NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A — Basis of Financial Statements
The unaudited financial information in this report includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” or “FNF”) prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. All adjustments made were of a normal, recurring nature. This report should be read in conjunction with our Annual Report on Form 10-K (our "Annual Report") for the year ended
December 31, 2016
.
Description of the Business
We have organized our business into
two
groups, FNF Group and FNF Ventures ("FNFV").
Through FNF Group, we are a leading provider of (i) title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty products and (ii) technology and transaction services to the real estate and mortgage industries. FNF Group is the nation’s largest title insurance company operating through its title insurance underwriters - Fidelity National Title Insurance Company, Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company, Alamo Title Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services including title-related services and facilitation of production and management of mortgage loans.
Through FNFV group, our diversified investment holding company, we own majority and minority equity investment stakes in a number of entities, including American Blue Ribbon Holdings, LLC ("ABRH") and Ceridian HCM, Inc. ("Ceridian"), subject to an anticipated Split-Off, as described under
Recent Developments
in this Note A.
For information about our reportable segments refer to Note H
Segment Information
.
Recent Developments
On October 16, 2017, FNFV Group completed its acquisition of T-System Holdings LLC ("T-System") for
$200 million
in cash. T-System is a provider of clinical documentation and coding solutions to hospital-based and free-standing emergency departments and urgent care facilities. T-System offers software solutions providing clinical staff full workflow operations that drive documentation completeness and revenue optimization, and provides a full-service outsourced coding solution as well as a cloud-based SaaS solution for self-service coding.
On September 29, 2017, we completed our previously announced tax-free distribution, to FNF Group shareholders, of all
83.3 million
shares of New BKH Corp. ("New BKH") common stock that we previously owned (the “BK Distribution”). Immediately following the BK Distribution, New BKH and Black Knight Financial Services, Inc. ("Black Knight") engaged in a series of transactions resulting in the formation of a new publicly-traded holding company, Black Knight, Inc. ("New Black Knight"). Holders of FNF Group common stock received approximately
0.30663
shares of New Black Knight common stock for every one share of FNF Group common stock held at the close of business on September 20, 2017, the record date for the BK Distribution. New Black Knight's common stock is now listed under the symbol “BKI” on the New York Stock Exchange. The BK Distribution is expected to generally be tax-free to FNF Group shareholders for U.S. federal income tax purposes, except to the extent of any cash received in lieu of New Black Knight's fractional shares. As a result of the BK Distribution, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Condensed Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Condensed Consolidated Statements of Operations. See Note K.
Discontinued Operations
for further details of the results of Black Knight.
On August 31, 2017, FNF Group completed its acquisition of
90%
of the membership interests of Title Guaranty of Hawaii ("
Title Guaranty
") for
$98 million
.
Title Guaranty
was previously an unaffiliated agent of Chicago Title and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than
300
employees in branches across the State of Hawaii providing title insurance and real estate closing services. See Note J
Acquisitions
for further discussion.
On August 3, 2017, FNFV LLC entered into a definitive agreement (the "99 Merger Agreement"), by and among J. Alexander's Holdings, Inc. ("J. Alexander's"), its subsidiary J. Alexander's Holdings, LLC ("JAX Op"), Nitro Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of JAX Op, Fidelity Newport Holdings, LLC ("FNH", together with FNFV LLC, the "99 Sellers"), and 99 Restaurants, LLC ("99 Restaurants"), to merge Merger Sub with and into 99 Restaurants, whereupon the separate existence of Merger Sub shall cease and 99 Restaurants shall continue as the surviving company and a wholly-owned subsidiary of JAX Op
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
(the "99 Merger"). 99 Restaurants is the owner of our Ninety Nine Restaurant & Pub restaurant concept. Pursuant to the 99 Merger Agreement, FNH will exchange
100%
of its ownership interest in 99 Restaurants for common share equivalents of J. Alexander's (as described below).
Under the terms of the 99 Merger Agreement, 99 Restaurants will be valued at an enterprise value of
$199 million
, with consideration to be paid to the 99 Sellers by J. Alexander's and JAX Op consisting of newly issued equity valued at
$179 million
, issued in the form of
16.3 million
new Class B Units of JAX Op and
16.3 million
shares of new Class B Common Stock of J. Alexander's, and the assumption of
$20 million
of net debt. For purposes of the 99 Merger, each Class B Unit, together with one share of Class B Common Stock, will be issued at an agreed price of
$11.00
. Prior to the 99 Merger, 99 Restaurants will assume
$60 million
of currently outstanding debt of certain of its affiliates and FNFV LLC will contribute
$40 million
to 99 Restaurants in exchange for newly issued membership interest in 99 Restaurants. The proceeds of this cash contribution will be used by J. Alexander's to repay a portion of the assumed debt immediately following the closing of the 99 Merger. William P. Foley, II will join the J. Alexander's Board of Directors and it is expected that Lonnie J. Stout II will remain Chief Executive Officer of the combined company. Closing of the 99 Merger is contingent on customary closing conditions, including approval of the shareholders of J. Alexander's and certain regulatory clearances, and is expected late in the fourth quarter of 2017 or early in the first quarter of 2018.
On May 24, 2017, we entered into certain equity commitment letters (the “Equity Commitment Letters”) with CF Corporation, a Cayman Islands exempted company (“CFCOU”), relating to its plan of merger (the "Merger" or “Merger Agreement”), dated May 24, 2017, among CFCOU, Fidelity & Guaranty Life, a Delaware corporation (“FGL”), and the other parties thereto. Pursuant to the Equity Commitment Letters, the Company has committed (the "FNF Commitment"), on the terms and subject to the conditions set forth therein, at the closing under the Merger Agreement, to purchase, or cause the purchase of, equity of CFCOU for an aggregate cash purchase price equal to
$235 million
plus up to an aggregate of
$195 million
to offset any redemptions of CFCOU’s ordinary shares made in connection with its shareholder vote to approve the transaction. The cash purchase price of
$235 million
includes: (i)
$135 million
of ordinary shares of CFCOU for
$10.00
per share, and (ii)
$100 million
of preferred shares, plus additional amounts, if any, pursuant to the Company’s commitment to offset a portion of the redemptions of CFCOU’s ordinary shares, if any, and warrants. The shareholder vote was held on August 8, 2017 and the Merger was unanimously approved. No shareholders elected to have their public shares redeemed in connection with the Merger. Additionally, the Company has committed, on the terms and subject to the conditions set forth therein, at the Closing, to purchase, or cause the purchase of, equity of CFCOU for an aggregate cash purchase price equal to two-thirds (2/3) of the aggregate amount, if any, not funded by one or more purchasers under the forward purchase agreements between CFCOU, CF Capital Growth, LLC and the counterparties thereto, up to an aggregate amount of
$200 million
.
As consideration for the FNF Commitment and the agreements of the Company under the Equity Commitment Letters, the Company also entered into a fee letter agreement with CFCOU, dated May 24, 2017, pursuant to which CFCOU has agreed to pay to the Company the following fees at the closing of the Merger: (i) the original issue discount of
$2 million
in respect of the preferred shares; (ii) a commitment fee of
$3 million
; (iii) penny warrants convertible, in the aggregate, for
1.2%
of CFCOU’s ordinary shares (on a fully diluted basis); and (iv) if, and to the extent, any amount of the preferred equity under the Company’s backstop commitment is funded (the “Backstop Equity”), (x) a funding fee of
0.5%
of the amount of the Backstop Equity that is funded, and (y) penny warrants attached to the Backstop Equity that are convertible, in the aggregate, for the result of (1) the proportion of the Backstop Equity that is funded, and (2)
1.5%
of CFCOU’s ordinary shares. The Merger is expected to close in the fourth quarter of 2017, subject to the receipt of required regulatory approvals and other customary closing conditions. In addition to the Equity Commitment Letters and FNF Commitment, the Company holds
$37 million
of equity securities of CFCOU as of September 30, 2017. The Company’s non-executive Chairman, William P. Foley, II, is also the Co-Executive Chairman of CF Corporation.
