What changed in this filing

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Item 1. Financial Statements

2009-10-29 compared with 2009-07-30 · 719 added, 479 removed, 18 unchanged (99% of the section changed)

Financial Statements

First Advantage Corporation

Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended

June 30, 2009 and 2008

First Advantage Corporation

Consolidated Balance Sheets (Unaudited)

( in thousands)

Current assets:

Cash and cash equivalents

Accounts receivable (less allowance for doubtful accounts

of $11,977 and $8,345, respectively)

Prepaid expenses and other current assets

Due from affiliates

Deferred income tax asset

Total current assets

Property and equipment, net

Customer lists, net

Other intangible assets, net

Database development costs, net

Marketable equity securities

Liabilities and Equity

Current liabilities:

Accounts payable

Accrued compensation

Accrued liabilities

Advantage Corporation

Financial Statements (Unaudited)

the Three and Nine Months Ended

30, 2009 and 2008

Advantage Corporation

Balance Sheets (Unaudited)

Cash and cash

receivable (less allowance for doubtful accounts

of $11,520 and $8,345,

respectively)

expenses and other current assets

Deferred income

Income tax payable

Due to affiliates

Current portion of long-term debt and capital leases

Total current liabilities

Long-term debt and capital leases, net of current portion

Deferred income tax liability

Other liabilities

Total liabilities

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

Class B common stock, $.001 par value;

Total current

equipment, net

Customer lists,

intangible assets, net

development costs, net

equity securities

Current portion

of long-term debt and capital leases

Total current

Long-term debt

and capital leases, net of current portion

Deferred income

tax liability

First Advantage

Corporation's stockholders' equity:

stock, $.001 par value;

1,000 shares authorized,

47,727 shares issued

and outstanding as of June 30, 2009 and December 31, 2008, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income (loss)

Total First Advantage Corporation's stockholders' equity

Noncontrolling interests

Total liabilities and equity

The accompanying notes are an integral part of these consolidated financial statements.

First Advantage Corporation

Consolidated Statements of Income (Unaudited)

( in thousands, except per share amounts)

For the Three Months Ended

For the Six Months Ended

no shares issued or outstanding

Class A common

stock, $.001 par value;

125,000 shares

12,095 and 11,772 shares issued and

of September 30, 2009 and December 31, 2008, respectively

Class B common

stock, $.001 par value;

75,000 shares

47,727 shares issued and outstanding

of September 30, 2009 and December 31, 2008, respectively

paid-in capital

other comprehensive income (loss)

Advantage Corporation's stockholders' equity

Noncontrolling

liabilities and equity

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

Statements of Income (Unaudited)

thousands, except per share amounts)

the Three Months Ended

the Nine Months Ended

Service revenue

Reimbursed government fee revenue

Total revenue

Cost of service revenue

Government fees paid

Total cost of service

Salaries and benefits

Facilities and telecommunications

Other operating expenses

Depreciation and amortization

Impairment loss

Total operating expenses

Income from operations

Other (expense) income:

Interest expense

Interest income

Total other (expense), net

Income from continuing operations before income taxes

Provision for income taxes

Income from continuing operations

Loss from discontinued operations, net of tax

Net loss attributable to noncontrolling interest

Net income attributable to First Advantage Corporation ("FADV")

Basic income per share:

Income from continuing operations attributable to FADV shareholders

Loss from discontinued operations attributable to FADV shareholders, net of tax

Net income attributable to FADV shareholders

Diluted income per share:

Income from continuing operations attributable to FADV shareholders

Loss from discontinued operations attributable to FADV shareholders, net of tax

Net income attributable to FADV shareholders

Weighted-average common shares outstanding:

Amounts attributable to FADV shareholders:

Income from continuing operations, net of tax

Loss from discontinued operations, net of tax

The accompanying notes are an integral part of these consolidated financial statements.

