Information Technology. Other operating expenses for the Information Technology group increased 15.0% in 2006 over 2005 and 14.5% in 2005 over 2004. Excluding other operating expenses of $66.8 million and $62.6 million associated with new acquisitions for the respective periods, other operating expenses for the Information Technology group increased 5.2% in 2006 over 2005 and 4.0% in 2005 over 2004. The increase in 2006 over 2005 was primarily due to an increase in cost of service fees at the Company’s First Advantage segment, primarily associated with the growth in the data services and dealer divisions, and an increase in appraiser fees at the Company’s property information segment due primarily to the growth in the appraisal business. The increase in 2005 over 2004 was primarily due to $11.1 million of costs related to the Company’s default division. These costs included expenses associated with relocating and consolidating operations, the write down of certain software and other related expenses. Also contributing to the increase in 2005 were $8.9 million in expenses incurred at the First Advantage segment primarily in connection with the Company’s contribution of its credit information group to First Advantage.
Income before income taxes and minority interests-A summary by segment is as follows:
In general, the title insurance business is a lower profit margin business when compared to the Company’s other segments. The lower profit margins reflect the high cost of producing title evidence whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to this relatively high proportion of fixed costs, title insurance profit margins generally improve as closed order volumes increase. Title insurance profit margins are affected by the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity. In addition, profit margins from refinance transactions are affected by whether they are centrally processed or locally processed. Profit margins from resale, new construction and centrally processed refinance transactions are generally higher than from locally processed refinancing transactions because in many states there are premium discounts on, and cancellation rates are higher for, refinance transactions. Title insurance profit margins are also affected by the percentage of operating revenues generated by agency operations. Profit margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. Most of the businesses included in the Information Technology group are database intensive, with a relatively high proportion of fixed costs. As such, profit margins generally improve as revenues increase. Revenues for the mortgage information segment, like the title insurance segment, are primarily dependent on the level of real estate activity and the cost and availability of mortgage funds. Revenues for the property information segment are, in part, dependent on real estate activity, but are less cyclical than title insurance and mortgage information revenues as a result of a significant subscription-based revenue stream, new product innovation, expanding secondary market applications and an increase in non-mortgage related customers. Most of the revenues for the First Advantage segment are unaffected by real estate activity, with the exception of the lender business, which is dependent on real estate activity.
As discussed in Note 1 to the consolidated financial statements, the Company has restated its 2005 and 2004 consolidated financial statements.
Other long-term investments consist primarily of investments in affiliates, which are accounted for under the equity method of accounting or the cost method of accounting, and notes receivable and other investments, which are carried at the lower of cost or fair value less costs to sell.
multiple-option approach, while compensation expense for all stock-based awards granted subsequent to January 1, 2006, will be recognized using the straight-line single option method. As stock-based compensation expense recognized in the results is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to 2006, forfeitures were recognized as they occurred. Share-based compensation expense included in salaries and other personnel costs recognized during the twelve months ended December 31, 2006, was $25.7 million, $13.1 million after tax and minority interest expense or $0.13 per diluted share. This amount includes expense for all share-based payments granted prior to, but not yet vested as of December 31, 2005, as well as share-based awards granted during the twelve months ended December 31, 2006. In addition to stock options, the Company has an employee stock purchase plan that allows eligible employees to purchase common stock of the Company at 85.0% of the closing price on the last day of each month. Under the provisions of SFAS 123R, the Company recognizes an expense in the amount equal to the discount. For the twelve months ended December 31, 2006, the amount of the discount was $1.0 million. This amount is included in the share-based compensation amount mentioned above.
The aggregate annual maturities for notes and contracts payable and capital leases in each of the five years after December 31, 2006, are as follows:
The following table summarizes the balance sheet impact, including benefit obligations, assets and funded status associated with the defined benefit plan and supplemental benefit plan obligations as of December 31, 2006 and 2005:
During the year ended December 31, 2006, the Company completed 48 acquisitions. These acquisitions were not material, individually or in the aggregate. Of these acquisitions, 34 have been in the Company’s title insurance segment, 1 in the Company’s mortgage information segment, 2 in the Company’s property information segment and 11 in the Company’s First Advantage segment. The aggregate purchase price of the 37 acquisitions included in the Company’s title insurance, mortgage information and property information segments was $121.3 million in cash, $98.8 million in notes payable and 806,383 shares of the Company’s common stock valued at $31.9 million. The operating results of these acquired companies were included in the Company’s consolidated financial statements from their respective acquisition dates. The 11 acquisitions included in the Company’s First Advantage segment were completed by the Company’s publicly traded subsidiary, First Advantage Corporation. The aggregate purchase price of these acquisitions was $32.0 million in cash, $5.8 million in notes payable, $3.2 million in deferred payments and 435,231 shares, valued at $10.2 million, of First Advantage’s Class A common stock. In accounting for the First Advantage shares issued in these acquisitions, the Company whose ownership interest is 76%, recorded a pretax gain of $9.3 million. The purchase price of each acquisition was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis. As a result of the 48 acquisitions, the Company recorded approximately $220.2 million of goodwill and $71.5 million of intangible assets with definite lives.