FNF 9.30.11 10-Q
Table of Contents

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
Commission File Number 1-32630
FIDELITY NATIONAL FINANCIAL, INC.
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware
 
16-1725106
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
601 Riverside Avenue, Jacksonville, Florida
 
32204
(Address of principal executive offices)
 
(Zip Code)
(904) 854-8100
___________________________________________________________________
(Registrant’s telephone number, including area code)
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO R
     As of September 30, 2011, there were 219,174,072 shares of the Registrant’s Common Stock outstanding.
 
 
 
 
 
 
 
 
 
 
FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2011
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i

Table of Contents

Part I: FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
September 30,
2011
 
December 31,
2010
 
(Unaudited)
 
 
ASSETS
Investments:
 
 
 
Fixed maturity securities available for sale, at fair value, at September 30, 2011 and December 31, 2010 includes $273.4 and $251.9, respectively, of pledged fixed maturity securities related to secured trust deposits
$
3,542.8

 
$
3,494.3

Preferred stock available for sale, at fair value
78.6

 
—

Equity securities available for sale, at fair value
99.0

 
75.2

Investments in unconsolidated affiliates
575.1

 
527.7

Other long-term investments
78.2

 
132.7

Short-term investments
50.0

 
128.6

Total investments
4,423.7

 
4,358.5

Cash and cash equivalents, at September 30, 2011 and December 31, 2010 includes $219.0 and $146.2, respectively, of pledged cash related to secured trust deposits
601.3

 
580.8

Trade and notes receivables, net of allowance of $23.6 and $28.8, respectively, at September 30, 2011 and December 31, 2010
265.8

 
270.7

Goodwill
1,471.6

 
1,470.7

Prepaid expenses and other assets
366.1

 
389.1

Capitalized software, net
35.8

 
44.0

Other intangible assets, net
146.1

 
155.2

Title plants
390.7

 
390.8

Property and equipment, net
170.7

 
179.9

Income taxes receivable
5.9

 
15.7

Deferred tax asset
—

 
32.1

Total assets
$
7,877.7

 
$
7,887.5

LIABILITIES AND EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities
$
614.3

 
$
700.3

Accounts payable to related parties
4.8

 
8.3

Deferred revenue
126.6

 
121.4

Notes payable
1,015.1

 
952.0

Reserve for claim losses
2,080.4

 
2,272.7

Secured trust deposits
477.9

 
388.4

Deferred tax liability
44.9

 
—

Total liabilities
4,364.0

 
4,443.1

Equity:
 
 
 
Common stock, Class A, $0.0001 par value; authorized 600,000,000 shares as of September 30, 2011 and December 31, 2010; issued 253,032,789 as of September 30, 2011 and 252,184,269 as of December 31, 2010
—

 
—

Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none
—

 
—

Additional paid-in capital
3,785.2

 
3,745.0

Retained earnings
226.8

 
110.3

Accumulated other comprehensive earnings
6.4

 
12.6

Less: treasury stock, 33,858,717 shares and 28,435,980 shares as of September 30, 2011 and December 31, 2010, respectively, at cost
(527.0
)
 
(440.8
)
Total Fidelity National Financial, Inc. shareholders’ equity
3,491.4

 
3,427.1

Noncontrolling interests
22.3

 
17.3

Total equity
3,513.7

 
3,444.4

Total liabilities and equity
$
7,877.7

 
$
7,887.5

See Notes to Condensed Consolidated Financial Statements

1
Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In millions, except per share data)

Three months ended September 30,
 
Nine months ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
Revenues:
 
 
 
 
 
 
 
Direct title insurance premiums
$
374.0

 
$
357.6

 
$
1,054.1

 
$
983.6

Agency title insurance premiums
426.0

 
545.7

 
1,334.0

 
1,582.3

Escrow, title related and other fees
371.9

 
355.4

 
1,058.2

 
1,024.1

Specialty insurance
36.7

 
41.1

 
116.7

 
114.0

Interest and investment income
37.5

 
33.4

 
112.1

 
107.5

Realized gains and losses, net
(6.1
)
 
40.1

 
15.5

 
192.8

Total revenues
1,240.0

 
1,373.3

 
3,690.6

 
4,004.3

Expenses:
 
 
 
 
 
 
 
Personnel costs
400.6

 
401.7

 
1,181.3

 
1,162.6

Other operating expenses
277.3

 
291.8

 
804.6

 
852.7

Agent commissions
326.3

 
427.5

 
1,033.1

 
1,247.8

Depreciation and amortization
17.6

 
21.3

 
55.7

 
65.0

Provision for claim losses
107.2

 
100.8

 
298.5

 
284.0

Interest expense
14.0

 
12.9

 
42.1

 
32.5

Total expenses
1,143.0

 
1,256.0

 
3,415.3

 
3,644.6

Earnings from continuing operations before income taxes and equity in earnings (loss) of unconsolidated affiliates
97.0

 
117.3

 
275.3

 
359.7

Income tax expense
31.6

 
40.7

 
95.4

 
125.0

Earnings from continuing operations before equity in earnings (loss) of unconsolidated affiliates
65.4

 
76.6

 
179.9

 
234.7

Equity in earnings (loss) of unconsolidated affiliates
3.7

 
0.9

 
7.7

 
(6.2
)
Net earnings from continuing operations
69.1

 
77.5

 
187.6

 
228.5

Net earnings from discontinued operations, net of tax
7.8

 
6.3

 
16.4

 
14.6

Net earnings
76.9

 
83.8

 
204.0

 
243.1

Less: Net earnings attributable to noncontrolling interests
2.6

 
0.6

 
7.2

 
3.8

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
74.3

 
$
83.2

 
$
196.8

 
$
239.3

Earnings per share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Net earnings from continuing operations attributable to Fidelity National Financial, Inc. common shareholders
$
0.30

 
$
0.34

 
$
0.83

 
$
0.99

Net earnings from discontinued operations attributable to Fidelity National Financial, Inc. common shareholders
0.04

 
0.03

 
0.07

 
0.06

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
0.34

 
$
0.37

 
$
0.90

 
$
1.05

Diluted
 
 
 
 
 
 
 
Net earnings from continuing operations attributable to Fidelity National Financial, Inc. common shareholders
$
0.29

 
$
0.33

 
$
0.81

 
$
0.98

Net earnings from discontinued operations attributable to Fidelity National Financial, Inc. common shareholders
0.04

