Item 1. Financial Statements
Item 1. Financial Statements
First Advantage Corporation
Consolidated Financial Statements (Unaudited)
For the Three and Six Months Ended
June 30, 2009 and 2008
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First Advantage Corporation
Consolidated Balance Sheets (Unaudited)
( in thousands)
June 30,
December 31,
2009
2008
Assets
Current assets:
Cash and cash equivalents
$ 60,478
$ 52,361
Accounts receivable (less allowance for doubtful accounts
of $11,977 and $8,345, respectively)
118,702
121,531
Prepaid expenses and other current assets
9,634
9,032
Due from affiliates
2,908
-
Deferred income tax asset
16,846
16,695
Total current assets
208,568
199,619
Property and equipment, net
78,982
81,807
Goodwill
752,491
731,369
Customer lists, net
48,507
53,813
Other intangible assets, net
15,311
17,245
Database development costs, net
12,191
11,837
Marketable equity securities
43,389
30,365
Other assets
3,300
3,684
Total assets
$ 1,162,739
$ 1,129,739
Liabilities and Equity
Current liabilities:
Accounts payable
$ 37,346
$ 38,404
Accrued compensation
22,367
32,423
Accrued liabilities
13,511
11,379
Deferred income
6,755
7,381
Income tax payable
1,037
2,609
Due to affiliates
-
714
Current portion of long-term debt and capital leases
8,807
9,891
Total current liabilities
89,823
102,801
Long-term debt and capital leases, net of current portion
29,357
22,938
Deferred income tax liability
68,429
61,652
Other liabilities
4,971
5,300
Total liabilities
192,580
192,691
Equity:
First Advantage Corporations Stockholders' Equity:
Preferred stock, $.001 par value; 1,000 shares authorized, no shares issued or outstanding
-
-
Class A common stock, $.001 par value; 125,000 shares authorized;
12,061 and 11,772 shares issued and outstanding as of
June 30, 2009 and December 31, 2008, respectively
12
12
Class B common stock, $.001 par value; 75,000 shares authorized; 47,727 shares issued
and outstanding as of June 30, 2009 and December 31, 2008, respectively
48
48
Additional paid-in capital
501,324
502,600
Retained earnings
414,187
390,602
Accumulated other comprehensive income (loss)
10,124
(412)
Total First Advantage Corporation's stockholders' equity
925,695
892,850
Noncontrolling interests
44,464
44,198
Total equity
970,159
937,048
Total liabilities and equity
$ 1,162,739
$ 1,129,739
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Consolidated Statements of Income (Unaudited)
( in thousands, except per share amounts)
For the Three Months Ended
For the Six Months Ended
June 30,
June 30,
2009
2008
2009
2008
Service revenue
$
164,668
$
182,423
$
354,708
$
370,677
Reimbursed government fee revenue
13,341
13,122
26,319
27,147
Total revenue
178,009
195,545
381,027
397,824
Cost of service revenue
58,261
53,487
139,601
107,203
Government fees paid
13,341
13,122
26,319
27,147
Total cost of service
71,602
66,609
165,920
134,350
Gross margin
106,407
128,936
215,107
263,474
Salaries and benefits
48,130
62,927
101,297
129,376
Facilities and telecommunications
6,865
8,084
13,524
16,284
Other operating expenses
18,597
22,909
37,944
45,743
Depreciation and amortization
10,895
10,726
21,581
20,622
Impairment loss
-
297
-
297
Total operating expenses
84,487
104,943
174,346
212,322
Income from operations
21,920
23,993
40,761
51,152
Other (expense) income:
Interest expense
(294
)
(1,075
)
(669
)
(1,500
)
Interest income
71
172
284
591
Total other (expense), net
(223
)
(903
)
(385
)
(909
)
Income from continuing operations before income taxes
21,697
23,090
40,376
50,243
Provision for income taxes
9,112
9,676
16,958
20,650
Income from continuing operations
12,585
13,414
23,418
29,593
Loss from discontinued operations, net of tax
-
(1,264
)
-
(4,241
)
Net income
12,585
12,150
23,418
25,352
Less: Net loss attributable to noncontrolling interest
(386
)
(238
)
(167
)
(325
)
Net income attributable to First Advantage Corporation ("FADV")
$
12,971
$
12,388
$
23,585
$
25,677
Basic income per share:
Income from continuing operations attributable to FADV shareholders
$
0.22
$
0.23
$
0.40
$
