Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Financial Statements | Summary of Significant Accounting Policies |
The following describes the significant accounting policies of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” or “FNF”) which have been followed in preparing the accompanying Consolidated Financial Statements. |
Description of Business |
Overview |
We have organized our business into two groups, FNF Core Operations and FNF Ventures, known as "FNFV." Through our Core operations, FNF is a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. FNF 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 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, LLC ("BKFS") and ServiceLink Holdings, LLC ("ServiceLink"). In addition, in our FNFV group, we own majority and minority equity investment stakes in a number of entities, including American Blue Ribbon Holdings, LLC ("ABRH"), J. Alexander’s, LLC ("J. Alexander's"), Ceridian HCM, Inc. and Fleetcor Technologies Inc. (collectively "Ceridian") and Digital Insurance, Inc. ("Digital Insurance"). |
As of December 31, 2014, we had the following reporting segments: |
FNF Core Operations |
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• | 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 ("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 go into default. | | | | | | | | | | | | | | | | | | |
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• | BKFS. This segment consists of the operations of BKFS. This segment provides core technology and data and analytics services through leading software systems and information solutions that facilitate and automate many of the business processes across the life cycle of a mortgage. | | | | | | | | | | | | | | | | | | |
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• | FNF Core Corporate and Other. This 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. | | | | | | | | | | | | | | | | | | |
FNFV |
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• | Restaurant Group. This segment consists of the operations of ABRH, in which we have a 55% ownership interest. ABRH is the owner and operator of the O'Charley's, Ninety Nine Restaurants, Max & Erma's, Village Inn and Bakers Square concepts. This segment also includes J. Alexander's, which includes the Stoney River Steakhouse and Grill concepts. | | | | | | | | | | | | | | | | | | |
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• | FNFV Corporate and Other. This segment primarily consists of our share in the operations of certain equity investments, including Ceridian, as well as Digital Insurance in which we own 96% and other smaller operations which are not title related. | | | | | | | | | | | | | | | | | | |
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. |
Recent Developments |
In addition to the below Recent Developments, we have made several acquisitions which are discussed in more detail on Note B. |
On February 23, 2015, we announced a tender offer to purchase up to $185 million of shares of our FNFV Group Common stock at a purchase price of no greater than $15.40 per share, nor less than $14.30 per share in cash. We are conducting this Offer through a procedure commonly called a “modified Dutch auction.” This procedure allows shareholders to select the price within a price range specified by us at which the shareholders are willing to sell their shares. The offer is set to expire at 12:00 Midnight, New York City time, at the end of Friday, March 20, 2015, unless we extend the offer. |
On February 19, 2015, we announced our intention to pursue a tax-free spin-off of J. Alexander's to FNFV shareholders. |
On January 16, 2015, we closed the sale of Cascade Timberlands, LLC, which grows and sells timber and in which we owned a 70.2% interest, for $85 million less a replanting allowance of $1 million and an indemnity holdback of $1 million. We received cash of $63 million upon the closing. |
On December 31, 2014, we closed the previously announced distribution (the "Spin-off") of all of the outstanding shares of common stock of New Remy Corp. ("New Remy") to FNFV shareholders. As part of the Spin-off, FNFV combined all of the 16,342,508 shares of Remy common stock that FNFV owned and a small company called Fidelity National Technology Imaging, LLC ("Imaging") into New Remy. Immediately following the Spin-off, New Remy and Remy International, Inc. ("Old Remy") engaged in a series of stock-for-stock transactions ending with a new publicly-traded holding company, New Remy Holdco Corp. ("New Remy Holdco"). In the Spin-off, FNFV shareholders ultimately received a total of approximately 16.6 million shares of New Remy Holdco common stock, or approximately 0.17879 shares of New Remy Holdco common stock for each share of FNFV that they owned. This spin-off is expected to be tax free to FNFV shareholders. |
On December 23, 2014, we filed a registration statement with the Securities and Exchange Commission (“SEC”) relating to a proposed initial public offering of Black Knight Financial Services, Inc. ("BKFSI") common stock. BKFSI is currently presented as the BKFS segment. |
