e10vk
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
(Mark One)
|
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
|
|
|
For the Fiscal Year Ended
December 31, 2007
|
|
|
|
|
or
|
|
|
|
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
|
|
|
|
Commission File
No. 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 No.)
|
601 Riverside Avenue
Jacksonville, Florida 32204
(Address of principal
executive offices,
including zip code)
|
|
(904) 854-8100
(Registrants telephone
number,
including area code)
|
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of each class
|
|
Name of each exchange on which registered
|
|
Common Stock, $0.0001 par value
|
|
New York Stock Exchange
|
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K,
or any amendment to this
Form 10-K. 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
(Do not check if a smaller reporting company)
|
|
Smaller Reporting
company o
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
The aggregate market value of the shares of the Common Stock
held by non-affiliates of the registrant as of June 30,
2007 was $4,717,663,824.
As of January 31, 2008, there were 213,158,340 shares
of Common Stock outstanding.
The information in Part III hereof is incorporated herein
by reference to the registrants Proxy Statement on
Schedule 14A for the fiscal year ended December 31,
2007, to be filed within 120 days after the close of the
fiscal year that is the subject of this Report.
TABLE OF
CONTENTS
FORM 10-K
i
PART I
We are a holding company that is a provider, through our
subsidiaries, of title insurance, specialty insurance, claims
management services, and information services. We are one of the
nations largest title insurance companies through our
title insurance underwriters Fidelity National
Title, Chicago Title, Ticor Title, Security Union Title, and
Alamo Title which issued approximately 27.7% of all
title insurance policies issued nationally during 2006. We also
provide flood insurance, personal lines insurance, and home
warranty insurance through our specialty insurance subsidiaries.
We are also a leading provider of outsourced claims management
services to large corporate and public sector entities through
our minority-owned affiliate, Sedgwick CMS Holdings
(Sedgwick) and a provider of information services in
the human resources, retail, and transportation markets through
another minority-owned affiliate, Ceridian Corporation
(Ceridian).
Prior to October 17, 2005, we were known as Fidelity
National Title Group, Inc. (FNT) and were a
wholly-owned subsidiary of another publicly traded company, also
called Fidelity National Financial, Inc. (Old FNF).
On October 17, 2005, Old FNF distributed to its
shareholders a minority interest in FNT, making it a
majority-owned, publicly traded company. On October 24,
2006, Old FNF transferred certain assets to us in return for the
issuance of 45,265,956 shares of our common stock to Old
FNF. Old FNF then distributed to its shareholders all of its
shares of our common stock, making FNT a stand alone public
company (the 2006 Distribution). On November 9,
2006, Old FNF was then merged with and into another of its
subsidiaries, Fidelity National Information Services, Inc.
(FIS), after which our name was changed to Fidelity
National Financial, Inc. (we, FNF or the
Company). On November 10, 2006, our common
stock began trading on the New York Stock Exchange under the
trading symbol FNF. Old FNFs chairman of the
board and chief executive officer is now our chairman of the
board and the executive chairman of the board of FIS. Other key
members of Old FNFs senior management have also continued
their involvement at both FNF and FIS in executive capacities.
Under applicable accounting principles, following these
transactions, Old FNFs historical financial statements,
with the exception of equity and earnings per share, became our
historical financial statements, including the results of FIS
through the date of our spin-off from Old FNF. For periods prior
to October 24, 2006 our equity has been derived from
FNTs historical equity and our historical basic and
diluted earnings per share have been calculated using FNTs
basic and diluted weighted average shares outstanding.
FNF currently has three reporting segments as follows:
|
|
|
|
|
Fidelity National Title Group. This
segment consists of the operation of FNFs title insurance
underwriters and related businesses. This segment provides core
title insurance and escrow and other title-related services
including collection and trust activities, trustees sales
guarantees, recordings and reconveyances.
|
|
|
|
Specialty Insurance. The specialty insurance
segment consists of certain subsidiaries that issue flood, home
warranty, homeowners, automobile and other personal lines
insurance policies.
|
|
|
|
Corporate and Other. The corporate and other
segment consists of the operations of the parent holding
company, certain other unallocated corporate overhead expenses,
the operations of Fidelity National Real Estate Solutions, Inc.
(FNRES), other smaller operations, and the
Companys share in the operations of certain equity
investments, including Sedgwick, Ceridian, and Remy
International, Inc. (Remy).
|
Through October 23, 2006, the Companys results also
included the operations of FIS as a separate segment. This
segment provided transaction processing services, consisting
principally of technology solutions for banks and other
financial institutions, credit and debit card services and check
risk management and related services for retailers and others.
This segment also provided lender processing services,
consisting principally of technology solutions for mortgage
lenders, selected mortgage origination services, title agency
and closing services, default management and mortgage
information services. FISs credit and debit card services
and check risk management services were added through its merger
with Certegy Inc. (Certegy). This merger closed in
February 2006 and these businesses are not included in the
financial information in this report for periods prior to
February 1, 2006.
Strategy
Fidelity
National Title Group
Our strategy in the title insurance business is to maximize
operating profits by increasing our market share and managing
operating expenses throughout the real estate business cycle. To
accomplish our goals, we intend to:
|
|
|
|
|
Continue to operate each of our five title brands
independently. We believe that in order to
maintain and strengthen our title insurance customer base, we
must leave the Fidelity National Title, Chicago Title, Ticor
Title, Security Union Title and Alamo Title brands intact and
operate these brands independently. In most of our largest
markets, we operate two, and in a few cases three, brands. This
approach allows us to continue to attract customers who identify
with one brand over another and allows us to utilize a broader
base of local agents and local operations than we would have
with a single consolidated brand.
|
|
|
|
Consistently deliver superior customer
service. We believe customer service and
consistent product delivery are the most important factors in
attracting and retaining customers. Our ability to provide
superior customer service and provide consistent product
delivery requires continued focus on providing high quality
service and products at competitive prices. Our goal is to
continue to improve the experience of our customers in all
aspects of our business.
|
|
|
|
Manage our operations successfully through business
cycles. We operate in a cyclical business and our
ability to diversify our revenue base within our core title
insurance business and manage the duration of our investments
may allow us to better operate in this cyclical business.
Maintaining a broad geographic revenue base, utilizing both
direct and independent agency operations and pursuing both
residential and commercial title insurance business help
diversify our title insurance revenues. Maintaining shorter
durations on our investment portfolio allows us to mitigate our
interest rate risk and, in a rising interest rate environment,
to increase our investment revenue, which may offset some of the
decline in premiums and service revenues we would expect in such
an environment. For a more detailed discussion of our investment
strategies, see Investment Policies and
Investment Portfolio.
|
|
|
|
Continue to improve our products and
technology. As a national provider of real estate
transaction products and services, we participate in an industry
that is subject to significant change, frequent new product and
service introductions and evolving industry standards. We
believe that our future success will depend in part on our
ability to anticipate industry changes and offer products and
services that meet evolving industry standards. In connection
with our service offerings, we are continuing to deploy new
information system technologies to our direct and agency
operations. We expect to improve the process of ordering title
and escrow services and improve the delivery of our products to
our customers.
|
|
|
|
Maintain values supporting our strategy. We
believe that our continued focus on and support of our
long-established corporate culture will reinforce and support
our business strategy. Our goal is to foster and support a
corporate culture where our agents and employees seek to operate
independently and profitably at the local level while forming
close customer relationships by meeting customer needs and
improving customer service. Utilizing a relatively flat
managerial structure and providing our employees with a sense of
individual ownership supports this goal.
|
|
|
|
Effectively manage costs based on economic
factors. We believe that our focus on our
operating margins is essential to our continued success in the
title insurance business. Regardless of the business cycle in
which we may be operating, we seek to continue to evaluate and
manage our cost structure and make appropriate adjustments where
economic conditions dictate. This continual focus on our cost
structure helps us to better maintain our operating margins.
|
Specialty
Insurance
Our strategy in the specialty insurance business is to provide
an efficient and effective delivery mechanism for property
insurance policies placed directly and through independent
agents. We are positioned to be a low expense provider, while
continuing to strictly adhere to pricing and underwriting
disciplines to maintain our underwriting profitability.
2
|
|
|
|
|
We offer coverage under the U.S. National Flood Insurance
Program (NFIP) through two of our property and
casualty companies. Fidelity National Property and Casualty
Insurance Company provides flood insurance in all
50 states. Fidelity National Insurance Company provides
flood insurance in 34 states and is seeking to expand into
additional states. We are the largest provider of NFIP flood
insurance in the U.S. through our independent agent network.
|
|
|
|
We provide an efficient methodology for obtaining insurance on
newly acquired homes, whether new construction or upon resale.
We have an easy to use fully integrated website, which our
agents use as a completely paperless and fully automated quoting
and policy delivery system. This system is in use for all of our
property products, including flood insurance.
|
|
|
|
Our underwriting practice is conservative. Catastrophe exposure
is closely managed on a real time basis. We also buy reinsurance
to assist in maintaining our profitability and growing our
surplus.
|
Possible
Acquisitions, Dispositions, Minority Owned Operating
Subsidiaries and Financings
With assistance from our advisors, on an ongoing basis we
actively evaluate possible strategic transactions, such as
acquisitions and dispositions of business units and operating
assets and business combination transactions, as well as
possible alternative means of financing the growth and
operations of our business units or raising funds for other
purposes. In the current economic environment, we may seek to
sell certain investments or other assets to increase our
liquidity. Further, our management has stated that we may make
acquisitions in lines of business that are not directly tied to
or synergistic with our core operating segments. There can be no
assurance, however, that any suitable opportunities will arise
or that any particular transaction will be completed.
Acquisitions
Strategic acquisitions have been an important part of our growth
strategy. We made a number of acquisitions over the past three
years to strengthen and expand our service offerings and
customer base in our various businesses, to expand into other
businesses or where we otherwise saw value.
Acquisition of Equity Interest in Ceridian. On
November 9, 2007, we and Thomas H. Lee Partners, L.P.
(THL), along with certain co-investors, completed
the acquisition of Ceridian for $36 in cash per share of common
stock, or approximately $5.3 billion. We contributed
approximately $527 million of the total $1.6 billion
equity funding for the acquisition of Ceridian, resulting in a
33% ownership interest by us, which we will account for using
the equity method of accounting for financial statement
purposes. Ceridian is an information services company servicing
the human resources, transportation, and retail industries.
Specifically, Ceridian offers a range of human resources
outsourcing solutions and is a payment processor and issuer of
credit, debit, and stored-value cards.
Property Insight, LLC. On August 31,
2007, we completed the acquisition of Property Insight, LLC
(Property Insight), a former FIS subsidiary, from
FIS for $95 million in cash. Property Insight is a leading
provider of title plant services for us, as well as various
national and regional underwriters. Property Insight primarily
manages, maintains, and updates the title plants that are owned
by us. Additionally, Property Insight manages potential title
plant construction activities for us.
ATM Holdings, Inc. On August 13, 2007, we
completed the acquisition of ATM Holdings, Inc.
(ATM), a provider of nationwide mortgage vendor
management services to the loan origination industry, for
$100 million in cash. ATMs primary subsidiary is a
licensed title insurance agency which provides centralized
valuation and appraisal services, as well as title and closing
services, to residential mortgage originators, banks and
institutional mortgage lenders throughout the United States.
Equity Interest in Remy. The Company held an
investment in Remys Senior Subordinated Notes (the
Notes) with a total fair value of
$139.9 million until December 6, 2007, at which time
Remy implemented a pre-packaged plan of bankruptcy under
Chapter 11 of the Bankruptcy Code. Pursuant to the plan of
bankruptcy, the Notes were converted into 4,935,065 shares
of Remy common stock and rights to buy 19,909 shares of
Remy Series B preferred stock. Upon execution of the plan
of bankruptcy, the Company purchased all 19,909 shares of
the preferred stock for $1,000 per share, or a total of
$19.9 million, and then sold 1,000 of those shares to
William P. Foley, II, the Companys
3
chairman of the board, for $1,000 per share, or a total of
$1.0 million. The Company now holds a 47% ownership
interest in Remy, made up of 4,935,065 shares of Remy
common stock with a cost basis of $64.3 million and
18,909 shares of purchased Remy Series B preferred
stock with a cost basis of $19.5 million. We will account
for our investment in Remy using the equity method. As a result
of the exchange of the Notes for the shares of common and
preferred stock, the Company reversed the unrealized gain of
$75.0 million that had previously been recorded in
accumulated other comprehensive earnings in relation to the
Notes. Remy, headquartered in Anderson, Indiana, is a leading
manufacturer, remanufacturer and distributor of Delco Remy brand
heavy-duty systems and Remy brand starters and alternators,
locomotive products and hybrid power technology.
Cascade Timberlands LLC. During 2006, we
purchased equity interests in Cascade Timberlands LLC
(Cascade Timberlands) totaling 71% of Cascade
Timberlands. As of December 31, 2007, we owned
approximately 70% of the outstanding interests of Cascade
Timberlands which was purchased for $88.5 million. The
primary assets of Cascade Timberlands are approximately
293,000 acres of productive timberlands located on the
eastern side of the Cascade mountain range extending from Bend,
Oregon south on State Highway 20 toward the California border.
Cascade Timberlands was created by the secured creditors of
Crown Pacific LP upon the conclusion of the bankruptcy case of
Crown Pacific LP in December 2004.
Acquisition of Equity Interest in Sedgwick. On
January 31, 2006, we, along with our equity partners, THL
and Evercore Capital Partners, completed the acquisition of
Sedgwick, which resulted in FNF obtaining a 40% interest in
Sedgwick for approximately $126 million. In September 2006,
we invested an additional $6.8 million in Sedgwick,
maintaining our 40% ownership interest. Sedgwick, headquartered
in Memphis, Tennessee, is a leading provider of outsourced
insurance claims management services to large corporate and
public sector entities.
Service Link L.P. On August 1, 2005, we
acquired Service Link, L.P. (Service Link), a
national provider of centralized mortgage and residential real
estate title and closing services to major financial
institutions and institutional lenders. The initial acquisition
price was approximately $110 million in cash. During 2006,
we paid additional contingent consideration of
$57.0 million related to this purchase, based on Service
Links operations meeting certain performance measures over
a 12-month
period ending July 2006.
In addition to the acquisitions mentioned above, through
October 23, 2006, our financial statements also include the
results of the acquisitions made by FIS. For a description of
these acquisitions, see note B of Notes to Consolidated
Financial Statements.
Title Insurance
Market for title insurance. While we have seen
declines during 2007 in the title insurance market in the United
States, the market remains large and grew significantly from
1995 until 2005. Demotech Inc. (Demotech), an
independent firm providing services to the insurance industry,
publishes an annual compilation of financial information from
the title insurance industry called Demotech Performance of
Title Insurance Companies. According to this
publication, total operating income for the entire
U.S. title insurance industry grew from $4.8 billion
in 1995 to $17.8 billion in 2005 and decreased slightly to
$17.6 billion in 2006. Growth in the industry is closely
tied to various macroeconomic factors, including, but not
limited to, growth in the gross domestic product, inflation,
interest rates and sales of and prices for new and existing
homes, as well as the volume of refinancing of previously issued
mortgages.
Most real estate transactions consummated in the
U.S. require the use of title insurance by a lending
institution before the transaction can be completed. Generally,
revenues from title insurance policies are directly correlated
with the value of the property underlying the title policy, and
appreciation in the overall value of the real estate market
helps drive growth in total industry revenues. Industry revenues
are also driven by changes in interest rates, which affect
demand for new mortgage loans and refinancing transactions. Both
the volume and the average price of residential real estate
transactions have recently experienced declines in many parts of
the country, and these trends appear likely to continue.
Further, interest rates have risen from record low levels in
2003, resulting in reductions in the level of mortgage
refinancings and total mortgage originations through the end of
2007. Also, lending standards have tightened in the last twelve
months, making it harder for some potential home buyers to
obtain a mortgage.
4
The U.S. title insurance industry is concentrated among a
handful of industry participants. According to Demotech the top
five title insurance companies accounted for 92.6% of net
premiums collected in 2006. Over 40 independent title insurance
companies accounted for the remaining 7.4% of net premiums
collected in 2006. Over the years, the title insurance industry
has been consolidating, beginning with the merger of Lawyers
Title Insurance and Commonwealth Land Title Insurance
in 1998 to create LandAmerica Financial Group, Inc., followed by
our acquisition of Chicago Title in March 2000. Consolidation
has created opportunities for increased financial and operating
efficiencies for the industrys largest participants and
should continue to drive profitability and market share in the
industry.
Title Insurance Policies. Generally, real
estate buyers and mortgage lenders purchase title insurance to
insure good and marketable title to real estate and priority of
lien. A brief generalized description of the process of issuing
a title insurance policy is as follows:
|
|
|
|
|
The customer, typically a real estate salesperson or broker,
escrow agent, attorney or lender, places an order for a title
policy.
|
|
|
|
Company personnel note the specifics of the title policy order
and place a request with the title company or its agents for a
preliminary report or commitment.
|
|
|
|
After the relevant historical data on the property is compiled,
the title officer prepares a preliminary report that documents
the current status of title to the property, any exclusions,
exceptions
and/or
limitations that the title company might include in the policy,
and specific issues that need to be addressed and resolved by
the parties to the transaction before the title policy will be
issued.
|
|
|
|
The preliminary report is circulated to all the parties for
satisfaction of any specific issues.
|
|
|
|
After the specific issues identified in the preliminary report
are satisfied, an escrow agent closes the transaction in
accordance with the instructions of the parties and the title
companys conditions.
|
|
|
|
Once the transaction is closed and all monies have been
released, the title company issues a title insurance policy.
|
In a real estate transaction financed with a mortgage, virtually
all real property mortgage lenders require their borrowers to
obtain a title insurance policy at the time a mortgage loan is
made. This lenders policy insures the lender against any
defect affecting the priority of the mortgage in an amount equal
to the outstanding balance of the related mortgage loan. An
owners policy is typically also issued, insuring the buyer
against defects in title in an amount equal to the purchase
price. In a refinancing transaction, only a lenders policy
is generally purchased because ownership of the property has not
changed. In the case of an all-cash real estate purchase, no
lenders policy is issued but typically an owners
title policy is issued.
Title insurance premiums paid in connection with a title
insurance policy are based on (and typically a percentage of)
either the amount of the mortgage loan or the purchase price of
the property insured. Applicable state insurance regulations or
regulatory practices may limit the maximum, or in some cases the
minimum, premium that can be charged on a policy. Title
insurance premiums are due in full at the closing of the real
estate transaction. The lenders policy generally
terminates upon the refinancing or resale of the property.
The amount of the insured risk or face amount of
insurance under a title insurance policy is generally equal to
either the amount of the loan secured by the property or the
purchase price of the property. The title insurer is also
responsible for the cost of defending the insured title against
covered claims. The insurers actual exposure at any given
time, however, generally is less than the total face amount of
policies outstanding because the coverage of a lenders
policy is reduced and eventually terminated as a result of
payment of the mortgage loan. A title insurer also generally
does not know when a property has been sold or refinanced except
when it issues the replacement coverage. Because of these
factors, the total liability of a title underwriter on
outstanding policies cannot be precisely determined.
Title insurance companies typically issue title insurance
policies directly through branch offices or through title
agencies which are subsidiaries of the title insurance company,
or indirectly through independent third party agencies
unaffiliated with the title insurance company. Where the policy
is issued through a branch or wholly-
5
owned subsidiary agency operation, the title insurance company
typically performs or directs the search, and the premiums
collected are retained by the title company. Where the policy is
issued through an independent agent, the agent generally
performs the search (in some areas searches are performed by
approved attorneys), examines the title, collects the premium
and retains a majority of the premium. The remainder of the
premium is remitted to the title insurance company as
compensation, part of which is for bearing the risk of loss in
the event a claim is made under the policy. The percentage of
the premium retained by an agent varies from region to region
and is sometimes regulated by the states. The title insurance
company is obligated to pay title claims in accordance with the
terms of its policies, regardless of whether the title insurance
company issues policies through its direct operations or through
independent agents.
Prior to issuing policies, title insurers and their agents
attempt to reduce the risk of future claim losses by accurately
performing searches and examinations. A title insurance
companys predominant expense relates to such searches and
examinations, the preparation of preliminary title reports,
policies or commitments and the maintenance of title
plants, which are indexed compilations of public
records, maps and other relevant historical documents. Claim
losses generally result from errors made in the title search and
examination process and from hidden defects such as fraud,
forgery, incapacity, or missing heirs of the property.
Residential real estate business results from the construction,
sale, resale and refinancing of residential properties, while
commercial real estate business results from similar activities
with respect to properties with a business or commercial use.
Commercial real estate title insurance policies insure title to
commercial real property, and generally involve higher coverage
amounts and yield higher premiums. Residential real estate
transaction volume is primarily affected by macroeconomic and
seasonal factors while commercial real estate transaction volume
is affected primarily by fluctuations in local supply and demand
conditions for commercial space.
Direct and Agency Operations. We provide title
insurance services through our direct operations and through
independent title insurance agents who issue title policies on
behalf of our title insurance companies. Our title insurance
companies determine the terms and conditions upon which they
will insure title to the real property according to their
underwriting standards, policies and procedures.
Direct Operations. In our direct operations,
the title insurer issues the title insurance policy and retains
the entire premium paid in connection with the transaction. Our
direct operations provide the following benefits:
|
|
|
|
|
higher margins because we retain the entire premium from each
transaction instead of paying a commission to an independent
agent;
|
|
|
|
continuity of service levels to a broad range of
customers; and
|
|
|
|
additional sources of income through escrow and closing services.
|
We have approximately 1,100 offices throughout the
U.S. primarily providing residential real estate title
insurance. During 2007, as title insurance activity has
decreased, we have closed and consolidated a number of our
offices. Our commercial real estate title insurance business is
operated almost exclusively through our direct operations. We
maintain direct operations for our commercial title insurance
business in all the major real estate markets including New
York, Los Angeles, Chicago, Atlanta, Dallas, Philadelphia,
Phoenix, Seattle and Houston.
Agency Operations. In our agency operations,
the search and examination function is performed by an
independent agent or the agent may purchase the search and
examination from us. In either case, the agent is responsible to
ensure that the search and examination is completed. The agent
thus retains the majority of the title premium collected, with
the balance remitted to the title underwriter for bearing the
risk of loss in the event that a claim is made under the title
insurance policy. Independent agents may select among several
title underwriters based upon their relationship with the
underwriter, the amount of the premium split offered
by the underwriter, the overall terms and conditions of the
agency agreement and the scope of services offered to the agent.