 
0.03

 
0.07

 
0.06

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
0.33

 
$
0.36

 
$
0.88

 
$
1.04

 
 
 
 
 
 
 
 
Weighted average shares outstanding, basic basis
217.7

 
225.9

 
219.7

 
227.0

Weighted average shares outstanding, diluted basis
222.0

 
229.2

 
223.3

 
230.0

Cash dividends paid per share
$
0.12

 
$
0.18

 
$
0.36

 
$
0.51

See Notes to Condensed Consolidated Financial Statements

2
Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
(Unaudited)
 
(Unaudited)
Net earnings
$
76.9

 
$
83.8

 
$
204.0

 
$
243.1

Other comprehensive earnings:
 
 
 
 
 
 
 
Unrealized (loss) gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)
(14.1
)
 
37.2

 
(0.2
)
 
77.3

Unrealized gain (loss) on investments in unconsolidated affiliates (2)
1.0

 
(2.5
)
 
11.1

 
0.9

Unrealized loss on foreign currency translation (3)
(1.8
)
 
(1.5
)
 
(0.8
)
 
(0.8
)
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4)
(1.5
)
 
(16.9
)
 
(16.3
)
 
(53.4
)
Other comprehensive earnings (loss)
(16.4
)
 
16.3

 
(6.2
)
 
24.0

Comprehensive earnings
60.5

 
100.1

 
197.8

 
267.1

Less: Comprehensive earnings attributable to noncontrolling interests
2.6

 
0.6

 
7.2

 
3.8

Comprehensive earnings attributable to Fidelity National Financial, Inc. common shareholders
$
57.9

 
$
99.5

 
$
190.6

 
$
263.3

_______________________________________
 
(1)
Net of income tax (benefit) expense of $(8.3) million and $21.8 million for the three-month periods ended September 30, 2011 and 2010, respectively, and $0.2 million and $45.2 million for the nine-month periods ended September 30, 2011 and 2010, respectively.
(2)
Net of income tax expense (benefit) of $0.6 million and $(1.4) million for the three-month periods ended September 30, 2011 and 2010, respectively, and $6.8 million and $0.6 million for the nine-month periods ended September 30, 2011 and 2010, respectively.
(3)
Net of income tax (benefit) expense of $(1.0) million and $(0.4) million for the three-month periods ended September 30, 2011 and 2010, respectively, and $(0.4) million and less than $0.1 million for the nine-month periods ended September 30, 2011 and 2010, respectively.
(4)
Net of income tax expense of $0.9 million and $9.9 million for the three-month periods ended September 30, 2011 and 2010, respectively, and $10.0 million and $31.2 million for the nine-month periods ended September 30, 2011 and 2010, respectively.
See Notes to Condensed Consolidated Financial Statements



3
Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(In millions)
(Unaudited)
 
Fidelity National Financial, Inc. Common Shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Other
 
 
 
 
 
 
 
Common Stock
 
Paid-in
 
Retained
 
Comprehensive
 
Treasury Stock
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Earnings
 
Shares
 
Amount
 
Interests
 
Total Equity
Balance, December 31, 2010
252.2

 
$
—

 
$
3,745.0

 
$
110.3

 
$
12.6

 
28.5

 
$
(440.8
)
 
$
17.3

 
$
3,444.4

Exercise of stock options
0.8

 
—

 
5.7

 
—

 
—

 
—

 
—

 
—

 
5.7

Treasury stock repurchased
—

 
—

 
—

 
—

 
—

 
5.4

 
(86.2
)
 
—

 
(86.2
)
Issuance of convertible notes, net of deferred taxes of $8.2 and issuance costs of $0.5
—

 
—

 
12.8

 
—

 
—

 
—

 
—

 
—

 
12.8

Tax benefit associated with the exercise of stock options
—

 
—

 
1.6

 
—

 
—

 
—

 
—

 
—

 
1.6

Other comprehensive earnings — unrealized loss on investments and other financial instruments (excluding investments in unconsolidated affiliates)
—

 
—

 
—

 
—

 
(16.5
)
 
—

 
—

 
—

 
(16.5
)
Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates
—

 
—

 
—

 
—

 
11.1

 
—

 
—

 
—

 
11.1

Other comprehensive earnings — unrealized loss on foreign currency translation
—

 
—

 
—

 
—

 
(0.8
)
 
—

 
—

 
—

 
(0.8
)
Stock-based compensation
—

 
—

 
20.1

 
—

 
—

 
—

 
—

 
—

 
20.1

Dividends declared
—

 
—

 
—

 
(80.3
)
 
—

 
—

 
—

 
—

 
(80.3
)
Subsidiary dividends paid to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2.2
)
 
(2.2
)
Net earnings
—

 
—

 
—

 
196.8

 
—

 
—

 
—

 
7.2

 
204.0

Balance, September 30, 2011
253.0

 
$
—

 
$
3,785.2

 
$
226.8

 
$
6.4

 
33.9

 
$
(527.0
)
 
$
22.3

 
$
3,513.7

See Notes to Condensed Consolidated Financial Statements



4
Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
Nine months ended September 30,
 
 
2011
 
2010
 
(Unaudited)
Cash flows from operating activities:
 
 
 
Net earnings
$
204.0

 
$
243.1

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
            Depreciation and amortization
58.3

 
67.8

            Equity in (earnings) losses of unconsolidated affiliates
(7.7
)
 
6.2

Gain on sales of investments and other assets, net
(16.3
)
 
(94.5
)
 Gain on sale of investment in Sedgwick CMS
—

 
(98.4
)
Stock-based compensation cost
20.1

 
17.1

Tax benefit associated with the exercise of stock options
(1.6
)
 
(2.1
)
Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
Net (increase) decrease in pledged cash, pledged investments, and secured trust deposits
(4.7
)
 
3.6

Net decrease (increase) in trade receivables
9.6

 
(16.6
)
Net decrease in prepaid expenses and other assets
10.0

 
11.9

Net decrease in accounts payable, accrued liabilities, deferred revenue and other
(91.5
)
 
(14.8
)
Net decrease in reserve for claim losses
(192.3
)
 
(167.9
)
Net change in income taxes
87.4

 
113.7

Net cash provided by operating activities
75.3

 
69.1

Cash flows from investing activities:
 
 
 
