favorably to the first quarter of 2007, when one-time items are excluded. We are excited about the opportunities to improve these margins in 2008 and beyond through a further integration of our operations, additional product development and enhanced sales efforts," said Frank V. McMahon, First American's vice chairman and future chief executive officer of the Information Solutions company. Information and Outsourcing Solutions. Total revenues at the Information and Outsourcing Solutions segment were $196.2 million in the first quarter of 2008, a 5 percent decrease from the prior year. The decline was primarily a result of a decrease in tax service, flood certification and appraisal-related revenues, offset in part by an increase in production volume at the default- related businesses. Pretax income during the quarter was $50.5 million, a 9 percent increase from the prior year. Data and Analytic Solutions. Total revenues at the Data and Analytic Solutions segment were $146.9 million in the first quarter of 2008, a 35 percent decrease relative to the first quarter of 2007. The decrease was primarily due to a $77.1 million gain recorded in the first quarter of the prior year resulting from the merger of the company's Real Estate Solutions division with CoreLogic Systems, Inc. Pretax income was $20.6 million in the first quarter of 2008, an 80 percent decrease relative to the first quarter of 2007. Risk Mitigation and Business Solutions. During the first quarter of 2008, total revenues at the Risk Mitigation and Business Solutions segment were $203.6 million, a decrease of 6 percent relative to the first quarter of 2007. Pretax income for the segment was $22.1 million, an increase of 11 percent compared with the first quarter of last year. The increase was primarily due to $8.0 million in compensation-related expense recorded in the first quarter of the prior year in connection with the resignation of First Advantage's former chief executive officer. Excluding this expense, pretax income in the first quarter decreased 21 percent relative to the prior year. Investment and Other Income Declining yields on assets resulted in a 4 percent decrease in investment and other income during the first quarter of 2008, to $69.4 million, down from $72.0 million in the prior year. Teleconference/Webcast First American's first quarter results will be discussed in more detail on Thursday, May 1, 2008, at 11 a.m. EDT, via teleconference. The toll-free dial- in number is (888) 955-3516. Callers from outside the United States may dial (210) 234-5896. The pass code for the event is FIRST AMERICAN. The live audio webcast of the call and the accompanying slide presentation will be available on First American's Web site at www.firstam.com/investor. An audio replay of the conference call will be available through May 7, 2008, by dialing (203) 369-1987. An audio archive of the call will also be available for replay on First American's Web site. About First American The First American Corporation NYSE: FAF is a FORTUNE 500(R) company that traces its history to 1889. With revenues of approximately $8.2 billion in 2007, it is America's largest provider of business information. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people's lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within five primary business segments, including: Title Insurance and Services, Specialty Insurance, Information and Outsourcing Solutions, Data and Analytic Solutions, and Risk Mitigation and Business Solutions. More information about the company and an archive of its press releases can be found at http://www.firstam.com. Forward-Looking Statements Certain statements made in this press release, including those related to the division of the assets and operations of the company upon separation, claims experience for 2008, margin improvement efforts at the Information Solutions business and order volume from the Hurricane Katrina program, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These and other forward-looking statements may contain the words "believe," "anticipate," "expect," "plan," "predict," "estimate," "project," "will be," "will continue," "will likely result," and other similar words and phrases. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include: interest rate fluctuations; changes in the performance of the real estate markets; limitations on access to public records and other data; general volatility in the capital markets; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's Title Insurance and Services segment and certain other of the company's businesses; consolidation among the company's significant customers and competitors; changes in the company's ability to integrate businesses which it acquires; systems interruptions and intrusions; the company's inability to realize the benefits of its offshore strategy; product migration; the inability to consummate the spin-off transaction announced Jan. 15, 2008, as a result of, among other factors, the inability to obtain necessary regulatory approvals or the failure to obtain the final approval of the company's board of directors; the inability to recognize the benefits of the spin-off transaction as a result of, among other factors, unexpected corporate overhead costs, unfavorable reaction from customers, employees, ratings agencies or other interested persons, the triggering of rights and obligations by the spin-off, accommodations required to be made to obtain consents or waivers or the inability to transfer assets into the entity being spun-off; and other factors described in Part I, Item 1A of the company's annual report on Form 10-K for the year ended Dec. 31, 2007, as updated in Part II, Item 1A of the company's quarterly report on Form 10-Q for the period ended March 31, 2008, in each case as filed with the Securities and Exchange Commission. The forward- looking statements speak only as of the date they are made. The company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
