UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
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| | |
þ☑ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20172019
OR
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| | |
o☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-32630
FIDELITY NATIONAL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
|
| | | | | | |
| Delaware | | 16-1725106 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | | | | | | |
| 601 Riverside Avenue | , | Jacksonville | , | Florida | | 32204 |
| (Address of principal executive offices) | | (Zip Code) |
(904) 854-8100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
| FNF Common Stock, $0.0001 par value | | FNF | | New York Stock Exchange |
| 5.50% Notes due September 2022 | | FNF22 | | New York Stock Exchange |
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.YES þdays. Yes ☑ NO o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YES þ.Yes ☑ NO o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer," “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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| | | | | | | | | |
Large accelerated filer þ Accelerated Filer | ☑ | Accelerated filero | ☐ | Non-accelerated filero | ☐ | Smaller reporting companyo | ☐ | Emerging growth companyo |
| | | | (Do not check if a smaller reporting company) | | | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o☐ NO þ
The number of shares outstanding of the Registrant's common stock as of September 30, 20172019 were:
FNF Group Common Stock 273,154,429
FNFV Group Common Stock 64,864,950
FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 20172019
TABLE OF CONTENTS
Part I: FINANCIAL INFORMATION
| |
| Item 1. | Condensed Consolidated Financial Statements |
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share data) | | | | September 30,
2017 |
| December 31,
2016 | September 30,
2019 |
| December 31,
2018 |
| | (Unaudited) | (Unaudited) | | |
ASSETS | | Investments: | | | | | | |
| Fixed maturity securities available for sale, at fair value, at September 30, 2017 and December 31, 2016 includes pledged fixed maturity securities of $367 and $332, respectively, related to secured trust deposits | $ | 2,154 |
| | $ | 2,432 |
| |
| Preferred stock available for sale, at fair value | 321 |
| | 315 |
| |
| Equity securities available for sale, at fair value | 457 |
| | 438 |
| |
| Fixed maturity securities available for sale, at fair value, at September 30, 2019 and December 31, 2018 includes pledged fixed maturity securities of $422 and $418, respectively, related to secured trust deposits | | $ | 2,092 |
| | $ | 1,998 |
|
| Preferred securities, at fair value | | 284 |
| | 301 |
|
| Equity securities, at fair value | | 684 |
| | 498 |
|
| Investments in unconsolidated affiliates | 558 |
| | 558 |
| 139 |
| | 137 |
|
| Other long-term investments | 55 |
| | 54 |
| 149 |
| | 135 |
|
| Short-term investments, at September 30, 2017 and December 31, 2016 includes short-term investments of $0 and $212 related to secured trust deposits, respectively | 585 |
| | 483 |
| |
| Short-term investments, at September 30, 2019 and December 31, 2018 includes pledged short-term investments of $2 and $8, respectively, related to secured trust deposits | | 554 |
| | 480 |
|
| Total investments | 4,130 |
| | 4,280 |
| 3,902 |
| | 3,549 |
|
| Cash and cash equivalents, at September 30, 2017 and December 31, 2016 includes $568 and $331, respectively, of pledged cash related to secured trust deposits | 1,232 |
| | 1,193 |
| |
| Trade and notes receivables, net of allowance of $20 and $21, at September 30, 2017 and December 31, 2016, respectively | 345 |
| | 374 |
| |
| Cash and cash equivalents, at September 30, 2019 and December 31, 2018 includes $482 and $412, respectively, of pledged cash related to secured trust deposits | | 1,530 |
| | 1,257 |
|
| Trade and notes receivables, net of allowance of $19 at September 30, 2019 and December 31, 2018, respectively | | 388 |
| | 306 |
|
| Goodwill | 2,784 |
| | 2,761 |
| 2,726 |
| | 2,726 |
|
| Prepaid expenses and other assets | 466 |
| | 455 |
| 455 |
| | 377 |
|
| Capitalized software, net | 127 |
| | 130 |
| |
| Lease assets, see Note K | | 396 |
| | — |
|
| Other intangible assets, net | 591 |
| | 671 |
| 446 |
| | 513 |
|
| Title plants | 398 |
| | 395 |
| 405 |
| | 405 |
|
| Property and equipment, net | 428 |
| | 443 |
| 171 |
| | 164 |
|
| Assets of discontinued operations | — |
| | 3,761 |
| |
| Income taxes receivable | | — |
| | 4 |
|
| Total assets | $ | 10,501 |
| | $ | 14,463 |
| $ | 10,419 |
| | $ | 9,301 |
|
LIABILITIES AND EQUITY | | Liabilities: | | | | | | |
| Accounts payable and accrued liabilities | $ | 1,050 |
| | $ | 1,148 |
| $ | 1,011 |
| | $ | 956 |
|
| Notes payable | 890 |
| | 1,220 |
| 838 |
| | 836 |
|
| Reserve for title claim losses | 1,496 |
| | 1,487 |
| 1,494 |
| | 1,488 |
|
| Secured trust deposits | 923 |
| | 860 |
| 890 |
| | 822 |
|
| Lease liabilities, see Note K | | 422 |
| | — |
|
| Income taxes payable | 85 |
| | 38 |
| 5 |
| | — |
|
| Deferred tax liability | 344 |
| | 295 |
| 294 |
| | 227 |
|
| Liabilities of discontinued operations | — |
| | 2,173 |
| |
| Total liabilities | 4,788 |
| | 7,221 |
| 4,954 |
| | 4,329 |
|
| Commitments and Contingencies: | | | |
| |
|
| Redeemable non-controlling interest by 21% minority holder of ServiceLink Holdings, LLC | 344 |
| | 344 |
| 344 |
| | 344 |
|
| Equity: | | | | | | |
| FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of September 30, 2017 and December 31, 2016; outstanding of 273,154,429 and 272,205,261 as of September 30, 2017 and December 31, 2016, respectively, and issued of 285,992,115 and 285,041,900 as of September 30, 2017 and December 31, 2016, respectively | — |
| | — |
| |
| FNFV Group common stock, $0.0001 par value; authorized 113,000,000 shares as of September 30, 2017 and December 31, 2016; outstanding of 64,864,950 and 66,416,822 as of September 30, 2017 and December 31, 2016, respectively, and issued of 80,581,675 as of both September 30, 2017 and December 31, 2016 | — |
| | — |
| |
| FNF common stock, $0.0001 par value; authorized 487,000,000 shares as of September 30, 2019 and December 31, 2018; outstanding of 275,079,241 and 275,373,834 as of September 30, 2019 and December 31, 2018, respectively, and issued of 291,354,650 and 289,601,523 as of September 30, 2019 and December 31, 2018, respectively | | — |
| | — |
|
| Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none | — |
| | — |
| — |
| | — |
|
| Additional paid-in capital | 4,582 |
| | 4,848 |
| 4,566 |
| | 4,500 |
|
| Retained earnings | 1,289 |
| | 1,784 |
| 1,107 |
| | 641 |
|
| Accumulated other comprehensive earnings (loss) | 46 |
| | (13 | ) | 46 |
| | (13 | ) |
| Less: treasury stock, 28,554,411 as of September 30, 2017 and 27,001,492 shares as of December 31, 2016, at cost | (647 | ) | | (623 | ) | |
| Less: Treasury stock, 16,275,409 shares and 14,227,689 shares as of September 30, 2019 and December 31, 2018, respectively, at cost | | (580 | ) | | (498 | ) |
| Total Fidelity National Financial, Inc. shareholders’ equity | 5,270 |
| | 5,996 |
| 5,139 |
| | 4,630 |
|
| Non-controlling interests | 99 |
| | 902 |
| (18 | ) | | (2 | ) |
| Total equity | 5,369 |
| | 6,898 |
| 5,121 |
| | 4,628 |
|
| Total liabilities, redeemable non-controlling interest and equity | $ | 10,501 |
| | $ | 14,463 |
| $ | 10,419 |
| | $ | 9,301 |
|
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in millions, except per share data) |
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (Unaudited) | | (Unaudited) |
| Revenues: | | | | | | | |
| Direct title insurance premiums | $ | 558 |
| | $ | 556 |
| | $ | 1,598 |
| | $ | 1,518 |
|
| Agency title insurance premiums | 719 |
| | 713 |
| | 2,028 |
| | 1,934 |
|
| Escrow, title-related and other fees | 689 |
| | 700 |
| | 2,071 |
| | 1,920 |
|
| Restaurant revenue | 269 |
| | 273 |
| | 830 |
| | 858 |
|
| Interest and investment income | 34 |
| | 29 |
| | 97 |
| | 96 |
|
| Realized gains and losses, net | (4 | ) | | (4 | ) | | 277 |
| | 5 |
|
| Total revenues | 2,265 |
| | 2,267 |
| | 6,901 |
| | 6,331 |
|
| Expenses: | | | | | | | |
| Personnel costs | 646 |
| | 630 |
| | 1,958 |
| | 1,800 |
|
| Agent commissions | 553 |
| | 545 |
| | 1,557 |
| | 1,473 |
|
| Other operating expenses | 468 |
| | 464 |
| | 1,392 |
| | 1,296 |
|
| Cost of restaurant revenue | 243 |
| | 237 |
| | 728 |
| | 727 |
|
| Depreciation and amortization | 58 |
| | 56 |
| | 177 |
| | 161 |
|
| Provision for title claim losses | 64 |
| | 70 |
| | 181 |
| | 190 |
|
| Interest expense | 12 |
| | 18 |
| | 47 |
| | 55 |
|
| Total expenses | 2,044 |
| | 2,020 |
| | 6,040 |
| | 5,702 |
|
| Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates | 221 |
| | 247 |
| | 861 |
| | 629 |
|
| Income tax expense | 74 |
| | 88 |
| | 355 |
| | 218 |
|
| Earnings from continuing operations before equity in losses of unconsolidated affiliates | 147 |
| | 159 |
| | 506 |
| | 411 |
|
| Equity in losses of unconsolidated affiliates | (3 | ) | | (7 | ) | | (7 | ) | | (6 | ) |
| Net earnings from continuing operations | 144 |
| | 152 |
| | 499 |
| | 405 |
|
| Net earnings from discontinued operations, net of tax | 31 |
| | 17 |
| | 59 |
| | 54 |
|
| Net earnings | 175 |
| | 169 |
| | 558 |
| | 459 |
|
| Less: Net earnings attributable to non-controlling interests | 10 |
| | 13 |
| | 25 |
| | 32 |
|
| Net earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 165 |
| | $ | 156 |
| | $ | 533 |
| | $ | 427 |
|
| Amounts attributable to Fidelity National Financial, Inc. common shareholders | | | | | | | |
| Net earnings from continuing operations attributable to FNF Group common shareholders | $ | 156 |
| | $ | 158 |
| | $ | 393 |
| | $ | 404 |
|
| Net earnings from discontinued operations attributable to FNF Group common shareholders | 14 |
| | 5 |
| | 23 |
| | 19 |
|
| Net earnings attributable to FNF Group common shareholders | $ | 170 |
| | $ | 163 |
| | $ | 416 |
| | $ | 423 |
|
| Net (loss) earnings attributable to FNFV Group common shareholders | $ | (5 | ) | | $ | (7 | ) | | $ | 117 |
| | $ | 4 |
|
| Earnings per share | | | | | | | |
| Basic | | | | | | | |
| Net earnings from continuing operations attributable to FNF Group common shareholders | $ | 0.58 |
| | $ | 0.58 |
| | $ | 1.46 |
| | $ | 1.49 |
|
| Net earnings from discontinued operations attributable to FNF Group common shareholders | 0.05 |
| | 0.02 |
| | 0.08 |
| | 0.07 |
|
| Net earnings per share attributable to FNF Group common shareholders | $ | 0.63 |
| | $ | 0.60 |
| | $ | 1.54 |
| | $ | 1.56 |
|
| Net (loss) earnings per share attributable to FNFV Group common shareholders | $ | (0.08 | ) | | $ | (0.11 | ) | | $ | 1.80 |
| | $ | 0.06 |
|
| Diluted | | | | | | | |
| Net earnings from continuing operations attributable to FNF Group common shareholders | $ | 0.57 |
| | $ | 0.56 |
| | $ | 1.42 |
| | $ | 1.44 |
|
| Net earnings from discontinued operations attributable to FNF Group common shareholders | 0.05 |
| | 0.02 |
| | 0.08 |
| | 0.07 |
|
| Net earnings per share attributable to FNF Group common shareholders | $ | 0.62 |
| | $ | 0.58 |
| | $ | 1.50 |
| | $ | 1.51 |
|
| Net (loss) earnings per share attributable to FNFV Group common shareholders | $ | (0.08 | ) | | $ | (0.11 | ) | | $ | 1.75 |
| | $ | 0.06 |
|
| Weighted average shares outstanding FNF Group common stock, basic basis | 272 |
| | 271 |
| | 271 |
| | 272 |
|
| Weighted average shares outstanding FNF Group common stock, diluted basis | 276 |
| | 279 |
| | 277 |
| | 280 |
|
| Cash dividends paid per share FNF Group common stock | $ | 0.25 |
| | $ | 0.21 |
| | $ | 0.75 |
| | $ | 0.63 |
|
| Weighted average shares outstanding FNFV Group common stock, basic basis | 65 |
| | 66 |
| | 65 |
| | 68 |
|
| Weighted average shares outstanding FNFV Group common stock, diluted basis | 65 |
| | 69 |
| | 67 |
| | 70 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (Unaudited) | | (Unaudited) |
| Revenues: | | | | | | | |
| Direct title insurance premiums | $ | 660 |
| | $ | 574 |
| | $ | 1,725 |
| | $ | 1,645 |
|
| Agency title insurance premiums | 827 |
| | 722 |
| | 2,133 |
| | 2,018 |
|
| Escrow, title-related and other fees | 693 |
| | 695 |
| | 1,892 |
| | 2,078 |
|
| Interest and investment income | 57 |
| | 44 |
| | 170 |
| | 125 |
|
| Realized gains and losses, net | 4 |
| | 50 |
| | 187 |
| | 35 |
|
| Total revenues | 2,241 |
| | 2,085 |
| | 6,107 |
| | 5,901 |
|
| Expenses: | | | | | | | |
| Personnel costs | 702 |
| | 654 |
| | 1,979 |
| | 1,926 |
|
| Agent commissions | 630 |
| | 554 |
| | 1,630 |
| | 1,546 |
|
| Other operating expenses | 473 |
| | 477 |
| | 1,226 |
| | 1,406 |
|
| Depreciation and amortization | 44 |
| | 46 |
| | 132 |
| | 138 |
|
| Provision for title claim losses | 67 |
| | 58 |
| | 174 |
| | 165 |
|
| Interest expense | 12 |
| | 9 |
| | 36 |
| | 31 |
|
| Total expenses | 1,928 |
| | 1,798 |
| | 5,177 |
| | 5,212 |
|
| Earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | 313 |
| | 287 |
| | 930 |
| | 689 |
|
| Income tax expense | 59 |
| | 51 |
| | 210 |
| | 104 |
|
| Earnings before equity in earnings of unconsolidated affiliates | 254 |
| | 236 |
| | 720 |
| | 585 |
|
| Equity in earnings of unconsolidated affiliates | 2 |
| | 1 |
| | 12 |
| | 4 |
|
| Net earnings | 256 |
| | 237 |
| | 732 |
| | 589 |
|
| Less: Net earnings attributable to non-controlling interests | 6 |
| | 1 |
| | 10 |
| | 5 |
|
| Net earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 250 |
| | $ | 236 |
| | $ | 722 |
| | $ | 584 |
|
| Earnings per share | | | | | | | |
| Net earnings per share attributable to FNF common shareholders, basic | $ | 0.92 |
| | $ | 0.86 |
| | $ | 2.64 |
| | $ | 2.14 |
|
| Net earnings per share attributable to FNF common shareholders, diluted | $ | 0.90 |
| | $ | 0.85 |
| | $ | 2.61 |
| | $ | 2.09 |
|
| | | | | | | | |
| Weighted average shares outstanding FNF common stock, basic basis | 273 |
| | 273 |
| | 273 |
| | 273 |
|
| Weighted average shares outstanding FNF common stock, diluted basis | 277 |
| | 278 |
| | 277 |
| | 279 |
|
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (Unaudited) | | (Unaudited) |
| Net earnings | $ | 175 |
| | $ | 169 |
| | $ | 558 |
| | $ | 459 |
|
| Other comprehensive earnings: | | | | | | | |
| Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1) | 8 |
| | 6 |
| | 33 |
| | 52 |
|
| Unrealized gain (loss) on investments in unconsolidated affiliates (2) | 4 |
| | (2 | ) | | 16 |
| | 13 |
|
| Unrealized gain on foreign currency translation (3) | 3 |
| | 1 |
| | 8 |
| | 6 |
|
| Reclassification adjustments for change in unrealized gains and losses included in net earnings (4) | — |
| | (2 | ) | | 2 |
| | — |
|
| Other comprehensive earnings | 15 |
| | 3 |
| | 59 |
| | 71 |
|
| Comprehensive earnings | 190 |
| | 172 |
| | 617 |
| | 530 |
|
| Less: Comprehensive earnings attributable to non-controlling interests | 11 |
| | 13 |
| | 27 |
| | 32 |
|
| Comprehensive earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 179 |
| | $ | 159 |
| | $ | 590 |
| | $ | 498 |
|
| Comprehensive earnings attributable to FNF Group common shareholders | $ | 182 |
| | $ | 169 |
| | $ | 471 |
| | $ | 487 |
|
| Comprehensive (loss) earnings attributable to FNFV Group common shareholders | $ | (3 | ) | | $ | (10 | ) | | $ | 119 |
| | $ | 11 |
|
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (Unaudited) | | (Unaudited) |
| Net earnings | $ | 256 |
| | $ | 237 |
| | $ | 732 |
| | $ | 589 |
|
| Other comprehensive earnings (loss): | | | | | | | |
| Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1) | 10 |
| | 2 |
| | 53 |
| | (13 | ) |
| Unrealized gain on investments in unconsolidated affiliates (2) | 2 |
| | — |
| | 9 |
| | 4 |
|
| Unrealized (loss) gain on foreign currency translation (3) | (2 | ) | | (1 | ) | | 1 |
| | (4 | ) |
| Reclassification adjustments for change in unrealized gains and losses included in net earnings (4) | — |
| | (1 | ) | | (4 | ) | | (1 | ) |
| Other comprehensive earnings (loss) | 10 |
| | — |
| | 59 |
| | (14 | ) |
| Comprehensive earnings | 266 |
| | 237 |
| | 791 |
| | 575 |
|
| Less: Comprehensive earnings attributable to non-controlling interests | 6 |
| | 1 |
| | 10 |
| | 5 |
|
| Comprehensive earnings attributable to Fidelity National Financial, Inc. common shareholders | $ | 260 |
| | $ | 236 |
| | $ | 781 |
| | $ | 570 |
|
| |
| (1) | Net of income tax expense of $5 million and $4 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $20 million and $33 million for the nine-month periods ended September 30, 2017 and 2016, respectively.
