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form_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2009

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission file number: 001-31666

FIRST ADVANTAGE CORPORATION

(Exact name of registrant as specified in its charter)

Incorporated in Delaware	61-1437565
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

12395 First American Way

Poway, California 92064

(Address of principal executive offices, including zip code)

(727) 214-3411

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]

Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12-b). Yes [ ] No [X]

There were 12,098,680 shares of outstanding Class A Common Stock of the registrant as of October 26, 2009.

There were 47,726,521 shares of outstanding Class B Common Stock of the registrant as of October 26, 2009.

Table of Contents

INDEX

Part I: FINANCIAL INFORMATION

Item 1. Financial Statements		3

	Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (unaudited)	4

	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2009 and September 30, 2008 (unaudited)	5

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2009 and September 30, 2008 (unaudited)	6

	Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2009 (unaudited)	7

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and September 30, 2008 (unaudited)	8

	Notes to Consolidated Financial Statements (unaudited)	10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26

Item 3. Quantitative and Qualitative Disclosures About Market Risk		42

Item 4. Controls and Procedures		42

Part II: OTHER INFORMATION

Item 1. Legal Proceedings						42

Item 1A. Risk Factors						42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds						43

Item 3. Defaults Upon Senior Securities						43

Item 4. Submission of Matters to a Vote of Security Holders						43

Item 5. Other Information						43

Item 6. Exhibits						43

Signatures						44

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

First Advantage Corporation

Consolidated Financial Statements (Unaudited)

For the Three and Nine Months Ended

September 30, 2009 and 2008

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First Advantage Corporation

Consolidated Balance Sheets (Unaudited)

(in thousands)	September 30,		December 31,
Assets	2009		2008
Current assets:
Cash and cash equivalents	$	57,784	$	52,361
Accounts receivable (less allowance for doubtful accounts
of $11,520 and $8,345, respectively)		115,870		121,531
Prepaid expenses and other current assets		8,929		9,032
Income tax receivable		11,968		-
Due from affiliates		3,180		-
Deferred income tax asset		18,929		16,695
Total current assets		216,660		199,619
Property and equipment, net		76,638		81,807
Goodwill		753,547		731,369
Customer lists, net		45,820		53,813
Other intangible assets, net		14,375		17,245
Database development costs, net		12,406		11,837
Marketable equity securities		48,293		30,365
Other assets		5,994		3,684
Total assets	$	1,173,733	$	1,129,739
Liabilities and Equity
Current liabilities:
Accounts payable	$	35,382	$	38,404
Accrued compensation		27,605		32,423
Accrued liabilities		14,462		11,379
Deferred income		5,704		7,381
Income tax payable		-		2,609
Due to affiliates		-		714
Current portion of long-term debt and capital leases		20,446		9,891
Total current liabilities		103,599		102,801
Long-term debt and capital leases, net of current portion		1,028		22,938
Deferred income tax liability		76,826		61,652
Other liabilities		4,897		5,300
Total liabilities		186,350		192,691
Equity:
First Advantage Corporation's 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; 12,095 and 11,772 shares issued and outstanding
as of September 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 September 30, 2009 and December 31, 2008, respectively		48		48
Additional paid-in capital		502,411		502,600
Retained earnings		425,637		390,602
Accumulated other comprehensive income (loss)		14,414		(412	)
Total First Advantage Corporation's stockholders' equity		942,522		892,850
Noncontrolling interests		44,861		44,198
Total equity		987,383		937,048
Total liabilities and equity	$	1,173,733	$	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 Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Service revenue	$	155,980		$	174,664		$	510,688		$	545,341
Reimbursed government fee revenue		13,586			13,633			39,905			40,780
Total revenue		169,566			188,297			550,593			586,121
Cost of service revenue		51,429			53,520			191,030			160,723
Government fees paid		13,586			13,633			39,905			40,780
Total cost of service		65,015			67,153			230,935			201,503
Gross margin		104,551			121,144			319,658			384,618
Salaries and benefits		49,920			59,113			151,217			188,489
Facilities and telecommunications		6,741			7,789			20,265			24,073
Other operating expenses		18,453			19,899			56,397			65,642
Depreciation and amortization		10,993			10,898			32,574			31,520
Impairment loss		-			1,720			-			2,017
Total operating expenses		86,107			99,419			260,453			311,741
Income from operations		18,444			21,725			59,205			72,877
Other (expense) income:
Interest expense		(234	)		(640	)		(903	)		(2,140	)
Interest income		103			155			387			746
Total other (expense), net		(131	)		(485	)		(516	)		(1,394	)
Income from continuing operations before income taxes		18,313			21,240			58,689			71,483
Provision for income taxes		6,898			8,932			23,856			29,582
Income from continuing operations		11,415			12,308			34,833			41,901
Loss from discontinued operations, net of tax		-			-			-			(4,241	)
Net income		11,415			12,308			34,833			37,660
Less: Net loss attributable to noncontrolling interest		(35	)		(323	)		(202	)		(648	)
Net income attributable to First Advantage Corporation ("FADV")	$	11,450		$	12,631		$	35,035		$	38,308
Basic income per share:
Income from continuing operations attributable to FADV shareholders	$	0.19		$	0.21		$	0.59		$	0.72
Loss from discontinued operations attributable to FADV shareholders, net of tax		-			-			-			(0.07	)
Net income attributable to FADV shareholders	$	0.19		$	0.21		$	0.59		$	0.65
Diluted income per share:
Income from continuing operations attributable to FADV shareholders	$	0.19		$	0.21		$	0.59		$	0.72
Loss from discontinued operations attributable to FADV shareholders, net of tax		-			-			-			(0.08	)
Net income attributable to FADV shareholders	$	0.19		$	0.21		$	0.59		$	0.64
Weighted-average common shares outstanding:
Basic		59,803			59,478			59,722			59,358
Diluted		60,086			59,529			59,867			59,446
Amounts attributable to FADV shareholders:
Income from continuing operations	$	11,450		$	12,631		$	35,035		$	42,549
Loss from discontinued operations, net of tax		-			-			-			(4,241	)
Net income	$	11,450		$	12,631		$	35,035		$	38,308