First Advantage Corporation

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Three Months Ended

Six Months Ended

( in thousands)

Other comprehensive income (loss) , net of tax:

Foreign currency translation adjustments

government fee revenue

of service revenue

cost of service

and telecommunications

operating expenses

and amortization

operating expenses

from operations

(expense) income:

other (expense), net

from continuing operations before income taxes

for income taxes

from continuing operations

from discontinued operations, net of tax

loss attributable to noncontrolling interest

income attributable to First Advantage Corporation

income per share:

from continuing operations attributable to FADV

from discontinued operations attributable to FADV shareholders, net of

income attributable to FADV shareholders

income per share:

from continuing operations attributable to FADV

from discontinued operations attributable to FADV shareholders, net of

income attributable to FADV shareholders

Weighted-average

common shares outstanding:

attributable to FADV shareholders:

from continuing operations

from discontinued operations, net of tax

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

Statements of Comprehensive Income (Unaudited)

comprehensive income (loss) , net of tax:

currency translation adjustments

Unrealized gain (loss) on investment, net of tax

Total other comprehensive income (loss) , net of tax

Comprehensive income (loss)

Comprehensive loss attributable to the noncontrolling interest

Comprehensive income (loss) attributable to FADV

The accompanying notes are an integral part of these consolidated financial statements.

First Advantage Corporation

Consolidated Statement of Changes in Equity

For the Six Months Ended June 30, 2009 (Unaudited)

( in thousands)

other comprehensive income (loss) , net of tax

Comprehensive

Comprehensive loss attributable to the noncontrolling

Comprehensive

income attributable to FADV

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

Statement of Changes in Equity

the Nine Months Ended September 30, 2009 (Unaudited)

Comprehensive

Noncontrolling

(Loss) Income

Balance at December 31, 2008

Purchase of subsidiary shares from

noncontrolling interest

Class A Shares issued in

connection with share

based compensation

of subsidiary shares from

noncontrolling

A Shares issued in connection

share based compensation

Foreign currency translation

Unrealized gain on investment,

Balance at June 30, 2009

The accompanying notes are an integral part of these consolidated financial statements.

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

based compensation

currency translation

gain on investment, net of tax

at September 30, 2009

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

Statements of Cash Flows

the Nine Months Ended September 30, 2009 and 2008 (Unaudited)

the Nine Months Ended

Cash flows from operating activities:

Loss from discontinued operations

Income from continuing operations

Adjustments to reconcile income from continuing operations to net

cash provided by (used in) operating activities:

Depreciation and amortization

Bad debt expense

Share based compensation

Deferred income tax

Change in operating assets and liabilities, net of acquisitions:

Accounts receivable

Prepaid expenses and other current assets

Accounts payable

Accrued liabilities

Deferred income

Due from affiliates

Income tax accounts

Accrued compensation and other liabilities

Net cash provided by (used in) operating activities - continuing operations

Net cash provided by operating activities - discontinued operations

Cash flows from investing activities:

Database development costs

Purchases of property and equipment

Cash paid for acquisitions

Proceeds from sale of assets

Cash balance of companies acquired

Net cash used in investing activities - continuing operations

Net cash provided by investing activities - discontinued operations

Cash flows from financing activities:

Proceeds from long-term debt

Repayment of long-term debt

Cash contributions from First American to LeadClick Holdings, LLC

Proceeds from class A shares issued in connection with stock option

plan and employee stock purchase plan

Cash paid for acquisition of noncontrolling interests

Distribution to noncontrolling interests

Tax expense related to stock options

Net cash provided by financing activities

Effect of exchange rates on cash

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

Change in cash and cash equivalents of discontinued operations

Cash and cash equivalents at end of period

The accompanying notes are an integral part of these consolidated financial statements.

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)

Supplemental disclosures of cash flow information:

Cash paid for interest

Cash received for income tax refund

Cash paid for income taxes

Non-cash investing and financing activities:

Notes issued in connection with acquisitions

Class A shares issued for compensation

Unrealized gain (loss) on investment, net of tax

The accompanying notes are an integral part of these consolidated financial statements.