|
| |
(2) | Net of income tax expense (benefit) of $3 million and $(1)$1 million for the three-month periods ended September 30, 20172019 and 2016,2018, respectively, and $10$17 million and $8$(4) million for the nine-monthnine-month periods ended September 30, 20172019 and 2016,2018, respectively. |
| |
| (2) | Net of income tax expense of $1 million for the three-month period ended September 30, 2019, and $3 million and $1 million for the nine-month periods ended September 30, 2019 and 2018, respectively |
| |
| (3) | Net of income tax expense of $2 million and less than $1 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $5 million and $3 million for the nine-month periods ended September 30, 2017 and 2016.
|
| |
(4) | Net of income tax (benefit) expense of $(1) million and less than $(1) million for the three-month periods ended September 30, 2019 and 2018, respectively, and less than $1 million and $(1) million for the nine-month periods ended September 30, 2019 and 2018, respectively. |
| |
| (4) | Net of income tax benefit of less than $1 million for the three-month period ended September 30, 20162018, and $1 million and less than $1 millionfor the nine-month periodnine-month periods ended September 30, 2017.2019 and 2018, respectively. |
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(In millions)millions, except per share data)
(Unaudited)
| | | | | Fidelity National Financial, Inc. Common Shareholders | | | | | | | | Fidelity National Financial, Inc. Common Shareholders | | | | | | |
| | | FNF | | FNFV | | | | | | Accumulated | | | | | | | | | | | | | | | | Accumulated | | | | | | | | |
| | | Group | | Group | | | | | | Other | | | | | | | | Redeemable | | FNF | | | | | | Other | | | | | | | | Redeemable |
| | | Common | | Common | | Additional | | | | Comprehensive | | Treasury | | Non- | | | | Non- | | Common | | Additional | | | | Comprehensive | | Treasury | | Non- | | | | Non- |
| | | Stock | | Stock | | Paid-in | | Retained | | Earnings | | Stock | | controlling | | Total | | controlling | | Stock | | Paid-in | | Retained | | Earnings | | Stock | | controlling | | Total | | controlling |
| | | Shares | | $ | | Shares | | $ | | Capital | | Earnings | | (Loss) | | Shares | | $ | | Interests | | Equity | | Interests | | Shares | | $ | | Capital | | Earnings | | (Loss) | | Shares | | $ | | Interests | | Equity | | Interests |
| Balance, December 31, 2015 | | 282 |
| | $ | — |
| | 81 |
| | $ | — |
| | $ | 4,795 |
| | $ | 1,374 |
| | $ | (69 | ) | | 15 |
| | $ | (346 | ) | | $ | 834 |
| | $ | 6,588 |
| | $ | 344 |
| |
| Balance, June 30, 2018 | | | 288 |
| | $ | — |
| | $ | 4,555 |
| | $ | 529 |
| | $ | (13 | ) | | 13 |
| | $ | (468 | ) | | $ | 26 |
| | $ | 4,629 |
| | $ | 344 |
|
| Exercise of stock options | | | 1 |
| | — |
| | 10 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
|
| Other comprehensive earnings — unrealized gain on investments and other financial instruments | | | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
|
| Other comprehensive earnings — unrealized loss on foreign currency translation | | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
| Reclassification adjustments for change in unrealized gains and losses included in net earnings | | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
| Reclassification for ASU 2018-02 | | | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Equity portion of debt conversions settled in cash | | | — |
| | — |
| | (84 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (84 | ) | | — |
|
| Stock-based compensation | | | — |
| | — |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
| | — |
|
| Dividends declared, $0.30 per common share | | | — |
| | — |
| | — |
| | (83 | ) | | — |
| | — |
| | — |
| | — |
| | (83 | ) | | — |
|
| Pacific Union Sale | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) | | — |
|
| Subsidiary dividends declared to non-controlling interests | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) | | — |
|
| Net earnings | | | — |
| | — |
| | — |
| | 236 |
| | — |
| | — |
| | — |
| | 1 |
| | 237 |
| | — |
|
| Balance, September 30, 2018 | | | 289 |
| | $ | — |
| | $ | 4,488 |
| | $ | 681 |
| | $ | (12 | ) | | 13 |
| | $ | (468 | ) | | $ | (1 | ) | | $ | 4,688 |
| | $ | 344 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Balance, June 30, 2019 | | | 290 |
| | $ | — |
| | $ | 4,528 |
| | $ | 942 |
| | $ | 36 |
| | 15 |
| | $ | (544 | ) | | $ | (10 | ) | | $ | 4,952 |
| | $ | 344 |
|
| Exercise of stock options | | 2 |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | 2 |
| | — |
| | 29 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | — |
|
| Treasury stock repurchased | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | (247 | ) | | — |
| | (247 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | (36 | ) | | — |
| | (36 | ) | | — |
|
| Other comprehensive earnings — unrealized gain (loss) on investments and other financial instruments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 52 |
| | — |
| | — |
| | (1 | ) | | 51 |
| | — |
| |
| Other comprehensive earnings — unrealized gain on investments and other financial instruments | | | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | — |
| | — |
| | 10 |
| | — |
|
| Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
| | 13 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
|
| Other comprehensive earnings — unrealized gain on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| | — |
| | — |
| | 6 |
| | — |
| |
| Other comprehensive earnings — unrealized loss on foreign currency translation | | | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | — |
| | — |
| | (2 | ) | | — |
|
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 28 |
| | — |
| | — |
| | — |
| | — |
| | 16 |
| | 44 |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
|
| Shares withheld for taxes and in treasury | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) | | | |
| Dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (172 | ) | | — |
| | — |
| | — |
| | — |
| | (172 | ) | | — |
| |
| Acquisitions of non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
| | — |
| |
| Dividends declared, $0.31 per common share | | | — |
| | — |
| | — |
| | (85 | ) | | — |
| | — |
| | — |
| | — |
| | (85 | ) | | — |
|
| Purchase of additional share in consolidated subsidiaries | | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10 | ) | | (10 | ) | | — |
|
| Subsidiary dividends declared to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (4 | ) | | (4 | ) | | — |
|
| Net earnings | | — |
| | — |
| | — |
| | — |
| | — |
| | 427 |
| | — |
| | — |
| | — |
| | 32 |
| | 459 |
| | — |
| | — |
| | — |
| | — |
| | 250 |
| | — |
| | — |
| | — |
| | 6 |
| | 256 |
| | — |
|
| Balance, September 30, 2016 | | 284 |
| | $ | — |
| | 81 |
| | $ | — |
| | $ | 4,839 |
| | $ | 1,629 |
| | $ | 2 |
| | 26 |
| | $ | (595 | ) | | $ | 889 |
| | $ | 6,764 |
| | $ | 344 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2016 | | 285 |
| | $ | — |
| | 81 |
| | $ | — |
| | $ | 4,848 |
| | $ | 1,784 |
| | $ | (13 | ) | | 27 |
| | $ | (623 | ) | | $ | 902 |
| | $ | 6,898 |
| | $ | 344 |
| |
| Exercise of stock options | | 1 |
| | — |
| | — |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 24 |
| | — |
| |
| Treasury stock repurchased | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | (23 | ) | | — |
| | (23 | ) | | — |
| |
| Spin-off of Black Knight, Inc. | | — |
| | — |
| | — |
| | — |
| | — |
| | (823 | ) | | — |
| | — |
| | — |
| | (801 | ) | | (1,624 | ) | | — |
| |
| Other comprehensive earnings — unrealized gain on investments and other financial instruments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 33 |
| | — |
| | — |
| | 2 |
| | 35 |
| | — |
| |
| Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| | — |
| | — |
| | 16 |
| | — |
| |
| Other comprehensive earnings — unrealized gain on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | 8 |
| | — |
| |
| Reclassification adjustments for change in unrealized gains and losses included in net earnings | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| |
| Black Knight repurchases of BKFS stock | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (47 | ) | | (47 | ) | | — |
| |
| Stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 26 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| | 37 |
| | — |
| |
| Shares withheld for taxes and in treasury | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | (1 | ) | | — |
| |
| Dividends declared | | — |
| | — |
| | — |
| | — |
| | — |
| | (205 | ) | | — |
| | — |
| | — |
| | — |
| | (205 | ) | | — |
| |
| Purchase of additional share in consolidated subsidiaries | | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| |
| Sale of OneDigital | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (6 | ) | | — |
| |
| Acquisitions of noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | 21 |
| | — |
| |
| Equity portion of debt conversions settled in cash | | — |
| | — |
| | — |
| | — |
| | (317 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (317 | ) | | — |
| |
| Subsidiary dividends declared to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) | | — |
| |
| Net earnings | | — |
| | — |
| | — |
| | — |
| | — |
| | 533 |
| | — |
| | — |
| | — |
| | 25 |
| | 558 |
| | — |
| |
| Balance, September 30, 2017 | | 286 |
| | $ | — |
|
| 81 |
|
| $ | — |
| | $ | 4,582 |
| | $ | 1,289 |
| | $ | 46 |
| | 29 |
| | $ | (647 | ) | | $ | 99 |
| | $ | 5,369 |
| | $ | 344 |
| |
| Balance, September 30, 2019 | | | 292 |
| | $ | — |
|
| $ | 4,566 |
| | $ | 1,107 |
| | $ | 46 |
| | 16 |
| | $ | (580 | ) | | $ | (18 | ) | | $ | 5,121 |
| | $ | 344 |
|
See Notes to Condensed Consolidated Financial Statements
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fidelity National Financial, Inc. Common Shareholders | | | | | | |
| | | | | | | | | Accumulated | | | | | | | | |
| | | FNF | | | | | | Other | | | | | | | | Redeemable |
| | | Common | | Additional | | | | Comprehensive | | Treasury | | Non- | | | | Non- |
| | | Stock | | Paid-in | | Retained | | Earnings | | Stock | | controlling | | Total | | controlling |
| | | Shares | | $ | | Capital | | Earnings | | (Loss) | | Shares | | $ | | Interests | | Equity | | Interests |
| Balance, December 31, 2017 | | 288 |
| | $ | — |
| | $ | 4,587 |
| | $ | 217 |
| | $ | 111 |
| | 13 |
| | $ | (468 | ) | | $ | 20 |
| | $ | 4,467 |
| | $ | 344 |
|
| Exercise of stock options | | 1 |
| | — |
| | 15 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 15 |
| | — |
|
| Adjustment for cumulative effect for adoption of ASU 2016-01 | | — |
| | — |
| | — |
| | 128 |
| | (109 | ) | | — |
| | — |
| | — |
| | 19 |
| | — |
|
| Other comprehensive earnings — unrealized loss on investments and other financial instruments | | — |
| | — |
| | — |
| | — |
| | (13 | ) | | — |
| | — |
| | — |
| | (13 | ) | | — |
|
| Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates | | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | 4 |
| | — |
|
| Other comprehensive earnings — unrealized loss on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) | | — |
|
| Reclassification adjustments for change in unrealized gains and losses included in net earnings | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | (1 | ) | | — |
|
| Equity portion of debt conversions settled in cash | | — |
| | — |
| | (135 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (135 | ) | | — |
|
| Dilution resulting from subsidiary issuance of equity | | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | 5 |
| | 4 |
| | — |
|
| Stock-based compensation | | — |
| | — |
| | 22 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 22 |
| | — |
|
| Dividends declared, $0.90 per common share | | — |
| | — |
| | — |
| | (248 | ) | | — |
| | — |
| | — |
| | — |
| | (248 | ) | | — |
|
| Subsidiary repurchase of equity | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
|
| Acquisitions of non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
|
| Pacific Union sale | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (25 | ) | | (25 | ) | | |
| Subsidiary dividends declared to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (7 | ) | | (7 | ) | | — |
|
| Net earnings | | — |
| | — |
| | — |
| | 584 |
| | — |
| | — |
| | — |
| | 5 |
| | 589 |
| | — |
|
| Balance, September 30, 2018 | | 289 |
| | $ | — |
| | $ | 4,488 |
| | $ | 681 |
| | $ | (12 | ) | | 13 |
| | $ | (468 | ) | | $ | (1 | ) | | $ | 4,688 |
| | $ | 344 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2018 | | 290 |
| | $ | — |
| | $ | 4,500 |
| | $ | 641 |
| | $ | (13 | ) | | 14 |
| | $ | (498 | ) | | $ | (2 | ) | | $ | 4,628 |
| | $ | 344 |
|
| Exercise of stock options | | 2 |
| | — |
| | 35 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | — |
|
| Treasury stock repurchased | | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | (82 | ) | | — |
| | (82 | ) | | — |
|
| Other comprehensive earnings — unrealized gain on investments and other financial instruments | | — |
| | — |
| | — |
| | — |
| | 53 |
| | — |
| | — |
| | — |
| | 53 |
| | — |
|
| Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates | | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | — |
| | 9 |
| | — |
|
| Other comprehensive earnings — unrealized gain on foreign currency translation | | — |
| | — |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | 1 |
| | — |
|
| Reclassification adjustments for change in unrealized gains and losses included in net earnings | | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) | | — |
|
| Stock-based compensation | | — |
| | — |
| | 27 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
|
| Dividends declared, $0.93 per common share | | — |
| | — |
| | — |
| | (256 | ) | | — |
| | — |
| | — |
| | — |
| | (256 | ) | | — |
|
| Purchase of additional share in consolidated subsidiaries | | — |
| | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | (18 | ) | | (14 | ) | | — |
|
| Subsidiary dividends declared to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8 | ) | | (8 | ) | | — |
|
| Net earnings | | — |
| | — |
| | — |
| | 722 |
| | — |
| | — |
| | — |
| | 10 |
| | 732 |
| | — |
|
| Balance, September 30, 2019 | | 292 |
| | $ | — |
| | $ | 4,566 |
| | $ | 1,107 |
| | $ | 46 |
| | 16 |
| | $ | (580 | ) | | $ | (18 | ) | | $ | 5,121 |
| | $ | 344 |
|
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
|
| | | | | | | |
| | For the nine months ended September 30, |
| |
| | 2017 |
| 2016 |
| | (Unaudited) |
| Cash flows from operating activities: | | | |
|
| Net earnings | $ | 558 |
| | $ | 459 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
| Depreciation and amortization | 331 |
| | 315 |
|
| Equity in losses of unconsolidated affiliates | 7 |
| | 6 |
|
| Loss (gain) on sales of investments and other assets, net | 12 |
| | (10 | ) |
| Gain on sale of OneDigital | (276 | ) | | — |
|
| Impairment of assets | 5 |
| | 5 |
|
| Stock-based compensation cost | 37 |
| | 44 |
|
| Changes in assets and liabilities, net of effects from acquisitions: | | | |
| Net change in pledged cash, pledged investments, and secured trust deposits | 3 |
| | — |
|
| Net increase in trade receivables | (6 | ) | | (43 | ) |
| Net increase in prepaid expenses and other assets | (50 | ) | | (23 | ) |
| Net decrease in accounts payable, accrued liabilities, deferred revenue and other | (93 | ) | | (33 | ) |
| Net increase in reserve for title claim losses | 8 |
| | 19 |
|
| Net change in income taxes | 30 |
| | 6 |
|
| Net cash provided by operating activities | 566 |
| | 745 |
|
| Cash flows from investing activities: | | | |
| Proceeds from sales of investment securities available for sale | 220 |
| | 188 |
|
| Proceeds from calls and maturities of investment securities available for sale | 432 |
| | 340 |
|
| Proceeds from the sale of cost method and other investments | 19 |
| | 36 |
|
| Additions to property and equipment and capitalized software | (132 | ) | | (230 | ) |
| Purchases of investment securities available for sale | (278 | ) | | (496 | ) |
| Net (purchases of) proceeds from short-term investment securities | (368 | ) | | 438 |
|
| Purchases of other long-term investments | (8 | ) | | — |
|
| Contributions to investments in unconsolidated affiliates | (52 | ) | | (155 | ) |
| Distributions from unconsolidated affiliates | 76 |
| | 75 |
|
| Net other investing activities | (3 | ) | | 2 |
|
| Acquisition of Commissions, Inc., net of cash acquired | — |
| | (229 | ) |
| Acquisition of Title Guaranty of Hawaii, net of cash acquired | (93 | ) | | — |
|
| Proceeds from the sale of OneDigital | 325 |
| | — |
|
| Other acquisitions/disposals of businesses, net of cash acquired | (137 | ) | | (261 | ) |
| Net cash provided by (used in) investing activities | 1 |
| | (292 | ) |
| Cash flows from financing activities: | | | |
| Borrowings | 776 |
| | 100 |
|
| Debt service payments | (994 | ) | | (158 | ) |
| Black Knight treasury stock repurchases of BKFS stock | (47 | ) | | — |
|
Equity portion of debt conversions paid in cash
| (317 | ) | | — |
|
| Dividends paid | (204 | ) | | (171 | ) |
| Subsidiary dividends paid to non-controlling interest shareholders | (7 | ) | | (6 | ) |
| Exercise of stock options | 24 |
| | 16 |
|
| Cash transferred in Black Knight spin-off | (87 | ) | | — |
|
| Payment of contingent consideration for prior period acquisitions | (15 | ) | | (4 | ) |
| Payment for withholding taxes on stock-based compensation for shares withheld from participants and in treasury | (1 | ) | | (2 | ) |
| Purchases of treasury stock | (23 | ) | | (251 | ) |
| Net cash used in financing activities | (895 | ) | | (476 | ) |
| Net decrease in cash and cash equivalents, excluding pledged cash related to secured trust deposits | (328 | ) | | (23 | ) |
| Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period | 992 |
| | 672 |
|
| Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period | $ | 664 |
| | $ | 649 |
|
|
| | | | | | | |
| | For the nine months ended September 30, |
| |
| | 2019 |
| 2018 |
| | (Unaudited) |
| Cash flows from operating activities: | | | |
|
| Net earnings | $ | 732 |
| | $ | 589 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
| Depreciation and amortization | 132 |
| | 138 |
|
| Equity in earnings of unconsolidated affiliates | (12 | ) | | (4 | ) |
| Gain on sales of investments and other assets and asset impairments, net | (3 | ) | | (4 | ) |
| Gain on sale of subsidiaries | — |
| | (10 | ) |
| Non-cash lease costs | 110 |
| | — |
|
| Operating lease payments | (112 | ) | | — |
|
| Distributions from unconsolidated affiliates, return on investment | 5 |
| | 4 |
|
| Stock-based compensation cost | 27 |
| | 22 |
|
| Change in valuation of equity and preferred securities, net | (184 | ) | | (21 | ) |
| Changes in assets and liabilities, net of effects from acquisitions: | | | |
| Net (increase) decrease in trade receivables | (76 | ) | | 8 |
|
| Net increase in prepaid expenses and other assets | (83 | ) | | (14 | ) |
| Net increase (decrease) in accounts payable, accrued liabilities, deferred revenue and other | 101 |
| | (16 | ) |
| Net increase in reserve for title claim losses | 6 |
| | 1 |
|
| Net change in income taxes | 57 |
| | (22 | ) |
| Net cash provided by operating activities | 700 |
| | 671 |
|
| Cash flows from investing activities: | | | |
| Proceeds from sales of investment securities | 482 |
| | 422 |
|
| Proceeds from calls and maturities of investment securities | 173 |
| | 401 |
|
| Proceeds from sales of property and equipment | 1 |
| | 21 |
|
| Fundings of Cannae Holdings Inc. note receivable | (200 | ) | | — |
|
| Proceeds from repayments of Cannae Holdings Inc. note receivable | 200 |
| | — |
|
| Additions to property and equipment and capitalized software | (69 | ) | | (56 | ) |
| Purchases of investment securities | (678 | ) | | (871 | ) |
| Net (purchases of) proceeds from sales and maturities of short-term investment securities | (73 | ) | | 15 |
|
| Additional investments in unconsolidated affiliates | (25 | ) | | (62 | ) |
| Distributions from unconsolidated affiliates, return of investment | 37 |
| | 60 |
|
| Net other investing activities | (9 | ) | | (2 | ) |
| Proceeds from Pacific Union Sale, net of cash transferred | — |
| | 39 |
|
| Other acquisitions/disposals of businesses, net of cash acquired/disposed | — |
| | (9 | ) |
| Net cash used in investing activities | (161 | ) | | (42 | ) |
| Cash flows from financing activities: | | | |
| Borrowings | — |
| | 442 |
|
| Debt principal payments | — |
| | (370 | ) |
Equity portion of debt conversions paid in cash
| — |
| | (142 | ) |
| Dividends paid | (254 | ) | | (246 | ) |
| Subsidiary dividends paid to non-controlling interest shareholders | (8 | ) | | (7 | ) |
| Exercise of stock options | 35 |
| | 15 |
|
| Subsidiary equity repurchase | (3 | ) | | (1 | ) |
| Net change in secured trust deposits | 68 |
| | 5 |
|
| Purchase of additional share in consolidated subsidiaries | (4 | ) | | — |
|
| Payment of contingent consideration for prior period acquisitions | (19 | ) | | (13 | ) |
| Purchases of treasury stock | (81 | ) | | — |
|
| Net cash used in financing activities | (266 | ) | | (317 | ) |
| Net increase in cash and cash equivalents | 273 |
| | 312 |
|
| Cash and cash equivalents at beginning of period | 1,257 |
| | 1,110 |
|
| Cash and cash equivalents at end of period | $ | 1,530 |
| | $ | 1,422 |
|
See Notes to Condensed Consolidated Financial Statements
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A — Basis of Financial Statements
The unaudited financial information in this report presented for interim periods is unaudited and includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” the "Company" 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. AllIn the opinion of management, 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, 2016.2018.
