In September 1999, the Company moved its executive offices to one of three constructed office buildings at MacArthur Place in Santa Ana, California. Later that same year, the Orange County branch and certain other operations of the Company’s title insurance segment moved into the two other buildings constructed on the site. The three buildings totaled approximately 210,000 square feet and were situated in a campus environment comprising approximately 32 acres. In the first quarter of 2004, the Company began the expansion of its office campus. This expansion was completed in the fourth quarter of 2005 with the addition of two 4-story office buildings totaling approximately 226,000 square feet, a two-story, free standing, 52,000 square foot technology center and a two-story parking structure, bringing the total square footage of the Company’s campus at MacArthur Place to approximately 490,000 square feet. The two new office buildings are occupied primarily by the Company’s property information segment and trust company. The original three office buildings, including the underlying land and the fixtures thereto, are subject to a deed of trust and security agreement securing payment of a promissory note evidencing a loan made in October 2003, to the Company’s subsidiary, First American Title Insurance Company, in the original sum of $55.0 million. This loan is payable in monthly installments of principal and interest, is fully amortizing and matures November 1, 2023. The outstanding principal balance of this loan was $51.6 million as of December 31, 2005.
The Company’s mortgage information segment houses its national operations in a leased 231,000 square foot office building in Dallas, Texas. In 2006 this segment expects to begin moving its national operations, together with certain other operations, to a leased 604,000 square foot facility in Westlake, Texas.
The selected consolidated financial data for the Company for the five-year period ended December 31, 2005, has been derived from the audited Consolidated Financial Statements. The selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto, “Item 1 - Business-Acquisitions,” and “
The Company’s management considers the accounting policies described below to be critical in preparing the Company’s consolidated financial statements. These policies require management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures of contingencies. See Note 1 to the consolidated financial statements for a more detailed description of the Company’s accounting policies.
Revenue recognition. Title premiums on policies issued directly by the Company are recognized on the effective date of the title policy, and for policies issued by independent agents, when notice of issuance is received from the agent. Revenues from home warranty contracts are recognized ratably over the 12-month
duration of the contracts. Revenues from property and casualty insurance policies are recognized ratably over the 12-month duration of the policies. The Company’s tax service division defers its tax service fee and recognizes that fee as revenue ratably 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 Company reviews its tax service contract portfolio on a quarterly basis to determine if there have been changes in contract lives and/or changes in the number and/or timing of prepayments and adjusts the rates accordingly to reflect current trends. For all other products, revenues are recognized at the time of delivery, as the Company has no significant ongoing obligation after delivery.
Provision for title losses. The Company provides for estimated title insurance losses by a charge to expense when the related premium revenue is recognized. The amount charged to expense (the loss rate), as well as the adequacy of the ending reserves, is determined by the Company based on historical experience and other factors, including, but not limited to, changes and trends in the type of title insurance policies issued, the real estate market and the interest rate environment. Management monitors the adequacy of the estimated loss reserves on a quarterly basis using a variety of techniques, including actuarial models, and adjusts the loss rate as necessary.
Stock-based compensation. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (SFAS 123R). This standard is a revision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The standard requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). The cost will be recognized
over the period during which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission deferred the effective date of SFAS 123R from the first interim period beginning after June 15, 2005 to the next fiscal year beginning after June 15, 2005. The Company will adopt the standard in the first quarter of 2006 and use the modified prospective method which will require the Company to use the same valuation method currently used for its pro forma disclosures for all unvested options as of December 31, 2005. The Company will be able to use the same valuation method or select a different method for any options granted after December 31, 2005. In addition to stock options, the Company has an employee stock purchase plan that allows eligible employees to purchase common stock of the Company at 85% of the closing price on the last day of each month. Under the provisions of SFAS 123R, commencing the first quarter of 2006 the Company will recognize an expense in the amount equal to the discount. For the twelve months ended December 31, 2005, the amount of the discount was $1.4 million. Based on options outstanding at December 31, 2005, the Company estimates the impact of SFAS 123R will be to reduce diluted earnings per share by $0.08 to $0.10 per share in 2006 depending on the timing of issuance of stock options and the deductibility of the stock-based compensation expense for financial reporting purposes.
