NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Note A.
|
Business and Summary of Significant Accounting Policies
|
The following describes the business and significant accounting policies of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” "the Company" or “FNF”) which have been followed in preparing the accompanying Consolidated Financial Statements.
Description of Business
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 is the nation’s largest title insurance company 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.
For information about our reportable segments, refer to Note R
Segment Information
.
Recent Developments
On November 30, 2017, FGL Holdings (formerly known as CF Corporation), a Cayman Islands exempted company, consummated its previously announced acquisition of Fidelity & Guaranty Life, a Delaware corporation (“FGL”), pursuant to the Agreement and Plan of Merger, dated as of May 24, 2017, as amended (the “Merger Agreement”), by and among CF Corporation, FGL, and certain subsidiaries of CF Corporation and FGL (collectively, the "FGL Merger"). In connection with the FGL Merger, FNF received
13,732,000
common shares and
100,000
Series B Cumulative Preferred ("FG Preferred") shares in exchange for an aggregate investment of
$213 million
. As of December 31, 2017 FNF owns
16,732,000
common shares, inclusive of
3,000,000
common shares of CF Corporation held prior to the FGL Merger, and
100,000
FG Preferred shares with an aggregate market value of
$246 million
and we own approximately
8.5%
of the outstanding common equity of FGL. The Company’s non-executive Chairman, William P. Foley, II, is also the Co-Executive Chairman of FGL.
On November 17, 2017 we completed our previously announced split-off (the “FNFV Split-Off”) of our former wholly-owned subsidiary Cannae Holdings, Inc. (“Cannae”) which consisted of the businesses, assets and liabilities formerly attributed to our FNF Ventures ("FNFV") Group including Ceridian Holding, LLC, American Blue Ribbon Holdings, LLC and T-System Holding LLC. The FNFV Split-Off was accomplished by the Company's redemption (the “Redemption”) of all of the outstanding shares of FNFV Group common stock, par value
$0.0001
per share (“FNFV common stock”) for outstanding shares of common stock of Cannae, par value
$0.0001
per share (“Cannae common stock”), amounting to a redemption on a per share basis of each outstanding share of FNFV common stock for
one
share of Cannae common stock, as of November 17, 2017. As a result of the FNFV Split-Off, Cannae is a separate, publicly traded company (NYSE: CNNE). All of the Company’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities currently attributed to the Company’s FNF Group common stock that are not held by Cannae remain with the Company. As a result of the FNFV Split-Off, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. See Note G.
Discontinued Operations
for further details of the results of FNFV Group.
On November 17, 2017, Frank P. Willey resigned from our Board of Directors.
On September 29, 2017 we completed our 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 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 Consolidated Statements of Earnings. See Note G.
Discontinued Operations
for further details of the results of Black Knight.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
On August 31, 2017, we completed our acquisition of
90%
of the membership interests of Title Guaranty of Hawaii ("Title Guaranty") for
$98 million
. Title Guaranty was previously an unaffiliated agent of Chicago Title and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than
300
employees in branches across the State of Hawaii providing title insurance and real estate closing services. See Note B.
Acquisitions
for further discussion.
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. In January 2018, Ms. Murren was appointed to the Audit 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 respective former states of domicile to Florida (the "Redomestication"). In conjunction with the Redomestication, the Company received a special dividend of
$280 million
from these title insurance underwriters on March 15, 2017.
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include our accounts as well as our wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Our investments in non-majority-owned partnerships and affiliates are accounted for using the equity method until such time that they become wholly or majority-owned. Earnings attributable to noncontrolling interests are recorded on the Consolidated Statements of Earnings relating to majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to our ownership interest recorded on the Consolidated Balance Sheets in each period.
I
nvestments
Fixed maturity securities are purchased to support our investment strategies, which are developed based on factors including rate of return, maturity, credit risk, duration, tax considerations and regulatory requirements. Fixed maturity securities which may be sold prior to maturity to support our investment strategies are carried at fair value and are classified as available for sale as of the balance sheet dates. Fair values for fixed maturity securities are principally a function of current market conditions and are valued based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly. Discount or premium is recorded for the difference between the purchase price and the principal amount. The discount or premium is amortized or accrued using the interest method and is recorded as an adjustment to interest and investment income. The interest method results in the recognition of a constant rate of return on the investment equal to the prevailing rate at the time of purchase or at the time of subsequent adjustments of book value. Changes in prepayment assumptions are accounted for retrospectively.
Equity securities and preferred stocks held are considered to be available for sale and carried at fair value as of the balance sheet dates. Our equity securities and certain preferred stocks are Level 1 financial assets and fair values are based on quoted prices in active markets. Other preferred stock holdings are Level 2 financial assets and are valued based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
Investments in unconsolidated affiliates are recorded using the equity method of accounting.
Other long-term investments consist of various cost-method investments and company-owned life insurance policies. The cost-method investments are carried at historical cost. The carrying value of our cost-method investments is $
78 million
and
$6 million
, at
December 31, 2017
and
2016
, respectively. Company-owned life insurance policies are carried at cash surrender value.
Short-term investments, which consist primarily of commercial paper and money market instruments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value.
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to income on a trade date basis. Unrealized gains or losses on securities which are classified as available for sale, net of applicable deferred income tax expenses (benefits), are excluded from earnings and credited or charged directly to a separate component of equity. If any unrealized losses on available for sale securities are determined to be other-than-temporary, such unrealized losses are recognized as realized losses. Unrealized losses are considered other-than-temporary if factors exist that cause us to believe that the value will not increase to a level sufficient to recover our cost basis. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include: (i) our need and intent to sell the investment prior to a period of time sufficient to allow for a recovery in value; (ii) the duration and extent to which the fair value has been less than cost; and (iii) the financial condition and prospects of the issuer. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Cash and Cash Equivalents
Highly liquid instruments purchased as part of cash management with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate their fair value.
Fair Value of Financial Instruments
The fair values of financial instruments presented in the Consolidated Financial Statements are estimates of the fair values at a specific point in time using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. We do not necessarily intend to dispose of or liquidate such instruments prior to maturity.
Trade and Notes Receivables
The carrying values reported in the Consolidated Balance Sheets for trade and notes receivables approximate their fair value.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform an annual goodwill impairment analysis based on a review of
qualitative factors to determine if events and circumstances exist which will lead to a determination that the fair value of a reporting unit is greater than its carrying amount, prior to performing a full fair-value assessment.
We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date and as a result
no
goodwill impairments have been recorded. For the years ended
December 31, 2017
and
2016
, we determined there were no events or circumstances which indicated that the carrying value exceeded the fair value.
Other Intangible Assets
We have other intangible assets, not including goodwill, which consist primarily of customer relationships and contracts, trademarks and tradenames, and computer software, which are generally recorded in connection with acquisitions at their fair value. Intangible assets with estimable lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In general, customer relationships are amortized over their estimated useful lives, generally
10
years, using an accelerated method which takes into consideration expected customer attrition rates. Contractual relationships are generally amortized over their contractual life.
Trademarks and tradenames are generally amortized over
10
years.
Capitalized software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from
5
to
10
years. For internal-use computer software products, internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use.
We recorded
$1
million in impairment expense to other intangible assets during the years ended
December 31, 2017
and
2016
. The impairment in 2017 was for computer software at ServiceLink. The impairment in 2016 was for customer relationships and tradenames at our real estate subsidiaries in our Corporate and Other segment. We recorded
no
impairment expense related to other intangible assets in the year ended
December 31, 2015
.
Title Plants
Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life if maintained. Sales of title plants are reported at the amount received net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the carrying value of the title plant is diminished or impaired. Title plants are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. We reviewed title plants for impairment but recorded
no
impairment expense related to title plants in the years ended
December 31, 2017
or
2016
. We reviewed title plants for impairment in the year ended
December 31, 2015
and identified and recorded impairment expense of $
1 million
.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets:
twenty
to
thirty
years for buildings and
three
to
twenty-five
years for furniture, fixtures and equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable.
Reserve for Title Claim Losses
Our reserve for title claim losses includes known claims as well as losses we expect to incur, net of recoupments. Each known claim is reserved based on our review as to the estimated amount of the claim and the costs required to settle the claim. Reserves for claims which are incurred but not reported are established at the time premium revenue is recognized based on historical loss experience and also take into consideration other factors, including industry trends, claim loss history, current legal environment, geographic considerations and the type of policy written.
The reserve for title claim losses also includes reserves for losses arising from closing and disbursement functions due to fraud or operational error.
If a loss is related to a policy issued by an independent agent, we may proceed against the independent agent pursuant to the terms of the agency agreement. In any event, we may proceed against third parties who are responsible for any loss under the title insurance policy under rights of subrogation.
Secured Trust Deposits
In the state of Illinois, a trust company is permitted to commingle and invest customers’ assets with its own assets, pending completion of real estate transactions. Accordingly, our Consolidated Balance Sheets reflect a secured trust deposit liability of $
830
million and $
860
million at
December 31, 2017
and
2016
, respectively, representing customers’ assets held by us and corresponding assets including cash and investments pledged as security for those trust balances.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred taxes of changes in tax rates and laws, if any, is applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted.
Reinsurance
In a limited number of situations, we limit our maximum loss exposure by reinsuring certain risks with other insurers. We also earn a small amount of additional income, which is reflected in our direct premiums, by assuming reinsurance for certain risks of other insurers. We cede a portion of certain policy and other liabilities under agent fidelity, excess of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys’ fees and expenses) exceeding the retained amounts, the reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations.
Revenue Recognition
Title.
Our direct title insurance premiums and escrow, title-related and other fees are recognized as revenue at the time of closing of the related transaction as the earnings process is then considered complete.
Premium revenues from agency operations and agency commissions include an accrual based on estimates using historical information of the volume of transactions that have closed in a particular period for which premiums have not yet been reported to us. The accrual for agency premiums is necessary because of the lag between the closing of these transactions and the reporting of these policies to us by the agent. Historically, the time lag between the closing of these transactions by our agents and the reporting of these policies, or premiums, to us has been up to
15
months, with
84
-
88%
reported within three months following closing, an additional
9
-
12%
reported within the next
three
months and the remainder within
seven
to
fifteen
months. In addition to accruing these earned but unreported agency premiums, we also accrue agent commission expense, which was
76.7%
, of agent premiums earned in
2017
,
76.1%
of agent premiums earned in
2016
, and
76.0%
of agent premiums earned in
2015
. We also record a provision for claim losses at the provision rate at the time we record the accrual for the premiums, which averaged
4.9%
for
2017
,
5.4%
, excluding the release of excess reserves relating to prior years of
$97 million
, for
2016
, and
5.7%
for
2015
and accruals for premium taxes and other expenses relating to our premium accrual. The resulting impact to pretax earnings in any period is approximately
11%
or less of the accrued premium amount. The impact of the change in the accrual for agency premiums and
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
related expenses on our pretax earnings was an increase of $
1
million for the year ended
December 31, 2017
, an increase of $
4
million for the year ended
2016
and a decrease of $
5 million
for the year ended
2015
. The amount due from our agents relating to this accrual, i.e., the agent premium less their contractual retained commission, was approximately $
55
million and $
53
million at
December 31, 2017
and
2016
, respectively, which represents agency premiums of approximately $
280
million and $
267
million at
December 31, 2017
and
2016
, respectively, and agent commissions of $
225
million and $
214
million at
December 31, 2017
and
2016
, respectively.
Revenues from home warranty products are recognized over the life of the policy, which is
one
year. The unrecognized portion is recorded as deferred revenue in accounts
payable and other accrued liabilities in the Consolidated Balance Sheets
.