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

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First Advantage Corporation

Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months Ended						Nine Months Ended
(in thousands)	September 30,						September 30,
	2009			2008			2009			2008
Net income	$	11,415		$	12,308		$	34,833		$	37,660
Other comprehensive income (loss) , net of tax:
Foreign currency translation adjustments		1,495			(4,515	)		4,298			(2,435	)
Unrealized gain (loss) on investment, net of tax		2,795			4,174			10,528			(25,483	)
Total other comprehensive income (loss) , net of tax		4,290			(341	)		14,826			(27,918	)
Comprehensive income		15,705			11,967			49,659			9,742
Less: Comprehensive loss attributable to the noncontrolling interest		(35	)		(323	)		(202	)		(648	)
Comprehensive income attributable to FADV	$	15,740		$	12,290		$	49,861		$	10,390

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 Nine Months Ended September 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		-		-		-			35,035		-			(202	)		34,833
Purchase of subsidiary shares from
noncontrolling interest		-		-		(6,779	)		-		-			865			(5,914	)
Class A Shares issued in connection
with share based compensation		323		-		830			-		-			-			830
Share based compensation		-		-		5,760			-		-			-			5,760
Foreign currency translation		-		-		-			-		4,298			-			4,298
Unrealized gain on investment, net of tax		-		-		-			-		10,528			-			10,528
Balance at September 30, 2009		59,822	$	60	$	502,411		$	425,637	$	14,414		$	44,861		$	987,383

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

(in thousands)	For the Nine Months Ended
	September 30,
	2009			2008
Cash flows from operating activities:
Net income	$	34,833		$	37,660
Loss from discontinued operations		-			(4,241	)
Income from continuing operations	$	34,833		$	41,901
Adjustments to reconcile income from continuing operations to net
cash provided by (used in) operating activities:
Depreciation and amortization		32,574			31,520
Impairment loss		-			2,017
Bad debt expense		7,013			5,867
Share based compensation		5,760			7,344
Deferred income tax		3,132			4,288
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable		(2,220	)		13,206
Prepaid expenses and other current assets		9			541
Other assets		(2,597	)		(790	)
Accounts payable		(2,908	)		(5,433	)
Accrued liabilities		4,069			(1,478	)
Deferred income		(1,630	)		(938	)
Due from affiliates		(3,894	)		(5,825	)
Income tax accounts		(12,072	)		(52,452	)
Accrued compensation and other liabilities		(5,050	)		(6,739	)
Net cash provided by operating activities - continuing operations		57,019			33,029
Net cash provided by operating activities - discontinued operations		-			754
Cash flows from investing activities:
Database development costs		(2,955	)		(3,203	)
Purchases of property and equipment		(14,517	)		(24,337	)
Cash paid for acquisitions		(19,465	)		(51,191	)
Proceeds from sale of assets		900			-
Cash balance of companies acquired		-			331
Net cash used in investing activities - continuing operations		(36,037	)		(78,400	)
Net cash provided by investing activities - discontinued operations		-			1,721
Cash flows from financing activities:
Proceeds from long-term debt		50,860			100,260
Repayment of long-term debt		(62,260	)		(85,455	)
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		830			4,566
Cash paid for acquisition of noncontrolling interests		(5,914	)		(8,008	)
Distribution to noncontrolling interests		-			(1,127	)
Tax expense related to stock options		-			(204	)
Net cash (used in) provided by financing activities		(16,484	)		12,434
Effect of exchange rates on cash		925			(648	)
Increase (decrease) in cash and cash equivalents		5,423			(31,110	)
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	$	57,784		$	45,490

