Results of Operations
Overview -- As with all providers of real estate-related financial and information services, the Company's revenues depend, in large part, upon the level of real estate activity and the cost and availability of mortgage funds. The majority of the Company's revenues for the title insurance and real estate information segments result from resales and refinancings of residential real estate and, to a lesser extent, from commercial transactions and the construction and sale of new properties. Revenues for the Company's Home Warranty segment result primarily from residential resale activity and do not benefit from refinancings.

    Traditionally, the greatest volume of real estate activity, particularly residential resale, has occurred in the spring and summer months. However, in recent years, interest rate adjustments by the Federal Reserve Board, as well as other economic factors, have caused unusual fluctuations in the traditional pattern of real estate activity. During 1994 the Federal Reserve Board raised interest rates. This, coupled with the persistently poor real estate economy in California and the effects of the traditional seasonal real estate cycle, resulted in a low inventory of open transactions going into 1995. As a result, 1995 first quarter operating revenues experienced a 30% decline when compared with the same period of the prior year. In response to the severe decline in new orders, the Company instituted personnel reductions. However, the cost-cutting measures lagged the revenue declines, resulting in losses for the first quarter 1995.

    Mortgage interest rates peaked in January 1995 and decreased throughout the remainder of the year and into 1996. This decrease, as well as increased consumer confidence, contributed significantly to an improved national real estate economy during the second half of 1995, and resulted in a 26% increase in operating revenues when compared with the first half of 1995. This resurgence in real estate activity generated a high inventory of open transactions going into 1996, which, together with the continuation of lower mortgage interest rates, the improved national real estate economy (including the beginnings of a recovery in California) and the Company's successful integration of its diverse businesses, resulted in strong revenues and profits for 1996. These favorable conditions continued into 1997, contributing to record-setting residential resale transactions, an increase in new home sales and renewed commercial activity. In addition, stability in the marketplace prompted an increase in refinance and home equity transactions, primarily towards the latter part of the year. These factors, as well as market share increases in all of the Company's primary business segments, culminated in 1997 being the best year overall in the Company's history.