(Mark One)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of AugustNovember 2, 2006.

 

Interim financial statements.The financial information contained in this report for the three and six month periodsnine months ended JuneSeptember 30, 2006 and 2005, and as of JuneSeptember 30, 2006, is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of this information for all unaudited periods, consisting only of normal recurring accruals, have been made. The results of operations for the interim periods are not necessarily indicative of results for a full year. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Certain amounts in the 2005 condensed consolidated financial statements have been reclassified for comparative purposes. Net earnings and stockholders’ equity, as previously reported, were not affected.

Stock option plans.The Company combined its two stock option plans into a single plan in April 2005. Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment”, using the modified prospective method under which share-based compensation expense is recognized for new share-based awards granted and any outstanding awards that are modified, repurchased or cancelled. All options are granted at the market price of the Company’s Common Stock on the date of grant and are immediately exercisable. The Company has no unvested awards.

There were no options granted during the quarter ended September 30, 2006 and, accordingly, no compensation expense has been reflected in the accompanying financial statements for the three months then ended. During the quarter ended June 30, 2006, the Company recognized compensation expense related to options granted of $0.4 million based on a fair value per option of $16.32. Under SFAS No. 123(R), compensation expense is recognized for the fair value of the employees’ purchase rights, which is estimated using the Black-Scholes Model. The Company assumed a dividend yield of 2.0%, an expected life of seven years, an expected volatility of 35.1% and a risk-free interest rate of 8.0% for the three months ended June 30, 2006..

A summary of the status of the Company’s stock option plan follows:

At JuneSeptember 30, 2006, the weighted averageweighted-average remaining contractual life of options outstanding was 6.25.9 years and the aggregate intrinsic value was $3.1$2.5 million. The aggregate intrinsic value of options exercised during the sixnine months ended JuneSeptember 30, 2006 was $1.2 million. In addition, the Company recognized a tax benefit of $0.3 million related to these exercised options.

Options to purchase 133,000177,000 and 67,000133,000 shares were excluded from the computation of diluted earnings per share for the three and sixnine months ended JuneSeptember 30, 2006, respectively. These options were considered anti-dilutive because the exercise prices of the options were greater than the weighted-average market values of the shares for the periods. Stock option grantsOptions to purchase 141,00067,000 and 125,000 shares were excluded from the computation of diluted earnings per share for the three and sixnine months ended JuneSeptember 30, 2005, respectively, as these options were considered anti-dilutive.

Management’s overview.We reported net earnings of $15.7$14.2 million for the three months ended JuneSeptember 30, 2006 compared with net earnings of $37.2$31.8 million for the same period in 2005. On a diluted per share basis, net earnings were $0.86$0.77 for the secondthird quarter of 2006 compared with net earnings of $2.04$1.74 for the secondthird quarter of 2005. Revenues for the quarter decreased 1.0%increased 0.3% to $644.7$641.5 million from $651.1$639.4 million for the same period last year.

The decreaseincrease in revenues and transactions handled in the secondthird quarter of 2006 from the same period in 2005 was due to revenues from new agencies, the impact of acquisitions and strong growth in commercial transactions, offset by a decline in revenues and transactions handled by direct operations. The decrease in revenues from direct operations resulted primarily from a reduction in residential closings due to a higher interest rate environment.environment that has significantly impacted certain major markets of the country. Mortgage interest rates averaged 6.6% in the secondthird quarter of 2006 compared with 5.7%5.8% in the secondthird quarter of 2005. Acquisitions and strong growth in commercial transactions positively impacted revenues in the second quarter of 2006, partially offsetting the decrease in residential activity. Acquisitions increased revenues by $12.1 million for the quarter.

Profits for the secondthird quarter of 2006 versuscompared with the third quarter of 2005 were reduced primarily bydue to a higher employee costscomplement of lower-margin agency business compared to direct operations and higher other operating costs. Other operating costs increased primarily due to expenses associated with new offices, increased technology development for higher productivity and related security costs to comply with both privacy laws and litigation expenses. Employee costs were higher compared with the same period a year ago due to newly opened locations and increased technology-related services. Existing offices reduced employee counts overall by approximately 6% compared to the same period in the prior year. The Company isSarbanes-Oxley. We are continually monitoring changes in transaction volume and cyclical developmentshave reduced staff levels accordingly, while continuing with our goal to provide superior customer service and gain market share. Excluding the effect of increases from new locations, our workforce was reduced by approximately 650 employees, or 6.4%, since September 30, 2005. A significant number of these staff reductions occurred during the third quarter and, as such, the corresponding reduction in employee costs will be realized in the marketplace to manage its current levelfourth quarter of business and respond to opportunities with regard to both people and technology.2006.