On November 17, 2014, Ceridian completed the exchange of its subsidiary Comdata Inc. ("Comdata") with FleetCor Technologies Inc. ("FleetCor") in a transaction valued at approximately $3.5 billion. FNFV owns approximately 32% of Ceridian and through this ownership has indirectly received approximately 2.4 million shares of Fleetcor common stock. Based on FleetCor's closing stock price of $147.66 on November 13, 2014, the 2.4 million FleetCor shares are currently valued at approximately $356 million. As previously disclosed, the shares of FleetCor's common stock that FNFV indirectly owns are subject to a six-month lockup from the November 14, 2014 closing date and approximately 25% of these shares have been contributed to an escrow account to meet potential indemnification claims, if any, for up to three years from closing. The stock-for-stock transaction is tax-free for Ceridian LLC and its shareholders. As of December 31, 2014, FNFV indirectly owns approximately 3% of the outstanding shares of FleetCor. We recognized $495 million in equity in earnings of unconsolidated affiliates in the twelve months ending December 31, 2014 as a result of the transaction. |
On October 28, 2014, our Board of Directors approved a three-year stock purchase program, effective November 6, 2014, under which we can repurchase up to 10 million shares of our FNFV Group common stock through November 30, 2017. 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. |
On August 25, 2014, we acquired a 70% ownership interest in LandCastle Title ("LandCastle"), in exchange for our agreement to fund any escrow shortfalls in LandCastle's escrow accounts. At the time of the acquisition, LandCastle was a large third-party agent of FNF, operating primarily in the State of Georgia. To date, FNF's total cash contribution to LandCastle is approximately $22 million and based on our current understanding of the business could increase by approximately $0 - $10 million. On January 31, 2015, we acquired an additional 5% ownership interest in LandCastle and we now have a 75% ownership interest in LandCastle. |
On August 19, 2014, ABRH completed a recapitalization whereby they entered into a new credit agreement for $210 million. As part of the recapitalization, ABRH's parent paid a special dividend to its members, totaling $75 million. Of this special dividend, FNFV received $41 million. ABRH's parent also distributed its 28% ownership interest in J. Alexander's to FNFV, resulting in FNFV now directly owning 87% of J. Alexander's. See Note J for further discussion of the new credit agreement. |
On June 30, 2014, we completed the recapitalization of FNF common stock into two tracking stocks, FNF Group common stock and FNFV Group common stock. Each share of the previously outstanding FNF Class A common stock ("Old FNF common stock") was converted into one share of FNF Group common stock, which now trades on the New York Stock Exchange under the current trading symbol "FNF," and 0.3333 of a share of FNFV Group common stock, which now trades on the New York Stock Exchange under the trading symbol "FNFV." Both FNF and FNFV began regular trading on July 1, 2014. |
Discontinued Operations |
Remy |
On December 31, 2014, we closed the previously announced distribution (the "Spin-off") of all of the outstanding shares of common stock of New Remy Corp. ("New Remy") to FNFV shareholders. As part of the Spin-off, FNFV combined all of the 16,342,508 shares of Remy common stock that FNFV owned and a small company called Fidelity National Technology Imaging, LLC ("Imaging") into New Remy. Immediately following the Spin-off, New Remy and Remy International, Inc. ("Old Remy") engaged in a series of stock-for-stock transactions ending with a new publicly-traded holding company, New Remy Holdco Corp. ("New Remy Holdco"). In the Spin-off, FNFV shareholders ultimately received a total of approximately 16.6 million shares of New Remy Holdco common stock, or approximately 0.17879 shares of New Remy Holdco common stock for each share of FNFV that they owned. This spin-off is expected to be tax free to FNFV shareholders. Our title segment continues to utilize Imaging's services in its operations. We continue to hold $29 million in Remy bonds, which is included in Fixed maturities available for sale on the Consolidated Balance Sheet. Prior to the Spin-off these investments were eliminated in consolidation. |
As a result of the Spin-off discussed above, the results from Remy are reflected in the Consolidated Statements of Earnings as discontinued operations. Total revenues included in discontinued operations were $1,173 million, $1,125 million and $497 million for the years ended December 31, 2014, 2013 and 2012, respectively. Pre-tax earnings included in discontinued operations were $6 million, $22 million, and $89 million for the years ended December 31, 2014, 2013 and 2012, respectively. |
A reconciliation of the operations of Remy to the Statement of Earnings is shown below: |
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| Year Ended December 31, | | | | | | | | |