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

	For the Nine Months Ended
(in thousands)	September 30,
	2009		2008
Supplemental disclosures of cash flow information:
Cash paid for interest	$	684	$	2,106
Cash received for income tax refunds	$	1,081	$	1,248
Cash paid for income taxes	$	33,996	$	75,661
Non-cash investing and financing activities:
Notes issued in connection with acquisitions	$	-	$	3,026
Class A shares issued for compensation	$	4,997	$	2,788
Unrealized gain (loss) on investment, net of tax	$	10,528	$	(25,483	)

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” 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 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 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.

On 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 Event.

In 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, upon 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 Plan”). 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. At 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 Offer. 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 million.

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First Advantage Corporation

Notes to Consolidated Financial Statements

For 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.

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 (“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 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 and as amended on the Current Form 8-K filed on October 8, 2009 with the Securities and Exchange Commission.

Certain 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.

Operating 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 year.

Subsequent events have been evaluated through October 29, 2009, the date these financial statements were issued.

As 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,

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First Advantage Corporation

Notes to Consolidated Financial Statements

interim disclosures about fair value of financial instruments, and FASB Accounting Standards Codification.

Purchase Accounting

In 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. In general, 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 update prospectively to business combinations for which the acquisition date is on or after January 1, 2009.

Noncontrolling Interest

In 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 statements.

Fair Value of Financial Instruments

In 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 statements. 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

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First Advantage Corporation

Notes to Consolidated Financial Statements

adoption. 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.

The 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%, which are the estimated rates that similar instruments could be negotiated at September 30, 2009 and December 31, 2008.

The estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are summarized as follows:

	September 30, 2009						December 31, 2008
(in thousands)	Carrying			Estimated			Carrying			Estimated
	Amount			Fair Value			Amount			Fair Value
Cash and cash equivalents	$	57,784		$	57,784		$	52,361		$	52,361
Accounts receivable		115,870			115,870			121,531			121,531
Marketable equity securities		48,293			48,293			30,365			30,365
Long-term debt and capital leases		(21,474	)		(21,508	)		(32,829	)		(32,699	)

Subsequent Events

In 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. The Company adopted this update effective April 1, 2009.

Accounting Standards Codification

The FASB 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 organized. It's now organized by accounting topic, which should enable users to more quickly identify the guidance that applies to a specific accounting issue. The Company adopted this new standard effective September 15, 2009.

3. Acquisitions

During 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 Company. The additional

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First Advantage Corporation

Notes 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 paid.

The changes in the carrying amount of goodwill, by operating segment, are as follows for the nine months ended September 30, 2009:

			Acquisitions,			Adjustments
	Balance at		(Disposals)			to net assets		Balance at
(in thousands)	December 31, 2008		and Earnouts			acquired			September 30, 2009
Credit Services	$	107,578	$	-		$	-	$	107,578
Data Services		218,505		(611	)		-		217,894
Employer Services		272,461		2,266			3,308		278,035
Multifamily Services		49,174		-			-		49,174
Investigative and Litigation Support Services		83,651		17,199			16		100,866
Consolidated	$	731,369	$	18,854		$	3,324	$	753,547

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.

The following amounts have been segregated from continuing operations and are reflected as discontinued operations for the nine months ended September 30, 2008.

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First Advantage Corporation

Notes to Consolidated Financial Statements

	Nine months ended
	September 30,
(in thousands, except per share amounts)	2008
Total revenue	$	7,671
Loss from discontinued operations before income taxes	$	(7,155	)
Income tax benefit		(2,914	)
Loss from discontinued operations, net of tax	$	(4,241	)
Loss per share:
Basic	$	(0.07	)
Diluted	$	(0.08	)
Weighted-average common shares outstanding:
Basic		59,358
Diluted		59,446

5. Goodwill and Intangible Assets

In accordance with GAAP, 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 nine months ended September 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 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.

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First Advantage Corporation

Notes to Consolidated Financial Statements

Goodwill and other identifiable intangible assets as of September 30, 2009 and December 31, 2008 are as follows:

(in thousands)	September 30, 2009			December 31, 2008
Goodwill	$	753,547		$	731,369
Customer lists	$	93,757		$	95,446
Less accumulated amortization		(47,937	)		(41,633	)
Customer lists, net	$	45,820		$	53,813
Other identifiable intangible assets:
Noncompete agreements	$	9,097		$	11,783
Trade names		20,468			21,631
		29,565			33,414
Less accumulated amortization		(15,190	)		(16,169	)
Other identifiable intangible assets, net	$	14,375		$	17,245

Amortization 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.