0.50
Loss from discontinued operations attributable to FADV shareholders, net of tax
-
(0.02
)
-
(0.07
)
Net income attributable to FADV shareholders
$
0.22
$
0.21
$
0.40
$
0.43
Diluted income per share:
Income from continuing operations attributable to FADV shareholders
$
0.22
$
0.23
$
0.39
$
0.50
Loss from discontinued operations attributable to FADV shareholders, net of tax
-
(0.02
)
-
(0.07
)
Net income attributable to FADV shareholders
$
0.22
$
0.21
$
0.39
$
0.43
Weighted-average common shares outstanding:
Basic
59,776
59,435
59,681
59,297
Diluted
59,898
59,617
59,764
59,374
Amounts attributable to FADV shareholders:
Income from continuing operations, net of tax
$
12,971
$
13,652
$
23,585
$
29,918
Loss from discontinued operations, net of tax
-
(1,264
)
-
(4,241
)
Net income
$
12,971
$
12,388
$
23,585
$
25,677
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended
Six Months Ended
( in thousands)
June 30,
June 30,
2009
2008
2009
200 8
Net income
$
12,585
$
12,150
$
23,418
$
25,352
Other comprehensive income (loss) , net of tax:
Foreign currency translation adjustments
3,572
(670
)
2,803
2,080
Unrealized gain (loss) on investment, net of tax
5,915
(9,230
)
7,733
(29,719
)
Total other comprehensive income (loss) , net of tax
$
9,487
$
(9,900
)
$
10,536
$
(27,639
)
Comprehensive income (loss)
$
22,072
$
2,250
$
33,954
$
(2,287
)
Comprehensive loss attributable to the noncontrolling interest
(386
)
(238
)
(167
)
(325
)
Comprehensive income (loss) attributable to FADV
$
21,686
$
2,012
$
33,787
$
(2,612
)
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Consolidated Statement of Changes in Equity
For the Six Months Ended June 30, 2009 (Unaudited)
Accumulated
( in thousands)
Common
Common
Additional
Other
Stock
Stock
Paid-in
Retained
Comprehensive
Noncontrolling
Shares
Amount
Capital
Earnings
(Loss) Income
Interests
Total
Balance at December 31, 2008
59,499
$
60
$
502,600
$
390,602
$
(412
)
$
44,198
$
937,048
Net income
-
-
-
23,585
-
(167
)
23,418
Purchase of subsidiary shares from
noncontrolling interest
-
-
(5,506
)
-
-
433
(5,073
)
Class A Shares issued in
connection with share
based compensation
289
-
310
-
-
-
310
Share based compensation
-
-
3,920
-
-
-
3,920
Foreign currency translation
-
-
-
-
2,803
-
2,803
Unrealized gain on investment,
net of tax
-
-
-
-
7,733
-
7,733
Balance at June 30, 2009
59,788
$
60
$
501,324
$
414,187
$
10,124
$
44,464
$
970,159
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)
( in thousands)
For the Six Months Ended
June 30,
2009
2008
Cash flows from operating activities:
Net income
$
23,418
$
25,352
Loss from discontinued operations
-
(4,241
)
Income from continuing operations
$
23,418
$
29,593
Adjustments to reconcile income from continuing operations to net
cash provided by (used in) operating activities:
Depreciation and amortization
21,581
20,919
Bad debt expense
6,483
3,464
Share based compensation
3,920
4,974
Deferred income tax
1,324
7,676
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable
(3,826
)
13,603
Prepaid expenses and other current assets
(547
)
(535
)
Other assets
126
(116
)
Accounts payable
(1,117
)
(2,322
)
Accrued liabilities
1,905
(1,962
)
Deferred income
(604
)
(477
)
Due from affiliates
(3,622
)
(6,782
)
Income tax accounts
(1,475
)
(59,400
)
Accrued compensation and other liabilities
(10,390
)
(11,157
)
Net cash provided by (used in) operating activities - continuing operations
37,176
(2,522
)
Net cash provided by operating activities - discontinued operations
-
754
Cash flows from investing activities:
Database development costs
(1,939
)
(2,092
)
Purchases of property and equipment
(9,826
)
(17,479
)
Cash paid for acquisitions
(19,465
)
(51,152
)
Proceeds from sale of assets
850
-
Cash balance of companies acquired
-
331
Net cash used in investing activities - continuing operations
(30,380
)
(70,392
)
Net cash provided by investing activities - discontinued operations
-
1,721
Cash flows from financing activities:
Proceeds from long-term debt
50,396
90,000
Repayment of long-term debt
(45,139
)
