We lease under a non-cancelable lease expiring in 2016 approximately 273,000 square feet in an office building in Houston, Texas, which is used for our corporate offices and for offices of several of our subsidiaries. In addition, we lease offices at approximately 580 additional locations that are used for branch offices, regional headquarters and technology centers. These additional locations include significant leased facilities in Dallas, Denver, Los Angeles, New York, San Diego and Toronto.
We reported a net loss attributable to Stewart of $51.0 million for the year ended December 31, 2009 compared with a net loss attributable to Stewart of $247.5 million for 2008. On a basic and diluted per share basis, our net loss attributable to Stewart was $2.80 for the year ended December 31, 2009 compared with a net loss attributable to Stewart of $13.68 for 2008. Revenues for 2009 increased $152.0 million, or 9.8%, compared to 2008. Cash flow from operations for 2009 improved by $87.8 million compared to 2008.
For the fourth quarter and full year 2009, our revenues increased significantly compared to the same periods in 2008 and we reported a pretax profit for the fourth quarter 2009. Expenses exclusive of amounts retained by agencies declined in both the fourth quarter and full year 2009 compared to the prior year periods. Employee costs and other operating expenses decreased significantly in 2009 when compared to 2008 both in dollars and as a percentage of revenues. Amounts retained by agencies increased generally in line with the revenues generated by our agency network, although we experienced a shift in the geographic mix of agency revenues which resulted in some margin compression. Title claims for previous policy years (primarily 2005 - 2007) continued to experience adverse development this year, and, as a result, we reported significant reserve strengthening charges in the second and third quarters of 2009.
Back-office shared-services initiatives are on schedule and continue to generate expense reductions in human resources, finance and accounting, procurement and information technology through reduced salary and overhead costs and leverage of buying power. We began implementation of our enterprise technology systems in January 2010 and expect to achieve additional cost savings throughout 2010 as implementation is completed.
In February 2010, we received cash of $50.9 million relating to the income taxes receivable recorded on our balance sheet at December 31, 2009. The income tax receivable was primarily related to the change in tax law in the fourth quarter of 2009 which allowed us to carry back our tax losses an additional three years.
We recognize revenues on title insurance policies written by independent agencies (agencies) when the policies are reported to us. In addition, where reasonable estimates can be made, we accrue for revenues on policies issued but not reported until after period end. We believe that reasonable estimates can be made when recent and consistent policy issuance information is available. Our estimates are based on historical reporting patterns and other information about our agencies. We also consider current trends in our direct operations and in the title industry. In this accrual, we are not estimating future transactions. We are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us. We have consistently followed the same basic method of estimating unreported policy revenues for more than 10 years.
We evaluate goodwill based on two reporting units (Title and REI). Goodwill is assigned to these reporting units at the time the goodwill is initially recorded. Once assigned to a reporting unit, the goodwill is pooled and no longer attributable to a specific acquisition. All activities within a reporting unit are available to support the carrying value of the goodwill. The following reflects our conclusions relating to our goodwill reporting units at December 31, 2009:
We also evaluate the carrying values of title plants and other long-lived assets when events occur that may indicate impairment. The process of determining impairment for our goodwill and other long-lived assets relies on projections of future cash flows, operating results, discount rates and overall market conditions, including our market capitalization. Uncertainties exist in these projections and are subject to changes relating to factors such as interest rates and overall real estate and financial market conditions, our market capitalization and overall stock market performance. Actual market conditions and operating results may vary materially from our projections.
Based on this evaluation, we estimate and expense to current operations any loss in value of these assets. As part of our process, we obtain input from third-party appraisers regarding the fair value of our reporting units. While we are responsible for assessing whether an impairment of goodwill exists, we utilize the input from third-party appraisers to assess the overall reasonableness of our conclusions. In June 2008, the Company’s REI segment incurred an impairment charge of $6.0 million, included in depreciation and amortization in our consolidated statement of operations, relating to internally developed software that we subsequently determined would not be deployed into production. There were no impairment write-offs of goodwill or other long-lived assets during 2009 or 2007.
Industry data. Published mortgage interest rates and other selected residential data for the years ended December 31, 2009, 2008 and 2007 follow (amounts shown for 2009 are preliminary and subject to revision). The amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts.