Premium splits vary by geographic region, and in some states are
fixed by insurance regulatory requirements. Our relationship
with each agent is governed by an agency agreement defining how
the agent issues a title insurance policy on our behalf. The
agency agreement also sets forth the agents liability to
us for policy losses attributable to the agents errors. An
agency agreement is usually terminable without cause upon
30 days notice or immediately for cause. In
determining whether to engage or retain an independent agent, we
consider the agents experience, financial
6
condition and loss history. For each agent with whom we enter
into an agency agreement we maintain financial and loss
experience records. We also conduct periodic audits of our
agents. During 2007, we reduced the number of agents with which
we transact business by over 1,000 in an effort to reduce future
expenses and manage risks.
Fees and Premiums. One method of analyzing our
business is to examine the level of premiums generated by direct
and agency operations. The following table presents the
percentages of our title insurance premiums generated by direct
and agency operations (including, for periods prior to our
spin-off from Old FNF, premiums earned by us and by FIS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Direct
|
|
$
|
1,601,768
|
|
|
|
42.1
|
%
|
|
$
|
1,957,064
|
|
|
|
42.5
|
%
|
|
$
|
2,261,499
|
|
|
|
45.7
|
%
|
Agency
|
|
|
2,198,690
|
|
|
|
57.9
|
|
|
|
2,649,136
|
|
|
|
57.5
|
|
|
|
2,683,545
|
|
|
|
54.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total title insurance premiums
|
|
$
|
3,800,458
|
|
|
|
100.0
|
%
|
|
$
|
4,606,200
|
|
|
|
100.0
|
%
|
|
$
|
4,945,044
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The premium for title insurance is due in full when the real
estate transaction is closed. We recognize title insurance
premium revenues from direct operations upon the closing of the
transaction, whereas premium revenues from agency operations
include an accrual based on estimates of the volume of
transactions that have closed in a particular period for which
premiums have not yet been reported to us. The accrual for
agency premiums is necessary because of the lag between the
closing of these transactions and the reporting of these
policies to us by the agent, and is based on estimates utilizing
historical information.
Geographic Operations. Our direct operations
are divided into approximately 220 profit centers consisting of
approximately 1,100 direct offices. Each profit center processes
title insurance transactions within its geographical area, which
is usually identified by a county, a group of counties forming a
region, or a state, depending on the management structure in
that part of the country. We also transact title insurance
business through a network of approximately 6,300 agents,
primarily in those areas in which agents are the more prevalent
title insurance provider.
The following table sets forth the approximate dollar and
percentage volumes of our title insurance premium revenue by
state.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
California
|
|
$
|
625,993
|
|
|
|
16.5
|
%
|
|
$
|
810,961
|
|
|
|
17.6
|
%
|
|
$
|
1,035,076
|
|
|
|
20.9
|
%
|
Texas
|
|
|
479,973
|
|
|
|
12.6
|
|
|
|
514,228
|
|
|
|
11.2
|
|
|
|
476,432
|
|
|
|
9.6
|
|
Florida
|
|
|
412,313
|
|
|
|
10.8
|
|
|
|
635,066
|
|
|
|
13.8
|
|
|
|
698,802
|
|
|
|
14.1
|
|
New York
|
|
|
305,142
|
|
|
|
8.0
|
|
|
|
360,779
|
|
|
|
7.8
|
|
|
|
401,356
|
|
|
|
8.1
|
|
Illinois
|
|
|
161,936
|
|
|
|
4.3
|
|
|
|
199,936
|
|
|
|
4.3
|
|
|
|
64,943
|
|
|
|
1.3
|
|
All others
|
|
|
1,815,101
|
|
|
|
47.8
|
|
|
|
2,085,230
|
|
|
|
45.3
|
|
|
|
2,268,435
|
|
|
|
46.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,800,458
|
|
|
|
100.0
|
%
|
|
$
|
4,606,200
|
|
|
|
100.0
|
%
|
|
$
|
4,945,044
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrow, Title-Related and Other Fees. In
addition to fees for underwriting title insurance policies, we
derive a significant amount of our revenues from escrow,
title-related and other services, including closing services.
The escrow and other services provided by us include all of
those typically required in connection with residential and
commercial real estate purchase and refinance activities.
Escrow, title-related and other fees represented approximately
20.5%, 11.8%, and 12.5% of our revenues in 2007, 2006, and 2005,
respectively. Escrow and title-related fees are primarily
generated by our direct title operations, and increases or
decreases in the amount of revenue we receive from these
services are closely related to increases or decreases in
revenues from our direct title operations.
7
Reinsurance and Coinsurance. In a limited
number of situations we limit our maximum loss exposure by
reinsuring certain risks with other title insurers under agent
fidelity, excess of loss and
case-by-case
reinsurance agreements. We also earn a small amount of
additional income, which is reflected in our direct premiums, by
assuming reinsurance for certain risks of other title insurers.
Reinsurance agreements provide generally that the reinsurer is
liable for loss and loss adjustment expense payments exceeding
the amount retained by the ceding company. However, the ceding
company remains primarily liable in the event the reinsurer does
not meet its contractual obligations.
We also use coinsurance in our commercial title business to
provide coverage in amounts greater than we would be willing or
able to provide individually. In coinsurance transactions, each
individual underwriting company issues a separate policy and
assumes a portion of the overall total risk. As a coinsurer we
are only liable for the portion of the risk we assume.
Specialty
Insurance
We issue various insurance policies and contracts, which include
the following:
|
|
|
|
|
Flood insurance. We issue new and renewal
flood insurance policies in conjunction with the NFIP. The NFIP
bears all insurance risk related to these policies.
|
|
|
|
Home warranty. We issue one-year, renewable
contracts that protect homeowners against defects in household
systems and appliances.
|
|
|
|
Personal lines insurance. We offer and
underwrite homeowners insurance in 47 states. Automobile
insurance is currently underwritten in 27 states. We will
expand into several additional states where favorable
underwriting potential exists in 2008. In addition, we
underwrite personal umbrella, inland marine (boat and
recreational watercraft), and other personal lines niche
products in selected markets.
|
Sales and
Marketing
Our sales and marketing efforts are primarily organized around
our lines of business.
Fidelity
National Title Group
We market and distribute our title and escrow products and
services to customers in the residential and commercial market
sectors of the real estate industry through customer
solicitation by sales personnel. Although in many instances the
individual homeowner is the beneficiary of a title insurance
policy, we do not focus our marketing efforts on the homeowner.
We actively encourage our sales personnel to develop new
business relationships with persons in the real estate
community, such as real estate sales agents and brokers,
financial institutions, independent escrow companies and title
agents, real estate developers, mortgage brokers and attorneys
who order title insurance policies for their clients. While our
smaller, local clients remain important, large customers, such
as national residential mortgage lenders, real estate investment
trusts and developers have become an increasingly important part
of our business. The buying criteria of locally based clients
differ from those of large, geographically diverse customers in
that the former tend to emphasize personal relationships and
ease of transaction execution, while the latter generally place
more emphasis on consistent product delivery across diverse
geographical regions and ability of service providers to meet
their information systems requirements for electronic product
delivery.
Specialty
Insurance
Specialty insurance is marketed through three distinct channels.
We market our program through our in-house agency via direct
mail to customers of our affiliated operations. This direct
channel constituted approximately 15%, 17%, and 20% of our
premium writings in 2007, 2006 and 2005, respectively. The
second distribution channel is through independent agents and
brokers nationwide. Approximately 79%, 75%, and 68% of our
non-flood premium and the vast majority of our flood business
was placed through this channel in 2007, 2006, and 2005,
respectively. We currently have in excess of 17,000 independent
agencies nationwide actively producing business on our behalf.
The third distribution channel is through captive independent
agents in California. This channel, comprised of
8
22 captive independent agents at the end of 2007, accounted
for 6%, 8% and 12% of the non-flood premium volume in 2007, 2006
and 2005, respectively.
Patents,
Trademarks and Other Intellectual Property
We rely on a combination of contractual restrictions, internal
security practices, and copyright and trade secret law to
establish and protect our software, technology, and expertise.
Further, we have developed a number of brands that have
accumulated substantial goodwill in the marketplace, and we rely
on trademark law to protect our rights in that area. We intend
to continue our policy of taking all measures we deem necessary
to protect our copyright, trade secret, and trademark rights.
These legal protections and arrangements afford only limited
protection of our proprietary rights, and there is no assurance
that our competitors will not independently develop or license
products, services, or capabilities that are substantially
equivalent or superior to ours. In general, we believe that we
own most proprietary rights necessary for the conduct of our
business, although we do license certain items, none of which is
material, under arms-length agreements for varying terms.
Technology
and Research and Development
As a national provider of real estate transaction products and
services, we participate in an industry that is subject to
significant change, frequent new product and service
introductions and evolving industry standards. We believe that
our future success will depend in part on our ability to
anticipate industry changes and offer products and services that
meet evolving industry standards. In connection with our service
offerings, we are continuing to deploy new information system
technologies to our direct and agency operations. We expect to
improve the process of ordering title and escrow services and
improve the delivery of our products to our customers.
Competition
Fidelity
National Title Group
The title insurance industry is highly competitive, with the top
five insurance companies accounting for 92.6% of net premiums
collected in 2006 according to Demotech. The number and size of
competing companies varies in the different geographic areas in
which we conduct our business. In our principal markets,
competitors include other major title underwriters such as The
First American Corporation, LandAmerica Financial Group, Inc.,
Old Republic International Corporation and Stewart Information
Services Corporation, as well as numerous smaller title
insurance companies, underwritten title companies and
independent agency operations at the regional and local level.
These smaller companies may expand into other markets in which
we compete. Recently, several of these smaller competitors have
closed their operations as a result of the significant decrease
in activity in the residential real estate market. Also, the
removal of regulatory barriers might result in new competitors
entering the title insurance business, and those new competitors
may include diversified financial services companies that have
greater financial resources than we do and possess other
competitive advantages. Competition among the major title
insurance companies, expansion by smaller regional companies and
any new entrants with alternative products could affect our
business operations and financial condition.
Competition in the title insurance industry is based primarily
on expertise, service and price. In addition, the financial
strength of the insurer has become an increasingly important
factor in decisions relating to the purchase of title insurance,
particularly in multi-state transactions and in situations
involving real estate-related investment vehicles such as real
estate investment trusts and real estate mortgage investment
conduits.
The title insurance industry has also experienced periods of
consolidation. We expect that, from time to time, we may
evaluate opportunities for the acquisition of books of business
or of title insurance companies or other complementary
businesses as a going concern, for business combinations with
other concerns and for the provision of insurance related
advisory services to third parties. There can be no assurance,
however, that any suitable business opportunity will arise.
Specialty
Insurance
In our specialty insurance segment, we compete with the
national, regional and local insurance carriers. Depending on
geographic location, various personal lines carriers, such as
State Farm, Allstate, Farmers, Travelers,
9
Hartford, Nationwide and numerous other companies compete for
this personal lines business. In addition to price, service and
convenience are competitive factors. We strive to compete
primarily through providing an efficient and streamlined product
delivery platform.
Regulation
Our insurance subsidiaries, including title insurers, property
and casualty insurers, underwritten title companies and
insurance agencies, are subject to extensive regulation under
applicable state laws. Each of the insurers is subject to a
holding company act in its state of domicile, which regulates,
among other matters, the ability to pay dividends and enter into
transactions with affiliates. The laws of most states in which
we transact business establish supervisory agencies with broad
administrative powers relating to issuing and revoking licenses
to transact business, regulating trade practices, licensing
agents, approving policy forms, accounting practices, financial
practices, establishing reserve and capital and surplus as
regards policyholders (capital and surplus)
requirements, defining suitable investments for reserves and
capital and surplus and approving rate schedules.
Since we are governed by both state and federal governments and
the applicable insurance laws and regulations are constantly
subject to change, it is not possible to predict the potential
effects on our insurance operations, particularly our Fidelity
National Title Group segment, of any laws or regulations
that may become more restrictive in the future or if new
restrictive laws will be enacted. See Item 3 Legal
Proceedings for a description of certain recent regulatory
developments in California.
Pursuant to statutory accounting requirements of the various
states in which our title insurers are domiciled, these insurers
must defer a portion of premiums earned as an unearned premium
reserve for the protection of policyholders and must maintain
qualified assets in an amount equal to the statutory
requirements. The level of unearned premium reserve required to
be maintained at any time is determined by statutory formula
based upon either the age, number of policies, and dollar amount
of policy liabilities underwritten, or the age and dollar amount
of statutory premiums written. As of December 31, 2007, the
combined statutory unearned premium reserve required and
reported for our title insurers was $1,483.1 million. In
addition to statutory unearned premium reserves, each of our
insurers maintains surplus funds for policyholder protection and
business operations.
Each of our insurance subsidiaries is regulated by the insurance
regulatory authority in its respective state of domicile, as
well as that of each state in which it is licensed. The
insurance commissioners of their respective states of domicile
are the primary regulators of our insurance subsidiaries. Each
of the insurers is subject to periodic regulatory financial
examination by regulatory authorities, and certain of these
examinations are currently ongoing.
Under the statutes governing insurance holding companies in most
states, insurers may not enter into certain transactions,
including sales, reinsurance agreements and service or
management contracts, with their affiliates unless the
regulatory authority of the insurers state of domicile has
received notice at least 30 days prior to the intended
effective date of such transaction and has not objected to, or
has approved, the transaction within the 30 day period.
As a holding company with no significant business operations of
our own, we depend on dividends or other distributions from our
subsidiaries as the principal source of cash to meet our
obligations, including the payment of interest on and repayment
of principal of any debt obligations, and to pay any dividends
to our stockholders. The payment of dividends or other
distributions to us by our insurers is regulated by the
insurance laws and regulations of their respective states of
domicile. In general, an insurance company subsidiary may not
pay an extraordinary dividend or distribution unless
the applicable insurance regulator has received notice of the
intended payment at least 30 days prior to payment and has
not objected to or has approved the payment within the
30-day
period. In general, an extraordinary dividend or
distribution is statutorily defined as a dividend or
distribution that, together with other dividends and
distributions made within the preceding 12 months, exceeds
the greater of:
|
|
|
|
|
10% of the insurers statutory surplus as of the
immediately prior year end; or
|
|
|
|
the statutory net income of the insurer during the prior
calendar year.
|
The laws and regulations of some jurisdictions also prohibit an
insurer from declaring or paying a dividend except out of its
earned surplus or require the insurer to obtain prior regulatory
approval. During 2008, our directly owned title insurers can pay
dividends or make distributions to us of approximately
$251.1 million without prior
10
regulatory approval; however, insurance regulators have the
authority to prohibit the payment of ordinary dividends or other
payments by our title insurers to us (such as a payment under a
tax sharing agreement or for employee or other services) if they
determine that such payment could be adverse to our
policyholders.
The combined statutory capital and surplus of our title insurers
was $652.6 million and $860.3 million as of
December 31, 2007 and 2006, respectively. The combined
statutory earnings of our title insurers were
$204.8 million, $413.8 million and
$400.4 million, for the years ended December 31, 2007,
2006 and 2005, respectively.
As a condition to continued authority to underwrite policies in
the states in which our insurers conduct their business, they
are required to pay certain fees and file information regarding
their officers, directors and financial condition.
Pursuant to statutory requirements of the various states in
which our insurers are domiciled, they must maintain certain
levels of minimum capital and surplus. Each of our insurers has
complied with the minimum statutory requirements as of
December 31, 2007.
Our underwritten title companies are also subject to certain
regulation by insurance regulatory or banking authorities,
primarily relating to minimum net worth. Minimum net worth of
$7.5 million, $2.5 million, $3.0 million and
$0.4 million is required for Fidelity National
Title Company, Fidelity National Title Company of
California, Chicago Title Company and Ticor
Title Company of California, respectively. All of our
companies were in compliance with their respective minimum net
worth requirements at December 31, 2007.
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. 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.
For a discussion of certain pending matters, see Item 3,
Legal Proceedings.
Before a person can acquire control of a U.S. insurance
company, prior written approval must be obtained from the
insurance commissioner of the state in which the insurer is
domiciled. Prior to granting approval of an application to
acquire control of a domestic insurer, the state insurance
commissioner will consider such factors as the financial
strength of the applicant, the integrity and management of the
applicants board of directors and executive officers, the
acquirers plans for the insurers board of directors
and executive officers, the acquirers plans for the future
operations of the domestic insurer and any anti-competitive
results that may arise from the consummation of the acquisition
of control. Generally, state statutes provide that control over
a domestic insurer is presumed to exist if any person, directly
or indirectly, owns, controls, holds with the power to vote, or
holds proxies representing 10% or more of the voting securities
of the domestic insurer. (In the state of Florida, where one of
our title insurers is commercially domiciled, control may be
presumed to exist upon acquisition of 5% or more of the
insurers voting securities.) Because a person acquiring
10% or more of our common shares would indirectly control the
same percentage of the stock of our insurers, the insurance
change of control laws would likely apply to such a transaction
(and any acquisition of 5% or more would require filing a
disclaimer of control with, or obtaining a change of control
approval from, the State of Florida).
The National Association of Insurance Commissioners
(NAIC) has adopted an instruction requiring an
annual certification of reserve adequacy by a qualified actuary.
Because all of the states in which our title insurers are
domiciled require adherence to NAIC filing procedures, each such
insurer, unless it qualifies for an exemption, must file an
actuarial opinion with respect to the adequacy of its reserves.
Ratings
Our title insurance underwriters are regularly assigned ratings
by independent agencies designed to indicate their financial
condition
and/or
claims paying ability. The rating agencies determine ratings by
quantitatively and qualitatively analyzing financial data and
other information. Our title subsidiaries include Fidelity
National Title,
11
Chicago Title, Ticor Title, Security Union Title, and Alamo
Title. The insurer financial strength/stability ratings of our
principal title insurance underwriters are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S&P
|
|
Moodys
|
|
Fitch
|
|
A.M. Best
|
|
Demotech
|
|
LACE
|
|
Alamo Title Insurance
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
A
|
Chicago Title Insurance Co.
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
A
|
Chicago Title Insurance Co. of Oregon
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
A
|
Fidelity National Title Insurance Co.
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
B
|
Ticor Title Insurance Co.
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
A
|
Security Union Title Insurance Co.
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
B
|
Ticor Title Insurance Co. of Florida
|
|
A
|
|
A3
|
|
A
|
|
A
|
|
A
|
|
B
|
The ratings of Standard & Poors
(S&P), Moodys Investors Service
(Moodys), A.M. Best Company
(A.M. Best), Fitch Ratings, Ltd.
(Fitch), Demotech, and LACE Financial Corporation
(LACE) described above are not designed to be, and
do not serve as, measures of protection or valuation offered to
investors. These financial strength ratings should not be relied
on with respect to making an investment in our securities.
Investment
Policies and Investment Portfolio
Our investment policy is designed to maximize total return
through investment income and capital appreciation consistent
with moderate risk of principal, while providing adequate
liquidity and complying with internal and regulatory guidelines.
We also make investments in certain equity securities in order
to take advantage of perceived value and for strategic purposes.
Various states regulate what types of assets qualify for
purposes of capital and surplus and statutory unearned premium
reserves. We manage our investment portfolio and do not utilize
third party investment managers. Due to the magnitude of our
investment portfolio in relation to our claims loss reserves, we
do not specifically match durations of our investments to the
cash outflows required to pay claims, but do manage outflows on
a shorter time frame. Maintaining shorter durations on our
investment portfolio allows us to mitigate our interest rate
risk and, in a rising interest rate environment, to increase our
investment revenue, which may offset some of the decline in
premiums and service revenues we would expect in such an
environment.
As of December 31, 2007 and 2006, the carrying amount,
which approximates the fair value, of total investments
excluding investments in unconsolidated affiliates was
$3.4 billion and $4.0 billion, respectively.
We purchase investment grade fixed maturity securities, selected
non-investment grade fixed maturity securities and equity
securities. The securities in our portfolio are subject to
economic conditions and normal market risks and uncertainties.
The following table presents certain information regarding the
investment ratings of our fixed maturity portfolio at
December 31, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Amortized
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
Amortized
|
|
|
% of
|
|
|
|
|
|
% of
|
|
Rating(1)
|
|
Cost
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
Cost
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
AAA
|
|
$
|
1,681,547
|
|
|
|
60.0
|
%
|
|
$
|
1,706,834
|
|
|
|
60.4
|
%
|
|
$
|
1,866,289
|
|
|
|
63.8
|
%
|
|
$
|
1,851,185
|
|
|
|
63.8
|
%
|
AA
|
|
|
597,608
|
|
|
|
21.3
|
|
|
|
602,881
|
|
|
|
21.4
|
|
|
|
550,073
|
|
|
|
18.8
|
|
|
|
544,622
|
|
|
|
18.8
|
|
A
|
|
|
399,995
|
|
|
|
14.3
|
|
|
|
399,074
|
|
|
|
14.1
|
|
|
|
380,555
|
|
|
|
13.0
|
|
|
|
374,106
|
|
|
|
12.9
|
|
BBB
|
|
|
100,784
|
|
|
|
3.6
|
|
|
|
97,340
|
|
|
|
3.5
|
|
|
|
91,326
|
|
|
|
3.1
|
|
|
|
88,999
|
|
|
|
3.0
|
|
BB
|
|
|
3,913
|
|
|
|
0.1
|
|
|
|
3,827
|
|
|
|
0.1
|
|
|
|
8,918
|
|
|
|
0.3
|
|
|
|
7,749
|
|
|
|
0.3
|
|
Other
|
|
|
19,785
|
|
|
|
0.7
|
|
|
|
14,616
|
|
|
|
0.5
|
|
|
|
29,952
|
|
|
|
1.0
|
|
|
|
35,303
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,803,632
|
|
|
|
100.0
|
%
|
|
$
|
2,824,572
|
|
|
|
100.0
|
%
|
|
$
|
2,927,113
|
|
|
|
100.0
|
%
|
|
$
|
2,901,964
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratings as assigned by Standard & Poors Ratings
Group. |
12
The following table presents certain information regarding
contractual maturities of our fixed maturity securities at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Amortized
|
|
|
% of
|
|
|
|
|
|
% of
|
|
Maturity
|
|
Cost
|
|
|
Total
|
|
|
Fair Value
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
One year or less
|
|
$
|
303,942
|
|
|
|
10.8
|
%
|
|
$
|
303,286
|
|
|
|
10.8
|
%
|
After one year through five years
|
|
|
1,252,860
|
|
|
|
44.7
|
|
|
|
1,262,886
|
|
|
|
44.7
|
|
After five years through ten years
|
|
|
886,720
|
|
|
|
31.6
|
|
|
|
895,935
|
|
|
|
31.7
|
|
After ten years
|
|
|
360,096
|
|
|
|
12.9
|
|
|
|
362,450
|
|
|
|
12.8
|
|
Mortgage-backed securities
|
|
|
14
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,803,632
|
|
|
|
100.0
|
%
|
|
$
|
2,824,572
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Fixed
maturity securities with an amortized cost of
$433.6 million and a fair value of $437.9 million were
callable at December 31, 2007.