Proceeds from sales of investment securities available for sale
524.1

 
580.8

Proceeds from sale of Sedgwick CMS
32.0

 
193.6

Proceeds from calls and maturities of investment securities available for sale
432.9

 
350.8

Proceeds from sale of other assets
16.9

 
16.6

Cash received (expended) as collateral on loaned securities, net
0.7

 
(8.8
)
Additions to property and equipment
(22.9
)
 
(28.2
)
Additions to capitalized software
(5.8
)
 
(6.3
)
Purchases of investment securities available for sale
(1,069.2
)
 
(1,016.2
)
Net proceeds from short-term investment securities
78.7

 
272.8

Contributions to investments in unconsolidated affiliates
(26.0
)
 
(36.7
)
Distributions from unconsolidated affiliates
1.0

 
8.3

Net other investing activities
(5.8
)
 
(3.7
)
Acquisitions/disposals of businesses, net of cash acquired
(0.3
)
 
(10.4
)
Net cash (used in) provided by investing activities
(43.7
)
 
312.6

Cash flows from financing activities:
 
 
 
Borrowings
500.0

 
400.3

Debt service payments
(415.9
)
 
(460.2
)
Dividends paid
(79.0
)
 
(116.1
)
Subsidiary dividends paid to noncontrolling interest shareholders
(2.2
)
 
(1.9
)
Exercise of stock options
5.7

 
3.9

Debt issuance costs
(7.9
)
 
(2.3
)
Tax benefit associated with the exercise of stock options
1.6

 
2.1

Purchases of treasury stock
(86.2
)
 
(38.1
)
Net cash used in financing activities
(83.9
)
 
(212.3
)
Net (decrease) increase in cash and cash equivalents, excluding pledged cash related to secured trust deposits
(52.3
)
 
169.4

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period
434.6

 
105.3

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period
$
382.3

 
$
274.7

Supplemental cash flow information:
 
 
 
Income taxes paid
$
19.9

 
$
28.6

Interest paid
$
39.9

 
$
29.5

See Notes to Condensed Consolidated Financial Statements

5
Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A — Basis of Financial Statements
     The unaudited financial information in this report includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, “We,” “Us,” “Our,” or “FNF”) prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010.
     Certain reclassifications have been made in the 2010 Condensed Consolidated Financial Statements to conform to classifications used in 2011.
Description of Business
      We are a holding company that through our subsidiaries provides title insurance, mortgage services and diversified services. We are the nation's largest title insurance company through our title insurance underwriters — Fidelity National Title, Chicago Title, Commonwealth Land Title, and Alamo Title — which collectively issued more title insurance policies in 2010 than any other title company in the United States. We own a minority interest in Ceridian Corporation ("Ceridian"), a leading provider of global human resources, payroll, benefits and payment solutions. We also own a minority interest in Remy International, Inc. (“Remy”), a leading designer, manufacturer, remanufacturer, marketer and distributor of aftermarket and original equipment electrical components for automobiles, light trucks, heavy-duty trucks and other vehicles.

Sale of Flood Insurance Business
On July 12, 2011, we entered into a definitive agreement under which we will sell our flood insurance business to WRM America Holdings LLC (“WRM America”) for $135.0 million in cash and dividends, and a $75.0 million seller note. The seller note will have an eight percent annual interest coupon, with interest payable quarterly and principal payable in full eighteen months subsequent to closing. The sales price is subject to typical closing adjustments based on working capital and surplus. The transaction is expected to close in the fourth quarter of 2011 and is subject to regulatory approval and closing conditions. Accordingly, the results of the flood business for all periods presented are reflected in the Condensed Consolidated Statements of Operations as discontinued operations. Total revenues from the flood business included in discontinued operations are $55.0 million and $51.2 million for the three-month periods ending September 30, 2011 and 2010, respectively and $137.1 million and $129.1 million for the nine-month periods ending September 30, 2011 and 2010, respectively. Pre-tax earnings from the flood business included in discontinued operations are $12.7 million and $10.2 million for the three-month periods ending September 30, 2011 and 2010, respectively, and $26.7 million and $23.8 million for the nine-month periods ending September 30, 2011 and 2010, respectively. Included in the Condensed Consolidated Balance Sheet as of September 30, 2011 are $52.8 million in assets and $10.4 million in liabilities relating to the flood insurance business.
Sale of Sedgwick CMS
     On May 28, 2010, we completed the sale of our 32% interest in Sedgwick, our minority-owned affiliate that provides claims management services to large corporate and public sector entities, to a group of private equity funds. See note D on investments for further discussion of the sale.
Transactions with Related Parties
Agreements with Fidelity National Information Services ("FIS")
     A summary of the agreements that were in effect with FIS through September 30, 2011, is as follows:
•
Technology (“IT”) and data processing services from FIS. These agreements govern IT support services provided to us by FIS, primarily consisting of infrastructure support and data center management. Subject to certain early termination provisions (including the payment of minimum monthly service and termination fees), the agreement expires on or about June 30, 2013 with an option to renew for one or two additional years.
•
Administrative corporate support and cost-sharing services to FIS. We have provided certain administrative corporate support services such as corporate aviation and other administrative support services to FIS.
•
Real estate management and lease agreements. Included in our revenues are amounts received related to leases or subleases of certain office space and furnishings to FIS.

6
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


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:
 
Three months ended
September 30, 2011
 
Three months ended
September 30, 2010
 
Nine months ended
September 30, 2011
 
Nine months ended
September 30, 2010
 
(In millions)
Rental revenue
$
—

 
$
0.1

 
$
—

 
$
0.8

Corporate services and cost-sharing revenue
1.1

 
1.0

 
3.5

 
2.4

Data processing expense
(8.2
)
 
(11.7
)
 
(26.7
)
 
(35.7
)
Net expense
$
(7.1
)
 
$
(10.6
)
 
$
(23.2
)
 
$
(32.5
)
     We believe the amounts earned by us or charged to us 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 we earned or were 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 amounts due to FIS as a result of these agreements were $4.8 million as of September 30, 2011 and $8.3 million as of December 31, 2010.
     Included in equity securities available for sale are 1,603,860 shares of FIS stock which were purchased during the fourth quarter of 2009 in connection with a merger between FIS and Metavante Technologies, Inc. The fair value of our investment was $39.0 million and $43.9 million as of September 30, 2011 and December 31, 2010, respectively. Changes in fair value of the FIS stock are recorded as other comprehensive earnings.
Also included in fixed maturities available for sale are FIS bonds with a fair value of $22.7 million and $27.4 million as of September 30, 2011 and December 31, 2010, respectively, as well as an FIS term loan acquired in May 2011 with a fair value of $12.8 million as of September 30, 2011.
Recent Accounting Pronouncement

In September 2011, the Financial Accounting Standards Board ("FASB") updated Accounting Standards Code ("ASC") Topic 350, to allow an entity to utilize 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. This update is effective for interim and annual periods beginning after December 15, 2011, with early adoption permitted. We intend to adopt this update in the fourth quarter of 2011 and do not expect the update to have a material impact on our financial condition or results of operations.