On May 22, 2017, FNF Group completed its acquisition of Hudson & Marshall, LLC ("H&M"), a full-service auction company and one of the nation's top real estate and property auction providers, for
$53 million
. FNF and H&M expect to partner to further enhance the services FNF can provide to its lender, servicer and real estate agent relationships. Additionally, H&M will be hosting ServiceLink Auction, a new, full-service auction platform that will be integrated with ServiceLink's suite of products and technologies.
On May 5, 2017, we signed a definitive agreement to sell Digital Insurance, LLC ("OneDigital") for
$560 million
in an all-cash transaction. The sale was finalized on June 6, 2017. After repayment of debt, payout to option holders and a minority equity investor and other transaction related payments, FNFV Group received
$331 million
from the sale, which includes
$325 million
of cash and
$5 million
of purchase price holdback receivable. We recognized a pre-tax gain of
$276 million
on the sale which is included in Realized gains and losses, net on the Condensed Consolidated Statement of Earnings. We retained no ownership in OneDigital and have no continuing involvement with OneDigital as of the date of the sale.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
On May 3, 2017, our Board of Directors adopted a resolution to increase the size of our Board of Directors to
thirteen
and elected Heather H. Murren to serve on our Board of Directors. Ms. Murren will serve in Class I of our Board of Directors, and her term will expire at the annual meeting of our shareholders to be held in 2018. At this time, Ms. Murren has not been appointed to any committee of our Board.
Effective March 1, 2017,
three
of the Company’s title insurance underwriters, Fidelity National Title Insurance Company, Chicago Title Insurance Company and Commonwealth Land Title Insurance Company, redomesticated from their former states of domicile to Florida (the "Redomestication"). In conjunction with the Redomestication, the Company received a special dividend from these title insurance underwriters of
$280 million
on March 15, 2017.
On December 7, 2016, we announced that our Board of Directors approved a tax-free plan (the "Split-off" or "Split-off Plan") whereby we intend to redeem all FNFV shares in exchange for shares of common stock of Cannae Holdings, Inc ("Cannae"). Following the distribution, FNF and Cannae will each be independent, fully-distributed, publicly-traded common stocks, with FNF and FNFV no longer being tracking stocks. At or near closing of the Split-off, we anticipate making a
$100 million
equity investment in Cannae. In addition, our current
$100 million
undrawn intercompany line of credit with FNFV will continue with Cannae upon consummation of the Split-off Plan. On May 10, 2017 we received the private letter ruling from the Internal Revenue Service ("IRS") approving certain aspects relating to the Split-off Plan. The Split-off Plan is subject to the filing and acceptance of a registration statement with the Securities and Exchange Commission (the "SEC"), FNFV shareholder approval and other customary closing conditions. On October 19, 2017, the SEC declared the registration statement for the Split-off Plan effective and the proxy statement was mailed to shareholders. A special meeting of stockholders to approve the Split-off Plan will be held on November 17, 2017 and we expect to close on such date.
Earnings Per Share
Basic earnings per share, as presented on the Condensed Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders in a given period by the weighted average number of common shares outstanding during such period. In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted earnings per share is equal to basic earnings per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain stock options, shares of restricted stock, convertible debt instruments and certain other convertible share based payments which have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.
Options or other instruments which provide the ability to purchase shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. There were
no
antidilutive options outstanding during the three or nine-month periods ended
September 30, 2017
. There were
two million
antidilutive options outstanding during the three and nine months ended September 30, 2016.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09,
Revenue from Contracts with Customers
(Topic 606)
. This ASU provides a new comprehensive revenue recognition model that requires companies to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update permits the use of either the retrospective or cumulative effect transition method. ASU No. 2016-08,
Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations
was issued by FASB in March 2016 to clarify the principal versus agent considerations within ASU 2014-09. ASU 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
was issued by the FASB in April 2016 to clarify how to determine whether goods and services are separately identifiable and thus accounted for as separate performance obligations. ASU 2016-12
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
was issued by the FASB in May 2016 to clarify certain terms from the aforementioned updates and to add practical expedients for contracts at various stages of completion. ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, was issued by the FASB in December 2016 which includes thirteen technical corrections and improvements affecting narrow aspects of the guidance issued in ASU 2014-09.
We have materially completed our analysis of the impact of the standards and have concluded that these standards will not have a material impact on our accounting or reporting.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Upon issuance of ASU 2015-14, the effective date of ASU 2014-09 was deferred to annual and interim periods beginning on or after December 15, 2017. We will adopt the guidance on January 1, 2018. Either of the following transition methods is permitted: (i) a full retrospective approach reflecting the application of the new standard in each prior reporting period, or (ii) a modified retrospective approach with a cumulative-effect adjustment to the opening balance of retained earnings in the year the new standard is first applied. We plan to transition to this new guidance using the modified retrospective approach.
Other Pronouncements
In January 2016, the FASB issued ASU No. 2016-01
Financial Instruments - Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. The primary amendments required by the ASU include: requiring equity investments with readily determinable fair values to be measured at fair value through net income rather than through other comprehensive income; allowing entities with equity investments without readily determinable fair values to report the investments at cost, adjusted for changes in observable prices, less impairment; requiring entities that elect the fair value option for financial liabilities to report the change in fair value attributable to instrument-specific credit risk in other comprehensive income; and clarifying that entities should assess the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities in combination with other deferred tax assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU requires a cumulative-effect adjustment of the balance sheet as of the beginning of the year of adoption. Early adoption of the ASU is not permitted, except for the provision related to financial liabilities for which the fair value option has been elected. We have completed our evaluation of the effects this new guidance will have on our consolidated financial statements and related disclosures and have determined that the ASU will result in: (1) reclassification of our unrealized gains and losses on our equity and preferred securities available for sale currently included in accumulated other comprehensive income to beginning retained earnings as of January 1, 2018 and (2) changes in fair value of our equity and preferred securities available for sale subsequent to January 1, 2018 to be included in our earnings from continuing operations. As of September 30, 2017, we held equity and preferred securities available for sale with combined net unrealized gains (net of losses) of
$160 million
and
$14 million
, respectively. Including the associated effects of deferred taxes, based on the net of tax balances as of September 30, 2017, we expect to reclassify a total of approximately
$106 million
from Accumulated other comprehensive income to beginning Retained earnings as of January 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02
Leases (Topic 842)
. The amendments in this ASU introduce broad changes to the accounting and reporting for leases by lessees. The main provisions of the new standard include: clarifications to the definitions of a lease, components of leases, and criteria for determining lease classification; requiring virtually all leased assets, including operating leases and related liabilities, to be reflected on the lessee's balance sheet; and expanding and adding to the required disclosures for lessees. This update is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the standard is permitted. The ASU requires a modified retrospective approach to transitioning which allows for the use of practical expedients to effectively account for leases commenced prior to the effective date in accordance with previous GAAP, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. We are still evaluating the totality of the effects this new guidance will have on our business process and systems, consolidated financial statements, and related disclosures. We have identified a vendor with software suited to track and account for leases under the new standard. We have not concluded on the anticipated financial statement effects of adoption. We plan to adopt this standard on January 1, 2019.
In June 2016, the FASB issued ASU No. 2016-13
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
. The amendments in this ASU introduce broad changes to accounting for credit impairment of financial instruments. The primary updates include the introduction of a new current expected credit loss ("CECL") model that is based on expected rather than incurred losses and amendments to the accounting for impairment of debt securities available for sale. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures and have not yet concluded on its effects. We do not plan to early adopt the standard.