Critical accounting estimates.Actual results can differ from the accounting estimates we report. However, we believe there is no material risk of a change in our estimates that is likely to have a material impact on our reported financial condition orand results of operations for the three and sixnine months ended JuneSeptember 30, 2006 and 2005.

Our most critical accounting estimate is providing for title loss reserves. Our liability for estimated title losses at JuneSeptember 30, 2006 comprises both known claims ($68.569.2 million) and claims expected to be reported in the future ($290.2300.2 million). The amount of the reserve represents the aggregate future payments net(net of recoveries,recoveries) that we expect to incur on policy and escrow losses and in costs to settle claims.

We base our estimates on reported claims, historical loss experience, title industry averages and the current legal and economic environment. In making estimates, we use moving-average ratios of recent actual policy loss payment experience (net of recoveries) to premium revenues.

Provisions for title losses, as a percentage of title operating revenues, were 5.7% and 4.7%4.9% for the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively. Actual loss payment experience, including the impact of large losses, is the primary reason for increases or decreases in our loss provision. A change of 0.5% in this percentage, a reasonably likely scenario based on historical loss experience, would have changed the provision for title losses and pretax earnings by approximately $5.6$8.7 million for the sixnine months ended JuneSeptember 30, 2006.

Estimating future loss payments is difficult and our assumptions are subject to the risk of change. Claims, by their very nature, are complex and involve uncertainties as to the dollar amount and timing of individual payments. Our experience has been that most policy claims against policies and claim payments are made in the first six years after the policy has been issued, although claims are incurred and paid many years later.

We recognize revenues on title insurance policies written by independent agencies (agencies) when the policies are reported to us. In addition, where reasonable estimates can be made, we also accrue for revenues on policies issued but not reported until after period end. We believe that reasonable estimates can be made when recent and consistent policy issuance information is available. Our estimates are based on historical reporting patterns and other information about our agencies. We also consider current trends in our direct operations and in the title industry. In this accrual, we are not estimating future transactions. We are estimating revenues on policies that have already been issued but not yet received by us. We have consistently followed the same basic method of estimating unreported policy revenues for more than ten years.

Our accruals for unreported policies from agencies were not material to our total assets or stockholders’ equity for either of the sixnine months ended JuneSeptember 30, 2006 andor 2005. The differences between the amounts our agencies have subsequently reported to us as compared to our estimated accruals are substantially offset by any differences arising from the prior year’s accrual and have been immaterial to stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimation of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.

Operations.Our business has two main segments: title insurance-related services and real estate information (REI). These segments are closely related due to the nature of their operations and common customers.

Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial properties and other real properties located in all 50 states, the District of Columbia and a number of international markets through more than 9,0009,500 policy-issuing offices and agencies. We also provide post-closing lender services, mortgage default management services,solutions, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in tax-deferred exchanges. Our current levelslevel of international operations areis immaterial with respect to our consolidated financial results.

Factors affecting revenues.The principal factors that contribute to increases in our operating revenues for our title and REI segments include:

Regulators periodically review title insurance premium rates and may seek reductions in the premium rates charged. The rates charged by title insurance underwriters in several statesTexas and Florida, from which we derive a material portion of our revenues, are currently under review with proposals to potentially enact significant premium rate decreases. These states include California Texas, Florida and New York.rates have been challenged by its Insurance Commissioner. We believe that under California law, rates are established competitively. While we cannot predict the outcome of these proposals, to the extent that rate decreases are enacted, our financial condition and results of operations and financial position will be adversely affected.

A comparison of theour results of operations of the Company for the three and sixnine months ended JuneSeptember 30, 2006 compared with the three and sixnine months ended JuneSeptember 30, 2005 follows. Factors contributing to fluctuations in results of operations are presented in their order of monetary significance. We have quantified, when necessary, significant changes.