Our equity securities at December 31, 2007 and 2006
consisted of investments in various industry groups at a cost
basis of $96.1 million and $216.6 million,
respectively, and fair value of $93.3 million and
$207.3 million, respectively. There were no significant
investments in banks, trust and insurance companies at
December 31, 2007 or 2006.
At December 31, 2007 and 2006, we held $738.4 million
and $154.0 million, respectively, in investments that are
accounted for using the equity method (see note C of Notes
to Consolidated Financial Statements).
Short-term investments, which consist primarily of securities
purchased under agreements to resell, commercial paper and money
market instruments which have an original maturity of one year
or less, are carried at amortized cost, which approximates fair
value. As of December 31, 2007 and 2006, short-term
investments amounted to $427.4 and $848.4 million,
respectively.
Our investment results for the years ended December 31,
2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Net investment income(1)
|
|
$
|
219,771
|
|
|
$
|
244,185
|
|
|
$
|
177,167
|
|
Average invested assets
|
|
$
|
4,414,951
|
|
|
$
|
5,088,863
|
|
|
$
|
4,711,418
|
|
Effective return on average invested assets
|
|
|
5.0
|
%
|
|
|
4.8
|
%
|
|
|
3.8
|
%
|
|
|
|
(1) |
|
Net investment income as reported in our Consolidated Statements
of Earnings has been adjusted in the presentation above to
provide the tax equivalent yield on tax exempt investments. |
Employees
As of January 31, 2008, we had approximately
15,500 full-time equivalent employees. During 2006 and
2007, we sought to reduce our head count as activity in our
title segment declined. At our Fidelity National
Title Group segment, we have reduced our employees by about
3,100 during 2007 and 1,700 during 2006. We believe that our
relations with employees are generally good. None of our
employees are subject to collective bargaining agreements.
Statement
Regarding Forward-Looking Information
The statements contained in this
Form 10-K
or in our other documents or in oral presentations or other
statements made by our management that are not purely historical
are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934,
including statements regarding our expectations, hopes,
intentions, or strategies regarding the future. These
13
statements relate to, among other things, future financial and
operating results of Fidelity. In many cases, you can identify
forward-looking statements by terminology such as
may, will, should,
expect, plan, anticipate,
believe, estimate, predict,
potential, or continue, or the negative
of these terms and other comparable terminology. Actual results
could differ materially from those anticipated in these
statements as a result of a number of factors, including, but
not limited to:
|
|
|
|
|
changes in general economic, business, and political conditions,
including changes in the financial markets;
|
|
|
|
adverse changes in the level of real estate activity, which may
be caused by, among other things, high or increasing interest
rates, a limited supply of mortgage funding, or a weak
U.S. economy;
|
|
|
|
compliance with extensive government regulation of our operating
subsidiaries, and adverse changes in applicable laws or
regulations or the application of them by regulators;
|
|
|
|
regulatory investigations of the title insurance industry;
|
|
|
|
our business concentration in the State of California, the
source of approximately 17% of our title insurance premiums;
|
|
|
|
our potential inability to find suitable acquisition candidates,
as well as the risks associated with acquisitions in lines of
business that will not necessarily be limited to our traditional
areas of focus or difficulties in integrating acquisitions;
|
|
|
|
our dependence on distributions from our title insurance
underwriters as our main source of cash flow;
|
|
|
|
competition from other title insurance companies; and
|
|
|
|
other risks detailed elsewhere in this document and in our other
filings with the SEC.
|
We are not under any obligation (and expressly disclaim any such
obligation) to update or alter our forward-looking statements,
whether as a result of new information, future events or
otherwise. You should carefully consider the possibility that
actual results may differ materially from our forward-looking
statements.
Additional
Information
Our website address is www.fnf.com. We make available free of
charge on or through our website our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, as soon as reasonably practicable after such
material is electronically filed with or furnished to the
Securities and Exchange Commission. However, the information
found on our website is not part of this or any other report.
In addition to the normal risks of business, we are subject to
significant risks and uncertainties, including those listed
below and others described elsewhere in this Annual Report on
Form 10-K.
Any of the risks described herein could result in a significant
or material adverse effect on our results of operations or
financial condition.
General
If
adverse changes in the levels of real estate activity occur, our
revenues may decline.
Title insurance 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. Both the volume and the average price of
residential real estate transactions have recently experienced
declines in many parts of the country, and it is uncertain how
long these trends will continue. Further, through the end of the
third quarter of 2007, interest rates have risen from record low
levels in 2003, resulting in reductions in the level of mortgage
refinancings and total mortgage originations through 2007.
14
We have found that residential real estate activity generally
decreases in the following situations:
|
|
|
|
|
when mortgage interest rates are high or increasing;
|
|
|
|
when the mortgage funding supply is limited; and
|
|
|
|
when the United States economy is weak.
|
Declines in the level of real estate activity or the average
price of real estate sales are likely to adversely affect our
title insurance revenues. The Mortgage Bankers Association
currently projects residential mortgage production in 2008 to be
$2.0 trillion, which would represent a 16.0% decline relative to
2007. The MBA further projects that the 16.0% decrease will
result from purchase transactions declining from $1.2 trillion
in 2007 to $0.9 trillion in 2008 or 21.3% and refinance
transactions dropping from $1.2 trillion in 2007 to $1.0
trillion in 2008, or 10.8%.
If we
observe changes in the rate of title insurance claims, it may be
necessary for us to record additional charges to our claim loss
reserve. This may result in lower net earnings and the potential
for earnings volatility.
At each quarter end, our recorded reserve for claim losses is
initially the result of taking the prior recorded reserve for
claim losses, adding the current provision to that balance and
subtracting actual paid claims from that balance, resulting in
an amount that management then compares to the actuarial point
estimate provided in the actuarial calculation. Due to the
uncertainty and judgment used by both management and our
actuary, our ultimate liability may be greater or less than our
current reserves
and/or our
actuarys calculation. If the recorded amount is within a
reasonable range of the actuarys point estimate, but not
at the point estimate, management assesses other factors in
order to be comfortable with the position of the recorded
reserve within a range. These factors, which are more
qualitative than quantitative, can change from period to period
and include items such as current trends in the real estate
industry (which management can assess, but for which there is a
time lag in the development of the data used by our actuary),
the stratification of certain claims (large vs. small),
improvements in the Companys claims management processes,
and other cost saving measures. If the recorded amount is not
within a reasonable range of the actuarys point estimate,
we would record a charge and reassess the long-term provision on
a go forward basis.
As a result of adverse claim loss development on prior policy
years, we recorded charges in 2007 totaling $217.2 million,
or $159.5 million net of income taxes, to our provision for
claim losses. These charges were recorded in addition to our
7.5% provision for claim losses. These charges brought our
reserve position to a level that represents our best estimate of
our ultimate liability. We will reassess the provision to be
recorded in future periods consistent with this methodology and
can make no assurance that we will not need to record charges in
the future to increase reserves in respect of prior periods.
Our
insurance subsidiaries must comply with extensive regulations.
These regulations may increase our costs or impede, or impose
burdensome conditions on, actions that we might seek to take to
increase the revenues of those subsidiaries.
Our insurance businesses are subject to extensive regulation by
state insurance authorities in each state in which they operate.
These agencies have broad administrative and supervisory power
relating to the following, among other matters:
|
|
|
|
|
licensing requirements;
|
|
|
|
trade and marketing practices;
|
|
|
|
accounting and financing practices;
|
|
|
|
capital and surplus requirements;
|
|
|
|
the amount of dividends and other payments made by insurance
subsidiaries;
|
|
|
|
investment practices;
|
|
|
|
rate schedules;
|
|
|
|
deposits of securities for the benefit of policyholders;
|
|
|
|
establishing reserves; and
|
|
|
|
regulation of reinsurance.
|
15
Most states also regulate insurance holding companies like us
with respect to acquisitions, changes of control and the terms
of transactions with our affiliates. State regulations may
impede or impose burdensome conditions on our ability to
increase or maintain rate levels or on other actions that we may
want to take to enhance our operating results. In addition, we
may incur significant costs in the course of complying with
regulatory requirements. We cannot assure you that future
legislative or regulatory changes will not adversely affect our
business operations. See Business
Regulation.
State
regulation of the rates we charge for title insurance could
adversely affect our results of operations.
Our title insurance subsidiaries are subject to extensive rate
regulation by the applicable state agencies in the jurisdictions
in which they operate. Title insurance rates are regulated
differently in the various states, with some states requiring
the subsidiaries to file rates before such rates become
effective and some states promulgating the rates that can be
charged. In almost all states in which our title subsidiaries
operate, our rates must not be excessive, inadequate or unfairly
discriminatory. See the risk factor below relating to regulatory
conditions in California.
Regulatory
investigations of the insurance industry may lead to fines,
settlements, new regulation or legal uncertainty, which could
negatively affect our results of 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. 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.
These fines may be significant and actions we are required to
take may adversely affect our business.
Because
we are dependent upon California for approximately
17 percent of our title insurance premiums, our business
may be adversely affected by regulatory conditions in
California.
California is the largest source of revenue for the title
insurance industry and, in 2007, California-based premiums
accounted for 33.0% of premiums earned by our direct operations
and 3.0% of our agency premium revenues. In the aggregate,
California accounted for approximately 16.5% of our total title
insurance premiums for 2007. A significant part of our revenues
and profitability are therefore subject to our operations in
California and to the prevailing regulatory conditions in
California. Adverse regulatory developments in California, which
could include reductions in the maximum rates permitted to be
charged, inadequate rate increases or more fundamental changes
in the design or implementation of the California title
insurance regulatory framework, could have a material adverse
effect on our results of operations and financial condition.
In January 2007, the California Insurance Commissioner submitted
to the California Office of Administrative Law (the
OAL) proposed regulations (the Proposed
Regulations) that would have significant effects on the
title insurance industry in California. On February 21,
2007, the OAL disapproved the Proposed Regulations. On
June 28, 2007, the California Department of Insurance (the
CDI) submitted a modified version of the Proposed
Regulations to the OAL. The only substantive change in this
modified version of the Proposed Regulations was to delay the
implementation dates by approximately one year. The OAL approved
the modified version of the Proposed Regulations on
July 26, 2007 (as approved, the Regulations)
and filed them with the California Secretary of State.
Notwithstanding the promulgation of the Regulations, we, as well
as others, have been engaged in discussions with the CDI
regarding possible industry reforms that may result in the
CDIs decision to modify or repeal the Regulations prior to
their implementation. In the event that the CDI does not modify
or repeal the Regulations prior to their implementation, the
Regulations are expected to have significant effects on the
title insurance industry in California. Among other things, the
Regulations set maximum rates, effective as of
October 1, 2010, for title and escrow using industry data
to be reported through the statistical plan described below and
published by the CDI. In addition, the Regulations establish an
interim reduction of all title and escrow rates effective
October 1, 2010 if the CDI is unable to publish the data
necessary for the calculation of the maximum rates by
August 1, 2010. These interim rate reductions are intended
to roll rates back so that, in effect, premiums would be
16
charged on the basis of real property values from the year 2000.
Title insurers would be required to reduce their rates to a
level below their 2000 rates, with the amount of the reduction
determined by a formula adjusting for real estate appreciation
and inflation. We are concerned that the reduced rates set by
the Regulations will significantly reduce the title and escrow
rates that are charged in California, while precluding title
insurers from seeking relief from those reduced or maximum
rates. In addition, the Regulations create a detailed
statistical plan, and require each title insurer, underwritten
title company, and controlled escrow company to collect data at
the individual transaction level beginning on January 1,
2009, and to report such data to the CDI on an annual basis
beginning April 30, 2010.
Compliance with the data collection and reporting requirements
of the Regulations would necessitate a significant revision and
augmentation of our existing data collection and accounting
systems before January 1, 2009, and would require a
significant expenditure to comply with the April 30, 2010
reporting deadline. The required rate reductions and maximum
rates would significantly reduce the title insurance rates that
our subsidiaries can charge, and would likely have a significant
negative impact on our California revenues. In addition, the
increased cost of compliance with the statistical data
collection and reporting requirements would negatively impact
our cost of doing business in California. California is the
largest source of revenue for the title insurance industry,
including for us.
We continue to meet with the CDI to discuss possible
modifications to the Regulations and alternatives that could
result in the repeal of the Regulations prior to their initial
implementation. On October 5, 2007, the California
Insurance Commissioner sent a letter to the title insurance
industry outlining a series of acts that he has agreed to
undertake in an effort to minimize the impact of the Regulations
and to lay further groundwork for a possible resolution
involving the modification or repeal of the Regulations prior to
their initial implementation. Among other things, the California
Insurance Commissioner stated in such letter that (i) the
CDI will propose substantial changes to the data collection and
reporting requirements of the Regulations that are designed to
minimize compliance costs, (ii) the CDI will delay all
effective dates in the Regulations by one year, which will have
the effect of deferring the date on which the industry would be
required to submit its first statistical report under the
Regulations to April 30, 2011, and deferring the first
possible rate reduction under the Regulations to October 1,
2011, and (iii) if the industry works with the CDI to enact
substantive alternative reforms, the CDI is willing to eliminate
the maximum rate formula altogether. In addition, we are
exploring litigation alternatives in the event that the CDI does
not modify or repeal the Regulations, including a possible
lawsuit challenging the CDIs authority to promulgate rate
regulations and statistical plan regulations related thereto.
If the
rating agencies downgrade our Company, our results of operations
and competitive position in the title insurance industry may
suffer.
Ratings have always been an important factor in establishing the
competitive position of insurance companies. Our title insurance
subsidiaries are rated by S&P, Moodys, Fitch,
A.M. Best, Demotech and LACE. Ratings reflect the opinion
of a rating agency with regard to an insurance companys or
insurance holding companys financial strength, operating
performance and ability to meet its obligations to policyholders
and are not evaluations directed to investors. Our ratings are
subject to continued periodic review by those entities and the
continued retention of those ratings cannot be assured. If our
ratings are reduced from their current levels by those entities,
our results of operations could be adversely affected.
Our
rate of growth could be adversely affected if we are unable to
acquire suitable acquisition candidates.
As part of our growth strategy, we have made numerous
acquisitions and we plan to continue to acquire complementary
businesses, products and services. This strategy depends on our
ability to identify suitable acquisition candidates and,
assuming we find them, to finance such acquisitions on
acceptable terms. We have historically used, and in the future
may continue to use, a variety of sources of financing to fund
our acquisitions, including cash from operations, debt and
equity. Our ability to finance our acquisitions is subject to a
number of risks, including the availability of adequate cash
reserves from operations or of acceptable financing terms and
variability in our stock price. These factors may inhibit our
ability to pursue attractive acquisition targets. If we are
unable to acquire suitable acquisition candidates, we may
experience slower growth.
17
Our
management has articulated a willingness to seek growth through
acquisitions in lines of business that will not necessarily be
limited to our traditional areas of focus or geographic areas.
This expansion of our business subjects us to associated risks,
such as the diversion of managements attention and lack of
experience in operating such businesses, and may affect our
credit and ability to repay our debt.
Our management has stated that we may make acquisitions in lines
of business that are not directly tied to or synergistic with
our core operating segments. Accordingly, we have in the past
year acquired, and may in the future acquire, businesses in
industries or geographic areas with which management is less
familiar than we are with our core businesses. These activities
involve risks that could adversely affect our operating results,
such as diversion of managements attention and lack of
substantial experience in operating such businesses. There can
be no guarantee that we will not enter into transactions or make
acquisitions that will cause us to incur additional debt,
increase our exposure to market and other risks and cause our
credit or financial strength ratings to decline.
We may
encounter difficulties managing our growth and successfully
integrating new businesses, which could adversely affect our
results of operations.
We have historically achieved growth through a combination of
developing new products and services, increasing our market
share for existing products, and making acquisitions. Part of
our strategy is to pursue opportunities to diversify and expand
our operations by acquiring or making investments in other
companies. The success of each acquisition will depend upon:
|
|
|
|
|
our ability to integrate the acquired business operations,
products and personnel;
|
|
|
|
our ability to retain key personnel of the acquired business;
|
|
|
|
our ability to expand our financial and management controls and
reporting systems and procedures;
|
|
|
|
our ability to maintain the customers and goodwill of the
acquired business; and
|
|
|
|
any unexpected costs or unforeseen liabilities associated with
the acquired business.
|
The integration of two previously separate companies is a
challenging, time-consuming and costly process. It is possible
that the integration process could result in the loss of key
employees, the disruption of each companys ongoing
businesses or inconsistencies in standards, controls, procedures
and policies that adversely affect each companys ability
to maintain relationships with suppliers, customers and
employees or to achieve the anticipated benefits of the
combination. In addition, any successful integration of
companies will require the dedication of significant management
resources, which will temporarily detract attention from our
day-to-day businesses.
We are
a holding company and depend on distributions from our
subsidiaries for cash.
We are a holding company whose primary assets are the securities
of our operating subsidiaries. Our ability to pay interest on
our outstanding debt and our other obligations and to pay
dividends is dependent on the ability of our subsidiaries to pay
dividends or make other distributions or payments to us. Our
subsidiaries are not obligated to make funds available to us. If
our operating subsidiaries are not able to pay dividends to us,
we may not be able to meet our obligations or pay dividends on
our common stock.
Our title insurance and specialty insurance subsidiaries must
comply with state laws which require them to maintain minimum
amounts of working capital, surplus and reserves, and place
restrictions on the amount of dividends that they can distribute
to us. Compliance with these laws will limit the amounts our
regulated subsidiaries can dividend to us. During 2008, our
title insurers will be able to pay dividends or make
distributions to us without prior regulatory approval of
approximately $251.1 million.
Our specialty insurance segment is a smaller, growing operation
and, as a result, it will likely be difficult under current
circumstances for it to be a significant source of cash to us.
18
We
could have conflicts with FIS, and our chairman of our board of
directors is also the chairman of the board of directors of
FIS.
Conflicts may arise between FIS and us as a result of our
ongoing agreements and the nature of our respective businesses.
We will seek to manage any potential conflicts through our
agreements with FIS and through oversight by independent members
of our board of directors. However, there can be no assurances
that such measures will be effective or that we will be able to
resolve all potential conflicts.
Some of our executive officers and directors own substantial
amounts of FIS stock and stock options. Such ownership could
create or appear to create potential conflicts of interest when
our directors and officers are faced with decisions that involve
FIS.
William P. Foley, II, is the chairman of our board of
directors and the executive chairman of the board of FIS. As a
result of his roles, he has obligations to us and to FIS and may
have conflicts of interest with respect to matters potentially
or actually involving or affecting our and FISs respective
businesses. In addition, Mr. Foley may also have conflicts
of time with respect to his multiple responsibilities. If his
duties to either of these companies require more time than
Mr. Foley is able to allot, then his oversight of that
companys activities could be diminished. Finally, five of
our directors, including Mr. Foley, are also directors of
FIS.
If the
2006 Distribution does not constitute a tax free distribution
under Section 355 of the Internal Revenue Code or the Old
FNF-FIS merger does not constitute a tax free reorganization
under Section 368(a) of the code, then we may have to
indemnify FIS or Old FNF for payment of taxes and tax-related
losses. FNF may be affected by significant restrictions with
respect to certain actions that could jeopardize the tax free
status of the distribution or merger.
Under a tax disaffiliation agreement, which we were required to
enter into with Old FNF and FIS as a condition to the closing of
the 2006 Distribution, we are required to indemnify Old FNF and
FIS for taxes and tax-related losses (including stockholder
suits) if the 2006 Distribution was determined to be taxable
either to Old FNF or the Old FNF stockholders or both, unless
such adverse determination was the result of a breach by FIS of
its agreement not to take any action within its control that
would cause the 2006 Distribution to be taxable or the result of
an acquisition of FIS stock within the control of FIS or an FIS
subsidiary. Old FNF estimated that the amount of our
indemnification obligation for the amount of tax on Old
FNFs transfer of our stock in the distribution could be in
the range of $150 million and possibly greater depending
on, among other things, the value of our stock at the time of
the 2006 Distribution. In addition, we are required under the
tax disaffiliation agreement to indemnify Old FNF and FIS for
taxes and tax-related losses (including stockholder suits) in
the event the Old FNF-FIS merger were determined to be taxable.
Old FNF estimated that the amount of our indemnification
obligation for the amount of tax on Old FNFs transfer and
retirement of its FIS stock in the merger could be in the range
of $1 billion and possibly greater depending on, among
other things, the value of FISs stock at the time of the
merger.
Even if the 2006 Distribution otherwise qualifies as a spin-off
under Section 355 of the Internal Revenue Code of 1986, as
amended, which we refer to as the Internal Revenue Code, the
distribution of our common stock to the Old FNF stockholders may
not qualify as tax free to Old FNF (or its successor upon the
consummation of the merger, FIS) under Section 355(e) of
the Internal Revenue Code, if 50% or more of our stock is
acquired as part of a plan or series of related transactions
that includes the 2006 Distribution.
In order to help preserve the tax free treatment of the 2006
Distribution, we have agreed not to take certain actions without
first obtaining the consent of certain officers of FIS or
obtaining an opinion from a nationally recognized law firm or
accounting firm that such transaction will not cause the 2006
Distribution to be taxable under Section 355(e). In
general, such actions would include, for a period of two years
after the 2006 Distribution, engaging in certain transactions
involving (i) the acquisition of our stock or (ii) the
issuance of shares of our stock.
Provisions
of our certificate of incorporation may prevent us from
receiving the benefit of certain corporate
opportunities.