Comprehensive Earnings (Loss)
We report Comprehensive earnings (loss) in accordance with GAAP on the Consolidated Statements of Comprehensive Earnings. Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders. While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive earnings or loss represents the cumulative balance of other comprehensive earnings, net of tax, as of the balance sheet date. Amounts reclassified to net earnings relate to the realized gains (losses) on our investments and other financial instruments, excluding investments in unconsolidated affiliates, and are included in Realized gains and losses, net on the Consolidated Statements of Earnings.
Changes in the balance of Other comprehensive earnings (loss) by component are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates)
|
|
Unrealized (loss) gain relating to investments in unconsolidated affiliates
|
|
Unrealized (loss) gain on foreign currency translation and cash flow hedging
|
|
Minimum pension liability adjustment
|
|
Total Accumulated Other Comprehensive (Loss) Earnings
|
|
(In millions)
|
Balance December 31, 2015
|
48
|
|
|
(78
|
)
|
|
(15
|
)
|
|
(24
|
)
|
|
(69
|
)
|
Other comprehensive earnings
|
38
|
|
|
10
|
|
|
2
|
|
|
6
|
|
|
56
|
|
Balance December 31, 2016
|
86
|
|
|
(68
|
)
|
|
(13
|
)
|
|
(18
|
)
|
|
(13
|
)
|
Other comprehensive earnings
|
25
|
|
|
12
|
|
|
6
|
|
|
9
|
|
|
52
|
|
Reclassification adjustments
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Distribution of FNFV to Cannae Holdings
|
2
|
|
|
67
|
|
|
—
|
|
|
—
|
|
|
69
|
|
Balance December 31, 2017
|
$
|
116
|
|
|
$
|
11
|
|
|
$
|
(7
|
)
|
|
$
|
(9
|
)
|
|
$
|
111
|
|
Redeemable Non-controlling Interest
Subsequent to our acquisition of Lender Processing Services, Inc. ("LPS") in January 2014, we issued a
35%
ownership interest in ServiceLink to funds affiliated with Thomas H. Lee Partners ("THL" or "the minority interest holder"). THL has an option to put its ownership interests of ServiceLink to us if no public offering of the corresponding business was consummated after
four
years from the date of FNF's purchase of LPS. The units owned by THL (the "redeemable noncontrolling interests") may be settled in cash or common stock of FNF or a combination of both at our election. As of January 2018, no public offering was made and the redeemable noncontrolling interests were no longer subject to a holding requirement. The redeemable noncontrolling interests will be settled at the current fair value at the time we receive notice of THL's put election as determined by the parties or by a third party appraisal under the terms of the Unit Purchase Agreement. As a result of a recapitalization of ServiceLink in 2015, the ownership interest by the minority interest holder was reduced from
35%
to
21%
. As of December 31, 2017, we do not believe the exercise of their remaining put right in ServiceLink to be probable.
As these redeemable noncontrolling interests provide for redemption features not solely within our control, we classify the redeemable noncontrolling interests outside of permanent equity. Redeemable noncontrolling interests held by third parties in subsidiaries owned or controlled by FNF is reported on the Consolidated Balance Sheet outside permanent of equity; and the Consolidated Statement of Earnings reflects the respective redeemable noncontrolling interests in Net earnings (loss) attributable to non-controlling interests, the effect of which is removed from the net earnings attributable to Fidelity National Financial, Inc. common shareholders.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Earnings Per Share
Basic earnings per share, as presented on the Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the 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. For the year ended
December 31, 2017
,
no
antidilutive options were outstanding. For the year ended
December 31, 2016
and
2015
, options to purchase
two million
shares and
one million
shares, respectively, of our common stock were excluded from the computation of diluted earnings per share.
Basic and diluted earnings per share attributable to our former FNFV group common stock for the 2017 period were calculated using weighted average shares outstanding through the date of the FNFV Split-off, November 17, 2017.
Stock-Based Compensation Plans
We account for stock-based compensation plans using the fair value method. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date, using the Black-Scholes Model, and recognized over the service period.
Management Estimates
The preparation of these Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain Reclassifications
Certain reclassifications have been made in the
2016
and
2015
Consolidated Financial Statements to conform to classifications used in
2017
. These reclassifications have not changed net earnings or total equity, as previously reported.
See Note G.
Discontinued Operations
for further information on reclassifications related to disposed businesses.
As of December 31, 2017, we have reclassified our Computer software to Other intangible assets, net. The impact for the Consolidated Balance Sheet as of December 31, 2016 was a decrease to Computer software and corresponding increase to Other intangible assets, net of
$114 million
. See Note H.
Other Intangible Assets
for further details.
Note B. Acquisitions
The results of operations and financial position of the entities acquired during any year are included in the Consolidated Financial Statements from and after the date of acquisition.
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. The acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). Further, the results of operations are not material to our historical financial statements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
We paid total consideration, net of cash received, of
$93 million
in exchange for
90%
of the equity interests of
Title Guaranty
. The total cash consideration paid was as follows (in millions):
|
|
|
|
|
Total cash paid
|
$
|
98
|
|
Less: Cash acquired
|
(5
|
)
|
Total net consideration paid
|
$
|
93
|
|
The purchase price has been initially allocated to
Title Guaranty
's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. The goodwill recorded is expected to be deductible for tax purposes. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Title plant, Goodwill, and Other intangible assets.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Accounts receivable
|
$
|
1
|
|
Property and equipment
|
4
|
|
Other intangible assets
|
60
|
|
Goodwill
|
40
|
|
Title plant
|
3
|
|
Prepaid expenses and other
|
1
|
|
Total assets acquired
|
109
|
|
Accounts payable and accrued liabilities
|
5
|
|
Total liabilities assumed
|
5
|
|
Non-controlling interests assumed
|
11
|
|
Total liabilities and equity assumed
|
16
|
|
Net assets acquired
|
$
|
93
|
|
The gross carrying value and weighted average estimated useful lives of Property and equipment and Other intangible assets acquired in the
Title Guaranty
acquisition consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Weighted Average
Estimated Useful Life
(in years)
|
Property and equipment
|
$
|
4
|
|
|
5
|
Other intangible assets:
|
|
|
|
Customer relationships
|
52
|
|
|
10
|
Trade name
|
7
|
|
|
10
|
Non-compete agreements
|
1
|
|
|
5
|
Total Other intangible assets
|
60
|
|
|
|
Total
|
$
|
64
|
|
|
|
Other Title Acquisitions
During the year ended December 31, 2016, we completed several acquisitions of businesses (the "Title Acquisitions") aligned with our Title segment. The Title Acquisitions do not meet the definition of "significant", individually or in the aggregate, pursuant to Article 3 of Regulation S-X (§210.3-05). Further, their historical results of operations are not material to our financial statements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
We paid total consideration, net of cash received, of
$89 million
in exchange for the assets and/or equity interests of the Title Acquisitions. The total consideration paid was as follows (in millions):
|
|
|
|
|
Cash paid
|
$
|
92
|
|
Less: Cash acquired
|
(3
|
)
|
Total net consideration paid
|
$
|
89
|
|
The purchase price has been allocated to the Title Acquisitions' assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed for the Title Acquisitions as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Trade and notes receivable
|
$
|
5
|
|
Other intangible assets
|
68
|
|
Goodwill
|
48
|
|
Prepaid expenses and other assets
|
1
|
|
Title plant
|
2
|
|
Property and equipment, net
|
3
|
|
Total assets acquired
|
127
|
|
Accounts payable and accrued liabilities
|
30
|
|
Deferred tax liability
|
8
|
|
Total liabilities assumed
|
38
|
|
Net assets acquired
|
$
|
89
|
|
The gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired in the Title Acquisitions consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Weighted Average
Estimated Useful Life
(in years)
|
Other intangible assets:
|
|
|
|
Customer relationships
|
$
|
57
|
|
|
10
|
Trade name
|
6
|
|
|
10
|
Non-compete agreements
|
1
|
|
|
5
|
Computer software
|
2
|
|
|
3
|
Other
|
2
|
|
|
1
|
Total Other intangible assets
|
$
|
68
|
|
|
|
Corporate and Other
Real Geeks and SkySlope
During the year ended December 31, 2017, CINC and FNF completed their acquisitions of Real Geeks, LLC ("RG") and SkySlope, Inc. ("SS"), respectively (together, the "Real Estate Technology Acquisitions"). The Real Estate Technology Acquisitions were made to supplement our Commissions, Inc. ("CINC") business. The Real Estate Technology Acquisitions do not meet the definition of "significant", individually or in the aggregate, pursuant to Article 3 of Regulation S-X (§210.3-05). Further, their historical results of operations are not material to our financial statements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
CINC and FNF paid total aggregate consideration, net of cash received, of
$98 million
in exchange for
100%
and
67%
of the equity interests of RG and SS, respectively. The total consideration paid was as follows (in millions):
|
|
|
|
|
Total purchase price
|
$
|
101
|
|
Less: Cash acquired
|
(3
|
)
|
Total net assets acquired
|
98
|
|
Less: Contingent consideration payable
|
(16
|
)
|
Total net cash paid
|
$
|
82
|
|
The purchase price has been allocated to the Real Estate Technology Acquisitions' assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
$37 million
of 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 Goodwill and Other intangible assets.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed for the Real Estate Technology Acquisitions as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Other intangible assets
|
$
|
38
|
|
Goodwill
|
92
|
|
Property and equipment, net
|
1
|
|
Total assets acquired
|
131
|
|
Accounts payable and accrued liabilities
|
1
|
|
Deferred tax liability
|
9
|
|
Total liabilities assumed
|
10
|
|
Non-controlling interests
|
23
|
|
Total liabilities and equity assumed
|
33
|
|
Net assets acquired
|
$
|
98
|
|
The gross carrying value and weighted average estimated useful lives of the Other intangible assets acquired in the Real Estate Technology Acquisitions consist of the following (dollars in millions):
|
|
|
|
|
|
|
|
Gross Carrying Value
|
|
Weighted Average
Estimated Useful Life
(in years)
|
Property and equipment, net
|
$
|
1
|
|
|
1 - 5
|
Other intangible assets:
|
|
|
|
Customer relationships
|
14
|
|
|
10
|
Trade name
|
5
|
|
|
10
|
Non-compete agreements
|
2
|
|
|
5
|
Computer software
|
17
|
|
|
7
|
Total Other intangible assets
|
$
|
38
|
|
|
|
Commissions, Inc.
On August 23, 2016, we completed our acquisition of CINC, a leading provider of web-based real estate marketing and customer relationship management software for elite Realtors® and agent teams across North America, for
$229
million. CINC’s product offerings include software, marketing and services designed to enhance the productivity and sales results of elite Realtors® and agent teams through lead generation and proactive lead management. CINC's financial position and results of operations from the acquisition date are included in our Corporate and Other segment. The acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). Further, the results of operations are not material to our historical financial statements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
We paid total consideration, net of cash received, of
$229
million in exchange for
95%
of the equity interests of CINC. The total consideration paid was as follows (in millions):
|
|
|
|
|
Cash paid
|
$
|
240
|
|
Less: Cash Acquired
|
(11
|
)
|
Total net consideration paid
|
$
|
229
|
|
The purchase price has been initially allocated to CINC's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
|
|
|
|
|
|
Fair Value
|
Trade and notes receivable, net
|
$
|
1
|
|
Prepaid and other assets
|
2
|
|
Other intangible assets
|
90
|
|
Goodwill
|
165
|
|
Income taxes receivable
|
2
|
|
Total assets acquired
|
260
|
|
Accounts payable and accrued liabilities
|
7
|
|
Deferred tax liability
|
12
|
|
Total liabilities assumed
|
19
|
|
Non-controlling interests
|
12
|
|
Total liabilities and equity assumed
|
31
|
|
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)
|
Other intangible assets:
|
|
|
|
Customer relationships
|
$
|
46
|
|
|
10
|
Tradename
|
13
|
|
|
10
|
Computer software
|
28
|
|
|
7
|
Non-compete agreements
|
3
|
|
|
4
|
Total Other intangible assets
|
$
|
90
|
|
|
|
For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the years ended December 31, 2016 and 2015 are presented below. Pro-forma results presented assume the consolidation of CINC occurred as of the beginning of the 2015 period. Amounts reflect our
95%
ownership interest in CINC and are adjusted to exclude costs directly attributable to the acquisition of CINC, including transaction costs.