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 one of the nation’s largest title insurance companycompanies operating through its title insurance underwriters - Fidelity National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company ("Commonwealth Title"), 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
Termination of Stewart Merger Agreement and Payment of Reverse Termination Fee
On October 16, 2017, FNFV Group completed its acquisitionMarch 18, 2018, we signed a merger agreement (the "Merger Agreement") to acquire Stewart Information Services Corporation ("Stewart") (NYSE: STC) (the "Stewart Merger"). On, September 9, 2019, we entered into a mutual Termination Agreement with Stewart (the “Termination Agreement”), pursuant to which the parties agreed to terminate the Merger Agreement, due to the Federal Trade Commission's issuance of T-System Holdings LLC ("T-System") for $200an administrative complaint seeking to block the merger. In connection with the termination of the Merger Agreement, we paid to Stewart, on September 12, 2019, the Reverse Termination Fee (as defined in the Merger Agreement) consisting of $50 million in cash. T-Systemcash, which 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 resultingincluded within other operating expenses 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 Earnings.
Note K. Discontinued Operations for further detailsReceivable from Cannae
In November 2017, in conjunction with the split-off 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 Hawaiiour former portfolio company investments into a separate company, Cannae Holdings, Inc. ("Title Guaranty"Cannae") for $98 million. Title Guaranty was previously an unaffiliated agent of Chicago Title and will continue, we issued 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 companyCannae a revolver note (the "Cannae Revolver") in the Stateaggregate principal amount of Hawaiiup to $100 million. Cannae is considered a related party to FNF.
The Cannae Revolver accrues interest quarterly at LIBOR plus 450 basis points and matures on the five-year anniversary from the date of issuance. The maturity date is a leading providerautomatically extended for additional five-year terms unless notice of title and escrow services, with more than 300 employeesnon-renewal is otherwise provided by either FNF or Cannae, in branches across the State of Hawaii providing title insurance and real estate closing services. See Note J Acquisitions for further discussion.their sole discretion.
On August 3, 2017, FNFV LLC entered intoFebruary 7, 2019, Cannae borrowed $100 million from FNF under the Cannae Revolver. On June 12, 2019, Cannae repaid to FNF the entire $100 million outstanding amount under the Cannae Revolver.
On July 5, 2019, Cannae borrowed $100 million from FNF under the Cannae Revolver. On September 11, 2019, Cannae repaid to FNF the entire $100 million outstanding amount under the Cannae Revolver.
We account for the Cannae Revolver as a definitive agreement (the "99 Merger Agreement"), byfinancing receivable. Interest income is recorded ratably in periods in which principal is outstanding. Uncollectible financing receivables are written off or impaired when, based on all available information, it is probable that a loss has occurred.
Income Tax
Income tax expense was $59 million 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"),$51 million in the three-month periods ended September 30, 2019 and 2018, respectively, and $210 million and $104 million in the nine-month periods ended September 30, 2019 and 2018, respectively. Income tax expense as a wholly-owned subsidiarypercentage of JAX Op, Fidelity Newport Holdings, LLC ("FNH", togetherearnings before income taxes was 19% and 18% in the three-month periods ended September 30, 2019 and 2018, respectively, and 23% and 15% in the nine-month periods ended September 30, 2019 and 2018, respectively. The increase in income tax expense as a percentage of earnings before taxes in the 2019 periods from the comparable periods in 2018 was primarily attributable to a change in tax estimate in the three months ended June 30, 2018 relating to the timing of payments for, and tax rate applicable to, our tax liability resulting from the decrease in statutory premium reserve associated with FNFV LLC, the "99 Sellers"), and 99 Restaurants, LLC ("99 Restaurants"), to merge Merger Sub with and into 99 Restaurants, whereupon the separate existenceredomestication of Merger Sub shall cease and 99 Restaurants shall continue as the surviving company and a wholly-owned subsidiarycertain of JAX Opour title underwriters.
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 no0 antidilutive optionsinstruments 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 ended2019 or September 30, 2016.2018.
Recent Accounting Pronouncements
Revenue RecognitionAdopted Pronouncements
In May 2014,February 2016, 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 ASUAccounting Standards Update ("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 resulting from applying the fair value measurement, 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,In July 2018, including interim periods within those fiscal years. Early application of the FASB issued ASU 2018-11 Leases (Topic 842): Targeted Improvements which allows entities the option to adopt this standard is permitted. The ASU requiresusing a modified retrospective approach with a cumulative-effect adjustment to transitioning which allowsopening equity at the adoption date and include required disclosures for prior periods.
We adopted Topic 842 on January 1, 2019 using a modified retrospective approach and recorded lease right-of-use assets ("Lease assets") of $421 million and liabilities for future discounted lease payment obligations ("Lease liabilities") of $437 million at the usedate of adoption. The adoption also resulted in a decrease of $9 million and $25 million to our Prepaid expenses and other assets and Accounts payable and accrued liabilities, respectively. There was no impact to opening equity as a result of the adoption. We elected to apply the following package of practical expedients on a consistent basis permitting entities not to effectively accountreassess: (i) whether any expired or existing contracts are or contain a lease; (ii) lease classification for any expired or existing leases commenced prior toand (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the effective date in accordance with previous GAAP, except that lessees are required to recognize a right-of-use asset and a lease liabilityamended guidance.
See Note K. Leases for all operating leases at each reporting date based on the present valuefurther discussion 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,leasing arrangements 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.accounting.
Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). 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 debtfixed maturity 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 evaluatingfinalizing the effect this new guidance will have on our consolidated financial statementsConsolidated Financial Statements and related disclosures and havedisclosures. Based on a preliminary analysis performed, the overall effect of Topic 326 is estimated not yet concluded on its effects.to be material to the Consolidated Financial Statements upon adoption. We do not plan to early adopt thethis 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 analysisNote B — Summary of the effects of this ASU on our consolidated financial statements and related disclosures with regard to all aspects exceptReserve 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.Claim Losses
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, |
| | 2019 | | 2018 |
| | (Dollars in millions) |
| Beginning balance | $ | 1,488 |
| | $ | 1,490 |
|
| Change in reinsurance recoverable | (1 | ) | | 1 |
|
| Claim loss provision related to: | | | |
|
| Current year | 174 |
| | 165 |
|
| Prior years | — |
| | — |
|
| Total title claim loss provision | 174 |
| | 165 |
|
| Claims paid, net of recoupments related to: | |
| | |
|
| Current year | (5 | ) | | (3 | ) |
| Prior years | (162 | ) | | (162 | ) |
| Total title claims paid, net of recoupments | (167 | ) | | (165 | ) |
| Ending balance of claim loss reserve for title insurance | $ | 1,494 |
| | $ | 1,491 |
|
| Provision for title insurance claim losses as a percentage of title insurance premiums | 4.5 | % | | 4.5 | % |
|
| | | | | | | |
| | 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 | % |
On October 22, 2019, a lawsuit was filed against Chicago Title Company and Chicago Title (collectively, the “Chicago Title Company”) styled as, Ovation Fin. Holdings 2 LLC, Ovation Fund Mgmt. II, LLC, Banc of California, N.A. v. Chicago Title Ins. Co., Chicago Title Co., Case No. 3:19-cv-02031-GPC-KSC, pending in the United States District Court for the Southern District of California. Plaintiffs allege they are investors solicited by Gina Champion-Cain to provide funds that Ms. Champion-Cain represented were to be used for high-interest, short-term loans to parties seeking to acquire California alcoholic beverage licenses. Under California state law, alcoholic beverage license applicants are required to escrow an amount equal to the license purchase price while their applications remain pending with the State. Plaintiffs allege that the Chicago Title Company participated with Ms. Champion-Cain and her entities in a fraud scheme involving an escrow account maintained by the Chicago Title Company into which the investors’ funds were deposited. The investors allege they were defrauded out of more than $75 million, and also seek consequential, treble, and punitive damages. The Chicago Title Company is investigating the allegations and has not yet filed a response to the lawsuit but plans to do so on, or before the due date. No specific known claims reserve has been established as any amount of specific loss is not estimable.
We continually updateupdate 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 additional reserve adjustments may be required in future periods in order to maintain our recorded reserves may fall outsidereserve within a reasonable range of our actuary's central estimate, which may require additional reserve adjustments in future periods.estimate.
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, 20172019 and December 31, 2016,2018, respectively:
|
| | | | | | | | | | | | | | | |
| | September 30, 2019 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In millions) |
| Fixed maturity securities available for sale: | | | | | | | |
| U.S. government and agencies | $ | — |
| | $ | 289 |
| | $ | — |
| | $ | 289 |
|
| State and political subdivisions | — |
| | 77 |
| | — |
| | 77 |
|
| Corporate debt securities | — |
| | 1,579 |
| | 17 |
| | 1,596 |
|
| Mortgage-backed/asset-backed securities | — |
| | 72 |
| | — |
| | 72 |
|
| Foreign government bonds | — |
| | 58 |
| | — |
| | 58 |
|
| Preferred securities | 18 |
| | 266 |
| | — |
| | 284 |
|
| Equity securities | 684 |
| | — |
| | — |
| | 684 |
|
| Other long-term investments | — |
| | — |
| | 116 |
| | 116 |
|
| Total assets | $ | 702 |
| | $ | 2,341 |
| | $ | 133 |
| | $ | 3,176 |
|
|
| | | | | | | | | | | | | | | |
| | 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, 2018 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In millions) |
| Fixed maturity securities available for sale: | | | | | | | |
| U.S. government and agencies | $ | — |
| | $ | 225 |
| | $ | — |
| | $ | 225 |
|
| State and political subdivisions | — |
| | 148 |
| | — |
| | 148 |
|
| Corporate debt securities | — |
| | 1,486 |
| | 17 |
| | 1,503 |
|
| Mortgage-backed/asset-backed securities | — |
| | 60 |
| | — |
| | 60 |
|
| Foreign government bonds | — |
| | 62 |
| | — |
| | 62 |
|
| Preferred securities | 16 |
| | 285 |
| | — |
| | 301 |
|
| Equity securities | 498 |
| | — |
| | — |
| | 498 |
|
| Other long-term investments | — |
| | — |
| | 101 |
| | 101 |
|
| Total assets | $ | 514 |
| | $ | 2,266 |
| | $ | 118 |
| | $ | 2,898 |
|
|
| | | | | | | | | | | | | | | |
| | 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-maturitiespreferred securities and fixed maturity securities available for sale are provided by a third-party pricing services.service. We utilize one1 firm for our taxable bond and preferred stock portfolio and another for our tax-exempt bond portfolio. Theseportfolios. The pricing services areservice is a leading global providersprovider 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.value and internally developed models. 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, andor any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
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.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Mortgage-backed/asset-backed securities: These securities are comprised of commercial mortgage-backed securities, 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: Thesesecurities: Preferred securities are valued by calculating the appropriate spread over a comparable U.S. Treasury security. Inputs include benchmark quotes and other relevant market data.
AsOur Level 3 fair value measures for our other long term investment are provided by a third-party pricing service. We utilize 1 firm to value our Level 3 other long-term investment. The pricing service is a leading global provider of financial market data, analytics and related services to financial institutions. We utilize the income approach and a discounted cash flow analysis in determining the fair value of our Level 3 other long-term investment. The primary unobservable input utilized in this pricing methodology is the discount rate used which is determined based on underwriting yield, credit spreads, yields on benchmark indices and comparable public company debt. The discount rate used in our determination of the fair value of our Level 3 other long-term investment as of September 30, 20172019 was a range of 7.1% - 7.5% and December 31, 2016, we held no material assets or liabilities measured ata weighted-average of 7.2%. Based on the total fair value usingof our Level 3 inputs.other long-term investment as of September 30, 2019, changes in the discount rate utilized will not result in a fair value significantly different than the amount recorded.
Our Level 3 fair value measures for our corporate debt securities relate to multiple investments which are considered immaterial individually and in the aggregate.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
The following table presents a summary of the changes in the fair values of Level 3 assets, measured on a recurring basis, for the three and nine-month periods ended September 30, 2019 and 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2019 | | Three months ended September 30, 2018 |
| | Other Long-Term | | Corporate Debt | | | | Other Long-Term | | Corporate Debt | | |
| | Investment | | Securities | | Total | | Investment | | Securities | | Total |
| | (In millions) | | (In millions) |
| Fair value, beginning balance | $ | 112 |
| | $ | 16 |
| | $ | 128 |
| | $ | 102 |
| | $ | 13 |
| | $ | 115 |
|
| Paid-in-kind dividends (1) | 2 |
| | — |
| | 2 |
| | 2 |
| | — |
| | 2 |
|
| Purchases | — |
| | 1 |
| | 1 |
| | — |
| | — |
| | — |
|
| Net valuation gain included in earnings (2) | 2 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
|
| Fair value, ending balance | $ | 116 |
| | $ | 17 |
| | $ | 133 |
| | $ | 104 |
| | $ | 13 |
| | $ | 117 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2019 | | Nine months ended September 30, 2018 |
| | Other Long-Term | | Corporate Debt | | | | Other Long-Term | | Corporate Debt | | |
| | Investment | | Securities | | Total | | Investment | | Securities | | Total |
| | (In millions) | | (In millions) |
| Fair value, beginning balance | $ | 101 |
| | $ | 17 |
| | $ | 118 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| Fair value of assets associated with the adoption of ASU 2016-01 | — |
| | — |
| | — |
| | 100 |
| | — |
| | 100 |
|
| Transfers from Level 2 | — |
| | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
| Transfers to Level 2 | — |
| | (5 | ) | | (5 | ) | | — |
| | — |
| | — |
|
| Paid-in-kind dividends (1) | 5 |
| | 1 |
| | 6 |
| | 5 |
| | — |
| | 5 |
|
| Purchases | — |
| | 6 |
| | 6 |
| | — |
| | — |
| | — |
|
| Sales and maturities | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
| Net valuation gain (loss) included in earnings (2) | 10 |
| | — |
| | 10 |
| | (1 | ) | | — |
| | (1 | ) |
| Net unrealized loss included in other comprehensive earnings (3) | — |
| | (1 | ) | | (1 | ) | | — |
| | — |
| | — |
|
| Fair value, ending balance | $ | 116 |
| | $ | 17 |
| | $ | 133 |
| | $ | 104 |
| | $ | 13 |
| | $ | 117 |
|
(1) Included in Interest and investment income on the Condensed Consolidated Statements of Earnings
(2) Included in Realized gains and losses, net on the Condensed Consolidated Statements of Earnings
(3) Included in Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on the Condensed Consolidated Statements of Comprehensive Earnings
Transfers into or out of the Level 3 fair value category occur when unobservable inputs become more or less significant to the fair value measurement or upon a change in valuation technique. For the three and nine months ended September 30, 2019 and three months ended 2018, respectively, transfers between Level 2 and Level 3 are not considered material. For the nine months ended September 30, 2018, transfers between Level 2 and Level 3 were based on changes in significance of unobservable inputs used associated with a change in the valuation technique used for certain of the Company’s corporate debt securities and are not considered material to the Company's financial position or results of operations.