In September 2005, the Company contributed its credit information segment to its publicly traded subsidiary First Advantage, which solely made up the screening information segment. These two segments have been combined into the risk mitigation and business solutions segment. This presentation is consistent with the way management evaluates the operations of these businesses. In 2005, the Company changed the presentation of the financial results for its operating segments to include inter-segment revenues and expenses. The inter-segment
revenues and expenses are then eliminated in an eliminations line. Prior year results have been reclassified to conform with current year presentation.
Financial Services. Operating revenues from direct title operations increased 19.4% in 2005 over 2004 and 9.8% in 2004 over 2003. The increase in 2005 over 2004 was primarily due to an increase in the average revenues per order closed, and to a lesser extent, an increase in the number of orders closed. The increase in 2004 over 2003 was primarily due to an increase in the average revenues per order closed, offset in part by a decrease in the number of orders closed. The average revenues per order closed were $1,472, $1,303, and $1,121 for 2005, 2004, and 2003, respectively. These increases in average revenues per order closed were primarily due to a decrease in the mix of lower-premium refinance transactions, an increase in higher-premium resale and commercial transactions, and appreciating real estate values. The Company’s direct title operations closed 2,017,200, 1,908,600, and 2,021,000 title orders during 2005, 2004, and 2003, respectively, an increase of 5.7% in 2005 from 2004 and a decrease of 5.6% in 2004 from 2003. The fluctuations in closings primarily reflected decreasing mortgage origination activity, balanced against market share gains and acquisition activity. Operating revenues from agency title operations increased 24.5% in 2005 over 2004 and 7.6% in 2004 over 2003. These increases were primarily attributable to the same factors affecting direct title operations compounded by the inherent delay in the reporting of transactions by agents.
Information Technology. Personnel expenses in total for the Information Technology group increased 9.9% in 2005 over 2004 and 18.0% in 2004 over 2003. Excluding $65.5 million and $101.6 million of respective personnel costs associated with new acquisitions, personnel expenses for the information technology group decreased 2.1% in 2005 from 2004 and 4.4% in 2004 from 2003. The decrease in 2005 from 2004 reflected a decline in incremental costs associated with the decrease in business volume, offset in part by a $3.9 million increase in employee benefit costs. The decrease in 2004 from 2003 also reflected a decline in incremental costs associated with the decrease in business volume, offset in part by a $4.2 million increase in employee benefit costs and costs incurred at the Company’s tax service division to integrate new customers.
Premiums retained by agents-A summary of agent retention and agent revenues is as follows:
Financial Services. The Company’s title insurance segment comprises over 95% of total other operating expenses for the Financial Services group. Title insurance other operating expenses (principally direct operations) increased 11.5% in 2005 over 2004 and 15.3% in 2004 over 2003. The increase in 2005 over 2004 was primarily due to $87.7 million of other operating expenses associated with new acquisitions as well as $12.5 million in charges incurred in connection with litigation and regulatory matters. The increase in 2004 over 2003 was primarily due to $79.9 million of other operating expenses associated with new acquisitions and a voluntary $24.0 million charge taken in the fourth quarter of 2004 associated with captive reinsurance agreements with residential homebuilders. The increase in 2004 over 2003 also reflected $13.3 million of litigation charges taken in the fourth quarter of 2004. These charges included $10.0 million for a litigation matter disclosed by the Company on January 26, 2005.
Provision for title losses and other claims-A summary by segment of the Company’s provision for title losses and other claims is as follows:
The provision for home warranty claims, expressed as a percentage of home warranty operating revenues, was 51.7% in 2005, 49.0% in 2004, and 48.9% in 2003. These increases in rate primarily reflected an increase in the average number of claims per contract due to geographic expansion.