Because FIS may engage in some of the same activities in which
we engage, there is a risk that we may be in direct competition
with FIS over business activities and corporate opportunities.
To address these potential
19
conflicts, a corporate opportunity policy is incorporated into
our certificate of incorporation. Among other things, this
policy provides that FIS has no duty not to compete with us. The
policy also limits the situations in which one of our directors
or officers, if also a director or officer of FIS, must offer
corporate opportunities to us of which such individual becomes
aware. These provisions may limit the corporate opportunities of
which we are made aware or which are offered to us.
The
markets in which our principal operating subsidiaries operate
are highly competitive. Some of our competitors have greater
resources than we, and we may face competition from new entrants
with alternative products or services.
The title insurance industry is highly competitive. According to
Demotech, the top five title insurance companies accounted for
92.6% of net premiums collected in 2006. Over 40 independent
title insurance companies accounted for the remaining 7.4% of
the market. The number and size of competing companies varies in
the different geographic areas in which we conduct our title
insurance business. In our principal markets, competitors
include other major title underwriters such as The First
American Corporation, LandAmerica Financial Group, Inc., Old
Republic International Corporation and Stewart Information
Services Corporation, as well as numerous smaller title
insurance companies, underwritten title companies, and
independent agency operations at the regional and local level.
These smaller companies may expand into other markets in which
we compete.
Also, the removal of regulatory barriers might result in new
competitors entering the title insurance business, and those new
competitors may include companies that have greater financial
resources than we do and possess other competitive advantages.
Competition among the major title insurance companies, expansion
by smaller regional companies and any new entrants with
alternative products could affect our business operations and
financial condition.
From time to time, we adjust the title insurance rates we charge
in a particular state as a result of competitive conditions in
that state. Changes in price could have an adverse impact on our
results of operations, although its ultimate impact will depend,
among other things, on the volume and mix of our future business
in that state and within various portions of the state.
The markets for our other products and services are also very
competitive, and we expect the markets for all of our products
and services to remain highly competitive. Our failure to remain
competitive may have a material adverse effect on our business,
financial condition and results of operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
20
The Company has its corporate headquarters on its campus in
Jacksonville, Florida, which it leases from its former
affiliate, FIS. The majority of our branch offices are leased
from third parties. See note K to Notes to Consolidated
Financial Statements.
As of December 31, 2007, we leased office and storage space
as follows:
|
|
|
|
|
|
|
Number of
|
|
|
|
Locations
|
|
|
California
|
|
|
445
|
|
Texas
|
|
|
144
|
|
Arizona
|
|
|
137
|
|
Illinois
|
|
|
115
|
|
Florida
|
|
|
86
|
|
Oregon
|
|
|
81
|
|
Washington
|
|
|
70
|
|
New York
|
|
|
34
|
|
Nevada
|
|
|
33
|
|
Ohio
|
|
|
31
|
|
Indiana
|
|
|
29
|
|
Michigan
|
|
|
26
|
|
North Carolina
|
|
|
26
|
|
Colorado
|
|
|
20
|
|
Pennsylvania
|
|
|
19
|
|
New Jersey
|
|
|
16
|
|
Hawaii
|
|
|
15
|
|
Wisconsin
|
|
|
14
|
|
Kansas and Virginia(1)
|
|
|
11
|
|
Maryland, Minnesota, and Tennessee(1)
|
|
|
10
|
|
Missouri
|
|
|
9
|
|
Oklahoma
|
|
|
8
|
|
Connecticut, Louisiana and New Mexico(1)
|
|
|
7
|
|
Georgia, Massachusetts and Montana(1)
|
|
|
6
|
|
Canada
|
|
|
5
|
|
Alabama
|
|
|
4
|
|
South Carolina
|
|
|
3
|
|
Maine
|
|
|
2
|
|
Washington D.C., Idaho, Kentucky, Mississippi, Nebraska, New
Hampshire, Rhode Island and Vermont(1)
|
|
|
1
|
|
|
|
|
(1) |
|
Represents the number of locations in each state listed. |
|
|
Item 3.
|
Legal
Proceedings
|
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. We believe that no actions, other than those
listed below, depart from customary litigation incidental to our
business. As background to the disclosure below, please note the
following:
|
|
|
|
|
These matters raise difficult and complicated factual and legal
issues and are subject to many uncertainties and complexities,
including but not limited to the underlying facts of each
matter, novel legal issues,
|
21
variations between jurisdictions in which matters are being
litigated, differences in applicable laws and judicial
interpretations, the length of time before many of these matters
might be resolved by settlement or through litigation and, in
some cases, the timing of their resolutions relative to other
similar cases brought against other companies, the fact that
many of these matters are putative class actions in which a
class has not been certified and in which the purported class
may not be clearly defined, the fact that many of these matters
involve multi-state class actions in which the applicable law
for the claims at issue is in dispute and therefore unclear, and
the current challenging legal environment faced by large
corporations and insurance companies.
|
|
|
|
|
In these matters, plaintiffs seek a variety of remedies
including equitable relief in the form of injunctive and other
remedies and monetary relief in the form of compensatory
damages. In most cases, the monetary damages sought include
punitive or treble damages. Often more specific information
beyond the type of relief sought is not available because
plaintiffs have not requested more specific relief in their
court pleadings. In addition, the dollar amount of damages
sought is frequently not stated with specificity. In those cases
where plaintiffs have made a statement with regard to monetary
damages, they often specify damages either just above or below a
jurisdictional limit regardless of the facts of the case. These
limits represent either the jurisdictional threshold for
bringing a case in federal court or the maximum they can seek
without risking removal from state court to federal court. In
our experience, monetary demands in plaintiffs court
pleadings bear little relation to the ultimate loss, if any, we
may experience. None of the cases described below includes a
statement as to the dollar amount of damages demanded. Instead,
each of the cases includes a demand in an amount to be proved at
trial.
|
|
|
|
For the reasons specified above, it is not possible to make
meaningful estimates of the amount or range of loss that could
result from these matters at this time. We review these matters
on an ongoing basis and follow the provisions of Statement of
Financial Accounting Standards (SFAS) No. 5,
Accounting for Contingencies, when making accrual
and disclosure decisions. When assessing reasonably possible and
probable outcomes, we base our decision on our assessment of the
ultimate outcome following all appeals.
|
|
|
|
We intend to vigorously defend each of these matters. In the
opinion of our management, while some of these matters may be
material to our operating results for any particular period if
an unfavorable outcome results, none will have a material
adverse effect on our overall financial condition.
|
Several class actions are pending in Ohio (Dubin v.
Security Union Title Insurance Company, filed on
March 12, 2003, in the Court of Common Pleas, Cuyahoga
County, Ohio and Randleman v. Fidelity National
Title Insurance Company, filed on February 15, 2006 in
the U.S. District Court for the Northern District of Ohio,
Western Division) and Pennsylvania (Patterson v. Fidelity
National Title Insurance Company of New York, filed on
October 27, 2003 in the Court of Common Pleas of Allegheny
County, Pennsylvania; ODay v. Ticor
Title Insurance Company of Florida, filed on
October 18, 2006 in the U.S. District Court for the
Eastern District of Pennsylvania; Cohen v. Chicago
Title Insurance Company, filed on January 27, 2006 in
the Court of Common Pleas of Philadelphia County, Pennsylvania;
and Guizarri v. Ticor Title Insurance Company, filed
on October 17, 2006 in the U.S. District Court for the
Eastern District of Pennsylvania), alleging improper premiums
were charged for title insurance. These cases allege that the
named defendant companies failed to provide notice of premium
discounts to consumers refinancing their mortgages, and failed
to give discounts in refinancing transactions in violation of
the filed rates. In Dubin, the Company filed a Motion for
Summary Judgment which is under submission and trial is
scheduled for early 2008. In Randleman, the Court
dismissed all causes of action except implied in fact contract
and unjust enrichment. Plaintiffs motion to certify a
class was granted. In Patterson, the court sustained the
Companys motion to dismiss all counts except counts for
fraud and for violation of a consumer protection law. The
Companys motion for summary judgment on the remaining two
causes of action and the Plaintiffs motion for class
certification are under submission. Our motions to dismiss were
denied in the Cohen, ODay and
Guizarri cases, and classes have been certified. The
parties are proceeding with discovery.
A class action in Texas (Arevalo v. Chicago Title Insurance
Company and Ticor Title Insurance Company, filed on
March 24, 2006 in the U.S. District Court for the
Western District of Texas, San Antonio Division) alleges
that the Company overcharged for recording fees in Arizona,
California, Colorado, Oklahoma and Texas. The suit seeks to
recover the recording fees for the class that was overcharged,
interest and attorneys fees. The plaintiffs motion
for class certification and the Companys motions to
dismiss and for summary judgment are under submission. A
22
similar suit was pending in Kansas (Doll v. Chicago
Title Insurance Company, filed on September 28, 2006
in the U.S. District Court for the District of Kansas)
alleging that the Company charged consumers more than the County
Recorder charges to record their documents in conjunction with
closing transactions. Plaintiffs motion to certify the
class was denied. This action has been dismissed.
Two class actions filed in Illinois (Chultem v. Fidelity
National Financial, Inc., Chicago Title and Trust Company
and Ticor Title Insurance Company and Colella v.
Fidelity National Financial, Inc., Chicago Title and
Trust Company and Ticor Title Insurance Company, each
filed on May 11, 2006 in the Circuit Court of Cook County,
Illinois, County Department, Chancery Division) allege the
Companies violated the Illinois Title Insurance Act and the
Illinois Consumer Fraud Act and have been unjustly enriched
through the practice of paying Illinois attorneys agency
fees. The complaint alleges the payments are in exchange for the
referral of business and the attorneys do not perform any
core title services. Although the Companys
motions to dismiss and for summary judgment were granted,
plaintiffs were permitted to and did amend their complaints.
Plaintiffs motion for class certification was denied on
February 22, 2008.
An amended complaint was filed in Illinois (Independent
Trust v. Fidelity National Title Insurance Company of
New York, filed on June 26, 2006 in the United States
District Court for the Northern District of Illinois, Eastern
Division) related to the litigation spawned by the defalcation
of Intercounty Title Company of Illinois, an agent of the
Company in Chicago, Illinois. Plaintiff alleges the Company
wrongfully used its funds to pay monies owed by the Company to
customers of Intercounty. Plaintiff demands compensatory damages
(which plaintiff alleges are believed to be in excess of
$20 million), punitive damages and other relief.
In February 2008, thirteen putative class actions were commenced
against several title insurance companies, including Fidelity
National Title Insurance Company, Chicago
Title Insurance Company, and Ticor Title Insurance
Company (collectively, the Fidelity Affiliates). The
complaints also name Fidelity National Financial, Inc. (together
with the Fidelity Affiliates, the Fidelity
Defendants) as a defendant based on its ownership of the
Fidelity Affiliates. The complaints, which are brought on behalf
of a putative class of consumers who purchased title insurance
in New York, allege that the defendants conspired to inflate
rates for title insurance through the Title Insurance Rate
Service Association, Inc. (TIRSA), a New York
State-approved rate service organization which is also named as
a defendant. Each of the complaints asserts a cause of action
under the Sherman Act and several of the complaints include
claims under the Real Estate Settlement Procedures Act as well
as New York State statutory and common law claims. The
complaints seek monetary damages, including treble damages, as
well as injunctive relief. The actions, which were filed in the
United States District Court for the Eastern District of New
York and the United States District Court for the Southern
District of New York, are in their preliminary stages.
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. 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.
For a description of certain pending regulatory matters in
California, see Item 1A, Risk Factors.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
23
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Our common stock is traded on the New York Stock Exchange under
the symbol FNF. The following table shows, for the
periods indicated, the high and low sales prices of our common
stock, as reported by the New York Stock Exchange, and the
amounts of dividends per share declared on our common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends
|
|
|
|
High
|
|
|
Low
|
|
|
Declared
|
|
|
Year ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
26.21
|
|
|
$
|
22.92
|
|
|
$
|
0.30
|
|
Second quarter
|
|
|
28.62
|
|
|
|
22.92
|
|
|
|
0.30
|
|
Third quarter
|
|
|
24.22
|
|
|
|
16.46
|
|
|
|
0.30
|
|
Fourth quarter
|
|
|
17.81
|
|
|
|
13.10
|
|
|
|
0.30
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
25.73
|
|
|
$
|
21.72
|
|
|
$
|
0.29
|
|
Second quarter
|
|
|
23.88
|
|
|
|
18.88
|
|
|
|
0.29
|
|
Third quarter
|
|
|
22.36
|
|
|
|
17.92
|
|
|
|
0.29
|
|
Fourth quarter
|
|
|
24.36
|
|
|
|
20.60
|
|
|
|
0.30
|
|
On February 1, 2008 the last reported sale price of our
common stock on the New York Stock Exchange was $19.53 per
share. As of February 1, 2008, we had approximately 4,843
stockholders of record.
On January 30, 2008, our Board of Directors formally
declared a $0.30 per share cash dividend that is payable on
March 27, 2008 to stockholders of record as of
March 13, 2008.
Our current dividend policy anticipates the payment of quarterly
dividends in the future. The declaration and payment of
dividends will be at the discretion of our Board of Directors
and will be dependent upon our future earnings, financial
condition and capital requirements. Our ability to declare
dividends is subject to restrictions under our existing credit
agreement. We do not believe the restrictions contained in our
credit agreement will, in the foreseeable future, adversely
affect our ability to pay cash dividends at the current dividend
rate.
Since we are a holding company, our ability to pay dividends
will depend largely on the ability of our subsidiaries to pay
dividends to us, and the ability of our title insurance
subsidiaries to do so is subject to, among other factors, their
compliance with applicable insurance regulations. As of
December 31, 2007, $1,802.3 million of the
Companys net assets are restricted from dividend payments
without prior approval from the Departments of Insurance in the
States where our title insurance subsidiaries are domiciled.
During 2008, our directly owned title insurance subsidiaries can
pay dividends or make distributions to us of approximately
$251.1 million without prior approval. The limits placed on
such subsidiaries abilities to pay dividends affect our
ability to pay dividends.
On October 25, 2006, our Board of Directors approved a
three-year stock repurchase program under which we can
repurchase up to 25 million shares of our common stock. We
may make purchases from time to time in the open market, in
block purchases or in privately negotiated transactions,
depending on market conditions and other factors. We began
purchasing shares under this program on a regular basis on
April 30, 2007, and, through December 31, 2007, we had
repurchased a total of 9,675,000 shares for
$183.1 million, or an average of $18.93 per share. For more
information, please see Liquidity and Capital
Resources in Item 7 of this
Form 10-K.
24
The following table summarizes purchases of equity securities by
the issuer during the quarter ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
(d) Maximum Number
|
|
|
|
(a) Total
|
|
|
(b)
|
|
|
Purchased as Part
|
|
|
of Shares that May
|
|
|
|
Number
|
|
|
Average
|
|
|
of Publicly
|
|
|
Yet Be Purchased
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Announced Plans
|
|
|
Under the Plans or
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
or Programs
|
|
|
Programs(1)
|
|
|
10/1/07 10/31/07
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
18,325,000
|
|
11/1/07 11/30/07
|
|
|
2,000,000
|
|
|
$
|
14.54
|
|
|
|
2,000,000
|
|
|
|
16,325,000
|
|
12/1/07 12/31/07
|
|
|
1,000,000
|
|
|
|
16.41
|
|
|
|
1,000,000
|
|
|
|
15,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,000,000
|
|
|
$
|
15.16
|
|
|
|
3,000,000
|
|
|
|
15,325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of the last day of the applicable month. |
|
|
Item 6.
|
Selected
Financial Data
|
The information set forth below should be read in conjunction
with the consolidated financial statements and related notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this
Form 10-K.
Certain reclassifications have been made to the prior year
amounts to conform with the 2007 presentation.
Acquisitions among entities under common control such as Old
FNFs 2006 contribution of assets to us in connection with
the 2006 Distribution are not considered business combinations
and are to be accounted for at historical cost in accordance
with Emerging Issues Task Force (EITF)
90-5,
Exchanges of Ownership Interests between Enterprises under
Common Control. Furthermore, the substance of that asset
contribution, the 2006 Distribution and the Old FNF-FIS merger
is effectively a reverse spin-off of FIS by Old FNF in
accordance with
EITF 02-11,
Accounting for Reverse Spinoffs. Accordingly, the
historical financial statements of Old FNF became those of FNF.
As a result, the data shown below for periods or dates prior to
October 24, 2006, the date the 2006 Distribution was
completed, are the data of Old FNF, including the results of
both FIS and us (referred to as FNT) as subsidiaries of Old FNF.
Following completion of the 2006 Distribution, however, the
criteria to account for FIS as discontinued operations as
prescribed by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, were not met.
This is primarily due to our continuing involvement with and
significant influence over FIS subsequent to the merger of Old
FNF and FIS through common board members, common senior
management and continuing business relationships. As a result,
for periods prior to October 24, 2006, FIS continues to be
included in our consolidated financial statements.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005(3)
|
|
|
2004(4)
|
|
|
2003(5)
|
|
|
|
(In thousands, except per share and other data)
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,524,010
|
|
|
$
|
9,436,101
|
|
|
$
|
9,654,580
|
|
|
$
|
8,295,820
|
|
|
$
|
7,715,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
1,700,935
|
|
|
|
3,225,319
|
|
|
|
3,224,678
|
|
|
|
2,786,297
|
|
|
|
2,465,026
|
|
Other operating expenses
|
|
|
1,109,438
|
|
|
|
2,075,101
|
|
|
|
1,702,353
|
|
|
|
1,598,942
|
|
|
|
1,448,133
|
|
Agent commissions
|
|
|
1,698,215
|
|
|
|
2,035,423
|
|
|
|
2,060,467
|
|
|
|
2,028,926
|
|
|
|
1,823,241
|
|
Depreciation and Amortization
|
|
|
130,092
|
|
|
|
460,750
|
|
|
|
406,259
|
|
|
|
338,434
|
|
|
|
227,937
|
|
Provision for claim losses
|
|
|
653,876
|
|
|
|
486,334
|
|
|
|
480,556
|
|
|
|
311,916
|
|
|
|
287,136
|
|
Interest expense
|
|
|
54,941
|
|
|
|
209,972
|
|
|
|
172,327
|
|
|
|
47,214
|
|
|
|
43,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,347,497
|
|
|
|
8,492,899
|
|
|
|
8,046,640
|
|
|
|
7,111,729
|
|
|
|
6,294,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and minority interest
|
|
|
176,513
|
|
|
|
943,202
|
|
|
|
1,607,940
|
|
|
|
1,184,091
|
|
|
|
1,420,639
|
|
Income tax expense
|
|
|
46,776
|
|
|
|
350,871
|
|
|
|
573,391
|
|
|
|
438,114
|
|
|
|
539,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
129,737
|
|
|
|
592,331
|
|
|
|
1,034,549
|
|
|
|
745,977
|
|
|
|
880,796
|
|
Minority interest
|
|
|
(32
|
)
|
|
|
154,570
|
|
|
|
70,443
|
|
|
|
5,015
|
|
|
|
18,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
129,769
|
|
|
$
|
437,761
|
|
|
$
|
964,106
|
|
|
$
|
740,962
|
|
|
$
|
861,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data(6):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
0.60
|
|
|
$
|
2.40
|
|
|
$
|
5.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
outstanding, basic basis
|
|
|
216,583
|
|
|
|
182,031
|
|
|
|
173,463
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share
|
|
$
|
0.59
|
|
|
$
|
2.39
|
|
|
$
|
5.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted basis
|
|
|
219,989
|
|
|
|
182,861
|
|
|
|
173,575
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma net earnings per share basic and
diluted(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited pro forma weighted average shares basic
and diluted(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,951
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
1.20
|
|
|
$
|
1.17
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(8)
|
|
$
|
4,101,821
|
|
|
$
|
4,121,751
|
|
|
$
|
4,564,189
|
|
|
$
|
3,346,276
|
|
|
$
|
2,689,817
|
|
Cash and cash equivalents(9)
|
|
|
569,562
|
|
|
|
676,444
|
|
|
|
513,394
|
|
|
|
331,222
|
|
|
|
459,655
|
|
Total assets
|
|
|
7,556,414
|
|
|
|
7,259,559
|
|
|
|
11,104,617
|
|
|
|
9,270,535
|
|
|
|
7,263,175
|
|
Notes payable
|
|
|
1,167,739
|
|
|
|
491,167
|
|
|
|
3,217,019
|
|
|
|
1,370,556
|
|
|
|
659,186
|
|
Reserve for claim losses(10)
|
|
|
1,388,471
|
|
|
|
1,220,636
|
|
|
|
1,113,506
|
|
|
|
1,000,474
|
|
|
|
945,237
|
|
Minority interests and preferred stock of subsidiary
|
|
|
53,868
|
|
|
|
56,044
|
|
|
|
636,304
|
|
|
|
18,874
|
|
|
|
14,835
|
|
Stockholders equity
|
|
|
3,244,088
|
|
|
|
3,474,368
|
|
|
|
3,279,775
|
|
|
|
4,700,091
|
|
|
|
3,873,359
|
|
Book value per share(11)
|
|
$
|
15.23
|
|
|
$
|
15.75
|
|
|
$
|
18.81
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005(3)
|
|
|
2004(4)
|
|
|
2003(5)
|
|
|
|
(In thousands, except per share and other data)
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders opened by direct title operations
|
|
|
2,259,800
|
|
|
|
3,146,200
|
|
|
|
3,615,400
|
|
|
|
3,680,200
|
|
|
|
4,820,700
|
|
Orders closed by direct title operations
|
|
|
1,434,800
|
|
|
|
2,051,500
|
|
|
|
2,487,000
|
|
|
|
2,636,300
|
|
|
|
3,694,000
|
|
Provision for title insurance claim losses to title insurance
premiums(10)
|
|
|
13.2
|
%
|
|
|
7.5
|
%
|
|
|
7.2
|
%
|
|
|
5.5
|
%
|
|
|
5.4
|
%
|
Title related revenue(12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage direct operations
|
|
|
55.4
|
%
|
|
|
53.7
|
%
|
|
|
56.4
|
%
|
|
|
55.2
|
%
|
|
|
60.0
|
%
|
Percentage agency operations
|
|
|
44.6
|
%
|
|
|
46.3
|
%
|
|
|
43.6
|
%
|
|
|
44.8
|
%
|
|
|
40.0
|
%
|
|
|
|
(1) |
|
Our financial results for the year ended December 31, 2007
include the results of various entities acquired on various
dates during 2007. |
|
(2) |
|
Beginning October 24, 2006, the date on which the 2006
Distribution were completed, our financial results no longer
include the results of FIS. The operations of FIS continue to be
included in our results for periods prior to October 24,
2006. In addition, FISs financial results for 2006 include
the results of operations of Certegy Inc. (Certegy)
since February 1, 2006, the date on which Certegy was
acquired by FIS (see note B of Notes to Consolidated
Financial Statements). |
|
(3) |
|
Our financial results for the year ended December 31, 2005
include in revenue and net earnings a $318.2 million gain
on sale relating to the issuance of subsidiary stock,
approximately $100.0 million in additional income tax
expense relating to the distribution to our shareholders of a
17.5% interest of FNT and additional minority interest expense
related to the minority interest issued in FNT and FIS. (See
note A of the Notes to Consolidated Financial Statements). |
|
(4) |
|
Our financial results for the year ended December 31, 2004
include the results of various entities acquired on various
dates during 2004. |
|
(5) |
|
Our financial results for the year ended December 31, 2003
include the results of our acquisition of ALLTEL Information
Services, Inc. for the period from April 1, 2003, the
acquisition date, through December 31, 2003, and include
the results of operations of various other entities acquired on
various dates during 2003. |
|
(6) |
|
Our historical basic and diluted earnings per share for 2006 and
2005 have been calculated using FNTs basic and diluted
weighted average shares outstanding. |
|
(7) |
|
Unaudited pro forma net earnings per share is calculated using
the number of outstanding shares of Old FNF on a date prior to
the distribution of FNT shares to Old FNF shareholders. |
|
(8) |
|
Investments as of December 31, 2007, 2006, 2005, 2004, and
2003 include securities pledged to secure trust deposits of
$513.8 million, $696.8 million, $656.0 million,
$546.0 million and $448.1 million, respectively.
