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NOTE 1
Description of the Company:
The First American Corporation (the Company), through
its subsidiaries, is engaged in the business of providing
business information and related products and services. The
Company has seven reporting segments that fall within two
primary business groups, Financial Services and Information
Technology. The Financial Services group includes title
insurance and services, specialty insurance, and trust and
other services. The title insurance and services segment issues
residential and commercial title insurance policies, provides
escrow services, equity loan services, tax-deferred exchanges
and other related products. The specialty insurance segment
issues property and casualty insurance policies and provides
home warranties. The trust and other services segment provides
investment advisory and trust and thrift services. The
Information Technology group includes mortgage information,
property information, credit information and screening
information. The mortgage information segment provides tax
monitoring, flood certification, default management services,
mortgage loan servicing systems, mortgage document
preparation and other real estate-related services. The property
information segment provides property database services and
appraisal services. The credit information segment provides
mortgage credit and specialized credit reporting services. The
screening information segment provides resident screening,
pre-employment screening, substance abuse management
and testing, and motor vehicle reporting.
Significant Accounting Policies:
Principles of consolidation
The consolidated financial statements include the accounts
of the Company and all majority-owned subsidiaries. All
significant intercompany transactions and balances have
been eliminated. Certain 2000 and 2001 amounts have
been reclassified to conform with the 2002 presentation.
In January 2003, the Financial Accounting Standards Board
issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46). This interpretation requires the
consolidation of variable interest entities created or acquired
after January 31, 2003, if certain conditions are met. For
variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003.
The Company's management is in the process of assessing
the impact of implementing FIN 46 on the Company's
financial condition and results of operations.
Cash equivalents
The Company considers cash equivalents to be all short-term
investments that have an initial maturity of 90 days or less and
are not restricted for statutory deposit or premium reserve
requirements. The carrying amount for cash equivalents is a
reasonable estimate of fair value due to the short-term maturity
of these investments.
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Investments
Deposits with savings and loan associations and banks are
short-term investments with initial maturities of more than 90
days. The carrying amount of these investments is a reasonable
estimate of fair value due to their short-term nature.
Debt securities are carried at fair value and consist primarily
of investments in obligations of the United States Treasury,
various corporations and certain state and political subdivisions.
Equity securities are carried at fair value and consist
primarily of investments in marketable common stocks of
corporate entities.
Other long-term investments consist primarily of investments
in affiliates, which are accounted for under the equity method of
accounting; and notes receivable and other investments, which
are carried at the lower of cost or fair value less costs to sell.
The Company classifies its debt and equity securities
portfolio as available-for-sale and, accordingly, includes
unrealized gains and losses, net of related tax effects, as
a component of other comprehensive income. Realized
gains and losses on investments are determined using
the specific-identification method.
Property and equipment
Property and equipment includes computer software
acquired and developed for internal use and for use with
the Company's products. Software development costs
are capitalized from the time technological feasibility is
established until the software is ready for use.
Effective January 1, 1999, the Company adopted Statement
of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 requires the Company to capitalize interest costs
incurred and certain payroll-related costs of employees directly
associated with developing software, in addition to incremental
payments to third parties. The adoption of SOP 98-1 did not
have a material effect on the Company's financial condition or
results of operations.
Depreciation on buildings and on furniture and equipment is
computed using the straight-line method over estimated useful
lives of 25 to 45 and 3 to 10 years, respectively. Capitalized
software costs are amortized using the straight-line method
over estimated useful lives of 3 to 10 years.
Title plants and other indexes
Title plants and other indexes include the Company's title
plants, flood zone databases and capitalized real estate data.
Title plants and flood zone databases are carried at original
cost, with the costs of daily maintenance (updating) charged
to expenses as incurred. Because properly maintained title
plants and flood zone databases have indefinite lives and do
not diminish in value with the passage of time, no provision
has been made for depreciation or amortization. Capitalized
real estate data, which is primarily used by the Company's
property information segment, is amortized using the straightline
method over estimated useful lives of 5 to 15 years.
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