The real estate and related lending markets continue to face challenges due to weakened consumer confidence, tightened lending requirements, a relatively high unemployment rate, higher than normal inventories of unsold homes resulting from increased foreclosures and a severe contraction in commercial real estate activity. Most industry experts project mortgage interest rates to increase in 2010. Although refinancing mortgage originations remained high in 2009 due to lower interest rates and government efforts to strengthen credit markets, refinancing mortgage originations are projected to decrease as interest rates increase. Industry experts agree that mortgage originations will decrease in 2010 primarily due to projected decreases in refinancing activities. Even with these challenges, Fannie Mae and Freddie Mac are projecting increases in new home sales and existing home sales due to lower home prices.
As a result of the above trends, our direct order levels decreased significantly from 2007 to 2008 and were relatively unchanged from 2008 to 2009, which is consistent with the U.S. real estate market during those same periods.
Regulatory and legal developments. On December 7, 2009, the Office of the Commissioner of Insurance for the state of Georgia issued a press release alleging that Stewart Title Guaranty Company violated Georgia’s insurance laws 600,000 times between January 1, 2003 and September 30, 2007, including overcharging for products. A show-cause hearing was ordered for February 23, 2010, and has been rescheduled for March 30, 2010 at the request of the Georgia Insurance Commissioner’s Office. While we cannot predict the outcome of the show-cause hearing and subsequent proceedings, we intend to vigorously defend ourselves against the allegations and do not believe the outcome will materially affect our consolidated financial condition or results of operations.
Stewart Title of California, Inc., our subsidiary, was a defendant in four putative class action lawsuits filed in California state and federal courts. These lawsuits were commonly referred to as “wage and hour” lawsuits. These lawsuits generally claimed, among other things, that (i) the plaintiffs were misclassified as exempt employees and were not paid overtime, (ii) the overtime payments made to non-exempt employees were miscalculated and (iii) the plaintiffs worked overtime hours but were not paid. The plaintiffs sought compensatory damages, statutory compensation, penalties and restitution, exemplary and punitive damages, declaratory relief, interest and attorneys fees. We and our subsidiaries have settled all four lawsuits within the amount previously reserved. The settlement is subject to court approval. The settlement did not materially affect our consolidated financial condition or results of operations.
In February 2008, an antitrust class action was filed in the United States District Court for the Eastern District of New York against Stewart Title Insurance Company, Monroe Title Insurance Corporation, Stewart Information Services Corporation, several other unaffiliated title insurance companies and the Title Insurance Rate Service Association, Inc. (TIRSA). The complaint alleges that the defendants violated Section 1 of the Sherman Antitrust Act by collectively filing proposed rates for title insurance in New York through TIRSA, a state-authorized and licensed rate service organization.
Complaints were subsequently filed in the United States District Courts for the Eastern and Southern Districts of New York and in the United States District Courts in Pennsylvania, New Jersey, Ohio, Florida, Massachusetts, Arkansas, California, Washington, West Virginia, Texas and Delaware. All of the complaints make similar allegations, except that certain of the complaints also allege violations of RESPA statutes and various state antitrust and consumer protection laws. The complaints generally request treble damages in unspecified amounts, declaratory and injunctive relief and attorneys’ fees. To date, 78 such complaints have been filed, each of which names us and/or one or more of our affiliates as a defendant (and have been consolidated in the aforementioned states), of which seven have been voluntarily dismissed.
As of January 7, 2010, we have obtained dismissals of the claims in Arkansas, California, Delaware (where plaintiffs then filed an amended complaint for injunctive relief only), Florida, Massachusetts, New Jersey (where plaintiffs filed an amended complaint for injunctive relief only), New York, Pennsylvania (where plaintiffs may pursue injunctive relief only), Texas and Washington. We are awaiting decisions on motions to dismiss in Delaware, New Jersey, Ohio (where Magistrate Judge has recommended dismissal) and West Virginia (where all proceedings have been stayed and the docket closed). The plaintiffs in New York and Texas have filed appeals in the United States Court of Appeals for the Second and Fifth Circuits, respectively. The New York dismissal was affirmed by the Second Circuit Court of Appeals on February 11, 2010. Although we cannot predict the outcome of these actions, we intend to vigorously defend ourselves against the allegations and do not believe that the outcome will materially affect our consolidated financial condition or results of operations.