Investments as of December 31, 2007, 2006 and 2005 include
securities pledged relating to our securities lending program of
$264.2 million, $305.3 million and
$138.7 million, respectively. |
|
(9) |
|
Cash and cash equivalents as of December 31, 2007, 2006,
2005, 2004, and 2003 include cash pledged to secure trust
deposits of $193.5 million, $228.5 million,
$234.7 million, $195.2 million, and
$231.1 million, respectively. Cash and cash equivalents as
of December 31, 2007, 2006 and 2005 include cash pledged
relating to our securities lending program of
$271.8 million, $316.0 million, and
$143.4 million, respectively. |
|
(10) |
|
As a result of adverse title insurance claim loss development on
prior policy years, we recorded charges in 2007 totaling
$217.2 million, or $159.5 million net of income taxes,
to our provision for claim losses. These charges were recorded
in addition to our 7.5% provision for claim losses. |
|
(11) |
|
Book value per share is calculated as stockholders equity
at December 31 of each year presented divided by actual shares
outstanding at December 31 of each year presented. |
27
|
|
|
(12) |
|
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,(1)
|
|
|
December 31,(2)(3)
|
|
|
|
(In thousands, except per share data)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,369,062
|
|
|
$
|
1,494,677
|
|
|
$
|
1,364,169
|
|
|
$
|
1,296,102
|
|
Earnings (loss) before income taxes and minority interest
|
|
|
126,887
|
|
|
|
126,118
|
|
|
|
2,695
|
|
|
|
(79,187
|
)
|
Net earnings (loss)
|
|
|
83,399
|
|
|
|
84,835
|
|
|
|
6,472
|
|
|
|
(44,937
|
)
|
Basic earnings per share
|
|
|
0.38
|
|
|
|
0.39
|
|
|
|
0.03
|
|
|
|
(0.21
|
)
|
Diluted earnings per share
|
|
|
0.37
|
|
|
|
0.38
|
|
|
|
0.03
|
|
|
|
(0.21
|
)
|
Dividends paid per share
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
0.30
|
|
|
|
0.30
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,354,498
|
|
|
$
|
2,644,769
|
|
|
$
|
2,634,822
|
|
|
$
|
1,802,012
|
|
Earnings before income taxes and minority interest
|
|
|
219,749
|
|
|
|
296,781
|
|
|
|
295,483
|
|
|
|
131,189
|
|
Net earnings
|
|
|
106,371
|
|
|
|
132,621
|
|
|
|
127,571
|
|
|
|
71,198
|
|
Basic earnings per share
|
|
|
0.61
|
|
|
|
0.76
|
|
|
|
0.74
|
|
|
|
0.34
|
|
Diluted earnings per share
|
|
|
0.61
|
|
|
|
0.76
|
|
|
|
0.73
|
|
|
|
0.34
|
|
Dividends paid per share
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.30
|
|
|
|
|
(1) |
|
Includes loss provision charge of $81.5 million, or
$55.5 million net of income taxes, in 2007. |
|
(2) |
|
Includes loss provision charge of $135.7 million, or
$104.0 million net of income taxes, in 2007. |
|
(3) |
|
The quarter ended December 31, 2006 includes the operations
of FIS only through October 23, 2006. (See note A of
Notes to Consolidated Financial Statements). |
|
|
Item 7.
|
Managements
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 are a holding company that is a provider, through our
subsidiaries, of title insurance, specialty insurance, claims
management services, and information services. We are one of the
nations largest title insurance companies through our
title insurance underwriters Fidelity National
Title, Chicago Title, Ticor Title, Security Union Title, and
Alamo Title which issued approximately 27.7% of all
title insurance policies issued nationally during 2006. We also
provide flood insurance, personal lines insurance, and home
warranty insurance through our specialty insurance subsidiaries.
We are also a leading provider of outsourced claims management
services to large corporate and public sector entities through
our minority-owned affiliate, Sedgwick CMS
(Sedgwick) and a provider of information services in
the human resources, retail and transportation markets through
another minority-owned affiliate, Ceridian Corporation
(Ceridian).
Prior to October 17, 2005, we were known as Fidelity
National Title Group, Inc. (FNT) and were a
wholly-owned subsidiary of another publicly traded company, also
called Fidelity National Financial, Inc. (Old FNF).
On October 17, 2005, Old FNF distributed to its
shareholders a minority interest in FNT, making it a
majority-owned, publicly traded company. On October 24,
2006, Old FNF transferred certain assets to us in return for the
issuance of 45,265,956 shares of our common stock to Old
FNF. Old FNF then distributed to its shareholders all of its
shares of
28
our common stock, making FNT a stand alone public company (the
2006 Distribution). On November 9, 2006, Old
FNF was then merged with and into another of its subsidiaries,
Fidelity National Information Services, Inc. (FIS),
after which we changed our name to Fidelity National Financial,
Inc. (FNF or the Company). On
November 10, 2006, our common stock began trading on the
New York Stock Exchange under the trading symbol
FNF. Old FNFs chairman of the board and chief
executive officer is now our chairman of the board and the
executive chairman of the board of FIS. Other key members of Old
FNFs senior management have also continued their
involvement at both FNF and FIS in executive capacities. Under
applicable accounting principles, following these transactions,
Old FNFs historical financial statements, with the
exception of equity and earnings per share, became our
historical financial statements, including the results of FIS
through the date of our spin-off from Old FNF. For periods prior
to October 24, 2006 our equity has been derived from
FNTs historical equity and our historical basic and
diluted earnings per share have been calculated using FNTs
basic and diluted weighted average shares outstanding.
FNF currently has three reporting segments as follows:
|
|
|
|
|
Fidelity National Title Group. This
segment consists of the operation of FNFs title insurance
underwriters and related businesses. This segment provides core
title insurance and escrow and other title-related services
including collection and trust activities, trustees sales
guarantees, recordings and reconveyances.
|
|
|
|
Specialty Insurance. The specialty insurance
segment consists of certain subsidiaries that issue flood, home
warranty, homeowners, automobile and other personal lines
insurance policies.
|
|
|
|
Corporate and Other. The corporate and other
segment consists of the operations of the parent holding
company, certain other unallocated corporate overhead expenses,
the operations of Fidelity National Real Estate Solutions, Inc.
(FNRES), other smaller operations, and the
Companys share in the operations of certain equity
investments, including Sedgwick, Ceridian and Remy
International, Inc. (Remy).
|
Through October 23, 2006, the Companys results also
included the operations of FIS as a separate segment. This
segment provided transaction processing services, consisting
principally of technology solutions for banks and other
financial institutions, credit and debit card services and check
risk management and related services for retailers and others.
This segment also provided lender processing services,
consisting principally of technology solutions for mortgage
lenders, selected mortgage origination services such as title
agency and closing services, default management and mortgage
information services. FISs credit and debit card services
and check risk management services were added through its merger
with Certegy Inc. (Certegy). This merger closed in
February 2006 and as a result these businesses are not included
in FISs financial information prior to the closing.
Related
Party Transactions
Beginning on October 24, 2006, the Companys financial
statements reflect transactions with FIS, which is a related
party. Prior to October 24, 2006, these transactions were
eliminated because FIS results of operations were included
in our consolidated results.
29
A list of related party items included in revenues and expenses
for periods subsequent to October 24, 2006, is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 24 -
|
|
|
|
Full Year
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Agency title premiums earned
|
|
$
|
149.4
|
|
|
$
|
22.4
|
|
Interest
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
149.9
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Agency title commissions
|
|
$
|
132.2
|
|
|
$
|
19.5
|
|
Data processing costs
|
|
|
46.8
|
|
|
|
17.6
|
|
Corporate services allocated
|
|
|
(2.7
|
)
|
|
|
(1.5
|
)
|
Title insurance information expense
|
|
|
10.3
|
|
|
|
5.1
|
|
Other real-estate related information
|
|
|
13.5
|
|
|
|
2.4
|
|
Software expense
|
|
|
53.7
|
|
|
|
3.1
|
|
Rental expense
|
|
|
(8.2
|
)
|
|
|
0.7
|
|
License and cost sharing
|
|
|
7.8
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
253.4
|
|
|
$
|
48.1
|
|
|
|
|
|
|
|
|
|
|
An FIS subsidiary acts as the title agent in the issuance of
title insurance policies by title insurance underwriters owned
by us and in connection with certain trustee sales guarantees, a
form of title insurance issued as part of the foreclosure
process. As a result, our title insurance subsidiaries pay
commissions on title insurance policies sold through FIS. These
FIS operations generated revenues for the Company of
$149.4 million for the year ended December 31, 2007
and $22.4 million for the period from October 24 through
December 31, 2006, which we record as agency title
premiums. We paid FIS commissions at the rate of approximately
89% of the premiums generated, equal to $132.2 million for
the year ended December 31, 2007 and $19.5 million for
the period from October 24 through December 31, 2006.
FIS provides information technology infrastructure support, data
center management and related IT support services to us. Our
expenses include amounts paid to FIS for these services of
$46.8 million for the year ended December 31, 2007,
and $17.6 million for the period from October 24 through
December 31, 2006. In addition we incurred software
expenses relating to an agreement with a subsidiary of FIS that
amounted to an expense of $53.7 million for the year ended
December 31, 2007, and $3.1 million for the period
from October 24 through December 31, 2006.
Historically, the Company has provided corporate services to
FIS. These corporate services include accounting, treasury,
payroll, human resources, tax, legal, purchasing, risk
management, mergers and acquisitions and general management. As
a result of the provision of corporate services by us to FIS,
our expenses were reduced by $2.7 million for the year
ended December 31, 2007, and $1.5 million for the
period from October 24 through December 31, 2006.
On August 31, 2007, we completed the acquisition of
Property Insight, LLC (Property Insight), a former
FIS subsidiary, from FIS for $95 million in cash. Property
Insight is a leading provider of title plant services for the
Company, as well as various national and regional underwriters.
Property Insight primarily manages, maintains and updates the
title plants that are owned by the Company. Additionally,
Property Insight manages potential title plant construction for
the Company.
Through August 31, 2007, the title plant assets of several
of our title insurance subsidiaries were managed or maintained
by Property Insight, as a subsidiary of FIS. The underlying
title plant information and software were owned by each of the
Companys title insurance underwriters, but FIS managed and
updated the information in return for either (i) a cash
management fee or (ii) the right to sell that information
to title insurers, including title
30
insurance underwriters that the Company owns and other third
party customers. In most cases, FIS was responsible for keeping
the title plant assets current and fully functioning, for which
the Company paid a fee to FIS based on the Companys use
of, or access to, the title plant. The Companys payments
to FIS under these arrangements were $14.0 million for the
period from January 1, through August 31, 2007, and
$5.5 million for the period from October 24 through
December 31, 2006. In addition, each applicable title
insurance underwriter owned by us in turn received a royalty on
sales of access to its title plant assets. The revenues from
these title plant royalties were $3.7 million for the year
ended December 31, 2007, and $0.4 million for the
period from October 24 through December 31, 2006. The
Company was also a party to agreements with FIS that permit FIS
and certain of its subsidiaries to access and use (but not
resell) the starters databases and back plant databases of the
Companys title insurance subsidiaries. Starters databases
are the Companys databases of previously issued title
policies and back plant databases contain historical records
relating to title that are not regularly updated.
We also do business with additional entities of FIS that provide
real estate information to our operations, for which we recorded
expenses of $13.5 million for the year ended
December 31, 2007, and $2.4 million for the period
from October 24 through December 31, 2006.
We also have certain license and cost sharing agreements with
FIS. We recorded expenses relating to these agreements of
$7.8 million for the year ended December 31, 2007, and
$1.2 million for the period from October 24 through
December 31, 2006.
Our expenses included expenses for a lease of office space and
equipment to us from FIS for our corporate headquarters and
business operations, which was offset by leases to FIS from us
for office space, furniture and equipment. For the year ended
December 31, 2007, the net effect of these leases offset
our expenses in the amount of $8.2 million. The net amount
included in expense for these leases for the period from October
24 through December 31, 2006, was $0.7 million.
We believe the amounts earned by us or charged to us under each
of the foregoing arrangements are fair and reasonable. We
believe the commissions earned are consistent with the average
rate that would be available to a third party title agent given
the amount and the geographic distribution of the business
produced and the low risk of loss profile of the business
placed. In connection with the title plant management and
maintenance services provided by FIS, we believe that the fees
charged to us by FIS were at approximately the same rates that
FIS and other similar vendors charge unaffiliated title
insurers. The information technology infrastructure support and
data center management services provided to us by FIS 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 that were charged under these
arrangements were not negotiated at arms-length, and may
not represent the terms that we might have obtained from an
unrelated third party.
Amounts due from/ (to) FIS were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
December 31, 2006
|
|
|
(In millions)
|
|
Note (payable to) receivable from FIS
|
|
$
|
(7.1
|
)
|
|
$
|
12.5
|
|
Due to FIS
|
|
|
13.9
|
|
|
|
5.2
|
|
Prior to September 30, 2007, FNF had a note receivable
balance of $12.5 million due from a subsidiary of FIS. The
Company earned interest revenue of $0.5 million on this
note for the year ended December 31, 2007. On
September 30, 2007, the Company acquired certain leasing
assets from FIS for $15 million. As part of this
acquisition, the $12.5 million note was forgiven, and the
Company entered into an unsecured note payable to FIS in the
amount of $7.3 million. FNFs interest expense on this
note was $0.1 million for the year ended December 31,
2007. Also in connection with this transaction, the Company
assumed a $134.9 million non-recourse note payable (see
note H of Notes to Consolidated Financial Statements).
Through August 31, 2007, the Company paid amounts to
Property Insight for capitalized software development and for
title plant construction. These amounts included capitalized
software development costs of $5.4 million for the period
from January 1 through August 31, 2007, and
$1.9 million for the period from October 24 through
December 31, 2006. Amounts paid to FIS for capitalized
title plant construction costs were $10.3 million for the
year ended December 31, 2007, and $2.7 million for the
period from October 24 through December 31, 2006.
31
FNF also capitalized software development costs paid to another
subsidiary of FIS in the amounts of $5.5 million for the
year ended December 31, 2007, and $2.6 million for the
period from October 24 through December 31, 2006.
In August 2007, FNFs Chairman of the Board, William P.
Foley, II, planned to sell 1,000,000 shares of FNF
stock on the open market. Because the Company was actively
purchasing shares of treasury stock on the open market at the
same time, the Company agreed to purchase 1,000,000 shares
from Mr. Foley on August 8, 2007, for
$22.1 million, or $22.09 per share, the market price at the
time of the purchase.
On December 6, 2007, the Company sold 1,000 shares of
Series B Preferred Stock of Remy to its Chairman of the
Board, William P. Foley, II, for a total of
$1.0 million, or $1,000 per share. This per share price was
equal to the per share price that the Company paid to acquire
the shares.
The following is a detail of related party items that would have
been included in revenues and expenses for all periods presented
if these related party transactions had not been eliminated
during the periods prior to October 24, 2006.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Agency title premiums earned
|
|
$
|
95.5
|
|
|
$
|
91.9
|
|
Rental income earned
|
|
|
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
95.5
|
|
|
$
|
96.9
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Agency title commissions
|
|
$
|
83.9
|
|
|
$
|
80.9
|
|
Data processing costs
|
|
|
82.8
|
|
|
|
56.9
|
|
Corporate services allocated
|
|
|
(9.5
|
)
|
|
|
(29.0
|
)
|
Title insurance information expense
|
|
|
26.4
|
|
|
|
26.9
|
|
Other real-estate related information
|
|
|
12.7
|
|
|
|
10.9
|
|
Software expense
|
|
|
12.2
|
|
|
|
7.7
|
|
Rental expense
|
|
|
3.6
|
|
|
|
3.8
|
|
License and cost sharing
|
|
|
9.3
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
221.4
|
|
|
$
|
170.0
|
|
|
|
|
|
|
|
|
|
|
With the exception of the activity from October 24, 2006
through December 31, 2006 detailed above and below, all of
the income and expense amounts in the table above and discussed
below were eliminated from our consolidated results of
operations.
For 2006 and 2005, we recognized revenues of $95.5 million
and $91.9 million, respectively, for agency title premiums
sold by an FIS subsidiary acting as title agent and our title
insurance subsidiaries paid commissions associated with these
title premiums to FIS in the amounts of $83.9 million and
$80.9 million, respectively.
Through June 30, 2005, we leased equipment to a subsidiary
of FIS. Revenue relating to these leases was $5.0 million
in 2005.
Our expenses included amounts paid to a subsidiary of FIS for
the provision by FIS to us of IT infrastructure support, data
center management and related IT support services. For 2006 and
2005, expenses incurred related to such FIS services totaled
$82.8 million and $56.9 million, respectively. In
addition, we incurred software expenses relating to an agreement
with a subsidiary of FIS that approximated $12.2 million
and $7.7 million, in 2006 and 2005, respectively.
For the years ended December 31, 2006 and 2005, our
expenses were reduced by $9.5 million and
$29.0 million, respectively, related to the provision of
corporate services to FIS from us.
For 2006 and 2005, our expenses to FIS for management and
maintenance of our title plant assets were $28.9 million
and $29.9 million, respectively. For the years ended
December 31, 2006 and 2005, the revenues from royalties on
sales of access to our title plant assets were $2.5 million
and $3.0 million, respectively. Expenses for
32
payments to FIS for real estate information provided to our
operations were $12.7 million and $10.9 million in
2006 and 2005, respectively.
Expenses related to license and cost sharing agreements with FIS
were $9.3 million and $11.9 million in 2006 and 2005,
respectively.
Allocations for the lease of office space to us for our
corporate headquarters and business operations in the amounts of
$5.1 million and $3.8 million were recorded in 2006
and 2005, respectively. In addition, our expenses were reduced
in 2006 by $1.5 million for a lease of office space and the
lease of an aircraft by us to FIS, with no such reductions in
2005.
The Company capitalized software development costs paid to FIS
of $10.2 million and $3.7 million in 2006 and 2005,
respectively, and title plant construction costs paid to FIS of
$15.5 million and $6.2 million in 2006 and 2005,
respectively.
Business
Trends and Conditions
Fidelity
National Title Group
Title insurance 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. Other factors affecting real estate activity
include, but are not limited to, demand for housing, employment
levels, family income levels and general economic conditions.
Both the volume and the average price of residential real estate
transactions have recently experienced declines in many parts of
the country, and it is uncertain how long these trends will
continue. Further, interest rates have risen from record low
levels in 2003, resulting in reductions in the level of mortgage
refinancings and total mortgage originations from 2004 through
2007. We have found that residential real estate activity
generally decreases in the following situations:
|
|
|
|
|
when mortgage interest rates are high or increasing;
|
|
|
|
when the mortgage funding supply is limited; and
|
|
|
|
when the United States economy is weak.
|
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,
our commercial real estate title insurance business can generate
revenues which are not dependent on the industry cycles
discussed above.
Because these factors can change dramatically, revenue levels in
the title insurance industry can also change dramatically. For
example, from January 2001 through June 2004, the Federal
Reserve decreased interest rates by a total of 550 basis
points, bringing interest rates down to their lowest levels in
recent history and increasing the volume of residential real
estate purchases and refinance activity. From June 2004 through
September 2007, the Federal Reserve increased interest rates by
a total of 425 basis points. In 2007, as interest rates on
adjustable rate mortgages began to reset to higher rates,
foreclosures on subprime mortgage loans increased to record
levels. This resulted in a significant decrease in levels of
available mortgage funding as investors became wary of the risk
associated with investing in subprime mortgage loans. In
addition, tighter lending standards combined with a bearish
outlook on the real estate environment have caused potential
home buyers to become reluctant to purchase homes. The second
half of 2007 was a particularly weak period for the level of
mortgage originations. As a result, our title insurance order
counts and revenues have decreased substantially. The Federal
Reserve has tried to alleviate investors concerns by
reducing interest rates by a total of 75 basis points from
September 2007 to December 2007, and 125 basis points in
January 2008. Although our revenues had not yet benefited from
these actions as of December 2007, refinance activity has
increased in the beginning of 2008 as homeowners respond to the
decrease in interest rates. Our open orders have increased,
although it is still too early to tell whether this activity
will result in an increase in closed orders. This increase in
refinance activity is underscored by the Mortgage Bankers
Associations (MBA) current mortgage finance
forecast, which predicts an increase in the proportion of
mortgage refinancings to total mortgage originations from 50% in
2006 and 2007 to 57% for the first half of 2008. The MBA
forecast predicts a 48% refinance ratio in the second quarter of
2008. According to the MBAs forecast,
33
U.S. mortgage originations (including refinancings) were
approximately $2.3 trillion, $2.7 trillion, and $3.0 trillion in
2007, 2006 and 2005, respectively. The MBAs Mortgage
Finance Forecast estimates a $2.0 trillion mortgage origination
market for 2008, which would be a 16.0% decrease from 2007. The
MBA further forecasts that the 16.0% decrease will result from
purchase transactions declining from $1.2 trillion in 2007 to
$0.9 trillion in 2008 or 21.3% and refinance transactions
dropping from $1.2 trillion to $1.0 trillion or 10.8%.