First Advantage Corporation

Notes to Consolidated Financial Statements

from discontinued operations

from continuing operations

to reconcile income from continuing operations to net

provided by (used in) operating activities:

and amortization

based compensation

in operating assets and liabilities, net of acquisitions:

expenses and other current assets

from affiliates

compensation and other liabilities

cash provided by operating activities - continuing

cash provided by operating activities - discontinued

flows from investing activities:

development costs

of property and equipment

paid for acquisitions

from sale of assets

balance of companies acquired

cash used in investing activities - continuing operations

cash provided by investing activities - discontinued

flows from financing activities:

from long-term debt

of long-term debt

contributions from First American to LeadClick Holdings,

from class A shares issued in connection with stock option

and employee stock purchase plan

paid for acquisition of noncontrolling interests

to noncontrolling interests

expense related to stock options

cash (used in) provided by financing activities

of exchange rates on cash

(decrease) in cash and cash equivalents

and cash equivalents at beginning of period

in cash and cash equivalents of discontinued operations

and cash equivalents at end of period

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

Statements of Cash Flows, continued

the Nine Months Ended September 30, 2009 and 2008 (Unaudited)

the Nine Months Ended

disclosures of cash flow information:

paid for interest

received for income tax refunds

paid for income taxes

investing and financing activities:

issued in connection with acquisitions

A shares issued for compensation

gain (loss) on investment, net of tax

accompanying notes are an integral part of these consolidated financial

Advantage Corporation

to Consolidated Financial Statements

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.

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.

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.

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,

Advantage Corporation (the “Company” or “First Advantage” or “FADV”) 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

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

The prior periods have been recast to reflect the changed

First American Corporation and its affiliates (“First American”) currently

own or control, directly or indirectly, all of the Company's Class B shares of

common stock, which represents approximately 80% of equity interests

of the Company and approximately 98% of the voting power of the

Company as of September 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.

October 8, 2009, First American issued a press release announcing the

commencement of an exchange offer (the “Offer”) to acquire all of the

outstanding shares of the Company’s Class A common stock (“Class A Shares”) not

owned or controlled by First American at an exchange ratio of 0.58 of a First

American common share per Class A Share ( See Note 11 –

Subsequent Event) .

On October 9, 2009, First American filed a

Registration Statement on Form S-4 with the Securities and Exchange Commission

(the “SEC”), which contains the Offer to Exchange and related materials.

On that same day, the Company filed with the SEC a Solicitation/Recommendation

on Schedule 14D-9 pursuant to which the Special Committee of the Board of

Directors of the Company recommended on behalf of the Board of Directors of the

Company, that the stockholders of the Company accept the Offer and tender their

shares pursuant to the Offer.

The Offer is described in further

detail in Note 11 – Subsequent

the event that the Offer is accepted and consummated in the fourth quarter,

operating results for the fourth quarter will be negatively impacted due to

related costs.

As further described in Note 11 – Subsequent Event, u pon meeting certain conditions, First

American has announced that it intends to merge the Company with a wholly-owned

subsidiary of First American.

This merger will constitute a “Change

in Control” under the FADV 2003 Incentive Compensation Plan (“the

Upon a Change in Control, the unvested awards of stock

options, restricted stock units and restricted stock issued under the Plan will

vest and the unamortized costs of those awards will be expensed.

September 30, 2009, the unamortized compensation expense was approximately $8.5

million and approximately $0.9 million related to the unvested restricted stock

and unvested options, respectively.

In addition, Morgan Stanley is

acting as the Company’s financial advisor related to the

Pursuant to the terms of Morgan Stanley’s engagement, in the

event that the Offer is accepted, the Company has agreed to pay Morgan Stanley a

transaction fee which is currently estimated to be approximately $3.0

Advantage Corporation

to Consolidated Financial Statements

the three and nine months ended September 30, 2009, the Company incurred

approximately $1.6 million in legal expenses related to the Offer and related

litigation and expects additional professional fees in the fourth quarter

related to the Offer and related litigation.