Substantially all of the unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) on our Condensed Consolidated Statements of Comprehensive Income relate to fixed maturity securities which are considered Level 2 fair value measures.
The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature.nature and/or short time period since consummation. Additional information regarding the fair value of our investment portfolio is included in Note D D. Investments.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
Note D — Investments
The carrying amounts and fair values of our available for sale securities at September 30, 20172019 and December 31, 20162018 are as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | September 30, 2019 |
| | Carrying | | Cost | | Unrealized | | Unrealized | | Fair |
| | Value | | Basis | | Gains | | Losses | | Value |
| | (In millions) |
| Fixed maturity securities available for sale: | | | | | | | | | |
| U.S. government and agencies | $ | 289 |
| | $ | 280 |
| | $ | 9 |
| | $ | — |
| | $ | 289 |
|
| State and political subdivisions | 77 |
| | 75 |
| | 2 |
| | — |
| | 77 |
|
| Corporate debt securities | 1,596 |
| | 1,549 |
| | 53 |
| | (6 | ) | | 1,596 |
|
| Mortgage-backed/asset-backed securities | 72 |
| | 69 |
| | 3 |
| | — |
| | 72 |
|
| Foreign government bonds | 58 |
| | 61 |
| | — |
| | (3 | ) | | 58 |
|
| Total | $ | 2,092 |
| | $ | 2,034 |
| | $ | 67 |
| | $ | (9 | ) | | $ | 2,092 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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, 2018 |
| | Carrying | | Cost | | Unrealized | | Unrealized | | Fair |
| | Value | | Basis | | Gains | | Losses | | Value |
| | (In millions) |
| Fixed maturity securities available for sale: | | | | | | | | | |
| U.S. government and agencies | $ | 225 |
| | $ | 226 |
| | $ | 1 |
| | $ | (2 | ) | | $ | 225 |
|
| State and political subdivisions | 148 |
| | 147 |
| | 1 |
| | — |
| | 148 |
|
| Corporate debt securities | 1,503 |
| | 1,510 |
| | 6 |
| | (13 | ) | | 1,503 |
|
| Mortgage-backed/asset-backed securities | 60 |
| | 59 |
| | 1 |
| | — |
| | 60 |
|
| Foreign government bonds | 62 |
| | 67 |
| | — |
| | (5 | ) | | 62 |
|
| Total | $ | 1,998 |
| | $ | 2,009 |
| | $ | 9 |
| | $ | (20 | ) | | $ | 1,998 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | 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, 2017:2019:
|
| | | | | | | | | | | | | | |
| | | September 30, 2019 |
| | | Amortized | | % of | | Fair | | % of |
| Maturity | | Cost | | Total | | Value | | Total |
| | | (Dollars in millions) |
| One year or less | | $ | 334 |
| | 16 | % | | $ | 331 |
| | 16 | % |
| After one year through five years | | 1,160 |
| | 57 |
| | 1,183 |
| | 57 |
|
| After five years through ten years | | 361 |
| | 18 |
| | 382 |
| | 18 |
|
| After ten years | | 110 |
| | 5 |
| | 124 |
| | 6 |
|
| Mortgage-backed/asset-backed securities | | 69 |
| | 4 |
| | 72 |
| | 3 |
|
| Total | | $ | 2,034 |
| | 100 | % | | $ | 2,092 |
| | 100 | % |
|
| | | | | | | | | | | | | | |
| | | 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.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
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, 20172019 and December 31, 2016,2018, were as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or Longer | | Total |
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
| | Value | | Losses | | Value | | Losses | | Value | | Losses |
| Corporate debt securities | $ | 136 |
| | $ | (5 | ) | | $ | 58 |
| | $ | (1 | ) | | $ | 194 |
| | $ | (6 | ) |
| Foreign government bonds | — |
| | — |
| | 23 |
| | (3 | ) | | 23 |
| | (3 | ) |
| Total temporarily impaired securities | $ | 136 |
| | $ | (5 | ) | | $ | 81 |
| | $ | (4 | ) | | $ | 217 |
| | $ | (9 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2018 | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or Longer | | Total |
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
| | Value | | Losses | | Value | | Losses | | Value | | Losses |
| U.S. government and agencies | $ | 71 |
| | $ | (1 | ) | | $ | 117 |
| | $ | (1 | ) | | $ | 188 |
| | $ | (2 | ) |
| Corporate debt securities | 661 |
| | (8 | ) | | 301 |
| | (5 | ) | | 962 |
| | (13 | ) |
| Foreign government bonds | 52 |
| | (3 | ) | | 10 |
| | (2 | ) | | 62 |
| | (5 | ) |
| Total temporarily impaired securities | $ | 784 |
| | $ | (12 | ) | | $ | 428 |
| | $ | (8 | ) | | $ | 1,212 |
| | $ | (20 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 no0 impairment charges relating to investments during the three or nine-month periods ended September 30, 2019 or during the three-month period ended September 30, 2017.2018. We recorded $1$3 million inof impairment charges relating to investments during the nine-month period ended September 30, 2017 relating2018. Impairment in the nine-month period ended September 30, 2018 relates to a fixed maturity securitysecurities of an investeeinvestees entering Chapter 11 bankruptcy which has exhibited a decreasing fair market valuevalues 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, 2017,2019 and December 31, 2018, we held $1 million in available for sale0 investment 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 presentstables present realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the three-three and nine-monthnine-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.
2019 and 2018, respectively:
15 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2019 | | Nine months ended September 30, 2019 |
| | | 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) |
| Sales and maturities of fixed maturity securities available for sale | | $ | 1 |
| | $ | — |
| | $ | 1 |
| | $ | 78 |
| | $ | 3 |
| | $ | (1 | ) | | $ | 2 |
| | $ | 450 |
|
| Sales and maturities of preferred securities | | 1 |
| | — |
| | 1 |
| | 19 |
| | 1 |
| | — |
| | 1 |
| | 45 |
|
| Sales of equity securities | | 5 |
| | — |
| | 5 |
| | 5 |
| | 10 |
| | — |
| | 10 |
| | 129 |
|
| Valuation of equity securities | | | | | | (7 | ) | |
|
| | | | | | 161 |
| |
|
|
| Valuation of preferred securities | | | | | | 1 |
| |
|
| | | | | | 14 |
| |
|
|
| Valuation of other long term investments | | | | | | 2 |
| | | | | | | | 9 |
| | |
| Impairment of lease assets | | | | | | — |
| |
|
| | | | | | (8 | ) | |
|
|
| Other realized gains and losses, net | | | | | | 1 |
| |
|
| | | | | | (2 | ) | |
|
|
| Total | | | | | | $ | 4 |
| | $ | 102 |
| | | | | | $ | 187 |
| | $ | 624 |
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
During the three-month periods ended |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, 2018 | | Nine months ended September 30, 2018 |
| | | 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) |
| Sales and maturities of fixed maturity securities available for sale | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 119 |
| | $ | 4 |
| | $ | (3 | ) | | $ | 1 |
| | $ | 662 |
|
| Sales and maturities of preferred securities | | — |
| | — |
| | — |
| | 6 |
| | 1 |
| | — |
| | 1 |
| | 52 |
|
| Sales of equity securities | | 2 |
| | (4 | ) | | (2 | ) | | 89 |
| | 5 |
| | (8 | ) | | (3 | ) | | 108 |
|
| Valuation of equity securities | | | | | | 42 |
| | — |
| | | | | | 30 |
| | — |
|
| Valuation of preferred securities | | | | | | — |
| | — |
| | | | | | (8 | ) | | — |
|
| Property and equipment | | | | | | — |
| | — |
| | | | | | 5 |
| | 21 |
|
| Pacific Union sale | | | | | | 10 |
| | 53 |
| | | | | | 10 |
| | 53 |
|
| Other realized gains and losses, net | | | | | | — |
| | — |
| | | | | | (1 | ) | | — |
|
| Total | | | | | | $ | 50 |
| | $ | 267 |
| | | | | | $ | 35 |
| | $ | 896 |
|
Investment with Related Party
Included in equity securities as of September 30, 20172019 and 2016, we recorded $6December 31, 2018 are 5,706,134 shares of Cannae common stock (NYSE: CNNE) which were purchased during the fourth quarter of 2017 in connection with the split-off of our former portfolio company investments to Cannae. The fair value of our related party investment based on quoted market prices is $157 million and $10$98 million in equity in lossesas of Ceridian, respectively, and $3 million in equity in earnings of other unconsolidated affiliates. During the nine-month periods ended September 30, 20172019 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,December 31, 2018, 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— Notes Payable
Notes payable consists of the following:
|
| | | | | | | | |
| | | September 30,
2019 | | December 31,
2018 |
| | | (In millions) |
| 4.50% Notes, net of discount | | $ | 443 |
| | $ | 442 |
|
| 5.50% Notes, net of discount | | 398 |
| | 398 |
|
| Revolving Credit Facility | | (3 | ) | | (4 | ) |
| | | $ | 838 |
| | $ | 836 |
|
|
| | | | | | | | |
| | | 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, 2017,2019, the estimated fair value of our long-term debtunsecured notes payable was approximately $1,056$913 million, which was $155$63 million higher than its carrying value, excluding $11$12 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, 20172019 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 agreement13, 2018, we completed an offering of $450 million in aggregate principal amount of 4.50% notes due August 2028 (the “ABRH Credit Facility”"4.50% Notes") with Wells Fargo Bank, National Association, pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as administrative agent, Swingline Lenderamended. The 4.50% Notes were priced at 99.252% of par to yield 4.594% annual interest. We pay interest on the 4.50% Notes semi-annually on the 15th of February and Issuing LenderAugust, beginning February 15, 2019. The 4.50% Notes contain customary covenants and events of default for investment grade public debt, which primarily relate to failure to make principal or interest payments. On May 16, 2019, we completed an offering to exchange the 4.50% Notes for substantially identical notes registered pursuant to Rule 424 under the Securities Act of 1933 (the “ABRH Administrative Agent”"4.50% Notes Exchange"), Bank of America, N.A. as syndication agent and. There were no material changes to 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 terms4.50% Notes as a result of the amendment on February 24, 2017,4.50% Notes Exchange and have not been amended sinceall holders of the filing of such Annual Report. As of September 30, 2017, ABRH had $86 million outstanding for4.50% Notes accepted 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%.offer to exchange.
On June 25, 2013, FNFwe 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 RevolvingExisting Credit FacilityAgreement was amended (the "Restated Credit Agreement") to extend the term for 5 years, from a maturity date.The material terms 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
for the year ended December 31, 2018. As of September 30, 2019, there was 0 principal outstanding, $3 million of unamortized debt issuance costs, and $800 million of available borrowing capacity under the Revolving Credit Facility.
On August 28, 2012, FNFwe completed an offering of $400 million in aggregate principal amount of 5.50% notes due September 2022 (the "5.50% notes"Notes"), pursuant to an effective registration statement previously filed with the SEC.Securities and Exchange Commission ("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.2018.
|
| | | |
| Gross principal maturities of notes payable at September 30, 2019 are as follows (in millions): | |
| 2019 (remaining) | $ | — |
|
| 2020 | — |
|
| 2021 | — |
|
| 2022 | 400 |
|
| 2023 | — |
|
| Thereafter | 450 |
|
| | $ | 850 |
|
|
| | | |
| 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$12 million and $11 million as of September 30, 20172019 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, 2016.2018, respectively. 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.
In a class action captioned, Patterson, et al. v. Fidelity National Title Insurance Company, et al., Case No. GD 03-021176, originally filed on October 27, 2003, and pending in the Court of Common Pleas of Allegheny County, Pennsylvania, plaintiffs allege the named Company underwriters violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) by failing to provide premium discounts in accordance with filed rates in refinancing transactions. Contrary to rulings in similar federal court cases that considered the rate rule and agreed with the Company’s position, the court held that the rate rule should be interpreted such that an institutional mortgage in the public record is a “proxy” for prior title insurance entitling a consumer to a discount rate when refinancing when there is a mortgage of record within the number of years required by the rate rule. The rate rule requires sufficient evidence of a prior policy, and because not all institutional mortgages were insured, the Company’s position is that a recorded first mortgage alone does not constitute sufficient evidence of an earlier policy entitling consumers to a discounted rate. The court certified the class refusing to follow prior Pennsylvania Supreme Court and appellate court decisions holding that the UTPCPL requires proof of reliance, an individual issue that precludes certification. After notice to the class, plaintiffs moved for partial summary judgment on liability, and defendants moved for summary judgment. On June 27, 2018, the court entered an order granting plaintiffs’ motion for partial summary judgment on liability, and denying the Company’s motion. The court also determined that a multiplier of 1.5, not treble, should be applied to the amount of damages, if any, proven by class members at trial, and that Plaintiffs should bear the responsibility of identifying class members and calculating damages. The Company sought permission from the Pennsylvania Superior Court to appeal both the liability and damage multiplier issues; however, the petition was denied. The Company has filed a petition with the Pennsylvania Supreme Court requesting consideration
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
of the appeal on the merits, or in the alternative, an order directing the Pennsylvania Superior Court to grant interlocutory review. There has been no determination as to the size of the class. It is unknown whether plaintiffs will seek statutory or actual damages, or whether the judge will exercise discretion to award prejudgment interest or reasonable attorneys’ fees. Accordingly, damages are not reasonably estimable at this time. We will continue to vigorously defend this matter, and we do not believe the result 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. We do not anticipate such fines and settlements, either individually or in the aggregate, will have a material adverse effect on our financial condition.
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, 2017,29, 2019, our Board of Directors declared cash dividends of $0.27$0.33 per share, payable on December 29, 2017,31, 2019, to FNF Group common shareholders of record as of December 15, 2017.17, 2019.
