Fidelity National Financial, Inc. - FORM 10-Q - EX-99.1 - EXHIBIT 99.1 - October 29, 2015

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EX-31.2 - EXHIBIT 31.2 - Fidelity National Financial, Inc.exhibit3123q2015.htm
EX-32.1 - EXHIBIT 32.1 - Fidelity National Financial, Inc.exhibit3213q2015.htm
EX-99.2 - EXHIBIT 99.2 - Fidelity National Financial, Inc.exhibit992fnfv3q2015.htm
EX-31.1 - EXHIBIT 31.1 - Fidelity National Financial, Inc.exhibit3113q2015.htm
EX-32.2 - EXHIBIT 32.2 - Fidelity National Financial, Inc.exhibit3223q2015.htm
10-Q - 10-Q - Fidelity National Financial, Inc.fnf09301510q.htm
EXHIBIT 99.1

Unaudited Attributed Financial Information for Fidelity National Financial Group Tracking Stock

The following tables present our assets, liabilities, revenues, expenses and cash flows that are attributed to our FNF core business, known as FNF Core Operations (“we,” “our,” or "FNF Group"). The financial information in this Exhibit should be read in conjunction with our unaudited condensed consolidated financial statements for the period ended September 30, 2015 included in this Quarterly Report on Form 10-Q.
FNF Core Operations is comprised of three operating segments as follows:
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 collection and trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. This segment also includes the transaction services business acquired from Lender Processing Services, Inc. ("LPS"), now combined with our ServiceLink business. Transaction services include other title related services used in production and management of mortgage loans, including mortgage loans that experience default.
Black Knight
This segment consists of the operations of Black Knight, which, through leading software systems and information solutions, provides mission critical technology and data and analytics services that facilitate and automate many of the business processes across the life cycle of a mortgage.
FNF Core Corporate and Other
The FNF Core Corporate and Other segment consists of the operations of the parent holding company, certain other unallocated corporate overhead expenses, and other smaller real estate and insurance related operations.
We have adopted certain expense allocation policies, each of which will be reflected in the attributed financial information of the FNF Core Operations and the FNFV Group (see Exhibit 99.2). In general, corporate overhead will be allocated to each group based upon the use of services by that group where practicable. Corporate overhead primarily includes costs of personnel and employee benefits, legal, accounting and auditing, insurance, investor relations and stockholder services and services related to FNF’s board of directors. We will allocate in a similar manner a portion of costs of administrative shared services, such as information technology services. Where determinations based on use alone are not practical, we will use other methods and criteria that we believe are equitable and that provide a reasonable estimate of the cost attributable to each group.
Notwithstanding the following attribution of assets, liabilities, revenue, expenses and cash flows to FNF Group, our tracking stock structure does not affect the ownership or the respective legal title to our assets or responsibility for our liabilities. We and our subsidiaries are each responsible for our respective liabilities. Holders of FNF Group common stock are subject to risks associated with an investment in our company and all of our businesses, assets and liabilities.


1

FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Balance Sheet Information
(In millions)
 
September 30,
2015
 
December 31,
2014
 
(Unaudited)
ASSETS
 
 
Investments:
 

 
 
Fixed maturity securities available for sale, at fair value, at September 30, 2015 and December 31, 2014 includes pledged fixed maturity securities of $337 and $499, respectively, related to secured trust deposits
$
2,661

 
$
3,025

Preferred stock available for sale, at fair value
293

 
223

Equity securities available for sale, at fair value
323

 
145

Investments in unconsolidated affiliates
120

 
15

Other long-term investments
76

 
120

Short-term investments, at September 30, 2015 and December 31, 2014 includes short term investments of $113 and $146, respectively, related to secured trust deposits
453

 
170

Total investments
3,926

 
3,698

Cash and cash equivalents, at September 30, 2015 and December 31, 2014 includes $248 and $136, respectively, of pledged cash related to secured trust deposits
998

 
661

Trade and notes receivables, net of allowance of $31 and $32 at September 30, 2015 and December 31, 2014, respectively
526