Operating environment.Published industry data show interest rates for 30-year fixed-rate mortgages, excluding points, for the sixnine months ended JuneSeptember 30, 2006 averaged 6.4% as6.5% compared with 5.7%5.8% for the same period in 2005. MortgageAverage mortgage interest rates have increased from a low of 5.6% in early 2005 to 6.7%a high of 6.8% in JuneJuly 2006 and were 6.4% in September 2006.

Sales of existing homes decreased 5.2% in6.9% for the first sixeight months of 2006 (latest available data) compared with the same period in 2005, and new home sales declined 8.9%15.7% over the same comparison period. JuneSeptember 2006 existing home sales saw an annualized pacewere at a seasonally adjusted annual rate of 6.456.2 million units versus 7.087.2 million units one year earlier. One-to-four family residential lending declined from an estimated $1.38$2.3 trillion in the first sixnine months of 2005 to $1.30$1.9 trillion in the first sixnine months of 2006. The decline in lending volume was primarily a result of a lower ratio of refinance activity resulting from a higher interest rate environment.environment and reduced sales of both new and existing homes. Refinance activity declined from 48.7%49.3% of lending volume in the first halfnine months of 2005 to 44.3%39.8% in the first halfnine months of 2006. Refinance premium rates typically are 60% of the title premium revenue of a similarly priced sales transaction, which means the decrease in refinancingtransaction. When refinance activity will likely result in an increase indeclines, average revenue per transaction.transaction increases.

The Company’sOur order levels declined 13.0%16.8% in the first sixnine months of 2006 compared with the first sixnine months of 2005 largely because of the increase in interest rates which reduced residential activity.home sales. Orders in the month of JuneSeptember 2006 were down 22.7%25.0% from June 2005.the same month a year ago.

Our statements on sales and refinancingsloan activity are based on published industry data from sources such asincluding Fannie Mae, the Mortgage Bankers Association, the National Association of Realtors^® and Freddie Mac. We also use information from our direct operations.

Title revenues.Our revenues from direct operations increased $12.4decreased $13.4 million, or 2.5%1.7%, in the first sixnine months of 2006 compared with the first sixnine months of 2005. Acquisitions added revenues of $24.2$37.6 million in the first sixnine months of 2006. CommercialRevenues from commercial and other large transactions increased approximately $12.5$21.4 million in the first halfnine months of 2006 over prior-year levels. These increases were partiallymore than offset by decreasesthe impact of a higher interest rate environment that has impacted certain major markets and a reduction in residential transaction volume. The largest revenue increases werehome sales. Revenues decreased in California. This was offset in part by an increase in Texas, primarily due toincluding the result of acquisitions and Canada offset by a decreasemade in California.that state. We also had offsetting increases in revenues from our Canadian operations.

The number of direct closings we handled decreased 11.4%16.8% in the first halfnine months of 2006 compared with the first halfnine months of 2005. However, the average revenue per closing increased 15.5%18.4% in the first half of 2006this period primarily due to a lower ratio of refinancing transactions closed by our direct operations compared with the first halfcomparable nine months of 2005. This increase in average revenue per closing was also due to an increased proportion of commercial transactions and, to a lesser extent, continued rising home prices.transactions.

Revenues from agencies increased $6.7$35.0 million, or 1.1%3.7%, in the first halfnine months of 2006 compared with the first halfnine months of 2005, consistent with the increase in revenues from direct operations.2005. The increase was due to the addition of several largenew agencies and a decrease in the ratio of refinancing transactions compared with property sale transactions,additional revenues from existing agencies, partially offset by the impact of a higher interest rate environment that has impacted certain major markets, a reduction in home sales and our acquisitions of some agencies that were formerly independent. We are unable to quantify the relative contributions from refinancing transactions and property sales because, in most jurisdictions, our independent agencies are not required to report this information.

The largest increasesAgency business increased in 2006 due in part to new agencies added by us in Florida in 2006 and 2005. Revenues also increased because of the acquisition of a New York title insurance underwriter with agency operations. Decreases in revenues from agencieswere experienced in the first six months of 2006 were in Florida, New JerseyCalifornia, Nevada and New York, offset partially by decreases in Texas, California and Illinois.