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, 2017:2019:
|
| | | | | | | | | | | |
| | Title | | Corporate and Other | | Total |
| | (In millions) |
| Title premiums | $ | 1,487 |
| | $ | — |
| | $ | 1,487 |
|
| Other revenues | 653 |
| | 40 |
| | 693 |
|
| Revenues from external customers | 2,140 |
| | 40 |
| | 2,180 |
|
| Interest and investment income, including realized gains and losses | 54 |
| | 7 |
| | 61 |
|
| Total revenues | 2,194 |
| | 47 |
| | 2,241 |
|
| Depreciation and amortization | 38 |
| | 6 |
| | 44 |
|
| Interest expense | — |
| | 12 |
| | 12 |
|
| Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | 389 |
| | (76 | ) | | 313 |
|
| Income tax expense (benefit) | 94 |
| | (35 | ) | | 59 |
|
| Earnings (loss) before equity in earnings of unconsolidated affiliates | 295 |
| | (41 | ) | | 254 |
|
| Equity in earnings of unconsolidated affiliates | 1 |
| | 1 |
| | 2 |
|
| Net earnings (loss) | $ | 296 |
| | $ | (40 | ) | | $ | 256 |
|
| Assets | $ | 9,305 |
| | $ | 1,114 |
| | $ | 10,419 |
|
| Goodwill | 2,461 |
| | 265 |
| | 2,726 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2016:2018:
|
| | | | | | | | | | | |
| | Title | | Corporate and Other | | Total |
| | (In millions) |
| Title premiums | $ | 1,296 |
| | $ | — |
| | $ | 1,296 |
|
| Other revenues | 567 |
| | 128 |
| | 695 |
|
| Revenues from external customers | 1,863 |
| | 128 |
| | 1,991 |
|
| Interest and investment income, including realized gains and losses | 82 |
| | 12 |
| | 94 |
|
| Total revenues | 1,945 |
| | 140 |
| | 2,085 |
|
| Depreciation and amortization | 38 |
| | 8 |
| | 46 |
|
| Interest expense | — |
| | 9 |
| | 9 |
|
| Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | 311 |
| | (24 | ) | | 287 |
|
| Income tax expense (benefit) | 68 |
| | (17 | ) | | 51 |
|
| Earnings (loss) before equity in earnings of unconsolidated affiliates | 243 |
| | (7 | ) | | 236 |
|
| Equity in earnings of unconsolidated affiliates | 1 |
| | — |
| | 1 |
|
| Net earnings (loss) | $ | 244 |
| | $ | (7 | ) | | $ | 237 |
|
| Assets | $ | 8,591 |
| | $ | 780 |
| | $ | 9,371 |
|
| Goodwill | 2,452 |
| | 267 |
| | 2,719 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2017:2019:
| | | | Title | | FNF Group Corporate and Other | | Total FNF Group | | Restaurant Group | | FNFV Corporate and Other | | Total FNFV | | Total | Title | | Corporate and Other | | Total |
| | (In millions) | (In millions) |
| Title premiums | $ | 3,626 |
| | $ | — |
| | $ | 3,626 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,626 |
| $ | 3,858 |
| | $ | — |
| | $ | 3,858 |
|
| Other revenues | 1,634 |
| | 335 |
| | 1,969 |
| | — |
| | 102 |
| | 102 |
| | 2,071 |
| 1,747 |
| | 145 |
| | 1,892 |
|
| Restaurant revenues | — |
| | — |
| | — |
| | 830 |
| | — |
| | 830 |
| | 830 |
| |
| Revenues from external customers | 5,260 |
| | 335 |
| | 5,595 |
| | 830 |
| | 102 |
| | 932 |
| | 6,527 |
| 5,605 |
| | 145 |
| | 5,750 |
|
| Interest and investment income, including realized gains and losses | 99 |
| | (6 | ) | | 93 |
| | (4 | ) | | 285 |
| | 281 |
| | 374 |
| 344 |
| | 13 |
| | 357 |
|
| Total revenues | 5,359 |
| | 329 |
| | 5,688 |
| | 826 |
| | 387 |
| | 1,213 |
| | 6,901 |
| 5,949 |
| | 158 |
| | 6,107 |
|
| Depreciation and amortization | 117 |
| | 16 |
| | 133 |
| | 33 |
| | 11 |
| | 44 |
| | 177 |
| 115 |
| | 17 |
| | 132 |
|
| Interest expense | — |
| | 39 |
| | 39 |
| | 5 |
| | 3 |
| | 8 |
| | 47 |
| — |
| | 36 |
| | 36 |
|
| Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates | 707 |
| | (63 | ) | | 644 |
| | (25 | ) | | 242 |
| | 217 |
| | 861 |
| |
| Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | | 1,068 |
| | (138 | ) | | 930 |
|
| Income tax expense (benefit) | 290 |
| | (32 | ) | | 258 |
| | — |
| | 97 |
| | 97 |
| | 355 |
| 260 |
| | (50 | ) | | 210 |
|
| 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 |
| |
| Earnings (loss) before equity in earnings of unconsolidated affiliates | | 808 |
| | (88 | ) | | 720 |
|
| Equity in earnings of unconsolidated affiliates | | 11 |
| | 1 |
| | 12 |
|
| Net earnings (loss) | | $ | 819 |
| | $ | (87 | ) | | $ | 732 |
|
| Assets | $ | 8,510 |
| | $ | 680 |
| | $ | 9,190 |
| | $ | 478 |
| | $ | 833 |
| | $ | 1,311 |
| | $ | 10,501 |
| $ | 9,305 |
| | $ | 1,114 |
| | $ | 10,419 |
|
| Goodwill | 2,431 |
| | 252 |
| | 2,683 |
| | 101 |
| | — |
| | 101 |
| | 2,784 |
| 2,461 |
| | 265 |
| | 2,726 |
|
As of and for the nine months ended September 30, 2016:2018:
|
| | | | | | | | | | | |
| | Title | | Corporate and Other | | Total |
| | (In millions) |
| Title premiums | $ | 3,663 |
| | $ | — |
| | $ | 3,663 |
|
| Other revenues | 1,683 |
| | 395 |
| | 2,078 |
|
| Revenues from external customers | 5,346 |
| | 395 |
| | 5,741 |
|
| Interest and investment income, including realized gains and losses | 147 |
| | 13 |
| | 160 |
|
| Total revenues | 5,493 |
| | 408 |
| | 5,901 |
|
| Depreciation and amortization | 116 |
| | 22 |
| | 138 |
|
| Interest expense | — |
| | 31 |
| | 31 |
|
| Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates | 774 |
| | (85 | ) | | 689 |
|
| Income tax expense (benefit) | 137 |
| | (33 | ) | | 104 |
|
| Earnings (loss) before equity in earnings of unconsolidated affiliates | 637 |
| | (52 | ) | | 585 |
|
| Equity in earnings of unconsolidated affiliates | 3 |
| | 1 |
| | 4 |
|
| Net earnings (loss) | $ | 640 |
| | $ | (51 | ) | | $ | 589 |
|
| Assets | $ | 8,591 |
| | $ | 780 |
| | $ | 9,371 |
|
| Goodwill | 2,452 |
| | 267 |
| | 2,719 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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:
| |
| • | 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, and home warranty products. This segment also includes our transaction services business, which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default. |
| |
| • | Corporate and Other. Thissegment consists of the operations of the parent holding company, our real estate technology subsidiaries and our remaining real estate brokerage businesses. This segment includes the results of operations of Pacific Union International, Inc. ("Pacific Union") through September 24, 2018, the date we closed on the sale of all of our equity interest in, and notes outstanding from, Pacific Union. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment. |
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. Thissegment 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.I — Supplemental Cash Flow Information
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 cash payment and non-cash investing and financing activities.
|
| | | | | | | | |
| | | Nine months ended September 30, |
| | | 2019 | | 2018 |
| Cash paid for: | | | | |
|
| Interest | | $ | 43 |
| | $ | 33 |
|
| Income taxes | | 152 |
| | 127 |
|
| Non-cash investing and financing activities: | | | | |
| Change in proceeds of sales of investments available for sale receivable in period | | $ | (7 | ) | | $ | 1 |
|
| Change in purchases of investments available for sale payable in period | | (8 | ) | | (5 | ) |
| Receivable for non-cash earnout proceeds for the Pacific Union Sale | | — |
| | 10 |
|
| Change in accrual for unsettled repurchases of formerly outstanding debt instruments | | — |
| | (11 | ) |
| Lease liabilities recognized in exchange for lease right-of-use assets | | 27 |
| | — |
|
| Remeasurement of lease liabilities | | 57 |
| | — |
|
|
| | | | | | | | |
| | | 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, netNote J — Revenue Recognition
On January 1, 2018, we adopted Accounting Standard Codification ("ASC") Topic 606, Revenue from Contracts with Customers, by applying the modified retrospective method. The adoption of cash received,ASC Topic 606 did not have an impact on the recognition of $93 million in exchange for 90%our primary sources of revenue, direct and agency title premiums, as those revenue streams are subject to the accounting and reporting requirements under ASC Topic 944. Timing of recognition of substantially all of our remaining revenue was also not impacted and we therefore did not record any cumulative effect adjustment to opening equity.
Disaggregation of Revenue
Our revenue consists of:
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | Three months ended September 30, | | Nine months ended September 30, |
| | | | | | | 2019 | | 2018 | | 2019 | | 2018 |
| Revenue Stream | | Income Statement Classification | | Segment | | Total Revenue |
| Revenue from insurance contracts: | | | | | | (in millions) |
| Direct title insurance premiums | | Direct title insurance premiums | | Title | | $ | 660 |
|
| $ | 574 |
| | $ | 1,725 |
| | $ | 1,645 |
|
| Agency title insurance premiums | | Agency title insurance premiums | | Title | | 827 |
| | 722 |
| | 2,133 |
| | 2,018 |
|
| Home warranty | | Escrow, title-related and other fees | | Title | | 45 |
| | 46 |
| | 132 |
| | 137 |
|
| Total revenue from insurance contracts | | | | | | 1,532 |
| | 1,342 |
| | 3,990 |
| | 3,800 |
|
| Revenue from contracts with customers: | | | | | | | | | | | | |
| Escrow fees | | Escrow, title-related and other fees | | Title | | 253 |
| | 219 |
| | 655 |
| | 637 |
|
| Other title-related fees and income | | Escrow, title-related and other fees | | Title | | 171 |
| | 153 |
| | 472 |
| | 456 |
|
| ServiceLink, excluding title premiums, escrow fees, and subservicing fees | | Escrow, title-related and other fees | | Title | | 104 |
| | 95 |
| | 284 |
| | 293 |
|
| Real estate technology | | Escrow, title-related and other fees | | Corporate and other | | 26 |
| | 25 |
| | 77 |
| | 77 |
|
| Real estate brokerage | | Escrow, title-related and other fees | | Corporate and other | | 11 |
| | 95 |
| | 32 |
| | 305 |
|
| Other | | Escrow, title-related and other fees | | Corporate and other | | 3 |
| | 8 |
| | 36 |
| | 13 |
|
| Total revenue from contracts with customers | | | | | | 568 |
| | 595 |
| | 1,556 |
| | 1,781 |
|
| Other revenue: | | | | | | | | | | | | |
| Loan subservicing revenue | | Escrow, title-related and other fees | | Title | | 80 |
| | 54 |
| | 204 |
| | 160 |
|
| Interest and investment income | | Interest and investment income | | Various | | 57 |
| | 44 |
| | 170 |
| | 125 |
|
| Realized gains and losses, net | | Realized gains and losses, net | | Various | | 4 |
| | 50 |
| | 187 |
| | 35 |
|
| Total revenues | | Total revenues | | | | $ | 2,241 |
| | $ | 2,085 |
| | 6,107 |
| | 5,901 |
|
Our Direct title insurance premiums are recognized as revenue at the time of closing of the equity interestsunderlying transaction as the earnings process is then considered complete. Regulation 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 allocatedtitle insurance rates varies by state. Premiums are charged to Title Guaranty's assets acquired and liabilities assumedcustomers based on our best estimatesrates predetermined in coordination with each states' respective Department of their fair values asInsurance. Cash associated with such revenue is typically collected at closing of the acquisition date. Goodwill has been recorded based onunderlying real estate transaction. Premium revenues from agency title operations are recognized when the amount thatunderlying title order and transaction closing, if applicable, are complete.
Revenues from our home warranty business are generated from contracts with customers to provide warranty for major home appliances. Substantially all of our home warranty contracts are one year in length and revenue is recognized ratably over the purchase price exceeds the fair valueterm 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.contract.
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 equipmentEscrow fees and Other intangible assets acquiredtitle-related fees and income in our Title segment are closely related to Direct title insurance premiums and are primarily associated with managing the Title Guaranty acquisition consistclosing 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 enhancetransactions including the productivity andprocessing of funds on behalf of
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued
sales results of elite Realtors®the transaction participants, gathering and agent teams through lead generationrecording the required closing documents, providing notary and proactive lead management. CINC's financial positionhome inspection services, 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%other real estate or title-related activities. Revenue is primarily recognized upon closing of the equity interestsunderlying real estate transaction or completion of CINC. The total consideration paid was as follows (in millions):services. Cash associated with such revenue is typically collected at closing.
|
| | | |
| Cash paid | $ | 240 |
|
| Less: Cash Acquired | (11 | ) |
| Total net consideration paid | $ | 229 |
|
The purchase price has been allocatedRevenues from ServiceLink, excluding its title premiums, escrow fees and loan subservicing fees primarily include revenues from real estate appraisal services and foreclosure processing and facilitation services. Revenues from real estate appraisal services are recognized when all appraisal work is complete, a final report is issued to CINC's assets acquiredthe client and liabilities assumed based on our best estimates of their fair values asthe client is billed. Revenues from foreclosure processing and facilitation services are primarily recognized upon completion of the acquisition date. Goodwill has been recorded basedservices and when billing to the client is complete.
Real estate technology revenues are primarily comprised of subscription fees for use of software provided to real estate professionals. Subscriptions are only offered on a month-by-month basis and fees are billed monthly. Revenue is recognized in the month services are provided.
Real estate brokerage revenues are primarily comprised of commission revenues earned in association with the facilitation of real estate transactions and are recognized upon closing of the sale of the underlying real estate transaction.
Loan subservicing revenues are generated by certain subsidiaries of ServiceLink and are associated with the servicing of mortgage loans on behalf of its customers. Revenue is recognized when the underlying work is performed and billed. Loan subservicing revenues are subject to the recognition requirements of ASC Topic 860.
Interest and investment income consists primarily of interest payments received on fixed maturity security holdings and dividends received on equity and preferred security holdings.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, primarily related to revenue from our home warranty business, and (ii) contracts for which we recognize revenue at the amount thatto which we have the purchase price exceeds the fair value of the net assets acquired.right to invoice for services performed.
Contract Balances
The following table summarizesprovides information about trade receivables and deferred revenue:
|
| | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
| | (In millions) |
| Trade receivables | $ | 362 |
| | $ | 284 |
|
| Deferred revenue (contract liabilities) | 117 |
| | 105 |
|
Deferred revenue is recorded primarily for our home warranty contracts. Revenues from home warranty products are recognized over the total purchase price considerationlife of the policy, which is primarily one year. The unrecognized portion is recorded as deferred revenue in accounts payable and other accrued liabilities in the fair value amountsCondensed Consolidated Balance Sheets. During the three and nine months ended September 30, 2019, we recognized $44 million and $97 million of revenue, respectively, which was included in deferred revenue at the beginning of the period.
Note K — Leases
We adopted ASC Topic 842 on January 1, 2019 using a modified retrospective approach. Prior year periods continue to be reported under ASC Topic 840. See Note A Basis of Financial Statements for further discussion of the current period effects of adoption of ASU No. 2016-02 Leases (Topic 842).
Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842 are recorded when we are party to a contract which conveys the right for the Company to control an asset for a specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. We generally are not a party to any material contracts considered finance leases. Right-of-use assets acquired and lease liabilities assumedunder ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Condensed Consolidated Balance Sheet as of September 30, 2019.
Our operating leases range in term from one to ten years. As of September 30, 2019, the acquisition date (in millions):weighted-average remaining lease term of our operating leases was 4.2 years.
Our lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.
|
| | | |
| | 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 resultsMost of operationsour leases include 1 or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of FNFlease renewal options is at our sole discretion. We do not include options to renew in our measurement of right-of-use assets and lease liabilities as they are not considered reasonably assured of exercise.
Our operating lease liability is determined by discounting future lease payments using a discount rate based on the Company's incremental borrowing rate for similar collateralized borrowing. The discount rate is calculated as an average of the threecurrent yield on our unsecured notes payable and nine months ended140 basis points in excess of the current five year LIBOR swap rate. As of September 30, 2016 are presented below. Pro-forma results presented assume2019 the consolidation of CINC occurred as of the beginning of the 2016 period. Amounts reflectweighted-average discount rate used to determine 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.operating lease liability was 4.33%.
We have various agreements with Black Knight to provide technology, data and analytics services, as well as corporate shared services and information technology. Wedo not separate lease components from non-lease components for any of our right-of-use assets.
Our lease costs 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,operating expenses on the Condensed Consolidated Statements of Cash FlowsIncome and were $36 million and $109 million for the nine monthsthree and nine-month periods ended September 30, 2016 includes $150 million2019, respectively. We do not have any material short term lease costs, variable lease costs, or sublease income.
Future payments under operating lease arrangements accounted for under ASC Topic 842 as of September 30, 2019 are as follows (in millions):
|
| | | |
| 2019 (remaining) | $ | 37 |
|
| 2020 | 136 |
|
| 2021 | 109 |
|
| 2022 | 81 |
|
| 2023 | 53 |
|
| Thereafter | 47 |
|
| Total operating lease payments, undiscounted | $ | 463 |
|
| Less: present value discount | 41 |
|
| Lease liability, at present value | $ | 422 |
|
Future payments under operating lease arrangements accounted for under ASC Topic 840 as of December 31, 2018 are as follows (in millions):
|
| | | |
| 2019 | $ | 145 |
|
| 2020 | 121 |
|
| 2021 | 93 |
|
| 2022 | 68 |
|
| 2023 | 41 |
|
| Thereafter | 28 |
|
| Total future minimum operating lease payments | $ | 496 |
|
See Note I. Supplemental Cash Flow Information for certain information on noncash investing and financing activities 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 millionour operating lease arrangements.
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 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding our expectations, hopes, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could vary materially from those forward-looking statements contained herein due to many factors, including, but not limited to: changes in general economic, business and political conditions, including changes in the financial markets; continued weakness or adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding or a weak U.S. economy; our potential inability to find suitable acquisition candidates, acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in integrating acquisitions; our dependence on distributions from our title insurance underwriters as our main source of cash flow; significant competition that our operating subsidiaries face; compliance with extensive government regulation of our operating subsidiaries and adverse changes in applicable laws or regulations or in their application by regulators; our ability to successfully execute the proposed plan to redeem all FNFV tracking stock;subsidiaries; and other risks detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of our Annual Report on Form 10-K (our "Annual Report") for the year ended December 31, 20162018 and other filings with the SEC.
The following discussion should be read in conjunction with our Annual Report for the year ended December 31, 2016.Report.
Overview
For a description of our business, including descriptions of segments and recent business developments, see the discussion under Basis of Financial Statements in Note A to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part I, Item 2.
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.
Business Trends and Conditions
Title
Our Title segment revenue is closely related to the level of real estate activity which includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.
We have found that residential real estate activity is generally dependent on the following factors:
mortgage interest rates;
mortgage funding supply;
housing inventory and home prices; and
the strength of the United States economy, including employment levels.
As of October 24, 2017September 19, 2019, the Mortgage Bankers Association ("MBA") estimated (actual for fiscal year 2018) the size of the U.S. mortgage originations market as shown in the following table for 20162018 - 20192021 in its "Mortgage Finance Forecast" (in trillions):
| | | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2018 |
| Purchase transactions | | $ | 1.3 |
| | $ | 1.2 |
| | $ | 1.2 |
| | $ | 1.1 |
| | $ | 1.1 |
| | $ | 1.3 |
| | $ | 1.3 |
| | $ | 1.3 |
| | $ | 1.2 |
|
| Refinance transactions | | 0.4 |
| | 0.4 |
| | 0.4 |
| | 0.6 |
| | 1.0 |
| | 0.4 |
| | 0.4 |
| | 0.6 |
| | 0.4 |
|
| Total U.S. mortgage originations forecast | | $ | 1.7 |
| | $ | 1.6 |
| | $ | 1.6 |
| | $ | 1.7 |
| | $ | 2.1 |
| | $ | 1.7 |
| | $ | 1.7 |
| | $ | 1.9 |
| | $ | 1.6 |
|
In 2016, total originations were reflective2018, average interest rates on 30-year, fixed-rate mortgages in the U.S. rose from approximately 4.0% to 4.9% through October, representing an increase of 22%, before retreating to 4.55% in the last week of December according to mortgage buyer Freddie Mac. As a generally improving residential real estate market driven by increasingresult of the overall upward trend in rates, refinance transactions decreased in 2018 from the historically high levels experienced in years preceding 2017. Existing home prices and historically low mortgage interest rates. Oversales decreased in the second half of 2018. Coupled with stagnant levels of new home construction over the same time period, existing home sales increased and there wasthe result has been a decline in total housing inventory. In 2017inventory and beyond, increasedincrease in average home prices, albeit with decreasing magnitude toward the end of 2018. Through the nine months ended September 30, 2019, mortgage interest rates driven by gradual increasescontinued to decline to an average of 3.61% in September 2019.
