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 March 31, 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.
FIDELITY NATIONAL FINANCIAL GROUP
Balance Sheet Information
(In millions, except share data)
|
| | | | | | | |
| | March 31,
2016 | | December 31,
2015 |
| | (Unaudited) |
| ASSETS | | |
| Investments: | |
| | |
| Fixed maturity securities available for sale, at fair value, at March 31, 2016 and December 31, 2015 includes pledged fixed maturity securities of $328 and $342, respectively, related to secured trust deposits | $ | 2,619 |
| | $ | 2,558 |
|
| Preferred stock available for sale, at fair value | 295 |
| | 289 |
|
| Equity securities available for sale, at fair value | 314 |
| | 309 |
|
| Investments in unconsolidated affiliates | 143 |
| | 125 |
|
| Other long-term investments | 79 |
| | 78 |
|
| Short-term investments, at March 31, 2016 and December 31, 2015 includes short term investments of $172 and $266, respectively, related to secured trust deposits | 461 |
| | 790 |
|
| Total investments | 3,911 |
| | 4,149 |
|
| Cash and cash equivalents, at March 31, 2016 and December 31, 2015 includes $355 and $108, respectively, of pledged cash related to secured trust deposits | 1,045 |
| | 749 |
|
| Trade and notes receivables, net of allowance of $25 and $32 at March 31, 2016 and December 31, 2015, respectively | 451 |
| | 453 |
|
| Due from affiliates | 9 |
| | 10 |
|
| Goodwill | 4,579 |
| | 4,572 |
|
| Prepaid expenses and other assets | 561 |
| | 551 |
|
| Capitalized software, net | 536 |
| | 543 |
|
| Other intangible assets, net | 766 |
| | 802 |
|
| Title plant | 395 |
| | 395 |
|
| Property and equipment, net | 280 |
| | 278 |
|
| Total assets | $ | 12,533 |
| | $ | 12,502 |
|
| | | | |
| LIABILITIES AND EQUITY | | |
| Liabilities: | |
| | |
| Accounts payable and other accrued liabilities | $ | 792 |
| | $ | 878 |
|
| Income taxes payable | 47 |
| | 38 |
|
| Deferred revenue | 191 |
| | 191 |
|
| Reserve for title claim losses | 1,595 |
| | 1,583 |
|
| Secured trust deposits | 840 |
| | 701 |
|
| Notes payable | 2,535 |
| | 2,593 |
|
| Deferred tax liability | 681 |
| | 669 |
|
| Total liabilities | 6,681 |
| | 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 March 31, 2016 and December 31, 2015; outstanding of 274,338,136 and 275,781,160 as of March 31, 2016 and December 31, 2015, respectively, and issued of 282,851,946 and 282,394,970 as of March 31, 2016 and December 31, 2015, respectively | — |
| | — |
|
| Additional paid-in capital | 3,651 |
| | 3,639 |
|
| Retained earnings | 1,392 |
| | 1,377 |
|
| Accumulated other comprehensive earnings | 33 |
| | 7 |
|
| Less: treasury stock, 8,513,810 and 6,613,810 shares as of March 31, 2016 and December 31, 2015, respectively | (300 | ) | | (238 | ) |
| Total Fidelity National Financial Group shareholders’ equity | 4,776 |
| | 4,785 |
|
| Noncontrolling interests | 732 |
| | 720 |
|
| Total equity | 5,508 |
| | 5,505 |
|
| Total liabilities, redeemable noncontrolling interest and equity | $ | 12,533 |
| | $ | 12,502 |
|
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
FIDELITY NATIONAL FINANCIAL GROUP
Statements of Earnings Information
(In millions, except per share data)
|
| | | | | | | |
| | Three months ended March 31, |
| |
| | 2016 | | 2015 |
| | (Unaudited) |
| Revenues: | | | |
| Direct title insurance premiums | $ | 422 |
| | $ | 417 |
|
| Agency title insurance premiums | 530 |
| | 441 |
|
| Escrow, title related and other fees | 741 |
| | 695 |
|
| Interest and investment income | 29 |
| | 30 |
|
| Realized gains and losses, net | (3 | ) | | — |
|
| Total revenues | 1,719 |
| | 1,583 |
|
| Expenses: | | | |
| Personnel costs | 614 |
| | 585 |
|
| Agent commissions | 402 |
| | 333 |
|
| Other operating expenses | 405 |
| | 372 |
|
| Depreciation and amortization | 85 |
| | 83 |
|
| Claim loss expense | 52 |
| | 51 |
|
| Interest expense | 31 |
| | 29 |
|
| Total expenses | 1,589 |
| | 1,453 |
|
| Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates | 130 |
| | 130 |
|
| Income tax expense | 50 |
| | 47 |
|
| Earnings from continuing operations before equity in earnings of unconsolidated affiliates | 80 |
| | 83 |
|
| Equity in earnings of unconsolidated affiliates | 3 |
| | 2 |
|
| Net earnings | 83 |
| | 85 |
|
| Less: Net earnings (loss) attributable to non-controlling interests | 10 |
| | (1 | ) |
| Net earnings attributable to FNF Group common shareholders | $ | 73 |
| | $ | 86 |
|
| | | | |
| Earnings Per Share | | | |
| Basic | | | |
| Net earnings per share attributable to FNF Group common shareholders | $ | 0.27 |
| | $ | 0.31 |
|
| Diluted | | | |
| Net earnings per share attributable to FNF Group common shareholders | $ | 0.26 |
| | $ | 0.30 |
|
| | | | |
| Weighted average shares outstanding FNF Group common stock, basic basis | 274 |
| | 278 |
|
| Weighted average shares outstanding FNF Group common stock, diluted basis | 281 |
| | 288 |
|
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
FIDELITY NATIONAL FINANCIAL GROUP
Statement of Cash Flows Information
(In millions)
|
| | | | | | | |
| | Three months ended March 31, |
| |
| | 2016 | | 2015 |
| | (Unaudited) |
| Cash flows from operating activities: | | | |
|
| Net earnings | $ | 83 |
| | $ | 85 |
|
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
| Depreciation and amortization | 85 |
| | 83 |
|
| Equity in earnings of unconsolidated affiliates | (3 | ) | | (2 | ) |
| Impairment of assets | 3 |
| | — |
|
| Stock-based compensation cost | 12 |
| | 11 |
|
| Changes in assets and liabilities, net of effects from acquisitions: | | | |
| Net increase in pledged cash, pledged investments, and secured trust deposits | — |
| | (3 | ) |
| Net decrease (increase) in trade receivables | 2 |
| | (26 | ) |
| Net increase in prepaid expenses and other assets | (5 | ) | | (38 | ) |
| Net decrease in accounts payable, accrued liabilities, deferred revenue and other | (120 | ) | | (105 | ) |
| Net increase (decrease) in reserve for title claim losses | 12 |
| | (9 | ) |
| Net change in amount due to affiliates | 1 |
| | (8 | ) |
| Net change in income taxes | 3 |
| | 46 |
|
| Net cash provided by operating activities | 73 |
| | 34 |
|
| Cash flows from investing activities: | | | |
| Proceeds from sales of investment securities available for sale | 69 |
| | 173 |
|
| Proceeds from calls and maturities of investment securities available for sale | 114 |
| | 75 |
|
| Proceeds from sale of other assets | — |
| | 8 |
|
| Additions to property and equipment and capitalized software | (37 | ) | | (33 | ) |
| Purchases of investment securities available for sale | (214 | ) | | (326 | ) |
| Net proceeds from (purchases of) short-term investment securities | 235 |
| | (3 | ) |
| Purchases of other long-term investments | — |
| | (20 | ) |
| Contributions to investments in unconsolidated affiliates | (28 | ) | | (2 | ) |
| Distributions from investments in unconsolidated affiliates | 21 |
| | — |
|
| Net other investing activities | (1 | ) | | (9 | ) |
| Acquisition of BPG Holdings, LLC, net of cash acquired | — |
| | (43 | ) |
| Other acquisitions/disposals of businesses, net of cash acquired | (4 | ) | | (11 | ) |
| Net cash provided by (used in) investing activities | 155 |
| | (191 | ) |
| Cash flows from financing activities: | | | |
| Debt service payments | (61 | ) | | — |
|
| Additional investment in non-controlling interest | — |
| | (6 | ) |
| Dividends paid | (58 | ) | | (53 | ) |
| Subsidiary dividends paid to non-controlling interest shareholders | (2 | ) | | (1 | ) |
| Exercise of stock options | 5 |
| | 11 |
|
| Payment of contingent consideration for prior period acquisitions | (1 | ) | | — |
|
| Purchases of treasury stock | (62 | ) | | — |
|
| Net cash used in financing activities | (179 | ) | | (49 | ) |
| Net increase (decrease) in cash and cash equivalents, excluding pledged cash related to secured trust deposits | 49 |
| | (206 | ) |
| 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 | $ | 690 |
| | $ | 319 |
|
See Notes to Unaudited Attributed Financial Information for FNF Group Tracking Stock
Notes to Unaudited Attributed Financial Information for Fidelity National Financial Group Tracking Stock
Period Ended March 31, 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 March 16, 2016 we notified SunTrust Bank of our intention to exercise our option to purchase the land and various real property improvements associated with our corporate campus and headquarters in Jacksonville, Florida for $71 million. We completed the purchase on April 29, 2016.
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.
