Revenues from real estate related services generally trend closely with the level and mix of business, as well as the performance of our title related subsidiaries. Revenues from real estate related services in 2002, 2001 and 2000 were $435.3 million, $287.1 million and $166.7 million, respectively. The increase in revenue from real estate related services in 2002 is primarily the result of increases in revenue from our property appraisal services, real estate tax services, field services, mortgage loan fulfillment services (HFN), which was acquired in the second quarter of 2002 and collateral risk assessment and valuation services (Hansen), which was acquired by FNIS in the second quarter of 2002. In addition, revenue from real estate related services includes $52.1 million of revenue from the former operations of Vista for 2002, as compared with $27.7 million in 2001. The increase in revenues from real estate related services in 2001 is primarily the result of increases in revenue from our property appraisal services, real estate tax services, field services, home warranty insurance, property records business (IDM), which was acquired in the first quarter of 2001, and multiple listing services business (Risco), which was acquired in the second quarter of 2001. In addition, revenues from real estate related services include the revenues of the former operations of Vista from the period August 1, 2001, the acquisition date, through December 31, 2001. Further, the increase in revenue in 2001 is also due to the inclusion of Chicago Title operations for a full year in 2001 versus a partial year in 2000.
Our operating expenses consist primarily of personnel costs, other operating expenses and agent commissions, which are incurred as orders are received and processed. Title insurance premiums, escrow and other title related fees are generally recognized as income at the time the underlying transaction closes. As a result, revenue lags approximately 60-90 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have impacted margins and net earnings. We have implemented programs and have taken necessary actions to maintain expense levels consistent with revenue streams. However, a short time lag does exist in reducing variable costs and certain fixed costs are incurred regardless of revenue levels.
Financing. In connection with the Chicago Title merger, we entered into a syndicated credit agreement. The credit agreement provides for three distinct credit facilities:
Revenue Recognition. Our direct title insurance premiums and escrow and other title related fees are recognized as revenue at the time of closing of the related transaction as the earnings process is considered complete. Our agency title insurance premiums are recognized as revenue when policies are reported to us and are recorded as revenue on a gross basis (before the deduction of agent commissions). We accrue for unreported agency title insurance premiums based on historical reporting patterns of our agents and current trends. We recognize real estate related services and other income over the period the related services are provided.
In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (“SFAS No. 146”). This standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material effect on our financial statements.
Lease acquisition costs consist of broker bonuses and commissions paid upon the origination of equipment lease contracts. The costs are included in direct finance leases and are amortized to expense over the life of the related lease using the interest method.
On June 19, 2001 the Company acquired Risco, Inc. (“Risco”), the third largest multiple listing service vendor in the United States, for approximately $12.0 million in cash. The acquisition was accounted for as a purchase.
In July 2002, the Company purchased 883,178 shares of the common stock of ANFI, Inc. (“ANFI”), a publicly traded California corporation, formerly known as American National Financial, Inc. (NASDAQ:ANFI), of which 98,200 shares were purchased in the open market at an average price of $11.51, and the remaining shares were purchased from certain executive officers of ANFI for a negotiated price of $12.00 per share. As a result of these purchases, the Company increased its ownership percentage of ANFI to approximately 28.0%. As of December 31, 2002 the Company accounted for its investment in ANFI under the equity method of accounting.
In connection with the Chicago Title merger on March 20, 2000, the Company assumed Chicago Title’s then outstanding reserve for claim losses.
In 1987, stockholders approved the adoption of an Employee Stock Purchase Plan (“ESPP”). Under the terms of the ESPP and subsequent amendments, eligible employees may voluntarily purchase, at current market prices, shares of the Company’s common stock through payroll deductions. Pursuant to the ESPP, employees may contribute an amount between 3% and 15% of their base salary and certain commissions. The Company contributes varying amounts as specified in the ESPP. During the years ended December 31, 2002, 2001 and 2000, 713,336, 796,176 and 718,713 shares, respectively, were purchased and allocated to employees, based upon their contributions, at an average price of $28.29, $22.04 and $15.01 per share, respectively. The Company contributed $7.5 million or the equivalent of 266,738 shares for the year ended December 31, 2002; $5.3 million or the equivalent of 237,962 shares for the year ended December 31, 2001 and $4.0 million or the equivalent of 265,385 shares for the year ended December 31, 2000 in accordance with the employer’s matching contribution.
The components of net periodic (income) expense included in the results of operations for 2002, 2001 and from the period April 1, 2000 through December 31, 2000 are as follows:
Financial Reporting,” to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the Notes to these Consolidated Financial Statements. The Company will implement SFAS No. 148 effective January 1, 2003 regarding disclosure requirements for condensed financial statements for interim periods. The Company has not yet determined whether they will voluntarily change to the fair value based method of accounting for stock-based employee compensation.