Fidelity National Financial, Inc. - FORM 10-Q - EX-99.1 - EXHIBIT 99.1 - November 3, 2016

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10-Q - 10-Q - Fidelity National Financial, Inc.fnf09301610q.htm
EX-99.2 - EXHIBIT 99.2 - Fidelity National Financial, Inc.exhibit992fnfv3q2016.htm
EX-32.2 - EXHIBIT 32.2 - Fidelity National Financial, Inc.exhibit3223q2016.htm
EX-32.1 - EXHIBIT 32.1 - Fidelity National Financial, Inc.exhibit3213q2016.htm
EX-31.2 - EXHIBIT 31.2 - Fidelity National Financial, Inc.exhibit3123q2016.htm
EX-31.1 - EXHIBIT 31.1 - Fidelity National Financial, Inc.exhibit3113q2016.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 Group (“we,” or “our,”). The financial information in this Exhibit should be read in conjunction with our unaudited condensed consolidated financial statements for the period ended September 30, 2016 included in this Quarterly Report on Form 10-Q.
FNF Group 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 trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. 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.
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 Group Corporate and Other
This segment consists of the operations of the parent holding company, certain other unallocated corporate overhead expenses, and other real estate and insurance-related operations.
We have adopted certain expense allocation policies, each of which are reflected in the attributed financial information of the FNF Group and the FNFV Group (see Exhibit 99.2). In general, corporate overhead is 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 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 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, Fidelity National Financial, Inc.'s ("FNF, Inc.") tracking stock structure does not affect the ownership or the respective legal title to FNF Inc.'s assets or responsibility for FNF, Inc.'s liabilities. FNF, Inc. and its subsidiaries are each responsible for their respective liabilities. Holders of FNF Group common stock are subject to risks associated with an investment in FNF, Inc. and all of its businesses, assets and liabilities. See "Item 1A. Risk Factors - Risks Relating to the Ownership of Our FNFV Group Common Stock due to our Tracking Stock Capitalization" in our Annual Report on Form 10-K for the year ended December 31, 2015 for further discussion of risks associated with our tracking stock structure.

1

FIDELITY NATIONAL FINANCIAL GROUP
Balance Sheet Information
(In millions, except share data)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
ASSETS
 
 
Investments:
 

 
 
Fixed maturity securities available for sale, at fair value, at September 30, 2016 and December 31, 2015 includes pledged fixed maturity securities of $332 and $342, respectively, related to secured trust deposits
$
2,454

 
$
2,558

Preferred stock available for sale, at fair value
321

 
289

Equity securities available for sale, at fair value
391

 
309

Investments in unconsolidated affiliates
161

 
125

Other long-term investments
81

 
78

Short-term investments, at September 30, 2016 and December 31, 2015 includes short-term investments of $193 and $266, respectively, related to secured trust deposits
428

 
790

Total investments
3,836

 
4,149

Cash and cash equivalents, at September 30, 2016 and December 31, 2015 includes $412 and $108, respectively, of pledged cash related to secured trust deposits
1,043

 
749

Trade and notes receivables, net of allowance of $42 and $32 at September 30, 2016 and December 31, 2015, respectively
501

 
453

Due from affiliates
17

 
10

Goodwill
4,851

 
4,572

Prepaid expenses and other assets
588

 
551

Capitalized software, net
570

 
543

Other intangible assets, net
842

 
802

Title plant
395

 
395

Property and equipment, net
358

 
278

Total assets
$
13,001

 
$
12,502

 
 
 
 
LIABILITIES AND EQUITY
 
 
Liabilities:
 

 
 
Accounts payable and other accrued liabilities
$
897

 
$
878

Income taxes payable
58

 
38

Deferred revenue
218

 
191

Reserve for title claim losses
1,602

 
1,583

Secured trust deposits
922

 
701

Notes payable
2,527

 
2,593

Deferred tax liability
709

 
669

Total liabilities
6,933

 
6,653

Commitments and Contingencies:
 
 
 
Redeemable non-controlling interest by 21% minority holder of ServiceLink Holdings, LLC
344

 
344

Equity:
 

 
 
FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of September 30, 2016 and December 31, 2015; outstanding of 271,896,091 and 275,781,160 as of September 30, 2016 and December 31, 2015, respectively, and issued of 283,973,901 and 282,394,970 as of September 30, 2016 and December 31, 2015, respectively
—

 
—

Additional paid-in capital
3,678

 
3,639

Retained earnings
1,628

 
1,377

Accumulated other comprehensive earnings
71

 
7

Less: treasury stock, 12,077,810 and 6,613,810 shares as of September 30, 2016 and December 31, 2015, respectively
(425
)
 
(238
)
Total Fidelity National Financial Group shareholders’ equity
4,952

 
4,785

Noncontrolling interests
772

 
720

Total equity
5,724

 
5,505

Total liabilities, redeemable noncontrolling interest and equity
$
13,001

 
$
12,502

 

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

2

FIDELITY NATIONAL FINANCIAL GROUP
Statements of Earnings Information
(In millions, except per share data)
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
Revenues:
 
 
 
 
 
 
 
Direct title insurance premiums
$
556

 
$
524

 
$
1,518

 
$
1,488

Agency title insurance premiums
713

 
647

 
1,934

 
1,685

Escrow, title-related and other fees
904

 
823

 
2,512

 
2,345

Interest and investment income
28

 
29

 
93

 
91

Realized gains and losses, net
(3
)
 
—

 
(6
)
 
(8
)
Total revenues
2,198

 
2,023

 
6,051

 
5,601

Expenses:
 
 
 
 
 
 
 
Personnel costs
690

 
641

 
1,971

 
1,878

Agent commissions
545

 
495

 
1,473

 
1,279

Other operating expenses
489

 
452

 
1,359

 
1,277

Depreciation and amortization
98

 
85

 
270

 
255

Claim loss expense
70

 
65

 
190

 
185

Interest expense
31

 
31

 
94

 
91

Total expenses
1,923

 
1,769

 
5,357

 
4,965

Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates
275

 
254

 
694

 
636

Income tax expense
102

 
95

 
250

 
237

Earnings from continuing operations before equity in earnings of unconsolidated affiliates
173

 
159

 
444

 
399

Equity in earnings of unconsolidated affiliates
4

 
2

 
10

 
4

Net earnings
177

 
161

 
454

 
403

Less: Net earnings attributable to non-controlling interests
14

 
11

 
31

 
7

Net earnings attributable to FNF Group common shareholders
$
163

 
$
150

 
$
423

 
$
396

 
 
 
 
 
 
 
 
Earnings Per Share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Net earnings per share attributable to FNF Group common shareholders
$
0.60

 
$
0.54

 
$
1.56

 
$
1.42

Diluted
 
 
 
 
 
 
 
Net earnings per share attributable to FNF Group common shareholders
$
0.58

 
$
0.53

 
$
1.51

 
$
1.38

 
 
 
 
 
 
 
 
Weighted average shares outstanding FNF Group common stock, basic basis
271

 
277

 
272

 
278

Weighted average shares outstanding FNF Group common stock, diluted basis
279

 
285

 
280

 
286


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


3

FIDELITY NATIONAL FINANCIAL GROUP
Statement of Cash Flows Information
(In millions)
 
Nine months ended September 30,
 
 
2016
 
2015
 
(Unaudited)
Cash flows from operating activities:
 
 
 

Net earnings
$
454

 
$
403

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
            Depreciation and amortization
270

 
255

            Equity in earnings of unconsolidated affiliates
(10
)
 
(4
)
Loss on sales of investments and other assets, net
1

 
9

Impairment of assets
5

 
—

Stock-based compensation cost
39

 
37

Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
Net change in pledged cash, pledged investments, and secured trust deposits
—

 
(2
)
Net increase in trade receivables
(42
)
 
(62
)
Net increase in prepaid expenses and other assets
(26
)
 
(68
)
Net (decrease) increase in accounts payable, accrued liabilities, deferred revenue and other
(9
)
 
6

Net increase (decrease) in reserve for title claim losses
19

 
(16
)
Net change in amount due to affiliates
(7
)
 
(7
)
Net change in income taxes
15

 
114

Net cash provided by operating activities
709

 
665

Cash flows from investing activities:
 