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.

of Significant Accounting Policies

of Presentation

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

(“GAAP”) 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

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 and as amended on the Current Form 8-K filed on October 8,

2009 with the Securities and Exchange Commission.

amounts for the three and nine months ended September 30, 2008 and at December

31, 2008 have been reclassified to conform with the 2009

presentation.

results for the three and nine months ended September 30, 2009 and 2008 are not

necessarily indicative of the results that may be expected for the entire fiscal

events have been evaluated through October 29, 2009, the date these

financial statements were issued.

of September 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 the Financial Accounting Standards Board's

(“FASB”) GAAP updates related to business combinations, noncontrolling

interest in consolidated financial statements, subsequent events,

Advantage Corporation

to Consolidated Financial Statements

disclosures about fair value of financial instruments, and FASB Accounting

Standards Codification.

December 2007, the FASB updated GAAP related to business

combinations.

This update retains the fundamental requirements

in previous statements that the acquisition method of accounting (which is

called the purchase method) be used for all business combinations and for an

acquirer to be identified for each business combination.

the update 1) broadens the guidance, 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.

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 will apply the provisions of

this update prospectively to business combinations for which the acquisition

date is on or after January 1, 2009.

Noncontrolling

December 2007, the FASB updated GAAP related to noncontrolling

interests in consolidated financial statements.

This update 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 update effective beginning on January 1, 2009 and the

adoption did not have a material effect on its consolidated financial

Value of Financial Instruments

April 2009, the FASB updated GAAP related to interim disclosures about fair

value of financial instruments.

This amends previous statements, to

require disclosures about fair value of financial instruments for interim

reporting periods of publicly traded companies as well as in annual financial

This also requires those disclosures in summarized financial

information at interim reporting periods.

This is effective for interim

reporting periods ending after June 15, 2009.

The update does not require

disclosures for earlier periods presented for comparative purposes at initial

Advantage Corporation

to Consolidated Financial Statements

In periods after initial adoption, this update requires comparative

disclosures only for periods ending after initial adoption.

The Company adopted

this new standard effective April 1, 2009.

carrying amount of the Company’s financial instruments at September 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)

Cash and cash equivalents

Accounts receivable

Marketable equity securities

Long-term debt and capital leases

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

securities are classified as available for sale

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

Fair value estimates of its fixed rate debt were determined

using discounted cash flow methods with a discount rate of 3.25%, which are the

estimated rates that similar instruments could be negotiated at September 30,

2009 and December 31, 2008.

estimated fair values of the Company’s financial instruments, none of which are

held for trading purposes, are summarized as follows:

and cash equivalents

equity securities

debt and capital leases

May 2009, the FASB updated GAAP related to subsequent events.

The update establishes general standards of accounting for and disclosure

of events that occur after the balance sheet date but before financial

statements are issued.

It is effective for reporting periods ending

after June 15, 2009.

First Advantage Corporation

Notes to Consolidated Financial Statements

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:

The Company adopted this update effective April 1,

Accounting Standards

has adopted the FASB Accounting Standards Codification (the “Codification”) as

the single authoritative source for GAAP, replacing the mix of accounting

standards that have evolved over the last 50 plus years.

The Codification

is effective for financial statements that cover interim and annual periods

ending after September 15, 2009.

While not intended to change GAAP, the

Codification significantly changes the way in which accounting literature is

It's now organized by accounting topic, which should enable users to

more quickly identify the guidance that applies to a specific accounting

The Company adopted this new standard effective September

the nine months ended September 30, 2009, the Company paid consideration of

approximately $19.5 million in cash related to earnout provisions from prior

year acquisitions, approximately $5.1 million for the final purchase of a

portion of noncontrolling interests in LeadClick Media, Inc, and $0.8 million

for an additional portion of noncontrolling interest in PrideRock Holding

The additional

Advantage Corporation

to Consolidated Financial Statements

consideration

related to earnout provisions was recorded to goodwill and the purchase of

noncontrolling interests was recorded to additional paid in capital when

changes in the carrying amount of goodwill, by operating segment, are as follows

for the nine months ended September 30, 2009:

Acquisitions,

Adjustments to net

(in thousands)

December 31, 2008

assets acquired

June 30, 2009

Credit Services

Data Services

Employer Services

Multifamily Services

Investigative and Litigation Support Services

The adjustments to net assets acquired represent post acquisition adjustments for those companies acquired in the past periods.

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.