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
2015
|
Total revenues
|
$
|
7,285
|
|
|
$
|
6,695
|
|
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
|
653
|
|
|
529
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
|
|
Note C.
|
Fair Value Measurements
|
The fair value hierarchy established by the accounting standards on fair value measurements includes three levels which are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities that are recorded in the Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1.
Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.
Level 2.
Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3.
Financial assets and liabilities whose values are based on model inputs that are unobservable.
The following table presents our fair value hierarchy for those assets measured at fair value on a recurring basis as of
December 31, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
(In millions)
|
Assets:
|
|
|
|
|
|
|
|
Fixed-maturity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
—
|
|
|
$
|
195
|
|
|
$
|
—
|
|
|
$
|
195
|
|
State and political subdivisions
|
—
|
|
|
391
|
|
|
—
|
|
|
391
|
|
Corporate debt securities
|
—
|
|
|
1,117
|
|
|
—
|
|
|
1,117
|
|
Foreign government bonds
|
—
|
|
|
57
|
|
|
—
|
|
|
57
|
|
Mortgage-backed/asset-backed securities
|
—
|
|
|
56
|
|
|
—
|
|
|
56
|
|
Preferred stock available for sale
|
23
|
|
|
296
|
|
|
—
|
|
|
319
|
|
Equity securities available for sale
|
681
|
|
|
—
|
|
|
—
|
|
|
681
|
|
Total
|
$
|
704
|
|
|
$
|
2,112
|
|
|
$
|
—
|
|
|
$
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
1,508
|
|
|
—
|
|
|
1,508
|
|
Foreign government bonds
|
—
|
|
|
109
|
|
|
—
|
|
|
109
|
|
Mortgage-backed/asset-backed securities
|
—
|
|
|
58
|
|
|
—
|
|
|
58
|
|
Preferred stock available for sale
|
32
|
|
|
283
|
|
|
—
|
|
|
315
|
|
Equity securities available for sale
|
386
|
|
|
—
|
|
|
—
|
|
|
386
|
|
Total
|
$
|
418
|
|
|
$
|
2,690
|
|
|
$
|
—
|
|
|
$
|
3,108
|
|
Our Level 2 fair value measures for preferred stock and fixed-maturity securities available for sale are provided by a third-party pricing service. We utilize
one
firm for our preferred stock and our bond portfolios. The pricing service is a leading global provider 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
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
independently comparing the resulting prices to other publicly available measures of fair 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, or 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.
|
|
|
•
|
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.
|
|
|
•
|
Preferred stock: Preferred stocks are valued by calculating the appropriate spread over a comparable US Treasury security. Inputs include benchmark quotes and other relevant market data.
|
As of
December 31, 2017
and
2016
we held
no
material assets or liabilities measured at fair value using Level 3 inputs.
There were no transfers of assets or liabilities measured at fair value using Level 1 inputs to Level 2 in the years ended
December 31, 2017
or
2016
.
The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature. The fair value of our notes payable is included in Note J
Notes Payable
.
Additional information regarding the fair value of our investment portfolio is included in Note D
Investments
.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Note D. Investments
The carrying amounts and fair values of our available for sale securities at
December 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Carrying
Value
|
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
(In millions)
|
Fixed maturity investments available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
195
|
|
|
$
|
196
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
195
|
|
States and political subdivisions
|
391
|
|
|
387
|
|
|
4
|
|
|
—
|
|
|
391
|
|
Corporate debt securities
|
1,117
|
|
|
1,110
|
|
|
11
|
|
|
(4
|
)
|
|
1,117
|
|
Foreign government bonds
|
57
|
|
|
58
|
|
|
1
|
|
|
(2
|
)
|
|
57
|
|
Mortgage-backed/asset-backed securities
|
56
|
|
|
55
|
|
|
1
|
|
|
—
|
|
|
56
|
|
Preferred stock available for sale
|
319
|
|
|
307
|
|
|
12
|
|
|
—
|
|
|
319
|
|
Equity securities available for sale
|
681
|
|
|
517
|
|
|
172
|
|
|
(8
|
)
|
|
681
|
|
Total
|
$
|
2,816
|
|
|
$
|
2,630
|
|
|
$
|
201
|
|
|
$
|
(15
|
)
|
|
$
|
2,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Carrying
Value
|
|
Cost Basis
|
|
Unrealized
Gains
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
(In millions)
|
Fixed maturity investments available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies
|
$
|
117
|
|
|
$
|
117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
117
|
|
States and political subdivisions
|
615
|
|
|
607
|
|
|
9
|
|
|
(1
|
)
|
|
615
|
|
Corporate debt securities
|
1,508
|
|
|
1,499
|
|
|
15
|
|
|
(6
|
)
|
|
1,508
|
|
Foreign government bonds
|
109
|
|
|
117
|
|
|
—
|
|
|
(8
|
)
|
|
109
|
|
Mortgage-backed/asset-backed securities
|
58
|
|
|
56
|
|
|
2
|
|
|
—
|
|
|
58
|
|
Preferred stock available for sale
|
315
|
|
|
312
|
|
|
6
|
|
|
(3
|
)
|
|
315
|
|
Equity securities available for sale
|
386
|
|
|
278
|
|
|
108
|
|
|
—
|
|
|
386
|
|
Total
|
$
|
3,108
|
|
|
$
|
2,986
|
|
|
$
|
140
|
|
|
$
|
(18
|
)
|
|
$
|
3,108
|
|
The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or discount since the date of purchase.
The change in net unrealized gains and (losses) on fixed maturities for the years ended
December 31, 2017
,
2016
, and
2015
was $
(1) million
,
$13 million
, and
$(64) million
, respectively.
The following table presents certain information regarding contractual maturities of our fixed maturity securities at
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
Maturity
|
Amortized Cost
|
|
% of
Total
|
|
Fair
Value
|
|
% of
Total
|
|
(Dollars in millions)
|
One year or less
|
$
|
496
|
|
|
27.5
|
%
|
|
$
|
496
|
|
|
27.3
|
%
|
After one year through five years
|
1,219
|
|
|
67.5
|
|
|
1,227
|
|
|
67.5
|
|
After five years through ten years
|
31
|
|
|
1.7
|
|
|
32
|
|
|
1.8
|
|
After ten years
|
5
|
|
|
0.3
|
|
|
5
|
|
|
0.3
|
|
Mortgage-backed/asset-backed securities
|
55
|
|
|
3.0
|
|
|
56
|
|
|
3.1
|
|
|
$
|
1,806
|
|
|
100.0
|
%
|
|
$
|
1,816
|
|
|
100.0
|
%
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
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.
Fixed maturity securities valued at approximately $
128
million and $
123
million were on deposit with various governmental authorities at
December 31, 2017
and
2016
, respectively, as required by law.
Equity securities are carried at fair value. The change in net unrealized gains and losses on equity securities for the years ended
December 31, 2017
,
2016
and
2015
was a net increase (decrease) of $
56 million
,
$39 million
, and
$(4) million
, respectively.
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 be
en in a continuous unrealized
loss position at
December 31, 2017
and
2016
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
Corporate debt securities
|
$
|
464
|
|
|
$
|
(3
|
)
|
|
$
|
51
|
|
|
$
|
(1
|
)
|
|
$
|
515
|
|
|
$
|
(4
|
)
|
U.S. government and agencies
|
149
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
149
|
|
|
(1
|
)
|
Foreign government bonds
|
—
|
|
|
—
|
|
|
10
|
|
|
(2
|
)
|
|
10
|
|
|
(2
|
)
|
Equity securities available for sale
|
121
|
|
|
(7
|
)
|
|
5
|
|
|
(1
|
)
|
|
126
|
|
|
(8
|
)
|
Total temporarily impaired securities
|
$
|
734
|
|
|
$
|
(11
|
)
|
|
$
|
66
|
|
|
$
|
(4
|
)
|
|
$
|
800
|
|
|
$
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
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
|
)
|
The unrealized losses for the corporate debt securities and U.S. government bonds were primarily caused by fluctuations in interest rates. The unrealized losses for the foreign government bonds were primarily caused by foreign exchange fluctuations. We consider the unrealized losses related to these securities to be temporary rather than changes in credit quality. We expect to recover the entire amortized cost basis of our temporarily impaired fixed maturity securities as we do not intend to sell these securities and we do not believe that we will be required to sell the fixed maturity securities before recovery of the cost basis. For these reasons, we do not consider these securities other-than-temporarily impaired at
December 31, 2017
. It is reasonably possible that declines in fair value below cost not considered other-than-temporary in the current period could be considered to be other-than-temporary in a future period and earnings would be reduced to the extent of the impairment.
The unrealized losses for the equity securities available for sale were primarily caused by market volatility in certain investees and market sectors. We expect to recover the entire cost basis of our temporarily impaired equity securities available for sale as we do not intend to sell these securities and we do not believe that we will be required to sell the securities before recovery of the cost basis. For thes
e reasons, we do not consider these securities other-than-temporarily impaired at
December 31, 2017
. It is reasonably possible that declines in fair value below cost not considered other-than-temporary in the current period could be considered to be other-than-temporary in a future period and earnings would be reduced to the extent of the impairment.
During the years ended
December 31, 2017
,
2016
and
2015
we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired, which resulted in impairment charges of
$1 million
,
$19 million
and
$14 million
, respectively. The impairment charges in 2017 related
to a fixed maturity security of an investee entering Chapter 11 bankruptcy which has exhibited a decreasing fair market value and from which we are uncertain of our ability to recover our initial investment.The impairment charges in 2016 related to fixed maturity securities of
$13 million
, an investment in an unconsolidated affiliate of
$3 million
, and an other long term investment of
$3 million
. In each case, we determined the credit risk of the holdings
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
was high and the ability to recover our investment was unlikely.
Impairment charges in the 2015 period was for a fixed maturity security that we determined the credit risk was high and the ability of the issuer to pay the full amount of the principal outstanding was unlikely.
As of
December 31, 2017
, we held
no
securities for which other-than-temporary impairments had been previously recognized. As of
December 31, 2016
, we held
$7 million
investments for which an other-than-temporary impairment had been previously recognized.
It is possible that future events may lead us to recognize potential future 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 consolidated financial statements.