(52,033
)
Cash contributions from First American to LeadClick Holdings, LLC
-
2,402
Proceeds from class A shares issued in connection with stock option
plan and employee stock purchase plan
310
4,365
Cash paid for acquisition of noncontrolling interests
(5,073
)
(8,008
)
Distribution to noncontrolling interests
-
(949
)
Tax expense related to stock options
-
(204
)
Net cash provided by financing activities
494
35,573
Effect of exchange rates on cash
827
(146
)
Increase (decrease) in cash and cash equivalents
8,117
(35,012
)
Cash and cash equivalents at beginning of period
52,361
76,060
Change in cash and cash equivalents of discontinued operations
-
540
Cash and cash equivalents at end of period
$
60,478
$
41,588
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Consolidated Statements of Cash Flows, continued
For the Six Months Ended June 30, 2009 and 2008 (Unaudited)
For the Six Months Ended
(in thousands)
June 30,
2009
2008
Supplemental disclosures of cash flow information:
Cash paid for interest
$
432
$
1,467
Cash received for income tax refund
$
982
$
987
Cash paid for income taxes
$
17,580
$
69,125
Non-cash investing and financing activities:
Notes issued in connection with acquisitions
$
-
$
3,026
Class A shares issued for compensation
$
4,997
$
2,767
Unrealized gain (loss) on investment, net of tax
$
7,733
$
(29,719
)
The accompanying notes are an integral part of these consolidated financial statements.
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First Advantage Corporation
Notes to Consolidated Financial Statements
1. Organization and Nature of Business
First Advantage Corporation (the “Company” or “First Advantage”) is a global risk mitigation and business solutions provider and operates in five primary business segments: Credit Services, Data Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services. In the first
quarter of 2009, the Company consolidated the previous Lender Services and Dealer Services segments and moved the consumer credit business from the Data Services segment to create the Credit Services segment. The prior periods have been recast to reflect the changed segments.
The First American Corporation and affiliates (“First American”) own approximately 80% of the shares of capital stock of the Company as of June 30, 2009. The Class B common stock owned by First American is entitled to ten votes per share on all matters presented to the stockholders for vote.
On June 29, 2009, the Company received an unsolicited proposal from First American to acquire all of the issued and outstanding shares of the Company's common stock not owned by First American at a fixed exchange ratio of 0.5375 of a share of First American's common stock for each share of the Company's common stock.
First American's proposal is subject to confirmatory due diligence, the negotiation of an acceptable definitive acquisition agreement and the receipt of all necessary stockholder and regulatory approvals. First American's proposal is under consideration by the Special Committee of the Board of Directors of the Company, which is comprised of directors who are unaffiliated with First American.
As part of the Company’s streamlining initiative, in the second quarter of 2008, First Advantage sold First Advantage Investigative Services (“FAIS”), which was included in our Investigative and Litigation Support Services segment, and Credit Management Solutions, Inc. (“CMSI”), which was included in our Credit Services segment. The results of these businesses’ operations in the prior
period are presented in discontinued operations in the Company’s Consolidated Statements of Income.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial information included in this report has been prepared in accordance with the instructions to Form 10-Q and does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments are of a normal,
recurring nature and are considered necessary for a fair statement of the results for the interim period. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.