Historically, real estate transactions have produced seasonal
revenue levels for title insurers. The first calendar quarter is
typically the weakest quarter in terms of revenue due to the
generally low volume of home sales during January and February.
The third calendar quarter has been typically the strongest in
terms of revenue primarily due to a higher volume of home sales
in the summer months and the fourth quarter is usually also
strong due to commercial customers desiring to complete
transactions by year-end. Significant changes in interest rates
may alter these traditional seasonal patterns due to the effect
of the cost of financing on the volume of real estate
transactions.
Specialty
Insurance
Our specialty insurance business participates in the NFIP. We
earn fees under that program for settling flood claims and
administering the program. Our specialty insurance revenues in
2005 were significantly increased due to fee revenues we earned
from settling claims related to the years major
hurricanes, including Katrina, Rita and Wilma.
Critical
Accounting Estimates
The accounting estimates described below are those we consider
critical in preparing our Consolidated Financial Statements.
Management is required to make estimates and assumptions that
can affect the reported amounts of assets and liabilities and
disclosures with respect to contingent assets and liabilities at
the date of the Consolidated Financial Statements and the
reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates. See
note A of Notes to the Consolidated Financial Statements
for a more detailed description of the significant accounting
policies that have been followed in preparing our Consolidated
Financial Statements.
Reserve for Claim Losses. Title companies
issue two types of policies since both the buyer and lender in
real estate transactions want to know that their interest in the
property is insured against certain title defects outlined in
the policy. An owners policy insures the buyer against
such defects for as long as he or she owns the property (as well
as against warranty claims arising out of the sale of the
property by such owner). A lenders policy insures the
priority of the lenders security interest over the claims
that other parties may have in the property. The maximum amount
of liability under a title insurance policy is generally the
face amount of the policy plus the cost of defending the
insureds title against an adverse claim. While most
non-title forms of insurance, including property and casualty,
provide for the assumption of risk of loss arising out of
unforeseen future events, title insurance serves to protect the
policyholder from risk of loss from events that predate the
issuance of the policy.
Unlike many other forms of insurance, title insurance requires
only a one-time premium for continuous coverage until another
policy is warranted due to changes in property circumstances
arising from refinance, resale, additional liens, or other
events. Unless we issue the subsequent policy, we receive no
notice that our exposure under our policy has ended and as a
result we are unable to track the actual terminations of our
exposures.
Our reserve for claim losses includes reserves for known claims
(PLR) as well as for losses that have been incurred
but not yet reported to us (IBNR), net of
recoupments. We reserve for each known claim based on our review
of the estimated amount of the claim and the costs required to
settle the claim. Reserves for IBNR claims are estimates that
are established at the time the premium revenue is recognized
and are based upon historical experience and other factors,
including industry trends, claim loss history, legal
environment, geographic considerations, and the types of
policies written. We also reserve for losses arising from
escrow, closing and disbursement functions due to fraud or
operational error.
34
The table below summarizes our reserves for known claims and
incurred but not reported claims related to title insurance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
%
|
|
|
2006
|
|
|
%
|
|
|
|
(In thousands)
|
|
|
PLR
|
|
$
|
214,243
|
|
|
|
16.2
|
%
|
|
$
|
202,195
|
|
|
|
17.5
|
%
|
IBNR
|
|
|
1,108,379
|
|
|
|
83.8
|
%
|
|
|
952,677
|
|
|
|
82.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserve
|
|
$
|
1,322,622
|
|
|
|
100.0
|
%
|
|
$
|
1,154,872
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although most claims against title insurance policies are
reported relatively soon after the policy has been issued,
claims may be reported many years later. By their nature, claims
are often complex, vary greatly in dollar amounts and are
affected by economic and market conditions and the legal
environment existing at the time of settlement of the claims.
Estimating future title loss payments is difficult because of
the complex nature of title claims, the long periods of time
over which claims are paid, significantly varying dollar amounts
of individual claims and other factors.
Our process for recording our reserves for claim losses begins
with analysis of our loss provision rate. Management forecasts
ultimate losses for each policy year based upon examination of
historical policy year loss emergence (development) and
adjustment of the emergence patterns to reflect policy year
differences in the effects of various influences on the timing,
frequency and severity of claims. Management also uses a
technique that relies on historical loss emergence and on a
premium-based exposure measurement. The latter technique is
particularly applicable to the most recent policy years, which
have few reported claims relative to an expected ultimate claim
volume. After considering historical claim losses, reporting
patterns and current market information, and analyzing
quantitative and qualitative data provided by our legal, claims
and underwriting departments, management determines a loss
provision rate, which it records as a percentage of current
premiums. This loss provision rate is set to provide for losses
on current year policies. We have been recording our loss
provision at 7.5% of premiums during 2006 and 2007. At each
quarter end, our recorded reserve for claim losses is initially
the result of taking the prior recorded reserve for claim
losses, adding the current provision to that balance and
subtracting actual paid claims from that balance, resulting in
an amount that management then compares to the actuarial point
estimate provided in the actuarial calculation.
Due to the uncertainty and judgment used by both management and
our actuary, our ultimate liability may be greater or less than
our current reserves
and/or our
actuarys calculation. If the recorded amount is within a
reasonable range of the actuarys point estimate, but not
at the point estimate, management assesses other factors in
order to be comfortable with the position of the recorded
reserve within a range. These factors, which are more
qualitative than quantitative, can change from period to period,
and include items such as current trends in the real estate
industry (which management can assess, but for which there is a
time lag in the development of the data used by our internal
actuary), the stratification of certain claims (large vs.
small), improvements in the Companys claims management
processes, and other cost saving measures. If the recorded
amount is not within a reasonable range of our internal
actuarys point estimate, we would record a charge and
reassess the long-term provision rate on a go forward basis. We
will continue to reassess the provision to be recorded in future
periods consistent with this methodology.
As of December 31, 2007, our initial recorded reserve for
claim losses was $1.187 billion, $97.3 million lower
than our internal actuarys point estimate of
$1.284 billion. As of September 30, 2007, our initial
recorded reserve for claim losses was $1.152 billion,
$81.5 million lower than our internal actuarys
estimate of $1.233 billion. As a result, at
December 31, 2007 and at September 30, 2007,
management determined that our initial recorded amounts were
outside of a reasonable range from our internal actuarys
estimates and we recorded total charges in 2007 of
$217.2 million (made up of $81.5 million in the third
quarter and $135.7 million in the fourth quarter) in
addition to our 7.5% provision for claim losses. These charges
result in a balance of $1.323 billion in our title
insurance claim loss reserve, which is $39 million, or 3%,
higher than the actuarys point estimate but still within a
reasonable range. Management believes the appropriate reserve is
higher than the actuarys point estimate because, in our
judgment, as a result of the actuarial models and assumptions
used, the full extent of adverse development in the trend of
paid
35
claims has not yet been fully reflected in the actuarys
estimate at December 31, 2007. We believe that such adverse
paid development will result in an increase in ultimate losses
for prior years over and above those projected by our internal
actuarys point estimate, thus we have provided for
ultimate loss in excess of such estimate. Policy years 2005 and
2006 have exhibited significant adverse paid and reported
development versus our initial estimates and as these policy
years are not yet mature, they are subject to significant
uncertainty as to how they will develop in the future. Please
see Item IA, Risk Factors, If we observe changes in
the rate of title insurance claims, it may be necessary for us
to record additional charges to our claim loss reserve. This may
result in lower net earnings and the potential for earnings
volatility.
The table below presents our title insurance loss development
experience for the past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,154,872
|
|
|
$
|
1,068,072
|
|
|
$
|
987,076
|
|
Reserve assumed/transferred
|
|
|
|
|
|
|
(8,515
|
)
|
|
|
1,000
|
|
Claims loss provision related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
285,034
|
|
|
|
306,179
|
|
|
|
319,870
|
|
Prior years
|
|
|
217,216
|
|
|
|
39,399
|
|
|
|
36,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claims loss provision
|
|
|
502,250
|
|
|
|
345,578
|
|
|
|
356,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims paid, net of recoupments related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(17,042
|
)
|
|
|
(18,815
|
)
|
|
|
(14,478
|
)
|
Prior years
|
|
|
(317,458
|
)
|
|
|
(231,448
|
)
|
|
|
(262,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claims paid, net of recoupments
|
|
|
(334,500
|
)
|
|
|
(250,263
|
)
|
|
|
(276,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,322,622
|
|
|
$
|
1,154,872
|
|
|
$
|
1,068,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title premiums
|
|
$
|
3,800,458
|
|
|
$
|
4,608,329
|
|
|
$
|
4,948,966
|
|
Provision for claim losses as a percentage of title insurance
premiums:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
7.5
|
%
|
|
|
6.6
|
%
|
|
|
6.5
|
%
|
Prior years
|
|
|
5.7
|
%
|
|
|
0.9
|
%
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision
|
|
|
13.2
|
%
|
|
|
7.5
|
%
|
|
|
7.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
An approximate $38.0 million increase (decrease) in our
annualized provision for claim losses would occur if our loss
provision rate were 1% higher (lower), based on 2007 title
premiums of $3,800.5 million. A 5% increase (decrease) in
our estimate of the reserve for claim losses would result in an
increase (decrease) in our provision for claim losses of
approximately $66.1 million.
Additionally, for our specialty insurance businesses, we had
claims reserves of $65.8 million as of December 31,
2007 and 2006.
Valuation of Investments. We regularly review
our investment portfolio for factors that may indicate that a
decline in fair value of an investment is other-than-temporary.
Some factors considered in evaluating whether or not a decline
in fair value is other-than-temporary include: (i) our
ability and intent to retain the investment for a period of time
sufficient to allow for a recovery in value; (ii) the
duration and extent to which the fair value has been less than
cost; and (iii) the financial condition and prospects of
the issuer. Such reviews are inherently uncertain and the value
of the investment may not fully recover or may decline in future
periods resulting in a realized loss. Investments are selected
for analysis whenever an unrealized loss is greater than a
certain threshold that we determine based on the size of our
portfolio. Fixed maturity investments that have unrealized
losses caused by interest rate movements are not at risk as we
have the ability and intent to hold them to maturity. Unrealized
losses on investments in equity securities and fixed maturity
instruments that are susceptible to credit related declines are
evaluated based on the aforementioned factors. Currently
available market data is considered and estimates are made as to
the duration and prospects for recovery, and the ability to
retain the investment until such recovery takes
36
place. These estimates are revisited quarterly and any material
degradation in the prospect for recovery will be considered in
the other than temporary impairment analysis. We believe that
our monitoring and analysis has allowed for the proper
recognition of other than temporary impairments over the past
three year period. Any change in estimate in this area will have
an impact on the results of operations of the period in which a
charge is taken. During 2007, 2006, and 2005 we recorded other
than temporary impairments totaling $3.1 million,
$9.1 million and $8.3 million, respectively. Our
investment portfolio exposure to weaknesses in the sub-prime
mortgage market is immaterial.
Goodwill. We have made acquisitions in the
past that have resulted in a significant amount of goodwill. As
of December 31, 2007 and 2006, goodwill aggregated
$1,339.7 million and $1,154.3 million, respectively.
The majority of our goodwill as of December 31, 2007
relates to goodwill recorded in connection with the Chicago
Title merger in 2000. The process of determining whether or not
an asset, such as goodwill, is impaired or recoverable relies on
projections of future cash flows, operating results and market
conditions. While we believe that our estimates of future cash
flows are reasonable, these estimates are not guarantees of
future performance and are subject to risks and uncertainties
that may cause actual results to differ from what is assumed in
our impairment tests. In evaluating the recoverability of
goodwill, we perform an annual goodwill impairment test based on
an analysis of the discounted future cash flows generated by the
underlying assets. We have completed our annual goodwill
impairment tests in each of the past three years and have
determined that we have a fair value in excess of our carrying
value. Such analyses are particularly sensitive to changes in
estimates of future cash flows and discount rates. Changes to
these estimates might result in material changes in fair value
and determination of the recoverability of goodwill which may
result in charges against earnings and a reduction in the
carrying value of our goodwill.
Other Intangible Assets. We have significant
intangible assets that were acquired through business
acquisitions. These assets consist of purchased customer
relationships, contracts, and the excess of purchase price over
the fair value of identifiable net assets acquired (goodwill),
discussed above. The determination of estimated useful lives and
the allocation of the purchase price to the fair values of the
intangible assets requires significant judgment and may affect
the amount of future amortization on intangible assets other
than goodwill.
The valuation of intangible assets such as software, purchased
customer relationships and contracts involves significant
estimates and assumptions concerning matters such as customer
retention, future cash flows and discount rates. If any of these
assumptions change, it could affect the carrying value of these
assets. Purchased customer relationships are amortized over
their estimated useful lives using an accelerated method which
takes into consideration expected customer attrition rates over
a ten-year period. Contractual relationships are generally
amortized using the straight-line method over their contractual
life. In 2005, we determined that the carrying value of certain
of our intangible assets may not be recoverable and recorded
impairment charges of $9.3 million, relating to the
write-off of these assets. These impairments were recorded as
depreciation and amortization expense in our 2005 Consolidated
Statements of Earnings. There were no impairment charges
recorded relating to intangible assets during 2007 or 2006.
Computer Software. Computer software includes
the fair value of software acquired in business combinations,
purchased software and capitalized software development costs.
Purchased software is recorded at cost and amortized using the
straight line method over a 3 year period and software
acquired in business combinations is recorded at its fair value
and amortized using straight line and accelerated methods over
their estimated useful lives, ranging from 5 to 10 years.
Capitalized software development costs are accounted for in
accordance with either SFAS No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed (SFAS 86), or with The
American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP)
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
After the technological feasibility of the software has been
established (for SFAS 86 software), or at the beginning of
application development (for
SOP 98-1
software), software development costs, which include salaries
and related payroll costs and costs of independent contractors
incurred during development, are capitalized. Research and
development costs incurred prior to the establishment of
technological feasibility (for SFAS 86 software), or prior
to application development (for
SOP 98-1
software), are expensed as incurred. For software subject to the
provisions of SFAS 86, software development costs are
amortized on a product by product basis commencing on the date
of
37
general release of the products, generally the greater of
(1) the straight line method over its estimated useful
life, which ranges from three to seven years or (2) the
ratio of current revenues to total anticipated revenue over its
useful life. The cost of purchased software that is subject to
the provisions of
SOP 98-1
is amortized on a straight-line basis over its estimated useful
life.
Revenue Recognition. The following describes
our revenue recognition policies as they pertain to each of our
segments:
Fidelity National Title Group. Our direct
title insurance premiums and escrow, title-related and other
fees are recognized as revenue at the time of closing of the
related transaction as the earnings process is then considered
complete, whereas premium revenues from agency operations and
agency commissions include an accrual based on estimates using
historical information of the volume of transactions that have
closed in a particular period for which premiums have not yet
been reported to us. The accrual for agency premiums is
necessary because of the lag between the closing of these
transactions and the reporting of these policies to us by the
agent. During 2005, we re-evaluated our method of estimation for
accruing agency title revenues and commissions and refined the
method, which resulted in our recording approximately
$50.0 million in additional agency revenue in the second
quarter of 2005 than we would have under our prior method. The
impact on net earnings of this adjustment was approximately
$2.0 million. We are likely to continue to have changes to
our accrual for agency revenue in the future, but as
demonstrated by this 2005 adjustment, the impact on net earnings
of changes in these accruals is very small.
Specialty Insurance Segment. Revenues from
home warranty and personal lines insurance policies are
recognized over the life of the policy, which is one year.
Revenues and commissions related to the sale of flood insurance
are recognized when the policy is reported.
Fidelity National Information Services,
Inc. Through October 24, 2006, we recognized
revenues relating to processing services, software licensing and
software related services, mortgage origination services,
default management services and data and information services.
We provided some services to customers as part of an integrated
offering through multiple businesses. The revenues for services
provided under these multiple element arrangements were
recognized in accordance with Financial Accounting Standards
Board (FASB) EITF Issue
No. 00-21,
Revenue Arrangements and Multiple Deliverables
(EITF 00-21).
FIS recognized revenues relating to bank processing services and
mortgage processing services along with software licensing and
software related services. Several of FISs contracts
included a software license and one or more of the following
services: data processing, development, implementation,
conversion, training, programming, post-contract customer
support and application management. In some cases, these
services were offered in combination with one another and in
other cases FIS offered them individually. Revenues from bank
and mortgage processing services were typically volume based
depending on factors such as the number of accounts processed,
transactions processed and computer resources utilized.
The substantial majority of the revenues in this business were
from outsourced data processing and application management
arrangements. Revenues from these arrangements were recognized
as services were performed in accordance with Securities and
Exchange Commission (SEC) Staff Accounting
Bulletin No. 104 (SAB 104),
Revenue Recognition and related interpretations.
SAB 104 sets forth guidance as to when revenue was realized
or realizable and earned when all of the following criteria were
met: (1) persuasive evidence of an arrangement existed;
(2) delivery had occurred or services had been rendered;
(3) the sellers price to the buyer was fixed and
determinable; and (4) collectibility was reasonably
assured. Revenues and costs related to implementation,
conversion and programming services associated with FISs
data processing and application management agreements during the
implementation phase were deferred and subsequently recognized
using the straight-line method over the term of the related
services agreement. At each reporting period, FIS evaluated
these deferred contract costs for impairment.
In the event that FISs arrangements with its customers
included more than one service, FIS determined whether the
individual revenue elements could be recognized separately in
accordance with
EITF 00-21.
EITF 00-21
addresses the determination of whether an arrangement involving
more than one deliverable contains more than one unit of
accounting and how the arrangement consideration should be
measured and allocated to the separate units of accounting.
38
If all of the services were software related services as
determined under the American Institute of Certified Public
Accountants Statement of Position (SOP)
97-2
(SOP 97-2),
entitled Software Revenue Recognition, and
SOP No. 98-9
(SOP 98-9),
entitled Modification of
SOP 97-2,
Software Revenue Recognition, with Respect to Certain
Transactions, FIS applied these pronouncements and
related interpretations to determine the appropriate units of
accounting and how the arrangement consideration should be
measured and allocated to the separate units.
FIS recognized software license and post-contract customer
support fees as well as associated development, implementation,
training, conversion and programming fees in accordance with
SOP 97-2
and
SOP 98-9.
Initial license fees were recognized when a contract existed,
the fee was fixed or determinable, software delivery had
occurred and collection of the receivable was deemed probable,
provided that vendor specific objective evidence, or VSOE, had
been established for each element or for any undelivered
elements. FIS determined the fair value of each element or the
undelivered elements in multi element software arrangements
based on VSOE. If the arrangement was subject to accounting
under
SOP 97-2,
VSOE for each element was based on the price charged when the
same element was sold separately, or in the case of
post-contract customer support, when a stated renewal rate was
provided to the customer. If evidence of fair value of all
undelivered elements existed but evidence did not exist for one
or more delivered elements, then revenue was recognized using
the residual method. Under the residual method, the fair value
of the undelivered elements was deferred and the remaining
portion of the arrangement fee was recognized as revenue. If
evidence of fair value did not exist for one or more undelivered
elements of a contract, then all revenue was deferred until all
elements were delivered or fair value was determined for all
remaining undelivered elements. Revenue from post-contract
customer support was recognized ratably over the term of the
agreement. FIS recorded deferred revenue for all billings
invoiced prior to revenue recognition.
With respect to a small percentage of revenues, FIS used
contract accounting, as required by
SOP 97-2,
when the arrangement with the customer included significant
customization, modification, or production of software. For
elements accounted for under contract accounting, revenue was
recognized in accordance with
SOP No. 81-1,
Accounting for Performance of Construction Type and
Certain Production Type Contracts, using the
percentage of completion method since reasonably dependable
estimates of revenues and contract hours applicable to various
elements of a contract could be made. Revenues in excess of
billings on these agreements were recorded as unbilled
receivables and were included in trade receivables. Billings in
excess of revenue recognized on these agreements were recorded
as deferred revenue until revenue recognition criteria were met.
Changes in estimates for revenues, costs and profits were
recognized in the period in which they were determinable. When
FISs estimates indicated that the entire contract would be
performed at a loss, a provision for the entire loss was
recorded in that accounting period.
In its mortgage origination businesses, FIS recognized revenues
from mortgage origination services which primarily consisted of
centralized title agency and closing services for various types
of lenders. Revenues relating to centralized title agency and
closing services were recognized at the time of closing of the
related real estate transaction. Ancillary service fees were
recognized when the service was provided. Revenue derived from
these services was recognized as the services were performed in
accordance with SAB 104 as described above.
In its default management businesses, FIS recognized revenues on
services provided to assist customers through the default and
foreclosure process, including property preservation and
maintenance services (such as lock changes, window replacement,
debris removal and lawn service), posting and publication of
foreclosure and auction notices, title searches, document
preparation and recording services, and referrals for legal and
property brokerage services. Revenue derived from these services
was recognized as the services were performed in accordance with
SAB 104 as described above.
In its information services businesses, FIS recorded revenue
from providing data or data related services. These services
principally included appraisal and valuation services, property
records information, real estate tax services, borrower credit
and flood zone information and multiple listing software and
services. Revenue derived from these services was recognized as
the services were performed in accordance with SAB 104 as
described above.
FISs flood and tax units provided various services
including life of loan-monitoring services. Revenue for life of
loan services was deferred and recognized ratably over the
estimated average life of the loan service period, which was
determined based on FISs historical experience. FIS
evaluated its historical experience on a periodic basis, and
adjusted the estimated life of the loan service period
prospectively. Revenue derived from software and service
arrangements included in this segment was recognized in
accordance with
SOP 97-2
as discussed above.