The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the years ended
December 31, 2017
,
2016
, and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
|
(In millions)
|
Fixed maturity securities available for sale
|
|
$
|
7
|
|
|
$
|
(8
|
)
|
|
$
|
(1
|
)
|
|
$
|
968
|
|
Preferred stock available for sale
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Other long-term investments
|
|
|
|
|
|
9
|
|
|
21
|
|
Loss on debt conversions
|
|
|
|
|
|
(6
|
)
|
|
—
|
|
Property, plant and equipment
|
|
|
|
|
|
2
|
|
|
4
|
|
Other intangible assets
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
Other realized gains and losses, net
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
2
|
|
|
$
|
1,003
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
|
(In millions)
|
Fixed maturity securities available for sale
|
|
$
|
4
|
|
|
$
|
(16
|
)
|
|
$
|
(12
|
)
|
|
$
|
624
|
|
Preferred stock available for sale
|
|
1
|
|
|
—
|
|
|
1
|
|
|
9
|
|
Equity securities available for sale
|
|
11
|
|
|
(1
|
)
|
|
10
|
|
|
50
|
|
Investments in unconsolidated affiliates
|
|
|
|
|
|
(3
|
)
|
|
—
|
|
Other intangible assets
|
|
|
|
|
|
(1
|
)
|
|
—
|
|
Other assets
|
|
|
|
|
|
(3
|
)
|
|
6
|
|
Total
|
|
|
|
|
|
$
|
(8
|
)
|
|
$
|
689
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015
|
|
|
Gross Realized Gains
|
|
Gross Realized Losses
|
|
Net Realized Gains (Losses)
|
|
Gross Proceeds from Sale/Maturity
|
|
|
(In millions)
|
Fixed maturity securities available for sale
|
|
$
|
14
|
|
|
$
|
(17
|
)
|
|
$
|
(3
|
)
|
|
$
|
1,076
|
|
Preferred stock available for sale
|
|
1
|
|
|
—
|
|
|
1
|
|
|
58
|
|
Equity securities available for sale
|
|
13
|
|
|
(11
|
)
|
|
2
|
|
|
51
|
|
Other assets
|
|
|
|
|
|
11
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
11
|
|
|
$
|
1,185
|
|
|
|
|
|
|
|
|
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Interest and investment income consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In millions)
|
Cash and cash equivalents
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fixed maturity securities available for sale
|
61
|
|
|
76
|
|
|
82
|
|
Equity securities and preferred stock available for sale
|
28
|
|
|
28
|
|
|
24
|
|
Short-term investments
|
4
|
|
|
2
|
|
|
—
|
|
Other
|
35
|
|
|
20
|
|
|
15
|
|
Total
|
$
|
131
|
|
|
$
|
126
|
|
|
$
|
121
|
|
|
|
Note E.
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
Property and equipment consists of the following:
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
Land
|
$
|
22
|
|
|
$
|
23
|
|
Buildings
|
111
|
|
|
108
|
|
Leasehold improvements
|
92
|
|
|
89
|
|
Data processing equipment
|
156
|
|
|
159
|
|
Furniture, fixtures and equipment
|
224
|
|
|
225
|
|
|
605
|
|
|
604
|
|
Accumulated depreciation and amortization
|
(412
|
)
|
|
(412
|
)
|
|
$
|
193
|
|
|
$
|
192
|
|
Depreciation expense on property and equipment was $
48
million, $
45
million, and $
42
million for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Goodwill consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
Corporate and Other
|
|
Total
|
|
(In millions)
|
Balance, December 31, 2015
|
$
|
2,303
|
|
|
$
|
45
|
|
|
$
|
2,348
|
|
Goodwill acquired during the year (1)
|
48
|
|
|
170
|
|
|
218
|
|
Adjustments to prior year acquisitions
|
(6
|
)
|
|
(5
|
)
|
|
(11
|
)
|
Balance, December 31, 2016
|
$
|
2,345
|
|
|
$
|
210
|
|
|
$
|
2,555
|
|
Goodwill acquired during the year (1)
|
84
|
|
|
104
|
|
|
188
|
|
Adjustments to prior year acquisitions
|
3
|
|
|
—
|
|
|
3
|
|
Balance, December 31, 2017
|
$
|
2,432
|
|
|
$
|
314
|
|
|
$
|
2,746
|
|
_____________________________________
(1) See Note B
Acquisitions
for further discussion of significant goodwill acquired.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
|
|
Note G.
|
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 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 Consolidated Statements of Earnings. We retained
no
ownership in Black Knight.
We have various agreements with Black Knight to provide technology, data and analytics services, as well as corporate shared services and information technology. We are also a party to certain other agreements under which we incur other expenses or receive revenues from Black Knight. We expect to continue utilizing Black Knight to provide technology and data and analytics services for the foreseeable future. Subsequent to the BK Distribution, Black Knight is considered a related party for FNF. 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 year ended December 31, 2017.
A summary of the operations of Black Knight included in discontinued operations is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
(in millions)
|
Escrow, title-related and other fees
|
$
|
745
|
|
|
$
|
963
|
|
|
$
|
874
|
|
Realized gains and losses, net
|
(13
|
)
|
|
—
|
|
|
(5
|
)
|
Total revenues
|
732
|
|
|
963
|
|
|
869
|
|
Expenses:
|
|
|
|
|
|
Personnel costs
|
292
|
|
|
393
|
|
|
377
|
|
Other operating expenses
|
145
|
|
|
190
|
|
|
156
|
|
Depreciation and amortization
|
154
|
|
|
208
|
|
|
195
|
|
Interest expense
|
42
|
|
|
62
|
|
|
49
|
|
Total expenses
|
633
|
|
|
853
|
|
|
777
|
|
Earnings from discontinued operations before income taxes
|
99
|
|
|
110
|
|
|
92
|
|
Income tax expense
|
40
|
|
|
36
|
|
|
35
|
|
Net earnings from discontinued operations
|
59
|
|
|
74
|
|
|
57
|
|
Less: Net earnings attributable to non-controlling interests
|
36
|
|
|
47
|
|
|
28
|
|
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
|
$
|
23
|
|
|
$
|
27
|
|
|
$
|
29
|
|
|
|
|
|
|
|
Cash flow from discontinued operations data:
|
|
|
|
|
|
Net cash provided by operations
|
$
|
240
|
|
|
$
|
326
|
|
|
$
|
248
|
|
Net cash used in investing activities
|
(46
|
)
|
|
(230
|
)
|
|
(103
|
)
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
A summary of the financial position of Black Knight included as assets and liabilities of discontinued operations 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
|
|
FNFV
As a result of the FNFV Split-Off we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. Subsequent to the FNFV Split-Off, Cannae is considered a related party for FNF. The cash inflows and outflows from and to Cannae as well as revenues and expenses included in continuing operations subsequent to November 17, 2017, the date of the FNFV Split-Off, which were previously eliminated in our consolidated financial statements as intra-entity transactions, are not material to our results of operations for the year ended December 31, 2017.
In conjunction with the FNFV Split-Off, FNTIC, Chicago Title, and Commonwealth Title contributed an aggregate of
$100 million
to Cannae in exchange for
5,706,134
shares of Cannae common stock. As of December 31, 2017, we own approximately
8.1%
of Cannae's outstanding common equity. In addition we issued to Cannae a revolver note (the "Cannae Revolver") in the aggregate principal amount of up to
$100 million
, which accrues interest at LIBOR plus
450 basis points
and matures on the
five
-year anniversary of the date of the revolver note. The maturity date is automatically extended for additional
five
-year terms unless notice of non-renewal is otherwise provided by either FNF or Cannae, in their sole discretion. As of December 31, 2017, there is no outstanding balance under the Cannae Revolver.
In connection with the FNFV Split-Off, the following material agreements were entered into by and between the Company and Cannae (the “Split-Off Agreements”):
•
a Reorganization Agreement, dated as of November 17, 2017, by and between the Company and Cannae, which provides for, among other things, the principal corporate transactions required to effect the Split-Off, certain conditions to the Split-Off and provisions governing the relationship between the Company and Cannae with respect to and resulting from the Split-Off;
•
a Tax Matters Agreement, dated as of November 17, 2017, by and between the Company and Cannae, which governs the Company’s and Cannae’s respective rights, responsibilities and obligations with respect to taxes and tax benefits, the filing of tax returns, the control of audits and other tax matters; and
•
a Voting Agreement, dated as of November 17, 2017, by and between the Company and Cannae, pursuant to which the Company agrees to appear or cause all shares of Cannae common stock that the Company or its subsidiaries, as applicable, own after the Split-Off to be counted as present at any meeting of the stockholders of Cannae, for the purpose of establishing a quorum, and agrees to vote all of such shares of Cannae common stock (or cause them to be
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
voted) in the same manner as, and in the same proportion to, all shares voted by holders of Cannae common stock (other than the Company and its subsidiaries).
A summary of the operations of FNFV included in discontinued operations is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
(in millions)
|
Escrow, title-related and other fees
|
$
|
111
|
|
|
$
|
168
|
|
|
$
|
204
|
|
Restaurant revenue
|
981
|
|
|
1,158
|
|
|
1,412
|
|
Interest and investment income
|
5
|
|
|
3
|
|
|
2
|
|
Realized gains and losses, net
|
277
|
|
|
6
|
|
|
(19
|
)
|
Total revenues
|
1,374
|
|
|
1,335
|
|
|
1,599
|
|
Expenses:
|
|
|
|
|
|
Personnel costs
|
148
|
|
|
165
|
|
|
158
|
|
Other operating expenses
|
94
|
|
|
106
|
|
|
167
|
|
Cost of restaurant revenue
|
861
|
|
|
984
|
|
|
1,195
|
|
Depreciation and amortization
|
51
|
|
|
63
|
|
|
65
|
|
Interest expense
|
9
|
|
|
10
|
|
|
8
|
|
Total expenses
|
1,163
|
|
|
1,328
|
|
|
1,593
|
|
Earnings from discontinued operations before income taxes
|
211
|
|
|
7
|
|
|
6
|
|
Income tax expense (benefit)
|
103
|
|
|
(11
|
)
|
|
(19
|
)
|
Earnings from continuing operations before equity in (losses) earnings of unconsolidated affiliates
|
108
|
|
|
18
|
|
|
25
|
|
Equity in losses of unconsolidated affiliates
|
(12
|
)
|
|
(22
|
)
|
|
(22
|
)
|
Net earnings (loss) from discontinued operations
|
96
|
|
|
(4
|
)
|
|
3
|
|
Less: Net (losses) earnings attributable to non-controlling interests
|
(13
|
)
|
|
—
|
|
|
16
|
|
Net earnings (loss) attributable to Fidelity National Financial, Inc. common shareholders
|
$
|
109
|
|
|
$
|
(4
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
Cash flow from discontinued operations data:
|
|
|
|
|
|
Net cash (used in) provided by operations
|
$
|
(134
|
)
|
|
$
|
81
|
|
|
$
|
29
|
|
Net cash (used in) provided by investing activities
|
(11
|
)
|
|
67
|
|
|
166
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
A summary of the financial position of FNFV included as assets and liabilities of discontinued operations is shown below:
|
|
|
|
|
|
December 31,
2016
|
|
(in millions)
|
Investments:
|
|
Fixed maturities available for sale, at fair value
|
$
|
25
|
|
Equity securities available for sale, at fair value
|
52
|
|
Investments in unconsolidated affiliates
|
407
|
|
Other long term investments
|
12
|
|
Short term investments
|
2
|
|
Total investments
|
498
|
|
Cash and cash equivalents
|
144
|
|
Trade and notes receivable
|
52
|
|
Goodwill
|
206
|
|
Prepaid expenses and other assets
|
33
|
|
Capitalized software, net
|
16
|
|
Deferred tax assets
|
58
|
|
Other intangible assets, net
|
200
|
|
Property and equipment, net
|
251
|
|
Total assets of discontinued operations
|
$
|
1,458
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
214
|
|
Notes payable
|
233
|
|
Income taxes payable
|
18
|
|
Total liabilities of discontinued operations
|
$
|
465
|
|
As a result of the reclassification of the assets and liabilities of FNFV to assets and liabilities of discontinued operations, the deferred tax assets of FNFV, which were formerly netted with our consolidated deferred tax liability in our Condensed Consolidated Balance Sheet as of December 31, 2016, were reclassified to assets of discontinued operations resulting in an increase to both our assets and liabilities of
$58 million
as of December 31, 2016.