We are also subject to lawsuits incidental to our business, most of which involve disputed policy claims. In some of these lawsuits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agency. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial condition or results of operations. Along with the other major title insurance companies, we are party to a number of class action lawsuits concerning the title insurance industry. We believe that we have adequate reserves for the various litigation matters and contingencies discussed above and that the likely resolution of these matters will not materially affect our consolidated financial condition or results of operations.
Title revenues. Revenues from direct title operations decreased $29.9 million, or 4.2%, in 2009 and $240.6 million, or 25.4%, in 2008. The largest revenue decreases in 2009 were in foreign operations (excluding Canada), Texas, Canada, New York, and California, partially offset by increases in Arizona. The largest revenue decreases in 2008 were in California, Texas, New York, Florida, and Washington, partially offset by increases in New Jersey and Pennsylvania. Acquisitions increased revenues $3.5 million in 2008. Revenues from commercial and large transactions decreased $43.0 million to $74.0 million in 2009 and decreased $53.9 million to $117.0 million in 2008. In 2008, the decreases in residential and commercial title revenues were a result of the dramatic decline in the U.S. real estate market.
In July 2009, the New Mexico Superintendent of Insurance announced the findings of a 2008 hearing on premiums and splits and awarded a 10.7% premium rate increase effective August 1, 2009, and an increase in the remittance rate on residential transactions from 19% to 20% from agencies to underwriters. Due to possible changes in other states, we are reviewing our premium rates in all states. Where possible, we are seeking to raise rates or to modify agency splits (the percent of premium paid to the underwriter compared to the amount retained by the agency) to levels necessary to achieve profitability from our agency operations. To date, we have filed rate increases in 23 states, some of which require regulatory approval, whereas others are immediately effective.
REI revenues. Real estate information services operating revenues increased $12.4 million, or 27.9%, in 2009 following a decrease of $21.6 million, or 32.7%, in 2008. The increase in 2009 was due to a significant rise in our loan modification services. This increase was partially offset by a reduction of revenues due to a decrease in demand for post-closing lender services activity, a reduction in the number of Section 1031 tax-deferred property exchanges caused by the continued decline in the real estate market and the sale of subsidiaries in 2008. The decrease in 2008 resulted primarily from the reduction in residential lending volume, which impacts our real estate-related transactions, and the reduction in number of Section 1031 tax-deferred property exchanges caused by the decline in the real estate markets.
In January 2007, we sold our mapping and aerial photography businesses to a third party. There was no net cash received from the sale due to payment of certain selling expenses and debt. We recorded a pretax gain (included in the REI segment at Note 21) of $3.2 million from the sale of these subsidiaries, which is included in investment and other gains (losses) - net in the consolidated statements of operations, retained earnings and comprehensive earnings.
In 2009, investment and other gains (losses) - net included realized gains of $16.3 million from the sale of debt and equity investments available-for-sale, $5.6 million from the sales of cost-basis investments and $1.0 million due to the change in estimates in office closure costs. The realized gains were partially offset by realized losses of $10.7 million for the impairment of equity method and cost-basis investments, $2.8 million for office closure costs, $1.3 million for the impairment of equity securities available-for-sale and $0.8 million for the impairment and sale of real estate.
Retention by agencies. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. This retention percentage may vary from year-to-year due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. On average, amounts retained by independent agencies, as a percentage of revenues generated by them, were 82.9%, 81.9% and 81.0% in the years 2009, 2008 and 2007, respectively. The increase in 2009 compared to 2008 is primarily due to the uneven recovery of real estate markets across the nation; those states with higher agency retention percentages have experienced a disproportionate increase in transaction activity. As markets recover nationally, we expect the mix of agency business to normalize, resulting in lower average retention percentages in the aggregate. In addition, we are actively renegotiating agency splits with many of our independent agents, increasing the amount of premium retained by our underwriters.
Excluding the effects of acquisitions and divestitures, we reduced our employee headcount company-wide approximately 200, or 3.2%, in 2009 and approximately 3,750, or 38.4%, since December 31, 2006. In 2009 and 2008, employee costs were reduced through ongoing cost savings initiatives to better align our operating costs with revenues, partially offset by increases in bonuses in 2009 due to the improved results of our direct operations.