The combination of reduced housing inventory, increasing mortgage interest rates (through 2018) and increasing home prices led the MBA to lower mortgage origination forecasts for 2019 and beyond during the second half of 2018. Market volatility and the shift in mortgage interest rates in late 2018 and through the nine months ended September 30, 2019 have created uncertainty in forecasts of future mortgage interest rates and originations. During the nine months ended September 30, 2019, the U.S. Federal Reserve cut the target federal funds rate are expectedby 50 basis points and indicated it may further reduce the target rate if economic conditions deteriorate. The decrease in market interest rates through the nine months ended September 30, 2019 has begun to adversely impact mortgage originations. In a rising interest rate environment,the volume of residential refinance transactions are expected to decline.in 2019. See further discussion in the following Results of Operations section. The
MBA predicts overall mortgage originations in 2017 through 2019 will decreaseslightly increase compared to the 20162018 period, due to a decrease in refinance transactions, offsetfollowed by a slight increasedecrease in purchase transactions. Purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher title premiums, whereas refinance transactions only require a lender’s policy, resulting in lower title premiums.originations through 2021.
While projected increases in mortgage interest rates present a potential headwind for mortgage originations, otherOther economic indicators used to measure the health of the United StatesU.S. economy, including the unemployment rate and consumer confidence, have improved in recent years.continued to indicate the U.S. economy remains on strong footing. According to the United StatesU.S. Department of Labor's Bureau of Labor, the unemployment rate has dropped from 7.4% in 2013 to 4.2%was at a historically low 3.5% in September 2017.2019. Additionally, the Conference Board's monthly Consumer Confidence Index rose sharplyhas remained at historically high levels through the third quarter of 2019, despite a slight drop from late 2018 highs. Toward the end of 2016the fiscal year of 2018 and the beginning of 2017into 2019, there has been increased global economic uncertainty and has remained at historical highs through 2017.stock market volatility. Such market uncertainty could ultimately impact U.S. real estate markets if these markets continue to worsen. We believe that improvementscontinued strong readings in both of thesedomestic U.S. economic indicators among other indicators which support a generally improving United States economy, present potential tailwinds for mortgage originations, and support recent home price trends.despite growing risks from global economic uncertainties.
We cannot be certain how if at all, the positive effects of a change in mix of purchase to refinance transactionsgenerally strong U.S. economy, decreasing mortgage interest rates and of a generally improving United States economy and the negative effects of projected decreases in overall originationsglobal economic uncertainty will impact mortgage originations and our future results of operations.operations from our residential business. We continually monitor mortgage origination trends and believe that, based on our ability to produce industry leading operating margins through all economic cycles, we are well positioned to adjust our operations for adverse changes in real estate activity.
Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. For several years through 2015, we experienced continual year-over-yearFactors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for investments in commercial real estate. Conversely, gradual increases in the fee per fileFed Funds Rate through the end of commercial transactions.2018 and the shift in late 2017 by the U.S. Federal Reserve to unwind its balance sheet are generally expected to adversely impact availability of financing by decreasing the overall money supply. In 2016, we experienced a slight decrease in the volume and fee per file of commercial transactions as compared to 2015, but commercial markets still remained at historically elevated levels. Through 2017,recent years, we have continued to seeexperience strong demand forin commercial transactionsreal estate markets and havefrom 2015 through the nine months ended September 30, 2019, we experienced historically high fees per file.volumes and fee-per-file in our commercial business.
Seasonality. Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarter isquarters are typically the strongest quarterquarters in terms of revenue, primarily due to a higher volume of
home sales residential transactions in the spring and summer months. The fourth quarter is typically also strong due to the desire of commercial entities to complete transactions by year-end. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates.
FNFV
Restaurant Group
The restaurant industry is highly competitive and is often affected by changes in consumer tastes and discretionary spending patterns; changes in general economic conditions; public safety conditions or concerns; demographic trends; weather conditions; the cost of food products, labor, energy and other operating costs; and governmental regulations. Higher labor costs due to state and local minimum wage increases and shopping pattern shifts to e-commerce and “ready to eat” grocery and convenience stores have had a negative impact on restaurant performance, particularly in the casual and family dining segments in which the company operates.
The restaurant industry is also characterized by high capital investments for new restaurants and relatively high fixed or semi-variable restaurant operating expenses. Because of the high fixed and semi-variable expenses, changes in sales in existing restaurants are generally expected to significantly affect restaurant profitability because many restaurant costs and expenses are not expected to change at the same rate as sales. Restaurant profitability can also be negatively affected by inflationary and regulatory increases in operating costs and other factors. The most significant commodities that may affect our cost of food and beverage are beef, seafood, poultry, and dairy, which accounted for approximately half of our overall cost of food and beverage in the past. Generally, temporary increases in these costs are not passed on to guests; however, in the past, we have adjusted menu prices to compensate for increased costs of a more permanent nature.
Average weekly sales per restaurant are typically higher in the first and fourth quarters than in other quarters, and we typically generate a disproportionate share of our earnings from operations in the first and fourth quarters. Holidays, severe weather and other disruptive conditions may impact sales volumes seasonally in some operating regions.
Our revenues in future periods will continue to be subject to these and other factors that are beyond our control and, as a result, are likely to fluctuate. Our revenues in future periods are also subject to an anticipated Split-Off Plan, as described under Recent Developments in Note A Basis of Financial Statements.
Results of Operations
| | | Consolidated Results of Operations | | | | | | | | | | | | | | |
Net Earnings. The following table presents certain financial data for the periods indicated: | Net Earnings. The following table presents certain financial data for the periods indicated: | Net Earnings. The following table presents certain financial data for the periods indicated: |
| | Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In millions) | (In millions) |
| Revenues: | | | | | | | | | | | | | | |
| Direct title insurance premiums | $ | 558 |
| | $ | 556 |
| | 1,598 |
| | 1,518 |
| $ | 660 |
| | $ | 574 |
| | $ | 1,725 |
| | $ | 1,645 |
|
| Agency title insurance premiums | 719 |
| | 713 |
| | 2,028 |
| | 1,934 |
| 827 |
| | 722 |
| | 2,133 |
| | 2,018 |
|
| Escrow, title-related and other fees | 689 |
| | 700 |
| | 2,071 |
| | 1,920 |
| 693 |
| | 695 |
| | 1,892 |
| | 2,078 |
|
| Restaurant revenue | 269 |
| | 273 |
| | 830 |
| | 858 |
| |
| Interest and investment income | 34 |
| | 29 |
| | 97 |
| | 96 |
| 57 |
| | 44 |
| | 170 |
| | 125 |
|
| Realized gains and losses, net | (4 | ) | | (4 | ) | | 277 |
| | 5 |
| 4 |
| | 50 |
| | 187 |
| | 35 |
|
| Total revenues | 2,265 |
| | 2,267 |
| | 6,901 |
| | 6,331 |
| 2,241 |
| | 2,085 |
| | 6,107 |
| | 5,901 |
|
| Expenses: | | | | | | | | | | | | | | |
| Personnel costs | 646 |
| | 630 |
| | 1,958 |
| | 1,800 |
| 702 |
| | 654 |
| | 1,979 |
| | 1,926 |
|
| Agent commissions | 553 |
| | 545 |
| | 1,557 |
| | 1,473 |
| 630 |
| | 554 |
| | 1,630 |
| | 1,546 |
|
| Other operating expenses | 468 |
| | 464 |
| | 1,392 |
| | 1,296 |
| 473 |
| | 477 |
| | 1,226 |
| | 1,406 |
|
| Cost of restaurant revenue | 243 |
| | 237 |
| | 728 |
| | 727 |
| |
| Depreciation and amortization | 58 |
| | 56 |
| | 177 |
| | 161 |
| 44 |
| | 46 |
| | 132 |
| | 138 |
|
| Provision for title claim losses | 64 |
| | 70 |
| | 181 |
| | 190 |
| 67 |
| | 58 |
| | 174 |
| | 165 |
|
| Interest expense | 12 |
| | 18 |
| | 47 |
| | 55 |
| 12 |
| | 9 |
| | 36 |
| | 31 |
|
| Total expenses | 2,044 |
| | 2,020 |
| | 6,040 |
| | 5,702 |
| 1,928 |
| | 1,798 |
| | 5,177 |
| | 5,212 |
|
| Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates | 221 |
| | 247 |
| | 861 |
| | 629 |
| |
| Earnings before income taxes and equity in earnings of unconsolidated affiliates | | 313 |
| | 287 |
| | 930 |
| | 689 |
|
| Income tax expense | 74 |
| | 88 |
| | 355 |
| | 218 |
| 59 |
| | 51 |
| | 210 |
| | 104 |
|
| Equity in losses of unconsolidated affiliates | (3 | ) | | (7 | ) | | (7 | ) | | (6 | ) | |
| Net earnings from continuing operations | $ | 144 |
| | $ | 152 |
| | $ | 499 |
| | $ | 405 |
| |
| Equity in earnings of unconsolidated affiliates | | 2 |
| | 1 |
| | 12 |
| | 4 |
|
| Net earnings | | $ | 256 |
| | $ | 237 |
| | $ | 732 |
| | $ | 589 |
|
Revenues.
Total revenues decreasedincreased by $2156 million in the three months ended September 30, 2017, compared to the corresponding period in 2016. The decrease consisted of a $38 million increase at FNF Group2019 and a $40 million decrease at FNFV. Total revenues increased by $570$206 million in the nine months ended September 30, 2017,2019 compared to the corresponding periodperiods in 2016. The increase consisted of a $353 million increase at FNF Group and a $217 million increase at FNFV.2018.
Net earnings from continuing operations decreasedincreased by $8$19 million in the three months ended September 30, 2017, compared to the corresponding period in 2016. The decrease consisted of a $3 million decrease at FNF Group2019 and $5 million decrease at FNFV. Net earnings from continuing operations increased by $94$143 million in the nine months ended September 30, 2017,2019 compared to the corresponding periodperiods in 2016. The increase consisted of a $7 million decrease at FNF Group and $101 million increase at FNFV.2018.
The change in revenue and net earnings from the FNF Group segments and FNFVour reportable segments is discussed in further detail at the segment level below.
Expenses.
Our operating expenses consist primarily of Personnel costs; Other operating expenses, which in our title business are incurred as orders are received and processed; and Agent commissions, which are incurred as title agency revenue is recognized; and Cost of restaurant revenue.recognized. Title insurance premiums, escrow and title-related fees are generally recognized as income at the time the underlying transaction closes or other service is provided. Direct title operations revenue often lags approximately 45-60 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have historically impacted margins and net earnings. We have implemented programs and have taken necessary actions to maintain expense levels consistent with revenue
streams. However, a short-term lag exists in reducing controllable fixed costs and certain fixed costs are incurred regardless of revenue levels.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. Personnel costs that are directly attributable to the operations of the Restaurant Group are included in Cost of restaurant revenue.
Agent commissions represent the portion of premiums retained by our third-party agents pursuant to the terms of their respective agency contracts.
Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), appraisal fees and other cost of sales
on ServiceLink product offerings and other title-related products, postage and courier services, computer services, professional services, travel expenses, general insurance and bad debt expense on our trade and notes receivable.
Cost of restaurant revenue includes cost of food and beverage, primarily the costs of beef, groceries, produce, seafood, poultry and alcoholic and non-alcoholic beverages, net of vendor discounts and rebates, payroll and related costs and expenses directly relating to restaurant level activities, and restaurant operating costs including occupancy and other operating expenses at the restaurant level.
The Provision for title claim losses includes an estimate of anticipated title and title-related claims, and escrow losses.
The change in expenses from the FNF Group segments and FNFVattributable to our reportable segments is discussed in further detail at the segment level below.
Income tax expense was $74$59 million and $88$51 million in the three-month periods ended September 30, 20172019 and 2016,2018, respectively, and $355$210 million and $218$104 million in the nine-month periods ended September 30, 20172019 and 2016,2018, respectively. Income tax expense as a percentage of earnings before income taxes was 33%19% and 36% for18% in the three-month periods ended September 30, 20172019 and 2016,2018, respectively, and 41%23% and 35% for15% in the nine-monthnine- month periods ended September 30, 20172019 and 2016,2018, respectively. IncomeThe increase in income tax expense as a percentage of earnings before income taxes fluctuates depending on our estimate of ultimate income tax liability and changes in the characteristics of net earnings, such as the weighting of operating income versus investment income. The increase in income tax as a percentage of earnings before income taxes2019 nine-month period from the nine-monthcomparable period ended September 30, 2016 to the comparable 2017 periodin 2018 was primarily driven by the sale of OneDigital, nondeductible legal and regulatory expenses incurred in the period, and increased tax expense of $21 million resulting fromattributable to a change in judgment of the tax deductibility of legal and regulatory settlements finalizedestimate in the 2017 period.
Equity in lossesthree months ended June 30, 2018 relating to the timing of unconsolidated affiliates was $3 millionpayments for, and $7 million for the three-month periods ended September 30, 2017 and 2016, respectively, and $7 million and $6 million for the nine-month periods ended September 30, 2017 and 2016, respectively. The equity in losses in 2017 and 2016 consisted primarily of net losses relatedtax rate applicable to, our investmenttax liability resulting from the decrease in Ceridian, offset by earnings at various other unconsolidated affiliates, which is described further atstatutory premium reserve associated with the segment level below.redomestication of certain of our title underwriters.
FNF Group
Title
The following table presents the results from operations of our Title segment:
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (In millions) |
| Revenues: | | | | | | | |
| Direct title insurance premiums | $ | 660 |
| | $ | 574 |
| | $ | 1,725 |
| | $ | 1,645 |
|
| Agency title insurance premiums | 827 |
| | 722 |
| | 2,133 |
| | 2,018 |
|
| Escrow, title-related and other fees | 653 |
| | 567 |
| | 1,747 |
| | 1,683 |
|
| Interest and investment income | 51 |
| | 42 |
| | 153 |
| | 122 |
|
| Realized gains and losses, net | 3 |
| | 40 |
| | 191 |
| | 25 |
|
| Total revenues | 2,194 |
| | 1,945 |
| | 5,949 |
| | 5,493 |
|
| Expenses: | | | | | | | |
| Personnel costs | 677 |
| | 619 |
| | 1,881 |
| | 1,831 |
|
| Agent commissions | 630 |
| | 554 |
| | 1,630 |
| | 1,546 |
|
| Other operating expenses | 393 |
| | 365 |
| | 1,081 |
| | 1,061 |
|
| Depreciation and amortization | 38 |
| | 38 |
| | 115 |
| | 116 |
|
| Provision for title claim losses | 67 |
| | 58 |
| | 174 |
| | 165 |
|
| Total expenses | 1,805 |
| | 1,634 |
| | 4,881 |
| | 4,719 |
|
| Earnings from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | $ | 389 |
| | $ | 311 |
| | $ | 1,068 |
| | $ | 774 |
|
| Orders opened by direct title operations (in thousands) | 592 |
| | 456 |
| | 1,574 |
| | 1,439 |
|
| Orders closed by direct title operations (in thousands) | 409 |
| | 339 |
| | 1,031 |
| | 1,014 |
|
| Fee per file | $ | 2,459 |
| | $ | 2,623 |
| | $ | 2,562 |
| | $ | 2,521 |
|
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
| Revenues: | | | | | | | |
| Direct title insurance premiums | $ | 558 |
| | $ | 556 |
| | $ | 1,598 |
| | $ | 1,518 |
|
| Agency title insurance premiums | 719 |
| | 713 |
| | 2,028 |
| | 1,934 |
|
| Escrow, title-related and other fees | 563 |
| | 569 |
| | 1,634 |
| | 1,587 |
|
| Interest and investment income | 32 |
| | 29 |
| | 93 |
| | 94 |
|
| Realized gains and losses, net | — |
| | (2 | ) | | 6 |
| | 1 |
|
| Total revenues | 1,872 |
| | 1,865 |
| | 5,359 |
| | 5,134 |
|
| Expenses: | | | | | | | |
| Personnel costs | 605 |
| | 570 |
| | 1,755 |
| | 1,633 |
|
| Agent commissions | 553 |
| | 545 |
| | 1,557 |
| | 1,473 |
|
| Other operating expenses | 348 |
| | 379 |
| | 1,042 |
| | 1,064 |
|
| Depreciation and amortization | 40 |
| | 38 |
| | 117 |
| | 109 |
|
| Provision for title claim losses | 64 |
| | 70 |
| | 181 |
| | 190 |
|
| Total expenses | 1,610 |
| | 1,602 |
| | 4,652 |
| | 4,469 |
|
| Earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates | $ | 262 |
| | $ | 263 |
| | $ | 707 |
| | $ | 665 |
|
| Orders opened by direct title operations (in thousands) | 501 |
| | 616 |
| | 1,497 |
| | 1,708 |
|
| Orders closed by direct title operations (in thousands) | 367 |
| | 433 |
| | 1,071 |
| | 1,156 |
|
| Fee per file | $ | 2,368 |
| | $ | 2,015 |
| | $ | 2,320 |
| | $ | 2,055 |
|
Total revenues for the Title segment increased by $7249 million, or 0%13%, in the three months ended September 30, 20172019 and increased by $225$456 million, or 4%8%, in the nine months ended September 30, 20172019 from the corresponding periods in 2016.2018.