Depreciation and amortization-Depreciation and amortization increased 22.1% in 2005 over 2004 and 12.7% in 2004 over 2003. These increases were primarily due to an increase in the amortization of intangibles as a result of acquisition activity and an increase in the amortization of capitalized data and software as a result of new capital expenditures. Depreciation and amortization, as well as capital expenditures for each of the Company’s segments, are summarized in Note 22 to the consolidated financial statements.
composed of a combination of premium taxes and state income taxes. Premium taxes as a percentage of title insurance operating revenues remained relatively constant at approximately 1.0%.
Income taxes-The Company’s effective income tax rate, which includes a provision for state income and franchise taxes for noninsurance subsidiaries, was 35.9% for both 2005 and 2004, and 34.8% for 2003. The difference in the effective tax rate was primarily due to changes in the ratio of permanent differences to income before income taxes and minority interests and changes in state income and franchise taxes resulting from fluctuations in the Company’s noninsurance subsidiaries’ contribution to pretax profits. Information regarding items included in the reconciliation of the effective rate with the federal statutory rate is contained in Note 13 to the consolidated financial statements.
Notes and contracts payable, as a percentage of total capitalization, were 21.5% as of December 31, 2005, as compared with 22.7% as of the prior year-end. This decrease was primarily attributable to net income for the year, offset in part by indebtedness incurred in connection with acquisitions and a comprehensive loss associated with the Company’s debt and equity securities portfolio and its pension plans. Notes and contracts payable are more fully described in Note 10 to the consolidated financial statements.
In November 2005, the Company amended and restated its $500.0 million credit agreement that was originally entered into in August 2004 and was previously amended twice during 2005. The November 2005
amendment and restatement supercedes the previous credit agreement and its amendments and extends the expiration date to November 2010. Further, the amended and restated credit agreement permits the Company to increase the credit amount to $750.0 million by offering the lenders party thereto the opportunity to increase their commitments or by introducing a new lender to the credit agreement who does not currently participate. The Company is required to maintain certain minimum levels of capital and earnings and meet predetermined debt-to-capitalization ratios. The line of credit was unused at December 31, 2005. The Company’s publicly traded subsidiary, First Advantage Corporation has one bank credit agreement. This agreement provides for a $225.0 million uncollateralized revolving line of credit. Under the terms of the credit agreement, First Advantage Corporation is required to satisfy certain financial requirements. The line of credit remains in effect until September 2010 and had a balance due of $135.5 million at December 31, 2005.
We have completed integrated audits of The First American Corporation’s 2005 and 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005, and an audit of its 2003 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Also, in our opinion, management’s assessment, included in “Management’s Annual Report on Internal Control Over Financial Reporting” appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
The First American Corporation (the Company), through its subsidiaries, is engaged in the business of providing business information and related products and services. The Company has five reporting segments that fall within two primary business groups, financial services and information technology. The financial services group includes the Company’s title insurance and services segment and its specialty insurance segment. The title insurance and services segment issues residential and commercial title insurance policies, provides escrow services, equity loan services, tax-deferred exchanges, investment advisory, trust and thrift services, and other related products and services. The specialty insurance segment issues property and casualty insurance policies and provides home warranties. The information technology group includes the Company’s mortgage information, property information and risk mitigation and business solutions segments. The mortgage information segment provides tax monitoring, flood zone certification, default management services and other real estate related services. The property information segment provides property database services, appraisal services and data analytics service. The risk mitigation and business solutions segment provides mortgage credit reporting services, specialized credit reporting services, resident screening, employment screening, drug free work place programs and other occupational health programs, consumer direct location services, corporate tax and incentive services, and motor vehicle reporting and other related services.
The consolidated financial statements include the accounts of The First American Corporation and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence, but does not control, and is not the primary beneficiary are accounted for using the equity method. Investments in which the Company does not exercise significant influence over the investee are accounted for under the cost method.
In connection with settlement of title insurance and other claims, the Company sometimes purchases mortgages, deeds of trust, real property or judgment liens. These assets, sometimes referred to as “salvage assets,” are carried at the lower of cost or fair value less costs to sell and are included in “Other assets” in the Company’s consolidated balance sheets. The balance for these assets was $49.0 million and $40.1 million at December 31, 2005 and 2004, respectively.