Certain amounts for the three and six months ended June 30, 2008 and at December 31, 2008 have been reclassified to conform with 2009 presentation.
Operating results for the three and six months ended June 30, 2009 and 2008 are not necessarily indicative of the results that may be expected for the entire fiscal year.
Subsequent events have been evaluated through July 30, 2009, the date these financial statements were issued.
As of June 30, 2009, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, have not changed from December 31, 2008, except for the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), “Business Combinations,” SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements,” SFAS No. 165, "Subsequent Events," and FASB Staff Position FAS 107-1, "Interim Disclosures about Fair Value of Financial Instruments."
Purchase Accounting
In December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method)
be used for all business combinations and for an acquirer to be identified for each business combination. In general, the statement 1) broadens the guidance of SFAS No. 141, extending its applicability to all events where one entity obtains control over one or more other businesses, 2) broadens the use of fair value measurements used to recognize the assets acquired and liabilities assumed, 3) changes the accounting for acquisition related fees and restructuring costs incurred in connection with an acquisition,
and 4) increases required disclosures. The Company will apply the provisions of this statement prospectively to business combinations for which the acquisition date is on or after January 1, 2009.
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First Advantage Corporation
Notes to Consolidated Financial Statements
Noncontrolling Interest
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the consolidated financial statements. It also requires consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. The Company has applied the provisions of this statement effective beginning on January 1, 2009 and the adoption did not have a material effect on its consolidated financial statements.
Fair Value of Financial Instruments
In April 2009, the FASB issued FASB Staff Position (“FSP”) FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends Statement of Financial Accounting Standard (“SFAS”) No. 107, “Disclosures About Fair Value of Financial
Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. This FSP is effective for interim reporting periods ending after June 15, 2009. The FSP does not require disclosures for earlier periods presented
for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. We adopted this new standard effective April 1, 2009.
The carrying amount of the Company’s financial instruments at June 30, 2009 and December 31, 2008, which includes cash and cash equivalents, marketable equity securities and accounts receivable, approximates fair value because of the short maturity of those instruments. The Company’s marketable equity
securities are classified as available for sale securities. Unrealized holding gains and losses for available for sale securities are excluded from earnings and reported, net of taxes, as accumulated other comprehensive (loss) income. The Company considers its variable rate debt to be representative of current market rates and, accordingly, estimates that the recorded amounts approximate fair market value. Fair value estimates of its fixed rate debt were determined using discounted
cash flow methods with a discount rate of 3.25% and 3.25%, which are the estimated rates that similar instruments could be negotiated at June 30, 2009 and December 31, 2008, respectively.
The estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are summarized as follows:
June 30, 2009
December 31, 2008
(in thousands)
Carrying
Estimated
Carrying
Estimated
Amount
Fair Value
Amount
Fair Value
Cash and cash equivalents
$
60,478
$
60,478
$
52,361
$
52,361
Accounts receivable
118,702
118,702
121,531
121,531
Marketable equity securities
43,389
43,389
30,365
30,365
Long-term debt and capital leases
(38,164
)
(38,201
)
(32,829
)
(32,699
)
Subsequent Events
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS 165 is effective for reporting periods ending
after June 15, 2009.
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First Advantage Corporation
Notes to Consolidated Financial Statements
3. Acquisitions
During the first six months of 2009, the Company paid consideration of approximately $19.5 million in cash related to earnout provisions from prior year acquisitions and approximately $5.1 million for the final purchase of a portion of noncontrolling interests in LeadClick Media, Inc. The additional consideration related to
earnout provisions was recorded to goodwill and the purchase of noncontrolling interests was recorded to additional paid in capital when paid.