In May 2011, the FASB updated Accounting Standards Code ("ASC") Topic 820, to clarify requirements on fair value measurements and related disclosures. This update is effective for interim and annual periods beginning after December 15, 2011. The additional requirements in this update will be included in the note on fair value measurements upon adoption. We do not expect this update to have a material impact on our financial condition or results of operations.     

Note B — Earnings Per Share
     Basic earnings per share 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 options and shares of restricted stock 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.
  

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The following table presents the computation of basic and diluted earnings per share:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2011
 
2010
 
2011
 
2010
 
(In millions, except per share amounts)
Basic and diluted net earnings from continuing operations attributable to FNF common shareholders
$
66.5

 
$
76.9

 
$
180.4

 
$
224.7

Basic and diluted net earnings from discontinued operations attributable to FNF common shareholders
7.8

 
6.3

 
16.4

 
14.6

Basic and diluted net earnings attributable to FNF common shareholders
$
74.3

 
$
83.2

 
$
196.8

 
$
239.3

 
 
 
 
 
 
 
 
Weighted average shares outstanding during the period, basic basis
217.7

 
225.9

 
219.7

 
227.0

Plus: Common stock equivalent shares assumed from conversion of options
4.3

 
3.3

 
3.6

 
3.0

Weighted average shares outstanding during the period, diluted basis
222.0

 
229.2

 
223.3

 
230.0

 
 
 
 
 
 
 
 
Basic net earnings per share from continuing operations attributable to FNF common shareholders
$
0.30

 
$
0.34

 
$
0.83

 
$
0.99

Basic net earnings per share from discontinued operations attributable to FNF common shareholders
0.04

 
0.03

 
0.07

 
0.06

Basic earnings per share attributable to FNF common shareholders
$
0.34

 
$
0.37

 
$
0.90

 
$
1.05

 
 
 
 
 
 
 
 
Diluted net earnings per share from continuing operations attributable to FNF common shareholders
$
0.29

 
$
0.33

 
$
0.81

 
$
0.98

Diluted net earnings per share from discontinued operations attributable to FNF common shareholders
0.04

 
0.03

 
0.07

 
0.06

Diluted earnings per share attributable to FNF common shareholders
$
0.33

 
$
0.36

 
$
0.88

 
$
1.04

     Options to purchase shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. Antidilutive options totaled 7.4 million shares and 9.2 million shares for the three months ended September 30, 2011 and 2010, respectively, and 8.5 million shares and 12.3 million shares for the nine months ended September 30, 2011 and 2010, respectively.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


Note C — Fair Value Measurements
     The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, respectively:
 
September 30, 2011
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agencies
$
—

 
$
180.8

 
$
—

 
$
180.8

State and political subdivisions
—

 
1,433.3

 
—

 
1,433.3

Corporate debt securities
—

 
1,606.9

 
—

 
1,606.9

Mortgage-backed/asset-backed securities
—

 
231.7

 
—

 
231.7

Foreign government bonds
—

 
90.1

 
—

 
90.1

Preferred stock available for sale
14.1

 
64.5

 
—

 
78.6

Equity securities available for sale
99.0

 
—

 
—

 
99.0

Other long-term investments
—

 
—

 
41.7

 
41.7

Total
$
113.1

 
$
3,607.3

 
$
41.7

 
$
3,762.1

 
December 31, 2010
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agencies
$
—

 
$
313.5

 
$
—

 
$
313.5

State and political subdivisions
—

 
1,374.0

 
—

 
1,374.0

Corporate debt securities
—

 
1,532.7

 
—

 
1,532.7

Mortgage-backed/asset-backed securities
—

 
184.0

 
—

 
184.0

Foreign government bonds and other fixed maturity securities
—

 
80.6

 
9.5

 
90.1

Equity securities available for sale
75.2

 
—

 
—

 
75.2

Other long-term investments
—

 
—

 
90.1

 
90.1

Total
$
75.2

 
$
3,484.8

 
$
99.6

 
$
3,659.6

    Our Level 2 fair value measures are provided by third-party pricing services. We utilize one firm for our municipal bond portfolio and another for our other Level 2 investments. These pricing services are leading global providers of financial market data, analytics and related services to financial institutions. We only rely on one price for each instrument to determine the carrying amount of the assets on our balance sheet. The inputs utilized in these pricing methodologies include observable measures such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. The pricing methodologies used by the relevant third-party pricing services are as follows:

U.S. government and agencies: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers.

State and political subdivisions: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers. Factors considered include relevant trade information, dealer quotes and other relevant market data.

Corporate debt securities: These securities are valued based on dealer quotes and related market trading activity. Factors considered include the bond's yield, its terms and conditions, or any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
 
Mortgage-backed/asset-backed securities: These securities are comprised of commercial mortgage-backed securities, agency

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mortgage-backed securities, collaterized mortgage obligations, and asset-backed securities. They are valued based on available trade information, dealer quotes, cash flows, relevant indices and market data for similar assets in active markets.

Foreign government bonds: These securities are valued based on a discounted cash flow model incorporating observable market inputs such as available broker quotes and yields of comparable securities.