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

(in thousands, except per share amounts)

Total revenue

Loss from discontinued operations before income taxes

Loss on sale of discontinued operations before income taxes

Income tax benefit

Loss from discontinued operations, net of tax

Loss per share:

Weighted-average common shares outstanding:

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.

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

Customer lists

Less accumulated amortization

Customer lists, net

Other identifiable intangible assets:

Noncompete agreements

Less accumulated amortization

Other identifiable intangible assets, net

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

The changes in the carrying amount of identifiable intangible assets are as follows for the six months ended June 30, 2009:

(in thousands)

Balance, at December 31, 2008

Balance, at June 30, 2009

First Advantage Corporation

Notes to Consolidated Financial Statements

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

Investigative

and Litigation Support Services

adjustments to net assets acquired represent post acquisition adjustments for

those companies acquired in the past periods.

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.

following amounts have been segregated from continuing operations and are

reflected as discontinued operations for the nine months ended September 30,

Advantage Corporation

to Consolidated Financial Statements

thousands, except per share amounts)

from discontinued operations before income taxes

from discontinued operations, net of tax

Weighted-average

common shares outstanding:

and Intangible Assets

accordance with GAAP, the Company will perform the goodwill impairment test for

all reporting units in the fourth quarter of 2009.

been no impairments of goodwill during the nine months ended September 30,

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 connection with the Company’s next annual impairment testing in the

fourth quarter of 2009 or in future periods.

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.

Advantage Corporation

to Consolidated Financial Statements

Goodwill and other identifiable intangible assets as of September 30,

2009 and December 31, 2008 are as follows:

accumulated amortization

identifiable intangible assets:

accumulated amortization

identifiable intangible assets, net

of customer lists and other identifiable intangible assets totaled approximately

$3.6 million and $5.3 million for the three months ended September 30, 2009 and

2008, respectively, and approximately $11.0 million and $13.8 million for the

nine months ended September 30, 2009 and 2008, respectively.

impairment loss of $1.3 million was recorded for the three and nine months ended

September 30, 2008 in the Credit Services segment.

The charge is

related to the write-off of the net book value of the automotive lead generation

business’ identifiable intangible assets and customer list.

impairment loss was incurred due to the challenging credit market and the

negative impact to the automotive lead generation business.

amortization expense relating to intangible asset balances as of September 30,

2009, is expected to be as follows over the next five years:

Advantage Corporation

to Consolidated Financial Statements

The changes in the carrying amount of identifiable intangible assets

are as follows for the nine months ended September 30, 2009:

at December 31, 2008

at September 30, 2009

debt consists of the following at September 30, 2009:

thousands, except percentages)

Weighted average interest rate of 3.64% with

million Secured Credit Facility, interest at 30-day LIBOR

plus 1.13% (1.44% at June 30, 2009) matures September 2010

Capital leases and other debt:

Various interest rates with maturities through 2011

Total long-term debt and capital leases

Less current portion of long-term debt and capital leases

Long-term debt and capital leases, net of current portion

At June 30, 2009, the Company was in compliance with the financial covenants of its loan agreement.

First Advantage Corporation

Notes to Consolidated Financial Statements

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)

Income from continuing operations attributable to FADV shareholders

Loss from discontinued operations attributable to FADV shareholders, net of tax

Net income attributable to FADV shareholders

Weighted-average shares for basic earnings per share

Effect of restricted stock

Effect of dilutive securities - employee stock options and warrants

Denominator for diluted earnings per share

Earnings per share:

Income from continuing operations attributable to FADV shareholders

Loss from discontinued operations attributable to FADV shareholders, net of tax

Net income attributable to FADV shareholders

Income from continuing operations attributable to FADV shareholders

Loss from discontinued operations attributable to FADV shareholders, net of tax

Net income attributable to FADV shareholders

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.

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.

