FIRST AMERICAN REPORTS STRONG RESULTS FOR SECOND QUARTER 1999
July 21, 1999, SANTA ANA, Calif.
Earnings for the second quarter, excluding the results of operations and other effects of the merger of National Information Group (NAIG), were $35.8 million, or 57 cents per diluted share, which exceeded the analysts' consensus estimate of 55 cents per diluted share.
These results include the effects of a previously reported revenue recognition accounting change for the company's tax service contracts, which became effective Jan. 1, 1999, on a prospective basis. This accounting change resulted in a decrease of $7.2 million on an after-tax basis, or 11 cents per diluted share. Thus, earnings for the second quarter of 1999 would have been $43.0 million, or 68 cents per diluted share, under the former accounting rules. These results compare to the record setting second quarter 1998 net income of $45.7 million, or 79 cents per diluted share. Earnings for the quarter ended June 30, 1999, including NAIG, which was acquired in April 1999 in a transaction accounted for as a pooling of interests, were $29.2 million, or 44 cents per diluted share. These results included the issuance of 3.0 million shares and a pretax nonrecurring merger-related charge of $10.8 million, or 10 cents per diluted share.
Earnings for the six-month period were $53.1 million, or 80 cents per diluted share, compared to $71.8 million, or $1.19 per diluted share, for the same period 1998. Earnings and weighted average shares outstanding for both periods have been adjusted to reflect the merger of NAIG. Revenues for the second quarter of 1999 were $770.4 million, an 11.0 percent increase when compared with the same period last year. Revenues for the first half of 1999 totaled $1.49 billion, an increase of 12.9 percent when compared with revenues of $1.32 billion for the first half of 1998. (1998 excludes an investment gain of $32.4 million relating to the joint venture agreement with Experian.) Had it not been for the previously mentioned tax service accounting change, the company would have reported additional revenues for the second quarter and first half of 1999 of $14.6 million and $29.6 million, respectively.
"Rising mortgage interest rates have led to a significant decline in refinance transactions during the second quarter, although the residential resale and commercial markets remain robust," commented Parker S. Kennedy, president of First American Financial. "As a company, we continually monitor our labor efficiencies, measured as the ratio between new orders and personnel, and adjust headcount where necessary in order to maximize profitability.
"Additionally, we continued our progress toward the scheduled completion of our Year 2000 program initiatives. To date, the company has expensed approximately $15 million, of which $6 million was incurred during the second quarter of 1999 in connection with the substantial completion of the implementation phase of the plan. We expect to expense an additional $2 million by September in order to complete the plan."
Kennedy continued, "We recently restructured our business segments to more accurately reflect our current operating structure. This will help investors to better understand our business and to recognize that First American should be valued at a higher multiple, similar to other business information services providers. We continue to focus on enhancing our technological capabilities in order to improve our efficiencies and expand the new consumer information and services business segment to provide noncyclical, high-margin revenues and significant opportunities for steady growth for the future. We will continue to invest in technology solutions to accomplish our goal of becoming the single-source provider for all real estate-related information and services and to leverage our infrastructure and technology to deliver a broader base of products and services to a larger and more diversified customer base."
The First American Financial Corporation, based in Santa Ana, Calif., is the nation's leading provider of business information and related products and services. The corporation's three primary business segments include: title insurance; real estate information and services, which includes mortgage origination, mortgage servicing and database products and services; and consumer information and services, which provides home warranties; automotive, subprime and direct-to-consumer credit reporting; insurance and automotive tracking services; resident screening; pre-employment screening; lender-placed flood and hazard insurance; investment advisory; and trust and banking services. Through its family of companies, First American Financial has nearly 20,000 employees in more than 600 branch offices in the United States and abroad. Information about the company and an archive of its press releases can be found on the Internet at www.firstam.com.
Any statements in this document that look forward in time involve risks and uncertainties, including but not limited to the following: the effect of interest rate fluctuations; changes in the performance of the real estate markets; the effect of changing economic conditions; general volatility in the capital markets; the demand for and the acceptance of the company's products; changes in applicable government regulations; consolidation among the company's customers; and contingencies associated with the Year 2000 issue. The company's actual results, performance or achievement could differ materially from those expressed in, or implied by, any forward-looking statements, and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what impact they will have on the results of operations or financial condition of the company.