Preferred stock: These securities are valued based on relevant market data for similar assets in active markets adjusted by risks inherent to the security such as credit, refunding, and liquidity. Dividends accrued are also considered in the valuation of certain preferred stocks.
     Our Level 3 investments consist of structured notes that were purchased in the third quarter of 2009. The structured notes had a par value of $37.5 million and fair value of $41.7 million at September 30, 2011 and a par value of $75.0 million and fair value of $90.1 million at December 31, 2010. The structured notes are held for general investment purposes and represent approximately one percent of our total investment portfolio. The structured notes are classified as other long-term investments and are measured in their entirety at fair value with changes in fair value recognized in earnings. The fair value of these instruments represents exit prices obtained from a broker-dealer. These exit prices are the product of a proprietary valuation model utilized by the trading desk of the broker-dealer and contain assumptions relating to volatility, the level of interest rates, and the value of the underlying commodity indexes. We reviewed the pricing methodologies for our Level 3 investments to ensure that they are reasonable and believe they represent an exit price for the securities as of September 30, 2011.
     The following table presents the changes in our investments that are classified as Level 3 for the period ended September 30, 2011 (in millions):
Balance, December 31, 2010
$
99.6

Proceeds received upon call/sales
(53.6
)
Net realized gains
0.2

Net change included in other comprehensive earnings
(4.5
)
Balance, September 30, 2011
$
41.7

     The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature. Additional information regarding the fair value of our investment portfolio is included in note D.
Note D — Investments
The carrying amounts and fair values of our available for sale securities at September 30, 2011 and December 31, 2010 are as follows:
 
September 30, 2011
 
Carrying
 
Cost
 
Unrealized
 
Unrealized
 
Fair
 
Value
 
Basis
 
Gains
 
Losses
 
Value
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
180.8

 
$
168.2

 
$
12.6

 
$
—

 
$
180.8

State and political subdivisions
1,433.3

 
1,370.6

 
62.8

 
(0.1
)
 
1,433.3

Corporate debt securities
1,606.9

 
1,590.8

 
57.7

 
(41.6
)
 
1,606.9

Mortgage-backed/asset-backed securities
231.7

 
221.7

 
10.1

 
(0.1
)
 
231.7

Foreign government bonds
90.1

 
83.5

 
6.6

 
—

 
90.1

Preferred stock available for sale
78.6

 
84.2

 
—

 
(5.6
)
 
78.6

Equity securities available for sale
99.0

 
82.7

 
18.2

 
(1.9
)
 
99.0

Total
$
3,720.4

 
$
3,601.7

 
$
168.0

 
$
(49.3
)
 
$
3,720.4


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


 
December 31, 2010
 
Carrying
 
Cost
 
Unrealized
 
Unrealized
 
Fair
 
Value
 
Basis
 
Gains
 
Losses
 
Value
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
313.5

 
$
303.8

 
$
11.8

 
$
(2.1
)
 
$
313.5

State and political subdivisions
1,374.0

 
1,343.3

 
37.9

 
(7.2
)
 
1,374.0

Corporate debt securities
1,532.7

 
1,469.6

 
69.4

 
(6.3
)
 
1,532.7

Mortgage-backed/asset-backed securities
184.0

 
176.8

 
7.2

 
—

 
184.0

Foreign government bonds and other fixed maturity securities
90.1

 
83.7

 
6.8

 
(0.4
)
 
90.1

Equity securities available for sale
75.2

 
51.1

 
24.4

 
(0.3
)
 
75.2

Total
$
3,569.5

 
$
3,428.3

 
$
157.5

 
$
(16.3
)
 
$
3,569.5

   The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or discount since the date of purchase.
The following table presents certain information regarding contractual maturities of our fixed maturity securities at September 30, 2011:
 
 
September 30, 2011
 
 
Amortized
 
% of
 
Fair
 
% of
Maturity
 
Cost
 
Total
 
Value
 
Total
 
 
(Dollars in millions)
One year or less
 
$
294.2

 
8.6
%
 
$
298.9

 
8.4
%
After one year through five years
 
1,558.8

 
45.4

 
1,605.9

 
45.3

After five years through ten years
 
1,283.3

 
37.3

 
1,326.6

 
37.6

After ten years
 
76.8

 
2.2

 
79.7

 
2.2

Mortgage-backed/asset-backed securities
 
221.7

 
6.5

 
231.7

 
6.5

Total
 
$
3,434.8

 
100.0
%
 
$
3,542.8

 
100.0
%
Subject to call
 
$
1,748.0

 
50.9
%
 
$
1,771.2

 
50.0
%
     Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Included above in amounts subject to call are $1,116.2 million and $1,143.6 million in amortized cost and fair value, respectively, of fixed maturity securities with make-whole call provisions as of September 30, 2011.
     The balance of equity securities includes an investment in FIS stock. The fair value of our investment in the FIS stock was $39.0 million and $43.9 million at September 30, 2011 and December 31, 2010, respectively.
Included in our other long-term investments are various cost-method investments and fixed maturity structured notes purchased in the third quarter of 2009. The structured notes are carried at fair value (see note C) and changes in the fair value of these structured notes are recorded as realized gains and losses in the Condensed Consolidated Statements of Earnings. The carrying value of the structured notes was $41.7 million and $90.1 million as of September 30, 2011 and December 31, 2010, respectively; and we recorded a net loss of $5.7 million and $3.5 million related to the structured notes in the three-month and nine-month periods ended September 30, 2011, respectively, and recorded a net gain of $9.2 million and $4.7 million in the three-month and nine-month periods ended September 30, 2010, respectively.
    




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Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2011 and December 31, 2010, were as follows (in millions):
September 30, 2011
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
State and political subdivisions
$
40.4

 
$
(0.1
)
 
$
—

 
$
—

 
$
40.4

 
$
(0.1
)
Corporate debt securities
383.0

 
(41.6
)
 
—

 
—

 
383.0

 
(41.6
)
Preferred stock available for sale
65.6

 
(5.6
)
 
—

 
—

 
65.6

 
(5.6
)
Equity securities
22.9

 
(1.9
)
 
—

 
—

 
22.9

 
(1.9
)
Mortgage-backed/asset backed securities
17.0

 
(0.1
)
 
—

 
—

 
17.0

 
(0.1
)
Total temporarily impaired securities
$
528.9

 
$
(49.3
)
 
$
—

 
$
—

 
$
528.9

 
$
(49.3
)
December 31, 2010
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
U.S. government and agencies
$
54.3

 
$
(2.0
)
 
$
0.4

 
$
(0.1
)
 
$
54.7

 
$
(2.1
)
State and political subdivisions
255.2

 
(7.2
)
 
—

 
—

 
255.2

 
(7.2
)
Corporate debt securities
251.4

 
(6.3
)
 
—

 
—

 
251.4

 
(6.3
)
Equity securities
—

 
—

 
1.8

 
(0.3
)
 
1.8

 
(0.3
)
Foreign government bonds and other fixed maturity securities
10.8

 
(0.4
)
 
—

 
—

 
10.8

 
(0.4
)
Total temporarily impaired securities
$
571.7

 
$
(15.9
)
 
$
2.2

 
$
(0.4
)
 
$
573.9

 
$
(16.3
)
     During the three-month and nine-month periods ended September 30, 2011, we determined that no investments in our portfolio were considered other-than-temporarily impaired. We expect to recover the entire amortized cost basis of our temporarily impaired fixed maturity securities as we do not intend to sell these securities and we do not believe that we will be required to sell the fixed maturity securities before recovery of the cost basis. As of September 30, 2011 and December 31, 2010, we held no investments for which an impairment had been previously recognized. It is possible that future events may lead us to recognize potential future impairment losses related to our investment portfolio and that unanticipated future events may lead us to dispose of certain investment holdings and recognize the effects of any market movements in our condensed consolidated financial statements.