The Company’s intangible assets consist of covenants not to compete, customer lists, trademarks and licenses. Each of these intangible assets, excluding licenses, are being amortized on a straight-line basis over their useful lives ranging from 2 to 10 years and are subject to impairment tests on a periodic basis. Licenses are an intangible asset with an indefinite life and are therefore not amortized but rather tested annually for impairment by comparing the fair value of the license with its carrying value.
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (SFAS 144). This standard requires that the Company test long-lived assets for impairment whenever there are recognized events or changes in circumstances that could affect the carrying value of the long-lived assets. In accordance with SFAS 144, management uses estimated expected future cash flows (undiscounted and excluding interest costs) to measure the recoverability of long-lived assets held and used. As of December 31, 2005 and 2004, no indications of impairment were identified. SFAS 144 also requires that long-lived assets classified as held for sale be carried at the lower of cost or market as of the date the criteria established by SFAS 144 have been met. As of December 31, 2005 and 2004, no long-lived assets were classified as held for sale.
The fair value of each option grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2005, 2004 and 2003, respectively; dividend yield of 1.8%, 2.1% and 1.8%; expected volatility of 40.6%, 43.6% and 47.4%; risk-free interest rate of 4.3%, 3.8% and 3.6%; and expected life of six years, six years and seven years.
In addition, the Company facilitates tax-deferred property exchanges pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of such exchange the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds held by the Company for the purpose of completing such transactions
Investments carried at $29.7 million were on deposit with state treasurers in accordance with statutory requirements for the protection of policyholders at December 31, 2005.
Pursuant to insurance and other regulations of the various states in which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the Company is limited, principally for the protection of policyholders. Under such statutory regulations, the maximum amount of dividends, loans and advances available to the Company from its insurance subsidiaries in 2006 is $336.5 million.
The fair value of debt and equity securities was estimated using quoted market prices. Sales of debt and equity securities resulted in realized gains of $1.7 million, $2.9 million and $7.0 million; and realized losses of $0.9 million, $0.6 million and $3.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.
The Company, at December 31, 2005 had gross unrealized losses of $1.0 million from debt securities that had been in an unrealized loss position for less than 12 months and gross unrealized losses of $10.8 million from debt securities that had been in an unrealized loss position for more than 12 months. The fair value of those debt securities is $79.3 million and $669.3 million, respectively. At December 31, 2005, the Company had gross unrealized losses of $.3 million from equity securities that had been in an unrealized loss position for less than 12 months and gross unrealized losses of $7.8 from equity securities that had been in an unrealized loss position for more than 12 months. The fair value of those equity securities is $5.7 million and $19.3 million, respectively. Management has determined that the unrealized losses from debt and equity securities at December 31, 2005 are
The fair value of loans receivable was $94.8 million and $101.4 million at December 31, 2005 and 2004, respectively, and was estimated based on the discounted value of the future cash flows using the current rates being offered for loans with similar terms to borrowers of similar credit quality.
Amortization expense for other finite-lived intangible assets was $28.7 million, $17.9 million and $5.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.
The carrying value of escrow and passbook accounts approximates fair value due to the short-term nature of this liability. The fair value of investment certificate accounts was $28.3 million and $44.1 million at December 31, 2005 and 2004, respectively, and was estimated based on the discounted value of future cash flows using a discount rate approximating current market for similar liabilities.
In November 2005, the Company amended and restated its $500.0 million credit agreement that was originally entered into in August 2004 and was previously amended twice during 2005. The November 2005 amendment and restatement supercedes the previous credit agreement and its amendments and extends the
expiration date to November 2010. Further, the amended and restated credit agreement permits the Company to increase the credit amount to $750.0 million by offering the lenders party thereto the opportunity to increase their commitments or by introducing a new lender to the credit agreement who does not currently participate. The Company is required to maintain certain minimum levels of capital and earnings and meet predetermined debt-to-capitalization ratios. The line of credit was unused at December 31, 2005. The Company’s publicly-traded subsidiary, First Advantage Corporation has one bank credit agreement. This agreement provides for a $225.0 million uncollateralized revolving line of credit. Under the terms of the credit agreement, First Advantage Corporation is required to satisfy certain financial requirements. The line of credit remains in effect until September 2010 and had a balance due of $135.5 million at December 31, 2005.
