Index First American Profile Financial Highlights Letter to Stockholders First American's Strength in Numbers Title Information and Services Real Estate Information and Services Consumer Information and Services Management's Discussion and Analysis Selected Financial Data Common Stock Prices and Dividends Quarterly Financial Data Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Accountants Officers Board of Directors Primary Companies Stockholder Information Back Cover

notes to consolidated financial statements

 NOTE 9

Income Taxes:

    Income taxes are summarized as follows:

(in thousands)	2001				2000		1999
Current:
Federal	$ 101,665		$ 20,906		$ 51,237
State	9,181		3,290		7,183
Foreign	2,136		1,540		–
	112,982		25,736		58,420
Deferred:
Federal	3,526		26,204		3,260
State	992		2,760		620
	4,518		28,964		3,880
	$ 117,500		$ 54,700		$ 62,300
Income taxes differ from the amounts computed by applying the federal income tax rate of 35.0%. A reconciliation of this difference is as follows:
(in thousands)	2001				2000		1999
Taxes calculated at federal rate	$  99,669		$ 47,923		$ 52,830
Tax exempt interest income	(1,291	)	(908	)	(1,367	)
Tax effect of minority interests	1,146		823		826
State taxes, net of federal benefit	7,430		3,936		5,071
Exclusion of certain meals and
entertainment expenses	4,661		4,040		4,519
Other items, net	5,885		(1,114	)	421
	$ 117,500		$ 54,700		$ 62,300

    The primary components of temporary differences that give rise to the Company’s net deferred tax asset are as follows:

	December 31
(in thousands)	2001			2000
Deferred tax assets:
Deferred revenue	$ 75,490	$ 64,584
Employee benefits	34,127	25,948
Bad debt reserves	12,901	8,822
Loss reserve	11,876	10,284
Accumulated other comprehensive income	7,332	(2,676	)
Other	9,932	7,066
	151,658	114,028
Deferred tax liabilities:
Depreciable and amortizable assets	80,491	60,486
Investment gain	17,072	13,300
Claims and related salvage	28,353	24,632
State tax	1,468	2,038
Other	2,053	2,053
	129,437	102,509
Net deferred tax asset	$ 22,221	$ 11,519

    For the year 2001, domestic and foreign pretax income from continuing operations was $278.3 million and $6.5 million, respectively.

    The exercise of stock options represents a tax benefit and has been reflected as a reduction of taxes payable and an increase to the additional paid-in capital account. The benefits recorded were $2.6 million, $1.0 million and $0.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.

    At December 31, 2001, the Company had various foreign net operating loss carry forwards totaling approximately $4.0 million, which carry forward indefinitely.