Virginia.

REI revenues.Real estate information services revenues were $39.0$59.9 million and $38.3$61.1 million during the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively. The increasedecrease in 2006 resulted primarily from increases in automated mapping services due to an acquisition, partially offset by reduced revenues related to post-closing services and electronic mortgage documents. Revenues fromThese decreases were offset somewhat by an increase in revenues in our Internal Revenue Code Section 1031 tax-deferred property exchange business were comparableautomated mapping services due to an acquisition. For the prior period. However, for the sixnine months ended JuneSeptember 30, 2006, revenues and pretax earnings from our tax-deferred property exchange business were negatively impacted due to a shift from taxable income to a higher percentage of tax-exempt income than was earned in the same period in the prior year.

Investments.Investment income increased $3.5$4.2 million, or 25.8%19.6%, in the first halfnine months of 2006 compared with the first halfsame period of 2005 due to higher yields and increases in average balances invested. Certain investment gains and losses were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. In the second quarter of 2005, investment and other gains included a pretax gain of $1.9 million realized from the sale of our ownership interest in an equity investee.

Retention by agencies.The amounts retained by agencies, as a percentage of revenues generated by them, were 80.7%80.8% and 81.8%81.5% in the first sixnine months of 2006 and 2005, respectively. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. The percentage that amounts retained by agencies bear to agency revenues may vary from period to period because of the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations.

Employee costs.Employee costs increased $33.3$32.9 million, or 10.1%6.4%, in the first sixnine months of 2006 compared with the first sixnine months of 2005. The number of persons employed at JuneSeptember 30, 2006 and 2005 was approximately 10,000 and 9,700,10,100, respectively. The increaseWe continually monitor changes in transaction volume and have reduced staff was primarily due to an additional 560levels by approximately 650 employees, excluding the effect of new offices, since September 30, 2005. We added approximately 500 employees from acquisitions, which represented $10.1$17.3 million in employee costs, and increased technology-related services, partially offset by reductions in staffing at certain offices.during this same period. In addition, employee costs were impacted by the competitive market for key employees in California and other states. Health insurance claims and related premiums also increased significantly during the first sixnine months of 2006 compared with 2005.

In our REI segment, employee costs increased duefor the nine months ended September 30, 2006 were comparable to increasesthe same period in staff in our automated mapping services and Section 1031 tax-deferred property exchange businesses.the prior year.

Other operating expenses.Other operating expenses increased $24.3$28.1 million, or 14.0%10.4%, in the first sixnine months of 2006 compared with the first six monthssame period of 2005. The increase in other operating expenses was partially due to acquisitions, which contributed approximately $8.0$9.0 million of the increase. Other 2006 increases included technology costs, certain REI expenses, technology costs, rent and other occupancy costs, litigation costs.costs and business promotion. Other operating expenses also include rent, business promotion,search fees, premium taxes, search fees, supplies,travel, telephone and title plant expenses and travel.expenses. Our employee costs and certain other operating expenses are sensitive to inflation.

Title losses.Provisions for title losses, as a percentage of title operating revenues, were 5.7% in the first sixnine months of 2006 compared with 4.7%4.9% in the first sixnine months of 2005. An increase in loss payment experience for the prior policy years resulted in an increase in our loss ratio in the first sixnine months of 2006 compared with the first sixnine months of 2005. An addition to title loss reserves of $4.9 million in the second quarter of 2006 related to defalcations byat two independent title agencies also contributed to the increase in our title loss ratio in the current year.

Income taxes.Our effective tax rates, based on earnings before taxes and after deducting minority interests ($28.850.9 million and $78.1$129.7 million for the sixnine months ended JuneSeptember 30, 2006 and 2005, respectively), were 36.4%36.2% and 38.6% for the first sixnine months of 2006 and 2005, respectively. For the sixnine months ended JuneSeptember 30, 2006, our effective tax rate was positively impacted primarily by a higher ratio of tax-exempt income to earnings before taxes and after deducting minority interests than in the same period of the prior year. The annual effective tax rate for 2005 was 39.0%.