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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the three-month and nine-month periods ending September 30, 2011 and 2010, respectively:
 
 
Three months ended
September 30, 2011
 
Nine months ended
September 30, 2011
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(Dollars in millions)
 
(Dollars in millions)
Fixed maturity securities available for sale
 
$
1.9

 
$
—

 
$
1.9

 
$
230.2

 
$
24.4

 
$
(0.6
)
 
$
23.8

 
$
919.7

Preferred stock available for sale
 
—

 
—

 
—

 
—

 
0.1

 
(0.1
)
 
—

 
21.0

Equity securities available for sale
 
—

 
—

 
—

 
—

 
1.9

 
—

 
1.9

 
16.3

Other long-term investments
 
 
 
 
 
(5.7
)
 
10.8

 
 
 
 
 
(3.5
)
 
42.8

Other assets
 
 
 
 
 
(2.3
)
 
2.3

 
 
 
 
 
(6.7
)
 
6.1

Total
 
 
 
 
 
$
(6.1
)
 
$
243.3

 
 
 
 
 
$
15.5

 
$
1,005.9

 
 
Three months ended
September 30, 2010
 
Nine months ended
September 30, 2010
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains
 
Gross Proceeds from Sale/Maturity
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains
 
Gross Proceeds from Sale/Maturity
 
 
(Dollars in millions)
 
(Dollars in millions)
Fixed maturity securities available for sale
 
$
5.1

 
$
(0.1
)
 
$
5.0

 
$
205.6

 
$
63.8

 
$
(0.5
)
 
$
63.3

 
$
881.4

Equity securities available for sale
 
22.4

 
—

 
22.4

 
46.8

 
22.9

 
—

 
22.9

 
50.2

Other long-term investments
 
 
 
 
 
9.2

 
—

 
 
 
 
 
103.1

 
193.6

Other assets
 
 
 
 
 
3.5

 
4.1

 
 
 
 
 
3.5

 
16.6

Total
 
 
 
 
 
$
40.1

 
$
256.5

 
 
 
 
 
$
192.8

 
$
1,141.8

Investments in unconsolidated affiliates are recorded using the equity method of accounting. As of September 30, 2011 and December 31, 2010, investments in unconsolidated affiliates consisted of (in millions):
 
Current Ownership
 
September 30, 2011
 
December 31, 2010
Ceridian
33
%
 
$
372.8

 
$
367.2

Remy
47
%
 
150.8

 
108.7

Other
Various

 
51.5

 
51.8

     Total
 
 
$
575.1

 
$
527.7

On January 21, 2011, as part of a Common Stock Rights Offering ("the Offering") to all Remy common shareholders, we purchased an additional 9.9 million shares of Remy common stock in exchange for tendering our 42,359 shares of Remy preferred stock held and cash of $26.0 million. Following the Offering and preferred stock conversion, we own 14.8 million shares of Remy common stock, representing an increase of our ownership interest from 46% to 47%.
In addition to our equity method investment in Remy, we held $29.8 million and $29.9 million in par value of a Remy term loan as of September 30, 2011 and December 31, 2010, respectively. The fair value of the term loan was $28.3 million and $29.7 million as of September 30, 2011 and December 31, 2010, respectively, and is included in our fixed maturity securities available for sale. Also, included in our fixed maturity securities available for sale at December 31, 2010 were $54.8 million of Remy’s bonds. On December 17, 2010, as part of a credit refinancing, Remy called these bonds at 109 percent of par, payable January 14, 2011. We received the proceeds and recognized a gain of $8.5 million during the first quarter of 2011.
On May 28, 2010, we completed the sale of our 32% interest in Sedgwick, our former minority-owned affiliate that provides

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


claims management services to large corporate and public sector entities, to a group of private equity funds, resulting in a pre-tax gain of approximately $98.4 million during the second quarter of 2010. We received approximately $225.6 million in proceeds for our ownership interest, of which $32.0 million was held in an indemnity escrow. We fully recovered the remaining $32.0 million balance in the second quarter of 2011.
We account for our equity in Ceridian and Remy on a three-month and one-month lag, respectively. Accordingly, our net earnings for the three-month and nine-month periods ended September 30, 2011, include our equity in Ceridian’s earnings for the three-month and nine-month periods ended June 30, 2011, and our net earnings for the three-month and nine-month periods ended September 30, 2010, include our equity in Ceridian’s earnings for the three-month and nine-month periods ended June 30, 2010. Our net earnings for the three-month and nine-month periods ended September 30, 2011, include our equity in Remy's earnings for the three-month and nine-month periods ended August 31, 2011, and our net earnings for the three-month and nine-month periods ended September 30, 2010, include our equity in Remy's earnings for the three-month and nine-month periods ended August 31, 2010. During the three-month periods ended September 30, 2011 and 2010, we recorded an aggregate of $2.8 million and $(0.5) million, respectively, in equity in earnings (losses) and $4.2 million and $(11.3) million, respectively, for the nine-month periods ended September 30, 2011 and 2010 of Ceridian and Remy in the 2011 periods and Ceridian, Remy and Sedgwick in the 2010 periods. Equity in earnings of other unconsolidated affiliates was $0.9 million and $1.4 million for the three-month periods ended September 30, 2011 and 2010, respectively, and $3.5 million and $5.1 million for the nine-month periods ended September 30, 2011 and 2010, respectively.
Summarized financial information for Ceridian for the relevant dates and time periods included in our condensed consolidated financial statements, is presented below.
 