| 2014 | | 2013 | | 2012 | | | | | | | | |
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Revenues: | | | | | | | | | | | | | |
Auto parts revenues | $ | 1,172 | | | $ | 1,127 | | | $ | 417 | | | | | | | | | |
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Other revenues | 1 | | | (2 | ) | | 80 | | | | | | | | | |
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Total | 1,173 | | | 1,125 | | | 497 | | | | | | | | | |
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Expenses: | | | | | | | | | | | | | |
Personnel costs | 81 | | | 86 | | | 29 | | | | | | | | | |
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Other operating expenses | 52 | | | 46 | | | 18 | | | | | | | | | |
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Cost of auto parts revenues | 1,009 | | | 947 | | | 350 | | | | | | | | | |
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Depreciation & amortization | 4 | | | 4 | | | 1 | | | | | | | | | |
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Interest expense | 21 | | | 20 | | | 10 | | | | | | | | | |
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Total expenses | 1,167 | | | 1,103 | | | 408 | | | | | | | | | |
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Earnings from discontinued operations before income taxes | 6 | | | 22 | | | 89 | | | | | | | | | |
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Income tax (benefit) expense | (1 | ) | | 5 | | | 3 | | | | | | | | | |
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Net earnings from discontinued operations | 7 | | | 17 | | | 86 | | | | | | | | | |
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Less: Net earnings attributable to non-controlling interests | 3 | | | 10 | | | 2 | | | | | | | | | |
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Net earnings from discontinued operations attributable to Fidelity National Financial, Inc. common shareholders | $ | 4 | | | $ | 7 | | | $ | 84 | | | | | | | | | |
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Cash flow from discontinued operations data: | | | | | | | | | | | | | |
Net cash provided by operations | $ | 39 | | | $ | 61 | | | $ | 36 | | | | | | | | | |
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Net cash used in investing activities | (50 | ) | | (21 | ) | | (10 | ) | | | | | | | | |
Other Discontinued Operations |
The results from a small software company, which we acquired with LPS and which was sold during the second quarter of 2014, are included in the Consolidated Statements of Earnings as discontinued operations for all periods presented through the date of sale. Total revenues included in discontinued operations were $2 million for the year ended December 31, 2014. Pre-tax earnings included in discontinued operations are $1 million for the year ended December 31, 2014. |
The results from two J. Alexander's locations closed in the second quarter of 2013 are reflected in the Consolidated Statements of Earnings as discontinued operations for all periods presented. Total net revenue included in discontinued operations was $3 million for the year ended December 31, 2013. Pre-tax loss included in discontinued operations was $3 million for the year ended December 31, 2013. |
The results from a settlement services company closed in the second quarter of 2013 are reflected in the Consolidated Statements of Earnings as discontinued operations for all periods presented. Total revenues included in discontinued operations were $9 million and $36 million for the years ended December 31, 2013 and 2012, respectively. Pre-tax earnings included in discontinued operations were $2 million and $9 million for the year ended December 31, 2013 and 2012, respectively. |
On May 1, 2012, we completed the sale of an 85% interest in our remaining subsidiaries that write personal lines insurance to WT Holdings, Inc. for $120 million. Accordingly, the results of this business through the date of sale (which we refer to as our "at-risk" insurance business) for all periods presented are reflected in the Consolidated Statements of Earnings as discontinued operations. Total revenues from the at-risk insurance business included in discontinued operations are $124 million, for the year ended December 31, 2012. Pre-tax earnings from the at-risk insurance business included in discontinued operations are $10 million for the year ended December 31, 2012. |
Investments |
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 in 2013 included structured notes. The structured notes were carried at fair value as of the balance sheet date. The structured notes matured during the third quarter of 2014 (see Note C for further discussion). The cost-method investments are carried at historical cost. |
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. |