The changes in the carrying amount of goodwill, by operating segment, are as follows for the six months ended June 30, 2009:
Acquisitions,
Balance at
(Disposals)
Adjustments to net
Balance at
(in thousands)
December 31, 2008
and Earnouts
assets acquired
June 30, 2009
Credit Services
$
107,578
$
-
$
-
$
107,578
Data Services
218,505
(611
)
-
217,894
Employer Services
272,461
2,266
2,245
276,972
Multifamily Services
49,174
-
-
49,174
Investigative and Litigation Support Services
83,651
17,199
23
100,873
Consolidated
$
731,369
$
18,854
$
2,268
$
752,491
The adjustments to net assets acquired represent post acquisition adjustments for those companies acquired in the past periods.
4. Discontinued Operations
As discussed in Note 1, as part of the Company’s streamlining initiative, in the second quarter of 2008, the Company sold FAIS, which was included in our Investigative and Litigation Support Services segment, and CMSI, which was included in our Credit Services segment. The results of these businesses’ operations in
the prior period are presented in discontinued operations in the Company’s Consolidated Statements of Income.
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First Advantage Corporation
Notes to Consolidated Financial Statements
The following amounts have been segregated from continuing operations and are reflected as discontinued operations for the three and six months ended June 30, 2008.
Three months ended
Six months ended
June 30,
June 30,
(in thousands, except per share amounts)
2008
2008
Total revenue
$
2,826
$
7,671
Loss from discontinued operations before income taxes
$
(2,141
)
$
(3,245
)
Loss on sale of discontinued operations before income taxes
-
(3,910
)
Income tax benefit
(877
)
(2,914
)
Loss from discontinued operations, net of tax
$
(1,264
)
$
(4,241
)
Loss per share:
Basic
$
(0.02
)
$
(0.07
)
Diluted
$
(0.02
)
$
(0.07
)
Weighted-average common shares outstanding:
Basic
59,435
59,297
Diluted
59,617
59,374
5. Goodwill and Intangible Assets
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company will perform the goodwill impairment test for all reporting units in the fourth quarter of 2009. There have been no impairments of goodwill during the six months ended June 30, 2009.
Given the current economic environment and the uncertainties regarding the impact on the Company’s business, there can be no assurance that the Company’s estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or strength of recovery, made for purposes of the Company’s goodwill impairment
testing during the year ended December 31, 2008 will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted revenue or margin growth rates of certain reporting units are not achieved, the Company may be required to record additional goodwill impairment losses in future periods, whether in connection with the Company’s next annual impairment testing in the fourth quarter of 2009 or prior to that, if any such change constitutes a triggering event in other than
the quarter in which the annual goodwill impairment test is performed. It is not possible at this time to determine if any such future impairment loss would result or, if it does, whether such charge would be material.
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First Advantage Corporation
Notes to Consolidated Financial Statements
Goodwill and other identifiable intangible assets as of June 30, 2009 and December 31, 2008 are as follows:
(in thousands)
June 30, 2009
December 31, 2008
Goodwill
$
752,491
$
731,369
Customer lists
$
95,556
$
95,446
Less accumulated amortization
(47,049
)
(41,633
)
Customer lists, net
$
48,507
$
53,813
Other identifiable intangible assets:
Noncompete agreements
$
10,186
$
11,783
Trade names
21,664
21,631
31,850
33,414
Less accumulated amortization
(16,539
)
(16,169
)
Other identifiable intangible assets, net
$
15,311
$
17,245
Amortization of customer lists and other identifiable intangible assets totaled approximately $3.7 million and $4.4 million for the three months ended June 30, 2009 and 2008, respectively, and approximately $7.3 million and $8.5 million for the six months ended June 30, 2009 and 2008, respectively.