In August 2016, the FASB issued ASU No. 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees, and cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
presented upon adoption. We have materially completed our analysis of the effects of this ASU on our consolidated financial statements and related disclosures with regard to all aspects except for the provisions related to distributions from equity method investees. Excluding the provisions related to distributions from equity method investees, we do not anticipate this ASU will have a material impact on our consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18
Statement of Cash Flows (Topic 230): Restricted Cash
. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. GAAP currently does not include specific guidance on the cash flow classification and presentation of changes in restricted cash. The Company currently excludes cash pledged related to secured trust deposits, which generally meets the definition of restricted cash, from the reconciliation of beginning-of-period to end-of-period total amounts shown on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures and have not yet concluded on its effects.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
to assist companies with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The new guidance requires a company to evaluate if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the guidance for revenue from contracts with customers. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The guidance should be applied prospectively to any transactions occurring within the period of adoption. We do not expect this standard to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
The guidance simplifies the measurement of goodwill impairment by removing step 2 of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit. The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis. The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We have completed our evaluation of the effect this new guidance will have on our consolidated financial statements and related disclosures and have concluded that the effect will not be material. We do not expect to early adopt this standard.
In March 2017, the FASB issued ASU No. 2017-08,
Receivables-Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities
. The amendments in this ASU shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount. This update is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. We early adopted the standard as of January 1, 2017. The adoption of this standard did not have a material impact on our financial statements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
|
|
Note B.
|
Summary of Reserve for Claim Losses
|
A summary of the reserve for claim losses follows:
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
2017
|
|
2016
|
|
(Dollars in millions)
|
Beginning balance
|
$
|
1,487
|
|
|
$
|
1,583
|
|
Change in reinsurance recoverable
|
(4
|
)
|
|
(2
|
)
|
Claim loss provision related to:
|
|
|
|
|
|
Current year
|
174
|
|
|
180
|
|
Prior years
|
7
|
|
|
10
|
|
Total title claim loss provision
|
181
|
|
|
190
|
|
Claims paid, net of recoupments related to:
|
|
|
|
|
|
Current year
|
(4
|
)
|
|
(3
|
)
|
Prior years
|
(164
|
)
|
|
(166
|
)
|
Total title claims paid, net of recoupments
|
(168
|
)
|
|
(169
|
)
|
Ending balance of claim loss reserve for title insurance
|
$
|
1,496
|
|
|
$
|
1,602
|
|
Provision for title insurance claim losses as a percentage of title insurance premiums
|
5.0
|
%
|
|
5.5
|
%
|
We continually update loss reserve estimates as new information becomes known, new loss patterns emerge, or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.
Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves.
If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that our recorded reserves may fall outside a reasonable range of our actuary's central estimate, which may require additional reserve adjustments in future periods.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note C — Fair Value Measurements
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of
September 30, 2017
and
December 31, 2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In millions)
|
Fixed maturity securities available for sale:
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
155
|
|
State and political subdivisions
|
—
|
|
|
495
|
|
|
—
|
|
|
495
|
|
Corporate debt securities
|
—
|
|
|
1,368
|
|
|
—
|
|
|
1,368
|
|
Mortgage-backed/asset-backed securities
|
—
|
|
|
64
|
|
|
—
|
|
|
64
|
|
Foreign government bonds
|
—
|
|
|
72
|
|
|
—
|
|
|
72
|
|
Preferred stock available for sale
|
23
|
|
|
298
|
|
|
—
|
|
|
321
|
|
Equity securities available for sale
|
457
|
|
|
—
|
|
|
—
|
|
|
457
|
|
Total assets
|
$
|
480
|
|
|
$
|
2,452
|
|
|
$
|
—
|
|
|
$
|
2,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In millions)
|
Fixed maturity securities available for sale:
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
—
|
|
|
$
|
117
|
|
State and political subdivisions
|
—
|
|
|
615
|
|
|
—
|
|
|
615
|
|
Corporate debt securities
|
—
|
|
|
1,533
|
|
|
—
|
|
|
1,533
|
|
Mortgage-backed/asset-backed securities
|
—
|
|
|
58
|
|
|
—
|
|
|
58
|
|
Foreign government bonds
|
—
|
|
|
109
|
|
|
—
|
|
|
109
|
|
Preferred stock available for sale
|
32
|
|
|
283
|
|
|
—
|
|
|
315
|
|
Equity securities available for sale
|
438
|
|
|
—
|
|
|
—
|
|
|
438
|
|
Total assets
|
$
|
470
|
|
|
$
|
2,715
|
|
|
$
|
—
|
|
|
$
|
3,185
|
|
Our Level 2 fair value measures for fixed-maturities available for sale are provided by third-party pricing services. We utilize
one
firm for our taxable bond and preferred stock portfolio and another for our tax-exempt bond portfolio. These pricing services are leading global providers of financial market data, analytics and related services to financial institutions. We rely on
one
price for each instrument to determine the carrying amount of the assets on our balance sheet. The inputs utilized in these pricing methodologies include observable measures such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. We review the pricing methodologies for all of our Level 2 securities by obtaining an understanding of the valuation models and assumptions used by the third-party as well as independently comparing the resulting prices to other publicly available measures of fair value. The pricing methodologies used by the relevant third-party pricing services are as follows:
|
|
•
|
U.S. government and agencies: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers.
|
|
|
•
|
State and political subdivisions: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers. Factors considered include relevant trade information, dealer quotes and other relevant market data.
|
|
|
•
|
Corporate debt securities: These securities are valued based on dealer quotes and related market trading activity. Factors considered include the bond's yield, its terms and conditions, and any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
|
|
|
•
|
Mortgage-backed/asset-backed securities: These securities are comprised of agency mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. They are valued based on available trade information, dealer quotes, cash flows, relevant indices and market data for similar assets in active markets.
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
|
|
•
|
Foreign government bonds: These securities are valued based on a discounted cash flow model incorporating observable market inputs such as available broker quotes and yields of comparable securities.
|
|
|
•
|
Preferred stocks: These securities are valued by calculating the appropriate spread over a comparable U.S. Treasury security. Inputs include benchmark quotes and other relevant market data.
|
As of
September 30, 2017
and
December 31, 2016
, we held
no
material assets or liabilities measured at fair value using Level 3 inputs.
The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature. Additional information regarding the fair value of our investment portfolio is included in Note D
Investments
.