June 30, 2011
 
September 30, 2010
 
(In millions)
 
(In millions)
Total current assets
$
1,158.6

 
$
1,080.3

Goodwill and other intangible assets, net
4,674.9

 
4,700.6

Other assets
5,261.5

 
4,859.2

Total assets
$
11,095.0

 
$
10,640.1

Current liabilities
$
904.2

 
$
799.5

Long-term obligations, less current portion
3,461.6

 
3,492.5

Other long-term liabilities
5,587.0

 
5,222.2

Total liabilities
9,952.8

 
9,514.2

Equity
1,142.2

 
1,125.9

Total liabilities and equity
$
11,095.0

 
$
10,640.1


 
Three Months Ended June 30, 2011
 
Three Months Ended June 30, 2010
 
Nine Months Ended June 30, 2011
 
Nine Months Ended June 30, 2010
 
(In millions)
Total revenues
$
370.3

 
$
363.0

 
$
1,141.8

 
$
1,097.3

Loss before income taxes
(26.9
)
 
(36.8
)
 
(45.7
)
 
(107.5
)
Net loss
(21.9
)
 
(24.7
)
 
(32.3
)
 
(87.0
)


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — continued


Note E — Notes Payable
Notes payable consists of the following:
 
September 30, 2011
 
December 31, 2010
 
(In millions)
Unsecured convertible notes, net of discount, interest payable semi-annually at 4.25%, due August 2018
$
278.8

 
$
—

Unsecured notes, net of discount, interest payable semi-annually at 6.60%, due May 2017

299.8

 
299.7

Unsecured notes, net of discount, interest payable semi-annually at 5.25%, due March 2013

236.4

 
236.2

Unsecured notes, net of discount, interest payable semi-annually at 7.30%, due August 2011
—

 
165.5

Revolving credit facility, unsecured, unused portion of $751.2 at September 30, 2011, composed of $5.5 million due October 2011,with interest payable monthly at LIBOR + 0.475% (0.70% at September 30, 2011), and $194.5 million due March 2013 with interest payable monthly at LIBOR + 1.50% (1.73% at September 30, 2011).
200.0

 
250

Other

0.1

 
0.6

 
$
1,015.1

 
$
952.0


At September 30, 2011, the fair value of our long-term debt was $1,029.8 million and the carrying amount was $1,015.1 million. The fair values of our unsecured notes payable are based on established market prices for the securities on September 30, 2011. The fair value of our syndicated credit agreement is estimated using a discounted cash flow analysis based on current market interest rates and comparison of interest rates being paid to our current incremental borrowing rates for similar types of borrowing arrangements.

On August 2, 2011, we completed an offering of $300.0 million in aggregate principal amount of 4.25% convertible senior notes due August 15, 2018 (the "Notes") in an offering conducted in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes contain customary event-of-default provisions which, subject to certain notice and cure-period conditions, can result in the acceleration of the principal amount of, and accrued interest on, all outstanding Notes if we breach the terms of the Notes or the indenture pursuant to which the Notes were issued. The Notes are unsecured and unsubordinated obligations and (i) rank senior in right of payment to any of our existing or future unsecured indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; (iii) are effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) are structurally subordinated to all existing and future indebtedness and liabilities of our subsidiaries. Interest is payable on the principal amount of the Notes, semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2012. The Notes mature on August 15, 2018, unless earlier purchased by us or converted.  The Notes were issued for cash at 100% of their principal amount.  However, for financial reporting purposes, the notes were deemed to have been issued at 92.818% of par value, and as such we recorded a discount of $21.5 million to be amortized to August 2018, when the notes mature. The Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 46.3870 shares per $1,000 principal amount of the Notes (which represents an initial conversion price of approximately $21.56 per share), only in the following circumstances and to the following extent: (1) during any calendar quarter commencing after December 31, 2011, if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price per share of our common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (2) during the five consecutive business day period immediately following any ten consecutive trading day period (the “measurement period”) in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the applicable conversion rate on such trading day; (3) upon the occurrence of specified corporate transactions; or (4) at any time on and after May 15, 2018.  However, in all cases, the Notes will cease to be convertible at the close of business on the second scheduled trading day immediately preceding the maturity date. It is our intent and policy to settle conversions through “net-share settlement”.  Generally, under “net-

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share settlement,” the conversion value is settled in cash, up to the principal amount being converted, and the conversion value in excess of the principal amount is settled in shares of our common stock.
 
We account separately for the liability and equity components of the Notes in accordance with authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated by measuring the fair value of a similar liability that does not have an associated conversion feature. Based on market data available for our publicly traded, senior, unsecured corporate bonds, we estimated the implied interest rate of the Notes to be 5.5%, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the Notes, which resulted in a fair value of the liability component of $278.5 million, calculated as the present value of implied future payments. The $21.5 million difference between the cash proceeds of $300.0 million and the estimated fair value of the liability component was recorded in additional paid-in capital as the Notes are not considered currently redeemable at the balance sheet date. If the Notes were converted as of September 30, 2011, the if-converted value would not exceed the principal amount. As a policy election under applicable guidance related to the calculation of diluted net income per share, we elected the net-share settlement method as our stated settlement policy and applied the treasury stock method in the calculation of the dilutive impact of the Notes, which was anti-dilutive for the three and nine months ended September 30, 2011.

We used $75.0 million of the proceeds from the Notes to purchase 4,609,700 shares of our common stock at $16.27 per share in privately negotiated transactions concurrently with the issuance. We used the remaining net proceeds along with other cash on hand for repayment of $250.0 million outstanding debt on our revolving credit agreement.

In August 2011, we re-borrowed $200.0 million on our revolving credit agreement and subsequently repaid $165.6 million of our outstanding 7.30% notes.

Principal maturities of notes payable at September 30, 2011, are as follows (in millions):
2011
$
5.6

2012
—

2013
430.9

2014
—

2015
—

Thereafter
578.6

 
$
1,015.1


Note F — Commitments and Contingencies

Legal and Regulatory Contingencies

In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. This customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. Additionally, like other insurance companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our insurance operations. We believe that no actions, other than the matter discussed below, depart from customary litigation incidental to our business.
        
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings where it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. None of the amounts we have currently recorded is considered to be individually or in the aggregate material to our financial condition. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending cases is generally not yet determinable. While some of these matters could be material to our operating results for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently

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pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows.