Acquisitions resulted in increased employee costs of $2.7 million and $12.6 million in 2008 and 2007, respectively.
In our REI segment, employee costs decreased $5.7 million, or 16.5%, in 2009 primarily in our lender services and property information businesses due to staffing reductions related to lower transaction volumes, which were partially offset by increases in staffing relating to our mortgage modification services. For 2008, the total employee costs decreased $13.4 million, or 27.8%, primarily due to cost saving initiatives as a result of the operating environment.
Title losses. Provisions for title losses, as a percentage of title operating revenues, were 11.3%, 11.2% and 8.5% in 2009, 2008 and 2007, respectively. The year ended December 31, 2009 included reserve strengthening adjustments of $32.7 million (2.0% of title revenues) relating to policy years 2005, 2006 and 2007 due to higher than expected loss payments and incurred loss experience for these policy years. This brings the total strengthening charges for these policy years to $70.1 million, substantially all of which was recorded in 2008 and 2009. We do not currently anticipate future reserve strengthening for these policy years. Reserve strengthening adjustments are to provide for future losses that may be incurred on prior policy years, and are based on current loss experience for those policy years. Current losses that are higher than anticipated are an indication that total losses for a given policy year may be higher than originally calculated. Changes in the total estimated future loss for prior policy years are recorded in the period in which the estimate changes, and thus negatively impact the provision for title loss ratios. The increase in loss payment experience for recent policy years resulted in an increase in the loss ratio related to revenues recognized on policies issued in 2009, and, accordingly, a $3.8 million catch-up adjustment was recorded to title losses in the third quarter of 2009. Provisions for title losses in 2009 also include charges of $29.5 million (1.8% of title revenues) relating to large title claims including several independent agency defalcations and mechanic lien claims. These charges were partially offset by insurance recoveries of $9.3 million (0.6% of title revenues) on previously recognized title losses.
Contractual obligations. Our material contractual obligations at December 31, 2009 were:
Operating leases are primarily for office space and expire over the next 10 years. The timing shown above for the payments of estimated title losses is not set by contract. Rather, it is projected based on historical payment patterns. The actual timing of estimated title loss payments may vary materially from the above projection since claims, by their nature, are complex and paid over long periods of time. Loss reserves represent a total estimate only, whereas the other contractual obligations are determinable as to timing and amounts. Title losses paid were $149.3 million, $136.8 million and $117.6 million in 2009, 2008 and 2007, respectively.
Our liquidity and capital resources represent our ability to generate cash flow to meet our obligations to our shareholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. At December 31, 2009, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated $606.5 million.
A substantial majority of our consolidated cash and investments at December 31, 2009 was held by Guaranty and its subsidiaries. The use and investment of these funds, dividends to the holding company, and cash transfers between Guaranty and its subsidiaries and the holding company are subject to certain legal and regulatory restrictions. In general, Guaranty may use its cash and investments in excess of its legally-mandated statutory premium reserve (established in accordance with legal requirements under Texas regulatory provisions) to fund its insurance operations, including claims payments. Guaranty may also, subject to certain limitations and upon regulatory approval, pay dividends to the holding company and/or provide funds to its subsidiaries (whose operations consist principally of field title agency offices) for their operating and debt service needs. See Notes 2 and 3 to our accompanying consolidated financial statements.
Other operating costs consist of both fixed (such as rent and other occupancy costs) and variable (such as taxes due to various states on premium revenues) components. Since the end of December 2005, when the real estate market began to turn down, we have closed over 360 offices or branch locations. However, approximately 30 leases from these locations have not yet expired and we continue to incur cash rent payments on those that have not been sublet. As the leases on closed offices not sublet expire, they will not be renewed. We have also benefited from new contracts with vendors in key spending categories in 2008 and 2009.
In February 2010, we received cash of $50.9 million relating to the income taxes receivable recorded on our balance sheet at December 31, 2009. The income tax receivable was primarily related to the change in tax law in the fourth quarter of 2009, which allowed us to carry back our tax losses an additional three years.