Note D — Investments
The carrying amounts and fair values of our available for sale securities at
September 30, 2017
and
December 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Carrying
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Value
|
|
Basis
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In millions)
|
Fixed maturity securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
155
|
|
|
$
|
155
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
155
|
|
State and political subdivisions
|
495
|
|
|
486
|
|
|
9
|
|
|
—
|
|
|
495
|
|
Corporate debt securities
|
1,368
|
|
|
1,356
|
|
|
17
|
|
|
(5
|
)
|
|
1,368
|
|
Mortgage-backed/asset-backed securities
|
64
|
|
|
63
|
|
|
1
|
|
|
—
|
|
|
64
|
|
Foreign government bonds
|
72
|
|
|
73
|
|
|
1
|
|
|
(2
|
)
|
|
72
|
|
Preferred stock available for sale
|
321
|
|
|
307
|
|
|
15
|
|
|
(1
|
)
|
|
321
|
|
Equity securities available for sale
|
457
|
|
|
297
|
|
|
166
|
|
|
(6
|
)
|
|
457
|
|
Total
|
$
|
2,932
|
|
|
$
|
2,737
|
|
|
$
|
209
|
|
|
$
|
(14
|
)
|
|
$
|
2,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Value
|
|
Basis
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In millions)
|
Fixed maturity securities available for sale:
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
117
|
|
|
$
|
117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
117
|
|
State and political subdivisions
|
615
|
|
|
607
|
|
|
9
|
|
|
(1
|
)
|
|
615
|
|
Corporate debt securities
|
1,533
|
|
|
1,524
|
|
|
15
|
|
|
(6
|
)
|
|
1,533
|
|
Mortgage-backed/asset-backed securities
|
58
|
|
|
56
|
|
|
2
|
|
|
—
|
|
|
58
|
|
Foreign government bonds
|
109
|
|
|
117
|
|
|
—
|
|
|
(8
|
)
|
|
109
|
|
Preferred stock available for sale
|
315
|
|
|
312
|
|
|
6
|
|
|
(3
|
)
|
|
315
|
|
Equity securities available for sale
|
438
|
|
|
323
|
|
|
115
|
|
|
—
|
|
|
438
|
|
Total
|
$
|
3,185
|
|
|
$
|
3,056
|
|
|
$
|
147
|
|
|
$
|
(18
|
)
|
|
$
|
3,185
|
|
The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or accreted discount since the date of purchase.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
The following table presents certain information regarding contractual maturities of our fixed maturity securities at
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
Amortized
|
|
% of
|
|
Fair
|
|
% of
|
Maturity
|
|
Cost
|
|
Total
|
|
Value
|
|
Total
|
|
|
(Dollars in millions)
|
One year or less
|
|
$
|
626
|
|
|
29
|
%
|
|
$
|
628
|
|
|
29
|
%
|
After one year through five years
|
|
1,386
|
|
|
66
|
|
|
1,402
|
|
|
65
|
|
After five years through ten years
|
|
50
|
|
|
2
|
|
|
52
|
|
|
2
|
|
After ten years
|
|
8
|
|
|
—
|
|
|
8
|
|
|
1
|
|
Mortgage-backed/asset-backed securities
|
|
63
|
|
|
3
|
|
|
64
|
|
|
3
|
|
Total
|
|
$
|
2,133
|
|
|
100
|
%
|
|
$
|
2,154
|
|
|
100
|
%
|
Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed and asset-backed securities, they are not categorized by contractual maturity.
Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at
September 30, 2017
and
December 31, 2016
, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
Corporate debt securities
|
$
|
241
|
|
|
$
|
(5
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
241
|
|
|
$
|
(5
|
)
|
Foreign government bonds
|
42
|
|
|
(1
|
)
|
|
10
|
|
|
(1
|
)
|
|
52
|
|
|
(2
|
)
|
Preferred stock available for sale
|
—
|
|
|
—
|
|
|
4
|
|
|
(1
|
)
|
|
4
|
|
|
(1
|
)
|
Equity securities available for sale
|
44
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
44
|
|
|
(6
|
)
|
Total temporarily impaired securities
|
$
|
327
|
|
|
$
|
(12
|
)
|
|
$
|
14
|
|
|
$
|
(2
|
)
|
|
$
|
341
|
|
|
$
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
States and political subdivisions
|
$
|
107
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
(1
|
)
|
Corporate debt securities
|
410
|
|
|
(4
|
)
|
|
11
|
|
|
(2
|
)
|
|
421
|
|
|
(6
|
)
|
Foreign government bonds
|
85
|
|
|
(4
|
)
|
|
20
|
|
|
(4
|
)
|
|
105
|
|
|
(8
|
)
|
Preferred stock available for sale
|
55
|
|
|
(2
|
)
|
|
42
|
|
|
(1
|
)
|
|
97
|
|
|
(3
|
)
|
Total temporarily impaired securities
|
$
|
657
|
|
|
$
|
(11
|
)
|
|
$
|
73
|
|
|
$
|
(7
|
)
|
|
$
|
730
|
|
|
$
|
(18
|
)
|
We recorded
no
impairment charges relating to investments during the three-month period ended
September 30, 2017
. We recorded
$1 million
in impairment charges relating to investments during the nine-month period ended
September 30, 2017
relating to a fixed maturity security of an investee entering Chapter 11 bankruptcy which has exhibited a decreasing fair market value and from which we are uncertain of our ability to recover our initial investment. We recorded
$2 million
in impairment charges relating to investments during the three-month period ended
September 30, 2016
related to a fixed maturity security in which we determined the ability to recover our investment was unlikely. We recorded
$5 million
in impairment charges related to investments during the nine-month period ended
September 30, 2016
related to a fixed maturity security and an investment in an unconsolidated affiliate in which we determined the ability to recover our investment was unlikely.
As of
September 30, 2017
, we held
$1 million
in available for sale securities for which an other-than-temporary impairment had been previously recognized. As of December 31, 2016, we held
$7 million
in fixed maturity and equity securities for which
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
an other-than-temporary impairment had been previously recognized. It is possible that future events may lead us to recognize impairment losses related to our investment portfolio and that unanticipated future events may lead us to dispose of certain investment holdings and recognize the effects of any market movements in our condensed consolidated financial statements.
The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the three- and
nine
-month periods ended
September 30, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
Nine months ended September 30, 2017
|
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
|
(In millions)
|
|
(In millions)
|
Fixed maturity securities available for sale
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
$
|
170
|
|
|
$
|
5
|
|
|
$
|
(6
|
)
|
|
$
|
(1
|
)
|
|
$
|
610
|
|
Preferred stock available for sale
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Equity securities available for sale
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
5
|
|
|
32
|
|
Gain on sale of OneDigital
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
276
|
|
|
325
|
|
Loss on debt conversions
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
|
(6
|
)
|
|
—
|
|
Other intangible assets
|
|
|
|
|
|
(3
|
)
|
|
—
|
|
|
|
|
|
|
(3
|
)
|
|
—
|
|
Other long term investments
|
|
|
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
8
|
|
|
19
|
|
Other realized gains and losses, net
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
(2
|
)
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
175
|
|
|
|
|
|
|
$
|
277
|
|
|
$
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2016
|
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
|
(In millions)
|
|
(In millions)
|
Fixed maturity securities available for sale
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
$
|
156
|
|
|
$
|
3
|
|
|
$
|
(4
|
)
|
|
$
|
(1
|
)
|
|
$
|
505
|
|
Preferred stock available for sale
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
—
|
|
—
|
|
|
1
|
|
|
9
|
|
Equity securities available for sale
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
(1
|
)
|
|
(1
|
)
|
|
1
|
|
Investments in unconsolidated affiliates
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
(3
|
)
|
|
—
|
|
Other long-term investments
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
15
|
|
|
36
|
|
Other assets
|
|
|
|
|
|
(2
|
)
|
|
—
|
|
|
|
|
|
|
(6
|
)
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
(4
|
)
|
|
$
|
156
|
|
|
|
|
|
|
$
|
5
|
|
|
$
|
551
|
|
Investments in unconsolidated affiliates are recorded using the equity method of accounting. As of
September 30, 2017
and
December 31, 2016
, investments in unconsolidated affiliates consisted of the following (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Ownership
|
|
September 30, 2017
|
|
December 31, 2016
|
Ceridian
|
33
|
%
|
|
$
|
369
|
|
|
$
|
371
|
|
Other
|
Various
|
|
|
189
|
|
|
187
|
|
Total
|
|
|
$
|
558
|
|
|
$
|
558
|
|
In addition to our equity investment in Ceridian, we own certain of their outstanding bonds. Our investment in Ceridian bonds is included in Fixed maturity securities available for sale on the Condensed Consolidated Balance Sheets and had a fair value of
$31 million
and
$30 million
as of
September 30, 2017
and
December 31, 2016
, respectively. We did not purchase or dispose of any Ceridian bonds in the
nine
-month period ended
September 30, 2017
.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
During the
three
-month periods ended
September 30, 2017
and
2016
, we recorded $
6 million
and $
10 million
in equity in losses of Ceridian, respectively, and $
3 million
in equity in earnings of other unconsolidated affiliates. During the
nine
-month periods ended
September 30, 2017
and
2016
, we recorded
$15 million
in equity in losses of Ceridian, and
$8 million
and
$9 million
in equity in earnings of other unconsolidated affiliates, respectively.