Estimated amortization expense relating to intangible asset balances as of June 30, 2009, is expected to be as follows over the next five years:
(in thousands)
Remainder of 2009
$
7,252
2010
13,926
2011
11,307
2012
10,213
2013
8,812
Thereafter
12,308
$
63,818
The changes in the carrying amount of identifiable intangible assets are as follows for the six months ended June 30, 2009:
Other
Identifiable
Intangible
Customer
(in thousands)
Assets
Lists
Balance, at December 31, 2008
$
17,245
$
53,813
Adjustments
33
58
Amortization
(1,967
)
(5,364
)
Balance, at June 30, 2009
$
15,311
$
48,507
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First Advantage Corporation
Notes to Consolidated Financial Statements
6. Debt
Long-term debt consists of the following at June 30, 2009:
(in thousands, except percentages)
Acquisition notes:
Weighted average interest rate of 3.65% with maturities
through 2011
$
11,699
Bank notes:
$225 million Secured Credit Facility, interest at 30-day LIBOR
plus 1.13% (1.44% at June 30, 2009) matures September 2010
25,000
Capital leases and other debt:
Various interest rates with maturities through 2011
1,465
Total long-term debt and capital leases
$
38,164
Less current portion of long-term debt and capital leases
8,807
Long-term debt and capital leases, net of current portion
$
29,357
At June 30, 2009, the Company was in compliance with the financial covenants of its loan agreement.
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First Advantage Corporation
Notes to Consolidated Financial Statements
7. Earnings Per Share
A reconciliation of earnings per share and weighted-average shares outstanding is as follows:
Three Months Ended
Six Months Ended
(in thousands, except per share amounts)
June 30,
June 30,
2009
2008
2009
2008
Income from continuing operations attributable to FADV shareholders
$
12,971
$
13,652
$
23,585
$
29,918
Loss from discontinued operations attributable to FADV shareholders, net of tax
-
(1,264
)
-
(4,241
)
Net income attributable to FADV shareholders
$
12,971
$
12,388
$
23,585
$
25,677
Denominator:
Weighted-average shares for basic earnings per share
59,776
59,435
59,681
59,297
Effect of restricted stock
117
75
79
47
Effect of dilutive securities - employee stock options and warrants
5
107
4
30
Denominator for diluted earnings per share
59,898
59,617
59,764
59,374
Earnings per share:
Basic
Income from continuing operations attributable to FADV shareholders
$
0.22
$
0.23
$
0.40
$
0.50
Loss from discontinued operations attributable to FADV shareholders, net of tax
-
(0.02
)
-
(0.07
)
Net income attributable to FADV shareholders
$
0.22
$
0.21
$
0.40
$
0.43
Diluted
Income from continuing operations attributable to FADV shareholders
$
0.22
$
0.23
$
0.39
$
0.50
Loss from discontinued operations attributable to FADV shareholders, net of tax
-
(0.02
)
-
(0.07
)
Net income attributable to FADV shareholders
$
0.22
$
0.21
$
0.39
$
0.43
For the three months ended June 30, 2009 and 2008, options and warrants totaling 3,376,872 and 3,062,601, respectively, were excluded from the weighted average diluted shares outstanding, as they were antidilutive. For the six months ended June 30, 2009 and 2008, options and warrants totaling 3,376,872 and 3,599,011, respectively,
were excluded from the weighted average diluted shares outstanding, as they were antidilutive.
8. Share-Based Compensation
In the first quarter of 2008, the Company changed from granting stock options as the primary means of share-based compensation to granting restricted stock units (“RSU”). The fair value of any RSU grant is based on the market value of the Company’s shares on the date of the grant and is recognized as compensation expense
over the vesting period. RSUs generally vest over three years at a rate of 33.3% for the first two years and 33.4% for last year.
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First Advantage Corporation
Notes to Consolidated Financial Statements
Restricted stock activity since December 31, 2008 is summarized as follows:
Weighted
(in thousands, except exercise prices)
Average
Number of
Grant-Date
Shares
Fair Value
Nonvested restricted stock outstanding at December 31, 2008
632
$
21.93
Restricted stock granted
406
$
10.61
Restricted stock forfeited
(30
)
$
17.99
Restricted stock vested
(253
)
$
23.06
Nonvested restricted stock outstanding at June 30, 2009
755
$
15.61
The following table illustrates the share-based compensation expense recognized for the three and six months ended June 30, 2009 and 2008.