Reconciliation to Consolidated Financial Statements
A reconciliation of the net earnings of Black Knight and FNFV to the Statement of Operations is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in millions)
|
Earnings from discontinued operations attributable to Black Knight
|
$
|
59
|
|
|
$
|
74
|
|
|
$
|
57
|
|
Earnings (loss) from discontinued operations attributable to FNFV
|
96
|
|
|
(4
|
)
|
|
3
|
|
Total earnings from discontinued operations, net of tax
|
$
|
155
|
|
|
$
|
70
|
|
|
$
|
60
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
A reconciliation of the financial position of Black Knight and FNFV to the Balance Sheet is shown below:
|
|
|
|
|
|
December 31,
2016
|
|
(in millions)
|
Assets:
|
|
Assets of discontinued operations attributable to Black Knight
|
$
|
3,761
|
|
Assets of discontinued operations attributable to FNFV
|
1,458
|
|
Total assets of discontinued operations
|
$
|
5,219
|
|
Liabilities:
|
|
Liabilities of discontinued operations attributable to Black Knight
|
$
|
2,173
|
|
Liabilities of discontinued operations attributable to FNFV
|
465
|
|
Total liabilities of discontinued operations
|
$
|
2,638
|
|
|
|
Note H.
|
Other Intangible Assets
|
Other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
Customer relationships and contracts
|
$
|
860
|
|
|
$
|
748
|
|
Trademarks and tradenames
|
81
|
|
|
74
|
|
Computer software
|
357
|
|
|
324
|
|
|
1,298
|
|
|
1,146
|
|
Accumulated amortization
|
(680
|
)
|
|
(561
|
)
|
|
$
|
618
|
|
|
$
|
585
|
|
Amortization expense for amortizable intangible assets, which consist primarily of customer relationships and computer software, was $
130
million, $
110
million, and $
103
million for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Estimated amortization expense for the next five years for assets owned at
December 31, 2017
, is $
100 million
in
2018
, $
93 million
in
2019
, $
79 million
in
2020
, $
64 million
in
2021
and $
50 million
in
2022
.
|
|
Note I.
|
Accounts Payable and Other Accrued Liabilities
|
Accounts payable and other accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
Accrued benefits
|
$
|
254
|
|
|
$
|
245
|
|
Salaries and incentives
|
277
|
|
|
267
|
|
Accrued rent
|
22
|
|
|
19
|
|
Trade accounts payable
|
39
|
|
|
42
|
|
Accrued recording fees and transfer taxes
|
17
|
|
|
16
|
|
Accrued premium taxes
|
20
|
|
|
26
|
|
Deferred revenue
|
107
|
|
|
103
|
|
Other accrued liabilities
|
219
|
|
|
215
|
|
|
$
|
955
|
|
|
$
|
933
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Notes payable consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2017
|
|
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
|
|
65
|
|
|
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 at December 31, 2017, due April 2022 with interest payable monthly at LIBOR + 1.40% (2.76% at December 31, 2017)
|
|
295
|
|
|
(3
|
)
|
Other
|
|
2
|
|
|
2
|
|
|
|
$
|
759
|
|
|
$
|
987
|
|
At
December 31, 2017
, the estimated fair value of our long-term debt was approximately
$940 million
, or $
173 million
higher than its carrying value, excluding
$8
million of net unamortized debt issuance costs and premium/discount. The fair value of our unsecured notes payable was
$638 million
as of
December 31, 2017
. The fair values of our unsecured notes payable are based on established market prices for the securities on
December 31, 2017
and are considered Level 2 financial liabilities. The carrying value of the Revolving Credit Facility approximates fair value at
December 31, 2017
, as it is a variable rate instrument with a short reset period (monthly) which reflects current market rates. The Revolving Credit Facility is considered a Level 2 financial liability.
On June 25, 2013, we entered into an agreement to amend and restate our existing $
800 million
Second Amended and Restated Credit Agreement (the “Existing Credit Agreement”), dated as of April 16, 2012 with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and the other agents party thereto (the “Revolving Credit Facility”). On April 27, 2017, the Revolving Credit Facility was amended (the "Restated Credit Agreement") to extend the term for
5
years, from a maturity date of July 15, 2018 to April 27, 2022. Revolving loans under the credit facility generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a)
0.5%
in excess of the federal funds rate, (b) the Administrative Agent's “prime rate”, or (c) the sum of
1%
plus one-month LIBOR) plus a margin of between
10
and
60
basis points depending on the senior unsecured long-term debt ratings of FNF or (ii) LIBOR plus a margin of between
110
and
160
basis points depending on the senior unsecured long-term debt ratings of the Company. Based on our current Moody’s and Standard & Poor’s senior unsecured long-term debt ratings of Baa3/BBB, respectively, the applicable margin for revolving loans subject to LIBOR is
140
basis points. In addition, we pay a commitment fee of between
15
and
40
basis points on the entire facility, also depending on our senior unsecured long-term debt ratings. Under the Revolving Credit Facility, we are subject to customary affirmative, negative and financial covenants, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on investments, dispositions and transactions with affiliates, limitations on dividends and other restricted payments, a minimum net worth and a maximum debt to capitalization ratio. The Revolving Credit Facility also includes customary events of default for facilities of this type (with customary grace periods, as applicable) and provides that, if an event of default occurs and is continuing, the interest rate on all outstanding obligations may be increased, payments of all outstanding loans may be accelerated and/or the lenders' commitments may be terminated. These events of default include a cross-default provision that, subject to limited exceptions, permits the lenders to declare the Revolving Credit Facility in default if: (i) (a) we fail to make any payment after the applicable grace period under any indebtedness with a principal amount (including undrawn committed amounts) in excess of
3.0%
of our net worth, as defined in the Revolving Credit Facility, or (b) we fail to perform any other term under any such indebtedness, or any other event occurs, as a result of which the holders thereof may cause it to become due and payable prior to its maturity; or (ii) certain termination events occur under significant interest rate, equity or other swap contracts. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Revolving Credit Facility shall automatically become immediately due and payable, and the lenders' commitments will automatically terminate. As of
December 31, 2017
, there is
$295 million
outstanding, net of
$5 million
in unamortized debt issuance costs, and
$500 million
of remaining borrowing capacity under the Revolving Credit Facility.
On August 28, 2012, we completed an offering of
$400 million
in aggregate principal amount of
5.50%
notes due September 2022 (the "5.50% notes"), pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. The notes were priced at
99.513%
of par to yield
5.564%
annual interest. The
5.50%
notes will pay interest semi-annually on the 1st of March and September, beginning March 1, 2013. These notes contain customary covenants and events of default for investment grade public debt. These events of default include a cross default provision, with respect to any other debt of the Company in an aggregate amount exceeding
$100 million
for all such debt, arising from (i) failure to make a principal
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
payment when due or (ii) the occurrence of an event which results in such debt being due and payable prior to its scheduled maturity.
On August 2, 2011, we 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 Notes contain customary event-of-default provisions which, subject to certain notice and cure-period conditions, can result in the acceleration of the principal amount of, and accrued interest on, all outstanding Notes if we breach the terms of the Notes or the indenture pursuant to which the Notes were issued. The Notes are unsecured and unsubordinated obligations and (i) rank senior in right of payment to any of our existing or future unsecured indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; (iii) are effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) are structurally subordinated to all existing and future indebtedness and liabilities of our subsidiaries. Interest is payable on the principal amount of the Notes, semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2012. The Notes mature on August 15, 2018, unless earlier purchased by us or converted. The Notes were issued for cash at
100%
of their principal amount. However, for financial reporting purposes, the notes were deemed to have been issued at
92.818%
of par value, and as such we recorded a discount of
$22 million
to be amortized to August 2018, when the Notes mature. The Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 46.387 shares per $1,000 principal amount of the Notes (which represents an initial conversion price of approximately $
21.56
per share), only in the following circumstances and to the following extent: (i) during any calendar quarter commencing after December 31, 2011, if, for each of at least
20
trading days (whether or not consecutive) during the
30
consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price per share of our common stock on such trading day is greater than or equal to
130%
of the applicable conversion price on such trading day; (ii) during the
five
consecutive business day period immediately following any
ten
consecutive trading day period (the “measurement period”) in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of notes was less than
98%
of the product of the last reported sale price per share of our common stock on such trading day and the applicable conversion rate on such trading day; (iii) upon the occurrence of specified corporate transactions; or (iv) at any time on and after May 15, 2018. However, in all cases, the Notes will cease to be convertible at the close of business on the second scheduled trading day immediately preceding the maturity date. It is our intent and policy to settle conversions through “net-share settlement”. Generally, under “net-share settlement,” the conversion value is settled in cash, up to the principal amount being converted, and the conversion value in excess of the principal amount is settled in shares of our common stock. As of October 1, 2013, these notes were convertible under the
130%
Sale Price Condition described above. During the year ended
December 31, 2017
, we repurchased Notes with aggregate principal of
$230 million
for
$549 million
.
