Jan. 5 (Bloomberg) -- First American Corp., the second- largest U.S. title insurer, restated earnings for the first quarter of 2006 and the prior five years after an internal review showed it mispriced stock options over the last decade.

First American will take a charge of $35.7 million against 2001 to 2006 earnings, the Santa Ana, California-based company said in a statement yesterday. It said it will avoid a ``material'' reduction for 2006 earnings by spreading the charge over more than five years.

``The company used incorrect measurement dates for financial reporting purposes with respect to a number of stock-option grants made between 1996 and 2006 and improperly accounted for the mispriced options,'' First American said in the statement. The errors were not fraudulent, it said.

More than 190 companies, including Apple Computer Inc. and Home Depot Inc., have disclosed internal or federal investigations into the backdating of stock-options grants to inflate returns for option holders. The probes have led to at least $7.9 billion in restatements, revisions and charges to reflect costs that should have been recorded.

Options allow holders to buy shares at a future date, usually at the price on the day they were granted. Investigations at other companies have focused on whether the grants were backdated or carefully timed to coincide with days when the stock price was low, building in a paper profit for recipients.

First American said in August it asked independent directors to review its stock-option grant policies. That made it the first insurer outside the health industry to disclose an investigation into the timing of its option grants.

Shares Rise

Shares of First American, which published its restatement after the close of New York Stock Exchange composite trading yesterday, rose $1.12, or 2.7 percent, to $42.20 today. First American stock fell 6.5 percent in the past 12 months, trailing the 4.9 percent gain of the seven-member Standard and Poor's Midcap Property & Casualty Insurance Index.

In November, First American said its preliminary review found that ``actual measurement dates of certain stock-option grants differed from the recorded dates of such grants.'' The company said at the time it would post non-cash charges for the stock-based compensation expense.

The restatement will cut 2005 earnings by 1 percent to $4.92 a share, 2004 by 1 percent to $3.79 a share, 2003 by 1 percent to $5.17 a share, 2002 by 2 percent to $2.86 a share, and 2001 by 3 percent to $2.20 a share.

Delayed Reports

First quarter of 2006 will be lowered by 3 percent to 69 cents a share. While the correction would have materially lowered earnings had the company booked it all in 2006, it will mean a ``negligible'' reduction to shareholder equity for the prior five years, First American said.

First American delayed posting final results for the second and third quarters of 2006 pending the options review. It plans to report those figures, including non-cash compensation and tax expenses related to stock-option grants, by Jan. 8.

Preliminary third-quarter net income fell 34 percent to $98 million, or $1 per share, the company said Nov. 2. First American also reduced second-quarter profit to $19.7 million, or 20 cents a share, from a previously announced $114.7 million.

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net

Last Updated: January 5, 2007 16:43 EST