 
464

Due from affiliates
6

 
—

Income taxes receivable
—

 
60

Goodwill
4,543

 
4,515

Prepaid expenses and other assets
504

 
408

Capitalized software, net
551

 
557

Other intangible assets, net
841

 
934

Title plant
394

 
393

Property and equipment, net
260

 
254

Total assets
$
12,549

 
$
11,944

 
 
 
 
LIABILITIES AND EQUITY
 
 
Liabilities:
 

 
 
Accounts payable and other accrued liabilities
$
925

 
$
917

Income taxes payable
44

 
—

Deferred revenue
190

 
136

Reserve for title claim losses
1,605

 
1,621

Secured trust deposits
684

 
622

Notes payable
2,600

 
2,702

Due to affiliates
—

 
1

Deferred tax liability
676

 
673

Total liabilities
6,724

 
6,672

Commitments and Contingencies:
 
 
 
Redeemable non-controlling interest by 21% minority holder of ServiceLink Holdings, LLC as of September 30, 2015 and 33% minority holder of Black Knight Financial Services, LLC and 35% minority holder of ServiceLink Holdings, LLC as of December 31, 2014
344

 
715

Equity:
 

 
 
FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of September 30, 2015 and December 31, 2014; outstanding of 277,517,179 and 279,443,239 as of September 30, 2015 and December 31, 2014, respectively, and issued of 281,342,841 and 279,824,125 as of September 30, 2015 and December 31, 2014, respectively
—

 
—

Additional paid-in capital
3,616

 
3,514

Retained earnings
1,292

 
1,060

Accumulated other comprehensive earnings
10

 
53

Less: treasury stock, 3,825,662 and 375,662 shares as of September 30, 2015 and December 31, 2014, respectively
(140
)
 
(12
)
Total Fidelity National Financial Group shareholders’ equity
4,778

 
4,615

Noncontrolling interests
703

 
(58
)
Total equity
5,481

 
4,557

Total liabilities, redeemable noncontrolling interest and equity
$
12,549

 
$
11,944

 

See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock

2

FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Statements of Earnings Information
(In millions)
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
 
(Unaudited)
 
(Unaudited)
Revenues:
 
 
 
 
 
 
 
Direct title insurance premiums
$
524

 
$
465

 
$
1,488

 
$
1,249

Agency title insurance premiums
647

 
528

 
1,685

 
1,450

Escrow, title related and other fees
823

 
708

 
2,345

 
2,015

Interest and investment income
29

 
27

 
91

 
88

Realized gains and losses, net
—

 
(2
)
 
(8
)
 
—

Total revenues
2,023

 
1,726

 
5,601

 
4,802

Expenses:
 
 
 
 
 
 
 
Personnel costs
641

 
584

 
1,878

 
1,774

Agent commissions
495

 
396

 
1,279

 
1,098

Other operating expenses
452

 
390

 
1,277

 
1,186

Depreciation and amortization
85

 
84

 
255

 
253

Claim loss expense
65

 
59

 
185

 
169

Interest expense
31

 
32

 
91

 
93

Total expenses
1,769

 
1,545

 
4,965

 
4,573

Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates
254

 
181

 
636

 
229

Income tax expense
95

 
73

 
237

 
92

Earnings from continuing operations before equity in earnings of unconsolidated affiliates
159

 
108

 
399

 
137

Equity in earnings of unconsolidated affiliates
2

 
1

 
4

 
3

Net earnings from continuing operations
161

 
109

 
403

 
140

Loss from discontinued operations, net of tax
—

 
—

 
—

 
(1
)
Net earnings
161

 
109

 
403

 
139

Less: Net earnings (loss) attributable to non-controlling interests
11

 
(5
)
 
7

 
(76
)
Net earnings attributable to FNF Group common shareholders
$
150

 
$
114

 
$
396

 
$
215

 
 
 
 
 
 
 
 
Earnings Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Net earnings per share attributable to Old FNF common shareholders
$
—

 
$
—

 
$
—

 
$
0.37

Net earnings per share attributable to FNF Group common shareholders
$
0.54

 
$
0.41

 
$
1.42

 
$
0.41

Diluted
 
 
 
 
 
 
 