|
|
|
|
|
Gross principal maturities of notes payable at December 31, 2017 are as follows (in millions):
|
|
2018
|
$
|
66
|
|
2019
|
—
|
|
2020
|
1
|
|
2021
|
—
|
|
2022
|
700
|
|
Thereafter
|
—
|
|
|
$
|
767
|
|
Income tax expense on continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(In millions)
|
Current
|
$
|
476
|
|
|
$
|
333
|
|
|
$
|
275
|
|
Deferred
|
(241
|
)
|
|
14
|
|
|
(1
|
)
|
|
$
|
235
|
|
|
$
|
347
|
|
|
$
|
274
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Total income tax expense (benefit) was allocated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Net earnings from continuing operations
|
$
|
235
|
|
|
$
|
347
|
|
|
$
|
274
|
|
Tax expense attributable to net earnings from discontinued operations
|
144
|
|
|
25
|
|
|
16
|
|
Other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments and other financial instruments
|
25
|
|
|
29
|
|
|
(40
|
)
|
Unrealized gain (loss) on foreign currency translation and cash flow hedging
|
4
|
|
|
1
|
|
|
(7
|
)
|
Minimum pension liability adjustment
|
3
|
|
|
3
|
|
|
3
|
|
Total income tax expense (benefit) allocated to other comprehensive earnings
|
32
|
|
|
33
|
|
|
(44
|
)
|
Additional paid-in capital, stock-based compensation
|
—
|
|
|
—
|
|
|
(21
|
)
|
Total income taxes
|
$
|
411
|
|
|
$
|
405
|
|
|
$
|
225
|
|
A reconciliation of the federal statutory rate to our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Federal statutory rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
1.8
|
|
|
2.8
|
|
|
3.0
|
|
Deductible dividends paid to FNF 401(k) plan
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.2
|
)
|
Tax exempt interest income
|
(0.4
|
)
|
|
(0.5
|
)
|
|
(0.8
|
)
|
Stock compensation
|
(1.4
|
)
|
|
(1.7
|
)
|
|
—
|
|
Tax Credits
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Consolidated Partnerships
|
—
|
|
|
0.2
|
|
|
0.4
|
|
Tax reform
|
(10.7
|
)
|
|
—
|
|
|
—
|
|
Non-deductible expenses and other, net
|
3.2
|
|
|
0.8
|
|
|
(1.6
|
)
|
Effective tax rate
|
27.2
|
%
|
|
36.4
|
%
|
|
35.7
|
%
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
The significant components of deferred tax assets and liabilities at
December 31, 2017
and
2016
consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
(In millions)
|
Deferred Tax Assets:
|
|
|
|
|
|
Employee benefit accruals
|
$
|
68
|
|
|
$
|
36
|
|
Net operating loss carryforwards
|
9
|
|
|
22
|
|
Insurance reserve discounting
|
26
|
|
|
—
|
|
Accrued liabilities
|
10
|
|
|
18
|
|
Allowance for uncollectible accounts receivable
|
4
|
|
|
—
|
|
Pension plan
|
2
|
|
|
5
|
|
Tax credits
|
40
|
|
|
41
|
|
State income taxes
|
4
|
|
|
13
|
|
Other
|
1
|
|
|
3
|
|
Total gross deferred tax asset
|
164
|
|
|
138
|
|
Less: valuation allowance
|
22
|
|
|
10
|
|
Total deferred tax asset
|
$
|
142
|
|
|
$
|
128
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
Title plant
|
$
|
(55
|
)
|
|
$
|
(85
|
)
|
Amortization of goodwill and intangible assets
|
(113
|
)
|
|
(174
|
)
|
Other investments
|
(5
|
)
|
|
(4
|
)
|
Other
|
(13
|
)
|
|
(11
|
)
|
Investment securities
|
(41
|
)
|
|
(39
|
)
|
Depreciation
|
(9
|
)
|
|
(12
|
)
|
Partnerships
|
(75
|
)
|
|
(94
|
)
|
Insurance reserve discounting
|
—
|
|
|
(79
|
)
|
Total deferred tax liability
|
$
|
(311
|
)
|
|
$
|
(498
|
)
|
Net deferred tax liability
|
$
|
(169
|
)
|
|
$
|
(370
|
)
|
Our net deferred tax liability was
$169 million
and
$370 million
at
December 31, 2017
, and
2016
, respectively. Deferred tax liability incurred a one-time reduction of
$93 million
which was primarily a result of the decrease in the corporate tax rate from 35% to 21% associated with the enactment of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). The significant changes in the deferred taxes are as follows: The increase in the deferred tax asset for employee benefit accruals is a
$71 million
increase in deferred compensation related to a change in accounting method offset by a
$38 million
decrease driven by Tax Reform. The deferred tax liability for insurance reserve discounting decreased by
$119 million
largely due to the redomestication of certain of our insurance underwriters in 2017, offset by an increase of
$15 million
attributable to Tax Reform. The deferred tax liability for title plant decreased by
$30 million
primarily due to Tax Reform
.
The deferred tax liability relating to partnerships decreased by
$19 million
primarily due to an increase of
$23 million
related to ServiceLink activity offset by a
$42 million
decrease driven by Tax Reform. The deferred tax liability on amortization decreased by
$61 million
primarily due to Tax Reform. The decrease in the deferred tax asset on net operating losses of
$13 million
is primarily attributable to usage of assets in the current year and Tax Reform.
We had a valuation allowance of
$22 million
and
$10 million
at December 31, 2017 and 2016, respectively. The increase in the valuation allowance is primarily attributable to Tax Reform which decreased the ability to use credit carryovers before they expire in future years.
SEC Staff Accounting Bulletin No. 118 ("SAB 118"), has provided guidance for companies that have not completed their accounting for the income tax effects of the Tax Reform in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the Tax Reform, however, we have made a reasonable estimate
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
of the effects on our deferred tax balances. In other cases, we have not been able to make a reasonable estimate and will continue to analyze the Tax Reform in order to finalize any related impacts within the measurement period.
At
December 31, 2017
, we have net operating losses on a pretax basis of $
36 million
available to carryforward and offset future federal taxable income. The net operating losses are US federal net operating losses arising from acquisitions made since 2008, including CINC and are subject to an annual Internal Revenue Code Section 382 limitation. These losses will begin to expire in year 2021 and we fully anticipate utilizing these losses prior to expiration with the exception of
$3 million
of gross net operating losses that are offset by a
$1 million
valuation allowance.
At
December 31, 2017
and
2016
, we had $
40
million and $
41
million of tax credits, respectively. The credits primarily consist of general business credits from acquisitions in the Restaurant Group. We anticipate that these credits will be utilized prior to expiration after a valuation allowance of
$21 million
on the general business credits.
A tax benefit of
$21 million
associated with the exercise of employee stock options and the vesting of restricted stock grants was allocated to equity for the year ended December 31, 2015. For the years ended December 31, 2017 and 2016 we have recorded
$13 million
and
$17 million
in income tax benefit related to the tax effects associated with the exercise of stock options and vesting of restricted stock. Our adoption of ASU 2016-09 in 2016 resulted in a change in accounting for the tax-effects of stock-based compensation. Beginning January 1, 2016, the tax-effect of the difference in grant date and vest date fair value of stock-based compensation is included in total income tax expense (benefit).
As of
December 31, 2017
and
2016
, we had approximately
$11 million
(including interest of less than
$1 million
) and $
18 million
(including interest of less than $
1 million
), respectively, of total gross unrecognized tax benefits that, if recognized, would favorably affect our income tax rate. These amounts are reported on a gross basis and do not reflect a federal tax benefit on state income taxes. We record interest and penalties related to income taxes as a component of income tax expense.
The Internal Revenue Service (“IRS”) has selected us to participate in the Compliance Assurance Program that is a real-time audit. We are currently under audit by the Internal Revenue Service for the 2016 through
2018
tax years. We file income tax returns in various foreign and US state jurisdictions.
|
|
Note L.
|
Summary of Reserve for Claim Losses
|
A summary of the reserve for claim losses follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(Dollars in millions)
|
Beginning balance
|
$
|
1,487
|
|
|
$
|
1,583
|
|
|
$
|
1,621
|
|
Change in reinsurance recoverable
|
(4
|
)
|
|
(8
|
)
|
|
1
|
|
Claim loss provision related to:
|
|
|
|
|
|
|
|
|
Current year
|
219
|
|
|
236
|
|
|
224
|
|
Prior years
|
19
|
|
|
(79
|
)
|
|
22
|
|
Total title claim loss provision
|
238
|
|
|
157
|
|
|
246
|
|
Claims paid, net of recoupments related to:
|
|
|
|
|
|
|
|
|
Current year
|
(8
|
)
|
|
(10
|
)
|
|
(7
|
)
|
Prior years
|
(223
|
)
|
|
(235
|
)
|
|
(278
|
)
|
Total title claims paid, net of recoupments
|
(231
|
)
|
|
(245
|
)
|
|
(285
|
)
|
Ending balance of claim loss reserve for title insurance
|
$
|
1,490
|
|
|
$
|
1,487
|
|
|
$
|
1,583
|
|
Provision for title insurance claim losses as a percentage of title insurance premiums
|
4.9
|
%
|
|
3.3
|
%
|
|
5.7
|
%
|
We continually update loss reserve estimates as new information becomes known, new loss patterns emerge, or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.
In the quarter ended December 31, 2017, we reduced the current quarter provision for claims losses to
4.5%
. During the quarter ended December 31, 2016, we released excess title reserves of
$97 million
in addition to reducing the provision for claims
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
losses for the quarter to
5.0%
. In response to favorable development on recent year claims, the average provision rate has decreased in each of the years ended 2015, 2016, and 2017.
Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves.
If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that our recorded reserves may fall outside a reasonable range of our actuary's central estimate, which may require additional reserve adjustments in future periods.
|
|
Note M.
|
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.
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Our accrual for legal and regulatory matters was
$2 million
and
$68 million
as of
December 31, 2017
and
2016
, respectively. 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
Commitments and Contingencies
to our Consolidated Financial Statements in our Annual Report for the year ended December 31, 2016. On January 12, 2018, the banking agencies entered an Order terminating the 2011 LPS consent order, having found ServiceLink attained full compliance. 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 results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which may require us to pay fines or claims or take other actions.
Escrow Balances
In conducting our operations, we routinely hold customers’ assets in escrow, pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets, consistent with Generally Accepted Accounting Principles and industry practice. These balances amounted to
$
15.4
billion
at
December 31, 2017
. As a result of holding these customers’ assets in escrow, we have ongoing programs for realizing economic benefits during the year through favorable borrowing and vendor arrangements with various banks. There were no investments or loans outstanding as of
December 31, 2017
and
2016
related to these arrangements.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Operating Leases
|
|
|
|
|
Future minimum operating lease payments are as follows (in millions):
|
|
2018
|
$
|
150
|
|
2019
|
127
|
|
2020
|
98
|
|
2021
|
71
|
|
2022
|
46
|
|
Thereafter
|
44
|
|
Total future minimum operating lease payments
|
$
|
536
|
|
Rent expense incurred under operating leases during the years ended
December 31, 2017
,
2016
and
2015
was $
144
million, $
128
million, and $
122
million, respectively. Rent expense in
2017
,
2016
, and
2015
includes abandoned lease charges related to office closures of $
1
million.
Note N. Regulation and Equity
Regulation
Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. Each of the insurance underwriters is subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. The laws of most states in which we transact business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting practices, financial practices, establishing reserve and capital and surplus as regards policyholders (“capital and surplus”) requirements, defining suitable investments for reserves and capital and surplus and approving rate schedules. The process of state regulation of changes in rates ranges from states which set rates, to states where individual companies or associations of companies prepare rate filings which are submitted for approval, to a few states in which rate changes do not need to be filed for approval.
Since we are regulated by both state and federal governments and the applicable insurance laws and regulations are constantly subject to change, it is not possible to predict the potential effects on our insurance operations, particularly the Title segment, of any laws or regulations that may become more restrictive in the future or if new restrictive laws will be enacted.
Pursuant to statutory accounting requirements of the various states in which our insurers are domiciled, these insurers must defer a portion of premiums earned as an unearned premium reserve for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined by statutory formula based upon either the age, number of policies and dollar amount of policy liabilities underwritten, or the age and dollar amount of statutory premiums written. As of
December 31, 2017
, the combined statutory unearned premium reserve required and reported for our title insurers was
$
1,400
million
. In addition to statutory unearned premium reserves, each of our insurers maintains reserves for known claims and surplus funds for policyholder protection and business operations.
Each of our insurance subsidiaries is regulated by the insurance regulatory authority in its respective state of domicile, as well as that of each state in which it is licensed. The insurance commissioners of their respective states of domicile are the primary regulators of our title insurance subsidiaries. Each of the insurers is subject to periodic regulatory financial examination by regulatory authorities.
Our insurance subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior approval from the Department of Insurance of their respective states of domicile.
As of
December 31, 2017
, $
1,700
million of our net assets are restricted from dividend payments without prior approval from the Departments of Insurance. During
2018
, our title insurers can pay or make distributions to us of approximately
$
363
million, without prior approval.
The combined statutory capital and surplus of our title insurers was approximately $
1,389
million and $
1,469
million as of
December 31, 2017
and
2016
, respectively. The combined statutory net earnings of our title insurance subsidiaries were $
434
million, $
541
million, and $
381
million for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Statutory-basis financial statements are prepared in accordance with accounting practices prescribed or permitted by the various state insurance regulatory authorities. The National Association of Insurance Commissioners' (“NAIC”
) Accounting
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Practices and Procedures
manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted practices by each of the states that regulate us. Each of our states of domicile for our title insurance underwriter subsidiaries have adopted a material prescribed accounting practice that differs from that found in NAIC SAP. Specifically, in both years the timing of amounts released from the statutory unearned premium reserve under NAIC SAP differs from the states' required practice. Statutory surplus at
December 31, 2017
and
2016
, respectively, was lower by approximately $
28
million and $
207
million than if we had reported such amounts in accordance with NAIC SAP. The decrease at December 31, 2017 from 2016 is primarily attributable to the Redomestication.