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 respective year using a September 30 measurement date and as a result no goodwill impairments have been recorded. For the years ended December 31, 2014 and 2013, 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 and trademarks which are generally recorded in connection with acquisitions at their fair value, and debt issuance costs relating to the issuance of our long-term notes payable. 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 using an accelerated method which takes into consideration expected customer attrition rates. Contractual relationships are generally amortized over their contractual life. Trademarks are generally considered intangible assets with indefinite lives and are reviewed for impairment at least annually. Debt issuance costs are amortized on a straight line basis over the contractual life of the related debt instrument. |
We recorded an $11 million impairment expense to Tradenames in our Restaurant Group segment during the year ended December 31, 2014. We recorded no impairment expense related to other intangible assets in the years ended December 31, 2013, or 2012. |
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 in the years ended December 31, 2014, 2013 and 2012 and identified and recorded impairment expense of $1 million, $4 million and $13 million, respectively. |
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. Equipment under capitalized leases is amortized on a straight-line basis to its expected residual value at the end of the lease term. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. |
In our Restaurant Group, all direct external costs associated with obtaining the land, building and equipment for each new restaurant, as well as construction period interest are capitalized. Direct external costs associated with obtaining the dining room and kitchen equipment, signage and other assets and equipment are also capitalized. In addition, for each new restaurant and re-branded restaurant, a portion of the internal direct costs of its real estate and construction department are also capitalized. |
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 $622 million and $588 million at December 31, 2014 and 2013, 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, whereas 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 70 - 80% reported within three months following closing, an additional 10 - 20% 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 75.7%, of agent premiums earned in 2014, 76.1% of agent premiums earned in 2013 and 76.2% of agent premiums earned in 2012. We also record a provision for claim losses at our average provision rate at the time we record the accrual for the premiums, which was 6.2% for 2014 and 7.0% for 2013 and 2012, and accruals for premium taxes and other expenses relating to our premium accrual. The resulting impact to pretax earnings in any period is approximately 10% of the accrued premium amount. The impact of the change in the accrual for agency premiums and related expenses on our pretax earnings was a decrease of $9 million for the year ended December 31, 2014, $7 million for the year ended 2013 and less than $1 million for the year ended 2012. 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 $74 million at December 31, 2014 and 2013, respectively, which represents agency premiums of approximately $276 million and $364 million at December 31, 2014 and 2013, respectively, and agent commissions of $221 million and $290 million at December 31, 2014 and 2013, respectively. |
Revenues from home warranty insurance policies 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. |
BKFS . Within our BKFS segment, our primary types of revenues and our revenue recognition policies as they pertain to the types of contractual arrangements we enter into with our customers to provide services, software licenses, and software-related services either individually or as part of an integrated offering of multiple services. These arrangements occasionally include offerings from more than one segment to the same customer. We recognize revenues relating to mortgage processing, outsourced business processing services, data and analytics services, along with software licensing and software-related services. In some cases, these services are offered in combination with one another, and in other cases we offer them individually. Revenues from processing services are typically volume-based depending on factors such as the number of accounts processed, transactions processed and computer resources utilized. |
The majority of our revenues are from outsourced data processing and application hosting, data, analytic and valuation related services, and outsourced business processing services. Revenue is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. For hosting arrangements, revenues and costs related to implementation, conversion and programming services are deferred and subsequently recognized using the straight-line method over the term of the related services agreement. We evaluate these deferred contract costs for impairment in the event any indications of impairment exist. |
