Generally, title insurance claims rates are lower than other types of insurance because title insurance policies insure against prior events affecting the quality of real estate titles rather than against unforeseen, and therefore less predictable, future events. See “Critical Accounting Estimates - Policy and Contract Claims” below for further discussion. In addition, we may be subject to claims and litigation other than in the ordinary course of business. In 2005, we settled certain outstanding litigation resulting in a charge to earnings of approximately $10.3 million in the second quarter. In 2005, we received requests for information and subpoenas from certain states seeking information relating to investigations of our business practices and the title insurance industry. Multiple states are specifically investigating captive reinsurance. In June 2005, we established reserves of $19.0 million to cover anticipated exposure to regulatory matters nationwide, an amount which includes the settlement with the California, Arizona and Virginia departments of insurance. Based on these settlements, we released $6.7 million of this reserve back into earnings in fiscal 2005. The remaining reserve at December 31, 2005 was approximately $11.3 million. We may receive additional requests for information and/or subpoenas in the future. We expect to cooperate with all such requests or subpoenas. State investigations may pose a significant challenge in 2006. For a discussion of pending material legal proceedings, including regulatory investigations and inquiries, see “Item 3 - Legal Proceedings.”
Operating revenue in 2005 increased 10.4 percent over 2004 which reflected increased revenue achieved through acquisitions and higher levels of buy/sell activity partially offset by reduced refinance activity. Operating revenue in 2005 benefited from record setting levels of commercial activity. For fiscal year 2006, we expect interest rates to rise and growth to continue through acquisitions; however, as interest rates rise, the volume of refinance activity is expected to continue to decline consistent with the cyclical nature of the title insurance business. Buy/sell activity is expected to remain fairly stable. To counter this trend, we will continue our sales enhancement process to spur organic sales growth. The sales process trains our sales personnel to effectively market our title insurance and related products and services to our customers. Operating results for the years ended 2003 through 2005 should not be viewed as indicative of results for any future period.
Centennial’s primary business is the origination and bulk purchase of commercial real estate loans in the Southern California market and is dependent on the viability of the commercial real estate market in Southern California. Deposits are solicited through the internet for both certificates of deposit and passbook savings accounts. As an industrial bank, Centennial does not accept demand deposits, such as checking accounts, that provide for payment to third parties. Centennial does not offer banking services such as credit cards or automated teller machines. We utilize Centennial to hold a portion of our escrow deposits. We anticipate expanding our utilization of Centennial to facilitate escrow balance transactions.
Average FTE counts were 10,144 in 2004 (including 1,195 related to acquisitions that year) versus 10,573 in 2003.
Cash provided by operating activities for 2005, 2004 and 2003, respectively, was $422.5 million, $256.6 million and $317.7 million. The principal non-operating uses of cash and cash-equivalents for 2005, 2004 and 2003 were acquisitions, capital expenditures, additions to the investment portfolio and loans receivable, stock repurchases and the repayment of debt. The principal non-operating sources of cash were proceeds from our investment portfolio and deposits in 2005, the issuance in 2004 of our $125.0 million 3.25 percent Senior Convertible Debentures due 2034, the issuance in 2003 of our $115.0 million 3.125 percent Convertible Senior Debentures due 2033 (together, the “Convertible Debentures”) and the proceeds from the sales and maturities of certain investments. The net of all activities was to increase cash by $16.1 million, $20.1 million and $10.5 million for 2005, 2004 and 2003, respectively. As of December 31, 2005, we held cash of $89.1 million and investments of $1,754.7 million.
view as remote. In February 2005, we made an irrevocable election under the terms of our 2003 Debentures to satisfy in cash 100 percent of the principal amount of the 2003 Debentures converted after February 15, 2005. Prior to the election, we had the ability to make payment upon conversion for the principal amount of the 2003 Debentures in cash or shares of our common stock.
We have no required employer contributions to our Cash Balance Pension Plan at this time. However, we anticipate contributing between $10 million and $20 million to the plan during 2006.
Changes in maturities and yields from 2004 to 2005 primarily relate to timing of purchases and sales of any such securities and the impact that the securities sold or purchased have on the average portfolio yield.