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

management’s discussion and analysis (cont.)

 LIQUIDITY AND CAPITAL RESOURCES

    Cash provided by operating activities amounted to $388.2 million, $141.4 million and $173.2 million for 2001, 2000 and 1999, respectively, after net claim payments of $153.4 million, $135.4 million and $119.3 million, respectively. The principal nonoperating uses of cash and cash equivalents for the three-year period ended December 31, 2001, were for capital expenditures, additions to the investment portfolio, company acquisitions in 2000 and 1999, dividends and the repayment of debt. The most significant nonoperating sources of cash and cash equivalents were proceeds from the issuance of the Company’s $210.0 million senior convertible debentures (see Note 7 to the consolidated financial statements), proceeds from the sales and maturities of certain investments, and proceeds in 2000 and 1999 from the sale-leaseback of certain property and equipment. The net effect of all activities on total cash and cash equivalents was an increase of $344.3 million for 2001 and decreases of $49.1 million and $31.3 million for 2000 and 1999, respectively.

    On October 12, 2001, the Company entered into a credit agreement that provided for a $200.0 million line of credit. This agreement supercedes the Company’s prior credit agreements that were to expire in July 2002. Under the terms of the new credit agreement, the Company is required to maintain minimum levels of capital and earnings and meet predetermined debt-to-capitalization ratios. The Company’s line of credit was unused at December 31, 2001.

    Notes and contracts payable, as a percentage of total capitalization, were 23.7% as of December 31, 2001, as compared with 16.9% as of the prior year end. This increase was primarily attributable to the issuance of the $210.0 million senior convertible debentures, offset in part by an increase in the capital base primarily due to net income for the year. Notes and contracts payable are more fully described in Note 7 to the consolidated financial statements.

    A summary, by due date, of the Company’s total contractual obligations at December 31, 2001, is as follows:

(in thousands)	Year	Notes and contracts payable	Operating leases	Mandatorily redeemable preferred securities	Total
	2002 2003 2004 2005 2006 Later years	$   26,589 26,063 19,660 12,138 9,480 321,411	$ 116,449 100,024 73,566 56,933 39,923 72,959	– – – – – $ 100,000	$ 143,038 126,087 93,226 69,071 49,403 494,370
		$ 415,341	$ 459,854	$ 100,000	$ 975,195

    Pursuant to various insurance and other regulations, the maximum amount of dividends, loans and advances available to the Company in 2002 from its insurance subsidiaries is $197.7 million. Such restrictions have not had, nor are they expected to have, an impact on the Company’s ability to meet its cash obligations (see Note 2 to the consolidated financial statements).

    Due to the Company’s significant liquid-asset position and its consistent ability to generate cash flows from operations, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements. The Company’s financial position will enable management to react to future opportunities for acquisitions or other investments in support of the Company’s continued growth and expansion.