In the event that our arrangements with our customers include more than one element, we determine whether the individual revenue elements can be recognized separately. In arrangements with multiple deliverables, the delivered items are considered separate units of accounting if (1) they have value on a standalone basis and (2) performance of the undelivered items is considered probable and within our control. Arrangement consideration is then allocated to the separate units of accounting based on relative selling price. If it exists, vendor-specific objective evidence is used to determine relative selling price, otherwise third-party evidence of selling price is used. If neither exists, the best estimate of selling price is used for the deliverable. |
For multiple element software arrangements, we determine the appropriate units of accounting and how the arrangement consideration should be measured and allocated to the separate units. Initial license fees are recognized when a contract exists, the fee is fixed or determinable, software delivery has occurred and collection of the receivable is deemed probable, provided that vendor-specific objective evidence (“VSOE”) has been established for each element or for any undelivered elements. We determine the fair value of each element or the undelivered elements in multi-element software arrangements based on VSOE. VSOE for each element is based on the price charged when the same element is sold separately, or in the case of post-contract customer support, when a stated renewal rate is provided to the customer. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If evidence of fair value does not exist for one or more undelivered elements of a contract, then all revenue is deferred until all elements are delivered or fair value is determined for all remaining undelivered elements. Revenue from post-contract customer support is recognized ratably over the term of the agreement. We record deferred revenue for all billings invoiced prior to revenue recognition. |
Restaurant Group. Restaurant revenue on the Consolidated Statements of Earnings consists of restaurant sales and, to a lesser extent, franchise revenue and other revenue. Restaurant sales include food and beverage sales and are net of applicable state and local sales taxes and discounts. |
Capitalized Software |
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. In our BKFS segment we have significant internally developed software. These costs are amortized using the straight-line method or accelerated over the estimated useful life. Useful lives of computer software range from 3 to 10 years. For software products to be sold, leased, or otherwise marketed (ASC 985-20 software), all costs incurred to establish the technological feasibility are research and development costs, and are expensed as they are incurred. Costs incurred subsequent to establishing technological feasibility, such as programmers' salaries and related payroll costs and costs of independent contractors, are capitalized and amortized on a product by product basis commencing on the date of general release to customers. We do not capitalize any costs once the product is available for general release to customers. 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 also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from computer software. We recorded impairment charges of $5 million in the year ended December 31, 2014, for an abandoned software development project. |
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. |
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Changes in the balance of Other comprehensive earnings by component are as follows: |
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| Unrealized gain (loss) 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 Earnings |
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Balance December 31, 2012 | $ | 116 | | | $ | (26 | ) | | $ | 9 | | | $ | (40 | ) | | $ | 59 | |
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Other comprehensive (losses) earnings | (33 | ) | | (15 | ) | | (2 | ) | | 24 | | | (26 | ) |
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Reclassification adjustments for change in unrealized gains and losses included in net earnings | 4 | | | — | | | — | | | — | | | 4 | |
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Balance December 31, 2013 | 87 | | | (41 | ) | | 7 | | | (16 | ) | | 37 | |
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Other comprehensive (losses) earnings | (1 | ) | | (10 | ) | | (17 | ) | | (12 | ) | | (40 | ) |
Distribution of Remy to FNFV Group Shareholders | — | | | — | | | 3 | | | 2 | | | 5 | |
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Balance December 31, 2014 | $ | 86 | | | $ | (51 | ) | | $ | (7 | ) | | $ | (26 | ) | | $ | 2 | |
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Redeemable Non-controlling Interest |
Subsequent to the acquisition of LPS we issued 35% ownership interests in each of BKFS and 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 either or both of BKFS and ServiceLink to us if no public offering of the corresponding business has been consummated after four years from the date of FNF's purchase of LPS. The units owned by THL ("redeemable noncontrolling interests") may be settled in cash or common stock of FNF or a combination of both at our election. 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 of December 31, 2014, we do not believe the exercise of this put right 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. |
Earnings Per Share |
Basic earnings per share, as presented on the Condensed Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders 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, known as profits interests, 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 years ended December 31, 2014, 2013, and 2012, options to purchase 2 million shares, 1 million shares and 4 million shares, respectively, of our common stock were excluded from the computation of diluted earnings per share. |
As of the close of business on June 30, 2014, we completed the recapitalization of Old FNF common stock into two tracking stocks, FNF Group common stock and FNFV Group common stock. As a result of the recapitalization, the weighted average shares outstanding presented on the Consolidated Statements of Earnings includes shares of Old FNF common stock, FNF Group common stock and FNFV Group common stock. Earnings per share for all periods presented is attributed to the related class of common stock. |
Transactions with Related Parties |
As we no longer have any officers in common with Fidelity National Information Services, Inc. ("FIS"), effective January 1, 2014, we no longer consider FIS a related party. We have described below transactions with FIS through December 31, 2013. |
Agreements with FIS |
A summary of the agreements that were in effect with FIS through December 31, 2013 is as follows: |
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• | Information Technology (“IT”) and data processing services from FIS. This agreement governs IT support services provided to us by FIS, primarily consisting of infrastructure support and data center management. Certain subsidiaries of FIS also provided technology consulting services to FNF during 2013. | | | | | | | | | | | | | | | | | | |
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• | Administrative aviation corporate support and cost-sharing services to FIS. | | | | | | | | | | | | | | | | | | |
A detail of net revenues and expenses between us and FIS that were included in our results of operations for the periods presented is as follows: |
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Corporate services and cost-sharing revenue | $ | 7 | | | $ | 5 | | | | | | | | | | | | | |
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Data processing expense | (34 | ) | | (32 | ) | | | | | | | | | | | | |
Net expense | $ | (27 | ) | | $ | (27 | ) | | | | | | | | | | | | |
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We believe the amounts we earned or were charged under each of the foregoing arrangements are fair and reasonable. The information technology infrastructure support and data center management services provided to us are priced within the range of prices that FIS offers to its unaffiliated third party customers for the same types of services. However, the amounts FNF earned or was charged under these arrangements were not negotiated at arm’s-length, and may not represent the terms that we might have obtained from an unrelated third party. The net amounts due to FIS as a result of these agreements were $3 million as of December 31, 2013. |
Included in equity securities available for sale at December 31, 2013, were 1,303,860 shares of FIS common stock, which were purchased pursuant to an investment agreement between us and FIS dated March 31, 2009. During the fourth quarter of 2013, we sold 300,000 shares for a realized gain of $11 million. The fair value of this investment was $70 million as of December 31, 2013, and is recorded in Equity securities available for sale. |
Also included in fixed maturities available for sale are FIS bonds with a fair value of $42 million as of December 31, 2013. |
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 2013 and 2012 Consolidated Financial Statements to conform to classifications used in 2014. In addition, we have corrected an immaterial prior period error to accrued personnel cost which affected the Balance Sheet, the Statement of Earnings and the Statement of Equity. We reviewed the impact of this error on the prior period financial statements and determined that the error was not material to the financial statements. A summary of the effects of the immaterial correction on our Consolidated Financial Statements for the year ended December 31, 2013 is as follows: Balance Sheet: Income taxes payable decreased by $4 million, Accounts payable and accrued expenses increased by $12 million and Retained earnings decreased by $8 million; Income Statement: Personnel costs increased by $12 million, Income tax expense decreased by $4 million, Pre-tax earnings decreased by $12 million and Net earnings decreased by $8 million impacting Basic earnings per share by $(0.04) and Diluted earnings per share by $(0.03). There was no impact on our other Condensed Consolidated Financial Statements presented. |