An 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. The impairment loss was incurred due to the challenging credit market and the negative impact to the automotive lead generation business.

Estimated amortization expense relating to intangible asset balances as of September 30, 2009, is expected to be as follows over the next five years:

(in thousands)
Remainder of 2009	$	3,609
2010		13,956
2011		11,323
2012		10,231
2013		8,831
Thereafter		12,245
	$	60,195

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First Advantage Corporation

Notes 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:

	Other
	Identifiable
	Intangible			Customer
(in thousands)	Assets			Lists
Balance, at December 31, 2008	$	17,245		$	53,813
Adjustments		37			57
Amortization		(2,907	)		(8,050	)
Balance, at September 30, 2009	$	14,375		$	45,820

6. Debt

Long-term debt consists of the following at September 30, 2009:

(in thousands, except percentages)

Acquisition notes: Weighted average interest rate of 3.64% with maturities
through 2011	$	9,657
Bank notes: $225 million Secured Credit Facility, interest at 30-day LIBOR
plus 1.13% (1.37% at September 30, 2009) matures September 2010		10,000
Capital leases and other debt: Various interest rates with maturities through 2011		1,817
Total long-term debt and capital leases	$	21,474
Less current portion of long-term debt and capital leases		20,446
Long-term debt and capital leases, net of current portion	$	1,028

At 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.

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7. Earnings Per Share

A reconciliation of earnings per share and weighted-average shares outstanding is as follows:

	Three Months Ended				Nine Months Ended
(in thousands, except per share amounts)	September 30,				September 30,
	2009		2008		2009		2008
Income from continuing operations attributable to FADV shareholders	$	11,450	$	12,631	$	35,035	$	42,549
Loss from discontinued operations attributable to FADV shareholders, net of tax		-		-		-		(4,241	)
Net income attributable to FADV shareholders	$	11,450	$	12,631	$	35,035	$	38,308
Denominator:
Weighted-average shares for basic earnings per share		59,803		59,478		59,722		59,358
Effect of restricted stock		255		42		135		72
Effect of dilutive securities - employee stock options and warrants		28		9		10		16
Denominator for diluted earnings per share		60,086		59,529		59,867		59,446
Earnings per share:
Basic
Income from continuing operations attributable to FADV shareholders	$	0.19	$	0.21	$	0.59	$	0.72
Loss from discontinued operations attributable to FADV shareholders, net of tax		-		-		-		(0.07	)
Net income attributable to FADV shareholders	$	0.19	$	0.21	$	0.59	$	0.65
Diluted
Income from continuing operations attributable to FADV shareholders	$	0.19	$	0.21	$	0.59	$	0.72
Loss from discontinued operations attributable to FADV shareholders, net of tax		-		-		-		(0.08	)
Net income attributable to FADV shareholders	$	0.19	$	0.21	$	0.59	$	0.64

For 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. For 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.

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.

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

				Weighted
(in thousands, except weighted average fair value prices)				Average
	Number of			Grant-Date
	Shares			Fair Value
Nonvested restricted stock outstanding at December 31, 2008		632		$	21.93
Restricted stock granted		423		$	10.89
Restricted stock forfeited		(30	)	$	17.99
Restricted stock vested		(253	)	$	23.06
Nonvested restricted stock outstanding at September 30, 2009		772		$	15.66

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First Advantage Corporation

Notes 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.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2009		2008		2009		2008
Stock options	$	457	$	1,165	$	1,578	$	3,875
Restricted stock		1,363		1,169		4,109		3,357
Employee stock purchase plan		20		26		73		112
	$	1,840	$	2,360	$	5,760	$	7,344

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	$	863
Options exercised		(26	)	$	15.51
Options forfeited		(294	)	$	24.66
Options outstanding at September 30, 2009		3,172		$	22.98	$	697
Options exercisable, end of the quarter		2,956		$	22.83	$	692

The following table summarizes information about stock options outstanding at September 30, 2009:


(in thousands, except for exercise prices, years and weighted average amounts)

		Options Outstanding						Options Exercisable
				Weighted Avg		Weighted				Weighted
				Remaining Contractual		Average				Average
Range of Exercise Prices		Shares		Life in Years		Exercise Price		Shares		Exercise Price
$	7.00 - $ 12.50		9		1.9	$	11.13		9	$	11.13
$	12.51 - $ 25.00		2,075		4.6	$	20.90		2,018	$	20.91
$	25.01 - $ 50.00		1,084		6.1	$	26.97		925