The following table presents the percentages of title insurance premiums generated by our direct and agency operations:
| | | | Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | | | % of | | | | % of | | | | % of | | | | % of | | | % of | | | | % of | | | | % of | | | | % of |
| | 2017 | | Total | | 2016 | | Total | | 2017 | | Total | | 2016 | | Total | 2019 | | Total | | 2018 | | Total | | 2019 | | Total | | 2018 | | Total |
| | (Dollars in millions) | (Dollars in millions) |
| Title premiums from direct operations | $ | 558 |
| | 44 | % | | $ | 556 |
| | 44 | % | | $ | 1,598 |
| | 44 | % | | $ | 1,518 |
| | 44 | % | $ | 660 |
| | 44 | % | | $ | 574 |
| | 44 | % | | $ | 1,725 |
| | 45 | % | | $ | 1,645 |
| | 45 | % |
| Title premiums from agency operations | 719 |
| | 56 |
| | 713 |
| | 56 |
| | 2,028 |
| | 56 |
| | 1,934 |
| | 56 |
| 827 |
| | 56 |
| | 722 |
| | 56 |
| | 2,133 |
| | 55 |
| | 2,018 |
| | 55 |
|
| Total title premiums | $ | 1,277 |
| | 100 | % | | $ | 1,269 |
| | 100 | % | | $ | 3,626 |
| | 100 | % | | $ | 3,452 |
| | 100 | % | $ | 1,487 |
| | 100 | % | | $ | 1,296 |
| | 100 | % | | $ | 3,858 |
| | 100 | % | | $ | 3,663 |
| | 100 | % |
Title premiums increased by 1%15% in the three months ended September 30, 20172019 as compared to the corresponding period in 2016.2018. The increase is comprised of an increase in Title premiums from direct operations of $2$86 million, or 0%15%, and an increase in Title premiums from agency operations of $6$105 million, or 1%, in the three months ended September 30, 201715%.
Title premiums increased by 5% in the nine months ended September 30, 20172019 as compared to the corresponding period in 2016.2018. The increase is comprised of an increase in Title premiums from agency operations of $115 million, or 6%, and an increase in Title premiums from direct operations of $80 million, or 5%, and an increase in Title premiums from agency operations of $94 million, or 5%, in the nine months ended September 30, 2017.
.
The following table presents the percentages of openopened and closed title insurance orders generated by purchase and refinance transactions by our direct operations:
| | | | Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| Opened title insurance orders from purchase transactions (1) | 62.1 | % | | 49.5 | % | | 64.0 | % | | 53.7 | % | 52 | % | | 70 | % | | 59 | % | | 69 | % |
| Opened title insurance orders from refinance transactions (1) | 37.9 |
| | 50.5 |
| | 36.0 |
| | 46.3 |
| 48 |
| | 30 |
| | 41 |
| | 31 |
|
| | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100 | % | | 100 | % | | 100 | % | | 100 | % |
| | | | | | | | | | | | | | | |
| Closed title insurance orders from purchase transactions (1) | 64.7 | % | | 54.0 | % | | 63.5 | % | | 55.5 | % | 55 | % | | 71 | % | | 61 | % | | 68 | % |
| Closed title insurance orders from refinance transactions (1) | 35.3 |
| | 46.0 |
| | 36.5 |
| | 44.5 |
| 45 |
| | 29 |
| | 39 |
| | 32 |
|
| | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | 100 | % | | 100 | % | | 100 | % | | 100 | % |
(1) Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.
Title premiums from direct operations increased in the three and nine months ended September 30, 20172019, as compared to the corresponding periods in 2016.2018. The increase in both periodsthe three-month period is primarily attributable to an increase in the fee per file driven by a favorable change in the mix of closed orders from purchase and refinance transactions,order volumes, partially offset by a decrease in the fee per file. The increase in the nine-month period is primarily attributable to an increase in both fee per file and closed order volume.volumes.
Closed title insurance order volumes from purchase transactions were flat in the three months ended September 30, 2019 as compared to the corresponding periods in 2018. We experienced an increasea decrease in closed title insurance order volumes from purchase transactions which was more than offset by a decreaseand an increase in closed title insurance order volumes from refinance transactions in the three and nine months ended September 30, 20172019 as compared to the corresponding periods in 2016.2018. Total closed order volumes were 367,000 and 1,071,000409,000 in the three months ended September 30, 2019 compared to 339,000 in the three months ended September 30, 2018 and 1,031,000 in the nine months ended September 30, 2017, respectively,2019 compared with 433,000 and 1,156,000to 1,014,000 in the three and nine months ended September 30, 2016, respectively.2018. This represented an overall decreaseincrease of 15%21% and 7%2%, respectively. Open title orders changed consistently with closed orders overrespectively, in the three and nine months ended September 30, 20172019 from the corresponding periods in 2018.
Total opened title insurance order volumes increased in the three and nine months ended September 30, 2019, as compared to the corresponding periods in 2016. 2018. The increase in both the three and nine-month periods was primarily attributable to increased opened title orders from refinance transactions, partially offset by a decrease in opened title orders from purchase transactions.
The average fee per file in our direct operations was $2,368$2,459 and $2,320$2,562 in the three and nine months ended September 30, 2017,2019, respectively, compared to $2,015$2,623 and $2,055$2,521 in the three and nine months ended September 30, 2016.2018, respectively. The year-to-date increase in average fee per file reflects a stronger commercial market and a favorable increase in both periods reflects the favorable change in mixaverage property prices of closed orders from purchase andunderlying transactions, partially offset by an increased proportion of refinance transactions. The fee per file tends to change as the mix of refinance and purchase transactions changes, because purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher fees, whereas refinance transactions only require a lender’s policy, resulting in lower fees.
The increase in title
Title premiums from agency operations is primarily the result of an increase in remitted agency premiums that reflects an improving residential purchase environment in many markets throughout the country. The increase also reflects a concerted effort by management to increase remittances with existing agents as well as cultivate new relationships with potential new agents while reducing unprofitable agency relationships.
Escrow, title-related and other fees decreased by $6increased $105 million, or 1%15%, in the three months ended September 30, 2017,2019 and increased by $47$115 million, or 3%6%, in the nine months ended September 30, 20172019 from the corresponding periods in 2016.2018. The increase was directionally consistent with the trend in title premiums from direct operations and is further impacted by changes in underlying real estate activity in the geographic regions in which the independent agents operate.
Escrow, title-related and other fees increased by $86 million, or 15%, in the three months ended September 30, 2019 and increased $64 million, or 4%, in the nine months ended September 30, 2019 from the corresponding periods in 2018. Escrow fees, which are more closely related to our direct operations, decreasedincreased by $6$35 million, or 3%16%, in the three months ended September 30, 2017,2019 and increased $23by $20 million or 3% in the nine months ended September 30, 2019 as compared to the corresponding periods in 2018. The increase in the three and nine-month periods is directionally consistent with the change in title premiums from direct operations, albeit to a lesser magnitude resulting from a higher proportion of commercial transactions in the 2019 periods. Other fees in the Title segment, excluding escrow fees, increased by $52 million or 15% in the three months ended September 30, 2019 and increased by $45 million, or 4%, in the nine months ended September 30, 20172019 compared to the corresponding periods in 2016.2018. The increase is representative of the favorable increasechanges in closed title insurance orders from purchase transactions previously discussed. Other fees in the Title segment, excluding escrow fees, remained flat in the three months ended September 30, 2017, and increased $24 million, or 2%, in the nine months ended September 30, 2017 from the corresponding periods in 2016. This increase relates to increases in fees in our home warranty business, loan processing revenue at certain subsidiaries of ServiceLink and acquisitions. The increases were offsetdriven by decreased revenue at certain other ServiceLink subsidiaries.various individually immaterial items.
Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. Interest and investment income increased by $3$9 million in the three months ended September 30, 20172019 and decreased by $1increased $31 million in the nine months ended September 30, 20172019 compared to the corresponding periods in 2016.2018. The increase in the three-month period was primarily driven by the impact of increased market interest rates earned in ouron the cash and investment portfolio and float income on tax-deferred property exchange business, partially offset by a decreasebusinesses as well as an increase in ouraverage fixed maturity holdings period over period.
Realized gains and losses, net, decreased $37 million in the three months ended September 30, 2019 and increased $166 million in the nine months ended September 30, 2019 from the comparable periods in 2018. The decrease in the three-month period and the increase in the nine-month period are primarily attributable to fluctuations in non-cash valuation changes on our equity and preferred security holdings.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. There was a Personnel costs increased $3558 million, or 6% increase9%, in the three-month period ended September 30, 2017, and a $122 million, or 7%, increase in the nine-month periodthree months ended September 30, 20172019 and increased $50 million, or 3%, in the nine months ended September 30, 2019 compared to the corresponding periods in 2016.2018. The increase in the 2017three-month period is primarily dueattributable to higher commissions and bonuses associated with increased average headcount to process increased closed order counts from purchase transactions and increased expense associated with acquisitions.commissions driven by the increase in closed title order volumes in the 2019 period. The increase in the nine-month period is primarily attributable to increased commissions driven by the increase in closed title order volumes in the 2019 period, partially offset by reduced head count. Personnel costs as a percentage of total revenues from direct title premiums and escrow, title-related and other
fees were 52% and 54% for both of the threethree-month periods ended September 30, 2019 and 2018, respectively, and 54% and 55% in the nine-month periods ended September 30, 2017,2019 and 51% and 53% for the three and nine-month periods ended September 30, 2016,2018, respectively. The increase in personnel cost as a percentage of total revenues from direct title premiums and escrow, title-related and other fees was primarily impacted by the January 1, 2017 realignment of Property Insight to us from Black Knight which resulted in reduced other operating expense offset by increased personnel expense within our Title segment. Average employee count in the Title segment was 23,67124,233and 22,49023,511 in the three-month periods ended September 30, 20172019 and 2016,2018, respectively, and 23,12923,219 and 21,71423,289 in the nine-month periods ended September 30, 20172019 and 2016,2018, respectively.
Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), postage and courier services, computer services, professional services, travel expenses, general insurance, and bad debt expense on our trade and notes receivable. Other operating expenses decreasedincreased by $31$28 million, or 8%, in the three months ended September 30, 20172019 and decreased $22increased $20 million, or 2%, in the nine months ended September 30, 20172019 from the corresponding periods in 2016.2018. Other operating expenses as a percentage of total revenue excluding agency premiums, interest and investment income, and realized gains and losses decreased approximately 3%were 30% and 2%32% in the three months ended September 30, 2019 and 2018, respectively, and 31% and 32% in the nine months ended September 30, 2017 from the comparable periods ended September 30, 2016,2019 and 2018, respectively. The decrease is primarily driven by decreased cost of sales at certain subsidiaries of ServiceLink, lower title plant costs associated with lower order counts, and the January 1, 2017 realignment of Property Insight to us from Black Knight which resulted in reduced other operating expense offset by increased personnel expense within our Title segment.
Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions and the resulting percentage of agent premiums that we retain vary according to regional differences in real estate closing practices and state regulations.
The following table illustrates the relationship of agent premiums and agent commissions, which have remained relatively consistent since 2016:2018:
| | | | Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | % | | 2016 | | % | | 2017 | | % | | 2016 | | % | 2019 | | % | | 2018 | | % | | 2019 | | % | | 2018 | | % |
| | (Dollars in millions) | (Dollars in millions) |
| Agent premiums | 719 |
| | 100 | % | | 713 |
| | 100 | % | | $ | 2,028 |
| | 100 | % | | $ | 1,934 |
| | 100 | % | $ | 827 |
| | 100 | % | | $ | 722 |
| | 100 | % | | $ | 2,133 |
| | 100 | % | | $ | 2,018 |
| | 100 | % |
| Agent commissions | 553 |
| | 77 | % | | 545 |
| | 76 | % | | 1,557 |
| | 77 | % | | 1,473 |
| | 76 | % | 630 |
| | 76 | % | | 554 |
| | 77 | % | | 1,630 |
| | 76 | % | | 1,546 |
| | 77 | % |
| Net retained agent premiums | $ | 166 |
| | 23 | % | | $ | 168 |
| | 24 | % | | $ | 471 |
| | 23 | % | | $ | 461 |
| | 24 | % | $ | 197 |
| | 24 | % | | $ | 168 |
| | 23 | % | | $ | 503 |
| | 24 | % | | $ | 472 |
| | 23 | % |
Depreciation and amortization increased by $2 million in the three months ended September 30, 2017 and increased $8 million in the nine months ended September 30, 2017 compared to the corresponding periods in 2016.
The claim loss provision for title insurance was $64$67 million and $70$58 million for the three-month periods ended September 30, 20172019 and 2016,2018, respectively, and $174 million and $165 million in the nine-month periods ended September 30, 2019 and 2018, respectively. The provision reflects an average provision rate of 5.0% and 5.5% of title premiums, respectively. The claim loss provision for title insurance was $181 million and $190 million for the nine-month periods ended September 30, 2017 and 2016, respectively, and reflects an average provision rate of 5.0% and 5.5%4.5% of title premiums in the 2017 and 2016 periods, respectively.all periods. We continually monitor
and evaluate our loss provision level, actual claims paid, and the loss reserve position each quarter. This loss provision rate is set to provide for losses on current year policies, but due to development of prior years and our long claim duration, it periodically includes amounts of estimated adverse or positive development on prior years' policies. In the fourth quarter of 2016, we revised our loss provision rate to 5.0% from 5.5% based upon an analysis of historical ultimate loss ratios, the reduced volatility of development of those historical ultimate loss ratios, and lower policy year loss ratios in recent years.
FNF Group Corporate and Other
The FNF Group Corporate and Other segment consists of the operations of the parent holding company, our various real estate brokerage businesses and our real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and other smaller real estateeliminations of revenues and insurance related operations.expenses between it and our Title segment.
The FNF Group Corporate and Other segment generated revenuesOn September 24, 2018, we closed on the sale of $114 million and $83 million for the three months ended September 30, 2017 and 2016, respectively, and $329 million and $201 million for the nine months ended September 30, 2017 and 2016, respectively. The revenue in all periods represents revenue generated by our real estate brokerage subsidiaries and other real estate related companies offset by the elimination of certain revenues between segments. The increase of $31 million, or 37%, in the three-month period and the increase of $128 million, or 64%, in the nine-month period are primarily attributable to the acquisition of Commissions, Inc. ("CINC") and to revenue growth and acquisitions by Pacific Union, a luxury real estate broker based in California in which we have a 66% ownership interest.brokerage. The increase in the nine-month period was also driven by a $15 million increase related to recording one additional month of results of operations duringof Pacific Union are included through the second quarterdate of 2017 for our real estate brokerages in order to catch up their results which were previously reported on a one-month lag.
Other operating expenses in the FNF Group Corporate and Other segment were $95 million and $60 million for the three months ended September 30, 2017 and 2016, respectively, and $270 million and $152 million for the nine months ended September 30, 2017 and 2016, respectively. Both periods reflect expenses at our real estate brokerage subsidiaries and other real estate related companies. The increase of $35 million, or 58%, in the three-month period ended September 30, 2017 from the corresponding 2016 period and the increase of $118 million, or 78%, in the nine-month period ended September 30, 2017 from the corresponding 2016 period are primarily attributable to the acquisition of CINC and growth and acquisitions at Pacific Union. The increase in the nine-month period was also driven by a $14 million increase related to recording one additional month of results of operations in the 2017 period for our real estate brokerages in order to catch up their results which were previously reported on a one-month lag.
Interest expense was $11 million and $14 million for the three months ended September 30, 2017 and 2016, respectively, and $39 million and $47 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease is primarily attributable to decreased interest on our convertible Notes resulting from redemptions in the 2017 periods.
This segment generated pretax losses of $20 million and $12 million for the three months ended September 30, 2017 and 2016, respectively, and $63 million and $52 million, for the nine months ended September 30, 2017 and 2016, respectively. The increased losses are attributable to the factors discussed above.
As a result of the BK Distribution, the financial results of Black Knight have been reclassified to discontinued operations for the three and nine months ended September 30, 2017 and 2016. Earnings from discontinued operations were $31 million and $17 million for the three months ended September 30, 2017 and 2016, respectively, and $59 million and $54 million for the nine months ended September 30, 2017 and 2016, respectively. Refer to Note K Discontinued Operations of the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report for further details of the results of Black Knight.
Restaurant Groupsale.
The following table presents the results from operations of our Restaurant GroupCorporate and Other segment:
| | | | Three months ended September 30, | | Nine months ended September 30, | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (In millions) | (In millions) |
| Revenues: | | | | | | | | | | | | | | |
| Total restaurant revenue | $ | 269 |
| | $ | 273 |
| | $ | 830 |
| | $ | 858 |
| |
| Escrow, title-related and other fees | | $ | 40 |
| | $ | 128 |
| | $ | 145 |
| | $ | 395 |
|
| Interest and investment income | | 6 |
| | 2 |
| | 17 |
| | 3 |
|
| Realized gains and losses, net | (3 | ) | | (1 | ) | | (4 | ) | | (4 | ) | 1 |
| | 10 |
| | (4 | ) | | 10 |
|
| Total revenues | 266 |
| | 272 |
| | 826 |
| | 854 |
| 47 |
| | 140 |
| | 158 |
| | 408 |
|
| Expenses: |
| |
| |
| |
| | | | | | | |
| Personnel costs | 13 |
| | 13 |
| | 39 |
| | 40 |
| 25 |
| | 35 |
| | 98 |
| | 95 |
|
| Cost of restaurant revenue | 243 |
| | 237 |
| | 728 |
| | 727 |
| |
| Other operating expenses | 16 |
| | 13 |
| | 46 |
| | 50 |
| 80 |
| | 112 |
| | 145 |
| | 345 |
|
| Depreciation and amortization | 11 |
| | 11 |
| | 33 |
| | 31 |
| 6 |
| | 8 |
| | 17 |
| | 22 |
|
| Interest expense | 2 |
| | 2 |
| | 5 |
| | 4 |
| 12 |
| | 9 |
| | 36 |
| | 31 |
|
| Total expenses | 285 |
| | 276 |
| | 851 |
| | 852 |
| 123 |
| | 164 |
| | 296 |
| | 493 |
|
| (Loss) earnings from continuing operations before income taxes | $ | (19 | ) | | $ | (4 | ) | | $ | (25 | ) | | $ | 2 |
| |
| Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates | | $ | (76 | ) | | $ | (24 | ) | | $ | (138 | ) | | $ | (85 | ) |
The revenue in the Corporate and Other segment for all periods represents revenue generated by our non-title real estate technology and brokerage subsidiaries as well as mark-to-market valuation changes on certain corporate deferred compensation plans.
Total revenues forin the Restaurant groupCorporate and Other segment decreased $6$93 million, or 2%66%, in the three monthsthree-month period ended September 30, 20172019 and decreased $28$250 million, or 3%61%, in the nine monthsnine-month period ended September 30, 2017,2019 from the corresponding periods in 2016.2018. The decrease for the nine month period is primarily attributable to lower same store sales and, to a lesser extent, the sale of the Max & Erma's concept in January 2016.