On November 24, 2010, plaintiffs filed a class action in the United States District Court, Northern District of California, Oakland Division titled Vivian Hays, et al. vs. Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation. Plaintiffs seek to represent a class of all persons who deposited their exchange funds with LandAmerica 1031 Exchange Service (“LES”) and were not able to use them in their contemplated exchanges due to the alleged illiquidity of LES caused by the collapse of the auction rate security market in early 2008. Plaintiffs allege Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation (which was merged into Fidelity National Title Insurance Company) knew of the problems at LES and had an obligation of disclosure to exchangers, but did not disclose and instead recommended exchangers use LES in order to fund prior exchangers' transactions with money from new exchangers. Plaintiffs have sued our subsidiaries Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation for negligence, breach of fiduciary duty, constructive fraud and aiding and abetting LES. Plaintiffs ask for compensatory and punitive damages, prejudgment interest and reasonable attorney's fees. We have employed counsel and intend to vigorously defend the action. The case did not include a statement as to the amount of damages demanded, but instead included a demand for damages in an amount to be proved at trial. Due to the early stage of this case, it is not possible to make meaningful estimates, if any, of the amount or range of loss that could result from this case at this time. The case was transferred on our motion to a Multi District Litigation proceeding in South Carolina and a status conference was held on April 22, 2011.  This case was stayed until a decision was made on motions pending in a similar class action against an unrelated party. The Court in that case ruled on June 15, 2011 on the motion to dismiss the complaint filed by the unrelated party and dismissed the complaint. The plaintiffs in the case against Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation filed an amended complaint on August 15, 2011. The Complaint added approximately 20 new plaintiffs and two new defendants; Commonwealth Land Title Co. and LandAmerica Charter Title Company, both of which are affiliates of FNF. We filed a motion to dismiss the action on September 30, 2011.

Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. We receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies from time to time about various matters relating to our business. Sometimes these take the form of civil investigative subpoenas or market conduct examinations. We attempt to cooperate with all such inquiries. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which require us to pay money or take other actions.

Operating Leases
On June 29, 2004 we entered into an off-balance sheet financing arrangement (commonly referred to as a “synthetic lease”). The owner/lessor in this arrangement acquired land and various real property improvements associated with new construction of an office building in Jacksonville, Florida, at our corporate campus and headquarters. The lessor financed the acquisition of the facilities through funding provided by third-party financial institutions. On June 27, 2011, we renewed and amended the synthetic lease for the facilities. The amended lease provides for a five year term ending June 27, 2016 and had an outstanding balance as of September 30, 2011 of $71.3 million. The amended lease includes guarantees by us of up to 83.0% of the outstanding lease balance, and options to purchase the facilities at the outstanding lease balance. The guarantee becomes effective if we decline to purchase the facilities at the end of the lease and also decline to renew the lease. The lessor is a third-party company and we have no affiliation or relationship with the lessor or any of its employees, directors or affiliates, and transactions with the lessor are limited to the operating lease agreements and the associated rent expense that have been included in other operating expenses in the Condensed Consolidated Statements of Earnings. We do not believe the lessor is a variable interest entity, as defined in the FASB standard on consolidation of variable interest entities.
Note G — Dividends
     On October 19, 2011, our Board of Directors declared cash dividends of $0.12 per share, payable on December 30, 2011, to shareholders of record as of December 16, 2011.







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Note H — Segment Information
     Summarized financial information concerning our reportable segments is shown in the following tables. Subsequent to the announcement of the sale of the flood business in July 2011, we reorganized our reporting segments in the third quarter of 2011 to reflect the disposition of this business and the realignment of the remaining specialty businesses. Prior period segment information has been restated to conform to the current segment presentation.
     As of and for the three months ended September 30, 2011:
 
Fidelity National
 
Corporate
 
 
 
Title Group
 
and Other
 
Total
 
(In millions)
Title premiums
$
800.0

 
$
—

 
$
800.0

Other revenues
358.1

 
50.5

 
408.6

Revenues from external customers
1,158.1

 
50.5

 
1,208.6

Interest and investment income, including net realized gains and losses
28.7

 
2.7

 
31.4

Total revenues
1,186.8

 
53.2

 
1,240.0

Depreciation and amortization
16.9

 
0.7

 
17.6

Interest expense
—

 
14.0

 
14.0

Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
138.1

 
(41.1
)
 
97.0

Income tax expense (benefit)
45.7

 
(14.1
)
 
31.6

Earnings (loss) from continuing operations before equity in earnings of unconsolidated affiliates
92.4

 
(27.0
)
 
65.4

Equity in earnings of unconsolidated affiliates
0.6

 
3.1

 
3.7

Earnings (loss) from continuing operations
$
93.0

 
$
(23.9
)
 
$
69.1

Assets
$
6,562.0

 
$
1,315.7

 
$
7,877.7

Goodwill
1,430.9

 
40.7

 
1,471.6

As of and for the three months ended September 30, 2010:
 
Fidelity National
 
Corporate
 
 
 
Title Group
 
and Other
 
Total
 
(In millions)
Title premiums
$
903.3

 
$
—

 
$
903.3

Other revenues
344.8

 
51.7

 
396.5

Revenues from external customers
1,248.1

 
51.7

 
1,299.8

Interest and investment income, including realized gains and losses
70.8

 
2.7

 
73.5

Total revenues
1,318.9

 
54.4

 
1,373.3

Depreciation and amortization
21.3

 
—

 
21.3

Interest expense
—

 
12.9

 
12.9

Earnings (loss) from continuing operations before income taxes and equity in earnings (loss) of unconsolidated affiliates
139.5

 
(22.2
)
 
117.3

Income tax expense (benefit)
48.4

 
(7.7
)
 
40.7

Earnings (loss) from continuing operations before equity in earnings (loss) of unconsolidated affiliates
91.1

 
(14.5
)
 
76.6

Equity in earnings (loss) of unconsolidated affiliates
1.0

 
(0.1
)
 
0.9

Earnings (loss) from continuing operations
$
92.1

 
$
(14.6
)
 
$
77.5

Assets
$
6,401.0

 
$
1,478.0

 
$
7,879.0

Goodwill
1,432.1

 
41.4

 
1,473.5


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As of and for the nine months ended September 30, 2011:
 
Fidelity National
 
Corporate
 
 
 
Title Group
 
and Other
 
Total
 
(In millions)
Title premiums
$
2,388.1

 
$
—

 
$
2,388.1

Other revenues
1,022.6

 
152.3