Summarized, unaudited financial information for Ceridian for the relevant dates and time periods included in Investments in unconsolidated affiliates and Equity in losses of unconsolidated affiliates in our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Earnings, respectively, is presented below.
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
|
(In millions)
|
Total current assets before customer funds
|
$
|
309
|
|
|
$
|
343
|
|
Customer funds
|
3,481
|
|
|
3,703
|
|
Goodwill and other intangible assets, net
|
2,309
|
|
|
2,291
|
|
Other assets
|
97
|
|
|
90
|
|
Total assets
|
$
|
6,196
|
|
|
$
|
6,427
|
|
Current liabilities before customer obligations
|
$
|
145
|
|
|
$
|
201
|
|
Customer obligations
|
3,480
|
|
|
3,692
|
|
Long-term obligations, less current portion
|
1,119
|
|
|
1,140
|
|
Other long-term liabilities
|
264
|
|
|
301
|
|
Total liabilities
|
5,008
|
|
|
5,334
|
|
Equity
|
1,188
|
|
|
1,093
|
|
Total liabilities and equity
|
$
|
6,196
|
|
|
$
|
6,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2017
|
|
Three months ended September 30, 2016
|
|
Nine months ended September 30, 2017
|
|
Nine months ended September 30, 2016
|
|
(In millions)
|
|
(In millions)
|
Total revenues
|
$
|
185
|
|
|
$
|
170
|
|
|
$
|
548
|
|
|
$
|
515
|
|
Loss before income taxes
|
(16
|
)
|
|
(31
|
)
|
|
(46
|
)
|
|
(71
|
)
|
Net loss
|
(20
|
)
|
|
(35
|
)
|
|
(54
|
)
|
|
(59
|
)
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note E —Notes Payable
Notes payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
|
|
(In millions)
|
Unsecured notes, net of discount, interest payable semi-annually at 5.50%, due September 2022
|
|
$
|
397
|
|
|
$
|
397
|
|
Unsecured convertible notes, net of discount, interest payable semi-annually at 4.25%, due August 2018
|
|
68
|
|
|
291
|
|
Unsecured notes, net of discount, interest payable semi-annually at 6.60%, due May 2017
|
|
—
|
|
|
300
|
|
Revolving Credit Facility, unsecured, unused portion of $500, due April 2022 with interest payable monthly at LIBOR + 1.40% (2.66% at September 30, 2017)
|
|
295
|
|
|
(3
|
)
|
ABRH Term Loan, interest payable monthly at LIBOR + 3.0% (4.24% at September 30, 2017), due August 2019
|
|
86
|
|
|
92
|
|
OneDigital Revolving Credit Facility, due March 2022 with interest payable monthly at LIBOR + 2.50% - 3.50%
|
|
—
|
|
|
129
|
|
ABRH Revolving Credit Facility, unused portion of $14, due August 2019 with interest payable monthly or quarterly at various rates
|
|
30
|
|
|
—
|
|
Other
|
|
14
|
|
|
14
|
|
|
|
$
|
890
|
|
|
$
|
1,220
|
|
At
September 30, 2017
, the estimated fair value of our long-term debt was approximately
$1,056 million
, which was
$155 million
higher than its carrying value, excluding
$11 million
of net unamortized debt issuance costs and premium/discount. The carrying values of our ABRH term loan and ABRH revolving credit facility approximate the fair values at
September 30, 2017
as they are variable rate instruments with short reset periods which reflect current market rates. The fair value of our unsecured notes payable was
$624 million
as of
September 30, 2017
. The fair values of our unsecured notes payable are based on established market prices for the securities on
September 30, 2017
and are considered Level 2 financial liabilities. The revolving credit facilities are considered Level 2 financial liabilities.
On August 19, 2014, ABRH entered into a credit agreement (the “ABRH Credit Facility”) with Wells Fargo Bank, National Association as administrative agent, Swingline Lender and Issuing Lender (the “ABRH Administrative Agent”), Bank of America, N.A. as syndication agent and the other financial institutions party thereto. The ABRH Credit Facility was amended on February 24, 2017. The material terms of the ABRH Credit Facility are set forth in our Annual Report on Form 10-K for the year ended December 31, 2016, including the material terms of the amendment on February 24, 2017, and have not been amended since the filing of such Annual Report. As of
September 30, 2017
, ABRH had
$86 million
outstanding for the ABRH Term Loan, had
$30 million
outstanding under the ABRH Revolver, had
$16 million
of outstanding letters of credit and had
$14 million
of remaining borrowing capacity under the ABRH Credit Facility. As of
September 30, 2017
,
$19 million
of borrowings under the ABRH Revolver incurred interest monthly at
4.24%
and
$11 million
of borrowings incurred interest quarterly at
6.25%
.
On June 25, 2013, FNF entered into an agreement to amend and restate our existing
$800 million
Second Amended and Restated Credit Agreement (the “Existing Credit Agreement”), dated as of April 16, 2012 with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and the other agents party thereto (the “Revolving Credit Facility”). On April 27, 2017, the Revolving Credit Facility was amended (the "Restated Credit Agreement") to extend the term for
5
years, from a maturity date of July 15, 2018 to April 27, 2022 and to update the interest rate. Revolving loans under the Restated Credit Agreement generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a)
one-half
of
one
percent in excess of the federal funds rate, (b) the Administrative Agent’s “prime rate”, or (c) the sum of
one
percent plus
one
-month LIBOR) plus a margin of between
10.0
and
60.0
basis points depending on the senior unsecured long-term debt ratings of the Company or (ii) LIBOR plus a margin of between
110.0
and
160.0
basis points depending on the senior unsecured long-term debt ratings of the Company. At the current Standard & Poor’s and Moody’s senior unsecured long-term debt ratings of BBB/Baa3, respectively, the applicable margin for revolving loans subject to LIBOR is
140
basis points. In addition, the Company will pay a commitment fee of between
15.0
and
40.0
basis points on the entire facility, also depending on the Company’s senior unsecured long-term debt ratings. All other material terms of the Revolving Credit Facility are the same as those set forth in our Annual Report for the year ended December 31, 2016. As of
September 30, 2017
, there was
$295 million
outstanding, net of
$5 million
of unamortized debt issuance costs, and
$500 million
of remaining borrowing capacity under the Revolving Credit Facility.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
On August 28, 2012, FNF completed an offering of
$400 million
in aggregate principal amount of
5.50%
notes due September 2022 (the "
5.50%
notes"), pursuant to an effective registration statement previously filed with the SEC. The material terms of the
5.50%
notes are set forth in our Annual Report for the year ended December 31, 2016.
On August 2, 2011, FNF completed an offering of
$300 million
in aggregate principal amount of
4.25%
convertible senior notes due August 2018 (the "Notes") in an offering conducted in accordance with Rule 144A under the Securities Act of 1933, as amended. The material terms of the Notes are set forth in our Annual Report for the year ended December 31, 2016, except to clarify that it is now our intent to settle conversions through cash settlement. Beginning October 1, 2013, these notes are convertible under the
130%
Sale Price Condition described in our Annual Report. During the nine months ended
September 30, 2017
, we repurchased Notes with aggregate principal of
$229 million
for
$548 million
.
On May 5, 2010, FNF completed an offering of
$300 million
in aggregate principal amount of our
6.60%
notes due May 2017 (the "
6.60%
Notes"), pursuant to an effective registration statement previously filed with the SEC. The material terms of the
6.60%
Notes are set forth in our Annual Report for the year ended December 31, 2016. In May 2017, we paid off the
6.60%
Notes in full using proceeds from borrowings under the Revolving Credit Facility.
|
|
|
|
|
Gross principal maturities of notes payable at September 30, 2017 are as follows (in millions):
|
|
2017 (remaining)
|
$
|
3
|
|
2018
|
79
|
|
2019
|
106
|
|
2020
|
1
|
|
2021
|
—
|
|
Thereafter
|
712
|
|
|
$
|
901
|
|
Note F — Commitments and Contingencies
Legal and Regulatory Contingencies
In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. With respect to our title insurance operations, this customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. Additionally, like other companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any, depart from customary litigation incidental to our business.