Cost of restaurant revenue increased by $6 million, or 3%, in the three months ended September 30, 2017 and increased $1 million, or less than 1%, in the nine months ended September 30, 2017, from the corresponding periods in 2016. Cost of restaurant revenue as a percentage of restaurant revenue increased from approximately 87% to 90% and from 85% to 88% in the three and nine months ended September 30, 2017 from the comparable 2016 periods. The increase in cost of restaurant revenue as a percentage of restaurant revenue was primarily driven by reduced operating leverage associated with lower same store sales, increased hourly labor costs, and an increase in value promotions offered in the 2017 periods.
(Loss) earnings from continuing operations before income taxes decreased (loss increased) by $15 million, or 375%, in the three months ended September 30, 2017, and decreased (loss increased) by $27 million, or 1,350%, in the nine months ended
September 30, 2017 from the corresponding periods in 2016. The decrease in earnings (increase in losses) was primarily attributable to the factors discussed above.
FNFV Corporate and Other
The FNFV Corporate and Other segment includes our share in the operations of certain equity investments, including Ceridian; OneDigital, through May 5, 2017, the date it was sold; and other smaller operations which are not title-related. This segment also includes our Investment Success Incentive Program ("ISIP") which is tied to monetization or liquidity events producing realized or realizable economic gains relating to our investments.
The FNFV Corporate and Other segment generated revenues of $13 million and $47 million for the three months ended September 30, 2017 and 2016, respectively, and $387 million and $142 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease of $34 million in the three-month period is primarily attributable to the sale of OneDigital andPacific Union, partially offset by increased revenue associated with the exclusionvaluation of its resultsdeferred compensation assets.
Personnel costs in the 2017 period. The increase of $245Corporate and Other segment decreased $10 million, or 29%, in the three-month period ended September 30, 2019 and increased $3 million, or 3%, in the nine-month period is primarily attributable to the gain on sale of One Digital of $276 million, offset by the aforementioned factors driving the decrease in the comparable three-month period.
Other operating expenses were $9 million and $12 million for the three months ended September 30, 2017 and 2016, respectively, and $34 million and $30 million for2019 from the nine months ended September 30, 2017 and 2016, respectively.
Personnel costs were $6 million and $29 million for the three months ended September 30, 2017 and 2016, respectively and $97 million and $80 million for the nine months ended September 30, 2017 and 2016, respectively.corresponding periods in 2018. The decrease in the three-month period ended September 30, 2019 is primarily attributable to reduced headcount as a result of the Pacific Union sale of OneDigital and the exclusion of its results in the 2017 period.third quarter of 2018. The increase in the nine-month period ended September 30, 2019 is primarily attributable to ISIP bonuses related toincreased expense associated with the aforementioned increase in the valuation of deferred compensation plan assets and increased costs resulting from growth of our real estate technology subsidiaries, partially offset by our sale of OneDigital, acquisitions and growth at OneDigital prior to its sale, and to costs associated with smaller FNFV acquisitionsPacific Union.
Other operating expenses in the current year,Corporate and Other segment decreased $32 million, or 29%, in the three-month period ended September 30, 2019 and decreased $200 million, or 58%, in the nine-month period ended September 30, 2019 from the corresponding periods in 2018. The decrease in both the three and nine-month periods is primarily attributable to our sale of Pacific Union, which is partially offset by the aforementioned decrease in the three-month period.Reverse Termination Fee of $50 million paid to Stewart on September 12, 2019.
This segment generated pretax (loss) earnings of $(2) million and $0 million for the three months ended September 30, 2017 and 2016, respectively, and $242 million and $14 million for the nine months ended September 30, 2017 and 2016, respectively. The change in earnings is attributable to the aforementioned changes in earnings and expenses.
Liquidity and Capital Resources
Cash Requirements. Our current cash requirements include personnel costs, operating expenses, claim payments, taxes, payments of interest and principal on our debt, capital expenditures, business acquisitions, stock repurchases and dividends on our common stock. We paid dividends of $0.25$0.31 per share in the third quarter of 2017,2019, or approximately $68$85 million to our FNF Group
common shareholders. On October 25, 2017,29, 2019, our Board of Directors declared cash dividends of $0.27$0.33 per share, payable on December 29, 2017,31, 2019, to FNF Group common shareholders of record as of December 15, 2017.17, 2019. There are no restrictions on our retained earnings regarding our ability to pay dividends to our shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. The declaration of any future dividends is at the discretion of our Board of Directors. Additional uses of cash flow are expected to include acquisitions, stock repurchases and debt repayments.
As of September 30, 2019, we had cash and cash equivalents of $1,530 million, short term investments of $554 million and available capacity under our Revolving Credit Facility of $800 million. We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, reducing debt, repurchasing our stock, making acquisitions and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets and borrowings on existing credit facilities.our Revolving Credit Facility. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all of our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts.
Our insurance subsidiaries generate cash from premiums earned and their respective investment portfolios, and these funds are adequate to satisfy the payments of claims and other liabilities. Due to the magnitude of our investment portfolio in relation to our title claim loss reserves, we do not specifically match durations of our investments to the cash outflows required to pay claims, but do manage outflows on a shorter time frame.
Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. Our insurance subsidiaries are restricted by state regulation in their ability to pay dividends and make distributions. Each applicable state of domicile regulates the extent to which our title underwriters can pay dividends or make other distributions. As of December 31, 2016, $2,1492018, $1,518 million of our net assets were restricted from dividend payments without prior approval from the relevant departments of insurance. 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. In conjunction with the Redomestication, the Company received a special dividend from these title insurance underwriters of $280 million on March 15, 2017. We anticipate that our title insurance subsidiaries will pay or make dividends in the remainder of 20172019 of approximately $153$127 million. Our underwritten title companies and non-insurance subsidiaries are not regulated to the same extent as our insurance subsidiaries.
The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our underwriters or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in statutory accounting requirements by regulators.
Cash flow from FNF Group'sour operations will be used for general corporate purposes including to reinvest in core operations, repay debt, pay dividends, repurchase stock, pursue other strategic initiatives and/or conserve cash.
Operating Cash Flow. Our cash flows provided by operations for the nine months ended September 30, 2017 and 2016 totaled $566 million and $745 million, respectively. The decrease of $179 million is primarily attributable to increased payments for income taxes in the current period of $51 million, the payment of legal settlements of $65 million, increased payments for certain prepaid assets, and unfavorable timing of various payables, partially offset by increased net earnings.
Investing Cash Flows. Our cash provided by (used in) investing activities for the nine months ended September 30, 20172019 and 2016 were $12018 totaled $700 million and $(292)$671 million, respectively. The increase in cash provided by (decreaseoperating activities of $29 million is primarily attributable to the increase in pre-tax earnings and the timing of receipts and payments of payables, partially offset by the timing of receipts and payments of prepaid assets, receivables and income taxes. Included in net earnings in the 2019 period is our payment to Stewart of the Reverse Termination Fee of $50 million.
Investing Cash Flows. Our cash flows used in investing activities for the nine months ended September 30, 2019 and 2018 were $161 million and $42 million, respectively. The increase in cash used in)in investing activities of $293$119 million fromin the 20172019 period compared to the 20162018 period is primarily attributable to the proceeds from the sale of OneDigital of $325 million, a $260$228 million decrease in spending on acquisitionsnet cash inflow from proceeds from calls and maturities of businesses, a reduction in investments made in unconsolidated affiliates of $103 million and a reduction in spending on fixed assets of $98 million,investment securities, partially offset by a reduction in netreduced purchases of investment securities and increased proceeds from sales of available for sale investments, short term investments, and cost method investments, net of purchases, of $489 million.investment securities.
Capital Expenditures. Total capital expenditures for property and equipment and capitalized software were $132$69 million and $240$56 million for the nine-monthnine-month periods ended September 30, 20172019 and 2016, respectively, with the decrease primarily related to the purchase of our corporate headquarters for $71 million in April 2016 and other miscellaneous spending reductions.2018, respectively.
Financing Cash Flows. Our cash flows used in financing activities for the nine months ended September 30, 20172019 and 20162018 were $895$266 million and $476$317 million, respectively. The increasedecrease in cash used in financing activities of $419$51 million from the 20172019 period to the 20162018 period is primarily attributable to the $87$142 million of the equity portion of debt conversions paid in cash transferred asin the 2018 period and a result of the spin-off of Black Knight, increased net debt principal payments, net of borrowings, of $160$63 million an increase in dividends paid of $33 million, payment of premiums to repurchase convertible Notes of $317 millionthe change in secured trust deposits in the 20172019 period, and repurchasespartially offset by purchases of BKFStreasury stock by Black Knight of $47 million in the 2017 period, offset by a reduction in spending on treasury stock repurchases2019 period.
Financing Arrangements. For a description of our financing arrangements see Note EE. Notes Payable included in Item 1 of Part 1 of this Quarterly Report, which is incorporated by reference into this Item 2 of Part I.
During the nine months ended September 30, 2017, we repurchased $229 million of principal of our 4.25% convertible senior notes due August 2018 ("Notes") for $548 million. As of September 30, 2017, we had outstanding Notes of $68 million, net of unamortized debt issuance costs.
Seasonality.Historically, real estate transactions have produced seasonal revenue levels for the real estate industry including title insurers. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The third calendar quarter has been typically the strongest in terms of revenue primarily due to a higher volume of home sales in the summer months and the fourth quarter is usually also strong due to commercial entities desiring to complete transactions by year-end. We have noted short term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates.
In our Restaurant Group, average weekly sales per restaurant are typically higher in the first and fourth quarters, and we typically generate a disproportionate share of our earnings from operations in the first and fourth quarters. Holidays, severe weather and other disruptive conditions may impact sales volumes seasonally in some operating regions.
Contractual Obligations.There have been no significant changes to our long-term contractual obligations since our Annual Report for the year ended December 31, 2016, filed on February 27, 2017, other than our entry into the Equity Commitment Letters with CFCOU as described in Note A Basis of Financial Statements and the extinguishment and restructuring of certain debt as described in Note E Notes Payable to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report.2018.
Capital Stock Transactions. On February 18, 2016, our Board of Directors approved a new FNFV Group three-year stock repurchase program, effective March 1, 2016, under which we may repurchase up to 15 million shares of FNFV Group common stock through February 28, 2019. Purchases may be made from time to time by us in the open market at prevailing market prices or in privately negotiated transactions. We repurchased 1,491,800 shares under this program during the nine months ended September 30, 2017 for $23 million, or an average of $15.22 per share. Since the original commencement of the program through market close on November 2, 2017, we have repurchased a total of 5,446,800 shares for $68 million, or an average of $12.95 per share, and there are 9,553,200 shares available to be repurchased under this program.
On July 20, 2015,17, 2018, our Board of Directors approved a new three-year stock repurchase program effective August 1, 2018 (the "2018 Repurchase Program") under which we canmay purchase up to 25 million shares of our FNF Group common stock through July 30, 2018.31, 2021. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions, depending on market conditions and other factors. We repurchased 2,040,000 shares of FNF common stock during the nine months ended September 30, 2019 for approximately $82 million, or an average of $39.95 per share. Subsequent to September 30, 2019 through market close on October 29, 2019, we purchased 60,000 additional shares for $3 million, or an average of $44.16 per share. Since the original commencement of the plan2018 Repurchase Program through market close on November 2, 2017,October 29, 2019, we have repurchased a total of 10,589,0002,760,000 FNF Group common shares for $372$106 million, or an average of $35.10$38.23 per share, and there are 14,411,000 shares available to be repurchased under this program. We have not made any repurchases under this program in the nine months ended September 30, 2017 or in the subsequent period ended November 2, 2017.share.
Equity Security and Preferred StockSecurity Investments. Our equity security and preferred stocksecurity investments may be subject to significant volatility. ShouldCurrently prevailing accounting standards require us to record the change in fair value of theseequity and preferred security investments fall below our cost basis and/or the financial condition or prospectsheld as of these companies deteriorate, we may determineany given period end within earnings. Our results of operations in a future period that this decline in fair valueperiods is other-than-temporary, requiring that an impairment lossanticipated to be recognized in the periodsubject to such a determination is made.volatility.
Off-Balance Sheet Arrangements.There Other than inclusion of operating lease arrangements on the balance sheet, further discussed below, there have been no significant changes to our off-balance sheet arrangements since our Annual Report for the year ended December 31, 2016.Report.
Critical Accounting Policies
ThereOther than our adoption of ASC Topic 842 as further described in Notes A and K to our Condensed Consolidated Financial Statements included in Item 1 of Part 1 of this Quarterly Report which is incorporated by reference into this Item 2 of Part I, there have been no material changes to our critical accounting policies described in our Annual Report for our fiscalthe year ended December 31, 2016.ended.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no material changes in the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is: (a) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20172019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of legal proceedings in Note FF. Commitment and Contingencies to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report, which is incorporated by reference into this Item 1 of Part II.
|
| | | | | | | | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
The following table summarizes repurchases of equity securities by FNFVFNF during the three months ended September 30, 2017:2019:
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| 7/1/2017 - 7/31/2017 | | 196,000 |
| | 15.97 |
| | 196,000 |
| | 9,553,200 |
|
| 8/1/2017 - 8/31/2017 | | — |
| | — |
| | — |
| | 9,553,200 |
|
| 9/1/2017 - 9/30/2017 | | — |
| | — |
| | — |
| | 9,553,200 |
|
| Total | | 196,000 |
| | $ | 15.97 |
| | 196,000 |
|
|
|
|
| | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| 7/1/2019 - 7/31/2019 | | 180,000 |
| | $ | 42.50 |
| | 180,000 |
| | 22,930,000 |
|
| 8/1/2019 - 8/31/2019 | | 330,000 |
| | 43.76 |
| | 330,000 |
| | 22,600,000 |
|
| 9/1/2019 - 9/30/2019 | | 300,000 |
| | 44.16 |
| | 300,000 |
| | 22,300,000 |
|
| Total | | 810,000 |
| | $ | 43.63 |
| | 810,000 |
| | |
| |
| (1) | On February 18, 2016,July 17, 2018, our Board of Directors approved a new FNFV Group three-year stock repurchase program,the 2018 Repurchase Program, effective MarchAugust 1, 2016,2018, under which we may repurchasepurchase up to 1525 million shares of FNFV Groupour FNF common stock through February 28, 2019.July 31, 2021. |
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| (2) | As of the last day of the applicable month. |
Item 6. Exhibits
(a) Exhibits:
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2.110.1 | | ReorganizationTermination Agreement, dated as of June 8, 2017, by andSeptember 9, 2019, among Stewart Information Services Corporation, Fidelity National Financial, Inc., Black Knight Holdings, Inc.,A Holdco Corp. and New BKH Corp.S Holdco LLC (incorporated by reference to Exhibit 2.110.1 to the Registrant’s Current Report on Form 8-K filed on June 9, 2017)September 11, 2019).
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2.2 | | Agreement and Plan of Merger, dated as of June 8, 2017, by and among Fidelity National Financial, Inc., New BKH Corp., Black Knight Financial Services, Inc., Black Knight Holdco Corp., New BKH Merger Sub, Inc., and BKFS Merger Sub, Inc. (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on June 9, 2017)
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10.1 | | First Amendment, dated as of February 27, 2017, to Credit Agreement, dated as of August 19, 2014, among ABRH, LLC, the lenders party thereto, Wells Fargo Bank N.A., as administrative agent, and the other agents party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 2, 2017)
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| 10.2 | | Amendment effective November 1, 2019 to Amended and Restated CreditEmployment Agreement dated as of April 27, 2017, to Existing Credit Agreement, dated as of June 25, 2013, bybetween the Registrant and among Fidelity National Financial, Inc., a Delaware corporation, as the borrower, Bank of America, N.A., as administrative agent, the other agents party thereto and the financial institutions party thereto as lendersMichael L. Gravelle effective May 3, 2016 (incorporated by reference to Exhibit 10.210.5 to the Registrant's CurrentQuarterly Report on Form 8-K filed on May 2, 2017)10-Q for the quarter ended June 30, 2016).
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| 31.1 | | |
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| 31.2 | | |
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| 32.1 | | |
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| 32.2 | | |
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99.1101.INS | |
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99.2101.SCH | |
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101101.CAL | | The following materials from Fidelity National Financial, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,Inline XBRL Taxonomy Extension Calculation Linkbase Document
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document
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| 104 | | Cover Page Interactive Data File formatted in Extensible Business Reporting Language (XBRL): (i)Inline XBRL and contained in Exhibit 101.
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* The instance document does not appear in the Condensed Consolidated Balance Sheets, (ii)interactive data file because its XBRL tags are embedded within the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Earnings, (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.inline XBRL document.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Date: | November 2, 2017October 30, 2019 | FIDELITY NATIONAL FINANCIAL, INC. (registrant) | |
| | | By: | /s/ Anthony J. Park | |
| | | | Anthony J. Park | |
| | | | Chief Financial Officer (Principal Financial and Accounting Officer) | |
EXHIBIT INDEX
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2.1 | |
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2.2 | | Agreement and Plan of Merger, dated as of June 8, 2017, by and among Fidelity National Financial, Inc., New BKH Corp., Black Knight Financial Services, Inc., Black Knight Holdco Corp., New BKH Merger Sub, Inc., and BKFS Merger Sub, Inc. (incorporated by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on June 9, 2017)
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10.1 | | First Amendment, dated as of February 27, 2017, to Credit Agreement, dated as of August 19, 2014, among ABRH, LLC, the lenders party thereto, Wells Fargo Bank N.A., as administrative agent, and the other agents party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 2, 2017) |
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10.2 | | Restated Credit Agreement, dated as of April 27, 2017, to Existing Credit Agreement, dated as of June 25, 2013, by and among Fidelity National Financial, Inc., a Delaware corporation, as the borrower, Bank of America, N.A., as administrative agent, the other agents party thereto and the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on May 2, 2017) |
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31.1 | | |
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31.2 | | |
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32.1 | | |
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32.2 | | |
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99.1 | | |
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99.2 | | |
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101 | | The following materials from Fidelity National Financial, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Earnings, (iii) the Condensed Consolidated Statements of Comprehensive Earnings, (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.
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