 
 
Proceeds from sales of investment securities available for sale
188

 
712

Proceeds from calls and maturities of investment securities available for sale
340

 
245

Additions to property and equipment and capitalized software
(186
)
 
(127
)
Purchases of investment securities available for sale
(459
)
 
(936
)
Net proceeds from (purchases of) short-term investment securities
289

 
(301
)
Purchases of other long-term investments
—

 
(22
)
Contributions to investments in unconsolidated affiliates
(88
)
 
(73
)
Distributions from investments in unconsolidated affiliates
69

 
27

Net other investing activities
4

 
2

Acquisition of eLynx Holdings, Inc., net of cash acquired
(115
)
 
—

Acquisition of Commissions, Inc., net of cash acquired
(229
)
 
—

Acquisition of BPG Holdings, LLC, net of cash acquired
—

 
(43
)
Other acquisitions/disposals of businesses, net of cash acquired
(93
)
 
(19
)
Net cash used in investing activities
(280
)
 
(535
)
Cash flows from financing activities:
 
 
 
Borrowings
55

 
1,229

Debt service payments
(140
)
 
(1,315
)
Additional investment in non-controlling interest
—

 
(6
)
Proceeds from BKFS IPO
—

 
475

Dividends paid
(171
)
 
(163
)
Subsidiary dividends paid to non-controlling interest shareholders
(5
)
 
(4
)
Exercise of stock options
16

 
19

Payment of contingent consideration for prior period acquisitions
(4
)
 
—

Distributions by BKFS to member
—

 
(17
)
Purchases of treasury stock
(190
)
 
(123
)
Net cash (used in) provided by financing activities
(439
)
 
95

Net (decrease) increase in cash and cash equivalents, excluding pledged cash related to secured trust deposits
(10
)
 
225

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period
641

 
525

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period
$
631

 
$
750

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, 2016
(unaudited)
Note A.    Basis of Presentation
Description of the Business
FNF Group is 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 insurance 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, Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Alamo Title Insurance and National Title Insurance of New York Inc. - that 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. FNF also provides industry-leading mortgage technology solutions, including MSP®, the leading residential mortgage servicing technology platform in the U.S., through its majority-owned subsidiary, Black Knight Financial Services, Inc. ("Black Knight").
Recent Developments
On August 23, 2016, FNF Group completed its acquisition of Commissions, Inc. ("CINC"), a leading provider of web-based real estate marketing and customer relationship management software for elite Realtors® and agent teams across North America, for $229 million. CINC’s product offerings include software, marketing and services designed to enhance the productivity and sales results of elite Realtors® and agent teams through lead generation and proactive lead management. See Note B to the Condensed Consolidated Financial Statements included within Part I, Item I of Form 10-Q in this Quarterly Report for further discussion.
During the second quarter of 2016 we invested $30 million in CF Corporation (“CF Corp”, NYSE: CFCOU), a blank check company co-founded by William P. Foley, the Chairman of our Board of Directors. Mr. Foley also serves as the Co-Executive Chairman of CF Corp. As of September 30, 2016, our investment in CF Corp has a fair value of $31 million and is included in Equity securities available for sale on the corresponding Condensed Consolidated Balance Sheet.
On May 16, 2016, Black Knight completed its acquisition of eLynx Holdings, Inc. ("eLynx"), a leading lending document and data delivery platform, for $115 million. eLynx helps clients in the financial services and real estate industries electronically capture and manage documents and associated data throughout the document lifecycle. This acquisition positions Black Knight to electronically support the full mortgage origination process. See Note B to the Condensed Consolidated Financial Statements included within Part I, Item I of Form 10-Q in this Quarterly Report for further discussion.
On April 29, 2016, pursuant to the terms of a certain “synthetic lease” agreement, dated as of June 29, 2004, as amended on June 27, 2011, and further described under Off-Balance Sheet Arrangements in Item 2 of Part II of this Quarterly Report, we exercised our option to purchase the land and various real property improvements associated with our corporate campus and headquarters in Jacksonville, Florida from SunTrust Bank for $71 million.
Earnings Per Share
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