Operating environment.Published industry data show interest rates for 30-year fixed-rate mortgages, excluding points, for the three months ended JuneSeptember 30, 2006 averaged 6.6% as compared with 5.7%5.8% for the same period in 2005. MortgageAverage mortgage interest rates have increased from a low of 5.6%5.7% in JuneJuly 2005 to 6.7%a high of 6.8% in JuneJuly 2006 and were 6.4% in September 2006.

Sales of existing homes decreased 8.1%12.9% on an annualized basis in the secondthird quarter of 2006 compared with the same period in 2005, and new home sales declined 6.2%20.4% over the same comparison period. One-to-four family residential lending declined from an estimated $771$883.9 billion in the secondthird quarter of 2005 to $661$612.1 billion in the secondthird quarter of 2006. The decline in lending volume was primarily a result of a lower ratio of refinance activity resulting from a higher interest rate environment.environment and reduced sales of both new and existing homes. Refinance activity declined from 44.5%50.3% of lending volume in the secondthird quarter of 2005 to 36.5%34.6% in the secondthird quarter of 2006. Refinance premium rates typically are 60% of the title premium revenue of a similarly priced sales transaction, which means the decrease in refinancingtransaction. When refinance activity will likely result in an increase indeclines, average revenue per transaction.transaction increases.

The Company’sOur order levels declined 17.0%23.2% in the secondthird quarter of 2006 compared with the secondthird quarter of 2005 largely because of the increase in interest rates which reduced residential activity.home sales.

Our statements on sales and refinancingsloan activity are based on published industry data from sources such asincluding Fannie Mae, the Mortgage Bankers Association, the National Association of Realtors^® and Freddie Mac. We also use information from our direct operations.

Title revenues.Our revenues from direct operations decreased $2.6$25.0 million, or 0.9%8.7%, in the secondthird quarter of 2006 compared with the secondthird quarter of 2005. Acquisitions added revenues of $12.1 million in the secondthird quarter of 2006. CommercialRevenues from commercial and other large transactions increased approximately $11.4$8.9 million in the secondthird quarter of 2006 over prior-year levels. These increases were more than offset by decreasesthe impact of a higher interest rate environment that has impacted certain major markets and a reduction in residential transaction volume. The largest revenue decreases werehome sales. Revenues decreased in California and FloridaFlorida. This was offset in part by an increase in Texas, including the result of acquisitions made in that state. We also had offsetting increases in Canada and Texas, primarily due to acquisitions.revenues from our Canadian operations.

The number of direct closings we handled decreased 14.8%24.9% in the secondthird quarter of 2006 compared with the secondthird quarter of 2005. However, the average revenue per closing increased 16.1%22.3% in the secondthird quarter of 2006 primarily due to a lower ratio of refinancing transactions closed by our direct operations compared with the same period in 2005. The increase in 2006 in average revenue per closing was also due to an increased proportion of commercial transactions and, to a lesser extent, rising home prices.transactions.

Revenues from agencies decreased $1.3increased $28.3 million, or 0.4%8.8%, in the secondthird quarter of 2006 compared with the secondthird quarter of 2005, consistent with the decrease in2005. The increase was due to new agencies and additional revenues from direct operations. The decrease was primarily due to acquisitions of someexisting agencies, that were formerly independent, partially offset by the additionimpact of several large agenciesa higher interest rate environment that has impacted certain major markets and a decreasereduction in home sales.

Agency business increased during the ratiothree months ended September 30, 2006 due in part to new agencies added by us in Texas and Florida in 2006 and 2005. Revenues also increased because of refinancing transactions comparedthe acquisition of a New York title insurance underwriter with property sale transactions. We are unable to quantify the relative contributions from refinancing transactions and property sales because, in most jurisdictions, our independent agencies are not required to report this information.

REI revenues.Real estate information services revenues were $19.0$20.2 million and $20.7$22.8 million in the secondthird quarters of 2006 and 2005, respectively. The decrease in 2006 resulted primarily from reduced revenues related to post-closing services and electronic mortgage documents, and Internal Revenue Code Section 1031 tax-deferred property exchanges,partially offset partially by an increase in automated mapping services.services due to an acquisition. For the three months ended JuneSeptember 30, 2006, revenues and pretax earnings from our tax-deferred property exchange business were reduced due to a shift from taxable income to a higher percentage of tax-exempt income than was earned in the same period in the prior year.