The Company has also issued debt that is convertible into shares of its common stock to finance certain acquisitions. This debt, which is included in “Other notes and contracts payable,” is convertible at the option of each note holder at a conversion price of $30 per share. The balance of this convertible debt was $18.5 million and $20.4 million at December 31, 2005 and 2004, respectively.
The aggregate annual maturities for notes and contracts payable and capital leases in each of the five years after December 31, 2005, are as follows:
The valuation allowance relates to deferred tax assets for federal and state net operating loss carryforwards relating to acquisitions consummated by First Advantage and foreign operations of the Company. Utilization of the pre-acquisition net operating losses is subject to limitations by the Internal Revenue Code and State jurisdictions. The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are the Company’s forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve the forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. The change in the valuation allowance results from the Company’s determination that it is more likely than not that it will realize the benefits of certain net operating losses held by First Advantage. The effects of these changes in the valuation allowance have been applied to adjust goodwill arising from the acquisitions.
The Company records a liability for potential tax assessments based on its estimate of the potential exposure. New tax laws and new interpretations of laws and rulings by tax authorities may affect the liability for potential tax assessments. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates. To the extent the Company’s estimates differ from actual payments or assessments, income tax expense is adjusted. The Company’s income tax return in several locations are being examined by various tax authorities. Management believes that adequate amounts of tax and related interest, if any, have been provided for any adjustments that may result from these examinations.
The Company’s effective tax rate considers the impact of undistributed earnings of subsidiary companies outside the United States. Deferred taxes have not been provided for the potential remittance of such undistributed earnings as it is the Company’s policy to permanently reinvest its retained earnings.
The Company’s potential dilutive securities are stock options and convertible debt. Stock options are reflected in diluted earnings per share by application of the treasury-stock method and convertible debt is reflected in diluted earnings per share by application of the if-converted method. A reconciliation of net income and weighted average shares outstanding is as follows:
The Company’s defined benefit pension plan is a noncontributory, qualified, defined benefit plan with benefits based on the employee’s years of service. The Company’s policy is to fund all accrued pension costs. Contributions are intended to provide not only for benefits attributable to past service, but also for those benefits expected to be earned in the future. The Company also has nonqualified, unfunded supplemental benefit plans covering certain key management personnel. Benefits under these plans are anticipated to be funded with proceeds from life insurance policies purchased by the Company on the lives of the executives.
The following table provides a reconciliation of the changes in the defined benefit plan and supplemental benefit plan obligations, fair value of assets, a statement of the funded status and a summary of the amounts recognized in the consolidated financial statements as of December 31, 2005 and 2004:
Weighted average actuarial assumptions used to determine costs for the plans were as follows:
The Company has a pension investment policy designed to meet or exceed the expected rate of return on plan assets assumption. To achieve this, the pension plan assets are managed by investment managers that invest plan assets in equity and fixed income debt securities and cash. A summary of the asset allocation as of December 31, 2005 and 2004 and the target mix are as follows:
Stock options outstanding and exercisable at December 31, 2005, are summarized as follows:
In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others” (FIN 45). This interpretation clarifies the requirements relating to the guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The disclosure provisions of FIN 45 were effective for fiscal years ending after December 15, 2002. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of FIN 45 had no impact on the Company’s financial condition, results of operations or cash flows.
The Company also guarantees the obligations of certain of its subsidiaries. These obligations are included in the Company’s consolidated balance sheets as of December 31, 2005.
On October 23, 1997, the Company adopted a Shareholder Rights Plan (the Rights Plan). Under the Rights Plan, after the close of business on November 15, 1997, each holder of the Company’s common shares received a dividend distribution of one Right for each common share held. Each Right entitles the holder thereof to buy a
In addition, if, after any person has become a 15.0%-or-more stockholder, the Company is involved in a merger or other business combination transaction with another person in which the Company’s common shares are changed or converted, or if the Company sells 50.0% or more of its assets or earning power to another person, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, common stock of such other person (or its parent) having a value of twice the Right’s exercise price.