As a condition to continued authority to underwrite policies in the states in which our insurers conduct their business, the insurers are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, our escrow and trust business is subject to regulation by various state banking authorities.
Pursuant to statutory requirements of the various states in which our insurers are domiciled, such insurers must maintain certain levels of minimum capital and surplus. Required levels of minimum capital and surplus are not significant to the insurers individually or in the aggregate. Each of our insurers has complied with the minimum statutory requirements as of
December 31, 2017
.
Our underwritten title companies are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth. Minimum net worth requirements for each underwritten title company is less than $
1 million
. These companies were in compliance with their respective minimum net worth requirements at
December 31, 2017
.
There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders although there are limits on the ability of certain subsidiaries to pay dividends to us, as described above.
Equity
On July 20, 2015, our Board of Directors approved a
three
-year stock repurchase program under which we can purchase up to
25 million
shares of our FNF Group common stock through July 30, 2018. 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. Since the original commencement of the plan, we have repurchased a total of
10,589,000
FNF common shares for
$372 million
, or an average of
$35.10
per share, and there are
14,411,000
shares available to be repurchased under this program.
|
|
Note O.
|
Employee Benefit Plans
|
Stock Purchase Plan
During the three-year period ended
December 31, 2017
, our eligible employees could voluntarily participate in employee stock purchase plans (“ESPPs”) sponsored by us and our subsidiaries. Pursuant to the ESPPs, employees may contribute an amount between
3%
and
15%
of their base salary and certain commissions. We contribute varying amounts as specified in the ESPPs.
We contributed
$
23
million, $
20
million, and $
18
million to the ESPPs in the years ended
December 31, 2017
,
2016
, and
2015
, respectively, in accordance with the employer’s matching contribution.
401(k) Profit Sharing Plan
During the three-year period ended
December 31, 2017
, we have offered our employees the opportunity to participate in our 401(k) profit sharing plans (the “401(k) Plan”), qualified voluntary contributory savings plans which are available to substantially all of our employees. Eligible employees may contribute up to
40%
of their pretax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. We make an employer match on the 401(k) Plan of
$0.375
on each $1.00 contributed up to the first
6%
of eligible earnings contributed to the 401(k) Plan by employees. The employer match for the years ended
December 31, 2017
,
2016
and
2015
was $
26 million
,
$26 million
and
$23 million
, respectively, that was credited based on the participant's individual investment elections in the FNF 401(k) Plan.
Omnibus Incentive Plan
In 2005, we established the FNT 2005 Omnibus Incentive Plan (the “Omnibus Plan”) authorizing the issuance of up
to
8 million
shares of common stock, subject to the terms of the Omnibus Plan. On October 23, 2006; May 29, 2008; May 25, 2011; May 22, 2013; and June 15, 2016 the shareholders of FNF approved amendments to increase the number of shares for issuance under the Omnibus Plan by
16 million
,
11 million
,
6 million
,
6 million
and
10 million
shares, respectively. The
primary purpose of the increases were to assure that we had adequate means to provide equity incentive compensation to our employees on a going-forward basis.
The Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance shares, performance units, other cash and stock-based awards and dividend equivalents. As of
December 31, 2017
, there
were
1,839,061
shares of restricted stock and
8,529,427
stock options outstanding
under this plan. Awards granted are approved by the Compensation Committee of the Board of Directors. Options vest over a
3
year period and have a contractual life o
f
7
years.
The exercise price for options granted equals the market price of the underlying stock on the
grant date. Stock option grants vest according to certain time based and operating performance criteria. Option exercises by participants are settled on the open market.
FNF stock option transactions under the Omnibus Plan for
2015
,
2016
, and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average
Exercise Price
|
|
Exercisable
|
Balance, December 31, 2014
|
9,393,211
|
|
|
$
|
19.43
|
|
|
5,173,802
|
|
Granted
|
1,886,320
|
|
|
34.84
|
|
|
|
|
Exercised
|
(1,966,937
|
)
|
|
12.96
|
|
|
|
|
Canceled
|
(12,085
|
)
|
|
26.62
|
|
|
|
|
Balance, December 31, 2015
|
9,300,509
|
|
|
$
|
23.92
|
|
|
5,256,426
|
|
Granted
|
35,000
|
|
|
35.63
|
|
|
|
|
Exercised
|
(1,846,153
|
)
|
|
10.12
|
|
|
|
|
Canceled
|
(7,673
|
)
|
|
26.17
|
|
|
|
|
Balance, December 31, 2016
|
7,481,683
|
|
|
$
|
27.38
|
|
|
5,821,592
|
|
Options issued as make-whole adjustment for BK Distribution
|
2,375,111
|
|
|
20.32
|
|
|
|
Exercised
|
(1,313,061
|
)
|
|
18.38
|
|
|
|
|
Canceled
|
(14,306
|
)
|
|
24.49
|
|
|
|
|
Balance, December 31, 2017
|
8,529,427
|
|
|
$
|
20.38
|
|
|
7,648,837
|
|
FNF restricted stock transactions under the Omnibus Plan in
2015
,
2016
, and
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Balance, December 31, 2014
|
1,770,781
|
|
|
$
|
25.08
|
|
Granted
|
613,960
|
|
|
34.84
|
|
Canceled
|
(10,105
|
)
|
|
26.14
|
|
Vested
|
(982,762
|
)
|
|
23.00
|
|
Balance, December 31, 2015
|
1,391,874
|
|
|
$
|
30.85
|
|
Granted
|
803,292
|
|
|
34.54
|
|
Canceled
|
(3,266
|
)
|
|
28.07
|
|
Vested
|
(720,227
|
)
|
|
28.97
|
|
Balance, December 31, 2016
|
1,471,673
|
|
|
$
|
33.79
|
|
Granted
|
828,818
|
|
|
37.12
|
|
Restricted stock issued as make-whole adjustment for BK Distribution
|
545,676
|
|
|
24.62
|
|
Canceled
|
(11,233
|
)
|
|
24.52
|
|
Vested
|
(995,873
|
)
|
|
23.98
|
|
Balance, December 31, 2017
|
1,839,061
|
|
|
$
|
30.58
|
|
The following table summarizes information related to stock options outstanding and exercisable as of
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
|
|
|
Remaining
|
|
Average
|
|
|
Range of
|
Number of
|
|
Contractual
|
|
Exercise
|
|
Intrinsic
|
|
Number of
|
|
Contractual
|
|
Exercise
|
|
Intrinsic
|
Exercise Prices
|
Options
|
|
Life
|
|
Price
|
|
Value
|
|
Options
|
|
Life
|
|
Price
|
|
Value
|
|
|
|
(In years)
|
|
|
|
(In millions)
|
|
|
|
(In years)
|
|
|
|
(In millions)
|
$0.00 — $14.38
|
662,763
|
|
|
1.85
|
|
$
|
14.38
|
|
|
$
|
16
|
|
|
662,763
|
|
|
1.85
|
|
$
|
14.38
|
|
|
$
|
16
|
|
$14.39 — $17.76
|
4,070,183
|
|
|
2.89
|
|
17.76
|
|
|
87
|
|
|
4,070,183
|
|
|
2.89
|
|
17.76
|
|
|
87
|
|
$17.77 — $21.84
|
1,342,007
|
|
|
3.84
|
|
21.84
|
|
|
23
|
|
|
1,342,007
|
|
|
3.84
|
|
21.84
|
|
|
23
|
|
$21.85 — $25.34
|
13,648
|
|
|
5.98
|
|
25.34
|
|
|
—
|
|
|
4,549
|
|
|
5.98
|
|
25.34
|
|
|
—
|
|
$25.35 — $25.53
|
2,422,627
|
|
|
4.83
|
|
25.53
|
|
|
33
|
|
|
1,569,335
|
|
|
4.83
|
|
25.53
|
|
|
22
|
|
$25.54 — $26.99
|
18,199
|
|
|
5.55
|
|
26.99
|
|
|
—
|
|
|
—
|
|
|
0
|
|
—
|
|
|
—
|
|
|
8,529,427
|
|
|
|
|
|
|
$
|
159
|
|
|
7,648,837
|
|
|
|
|
|
|
$
|
148
|
|
We account for stock-based compensation plans in accordance with GAAP on share-based payments, which requires that compensation cost relating to share-based payments be recognized in the consolidated financial statements based on the fair value of each award. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date and recognized over the service period. Fair value of restricted stock awards and units is based on the grant date value of the underlying stock derived from quoted market prices. The total fair value of restricted stock awards granted in the years ended
December 31, 2017
,
2016
and
2015
was
$31 million
,
$29 million
, and
$21 million
, respectively. The total fair value of restricted stock awards which vested in the years ended
December 31, 2017
,
2016
and
2015
was
$38 million
,
$25 million
, and
$35 million
, respectively.
Option awards are measured at fair value on the grant date using the Black Scholes Option Pricing Model. The intrinsic value of options exercised in the years ended
December 31, 2017
,
2016
and
2015
was
$25 million
,
$46 million
, and
$47 million
, respectively.
Net earnings attributable to FNF Shareholders reflects stock-based compensation expense amounts of $
44 million
for the year ended
December 31, 2017
, $
58 million
for the year ended
December 31, 2016
, and
$56 million
for the year ended
December 31, 2015
, which are included in personnel costs in the reported financial results of each period.
At
December 31, 2017
, the total unrecognized compensation cost related to non-vested stock option grants and restricted stock grants is $
56 million
, which is expected to be recognized in pre-tax income over a weighted average period of
1.65
years.
Pension Plans
In 2000, FNF merged with Chicago Title Corporation ("Chicago Title"). In connection with the merger, we assumed Chicago Title’s noncontributory defined contribution plan and noncontributory defined benefit pension plan (the “Pension Plan”). The Pension Plan covers certain Chicago Title employees. The benefits are based on years of service and the employee’s average monthly compensation in the highest
60
consecutive calendar months during the
120
months ending at retirement or termination. Effective December 31, 2000, the Pension Plan was frozen and there will be no future credit given for years of service or changes in salary. The accumulated benefit obligation is the same as the projected benefit obligation due to the pension plan being frozen as of December 31, 2000. Pursuant to GAAP on employers’ accounting for defined benefit pension and other post retirement plans, the measurement date is December 31.