Our Restaurant Group companies are a defendant from time to time in various legal proceedings arising in the ordinary course of business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue us based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of the restaurants; individual and purported class or collective action claims alleging violation of federal and state employment, franchise and other laws; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns. Our Restaurant Group companies are also subject to compliance with extensive government laws and regulations related to employment practices and policies and the manufacture, preparation, and sale of food and alcohol. We may also become subject to lawsuits and other proceedings, as well as card network fines and penalties, arising out of the actual or alleged theft of our customers' credit or debit card information.
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Our accrual for legal and regulatory matters was
$2 million
as of
September 30, 2017
and
$69 million
as of
December 31, 2016
. During the quarter ended March 31, 2017, ServiceLink paid
$65 million
to settle all remaining obligations to complete the document execution review under the 2011 LPS consent order with certain banking agencies. Details of the consent order and the terms of the settlement are set forth in Note M to the Consolidated Financial Statements in our Annual Report for the year ended December 31, 2016. None of the amounts we have currently recorded are considered to be material to our financial condition individually or in the aggregate. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to our operating
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which may require us to pay fines or claims or take other actions.
Operating Leases
Future minimum operating lease payments are as follows (in millions):
|
|
|
|
|
2017 (remaining)
|
$
|
53
|
|
2018
|
202
|
|
2019
|
173
|
|
2020
|
138
|
|
2021
|
107
|
|
Thereafter
|
240
|
|
Total future minimum operating lease payments
|
$
|
913
|
|
Note G — Dividends
On
October 25, 2017
, our Board of Directors declared cash dividends of $
0.27
per share, payable on
December 29, 2017
, to FNF Group common shareholders of record as of
December 15, 2017
.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note H — Segment Information
Summarized financial information concerning our reportable segments is shown in the following tables.
On September 29, 2017, we completed the BK Distribution. As a result, Black Knight is no longer a reportable segment and the historical results of Black Knight are presented as discontinued operations for all periods presented and are excluded in the following tables. Refer to Note K
Discontinued Operations
for further discussion of the results of Black Knight.
As of and for the
three
months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
FNF Group Corporate and Other
|
|
Total FNF Group
|
|
Restaurant Group
|
|
FNFV Corporate
and Other
|
|
Total FNFV
|
|
Total
|
|
(In millions)
|
Title premiums
|
$
|
1,277
|
|
|
$
|
—
|
|
|
$
|
1,277
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,277
|
|
Other revenues
|
563
|
|
|
115
|
|
|
678
|
|
|
—
|
|
|
11
|
|
|
11
|
|
|
689
|
|
Restaurant revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
269
|
|
|
—
|
|
|
269
|
|
|
269
|
|
Revenues from external customers
|
1,840
|
|
|
115
|
|
|
1,955
|
|
|
269
|
|
|
11
|
|
|
280
|
|
|
2,235
|
|
Interest and investment income, including realized gains and losses
|
32
|
|
|
(1
|
)
|
|
31
|
|
|
(3
|
)
|
|
2
|
|
|
(1
|
)
|
|
30
|
|
Total revenues
|
1,872
|
|
|
114
|
|
|
1,986
|
|
|
266
|
|
|
13
|
|
|
279
|
|
|
2,265
|
|
Depreciation and amortization
|
40
|
|
|
6
|
|
|
46
|
|
|
11
|
|
|
1
|
|
|
12
|
|
|
58
|
|
Interest expense
|
—
|
|
|
11
|
|
|
11
|
|
|
2
|
|
|
(1
|
)
|
|
1
|
|
|
12
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
|
262
|
|
|
(20
|
)
|
|
242
|
|
|
(19
|
)
|
|
(2
|
)
|
|
(21
|
)
|
|
221
|
|
Income tax expense (benefit)
|
98
|
|
|
(10
|
)
|
|
88
|
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
|
74
|
|
Earnings (loss) from continuing operations, before equity in earnings (loss) of unconsolidated affiliates
|
164
|
|
|
(10
|
)
|
|
154
|
|
|
(19
|
)
|
|
12
|
|
|
(7
|
)
|
|
147
|
|
Equity in earnings (losses) of unconsolidated affiliates
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
|
(3
|
)
|
Earnings (loss) from continuing operations
|
$
|
167
|
|
|
$
|
(10
|
)
|
|
$
|
157
|
|
|
$
|
(19
|
)
|
|
$
|
6
|
|
|
$
|
(13
|
)
|
|
$
|
144
|
|
Assets
|
$
|
8,510
|
|
|
$
|
680
|
|
|
$
|
9,190
|
|
|
$
|
478
|
|
|
$
|
833
|
|
|
$
|
1,311
|
|
|
$
|
10,501
|
|
Goodwill
|
2,431
|
|
|
252
|
|
|
2,683
|
|
|
101
|
|
|
—
|
|
|
101
|
|
|
2,784
|
|
As of and for the
three
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
FNF Group Corporate and Other
|
|
Total FNF Group
|
|
Restaurant Group
|
|
FNFV Corporate
and Other
|
|
Total FNFV
|
|
Total
|
|
|
Title premiums
|
$
|
1,269
|
|
|
$
|
—
|
|
|
$
|
1,269
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,269
|
|
Other revenues
|
569
|
|
|
85
|
|
|
654
|
|
|
—
|
|
|
46
|
|
|
46
|
|
|
700
|
|
Restaurant revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
273
|
|
|
—
|
|
|
273
|
|
|
273
|
|
Revenues from external customers
|
1,838
|
|
|
85
|
|
|
1,923
|
|
|
273
|
|
|
46
|
|
|
319
|
|
|
2,242
|
|
Interest and investment income, including realized gains and losses
|
27
|
|
|
(2
|
)
|
|
25
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
25
|
|
Total revenues
|
1,865
|
|
|
83
|
|
|
1,948
|
|
|
272
|
|
|
47
|
|
|
319
|
|
|
2,267
|
|
Depreciation and amortization
|
38
|
|
|
3
|
|
|
41
|
|
|
11
|
|
|
4
|
|
|
15
|
|
|
56
|
|
Interest expense
|
—
|
|
|
14
|
|
|
14
|
|
|
2
|
|
|
2
|
|
|
4
|
|
|
18
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
|
263
|
|
|
(12
|
)
|
|
251
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
247
|
|
Income tax expense (benefit)
|
100
|
|
|
(5
|
)
|
|
95
|
|
|
—
|
|
|
(7
|
)
|
|
(7
|
)
|
|
88
|
|
Earnings (loss) from continuing operations, before equity in earnings of unconsolidated affiliates
|
163
|
|
|
(7
|
)
|
|
156
|
|
|
(4
|
)
|
|
7
|
|
|
3
|
|
|
159
|
|
Equity in earnings (loss) of unconsolidated affiliates
|
3
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
(11
|
)
|
|
(11
|
)
|
|
(7
|
)
|
Earnings (loss) from continuing operations
|
$
|
166
|
|
|
$
|
(6
|
)
|
|
$
|
160
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
$
|
(8
|
)
|
|
$
|
152
|
|
Assets
|
$
|
8,812
|
|
|
$
|
4,189
|
|
|
$
|
13,001
|
|
|
$
|
482
|
|
|
$
|
903
|
|
|
$
|
1,385
|
|
|
$