Investments.Investment income increased $1.2$0.7 million, or 17.4%9.2%, in the secondthird quarter of 2006 compared with the secondthird quarter of 2005 due to higher yields and increases in average balances invested. Certain investment gains and losses were realized as part of the ongoing management of the investment portfolio for the purpose of improving performance. In the second quarter of 2005, investment and other gains included a pretax gain of $1.9 million realized from the sale of our ownership interest in an equity investee.

Retention by agencies.The amountsamount retained by agencies, as a percentage of revenues generated by them, were 80.8% and 81.9%was 81.0% in each of the secondthird quarters of 2006 and 2005, respectively.2005. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. The percentage that amounts retained by agencies bear to agency revenues may vary from period to period because of the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations.

Employee costs.Employee costs increased $9.8decreased $0.4 million, or 5.6%0.2%, in the three months ended JuneSeptember 30, 2006 compared with the three months ended JuneSeptember 30, 2005. Acquisitions increased employee costsWe continually monitor changes in transaction volume and have reduced staff levels by $4.4 million and 560 employees. In addition, employee costs were impacted by increased technology-related services, partially offset by reductions in staffing at certain offices. Health insurance claims and related premiums also increasedapproximately 300 employees, excluding the effect of new offices, during the second quarter of 2006 compared with 2005.

Other operating expenses.Other operating expenses increased 16.8%$3.8 million, or 3.9%, in the secondthird quarter of 2006 compared with the secondsame quarter of 2005. The increase in other operating expenses was partially due to acquisitions, which contributed approximately $4.7$2.6 million of the increase. Other secondthird quarter 2006 increases included technologyrent and litigationother occupancy costs, certain REI expenses, business promotion and technology costs. Other operating expenses also include rent, business promotion,search fees, premium taxes, search fees, certain REIsupplies, delivery expenses supplies, telephone and title plant expenses.insurance. Our employee costs and certain other operating expenses are sensitive to inflation.

Title losses.Provisions for title losses, as a percentage of title operating revenues, were 6.4%5.8% in the secondthird quarter of 2006 compared with 4.9%5.2% in the secondthird quarter of 2005. An increase in loss payment experience for the prior policy years resulted in an increase in our loss ratio in the secondthird quarter of 2006 compared with the secondthird quarter of 2005. An addition to title loss reserves of $4.9 million related to defalcations by two independent title agencies also contributed to the increase in our title loss ratio in the current quarter.

Income taxes.Our effective tax rates, based on earnings before taxes and after deducting minority interests ($24.422.1 million and $60.8$51.7 million for the three months ended JuneSeptember 30, 2006 and 2005, respectively), were 35.7%35.9% and 38.7%38.5% for the secondthird quarters of 2006 and 2005, respectively. For the three months ended JuneSeptember 30, 2006, our effective tax rate was positively impacted primarily by a higher ratio of tax-exempt income to earnings before taxes and after deducting minority interests than in the same period of the prior year.

 

Liquidity.Cash provided by operations was $12.8$55.1 million and $87.4$133.3 million for the first sixnine months of 2006 and 2005, respectively. Cash provided by operations decreased in the first six months of 2006 compared with 2005was reduced due to decreases in earnings, accounts and taxes payable and accrued liabilities and an increase in title loss payments. Cash flow from operations has been the primary source of financing for additions to property and equipment, expanding operations, dividends to stockholders and other requirements. This source is supplemented by bank borrowings, typically in connection with acquisitions.

The most significant non-operating source of cash was from proceeds of investments matured and sold in the amounts of $264.8$338.8 million and $258.1$395.6 million in the first sixnine months of 2006 and 2005, respectively. We used cash for the purchases of investments in the amounts of $209.5$315.3 million and $317.7$477.8 million in the first sixnine months of 2006 and 2005, respectively.

Unrealized gains and losses on investments, net of taxes, are reported in accumulated other comprehensive earnings, a component of stockholders’ equity, until realized. For the nine months ended September 30, 2006, unrealized investment gains increased comprehensive earnings by $0.4 million, net of taxes. During the first six months of 2006, unrealized investment losses reduced comprehensive earnings by $6.5 million, net of taxes. These unrealized investment losses were primarily related to changes in bond values caused by interest rate increases. The increase in comprehensive income related to unrealized investment gains during the quarter ended September 30, 2006 was primarily related to changes in bond values caused by interest rate decreases.