The Company and its subsidiaries have been named in various class action lawsuits related to its title operations, including suits alleging that premiums charged to builders for title insurance policies violated the Real Estate Settlement Procedures Act and that one of our subsidiaries violated the law by failing to disclose the cost of certain services obtained from third party vendors and any related mark-up of such services. The Company has assessed the potential loss associated with each case based on the existing facts and estimated range of exposure. In cases where the Company has determined that a loss is probable, the Company has recorded a reserve in the amount of the estimated loss; however, actual losses may materially differ from the amounts recorded. The Company does not believe that the ultimate resolution of these cases, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations or cash flows.
On January 25, 2005, a jury in the case of Chicago Title Insurance Corporation v. James A. Magnuson, et al. awarded damages in the amount of $43.2 million against a subsidiary of the Company. This matter involved claims of violation of a non-competition agreement and intentional interference with contract. The judgment comprised a compensatory award of $10.8 million and a punitive damage award of $32.4 million. In October 2005 the trial court denied the Company’s motions to set aside the damage awards, among other matters. The Company has filed a notice of appeal with the United States Circuit Court of Appeals. The Company continues to believe it has strong grounds to overturn this judgment. Pending the outcome of our appeal, the Company reserved in a prior quarter $10.0 million in connection with this matter.
The Company is involved in numerous routine legal proceedings related to its operations. While the ultimate disposition of each proceeding is not determinable, the Company does not believe that any of such proceedings will have a material adverse effect on its financial condition, results of operations or cash flows.
acquisitions, the Company recorded approximately $443.8 million of goodwill and $100.1 million of intangible assets with definite lives. The Company is awaiting information necessary to finalize the purchase accounting adjustments for certain of these acquisitions and the final purchase price allocations could change the recorded intangible asset and goodwill amounts. In accounting for the First Advantage shares issued in these acquisitions, the Company, whose ownership interest is approximately 80 percent, recorded a pretax gain of $25.7 million.
During 2005, the Company combined its credit information and screening information business segments into risk mitigation and business solutions to reflect the Company’s current operating structure. This presentation is consistent with the way these businesses are evaluated by the Company’s management. All previously reported segment information has been restated to reflect the combination of these businesses. After the change, the Company has five reporting segments that fall within two primary business groups, financial services and information technology. The financial services group includes the Company’s title insurance and services segment and its specialty insurance segment. The title insurance and services segment issues residential and commercial title insurance policies, accommodates tax-deferred exchanges and provides escrow, equity loan, investment advisory, trust, thrift and other related products and services. The specialty insurance segment issues property and casualty insurance policies and sells home warranty products. The Company’s mortgage information, property information and risk mitigation and business solutions segments comprise its information technology group. The mortgage information segment offers tax monitoring, flood zone certification, default management services, document preparation and other real estate related services. The property information segment sells and analyzes data relating to real property, and provides database management and appraisal services. The risk mitigation and business solutions segment was created as a result of the September 2005 contribution of the Company’s credit information segment to First Advantage Corporation, a publicly traded subsidiary which made up at the time the Company’s screening information segment. This segment provides specialty credit reports to the mortgage lending and automotive lending industries, maintains a credit reporting agency which offers credit reports on sub-prime borrowers, and provides employment background screening, drug-free workplace programs and other occupational health services, employee assistance programs, corporate tax and incentive services, resident screening, motor vehicle records, transportation business credit services, automotive lead generation services, investigative services, computer forensics and electronic discovery services, supply chain security and consumer location services.
The Company provides its title services through both direct operations and agents throughout the United States. It also offers title services, either directly or through joint ventures, in Guam, Puerto Rico, the U.S. Virgin Islands, the Bahamas, Australia, Canada, Hong Kong, Ireland, Mexico, New Zealand, South Korea, the United
Corporate consists primarily of investment gains and losses, personnel and other operating expenses associated with the Company’s corporate facilities, certain technology initiatives, unallocated interest expense. Eliminations consist of inter-segment revenues included in the results of the operating.