39
Revenues from other services in this segment were recognized as
the services were performed in accordance with SAB 104 as
described above.
Accounting for Income Taxes. As part of the
process of preparing the consolidated financial statements, we
are required to determine income taxes in each of the
jurisdictions in which we operate. This process involves
estimating actual current tax expense together with assessing
temporary differences resulting from differing recognition of
items for income tax and accounting purposes. These differences
result in deferred income tax assets and liabilities, which are
included within the Consolidated Balance Sheets. We must then
assess the likelihood that deferred income tax assets will be
recovered from future taxable income and, to the extent we
believe that recovery is not likely, establish a valuation
allowance. To the extent we establish a valuation allowance or
increase this allowance in a period, we must reflect this
increase as an expense within income tax expense in the
statement of earnings. Determination of the income tax expense
requires estimates and can involve complex issues that may
require an extended period to resolve. Further, the estimated
level of annual pre-tax income can cause the overall effective
income tax rate to vary from period to period. We believe that
our tax positions comply with applicable tax law and that we
adequately provide for any known tax contingencies. We believe
the estimates and assumptions used to support our evaluation of
tax benefit realization are reasonable. However, final
determination of prior-year tax liabilities, either by
settlement with tax authorities or expiration of statutes of
limitations, could be materially different than estimates
reflected in assets and liabilities and historical income tax
provisions. The outcome of these final determinations could have
a material effect on our income tax provision, net income or
cash flows in the period that determination is made.
Certain
Factors Affecting Comparability
Year ended December 31, 2007. Our results
of operations in 2007 exclude the operations of our former
subsidiary, FIS. FIS is included in our results of operations
through October 24, 2006. Also, as a result of adverse
claim loss development on prior policy years, we recorded
charges in 2007 totaling $217.2 million, or
$159.5 million net of income taxes, to our provision for
claim losses. These charges were recorded in addition to our
7.5% provision for claim losses.
Year ended December 31, 2006. Beginning
October 24, 2006, with the closing of the 2006
Distribution, our Consolidated Statements of Earnings no longer
include the results of FIS. The operations of FIS continue to be
included in our Consolidated Financial Statements for periods
prior to October 24, 2006. (See note A of the Notes to
Consolidated Financial Statements for a description of the
accounting treatment of the 2006 asset contribution by FNF and
the 2006 Distribution). In addition, our Consolidated Statements
of Earnings for 2006 include the results of operations of
Certegy Inc. (Certegy), which was acquired by FIS on
February 1, 2006, as discussed in note B of the Notes
to Consolidated Financial Statements. This acquisition may
affect the comparability of our 2006 and 2005 results of
operations, particularly with respect to FIS in which the
operating results of Certegy are included since the acquisition
date.
Year ended December 31, 2005. Our
Consolidated Statements of Earnings for 2005 include a
$318.2 million gain on sale of a minority interest in FIS.
Results
of Operations
Consolidated
Results of Operations
Net Earnings. The following table presents
certain financial data for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Total revenue
|
|
$
|
5,524,010
|
|
|
$
|
9,436,101
|
|
|
$
|
9,654,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,347,497
|
|
|
$
|
8,492,899
|
|
|
$
|
8,046,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
129,769
|
|
|
$
|
437,761
|
|
|
$
|
964,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Revenue. The following table presents the
components of our revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Direct title insurance premiums
|
|
$
|
1,601,768
|
|
|
$
|
1,957,064
|
|
|
$
|
2,261,499
|
|
Agency title insurance premiums
|
|
|
2,198,690
|
|
|
|
2,649,136
|
|
|
|
2,683,545
|
|
Escrow, title-related and other fees
|
|
|
1,132,415
|
|
|
|
1,114,047
|
|
|
|
1,205,979
|
|
Transaction processing
|
|
|
|
|
|
|
3,094,370
|
|
|
|
2,570,372
|
|
Specialty insurance
|
|
|
386,427
|
|
|
|
394,613
|
|
|
|
428,939
|
|
Interest and investment income
|
|
|
186,252
|
|
|
|
208,309
|
|
|
|
144,966
|
|
Gain on sale of minority interest in FIS
|
|
|
|
|
|
|
|
|
|
|
318,209
|
|
Realized gains and losses, net
|
|
|
18,458
|
|
|
|
18,562
|
|
|
|
41,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
5,524,010
|
|
|
$
|
9,436,101
|
|
|
$
|
9,654,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orders opened by direct title operations
|
|
|
2,259,800
|
|
|
|
3,146,200
|
|
|
|
3,615,400
|
|
Orders closed by direct title operations
|
|
|
1,434,800
|
|
|
|
2,051,500
|
|
|
|
2,487,000
|
|
Total revenue in 2007 decreased $3,912.1 million compared
to 2006. Revenues in 2006 included $3,289.1 million of
revenues from FIS operations (including title premiums generated
by FIS). The remainder of the 2007 decrease is the result of
decreases in title insurance and specialty insurance revenues.
Total revenue in 2006 decreased $218.5 million to
$9,436.1 million, a decrease of 2.2% compared to 2005. The
decrease in 2006 is primarily attributable to decreases in title
revenues and revenues from our specialty insurance group and a
net $318.2 million non-operating gain on the issuance of
subsidiary stock relating to the sale of a minority interest in
FIS in 2005, partially offset by an increase in transaction
processing revenues.
The following table presents the percentages of title insurance
premiums generated by our direct and agency operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Direct(1)
|
|
$
|
1,601,768
|
|
|
|
42.1
|
%
|
|
$
|
1,957,064
|
|
|
|
42.5
|
%
|
|
$
|
2,261,499
|
|
|
|
45.7
|
%
|
Agency(1)
|
|
|
2,198,690
|
|
|
|
57.9
|
|
|
|
2,649,136
|
|
|
|
57.5
|
|
|
|
2,683,545
|
|
|
|
54.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total title insurance premiums
|
|
$
|
3,800,458
|
|
|
|
100.0
|
%
|
|
$
|
4,606,200
|
|
|
|
100.0
|
%
|
|
$
|
4,945,044
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes premiums reported by us and, for periods prior to
October 24, 2006, the portion of title premiums FIS
reported as commissions in its mortgage origination business in
connection with the policies issued by us with respect to which
FIS acted as title agent. |
Title insurance premiums were $3,800.5 million in 2007,
$4,606.2 million in 2006, and $4,945.0 million in
2005. Both direct and agency title premiums decreased from 2006
to 2007 and from 2005 to 2006.
In 2007 and 2006, our mix of direct and agency title premiums
stayed relatively consistent, with agency premiums making up
57.9% of total premiums compared with 57.5% in 2006 and 54.3% in
2005.
Direct title premiums in 2006 and 2005 include
$73.5 million and $91.9 million, respectively, in
premiums generated by FIS. Because the operations of FIS are not
included in our results for the periods subsequent to
October 23, 2006, title premiums generated by FIS
subsequent to October 24, 2006, are included in agency
title premiums rather than direct title premiums. Excluding
title premiums generated by FIS in 2006 and 2005, direct title
premiums decreased $281.8 million, or 15.0%, in 2007
compared to 2006 and $286.0 million, or 13.2%, in 2006
compared to 2005. The decreased level of direct title premiums
in both periods is the result of decreases in closed order
volumes partially offset by increases in fee per file. Excluding
operations of FIS, closed order volumes
41
in our direct operations were approximately 1,434,800,
1,777,900, and 2,169,700 in 2007, 2006, and 2005, respectively,
with decreases reflecting declining purchase and refinance
markets in 2007 compared to 2006 and a declining purchase market
and relatively stable refinance market in 2006 compared to 2005.
Tighter lending standards, including a significant reduction in
the availability of subprime mortgage lending, combined with
rising mortgage default levels and a bearish outlook on the real
estate environment have caused buyers to be more reluctant to
buy homes and have suppressed refinance activity. Beginning in
September 2007, the Federal Reserve Board began decreasing
interest rates to infuse money into the economy; however, as of
the end of 2007, order counts had not yet shown any benefit from
these actions. The average fee per file in our direct
operations, excluding the operations of FIS, was $1,635, $1,580
and $1,487 in the years ended December 31, 2007, 2006, and
2005, respectively, reflecting continued strength in the
commercial market in all periods and appreciation in home prices
through 2006 and 2005.
Agency title premiums in 2007 and 2006 include
$149.4 million and $22.4 million, respectively, in
premiums generated by FIS. Excluding title premiums generated by
FIS in 2007 and 2006, agency title premiums decreased
$577.4 million, or 22.0%, in 2007 compared to 2006 and
$56.5 million, or 2.1% in 2006 compared to 2005. The
decrease in 2007 was primarily due to a decrease in accrued
agency premiums that was relatively consistent with the decrease
in direct title premiums. During 2005, we reevaluated our method
of estimation for accruing agency title revenues and commissions
and refined the method, which resulted in our recording
approximately $50 million more in agency revenue in the
second quarter of 2005 than we would have under our prior
method. The impact on net earnings of this adjustment was
approximately $2 million. A large portion of our direct
title business relates to property near the West coast, where
the recent slowing of real estate activity occurred earlier,
while a large portion of our agency title business relates to
property in the Southeast, where the slowing of real estate
activity occurred more recently.
Escrow, title-related and other fees increased
$18.4 million, or 1.6%, from 2006 to 2007 and decreased
$91.9 million, or 7.6% from 2005 to 2006. Trends in escrow
and title-related fees are to some extent related to title
insurance activity generated by our direct operations. At
Fidelity National Title Group, escrow and other
title-related fees, which are more directly related to our
direct operations, fluctuated in a pattern generally consistent
with the fluctuation in direct title insurance premiums and
order counts during the three years ended December 31,
2007. They were also impacted in 2007 by an increase in the
proportionate share of direct title premiums provided by
commercial activity, for which escrow fees as a percentage of
premiums are lower, and by reduced escrow rates in the western
part of the country. Offsetting a decrease in escrow and other
title-related fees in 2007 was an increase in other income in
the corporate and other segment resulting from acquisitions and
increased activity in a division of our business that manages
real estate owned by financial institutions. In addition, we
recorded income of $12.3 million in fees associated with
the syndication of investors in the acquisition of Ceridian.
Interest and investment income levels are primarily a function
of securities markets, interest rates and the amount of cash
available for investment. Interest and investment income was
$186.3 million, $208.3 million, and
$145.0 million in 2007, 2006, and 2005, respectively.
Average invested assets were $4,531.2 million,
$5,088.9 million, and $4,711.4 million in 2007, 2006,
and 2005, respectively. The tax equivalent yield, excluding
realized gains and losses, was 5.0%, 4.8%, and 3.8% in 2007,
2006, and 2005, respectively.
Net realized gains were $18.5 million, $18.6 million
and $41.1 million for 2007, 2006 and 2005, respectively,
each made up of a number of gains and losses on various
transactions, none of which were individually significant.
During 2007, 2006, and 2005, we recorded impairment charges on
equity investments that we considered to be
other-than-temporarily impaired, resulting in charges of
$3.1 million, $9.1 million, and $8.3 million,
respectively.
42
Expenses. The following table presents the
components of our expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Personnel costs
|
|
$
|
1,700,935
|
|
|
$
|
3,225,319
|
|
|
$
|
3,224,678
|
|
Other operating expenses
|
|
|
1,109,438
|
|
|
|
2,075,101
|
|
|
|
1,702,353
|
|
Agent commissions
|
|
|
1,698,215
|
|
|
|
2,035,423
|
|
|
|
2,060,467
|
|
Depreciation and amortization
|
|
|
130,092
|
|
|
|
460,750
|
|
|
|
406,259
|
|
Provision for claim losses
|
|
|
653,876
|
|
|
|
486,334
|
|
|
|
480,556
|
|
Interest expense
|
|
|
54,941
|
|
|
|
209,972
|
|
|
|
172,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
5,347,497
|
|
|
$
|
8,492,899
|
|
|
$
|
8,046,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operating expenses consist primarily of personnel costs,
other operating expenses, which in our title insurance business
are incurred as orders are received and processed, and agent
commissions, which are incurred as revenue is recognized. Title
insurance premiums, escrow and other title-related fees are
generally recognized as income at the time the underlying
transaction closes. As a result, direct title operations revenue
lags approximately
45-60 days
behind expenses and therefore gross margins may fluctuate. The
changes in the market environment, mix of business between
direct and agency operations and the contributions from our
various business units have impacted margins and net earnings.
We have implemented programs and have taken necessary actions to
maintain expense levels consistent with revenue streams.
However, a short time lag exists in reducing variable costs, and
certain fixed costs are incurred regardless of revenue levels.
Personnel costs include base salaries, commissions, benefits,
stock-based compensation and bonuses paid to employees, and are
one of our most significant operating expenses. Excluding
personnel costs related to FIS of $1,357.4 million and
$1,276.6 million in 2006 and 2005, respectively, personnel
costs totaled $1,700.9 million, $1,867.9 million and
$1,948.1 million for the years ended December 31,
2007, 2006 and 2005, respectively. Excluding FIS operations,
personnel costs as a percentage of total revenues were 30.8%,
30.4% and 28.3% in 2007, 2006 and 2005, respectively. The
decreases in personnel costs are due to decreases in 2007 and
2006 at Fidelity National Title Group, partially offset by
increases in 2007 and 2006 in the corporate and other segment
and an increase in 2006 in the specialty insurance segment. On a
consolidated basis, we reduced our full-time equivalent
employees by about 2,300 during 2007 and 2,400 during 2006. The
decreases at Fidelity National Title Group resulted from
decreases in the number of personnel and decreases in average
annualized personnel costs per employee. The increases in the
corporate and other segment are primarily the result of
acquisitions. Included in personnel costs is stock-based
compensation expense of $29.9 million, $65.0 million,
and $34.1 million for the years ended December 31,
2007, 2006, and 2005, respectively. The increase in expense
related to stock-based compensation plans in 2006 is primarily
due to an acceleration charge of $24.5 million recorded by
FIS relating to performance-based options. See note M of
Notes to Consolidated Financial Statements. Excluding
stock-based compensation amounts related to FIS of
$37.3 million and $20.4 million in 2006 and 2005,
respectively,
stock-based
compensation costs were $29.9 million, $27.7 million,
and $13.7 million for 2007, 2006 and 2005, respectively.
Other operating expenses consist primarily of facilities
expenses, title plant maintenance, premium taxes (which
insurance underwriters are required to pay on title premiums in
lieu of franchise and other state taxes), postage and courier
services, computer services, professional services, travel
expenses, general insurance, and trade and notes receivable
allowances. Excluding other operating expenses of
$1,115.2 million and $751.3 million in 2006 and 2005,
respectively, related to FIS, other operating expenses were
$1,109.4 million, $959.9 million, and
$951.1 million in 2007, 2006, and 2005, respectively. The
increase in 2007 compared to 2006 was primarily due to
acquisitions in the Fidelity National Title Group and
corporate segments and an abandoned lease charge of
$13.0 million relating to office closures. Excluding other
operating expenses of FIS, the increase in 2006 was primarily
due to acquisitions in the corporate segment and growth in the
specialty insurance segment, partially offset by cost reductions
in the Fidelity National Title Group segment.
43
Agent commissions represent the portion of premiums retained by
agents pursuant to the terms of their respective agency
contracts. Agent commissions and the resulting percentage of
agent premiums we retain vary according to regional differences
in real estate closing practices and state regulations.
The following table illustrates the relationship of agent title
premiums and agent commissions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
(Dollars in thousands)
|
|
|
Agent title premiums
|
|
$
|
2,198,690
|
|
|
|
100.0
|
%
|
|
$
|
2,649,136
|
|
|
|
100.0
|
%
|
|
$
|
2,683,545
|
|
|
|
100.0
|
%
|
Agent commissions
|
|
|
1,698,215
|
|
|
|
77.2
|
|
|
|
2,035,423
|
|
|
|
76.8
|
|
|
|
2,060,467
|
|
|
|
76.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
500,475
|
|
|
|
22.8
|
%
|
|
$
|
613,713
|
|
|
|
23.2
|
%
|
|
$
|
623,078
|
|
|
|
23.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net margin from agency title insurance premiums we retain as a
percentage of total agency premiums remained relatively
consistent in 2007 compared with 2006. Agent commissions and the
resulting percentage of agent premiums we retain vary according
to regional differences in real estate closing practices and
state regulations.
Depreciation and amortization expense, excluding FIS
depreciation and amortization of $343.6 million and
$299.6 million in 2006 and 2005, respectively, was
$130.1 million, $117.2 million, and
$106.6 million in 2007, 2006, and 2005, respectively.
The provision for claim losses includes an estimate of
anticipated title and title-related claims, escrow losses and
homeowners claims relating to our specialty insurance
segment. The estimate of anticipated title and title-related
claims is accrued as a percentage of title premium revenue based
on our historical loss experience and other relevant factors. We
monitor our claims loss experience on a continual basis and
adjust the provision for claim losses accordingly as new
information becomes known, new loss patterns emerge, or as other
contributing factors are considered and incorporated into the
analysis of the reserve for claim losses. The claim loss
provision for title insurance was $502.3 million,
$345.6 million and $356.5 million in 2007, 2006 and
2005. The provision for claim losses in 2007 reflected a
provision of 7.5% of title premiums and additional charges of
$217.2 million resulting from adverse claim loss
development on prior policy years. See Critical Accounting
Estimates for further discussion relating to the
Companys reserve for claim losses and the
$217.2 million charges. Our claim loss provision as a
percentage of total title premiums was 13.2%, 7.5% and 7.2% in
2007, 2006 and 2005, respectively. The claim loss provision for
our specialty insurance businesses was $151.6 million,
$140.6 million, and $124.1 million in 2007, 2006, and
2005, respectively, with the increases resulting primarily from
higher volumes in the homeowners insurance business.
Excluding interest expense attributable to FIS of
$154.2 million and $126.8 million in 2006 and 2005,
respectively, interest expense for the years ended
December 31, 2007, 2006 and 2005 was $54.9 million,
$55.8 million, and $45.5 million, respectively.
Excluding interest expense attributable to FIS, the increase in
2006 was primarily due to increases in interest rates and
average borrowings.
Income tax expense as a percentage of earnings before income
taxes for 2007, 2006 and 2005 was 26.5%, 37.2%, and 35.6%,
respectively. The fluctuation in income tax expense as a
percentage of earnings before income taxes is attributable to
our estimate of ultimate income tax liability, and changes in
the characteristics of net earnings year to year, such as the
weighting of operating income versus investment income. Income
tax expense as a percentage of earnings before income taxes
decreased in 2007 compared to 2006 and 2005 primarily due to the
increase in the proportion of tax-exempt interest income to
pre-tax earnings. The lower rate in 2005 is partially
attributable to the fact that no income taxes were provided for
the gain on the issuance of FIS stock and the fact that the
payment of a $10 per share dividend on shares held by the FNF
401(k) Plan was deductible for tax purposes. This was partially
offset by the approximately $100.0 million in tax expense
recorded by Old FNF in connection with its 2005 distribution of
a minority interest in FNT.
Minority interest expense for 2007, 2006 and 2005 was less than
$0.1 million, $154.6 million, and $70.4 million,
respectively. The decrease in minority interest expense in 2007
compared to 2006 is primarily attributable to earnings generated
by FIS and FNT, in which, prior to October 24, 2006, Old
FNF held ownership
44
positions of 50.7% and 82.5%, respectively. The increase in
minority interest expense in 2006 relates primarily to recording
minority interest expense on the earnings of FIS since the
March 9, 2005 sale of a 25% minority interest and recording
minority interest on the earnings of FNT since the
October 17, 2005 minority interest distribution to Old FNF
shareholders.
Segment
Results of Operations
Fidelity
National Title Group
The following table presents certain financial data for the
years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Direct title insurance premiums
|
|
$
|
1,601,768
|
|
|
$
|
1,883,357
|
|
|
$
|
2,184,993
|
|
Agency title insurance premiums
|
|
|
2,198,690
|
|
|
|
2,724,972
|
|
|
|
2,763,973
|
|
Escrow, title-related and other fees
|
|
|
1,034,574
|
|
|
|
1,109,293
|
|
|
|
1,204,127
|
|
Interest and investment income
|
|
|
167,341
|
|
|
|
167,007
|
|
|
|
111,628
|
|
Realized gains and losses, net
|
|
|
5,080
|
|
|
|
14,627
|
|
|
|
36,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
5,007,453
|
|
|
|
5,899,256
|
|
|
|
6,301,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
1,594,516
|
|
|
|
1,789,805
|
|
|
|
1,897,904
|
|
Other operating expenses
|
|
|
891,838
|
|
|
|
891,111
|
|
|
|
920,905
|
|
Agent commissions
|
|
|
1,698,085
|
|
|
|
2,099,244
|
|
|
|
2,140,912
|
|
Depreciation and amortization
|
|
|
120,223
|
|
|
|
110,487
|
|
|
|
102,105
|
|
Provision for claim losses
|
|
|
502,250
|
|
|
|
345,578
|
|
|
|
354,710
|
|
Interest expense
|
|
|
14,597
|
|
|
|
12,755
|
|
|
|
16,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,821,509
|
|
|
|
5,248,980
|
|
|
|
5,433,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and minority interest
|
|
$
|
185,944
|
|
|
$
|
650,276
|
|
|
$
|
868,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues in 2007 decreased $891.8 million to
$5,007.5 million, a decrease of 15.1% compared to 2006.
Total revenue in 2006 decreased $402.2 million to
$5,899.3 million, or 6.4%, compared to 2005. For an
analysis of this segments revenues, please see the
analysis of direct and agency title insurance premiums and
escrow and other title-related fees under Consolidated
Results of Operations.
Interest and investment income levels are primarily a function
of securities markets, interest rates and the amount of cash
available for investment. Interest and investment income in 2007
was $167.3 million, $167.0 million, and
$111.6 million in 2007, 2006, and 2005, respectively. In
2007, an increase in interest rates was partially offset by a
decrease in the short-term investment asset base. The increase
in interest and investment income in 2006 was primarily due to
an increase in the short-term investment and fixed income asset
base and an increase in interest rates. Average invested assets
were $3,791.4 million, $4,009.4 million, and
$3,732.6 million in 2007, 2006, and 2005, respectively. The
tax equivalent yield, excluding realized gains and losses, was
5.3%, 4.8%, and 3.8% in 2007, 2006, and 2005, respectively.