|
14,386
|
|
Goodwill
|
2,324
|
|
|
222
|
|
|
2,546
|
|
|
101
|
|
|
95
|
|
|
196
|
|
|
2,742
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
As of and for the
nine
months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
FNF Group Corporate and Other
|
|
Total FNF Group
|
|
Restaurant Group
|
|
FNFV Corporate
and Other
|
|
Total FNFV
|
|
Total
|
|
(In millions)
|
Title premiums
|
$
|
3,626
|
|
|
$
|
—
|
|
|
$
|
3,626
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,626
|
|
Other revenues
|
1,634
|
|
|
335
|
|
|
1,969
|
|
|
—
|
|
|
102
|
|
|
102
|
|
|
2,071
|
|
Restaurant revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
830
|
|
|
—
|
|
|
830
|
|
|
830
|
|
Revenues from external customers
|
5,260
|
|
|
335
|
|
|
5,595
|
|
|
830
|
|
|
102
|
|
|
932
|
|
|
6,527
|
|
Interest and investment income, including realized gains and losses
|
99
|
|
|
(6
|
)
|
|
93
|
|
|
(4
|
)
|
|
285
|
|
|
281
|
|
|
374
|
|
Total revenues
|
5,359
|
|
|
329
|
|
|
5,688
|
|
|
826
|
|
|
387
|
|
|
1,213
|
|
|
6,901
|
|
Depreciation and amortization
|
117
|
|
|
16
|
|
|
133
|
|
|
33
|
|
|
11
|
|
|
44
|
|
|
177
|
|
Interest expense
|
—
|
|
|
39
|
|
|
39
|
|
|
5
|
|
|
3
|
|
|
8
|
|
|
47
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
|
707
|
|
|
(63
|
)
|
|
644
|
|
|
(25
|
)
|
|
242
|
|
|
217
|
|
|
861
|
|
Income tax expense (benefit)
|
290
|
|
|
(32
|
)
|
|
258
|
|
|
—
|
|
|
97
|
|
|
97
|
|
|
355
|
|
Earnings (loss) from continuing operations, before equity in earnings (loss) of unconsolidated affiliates
|
417
|
|
|
(31
|
)
|
|
386
|
|
|
(25
|
)
|
|
145
|
|
|
120
|
|
|
506
|
|
Equity in earnings (losses) of unconsolidated affiliates
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
|
(7
|
)
|
Earnings (loss) from continuing operations
|
$
|
424
|
|
|
$
|
(31
|
)
|
|
$
|
393
|
|
|
$
|
(25
|
)
|
|
$
|
131
|
|
|
$
|
106
|
|
|
$
|
499
|
|
Assets
|
$
|
8,510
|
|
|
$
|
680
|
|
|
$
|
9,190
|
|
|
$
|
478
|
|
|
$
|
833
|
|
|
$
|
1,311
|
|
|
$
|
10,501
|
|
Goodwill
|
2,431
|
|
|
252
|
|
|
2,683
|
|
|
101
|
|
|
—
|
|
|
101
|
|
|
2,784
|
|
As of and for the
nine
months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
FNF Group Corporate and Other
|
|
Total FNF Group
|
|
Restaurant Group
|
|
FNFV Corporate
and Other
|
|
Total FNFV
|
|
Total
|
|
|
Title premiums
|
$
|
3,452
|
|
|
$
|
—
|
|
|
$
|
3,452
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,452
|
|
Other revenues
|
1,587
|
|
|
209
|
|
|
1,796
|
|
|
—
|
|
|
124
|
|
|
124
|
|
|
1,920
|
|
Restaurant revenues
|
—
|
|
|
—
|
|
|
—
|
|
|
858
|
|
|
—
|
|
|
858
|
|
|
858
|
|
Revenues from external customers
|
5,039
|
|
|
209
|
|
|
5,248
|
|
|
858
|
|
|
124
|
|
|
982
|
|
|
6,230
|
|
Interest and investment income, including realized gains and losses
|
95
|
|
|
(8
|
)
|
|
87
|
|
|
(4
|
)
|
|
18
|
|
|
14
|
|
|
101
|
|
Total revenues
|
5,134
|
|
|
201
|
|
|
5,335
|
|
|
854
|
|
|
142
|
|
|
996
|
|
|
6,331
|
|
Depreciation and amortization
|
109
|
|
|
7
|
|
|
116
|
|
|
31
|
|
|
14
|
|
|
45
|
|
|
161
|
|
Interest expense
|
—
|
|
|
47
|
|
|
47
|
|
|
4
|
|
|
4
|
|
|
8
|
|
|
55
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
|
665
|
|
|
(52
|
)
|
|
613
|
|
|
2
|
|
|
14
|
|
|
16
|
|
|
629
|
|
Income tax expense (benefit)
|
251
|
|
|
(28
|
)
|
|
223
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
218
|
|
Earnings (loss) from continuing operations, before equity in earnings (loss) of unconsolidated affiliates
|
414
|
|
|
(24
|
)
|
|
390
|
|
|
2
|
|
|
19
|
|
|
21
|
|
|
411
|
|
Equity in earnings (loss) of unconsolidated affiliates
|
9
|
|
|
1
|
|
|
10
|
|
|
—
|
|
|
(16
|
)
|
|
(16
|
)
|
|
(6
|
)
|
Earnings (loss) from continuing operations
|
$
|
423
|
|
|
$
|
(23
|
)
|
|
$
|
400
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
405
|
|
Assets
|
$
|
8,812
|
|
|
$
|
4,189
|
|
|
$
|
13,001
|
|
|
$
|
482
|
|
|
$
|
903
|
|
|
$
|
1,385
|
|
|
$
|
14,386
|
|
Goodwill
|
2,324
|
|
|
222
|
|
|
2,546
|
|
|
101
|
|
|
95
|
|
|
196
|
|
|
2,742
|
|
The activities in our segments include the following:
FNF Group
|
|
•
|
Title.
This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. This segment also includes our transaction services business,
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default.
|
|
•
|
FNF Group Corporate and Other.
This
segment consists of the operations of the parent holding company, certain other unallocated corporate overhead expenses, and other real estate operations. Total assets for this segment as of September 30, 2016 also include the assets of Black Knight. See Note K
Discontinued Operations
for further details.
|
FNFV
|
|
•
|
Restaurant Group.
This segment consists of the operations of ABRH, in which we have a
55%
ownership interest. ABRH and its affiliates are the owners and operators of the O'Charley's, Ninety Nine Restaurants, Village Inn, Bakers Square, and Legendary Baking restaurant and food service concepts.
|
|
|
•
|
FNFV Corporate and Other.
This segment primarily consists of our share in the operations of certain equity investments, including Ceridian, as well as other smaller investments which are not title-related. This segment also includes the results of operations of Digital Insurance, Inc. ("OneDigital"), in which we held
96%
ownership, through the date it was sold, June 6, 2017.
|
Our operations under our FNFV segment are subject to the anticipated Spilt-Off, as described under
Recent Developments
in Note A
Basis of Financial Statements
.
|
|
Note I.
|
Supplemental Cash Flow Information
|
The following supplemental cash flow information is provided with respect to certain non-cash investing and financing activities.
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
Cash paid for:
|
|
|
|
|
|
Interest
|
|
$
|
99
|
|
|
$
|
92
|
|
Income taxes
|
|
287
|
|
|
236
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Change in proceeds of sales of investments available for sale receivable in period
|
|
$
|
2
|
|
|
$
|
13
|
|
Change in purchases of investments available for sale payable in period
|
|
(10
|
)
|
|
3
|
|
Additions to IT hardware financed through a lease
|
|
—
|
|
|
(10
|
)
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
Change in treasury stock purchases payable in period
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
Borrowings to finance IT hardware additions
|
|
—
|
|
|
10
|
|
Debt extinguished through the sale of OneDigital
|
|
151
|
|
|
—
|
|
Note J — Acquisitions
Title
Title Guaranty of Hawaii
On August 31, 2017, FNF Group completed its acquisition of
90%
of the membership interest of Title Guaranty of Hawaii ("
Title Guaranty
") for
$98 million
.