During the first sixnine months of 2006 and 2005, acquisitions resulted in additions to goodwill of $23.2$32.9 million and $20.4$25.8 million, respectively.

A substantial majority of our consolidated cash and investments at JuneSeptember 30, 2006 was held by Stewart Title Guaranty Company (Guaranty) and its subsidiaries. The use and investment of these funds, dividends to the Company, and cash transfers between Guaranty and its subsidiaries and the Company are subject to certain legal restrictions. See Notes 2 and 3 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005.

Our liquidity at JuneSeptember 30, 2006, excluding Guaranty and its subsidiaries, was comprised of cash and investments aggregating $54.8$54.7 million and short-term liabilities of $3.1$2.3 million. We know of no commitments or uncertainties that are likely to materially affect our ability to fund cash needs.

Loss reserves.Our loss reserves are fully funded, segregated and invested in high-quality securities and short-term investments. This is required by the insurance regulators of the states in which our underwriters are domiciled. At JuneSeptember 30, 2006, these investments aggregated $431.1$446.1 million and our estimated title loss reserves were $358.7$369.4 million.

Historically, our operating cash flow has been sufficient to pay all title policy losses incurred. Combining our expected annual cash flow provided by operations with investments maturing in less than one year, we do not expect future loss payments to create a liquidity problem for us. Beyond providing funds for losses,loss payments, we manage the maturities of our investment portfolio to provide safety of capital, improve earnings and mitigate interest rate risks.

Capital resourcesresources.. We consider our capital resources to be adequate. We expect external capital resources will be available, if needed, because of our low debt-to-equity ratio. Notes payable were $91.3$94.6 million and stockholders’ equity was $782.2$803.8 million at JuneSeptember 30, 2006. We are not aware of any trends, either favorable or unfavorable, that would materially affect notes payable or stockholders’ equity. We do not expect any material changes in the cost of such resources. Significant acquisitions in the future could materially affect the notes payable or stockholders’ equity balances.

Off-balance sheet arrangements.We do not have any material source of liquidity or financing that involves off-balance sheet arrangements.

Forward-looking statements.All statements included in this report, other than statements of historical facts, addressing activities, events or developments that we expect or anticipate will or may occur in the future, are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties including, among other things, adverse changes in the levels of real estate activity, technology changes, unanticipated title losses, adverse changes in governmental regulations, actions of competitors, general economic conditions and other risks and uncertainties discussed under Item 1A –— Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2005.

There have been no material changes in our investment strategies, types of financial instruments held or the risks associated with such instruments that would materially alter the market risk disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2005.

Our principal executive officers and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of JuneSeptember 30, 2006 have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

There have been no changes in our internal controls over financial reporting during the quarter ended JuneSeptember 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. As a result, no corrective actions were required or undertaken.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Also, internal controls over financial reporting can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal controls over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

We are also subject to routine lawsuits incidental to our business, most of which involve disputed policy claims. In many of these lawsuits, the plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial condition. Additionally, we have received various other inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance and we do not anticipate that the outcome of these inquiries will materially affect our consolidated financial condition. We, along with the other major title insurance companies, are party to a number of class actions concerning the title insurance industry. We believe that we have adequate reserves for these contingencies and that the likely resolution of these matters will not materially affect our consolidated financial condition.

Regulators periodically review title insurance premium rates and may seek reductions in the premium rates charged. The rates charged by title insurance underwriters in several statesTexas and Florida, from which we derive a material portion of our revenues, are currently under review with proposals to potentially enact significant premium rate decreases. These states include California Texas, Florida and New York.rates have been challenged by its Insurance Commissioner. We believe that under California law, rates are established competitively. While we cannot predict the outcome of these proposals, to the extent that rate decreases are enacted, our financial condition and results of operations and financial position will be adversely affected.

There have been no changes during the quarter ended JuneSeptember 30, 2006 to our risk factors as listed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

Pursuant to the requirements of the Securities and Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.