(Additional Financial Data Follows)
Summary of Financial Results and Selected Information
(in thousands, except per share amounts and title orders)
(unaudited)
For the Three Months Ended
March 31
2008 2007
Total revenues $1,655,007 $2,120,429
Income before income taxes
and minority interests $69,574 $180,418
Income taxes provision $22,117 $59,439
Minority interests $18,139 $37,192
Net income $29,318 $83,787
Net income per share:
Basic $0.32 $0.87
Diluted $0.32 $0.84
Weighted average common shares
outstanding:
Basic 92,000 96,749
Diluted 92,725 99,144
Title orders opened 595,200 715,500 (A)
Title orders closed 389,600 458,900 (A)
(A) Includes 35,300 title orders opened and 900 title orders closed
associated with a government program established to help Louisiana
residents recover from the impact of Hurricane Katrina. The program
has been modified by the government, and the company does not
anticipate this order volume to continue.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
March 31, 2008 December 31, 2007
Assets
Cash and cash equivalents $929,680 $1,162,569
Accounts and accrued income
receivable, net 645,523 559,996
Income tax receivable 71,003 39,187
Investments:
Deposits with savings and loan
associations and banks 376,357 198,055
Debt securities 1,371,146 1,368,212
Equity securities 115,616 147,102
Other long-term investments 453,635 457,764
2,316,754 2,171,133
Loans receivable, net 119,149 116,751
Property and equipment, net 744,717 755,435
Title plants and other indexes 652,285 645,679
Deferred income taxes 69,998 23,274
Goodwill 2,618,448 2,567,340
Other intangible assets, net 335,756 346,207
Other assets 259,640 260,350
$8,762,953 $8,647,921
Liabilities and Stockholders' Equity
Demand deposits $981,163 $743,685
Accounts payable and accrued
liabilities 1,018,815 1,123,624
Deferred revenue 736,243 756,202
Reserve for known and incurred but
not reported claims 1,347,104 1,357,632
Notes and contracts payable 909,946 906,046
Deferrable interest subordinated
notes 100,000 100,000
5,093,271 4,987,189
Minority interests in consolidated
subsidiaries 687,952 675,907
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value
Authorized - 500,000
shares; outstanding - none
Common stock, $1 par value
Authorized - 180,000,000
shares
Outstanding - 92,212,000
and 91,830,000 shares 92,212 91,830
Additional paid-in capital 774,726 762,734
Retained earnings 2,215,024 2,205,994
Accumulated other comprehensive
loss (100,232) (75,733)
2,981,730 2,984,825
$8,762,953 $8,647,921
Condensed Consolidated Statement of Income and Comprehensive Income
(in thousands, except per share amounts)
(unaudited)
For the Three Months Ended
March 31
2008 2007
Revenues
Operating revenues $1,591,528 $1,983,722
Investment and other income 69,355 71,987
Gain on stock issued by subsidiary - 2,211
Net realized investment gains (5,876) 62,509
1,655,007 2,120,429
Expenses
Salaries and other personnel costs 566,994 644,479
Premiums retained by agents 361,230 552,195
Other operating expenses 462,486 512,361
Provision for policy losses and other
claims 107,099 140,138
Depreciation and amortization 56,174 54,085
Premium taxes 12,016 17,486
Interest 19,434 19,267
1,585,433 1,940,011
Income before income taxes and
minority interests 69,574 180,418
Income taxes provision 22,117 59,439
Income before minority interests 47,457 120,979
Minority interests 18,139 37,192
Net income 29,318 83,787
Other comprehensive income (loss),
net of tax:
Unrealized gain on securities (27,326) 4,009
Foreign currency translation
adjustments 744 505
Minimum pension liability
adjustment 2,083 -
(24,499) 4,514
Comprehensive income $4,819 $88,301
Net income per share:
Basic $0.32 $0.87
Diluted $0.32 $0.84
Weighted average common shares
outstanding:
Basic 92,000 96,749
Diluted 92,725 99,144
Segment Information
(in thousands, except percentages)
(unaudited)
For the Three Months Ended March 31
Total revenues Pretax (A) Margins
2008 2007 2008 2007 2008 2007
Financial Services
Title Insurance
and Services $1,047,942 $1,415,801 $2,944 $53,233 0.3% 3.8%
Specialty Insurance 76,081 80,636 8,491 11,964 11.2% 14.8%
$1,124,023 $1,496,437 $11,435 $65,197 1.0% 4.4%
Information Solutions
Information and
Outsourcing
Solutions $196,182 $206,600 $50,518 $46,214 25.8% 22.4%
Data and Analytic
Solutions 146,854 224,845 20,584 102,263 14.0% 45.5%
Risk Mitigation and
Business Solutions 203,620 217,197 22,139 19,905 10.9% 9.2%
$546,656 $648,642 $93,241 $168,382 17.1% 26.0%
(A) - Income before income tax, minority interest and corporate expenses
Media Contact: Investor Contact:
Carrie Gaska Mark Seaton
Corporate Communications Investor Relations
The First American Corporation The First American Corporation
(714) 250-3298 (714) 250-4264
cgaska@firstam.com mseaton@firstam.com
Website: http://www.firstam.com// |
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