Quarter ended June 30: 1999 1998 Revenues $ 770,398,000 $ 726,420,000 Income before income taxes and minority interests $ 51,553,000 $ 84,636,000 Income taxes $ 18,300,000 $ 30,100,000 Minority interest $ 4,027,000 $ 8,418,000 Net income $ 29,226,000 $ 46,118,000 Net income per share Basic $ .45 $ .78 Diluted $ .44 $ .75 Average shares outstanding: Basic 64,763,000 59,048,000 Diluted 66,325,000 61,180,000
Six months ended June 30: Revenues $1,492,440,000 $1,354,636,000 Income before income taxes and minority interests $ 95,414,000 $ 167,404,000 Income taxes $ 33,200,000 $ 59,800,000 Minority interest $ 9,115,000 $ 16,171,000 Net income $ 53,099,000 $ 91,433,000 Net income per share Basic $ .83 $ 1.57 Diluted $ .80 $ 1.51 Average shares outstanding: Basic 64,202,000 58,407,000 Diluted 66,322,000 60,432,000
SELECTED FINANCIAL DATA (Unaudited)
For the Three Months Ended For the Six Months Ended June 30 June 30 1999 1998 1999 1998 RESULTS OF OPERATIONS
Revenues Operating revenues $758,153,000 $717,141,000 $1,468,515,000 $1,301,492,000 Investment and other income $ 12,245,000 $ 9,279,000 $ 23,925,000 $ 53,144,000 * $770,398,000 $726,420,000 $1,492,440,000 $1,354,636,000
Expenses Salaries and other personnel costs $259,603,000 $229,240,000 $ 515,015,000 $ 439,110,000 Premiums retained by agents $228,212,000 $194,982,000 $ 438,780,000 $ 335,027,000 Other operating expenses $174,443,000 $157,810,000 $ 332,606,000 $ 301,957,000 Provision for title losses and other claims $ 28,420,000 $ 33,793,000 $ 55,441,000 $ 63,094,000 Depreciation and amortization $ 19,148,000 $ 14,955,000 $ 36,067,000 $ 28,972,000 Premium taxes $ 5,987,000 $ 5,327,000 $ 11,296,000 $ 9,575,000 Interest $ 3,032,000 $ 5,677,000 $ 7,821,000 $ 9,497,000 $718,845,000 $641,784,000 $1,397,026,000 $1,187,232,000 Income before income taxes and minority interests $ 51,553,000 $ 84,636,000 $ 95,414,000 $ 167,404,000
Title Insurance: Direct operations $280,007,000 $274,827,000 $ 540,330,000 $ 500,546,000 Agency operations $284,852,000 $243,519,000 $ 545,513,000 $ 420,055,000 $564,859,000 $518,346,000 $1,085,843,000 $ 920,601,000 Real Estate Information $144,082,000 $157,112,000 $ 287,727,000 $ 298,960,000 Consumer Information $ 49,212,000 $ 41,683,000 $ 94,945,000 $ 81,931,000 Total Operating Revenues $758,153,000 $717,141,000 $1,468,515,000 $1,301,492,000
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS
Title Insurance $ 49,075,000 $ 56,395,000 $ 84,236,000 $ 86,656,000 Real Estate Information $ 11,949,000 $ 31,184,000 $ 21,238,000 $ 53,730,000 Consumer Information $ 8,933,000 $ 7,794,000 $ 17,144,000 $ 14,047,000 Total before corporate expenses and minority interests $ 69,957,000 $ 95,373,000 $ 122,618,000 $ 154,433,000 Corporate expenses $ 18,404,000 $ 10,737,000 $ 27,204,000 $ (12,971,000) Income before income taxes and minority interests $ 51,553,000 $ 84,636,000 $ 95,414,000 $ 167,404,000
TITLE INSURANCE ORDER COUNTS FROM DIRECT OPERATIONS
Title orders opened 379,100 386,400 746,500 784,200 Title orders closed 319,000 302,000 614,100 562,600
* Includes an investment gain of $32.4 million relating to the joint venture agreement with Experian.
All periods presented include the operating results of NAIG accounted for under the pooling-of-interests method of accounting.