(5) During 1995, the Company recognized a $1.25 million extraordinary loss, net of related income taxes of $437,000 related to the early retirement of its Senior Secured Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Extraordinary Item."
(9) Percentage return on average equity is net earnings for the period divided by the simple average of total stockholders' equity as of the beginning and end of each year presented.
The following table sets forth information regarding title related revenue derived from direct operations and title related revenue derived from agency operations:
Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Accordingly, this expense increases as agent premiums increase.
The percentage of agent premiums retained by the Company varies according to regional differences in real estate closing practices and state regulations. The percentage of agent premiums retained by the Company has increased in each of the last three years primarily due to the Company's expansion of operations outside of California into states where underwriters' retained premiums are generally greater. As the Company continues to expand its operations in markets outside California, the Company believes it may retain a larger percentage of agent premiums.
The Company's cash requirements include debt service, operating expenses, taxes and dividends on its Common Stock. The Company believes that all anticipated cash requirements for current operations will be met from internally generated funds, through cash received from subsidiaries as well as cash generated by investment securities and short term bank borrowings through existing credit facilities.
The preparation of these Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In September 1991, Manchester Development Corporation ("Manchester"), a wholly-owned subsidiary, sold certain real estate investments and operating properties to Folco Development Corporation ("Folco"), of which the Company's Chief Executive Officer and spouse are sole shareholders, at the assets' net book value of $2,211,000. This transaction resulted in a note receivable from Folco to Manchester of approximately $1,492,000 secured by subordinated deeds of trust on the 11 office buildings included in the sale to Folco; see Note E. In connection with the sale, the existing leases of space by the Company were amended thereby increasing rental rates approximately 20%. The terms of the agreement between Manchester and Folco provide that each of the subordinated deeds of trust will be released and reconveyed upon payment to Manchester of 15% of the net sales proceeds from the sale of the property encumbered by the subordinated deeds of trust. As of December 31, 1995 and 1994, the balance outstanding on the note approximated $587,000 and $693,000, respectively, and one property remains unsold.
The effective tax rate differs from the Federal statutory income tax rate as follows:
business and to certain other conditions and restrictions. Policies issued through ATIC operations are underwritten by Fidelity Title.
N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF RISK
At December 31, 1995 and 1994, the Company had off-balance sheet credit risk associated with general partnership obligations of $7,898,000 and $8,019,000, respectively. The Company believes that this credit risk is adequately secured by either legal remedies associated with settlement procedures or the underlying real estate assets. See Note J.