Operating revenues from direct title operations increased 9.8% in 2004 over 2003 and 25.6% in 2003 over 2002. The increase in 2004 over 2003 was primarily due to an increase in the average revenues per order closed, offset in part by a decrease in the number of orders closed. The increase in 2003 over 2002 was primarily due to increases in both the average revenues per order closed and the number of title orders closed. The average revenues per order closed were $1,303, $1,121 and $1,063 for 2004, 2003 and 2002, respectively. The increase in average revenues per order closed of 16.2% in 2004 over 2003 was primarily due to a decrease in the mix of lower-premium refinance transactions, an increase in higher-premium resale and commercial transactions, and appreciating real estate values. The increase in average revenues per order closed of 5.5% in 2003 over 2002 primarily reflected appreciating real estate values. The Company’s direct title operations closed 1,908,600, 2,021,000 and 1,696,100 title orders during 2004, 2003 and 2002, respectively, a decrease of 5.6% in 2004 from 2003 and an increase of 19.2% in 2003 over 2002. The fluctuations in closings primarily reflected changes in mortgage origination activity, market share gains and acquisition activity. Operating revenues from agency title operations increased 7.6% in 2004 over 2003 and 34.5% in 2003 over 2002. These increases were primarily attributable to the same factors affecting direct title operations compounded by the inherent delay in the reporting of transactions by agents. In 2005 the Company’s title insurance company plans to reduce its title insurance premium on mortgage refinance transactions in California. Assuming that real estate values and the volume of activity, including the mix between refinance, resale and commercial transactions, remain unchanged from 2004 levels, this would result in a decrease in operating revenues in 2005 and in subsequent years. However, any decrease in operating revenues could be offset by factors such as anticipated market share gains, operating efficiencies and growth in the Company’s bundling program.
Credit information operating revenues decreased 1.7% in 2004 from 2003 and increased 14.7% in 2003 over 2002. The decrease in 2004 from 2003 primarily reflected a decline in operating revenues from mortgage related credit products as a result of the decrease in mortgage originations. The increase in 2003 over 2002 was primarily due to the growth in demand for credit information in the housing sector, offset in part by a $6.2 million reduction in revenues as a result of the sale of the Company’s subsidiary, FASTRAC Systems, Inc., in August 2002.
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.
Certain 2002 and 2003 amounts have been reclassified to conform to the 2004 presentation.
The aggregate annual maturities for notes and contracts payable and capital leases in each of the five years after December 31, 2004, are as follows:
For the three years ended December 31, 2004, 2003 and 2002, 0.5 million, 0.3 million and 3.4 million options, respectively, were excluded from the weighted-average diluted common shares outstanding due to their antidilutive effect.
The Savings Plan allows for employee-elective contributions up to the maximum deductible amount as determined by the Internal Revenue Code. The Company makes discretionary contributions to the Savings Plan based on profitability, as well as contributions of the participants. The Company’s expense related to the Savings Plan amounted to $58.3 million, $48.4 million and $39.6 million for the years ended December 31, 2004, 2003 and 2002, respectively. The Savings Plan allows the participants to purchase the Company’s stock as one of the investment options. The Savings Plan held 10,689,000 and 9,982,000 shares of the Company’s common stock, representing 11.9% and 12.7% of the total shares outstanding at December 31, 2004 and 2003, respectively.
Total rental expense for all operating leases and month-to-month rentals was $259.0 million; $205.6 million and $178.2 million for the years ended December 31, 2004, 2003, and 2002, respectively.
On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS 141). This statement addresses financial accounting and reporting for business combinations and supersedes Accounting Principles Board Opinions No. 16, “Business Combinations.” SFAS 141 requires that all business combinations be accounted for under the purchase method of accounting. In applying the purchase method of accounting, the Company undertakes a comprehensive review of the acquired entity to ensure that all identifiable assets and liabilities are properly recorded at their fair value. In determining fair value, the Company utilizes a variety of valuation techniques, including discounted cash flow analysis and outside appraisals, to the extent necessary, given materiality and complexity. All excess purchase price is appropriately recorded as goodwill. The useful lives for all assets recorded in purchase accounting are based on market conditions, contractual terms and other appropriate factors.
The Company provides its title services through both direct operations and agents throughout the United States. It also offers title services in Australia, the Bahamas, Canada, Guam, Hong Kong, Ireland, Mexico, New Zealand, Puerto Rico, South Korea, the United Kingdom, the U.S. Virgin Islands and other territories and countries. The international operations account for less than 1% of the Company’s income before income taxes and minority interests. Home warranty services are provided in 45 states throughout the United States. Property and casualty insurance is offered nationwide. The products offered by the four segments included in the Information Technology group are provided nationwide.