Our title plants constitute a principal asset. Title plants consist of copies of public records, maps, documents, previous reports, and policies indexed to specific properties in an area. The title plants are generally located at the office which serves a particular locality or in “service centers” serving multiple localities in major metropolitan areas. They enable title personnel to examine title matters relating to a specific parcel of real property as reflected in the title plant, and eliminate or reduce the need for a separate search of the public records. They contain material dating back a number of years and are updated (with the exception of certain title plants) through the addition of copies of documents filed of record which affect real property. We maintain title plants covering
(1) See Note 1 to the accompanying Consolidated Financial Statements incorporated by reference in Item 8 of this Form 10-K for information related to restated Consolidated Financial Statements.
We also review the status of our title plants at least annually. As a result of these reviews, we periodically determine that a title plant will no longer be used or has been abandoned at which time we take a charge to earnings. During 2004, we identified 17 title plants in the Title Operations segment with an aggregate book value of $5.0 million that will not continue to be used or maintained. Accordingly, we recorded an impairment loss of $5.0 million, which is reflected in “Write-off of intangible and other long-lived assets” in the accompanying Consolidated Financial Statements. There were no material impairments of title plants identified in 2005. We anticipate that additional charges in future periods may be taken as state and local courts and municipalities continue to automate their property records and make them available through electronic media.
One significant assumption is the expected long-term rate of return on plan assets. A lower expected return on plan assets increases the amount of pension expense. The use of expected long-term rates of return may result in recognized returns that are greater or less than actual returns in any given year. Over time the expected returns are used to approximate actual long-term returns which result in a pattern of expense recognition that more closely matches the service lives of typical employees. We use long-term and actual historical returns, current and targeted asset mix and future estimates of long-term investment returns to develop our long-term return for plan assets. Our anticipated rate of return was 8.25 percent as of the 2005 valuation date. Another significant assumption in valuing the pension liability is the discount rate. In general, the liability increases as the discount rate decreases and conversely, the liability decreases as the discount rate increases. The discount rate utilized is based on rates on high quality fixed income debt instruments available at the end of each valuation period. We utilized a discount rate of 5.5 percent in determining our 2005 benefit obligations.
During 2005, interest rates continued to remain at relatively low levels in comparison to interest rates in the United States over the past three years.
Operating revenue from agency title operations decreased by 2.5 percent in 2004 compared to 2003. This decrease was primarily attributable to a decrease in refinancing activity discussed above. An additional factor is the timing in the reporting of transactions by agents. The timing of policy reporting, and therefore revenue reporting, by agents, varies from year to year, from agent to agent and between regions of the country.
Title Operations salaries and employee benefit expenses increased by $50.3 million, or 6.4 percent, in 2004 over 2003. The addition of personnel as the result of acquisitions was $105.8 million for 2004, offset by reduced staffing levels in other operations from lower business volume. Additionally, there was a net increase of $2.6 million in pension and postretirement benefit expenses. For additional information regarding the impact of our pension plans on results of operations, see Note 10 to the accompanying Consolidated Financial Statements.
Financial Services-The Financial Services segment reported pretax income of $13.5 million in 2005, $9.7 million in 2004 and $0.7 million in 2003. The increase in pretax income from 2004 to 2005 was due to growth in the loans receivable and investment portfolios, which exceeded the increase in interest-bearing liabilities. The increase in pretax income from 2003 to 2004 was due to the purchase of Centennial in November 2003.