Three Months Ended
Six Months Ended
June 30,
June 30,
(in thousands)
2009
2008
2009
2008
Stock options
$
487
$
1,326
$
1,120
$
2,700
Restricted stock
1,459
1,349
2,746
2,188
Employee stock purchase plan
24
42
54
86
$
1,970
$
2,717
$
3,920
$
4,974
Stock option activity under the Company’s stock plan since December 31, 2008 is summarized as follows:
Weighted
Aggregate
(in thousands, except exercise prices)
Number of
Average
Intrinsic
Shares
Exercise Price
Value
Options outstanding at December 31, 2008
3,492
$
23.06
$
71
Options forfeited
(106
)
$
28.31
Options outstanding at June 30, 2009
3,386
$
22.93
$
68
Options exercisable, end of the quarter
3,137
$
22.81
$
68
The following table summarizes information about stock options outstanding at June 30, 2009:
(in thousands, except for exercise prices, years and weighted average amounts)
Options Outstanding
Options Exercisable
Weighted Avg
Weighted
Range of
Remaining Contractual
Weighted Average
Average
Exercise Prices
Shares
Life in Years
Exercise Price
Shares
Exercise Price
$
7.00 - $ 12.50
9
2.2
$
11.13
9
$
11.13
$
12.51 - $ 25.00
2,254
4.6
$
20.85
2,167
$
20.89
$
25.01 - $ 50.00
1,118
6.2
$
27.04
956
$
27.09
$
50.01 - $242.25
5
1.7
$
60.50
5
$
60.50
3,386
3,137
The Company had outstanding warrants to purchase up to 41,462 shares of its common stock at exercise prices of $12.05 per share as of June 30, 2009. The weighted average remaining contractual life in years for the warrants outstanding is 1.93.
15
Table of Contents
First Advantage Corporation
Notes to Consolidated Financial Statements
9. Income Taxes
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2005, and state and local, and non-U.S. income tax examinations
by tax authorities before 2003. In April 2009, the Internal Revenue Service (“IRS”) concluded an examination of First Advantage’s consolidated 2005 federal income tax return without any material adjustments. In March 2009, the IRS initiated an examination of First Advantage’s consolidated 2006 and 2007 federal income tax returns, which the Company does not anticipate will result in material adjustments.
As of June 30, 2009, the Company has a $4.9 million total liability recorded for unrecognized tax benefits as well as a $0.4 million total liability for income tax related interest. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is $2.6 million. The majority of
the unrecognized tax benefits that would affect the effective tax rate and associated interest relates to foreign operations. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company does not currently anticipate that the total amount of unrecognized tax benefits will significantly increase or decrease by the end of 2009.
10. Segment Information
The Company operates in five primary business segments: Credit Services, Data Services, Employer Services, Multifamily Services, and Investigative and Litigation Support Services. In the first quarter of 2009, the Company consolidated the previous Lender Services and Dealer Services segments and moved the consumer credit business from the
Data Services segment to create the Credit Services segment. The prior periods have been recast to reflect the changed segments.
The Credit Services segment include business lines that offer lenders credit reporting solutions for mortgage and home equity needs, that provide consumer credit reporting services and serve the automotive dealer marketplace by delivering consolidated consumer credit reports and automotive lead generation services.
The Data Services segment includes business lines that provide transportation credit reporting, motor vehicle record reporting, fleet management, criminal records reselling, specialty finance credit reporting, and lead generation services. Revenue for the Data Services segment includes $1.0 million and $1.4 million of inter-segment
sales for the three months ended June 30, 2009 and 2008, respectively, and $1.9 million and $2.8 million of inter-segment sales for the six months ended June 30, 2009 and 2008, respectively.