First Advantage Corporation

Notes to Consolidated Financial Statements

Restricted stock activity since December 31, 2008 is summarized as follows:

(in thousands, except exercise prices)

Nonvested restricted stock outstanding at December 31, 2008

Restricted stock granted

Restricted stock forfeited

Restricted stock vested

Nonvested restricted stock outstanding at June 30, 2009

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

(in thousands)

Stock options

Restricted stock

Employee stock purchase plan

Stock option activity under the Company’s stock plan since December 31, 2008 is summarized as follows:

(in thousands, except exercise prices)

Exercise Price

Options outstanding at December 31, 2008

Options forfeited

Options outstanding at June 30, 2009

Options exercisable, end of the quarter

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

Remaining Contractual

1.13% (1.37% at September 30, 2009) matures September 2010

leases and other debt:

interest rates with maturities through 2011

long-term debt and capital leases

current portion of long-term debt and capital leases

Long-term debt

and capital leases, net of current portion

September 30, 2009, the Company was in compliance with the financial covenants

of its loan agreement.

In the event that the First American Offer is

accepted and consummated with a merger, this may be determined to be an “Event

of Default,” under the terms of the Credit Agreement.

reconciliation of earnings per share and weighted-average shares outstanding is

thousands, except per share amounts)

from continuing operations attributable to FADV

from discontinued operations attributable to FADV shareholders, net of

income attributable to FADV shareholders

Weighted-average

Exercise Prices

Life in Years

Exercise Price

7.00 - $ 12.50

12.51 - $ 25.00

25.01 - $ 50.00

50.01 - $242.25

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.

First Advantage Corporation

Notes to Consolidated Financial Statements

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.

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

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.

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.

shares for basic earnings per share

of restricted stock

of dilutive securities - employee stock options and

for diluted earnings per share

from continuing operations attributable to FADV

from discontinued operations attributable to FADV shareholders, net of

income attributable to FADV shareholders

from continuing operations attributable to FADV

from discontinued operations attributable to FADV shareholders, net of

income attributable to FADV shareholders

the three months ended September 30, 2009 and 2008, options and warrants

totaling 2,962,431 and 3,999,719, respectively, were excluded from the weighted

average diluted shares outstanding, as they were antidilutive.

the nine months ended September 30, 2009 and 2008, options and warrants totaling

3,162,930 and 3,895,234, respectively, were excluded from the weighted average

diluted shares outstanding, as they were antidilutive.

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

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.

stock activity since December 31, 2008 is summarized as follows:

thousands, except weighted average fair

value prices)

restricted stock outstanding at December 31, 2008

stock granted

stock forfeited

restricted stock outstanding at September 30, 2009

Advantage Corporation

to Consolidated Financial Statements

The following

table illustrates the share-based compensation expense recognized for the three

and nine months ended September 30, 2009 and 2008.

stock purchase plan

option activity under the Company’s stock plan since December 31, 2008 is

summarized as follows:

thousands, except exercise prices)

outstanding at December 31, 2008

outstanding at September 30, 2009

exercisable, end of the quarter

following table summarizes information about stock options outstanding at

September 30, 2009:

thousands, except for exercise prices, years and weighted average

of Exercise Prices

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 September 30,

The weighted average remaining contractual life in years for

the warrants outstanding is 1.68.

Company or one of its subsidiaries files income tax returns in the U.S.

jurisdiction, various state jurisdictions, and foreign

jurisdictions.

Advantage Corporation

to Consolidated Financial Statements

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.

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.

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.

of September 30, 2009, the Company has a $4.9 million total liability recorded

for unrecognized tax benefits as well as a $0.5 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 $3.3

The majority of the unrecognized tax benefits that would

affect the effective tax rate and associated interest relates to foreign

The Company recognizes interest accrued related to

unrecognized tax benefits in interest expense and penalties in operating

The Company does not currently anticipate that the total

amount of unrecognized tax benefits will significantly increase or decrease by

the end of 2009.

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

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.

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

Revenue for the Data Services segment includes $0.9 million

and $1.2 million of inter-segment sales for the three months ended September 30,

2009 and 2008, respectively, and $2.8 million and $4.0 million of inter-segment

sales for the nine months ended September 30, 2009 and 2008,

respectively.

Employer Services segment includes employment background screening, occupational

health services, tax incentive services and hiring

Products and services relating to employment background

screening include criminal records searches, employment and education

verification, social security number verification

Advantage Corporation

to Consolidated Financial Statements

credit reporting.