The net pension liability included in Accounts payable and other accrued liabilities as of
December 31, 2017
, and
2016
was
$
4
million and $
11
million, respectively. The discount rate used to determine the benefit obligation as of the years ended
December 31, 2017
and
2016
wa
s
3.34%
and
3.54%
, respectively. As of the years ended
December 31, 2017
and
2016
the projected benefit obligation was
$
166
million and $
168
million, respectively, and the fair value of plan assets was $
162
million and $
157
million, respectively. The net periodic expense included in the results of operations relating to these plans was
$5
m
illion,
$6
million, and
$8
million for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Postretirement and Other Nonqualified Employee Benefit Plans
We assumed certain health care and life insurance benefits for retired Chicago Title employees in connection with the FNF merger with Chicago Title. Beginning on January 1, 2001, these benefits were offered to all employees who met specific eligibility requirements. Additionally, in connection with the acquisition of LandAmerica Financial Group's
two
principal title insurance underwriters, Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation
, as well as United Capital Title Insurance Company (collectively,
the "LFG Underwriters"), we assumed certain of the LFG Underwriters' nonqualified benefit plans, which provide various postretirement benefits to certain executives and retirees. The costs of these benefit plans are accrued during the periods the employees render service. We are both self-insured and fully insured for postretirement health care
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
and life insurance benefit plans, and the plans are not funded. The health care plans provide for insurance benefits after retirement and are generally contributory, with contributions adjusted annually. Postretirement life insurance benefits are primarily contributory, with coverage amounts declining with increases in a retiree’s age. The aggregate benefit obligation for these plans was $
13
million at
December 31, 2017
and
$14 million
at
December 31, 2016
. The net costs relating to these plans were immaterial for the years ended
December 31, 2017
,
2016
, and
2015
.
|
|
Note P.
|
Supplementary Cash Flow Information
|
The following supplemental cash flow information is provided with respect to interest and tax payments, as well as certain non-cash investing and financing activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
(In millions)
|
Cash paid during the year:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
102
|
|
|
$
|
125
|
|
|
$
|
124
|
|
Income taxes
|
|
528
|
|
|
367
|
|
|
250
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Change in proceeds of sales of investments available for sale receivable in period
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
(25
|
)
|
Change in purchases of investments available for sale payable in period
|
|
(9
|
)
|
|
19
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Liabilities assumed in connection with acquisitions (1):
|
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
$
|
595
|
|
|
$
|
625
|
|
|
$
|
155
|
|
Less: Total purchase price
|
|
481
|
|
|
557
|
|
|
111
|
|
Liabilities and noncontrolling interests assumed
|
|
$
|
114
|
|
|
$
|
68
|
|
|
$
|
44
|
|
Change in treasury stock purchases payable in period
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
(7
|
)
|
_____________________________________
(1) See Note B
Acquisitions
for further discussion of assets and liabilities acquired in business combinations in the current year.
Note Q. Financial Instruments with Off-Balance Sheet Risk and Concentration of Risk
Title
In the normal course of business we and certain of our subsidiaries enter into off-balance sheet credit arrangements associated with certain aspects of the title insurance business and other activities.
We generate a significant amount of title insurance premiums in California, Texas, Florida and New York. Title insurance premiums as a percentage of the total title insurance premiums written
from those four states are detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
California
|
14.5
|
%
|
|
14.6
|
%
|
|
15.1
|
%
|
Texas
|
14.2
|
%
|
|
14.2
|
%
|
|
14.4
|
%
|
Florida
|
8.0
|
%
|
|
7.7
|
%
|
|
8.1
|
%
|
New York
|
6.3
|
%
|
|
7.1
|
%
|
|
8.1
|
%
|
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments, and trade receivables.
We place cash equivalents and short-term investments with high credit quality financial institutions and, by policy, limit the amount of credit exposure with any one financial institution. Investments in commercial paper of industrial firms and financial institutions are rated investment grade by nationally recognized rating agencies.
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up our customer base, thus spreading the trade receivables credit risk. We control credit risk through monitoring procedures.
Note R. Segment Information
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 from the following tables. Refer to Note G
Discontinued Operations
for further discussion of the results of Black Knight.
On November 17, 2017, we completed the FNFV Split-off. As a result, FNFV is no longer a reportable segment and the historical results of FNFV are presented as discontinued operations for all periods presented and are excluded from the following tables. Refer to Note G
Discontinued Operations
for further discussion of the results of FNFV.
Summarized financial information concerning our reportable segments is shown in the following tables. There are certain intercompany corporate related arrangements between our various businesses. The effects of these arrangements including intercompany notes and related interest and any other non-operational intercompany revenues and expenses have been eliminated in the segment presentations below.
As of and for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
Corporate and Other
|
|
Total FNF
|
|
(In millions)
|
Title premiums
|
$
|
4,893
|
|
|
$
|
—
|
|
|
$
|
4,893
|
|
Other revenues
|
2,181
|
|
|
456
|
|
|
2,637
|
|
Revenues from external customers
|
7,074
|
|
|
456
|
|
|
7,530
|
|
Interest and investment income (loss), including realized gains and losses
|
137
|
|
|
(4
|
)
|
|
133
|
|
Total revenues
|
7,211
|
|
|
452
|
|
|
7,663
|
|
Depreciation and amortization
|
159
|
|
|
24
|
|
|
183
|
|
Interest expense
|
—
|
|
|
48
|
|
|
48
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
|
955
|
|
|
(91
|
)
|
|
864
|
|
Income tax expense (benefit)
|
274
|
|
|
(39
|
)
|
|
235
|
|
Earnings (loss) from continuing operations, before equity in earnings of unconsolidated affiliates
|
681
|
|
|
(52
|
)
|
|
629
|
|
Equity in earnings of unconsolidated affiliates
|
10
|
|
|
—
|
|
|
10
|
|
Earnings (loss) from continuing operations
|
$
|
691
|
|
|
$
|
(52
|
)
|
|
$
|
639
|
|
Assets
|
$
|
8,405
|
|
|
$
|
746
|
|
|
$
|
9,151
|
|
Goodwill
|
2,432
|
|
|
314
|
|
|
2,746
|
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
As of and for the year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
Corporate and Other
|
|
Total FNF
|
|
(In millions)
|
Title premiums
|
$
|
4,723
|
|
|
$
|
—
|
|
|
$
|
4,723
|
|
Other revenues
|
2,128
|
|
|
288
|
|
|
2,416
|
|
Revenues from external customers
|
6,851
|
|
|
288
|
|
|
7,139
|
|
Interest and investment income (loss), including realized gains and losses
|
127
|
|
|
(9
|
)
|
|
118
|
|
Total revenues
|
6,978
|
|
|
279
|
|
|
7,257
|
|
Depreciation and amortization
|
148
|
|
|
12
|
|
|
160
|
|
Interest expense
|
—
|
|
|
64
|
|
|
64
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
|
1,025
|
|
|
(70
|
)
|
|
955
|
|
Income tax expense (benefit)
|
386
|
|
|
(39
|
)
|
|
347
|
|
Earnings (loss) from continuing operations, before equity in earnings of unconsolidated affiliates
|
639
|
|
|
(31
|
)
|
|
608
|
|
Equity in earnings of unconsolidated affiliates
|
13
|
|
|
1
|
|
|
14
|
|
Earnings (loss) from continuing operations
|
$
|
652
|
|
|
$
|
(30
|
)
|
|
$
|
622
|
|
Assets
|
$
|
8,756
|
|
|
$
|
5,765
|
|
|
$
|
14,521
|
|
Goodwill
|
2,345
|
|
|
210
|
|
|
2,555
|
|
As of and for the year ended
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title
|
|
Corporate and Other
|
|
Total FNF
|
|
(In millions)
|
Title premiums
|
$
|
4,286
|
|
|
$
|
—
|
|
|
$
|
4,286
|
|
Other revenues
|
2,005
|
|
|
241
|
|
|
2,246
|
|
Revenues from external customers
|
6,291
|
|
|
241
|
|
|
6,532
|
|
Interest and investment income (loss), including realized gains and losses
|
137
|
|
|
(5
|
)
|
|
132
|
|
Total revenues
|
6,428
|
|
|
236
|
|
|
6,664
|
|
Depreciation and amortization
|
144
|
|
|
6
|
|
|
150
|
|
Interest expense
|
—
|
|
|
73
|
|
|
73
|
|
Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
|
836
|
|
|
(66
|
)
|
|
770
|
|
Income tax expense (benefit)
|
305
|
|
|
(31
|
)
|
|
274
|
|
Earnings (loss) from continuing operations, before equity in earnings (loss) of unconsolidated affiliates
|
531
|
|
|
(35
|
)
|
|
496
|
|
Equity in earnings (loss) of unconsolidated affiliates
|
6
|
|
|
(1
|
)
|
|
5
|
|
Earnings (loss) from continuing operations
|
$
|
537
|
|
|
$
|
(36
|
)
|
|
$
|
501
|
|
Assets
|
$
|
8,533
|
|
|
$
|
5,510
|
|
|
$
|
14,043
|
|
Goodwill
|
2,303
|
|
|
45
|
|
|
2,348
|
|
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, recordings and reconveyances, 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.
This
segment consists of the operations of the parent holding company, our various real estate brokerage businesses, and CINC and other real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment. This segment also includes the assets of discontinued operations, Black Knight and FNFV, as of December 31, 2016 and 2015. Refer to Note G.
Discontinued Operations
for further information.
|
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
|
|
Note S.
|
Recent Accounting Pronouncements
|
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09,
Revenue from Contracts with Customers
(Topic 606)
. This ASU provides a new comprehensive revenue recognition model that requires companies to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update permits the use of either the retrospective or cumulative effect transition method. ASU No. 2016-08,
Revenue from Contracts with Customers
(Topic 606): Principal versus Agent Considerations
was issued by FASB in March 2016 to clarify the principal versus agent considerations within ASU 2014-09. ASU 2016-10
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
was issued by the FASB in April 2016 to clarify how to determine whether goods and services are separately identifiable and thus accounted for as separate performance obligations. ASU 2016-12
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
was issued by the FASB in May 2016 to clarify certain terms from the aforementioned updates and to add practical expedients for contracts at various stages of completion. ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, was issued by the FASB in December 2016 which includes thirteen technical corrections and improvements affecting narrow aspects of the guidance issued in ASU 2014-09.
We have 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.
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 December 31, 2017, we held equity and preferred securities available for sale with combined net unrealized gains (net of losses) of
$164 million
and
$12 million
, respectively. Including the associated effects of deferred taxes, based on the net of tax balances as of December 31, 2017, we expect to reclassify a total of approximately
$109 million
from Accumulated other comprehensive income to beginning Retained earnings as of January 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02
Leases (Topic 842)
. The amendments in this ASU introduce broad changes to the accounting and reporting for leases by lessees. The main provisions of the new standard include: clarifications to the definitions of a lease, components of leases, and criteria for determining lease classification; requiring virtually all leased assets, including operating leases and related liabilities, to be reflected on the lessee's balance sheet; and expanding and adding to the required disclosures for lessees. This update is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the standard is permitted. The ASU requires a modified retrospective approach to transitioning which allows for the use of practical expedients to effectively account for leases commenced prior to the effective date in accordance with previous GAAP, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. We are still evaluating the totality of the effects this new guidance
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
will have on our business process and systems, consolidated financial statements, 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. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments
. The amendments in this ASU introduce broad changes to accounting for credit impairment of financial instruments. The primary updates include the introduction of a new current expected credit loss ("CECL") model that is based on expected rather than incurred losses and amendments to the accounting for impairment of debt securities available for sale. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures and have not yet concluded on its effects. We do not plan to early adopt the standard.
In August 2016, the FASB issued ASU No. 2016-15
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees, and cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. We will adopt this ASU on January 1, 2018 and based on our preliminary analysis, we do not expect the adoption of this ASU to have a material impact on our resulting operating, investing, or financing cash flows.
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 will adopt this ASU on January 1, 2018. Based on our preliminary analysis, we expect the adoption of this ASU to result in the movement of the change in our cash pledged against secured trust deposits from operating activities to the net change in cash, the change in investments pledged against secured trust deposits from operating to investing activities, and the change in secured trust deposits from operating to financing activities.
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 will adopt this ASU on January 1, 2018. Based on our historical acquisition activity, we do not expect this to have a material impact on our ongoing accounting or financial reporting.
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 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 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
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
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.