The Employer Services segment includes employment background screening, occupational health services, tax incentive services and hiring solutions. Products and services relating to employment background screening include criminal records searches, employment and education verification, social security number verification and credit
reporting. Occupational health services include drug-free workplace programs, physical examinations and employee assistance programs. Hiring solutions include applicant tracking software, recruiting services and outsourced management of payroll and human resource functions. Tax incentive services include services related to the administration of employment-based and location-based tax credit and incentive programs, sales and use tax programs and fleet asset management programs. Revenue
for the Employer Services segment includes $0.1 million of inter-segment sales for the three months ended June 30, 2008, and $0.2 million and $0.5 million of inter-segment sales for the six months ended June 30, 2009 and 2008, respectively.
The Multifamily Services segment includes resident screening and software services. Resident screening services include criminal background and eviction searches, credit reporting, employment verification and lease performance and payment histories. Revenue for the Multifamily Services segment includes $0.2 million of
inter-segment sales for each of the three months ended June 30, 2009 and 2008, and $0.3 million and $0.4 million of inter-segment sales for the six months ended June 30, 2009 and 2008, respectively.
The Investigative and Litigation Support Services segment includes all investigative services. Products and services offered by the Investigative and Litigation Support Services segment includes computer forensics, electronic discovery, due diligence reports and other high level investigations.
The elimination of intra-segment revenue and cost of service revenue is included in Corporate. These transactions are recorded at cost.
Service revenue for international operations included in the Employer Services segment was $7.0 million and $12.3 million for the three months ended June 30, 2009 and 2008, respectively, and $13.5 million and $23.4 million for the six months ended June 30, 2009 and 2008, respectively. Service revenue for international operations included
in the Investigative and Litigation Support Services segment was $1.4 million and $11.7 million for the three months ended June 30, 2009 and 2008, respectively, and $6.8 million and $24.6 million for the six months ended June 30, 2009 and 2008, respectively.
16
Table of Contents
First Advantage Corporation
Notes to Consolidated Financial Statements
The following table sets forth segment information for the three and six months ended June 30, 2009 and 2008.
(in thousands)
Depreciation
Income (Loss)
Three Months Ended June 30, 2009
Service Revenue
and Amortization
From Operations
Assets
Credit Services
$
67,705
$
1,488
$
17,584
$
200,797
Data Services
28,842
2,427
2,153
300,290
Employer Services
40,168
3,772
2,681
391,370
Multifamily Services
19,685
1,509
7,579
85,018
Investigative and Litigation Support Services
8,694
727
270
120,482
Corporate and Eliminations
(426
)
972
(8,347
)
64,782
Consolidated
$
164,668
$
10,895
$
21,920
$
1,162,739
Three Months Ended June 30, 2008
Credit Services
$
66,984
$
1,565
$
11,961
$
190,311
Data Services
19,533
2,534
3,764
313,651
Employer Services
55,511
3,295
3,004
410,989
Multifamily Services
19,986
1,429
6,569
89,342
Investigative and Litigation Support Services
21,178
858
7,535
115,539
Corporate and Eliminations
(769
)
1,045
(8,840
)
64,152
Consolidated
$
182,423
$
10,726
$
23,993
$
1,183,984
Six Months Ended June 30, 2009
Credit Services
$
132,124
$
2,937
$
32,331
$
200,797
Data Services
87,942
4,932
7,799
300,290
Employer Services
77,619
7,287
2,181
391,370
Multifamily Services
37,588
3,011
13,253
85,018
Investigative and Litigation Support Services
20,420
1,452
1,416
120,482
Corporate and Eliminations
(985
)
1,962
(16,219
)
64,782
Consolidated
$
354,708
$
21,581
$
40,761
$
1,162,739
Six Months Ended June 30, 2008
Credit Services
$
141,886
$
2,752
$
28,308
$
190,311
Data Services
38,500
5,031
7,534
313,651
Employer Services
109,198
6,374
6,475
410,989
Multifamily Services
38,335
2,798
11,341
89,342
Investigative and Litigation Support Services
44,681
1,623
17,060
115,539
Corporate and Eliminations
(1,923
)
2,044
(19,566
)
64,152
Consolidated
$
370,677
$
20,622
$
51,152
$
1,183,984
17
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.