Occupational health services include drug-free

workplace programs, physical examinations and employee assistance

Hiring solutions include applicant tracking software,

recruiting services and outsourced management of payroll and human resource

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

Revenue for the Employer Services segment includes $0.6

million of inter-segment sales for the nine months ended September 30, 2009 and

Multifamily Services segment includes resident screening and software

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 September 30, 2009 and 2008, and $0.5 million of

inter-segment sales for the nine months ended September 30, 2009 and

Investigative and Litigation Support Services segment includes all investigative

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.

elimination of intra-segment revenue and cost of service revenue is included in

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.

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)

Income (Loss)

Three Months Ended June 30, 2009

Service Revenue

and Amortization

From Operations

Credit Services

Data Services

Employer Services

Multifamily Services

Investigative and Litigation Support Services

Corporate and Eliminations

Three Months Ended June 30, 2008

Credit Services

Data Services

Employer Services

Multifamily Services

Investigative and Litigation Support Services

Corporate and Eliminations

Six Months Ended June 30, 2009

Credit Services

Data Services

Employer Services

Multifamily Services

Investigative and Litigation Support Services

Corporate and Eliminations

Six Months Ended June 30, 2008

Credit Services

Data Services

Employer Services

Multifamily Services

Investigative and Litigation Support Services

Corporate and Eliminations

revenue for international operations included in the Employer Services segment

was $8.0 million and $11.9 million for the three months ended September 30, 2009

and 2008, respectively, and $21.4 million and $35.3 million for the nine months

ended September 30, 2009 and 2008, respectively.

Service revenue for

international operations included in the Investigative and Litigation Support

Services segment was $0.4 million and $7.6 million for the three months ended

September 30, 2009 and 2008, respectively, and $1.3 million and $32.3 million

for the nine months ended September 30, 2009 and 2008,

respectively.

Advantage Corporation

to Consolidated Financial Statements

The following

table sets forth segment information for the three and nine months ended

September 30, 2009 and 2008.

Months Ended September 30, 2009

Investigative

and Litigation Support Services

and Eliminations

Months Ended September 30, 2008

Investigative

and Litigation Support Services

and Eliminations

Months Ended September 30, 2009

Investigative

and Litigation Support Services

and Eliminations

Months Ended September 30, 2008

Investigative

and Litigation Support Services

and Eliminations

Advantage Corporation

to Consolidated Financial Statements

Proposed Offer

to Exchange by First American

On October 8, 2009, First American commenced an

exchange offer (the “Offer”) to acquire all of the outstanding shares of the

Company’s Class A common stock (“Class A Shares”) not owned or controlled by

First American at an exchange ratio of 0.58 of a First American common

share per Class A Share.

The offer is scheduled to expire at 5:00 P.M.

Tuesday, November 10, 2009 (the “Expiration Time”).

First American has

stated that the

offer is conditioned upon, among other things, satisfaction of the “Minimum

Condition”, which means that there must be validly tendered, and not properly

withdrawn prior to the Expiration Time, at least a majority of the Class A

Shares owned by stockholders other than certain parties described in the

Offer as the “Excluded Parties.” As of October 26, 2009, there were

12,098,680 Class A Shares outstanding, of which we believe

632,544 Class A Shares are

held by Excluded Parties.

Accordingly, we believe that at least 5,733,069

Class A Shares not owned by the Excluded Parties would have to be validly

tendered into the Offer, and not have been properly withdrawn, as of the

Expiration Time, in order to satisfy this condition.

In addition, among

others, the following conditions must also be satisfied or waived (except

as noted below):

Merger Condition — which means there must be sufficient Class A

Shares validly tendered, and not properly withdrawn as of the Expiration

Time, such that once such tendered Class A Shares are purchased by

First American in the Offer, First American will own or control at least

90% of the outstanding Class A Shares (after giving effect to the

conversion of the Class B Shares into Class A Shares on a one-for-one

We calculate that, based on the number of outstanding Class A

Shares as of October 26, 2009, approximately 6,112,774 Class A

Shares would have to be tendered in order to satisfy this

Registration Statement Effectiveness Condition — which means the

registration statement on Form S-4 filed by First American shall have

been declared effective by the Securities and Exchange Commission (the

Listing Condition — which means the First American common shares to be

issued in the Offer and the Merger shall have been approved for

listing on the New York Stock Exchange;

absence of legal impediments to the Offer or the Merger and other General

Minimum Condition, the Registration Statement Effectiveness Condition and the

Listing Condition will not be waived in the Offer.