During the years ended 2009, 2008 and 2007, acquisitions resulted in additions to goodwill of $1.9 million, $2.1 million and $13.7 million, respectively.
The most significant financing activity in 2008 was the borrowing under the line of credit described in the investing activities.
We paid $0.9 million, $1.7 million and $12.7 million in cash dividends to our shareholders representing $0.05, $0.10 and $0.75 per common share outstanding in 2009, 2008 and 2007, respectively. Our dividend was reduced in 2009 and 2008 based on our operating performance and our desire to conserve cash. The declaration of any future dividend is at the discretion of our Board of Directors.
The effect of changes in foreign currency rates on the consolidated statements of cash flows was a net increase in cash and cash equivalents of $5.2 million and $3.0 million in 2009 and 2007 as compared with a decrease of $11.2 million in 2008. Our principal foreign operating unit is in Canada, and the value of the U.S. dollar relative to the Canadian dollar strengthened significantly in 2009.
In addition to the actions taken to improve our overall cost structure in both the near and long-term, we also worked diligently on enhancing our revenues and improving our liquidity position for 2010 and beyond. Among the more significant accomplishments were our bank debt restructuring (described above), pricing initiatives and market share increase.
Due to the significant cash savings from the actions taken in 2009 as described above and elsewhere in this Form 10-K, and based on our available cash and investments as well as our expected operating results in 2010, including the matters described above, we believe we have sufficient liquidity to meet the cash needs of our ongoing operations without supplemental debt or equity funding.
Capital resources. We consider our capital resources to be adequate, and we currently have no plans to seek any debt or equity funding in 2010. Other than scheduled maturities of debt, operating lease payments and anticipated claims payments, we have no material commitments. Total debt and stockholders’ equity were $83.8 million (excluding a fully-collateralized line of credit of $202.0 million - see Note 10 to the consolidated financial statements), and $462.1 million, respectively, at December 31, 2009. We expect that cash flows from operations and cash available from our underwriters, subject to regulatory restrictions, will be sufficient to fund our operations, including claims payments. However, to the extent that these funds are not sufficient, we may be required to borrow funds on terms less favorable than we currently have, or seek funding from the equity market, which may be on terms that are dilutive to existing shareholders.
Other comprehensive earnings (loss). Unrealized gains and losses on investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive earnings, a component of stockholders’ equity, until realized. In 2009, net unrealized investment losses of $0.9 million, which increased our comprehensive loss attributable to Stewart, were related to temporary decreases in market values of government bond investments, partially offset by increases in corporate and municipal bond investments and equity investments. Changes in foreign currency exchange rates, primarily related to our Canadian operations, decreased comprehensive loss by $11.6 million, net of taxes, in 2009.
The 2008 net unrealized investment losses of $1.0 million, which increased our comprehensive loss, were related to temporary declines in market values of equity, municipal bond and corporate bond investments and partially offset by increases in the government bond investments. For 2007, unrealized investment gains of $1.9 million increased comprehensive earnings primarily due to changes in bond values caused by interest rate decreases. Changes in foreign currency exchange rates, primarily related to our Canadian operations, increased comprehensive loss by $18.5 million, net of taxes, in 2008 and increased comprehensive earnings $9.9 million, net of taxes, in 2007.
Forward-looking statements. Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “will” or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the severity and duration of current financial and economic conditions; continued weakness or further adverse changes in the level of real estate activity; changes in mortgage interest rates and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses on the need to further strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the impact of our increased diligence and inspections in our agency operations; changes to the participants in the secondary mortgage market and the rate of refinancings that affect the demand for title insurance products; our ability to successfully consummate acquisitions, and our ability to successfully integrate and manage acquired businesses should opportunities arise; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of litigation claims by large classes of claimants; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries and underwriters as a source of cash flow; the continued realization of expected expense savings resulting from our expense reduction steps taken since 2008; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; our ability to respond to the actions of our competitors; failure to comply with financial covenants contained in our debt instruments; and inability to make scheduled payments on or refinance our indebtedness. We expressly disclaim any obligation to update any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.
The information required to be provided in this item is included in our audited Consolidated Financial Statements, including the Notes thereto, attached hereto as pages to, and such information is incorporated in this report by reference.