Title Guaranty
was previously an unaffiliated agent and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than
300
employees in branches across the State of Hawaii providing title insurance and real estate closing services.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
FNF Group paid total consideration, net of cash received, of
$93 million
in exchange for
90%
of the equity interests of
Title Guaranty
. The total cash consideration paid was as follows (in millions):
|
|
|
|
|
Cash paid
|
$
|
98
|
|
Less: Cash Acquired
|
(5
|
)
|
Total net consideration paid
|
$
|
93
|
|
The purchase price has been initially allocated to
Title Guaranty
's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. The goodwill recorded is expected to be deductible for tax purposes. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to all acquired assets and assumed liabilities and noncontrolling interests.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Accounts receivable
|
$
|
1
|
|
Property and equipment
|
4
|
|
Other intangible assets
|
60
|
|
Goodwill
|
40
|
|
Title plant
|
3
|
|
Prepaid expenses and other
|
1
|
|
Total assets acquired
|
109
|
|
|
|
Accounts payable and accrued liabilities
|
5
|
|
Total liabilities assumed
|
5
|
|
Non-controlling interests assumed
|
11
|
|
Total liabilities and equity assumed
|
16
|
|
|
|
Net assets acquired
|
$
|
93
|
|
The gross carrying value and weighted average estimated useful lives of Property and equipment and Other intangible assets acquired in the
Title Guaranty
acquisition consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Weighted Average
Estimated Useful Life
(in years)
|
Property and equipment
|
$
|
4
|
|
|
5
|
Other intangible assets:
|
|
|
|
Customer relationships
|
52
|
|
|
10
|
Trade name
|
7
|
|
|
10
|
Non-compete agreements
|
1
|
|
|
5
|
Total Other intangible assets
|
60
|
|
|
|
Total
|
$
|
64
|
|
|
|
FNF Group Corporate and Other
Commissions, Inc.
On August 23, 2016, FNF Group completed its acquisition of Commissions, Inc. ("CINC"), a leading provider of web-based real estate marketing and customer relationship management software for elite Realtors® and agent teams across North America, for
$229 million
. CINC’s product offerings include software, marketing and services designed to enhance the productivity and
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
sales results of elite Realtors® and agent teams through lead generation and proactive lead management. CINC's financial position and results of operations from the acquisition date are included in our Core Corporate and Other segment.
FNF Group paid total consideration, net of cash received, of
$229 million
in exchange for
95%
of the equity interests of CINC. The total consideration paid was as follows (in millions):
|
|
|
|
|
Cash paid
|
$
|
240
|
|
Less: Cash Acquired
|
(11
|
)
|
Total net consideration paid
|
$
|
229
|
|
The purchase price has been allocated to CINC's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
The following table summarizes the total purchase price consideration and the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Computer software
|
$
|
25
|
|
Other intangible assets
|
45
|
|
Goodwill
|
181
|
|
Total assets acquired
|
251
|
|
|
|
Accounts payable and accrued liabilities
|
8
|
|
Deferred tax liability
|
3
|
|
Total liabilities assumed
|
11
|
|
|
|
Non-controlling interests
|
11
|
|
Total liabilities and equity assumed
|
22
|
|
|
|
Net assets acquired
|
$
|
229
|
|
The gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired in the CINC acquisition consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Weighted Average
Estimated Useful Life
(in years)
|
Computer software
|
$
|
25
|
|
|
3
|
Other intangible assets:
|
|
|
|
Customer relationships
|
35
|
|
|
10
|
Trade name
|
8
|
|
|
10
|
Non-compete agreements
|
2
|
|
|
4
|
Total Other intangible assets
|
45
|
|
|
|
Total
|
$
|
70
|
|
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the three and nine months ended September 30, 2016 are presented below. Pro-forma results presented assume the consolidation of CINC occurred as of the beginning of the 2016 period. Amounts reflect our
95%
ownership interest in CINC and are adjusted to exclude costs directly attributable to the acquisition of CINC, including transaction costs.
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2016
|
|
2016
|
Total revenues
|
|
$
|
2,274
|
|
|
$
|
6,359
|
|
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
|
|
159
|
|
|
432
|
|
Note K. Discontinued Operations
Black Knight
As a result of the BK Distribution we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Condensed Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Condensed Consolidated Statements of Operations. We retained
no
ownership in Black Knight.
We have various agreements with Black Knight to provide technology, data and analytics services, as well as corporate shared services and information technology. We are also a party to certain other agreements under which we incur other expenses or receive revenues from Black Knight. We expect to continue utilizing Black Knight to provide technology and data and analytics services for the foreseeable future. The cash inflows and outflows from and to Black Knight as well as revenues and expenses included in continuing operations subsequent to September 29, 2017, the date of the BK Distribution, which were previously eliminated in our consolidated financial statements as intra-entity transactions are not material to our results of operations for the three or nine-month periods ended September 30, 2017.
A reconciliation of the operations of Black Knight to the Statement of Operations is shown below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
Escrow, title-related and other fees
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
745
|
|
|
$
|
717
|
|
Realized gains and losses, net
|
6
|
|
|
—
|
|
|
(13
|
)
|
|
—
|
|
Total revenues
|
256
|
|
|
250
|
|
|
732
|
|
|
717
|
|
Expenses:
|
|
|
|
|
|
|
|
Personnel costs
|
94
|
|
|
102
|
|
|
292
|
|
|
291
|
|
Other operating expenses
|
49
|
|
|
51
|
|
|
145
|
|
|
145
|
|
Depreciation and amortization
|
51
|
|
|
57
|
|
|
154
|
|
|
154
|
|
Interest expense
|
14
|
|
|
16
|
|
|
42
|
|
|
46
|
|
Total expenses
|
208
|
|
|
226
|
|
|
633
|
|
|
636
|
|
Earnings from discontinued operations before income taxes
|
48
|
|
|
24
|
|
|
99
|
|
|
81
|
|
Income tax expense
|
17
|
|
|
7
|
|
|
40
|
|
|
27
|
|
Net earnings from discontinued operations
|
31
|
|
|
17
|
|
|
59
|
|
|
54
|
|
Less: Net earnings attributable to non-controlling interests
|
17
|
|
|
12
|
|
|
36
|
|
|
35
|
|
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
|
$
|
14
|
|
|
$
|
5
|
|
|
$
|
23
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
Cash flow from discontinued operations data:
|
|
|
|
|
|
|
|
Net cash provided by operations
|
$
|
116
|
|
|
$
|
88
|
|
|
$
|
240
|
|
|
$
|
211
|
|
Net cash used in investing activities
|
(16
|
)
|
|
(16
|
)
|
|
(46
|
)
|
|
(206
|
)
|
Other acquisitions/disposals of businesses, net of cash acquired, on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 includes
$150 million
related to acquisitions made by Black Knight. Borrowings and Debt service payments on the Statements of Cash Flows include
$405 million
and
$65 million
, respectively, and
$430 million
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
and
$140 million
, respectively, for the nine months ended September 30, 2017 and 2016, respectively, related to borrowings and principal repayments by Black Knight.
A reconciliation of the financial position of Black Knight to the Balance Sheet is shown below:
|
|
|
|
|
|
December 31,
2016
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
130
|
|
Short term investments
|
4
|
|
Trade and notes receivable
|
157
|
|
Goodwill
|
2,304
|
|
Prepaid expenses and other assets
|
184
|
|
Capitalized software, net
|
450
|
|
Other intangible assets, net
|
359
|
|
Property and equipment, net
|
173
|
|
Total assets of discontinued operations
|
$
|
3,761
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
287
|
|
Notes payable
|
1,526
|
|
Income taxes payable
|
26
|
|
Deferred tax liabilities
|
334
|
|
Total liabilities of discontinued operations
|
$
|
2,173
|
|