Net earnings per share attributable to Old FNF common shareholders
$
—

 
$
—

 
$
—

 
$
0.36

Net earnings per share attributable to FNF Group common shareholders
$
0.53

 
$
0.40

 
$
1.38

 
$
0.40

Weighted average shares outstanding Old FNF common stock, basic basis
—

 
—

 
—

 
183

Weighted average shares outstanding Old FNF common stock, diluted basis
—

 
—

 
—

 
189

Weighted average shares outstanding FNF Group common stock, basic basis
277

 
275

 
278

 
92

Weighted average shares outstanding FNF Group common stock, diluted basis
285

 
284

 
285

 
94


See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock


3

FIDELITY NATIONAL FINANCIAL GROUP OPERATIONS
Statement of Cash Flows Information
(In millions)
 
Nine months ended September 30,
 
 
2015
 
2014
 
(Unaudited)
Cash flows from operating activities:
 
 
 

Net earnings
$
403

 
$
139

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
            Depreciation and amortization
255

 
253

            Equity in earnings of unconsolidated affiliates
(4
)
 
(3
)
Loss on sales of investments and other assets, net
9

 
—

Stock-based compensation cost
37

 
33

Tax benefit associated with the exercise of stock options
(13
)
 
(5
)
Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
Net increase in pledged cash, pledged investments, and secured trust deposits
(2
)
 
—

Net increase in trade receivables
(62
)
 
(46
)
Net (increase) decrease in prepaid expenses and other assets
(67
)
 
16

Net increase (decrease) in accounts payable, accrued liabilities, deferred revenue and other
6

 
(147
)
Net decrease in reserve for title claim losses
(16
)
 
(50
)
Net change in amount due to affiliates
(7
)
 
(21
)
Net change in income taxes
114

 
120

Net cash provided by operating activities
653

 
289

Cash flows from investing activities:
 
 
 
Proceeds from sales of investment securities available for sale
712

 
581

Proceeds from calls and maturities of investment securities available for sale
245

 
321

Proceeds from sale of other assets
—

 
4

Additions to property and equipment and capitalized software
(127
)
 
(86
)
Purchases of investment securities available for sale
(936
)
 
(841
)
Net purchases of short-term investment securities
(301
)
 
—

Purchases of other long-term investments
(22
)
 
(21
)
Contributions to investments in unconsolidated affiliates
(73
)
 
—

Distributions from investments in unconsolidated affiliates
27

 
3

Net other investing activities
2

 
(7
)
Acquisition of Lender Processing Services, Inc., net of cash acquired
—

 
(2,253
)
Acquisition of BPG Holdings, LLC, net of cash acquired
(43
)
 
—

Other acquisitions/disposals of businesses, net of cash acquired
(19
)
 
(17
)
Net cash used in investing activities
(535
)
 
(2,316
)
Cash flows from financing activities:
 
 
 
Borrowings
1,229

 
1,504

Debt service payments
(1,315
)
 
(775
)
Additional investment in non-controlling interest
(6
)
 
—

Proceeds from sale of 35% of Black Knight Financial Services, LLC and ServiceLink, LLC to minority interest holder
—

 
687

Proceeds from BKFS IPO
475

 
—

Dividends paid
(164
)
 
(149
)
Subsidiary dividends paid to non-controlling interest shareholders
(4
)
 
(9
)
Exercise of stock options
19

 
22

Tax benefit associated with the exercise of stock options
13

 
5

Distributions by BKFS to member
(17
)
 
—

Purchases of treasury stock
(123
)
 
—

Contributions to subsidiaries
—

 
(167
)
Net cash provided by financing activities
107

 
1,118

Net increase (decrease) in cash and cash equivalents, excluding pledged cash related to secured trust deposits
225