The Merger Condition is

waivable in First American’s sole discretion.

In the event that all of the

conditions to the Offer have

Advantage Corporation

to Consolidated Financial Statements

not been satisfied or waived at the then scheduled

Expiration Time, First American may, in its discretion, extend the Expiration

Time in such increments as it may determine.

However, First American is under no

obligation to extend the Offer if the

conditions have not been satisfied, or waived if permitted, as of the Expiration

If the Offer is not consummated the market price of the Class A

Shares may decline.

The conditions to the Offer are for the sole benefit of

First American and may be asserted by it in its sole discretion, regardless of

the circumstances giving rise to such conditions, or, except as set forth above,

may be waived by First American, in whole or in part, in its sole discretion,

whether or not any other condition of the Offer also is

American has also announced that if the Merger Condition is satisfied and First

American consummates the Offer, First American will convert (or cause to be

converted) all of the Class B Shares that it owns or controls into Class A

Shares and cause all such Class A Shares and the Class A Shares

acquired by First American in the Offer to be contributed to Algonquin Corp., a

wholly-owned subsidiary of First American (“Merger Sub”).

If First American

consummates the Offer, and thereafter

owns or controls 90% or more of the outstanding Class A Shares (after

giving effect to the conversion of Class B Shares into Class A Shares on a

one-for-one basis), First American has stated that it shall promptly thereafter

effect a short form merger with Merger Sub merging into First Advantage (the

“Merger”) unless prohibited by court order or other applicable legal

As provided by Delaware law, the Merger may be effected without the

First Advantage’s board of directors or any remaining public stockholders.

First American consummates the Offer and does not own or control 90% or more of

the outstanding Class A Shares (after giving effect to the conversion of

Class B Shares into Class A Shares on a one-for-one basis), First American

will use commercially reasonable efforts to acquire additional Class A

Shares such that after such acquisition, Merger Sub owns or controls at least

each class of the issued and outstanding capital stock of First Advantage (after

giving effect to the conversion of Class B Shares into Class A Shares on a

one-for-one basis);

provided, however, that such use of commercially reasonable

efforts to acquire additional Class A Shares shall not require First

American to exchange more than 0.58 of a First American share (or equivalent

value) for any Class A Share.

In such event, once First American owns or

controls 90% or

more of the outstanding Class A Shares (after giving effect to the

conversion of Class B Shares into Class A Shares on a one-for-one basis),

First American shall effect the Merger promptly thereafter unless prohibited by

court order or other applicable legal requirement.

As a result of the Merger,

any Class A Shares not

previously purchased by First American in the Offer (and in subsequent

purchases, if any) would be converted into First American common shares at the

Exchange Ratio, other than the Class A Shares in respect of which appraisal

rights have been properly perfected under Delaware law.

October 8, 2009, First American filed the Offer to Exchange and

related materials with the SEC on a Registration Statement on Form S-4.

addition, on October 8, 2009, the Company filed with the SEC a

Solicitation/Recommendation Statement on Schedule 14D-9.

Stockholders are

urged to read the Offer to Exchange and related materials and the

Solicitation/Recommendation Statement and any amendments

Advantage Corporation

to Consolidated Financial Statements

from time to time, because they will contain important information.

will be able to obtain a free copy of the Offer to Exchange and related

materials and the Solicitation/Recommendation Statement at the SEC’s website at

In addition, the Solicitation/Recommendation Statement, as well as

the Company’s other public SEC filings, can be obtained at www.fadv.com .

may also read and copy any reports, statements and other information filed by

First American or the Company with the SEC at the SEC public reference room at

100 F Street N.E., Washington, D.C.

Please call the SEC at (800) 732-0330

or visit the SEC’s website for further information on its public reference

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements