Old FNF Stock Price High Stock Price Low
2014 2013 2012 2011 2010 (Dollars in millions, except share data)
Operating Data:
Revenue $ 8,024 $ 7,440 $ 6,668 $ 4,800 $ 5,413
Expenses:
Personnel costs 2,540 2,061 1,834 1,568 1,579
Agent commissions 1,471 1,789 1,600 1,411 1,758
Other operating expenses 1,643 1,273 1,269 1,064 1,145
Cost of restaurant revenues 1,220 1,204 773 — —
Depreciation and amortization 403 133 103 73 87
Provision for title claim losses 228 291 279 222 249
Interest expense 127 73 64 57 46
7,632 6,824 5,922 4,395 4,864 Earnings before income taxes, equity in earnings (loss) of
unconsolidated affiliates, and noncontrolling interest 392 616 746 405 549
Income tax expense 312 195 242 131 190
Earnings before equity in earnings (loss) of unconsolidated
affiliates 80 421 504 274 359
Equity in earnings (loss) of unconsolidated affiliates 432 (26) 10 10 (1) Earnings from continuing operations, net of tax 512 395 514 284 358 Earnings from discontinued operations, net of tax 7 16 98 95 18
Net earnings 519 411 612 379 376
Less: net (loss) earnings attributable to noncontrolling interests (64) 17 5 10 6 Net earnings attributable to FNF common shareholders $ 583 $ 394 $ 607 $ 369 $ 370
Year Ended December 31,
2014 2013 2012 2011 2010 (Dollars in millions, except share data)
Per Share Data:
Basic net earnings per share attributable to Old FNF common
shareholders $ 0.33 $ 1.71 $ 2.75 $ 1.68 $ 1.64
Basic net earnings per share attributable to FNF Group common
shareholders $ 0.77
Basic net earnings per share attributable to FNFV Group common
shareholders $ 3.04
Weighted average shares outstanding Old FNF, basic basis (1) 138 230 221 219 226 Weighted average shares outstanding FNF Group, basic basis (1) 138
Weighted average shares outstanding FNFV Group, basic basis
(1) 46
Diluted net earnings per share attributable to Old FNF common
shareholders $ 0.32 $ 1.68 $ 2.69 $ 1.65 $ 1.62
Diluted net earnings per share attributable to FNF Group common
shareholders $ 0.75
Diluted net earnings per share attributable to FNFV Group
common shareholders $ 3.01
Weighted average shares outstanding Old FNF, diluted basis (1) 142 235 226 223 229 Weighted average shares outstanding FNF Group, diluted basis
(1) 142
Weighted average shares outstanding FNFV Group, diluted basis
(1) 47
Dividends declared per share of Old FNF common stock $ 0.36 $ 0.66 $ 0.58 $ 0.48 $ 0.69 Dividends declared per share of FNF Group common stock $ 0.37
Balance Sheet Data:
Investments (2) $ 4,669 $ 3,791 $ 4,053 $ 4,052 $ 4,359
Cash and cash equivalents (3) 700 1,969 1,132 665 581
Total assets 13,868 10,528 9,903 7,862 7,888
Notes payable 2,826 1,323 1,344 916 952
Reserve for title claim losses 1,621 1,636 1,748 1,913 2,270
Redeemable NCI 715 — — — —
Equity 6,073 5,535 4,749 3,655 3,444
Book value per share Old FNF $ — $ 22.14 $ 20.78 $ 16.57 $ 15.39 Book value per share FNF Group (4) $ 18.87
Book value per share FNFV Group (4) $ 16.31 Other Data:
Orders opened by direct title operations (in 000's) 1,914 2,181 2,702 2,140 2,385 Orders closed by direct title operations (in 000's) 1,319 1,708 1,867 1,514 1,574 Provision for title insurance claim losses as a percent of title
insurance premiums 6.2% 7.0% 7.0% 6.8% 6.8%
Title related revenue (5):
Percentage direct operations 70.0% 60.1% 61.9% 60.6% 55.6%
Percentage agency operations 30.0% 39.9% 38.1% 39.4% 44.4%
______________________________________
(1) Weighted average shares outstanding as of December 31, 2014 includes 25,920,078 FNF shares that were issued as part of the acquisition of LPS on January 2, 2014 and 91,711,237 FNFV shares that were issued as part of the recapitalization completed on June 30, 2014. Weighted average shares outstanding as of December 31, 2013 includes 19,837,500 shares that were issued as part of an equity offering by FNF on October 31, 2013.
(2) Long-term investments as of December 31, 2014, 2013, 2012, 2011, and 2010, include securities pledged to secured trust deposits of $499 million, $261 million, $275 million, $274 million, and $252 million, respectively.
(3) Cash and cash equivalents as of December 31, 2014, 2013, 2012, 2011, and 2010 include cash pledged to secured trust deposits of $136 million, $339 million, $266 million, $162 million, and $146 million, respectively.
(4) Book value per share is calculated as equity at December 31 of each year presented divided by actual shares outstanding at December 31 of each year presented.
(5) Includes title insurance premiums and escrow, title-related and other fees. Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data is as follows:
Quarter Ended
March 31, June 30, September 30, December 31, (Dollars in millions, except per share data)
2014
Revenue $ 1,786 $ 2,059 $ 2,093 $ 2,086
Earnings (loss) from continuing operations before income taxes, equity in earnings (loss) of unconsolidated affiliates, and
noncontrolling interest (89) 156 172 153
Net earnings (loss) attributable to Old FNF common shareholders (22) 111
Net earnings attributable to FNF Group common shareholders 114 100 Net earnings (loss) attributable to FNFV Group common
shareholders (12) 292
Basic earnings per share attributable to Old FNF common
shareholders (0.08) 0.41 — —
Basic earnings per share attributable to FNF Group common
shareholders 0.40 0.37
Basic earnings per share attributable to FNFV Group common
shareholders (0.14) 3.18
Diluted earnings per share attributable to Old FNF common
shareholders (0.08) 0.40
Diluted earnings per share attributable to FNF Group common
shareholders 0.40 0.35
Diluted earnings per share attributable to FNFV Group common
shareholders (0.14) 3.15
Dividends paid per share Old FNF common stock 0.18 0.18
Dividends paid per share FNF Group common stock 0.18 0.19
2013
Revenue $ 1,756 $ 1,999 $ 1,908 $ 1,777
Earnings from continuing operations before income taxes, equity in
earnings of unconsolidated affiliates, and noncontrolling interest 138 221 156 101 Net earnings attributable to Fidelity National Financial, Inc.
common shareholders 90 138 94 72
Basic earnings per share attributable to Old FNF common
shareholders 0.40 0.61 0.42 0.31
Diluted earnings per share attributable to Old FNF common
shareholders 0.39 0.60 0.41 0.31
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and Selected Financial Data included elsewhere in this Form 10-K.
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
• 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.
• 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.
• 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
• 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.
• 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.
Recent Developments
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 February 12, 2015, we announced the closing of our purchase of BPG Holdings, LLC ("BPG"), a recognized leader in home warranty, home inspection services and commercial inspections for $46 million.
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. As a result of the Spin-off, the operations of Remy are now presented in discontinued operations for all periods presented. This spin-off is expected to be tax free to FNFV shareholders.
On December 23, 2014, we filed a draft 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 (the "Offering"). After the offering BKFSI is expected to be the holding company of BKFS.
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 valued at approximately $356 million. 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 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 its 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 it 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 K 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.
Effective June 1, 2014, we completed an internal reorganization to contribute our subsidiary Property Insight, a company which provides information used by title insurance underwriters, title agents and closing attorneys to underwrite title insurance policies for real property sales and transfer, from our Title segment to BKFS. As a result of this transfer, our ownership percentage in BKFS increased to 67%. Our results for periods since June 1, 2014, reflect our now 67% ownership interest in BKFS.
On January 13, 2014, Remy announced that it acquired substantially all of the assets of United Starters and Alternators Industries, Inc. ("USA Industries") pursuant to the terms and conditions of the Asset Purchase Agreement, effective as of January 13, 2014. USA Industries is a leading worldwide distributor of premium quality re-manufactured and new alternators, starters, constant velocity axles and disc brake calipers for the light-duty aftermarket. Total consideration paid was $41million.
On January 2, 2014, we completed the purchase of LPS. The purchase consideration paid was $37.14 per share of LPS common stock, of which $28.10 per share was paid in cash and the remaining $9.04 was paid in Old FNF common shares. The purchase consideration represented an exchange ratio of 0.28742 per share of LPS common stock. Total consideration paid for LPS was $3.4 billion, which consisted of $2,535 million in cash and $839 million in Old FNF common stock. In order to pay the stock component of the consideration, we issued 25,920,078 Old FNF shares to the former LPS shareholders. See Note B to our
Discontinued Operations
As a result of the Spin-off discussed above, the results from Remy are reflected in the Consolidated Statements of Earnings as discontinued operations for all periods presented. Total revenues included in discontinued operations were $1,173 million, $1,125 million and $497 million for the years ending 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 ending December 31, 2014, 2013 and 2012, respectively.
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. Total revenues included in discontinued operations were $2 million for the year ending December 31, 2014. Pre-tax earnings included in discontinued operations are $1 million for the year ending December 31, 2014.
The results from two closed J. Alexander's locations 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.
Related Party Transactions
Our financial statements for the years ended December 31, 2013 and 2012 reflect transactions with Fidelity National Information Services ("FIS"), which was considered a related party until December 31, 2013. See Note A of the Notes to Consolidated Financial Statements.
Business Trends and Conditions
FNF Core Operations
Our core revenue is closely related to the level of real estate activity which includes sales, mortgage financing and mortgage refinancing. The levels of real estate activity are primarily affected by the average price of real estate sales, the availability of funds to finance purchases and mortgage interest rates. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.
We have found that residential real estate activity is generally dependent on the following: • mortgage interest rates;
• the mortgage funding supply; and
• the strength of the United States economy, including employment levels.
Since December 2008, the Federal Reserve has held the federal funds rate at 0.0%-0.25%, and has recently indicated that it will be "patient" in determining when to raise rates, although there is no assurance as to how long that will be. Mortgage interest rates were at historically low levels through the beginning of 2013. During the last half of 2013, however, interest rates rose to their highest level since 2011. Through the first nine months of 2014, mortgage interest rates have declined moderately. In early October, however, interest rates dropped below 4%, and have remained in the range of 3.75% and 4.00% through the end of 2014.
As of February 20, 2015, the Mortgage Banker's Association ("MBA") estimated the size of the U.S. mortgage originations market as shown in the following table for 2013 - 2016 in its "Mortgage Finance Forecast" (in trillions):
2016 2015 2014 2013
Purchase transactions $ 0.8 $ 0.7 $ 0.6 $ 0.7
Refinance transactions 0.4 0.5 0.5 1.1
Total U.S. mortgage originations $ 1.2 $ 1.2 $ 1.1 $ 1.8
As shown above, originations in 2013 were driven primarily by refinance transactions, which coincides with the historically low interest rates experienced during those years. In 2014 originations declined by $700 million, or 39%, driven primarily by a
$600 million, or 33% decline in refinance transactions. In 2015 and 2016, the MBA predicts the market will be relatively consistent with 2014, with a slight increase in purchase transactions.
Because commercial real estate transactions tend to be driven more by supply and demand for commercial space and occupancy rates in a particular area rather than by macroeconomic events, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. For the past several years, including 2014, we have experienced an increase in volume and fee per file of commercial transactions from the previous years, indicating strong commercial markets. In 2014, we experienced the highest level of commercial transactions in our Title segment in our company's history.
Several pieces of legislation were enacted to address the struggling mortgage market and the current economic and financial environment. On October 24, 2011, the Federal Housing Finance Agency ("FHFA") announced a series of changes to the Home Affordable Refinance Program ("HARP") that would make it easier for certain borrowers who owe more than their home is worth and who are current on their mortgage payments to refinance their mortgages at lower interest rates. The program reduces or