 
(909
)
Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period
525

 
1,475

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period
$
750

 
$
566

See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock

4

Notes to Unaudited Attributed Financial Information for Fidelity National Financial Group Tracking Stock
Period Ended September 30, 2015
(unaudited)
Note A.    Basis of Presentation
Description of the Business
FNF Group is a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. FNF Group is the nation’s largest title insurance company through its title insurance underwriters - Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York Inc. - that collectively issue more title insurance policies than any other title company in the United States. FNF Group also provides industry-leading mortgage technology solutions and transaction services, including MSP®, the leading residential mortgage servicing technology platform in the U.S., through its majority-owned subsidiaries, Black Knight Financial Services, Inc. ("Black Knight") and ServiceLink Holdings, LLC ("ServiceLink").
Recent Developments
On July 20, 2015, we completed the recapitalization of ServiceLink Holdings, LLC through a conversion (the "ServiceLink Conversion") of $505 million of the $566 million aggregate preference amount associated with its Class A1 participating preferred units into slightly more than 67.3 million Class A common units. As a result of the ServiceLink Conversion, our ownership percentage in ServiceLink Holdings, LLC increased from 65% to 79%.
On July 20, 2015, our Board of Directors approved a new FNF Group three-year stock repurchase program, effective August 1, 2015, under which we may repurchase up to 25 million shares of FNF Group common stock. Purchases may be made from time to time by us in the open market at prevailing market prices or in privately negotiated transactions through July 31, 2018.
On May 29, 2015, Black Knight completed a redemption (the "Redemption") of $205 million in aggregate principal of its senior notes ("Black Knight Senior Notes") at a price of 105.750%. Black Knight incurred a charge on the Redemption of $12 million and also reduced the bond premium by $7 million for the portion of the premium that relates to the redeemed Black Knight Senior Notes, resulting in a net charge on the Redemption of $5 million. Following the Redemption, $390 million in aggregate principal of Black Knight Senior Notes remained outstanding.
On May 27, 2015, Black Knight InfoServ, LLC (“BKIS”), a subsidiary of Black Knight, entered into a credit and guaranty agreement (the “BKIS Credit Agreement”) with an aggregate borrowing capacity of $1.6 billion, dated as of May 27, 2015, with JPMorgan Chase Bank, N.A. as administrative agent, the guarantors party thereto, the other agents party thereto and the lenders party thereto. FNF is not a party to and does not provide any guaranty or stock pledge under the BKIS Credit Agreement.
On May 27, 2015, we entered into an amendment to our existing $800 million third amended and restated credit agreement (as previously amended, the “Existing Revolving Credit Agreement”), dated as of June 25, 2013, with Bank of America, N.A., as administrative agent, the other agents party thereto and the financial institutions party thereto as lenders (the “FNF Amended Revolving Credit Agreement”). Among other changes, the FNF Amended Revolving Credit Agreement amends the Existing Revolving Credit Agreement to permit FNF and its subsidiaries to incur the indebtedness and liens in connection with the BKIS Credit Agreement.
On May 26, 2015, Black Knight closed its initial public offering ("IPO") of 20,700,000 shares of Class A common stock at a price to the public of $24.50 per share, which included 2,700,000 shares of Class A common stock issued upon the exercise in full of the underwriters' option to purchase additional shares. Black Knight received net proceeds of $475 million from the offering, after deduction of underwriter discount and expenses. In connection with the IPO, Black Knight amended and restated their certificate of incorporation to authorize the issuance of two classes of common stock, Class A common stock and Class B common stock, which will generally vote together as a single class on all matters submitted for a vote to stockholders. As a result, Black Knight issued shares of Class B common stock to us, and certain Thomas H. Lee Partners affiliates, as the holders of membership interests in Black Knight Operating, LLC prior to the IPO. Class B common stock is not publicly traded and does not entitle the holders thereof to any of the economic rights, including rights to dividends and distributions upon liquidation that would be provided to holders of Class A common stock. Prior to the IPO, we owned 67% of the membership interests in Black Knight Operating LLC. Following the IPO, we own 55% of the outstanding shares of Black Knight in the form of Class B common stock, with a corresponding ownership interest in Black Knight Operating, LLC.
EPS
Included in the calculation of diluted earnings per share are convertible senior notes (the “Notes”) issued on August 2, 2011 by Fidelity National Financial, Inc.  Under the terms of the indenture, if converted, a portion of the settlement may include shares of FNFV common stock.  As the debt is the obligation of FNF Group, if FNF were to settle a portion of the Notes with FNFV common stock, FNF Group would reimburse FNFV Group for the shares issued upon settlement.

5

Fidelity National Financial, Inc. Reports