Net realized gains and losses for 2007, 2006, and 2005 were
$5.1 million, $14.6 million, and $36.8 million,
respectively, each made up of a number of gains and losses on
various transactions, none of which were individually
significant.
Personnel costs include base salaries, commissions, benefits and
bonuses paid to employees, and are one of our most significant
operating expenses. Personnel costs totaled
$1,594.5 million, $1,789.8 million, and
$1,897.9 million for the years ended December 31,
2007, 2006, and 2005, respectively. Personnel costs, as a
percentage of direct title insurance premiums and escrow,
title-related and other fees, were 60.5% in 2007, 59.8% in 2006,
and 56.0% in 2005. The increase in personnel costs as a
percentage of related revenue in 2006 was primarily due to
increased salary and benefit costs due to competition. Average
annualized personnel cost per employee decreased slightly in
2007 and
45
2006, reflecting decreases in variable personnel costs such as
overtime, commissions and bonuses, partially offset in 2006 by
increases in fixed personnel costs caused by increased
competition. Average employee count decreased to 16,416 in 2007
from 18,352 in 2006 and 19,302 in 2005.
Other operating expenses consist primarily of facilities
expenses, title plant maintenance, premium taxes (which
insurance underwriters are required to pay on title premiums in
lieu of franchise and other state taxes), postage and courier
services, computer services, professional services, advertising
expenses, general insurance, and trade and notes receivable
allowances. Other operating expenses totaled
$891.8 million, $891.1 million, and
$920.9 million for the years ended December 31, 2007,
2006 and 2005, respectively. Other operating expenses as a
percentage of direct title insurance premiums and escrow,
title-related and other fees were 33.8% in 2007, 29.8% in 2006,
and 27.2% in 2005, with the increase in 2007 primarily due to a
decrease in benefits related to our escrow balances, which are
reflected as an offset to other operating expenses, an increase
in legal and regulatory expenses, and an abandoned lease charge
of $13.0 million relating to office closures. As a result
of holding customers assets in escrow, we have ongoing
programs for realizing economic benefits. Those economic
benefits decreased due to a decrease in escrow balances and an
increase in the portion of those benefits derived from tax
exempt income. Legal and regulatory expenses increased due to an
increase in class action litigation and our response to a target
letter received from the United States Attorneys Office in
the Southern District of Texas, which was successfully resolved
during the second quarter. The increase in other operating
expenses as a percentage of direct title insurance premiums and
escrow, title-related and other fees in 2006 was primarily due
to declining order volumes, which resulted in the decline in
revenue outpacing cost reductions.
Agent commissions represent the portion of premiums retained by
agents pursuant to the terms of their respective agency
contracts. Agent commissions and the resulting percentage of
agent premiums we retain vary according to regional differences
in real estate closing practices and state regulations.
The provision for claim losses includes an estimate of
anticipated title and title-related claims and escrow losses.
The estimate of anticipated title and title-related claims is
accrued as a percentage of title premium revenue based on our
historical loss experience and other relevant factors. We
monitor our claims loss experience on a continual basis and
adjust the provision for claim losses accordingly as new
information becomes known, new loss patterns emerge, or as other
contributing factors are considered and incorporated into the
analysis of the reserve for claim losses. The claim loss
provision for title insurance was $502.3 million,
$345.6 million, and $354.7 million in 2007, 2006, and
2005, respectively. The provision for claim losses in 2007
reflected a provision of 7.5% of title premiums and additional
charges of $217.2 million resulting from adverse claim loss
development on prior policy years. Our claim loss provision as a
percentage of total title premiums was 13.2%, 7.5%, and 7.2% in
2007, 2006, and 2005, respectively.
Specialty
Insurance Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Revenue
|
|
$
|
386,427
|
|
|
$
|
394,613
|
|
|
$
|
428,939
|
|
Interest and investment income
|
|
|
16,231
|
|
|
|
15,565
|
|
|
|
8,991
|
|
Realized gains and losses, net
|
|
|
23
|
|
|
|
17
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
402,681
|
|
|
|
410,195
|
|
|
|
438,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
45,499
|
|
|
|
45,145
|
|
|
|
40,451
|
|
Other operating expenses
|
|
|
144,992
|
|
|
|
144,702
|
|
|
|
135,320
|
|
Depreciation and amortization
|
|
|
6,046
|
|
|
|
6,254
|
|
|
|
4,279
|
|
Provision for claim losses
|
|
|
151,626
|
|
|
|
140,625
|
|
|
|
124,055
|
|
Interest expense
|
|
|
1,478
|
|
|
|
1,443
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
349,641
|
|
|
|
338,169
|
|
|
|
304,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and minority interest
|
|
$
|
53,040
|
|
|
$
|
72,026
|
|
|
$
|
133,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
Revenues from specialty insurance include revenues from the
issuance of flood, homeowners, automobile, and other
personal lines insurance policies and home warranty policies. In
our flood insurance business, we provide coverage under the
National Flood Insurance Program, the U.S. federal flood
insurance program, and receive fees for assistance in settling
claims. Specialty insurance revenues were $402.7 million,
$410.2 million, and $438.0 million in 2007, 2006 and
2005, respectively. The decrease in revenues in 2007 compared to
2006 was due to decreases in flood and home warranty revenues,
partially offset by an increase in revenues from the
homeowners and automobile insurance lines. The decrease in
revenues in 2006 compared to 2005 was due to a decrease in flood
revenues caused by a very active 2005 hurricane season,
partially offset by organic growth in our homeowners
insurance business.
Flood revenues decreased $7.4 million, or 4.8%, in 2007
compared to 2006 and $72.2 million, or 32.0%, in 2006
compared to 2005, in each case reflecting a less active
hurricane season, partially offset by volume and rate increases.
The decrease in revenues in 2006 compared to 2005 was primarily
the result of the large volume of flood insurance claims
processed in 2005 related to three hurricanes: Katrina, Wilma,
and Rita.
Revenues from the homeowners and automobile insurance
lines of business increased $6.6 million, or 4.3%, in 2007
compared to 2006, and $33.9 million, or 29.0%, in 2006
compared to 2005, in each case due to growth as we expand this
business across the country.
Revenues from the home warranty line of business decreased
$7.4 million, or 9.5% in 2007, primarily due to the
decrease in real estate transaction volumes. Home warranty
revenues decreased $0.3 million, or 0.3%, in 2006 compared
to 2005.
Personnel costs were $45.5 million, $45.1 million, and
$40.5 million in 2007, 2006 and 2005, respectively. As a
percentage of total specialty insurance revenues, personnel
costs were 11.3%, 11.0%, and 9.2% in 2007, 2006 and 2005,
respectively. Excluding $100.0 million in revenues
generated by the processing of flood claims associated with
hurricanes Katrina, Wilma and Rita, this percentage was 12.3% in
2005 and the decrease as a percentage of revenues in 2006 and
2007 was primarily the result of growth of the business lines,
which has not required a proportionate increase in personnel.
Other operating expenses in the specialty insurance segment
increased $0.3 million in 2007 compared to 2006 and
increased $9.4 million in 2006 compared to 2005. Other
operating expenses in 2007 were impacted by the results of an
internal review of our treatment of certain costs relating to
insurance policies issued by our specialty insurance segment, in
the course of which we determined that certain costs should be
deferred and amortized over the life of the policy consistent
with the recognition of the premiums. We recorded an adjustment
as of March 31, 2007, increasing prepaid and other assets
and reducing other operating expenses by $12.2 million,
representing amounts that should have been deferred as of
March 31, 2007 on policies issued over the prior twelve
months. This adjustment is not material to the Companys
financial position or results of operations for any previously
reported annual periods. The impact of this adjustment was
offset by the increase in premiums written in our
homeowners insurance business. The increase in 2006 was
due to an increase in premiums written in our homeowners
insurance business. As a percentage of revenues, other operating
expenses were 36.0%, 35.3% and 30.9% in 2007, 2006 and 2005,
respectively.
The provision for claim loss expense was $151.6 million,
$140.6 million, and $124.1 million in 2007, 2006 and
2005, respectively. As a percentage of premiums earned the claim
loss provision was 63.9%, 62.7%, and 65.8% in 2007, 2006 and
2005, respectively. The increases in 2007 and 2006 were
primarily the result of the increases in volumes in the
homeowners insurance business. The 2007 and 2006
provisions also reflect positive development in trends of prior
accident years.
47
A summary of the reserve for claim losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Beginning balance
|
|
$
|
65,764
|
|
|
$
|
45,434
|
|
|
$
|
13,398
|
|
Claim loss provision related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
165,659
|
|
|
|
148,328
|
|
|
|
121,421
|
|
Prior years
|
|
|
(14,033
|
)
|
|
|
(7,703
|
)
|
|
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claim loss provision
|
|
|
151,626
|
|
|
|
140,625
|
|
|
|
124,055
|
|
Claims paid, net of recoupments related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
(115,643
|
)
|
|
|
(92,893
|
)
|
|
|
(81,113
|
)
|
Prior years
|
|
|
(35,898
|
)
|
|
|
(27,402
|
)
|
|
|
(10,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total claims paid, net of recoupments
|
|
|
(151,541
|
)
|
|
|
(120,295
|
)
|
|
|
(92,019
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
65,849
|
|
|
$
|
65,764
|
|
|
$
|
45,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
and Other Segment
The corporate and other segment is primarily comprised of the
operations of our parent holding company and smaller entities
not included in our operating subsidiaries. It generated a
pretax loss of $62.5 million and $97.5 million in 2007
and 2006, respectively, and $286.1 million in pretax
earnings in 2005. In 2007, we recorded income of
$12.3 million in management fees under an agreement entered
into in connection with the acquisition of Ceridian. The 2005
earnings were largely due to the gain on sale of subsidiary
securities in connection with the sale of a minority interest in
FIS, offset by income tax and by minority interest expense
related to the distribution of a minority interest in FNT.
Fidelity
National Information Services, Inc.
The Companys consolidated results of operations include
FIS results of operations through October 23, 2006.
Thus, while a full year of activity is presented for 2005, the
2006 results of operations only include activity until
October 24, 2006, the closing date of the 2006
Distribution. The FIS segment generated revenues of
$3,280.4 million and $2,766.1 million and net earnings
of $200.0 million and $196.6 million in 2006 and 2005,
respectively.
Liquidity
and Capital Resources
Cash Requirements. Our cash requirements
include operating expenses, taxes, payments of interest and
principal on our debt, capital expenditures, business
acquisitions, and dividends on our common stock. We intend to
pay an annual dividend of $1.20 per share on our common stock,
payable quarterly, or an aggregate of approximately
$255.8 million per year, although the declaration of any
future dividends is at the discretion of our board of directors.
We believe that all anticipated cash requirements for current
operations will be met from internally generated funds, through
cash dividends from subsidiaries, cash generated by investment
securities and borrowings on existing credit facilities. Our
short-term and long-term liquidity requirements are monitored
regularly to ensure that we can meet our cash requirements. We
forecast the needs of all of our subsidiaries and periodically
review their short-term and long-term projected sources and uses
of funds, as well as the asset, liability, investment and cash
flow assumptions underlying such forecasts.
Our insurance subsidiaries generate cash from premiums earned
and their respective investment portfolios and these funds are
adequate to satisfy the payments of claims and other
liabilities. Due to the magnitude of our investment portfolio in
relation to our claims loss reserves, we do not specifically
match durations of our investments to the cash outflows required
to pay claims, but do manage outflows on a shorter time frame.
Our two significant sources of internally generated funds are
dividends and other payments from our subsidiaries. As a holding
company, we receive cash from our subsidiaries in the form of
dividends and as reimbursement for operating and other
administrative expenses we incur. The reimbursements are paid
within the
48
guidelines of management agreements among us and our
subsidiaries. Our insurance subsidiaries are restricted by state
regulation in their ability to pay dividends and make
distributions. Each state of domicile regulates the extent to
which our title underwriters can pay dividends or make
distributions. As of December 31, 2007,
$1,802.3 billion of our net assets were restricted from
dividend payments without prior approval from the relevant
departments of insurance. During 2008, our first tier title
insurance subsidiaries can pay or make distributions to us of
approximately $251.1 million without prior regulatory
approval. Our underwritten title companies and non-title
insurance subsidiaries collect revenue and pay operating
expenses. However, they are not regulated to the same extent as
our insurance subsidiaries.
Capital Expenditures. Total capital
expenditures for property and equipment were $83.9 million,
$145.4 million, and $149.9 million in 2007, 2006, and
2005, respectively and included FIS expenditures of
$87.7 million and $79.6 million for 2006 and 2005,
respectively. Total capital expenditures for software were
$29.3 million, $180.9 million, and $166.1 million
in 2007 and 2006, and 2005 respectively, and were primarily
comprised of FIS expenditures in both 2006 and 2005.
Financing. Effective October 24, 2006, we
entered into a credit agreement (the Credit
Agreement) with Bank of America, N.A. as Administrative
Agent and Swing Line Lender, and the other financial
institutions party thereto. Effective October 11, 2007, we
exercised an option to increase the size of the credit facility
by an additional $300 million. The Credit Agreement, which
replaced our previous credit agreement, provides for a
$1.1 billion unsecured revolving credit facility, including
the $300 million increase, maturing on the fifth
anniversary of the closing date. Amounts under the revolving
credit facility may be borrowed, repaid and reborrowed by the
borrower thereunder from time to time until the maturity of the
revolving credit facility. Voluntary prepayment of the revolving
credit facility under the Credit Agreement is permitted at any
time without fee upon proper notice and subject to a minimum
dollar requirement. Revolving loans under the credit facility
bear interest at a variable rate based on either (i) the
higher of (a) a rate per annum equal to one-half of one
percent in excess of the Federal Reserves Federal Funds
rate, or (b) Bank of Americas prime rate
or (ii) a rate per annum equal to the British Bankers
Association London Interbank Offered Rate (LIBOR)
plus a margin of between 0.23%-0.675%, depending on our then
current senior unsecured long-term debt rating from the rating
agencies. In addition, we pay a commitment fee between
0.07%-0.175% on the entire facility, also depending on our
senior unsecured long-term debt rating. As of December 31,
2007, we had borrowed $535 million under the Credit
Agreement, bearing interest at 5.21%.
The Credit Agreement contains affirmative, negative and
financial covenants customary for financings of this type,
including, among other things, limits on the creation of liens,
sales of assets, the incurrence of indebtedness, restricted
payments, transactions with affiliates, and certain amendments.
The Credit Agreement prohibits us from paying dividends to our
stockholders if an event of default has occurred and is
continuing or would result therefrom. The Credit Agreement
requires us to maintain certain financial ratios and levels of
capitalization. The Credit Agreement includes customary events
of default for facilities of this type (with customary grace
periods, as applicable). These events of default include a
cross-default provision that, subject to limited exceptions,
permits the lenders to declare the Credit Agreement in default
if: (i) (A) we fail to make any payment after the
applicable grace period under any indebtedness with a principal
amount (including undrawn committed amounts) in excess of 3% of
our net worth, as defined in the Credit Agreement, or
(B) we fail to perform any other term under any such
indebtedness, or any other event occurs, as a result of which
the holders thereof may cause it to become due and payable prior
to its maturity; or (ii) certain termination events occur
under significant interest rate, equity or other swap contracts.
The Credit Agreement provides that, upon the occurrence of an
event of default, the interest rate on all outstanding
obligations will be increased and payments of all outstanding
loans may be accelerated
and/or the
lenders commitments may be terminated. In addition, upon
the occurrence of certain insolvency or bankruptcy related
events of default, all amounts payable under the Credit
Agreement shall automatically become immediately due and
payable, and the lenders commitments will automatically
terminate.
In connection with the purchase of certain leasing assets from
FIS (see Transactions with Related Parties in
note A of Notes to Consolidated Financial Statements), we
assumed certain liabilities associated with those assets. These
liabilities include various bank promissory notes, which are
non-recourse obligations and are secured by interests in certain
leases and underlying equipment. These promissory notes, with a
balance of $133.1 million at December 31, 2007, bear
interest at various fixed rates and mature at various dates. In
addition, we also assumed a
49
$20 million revolving credit facility. This facility is
also secured by interests in certain leases and underlying
equipment, bears interest at Prime-0.5%, and is due August 2008.
As of December 31, 2007, $18 million was unused. On
September 30, 2007, also in connection with the acquisition
of certain leasing assets from FIS, we entered into an unsecured
note due to FIS in the amount of $7.3 million. The note
bears interest at LIBOR+0.45%, includes principal amortization
of $0.2 million per quarter and is due October, 2012.
Our outstanding debt also includes $241.3 million aggregate
principal amount of our 7.30% notes due 2011 and
$250.0 million aggregate principal amount of our
5.25% notes due 2013. These notes contain customary
covenants and events of default for investment grade public
debt. They do not include a cross-default provision.
We lend fixed maturity and equity securities to financial
institutions in short-term security lending transactions. Our
security lending policy requires that the cash received as
collateral be 102% or more of the fair value of the loaned
securities. These short-term security lending arrangements
increase investment income with minimal risk. At
December 31, 2007, we had security loans outstanding with a
fair value of $271.8 million included in accounts payable
and accrued liabilities and we held cash in the same amount as
collateral for the loaned securities.
In addition to the foregoing financing arrangements of the
Company, our historical financial statements for years prior to
2007 reflect debt and interest expense of Old FNF and its other
subsidiaries, principally FIS.
Seasonality. Historically, real estate
transactions have produced seasonal revenue levels for title
insurers. The first calendar quarter is typically the weakest
quarter in terms of revenue due to the generally low volume of
home sales during January and February. The third calendar
quarter has been typically the strongest in terms of revenue
primarily due to a higher volume of home sales in the summer
months and the fourth calendar quarter is usually also strong
due to commercial entities desiring to complete transactions by
year-end. During 2007, we have seen a divergence from these
historical trends as tighter lending standards, including a
significant reduction in the availability of subprime mortgage
lending, combined with rising default levels and a bearish
outlook on the real estate environment have caused home buyers
to be more reluctant to buy homes and have suppressed refinance
activity.
Contractual Obligations. Our long term
contractual obligations generally include our loss reserves, our
credit agreements and other debt facilities and operating lease
payments on certain of our premises and equipment. As of
December 31, 2007, our required annual payments relating to
these contractual obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Notes payable
|
|
$
|
61,761
|
|
|
$
|
44,577
|
|
|
$
|
18,597
|
|
|
$
|
781,940
|
|
|
$
|
7,434
|
|
|
$
|
253,430
|
|
|
$
|
1,167,739
|
|
Operating lease payments
|
|
|
131,821
|
|
|
|
100,930
|
|
|
|
72,067
|
|
|
|
46,369
|
|
|
|
25,528
|
|
|
|
81,417
|
|
|
|
458,132
|
|
Pension and post retirement payments
|
|
|
17,057
|
|
|
|
14,840
|
|
|
|
16,085
|
|
|
|
16,018
|
|
|
|
15,768
|
|
|
|
87,196
|
|
|
|
166,964
|
|
Title claim losses
|
|
|
250,257
|
|
|
|
192,472
|
|
|
|
145,099
|
|
|
|
107,342
|
|
|
|
86,682
|
|
|
|
540,770
|
|
|
|
1,322,622
|
|
Specialty insurance claim losses
|
|
|
49,746
|
|
|
|
11,995
|
|
|
|
3,521
|
|
|
|
587
|
|
|
|
|
|
|
|
|
|
|
|
65,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
510,642
|
|
|
$
|
364,814
|
|
|
$
|
255,369
|
|
|
$
|
952,256
|
|
|
$
|
135,412
|
|
|
$
|
962,813
|
|
|
$
|
3,181,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, we had title insurance reserves of
$1,322.6 million. The amounts and timing of these
obligations are estimated and are not set contractually.
Nonetheless, based on historical title insurance claim
experience, we anticipate the above payment patterns. While we
believe that historical loss payments are a reasonable source
for projecting future claim payments, there is significant
inherent uncertainty in this payment pattern estimate because of
the potential impact of changes in:
|
|
|
|
|
future mortgage interest rates, which will affect the number of
real estate and refinancing transactions and, therefore, the
rate at which title insurance claims will emerge;
|
|
|
|
the legal environment whereby court decisions and
reinterpretations of title insurance policy language to broaden
coverage could increase total obligations and influence claim
payout patterns;
|
50
|
|
|
|
|
events such as fraud, defalcation, and multiple property title
defects that can substantially and unexpectedly cause increases
in both the amount and timing of estimated title insurance loss
payments;
|
|
|
|
loss cost trends whereby increases or decreases in inflationary
factors (including the value of real estate) will influence the
ultimate amount of title insurance loss payments; and
|
|
|
|
claims staffing levels whereby claims may be settled at a
different rate based on the future staffing levels of the claims
department.
|
In addition to our title insurance reserves, at
December 31, 2007, we held claim reserves of
$65.8 million in our specialty insurance business segment.
There is uncertainty with respect to the precise payout pattern
of these reserves, which we have estimated in the table above
based on historical experience.
Capital Stock Transactions. On
October 25, 2006, our Board of Directors approved a
three-year stock repurchase program under which we can
repurchase up to 25 million shares of our common stock. We
may make purchases from time to time in the open market, in
block purchases or in privately negotiated transactions,
depending on market conditions and other factors. None of our
common stock was repurchased under this plan in 2006. We began
purchasing shares under this program on a regular basis on
April 30, 2007 and, through December 31, 2007, we have
repurchased a total of 9,675,000 shares for
$183.1 million, or an average of $18.93 per share.
This includes 1,000,000 shares which we purchased from our
Chairman of the Board, William P. Foley, II. In August
2007, Mr. Foley planned to sell 1,000,000 shares of
FNF stock on the open market. Because the Company was actively
purchasing shares of treasury stock on the open market at the
same time, the Company agreed to purchase 1,000,000 shares
from Mr. Foley on August 8, 2007, for
$22.1 million, or $22.09 per share, the market price at the
time of the purchase. From time to time, we evaluate whether we
should raise cash through borrowings under our Credit Agreement
or new financings, including, potentially, financings that would
or would not increase our number of outstanding shares, and use
the cash to buy back shares. The proceeds of any such financing
could alternatively be used to pay for acquisitions or for other
general corporate purposes. There can be no assurance that we
will enter into any such financing transaction or repurchase any
shares.
Additional Minimum Pension Liability
Adjustment. We recorded a net-of-tax credit of
$10.7 million to accumulated other comprehensive loss in
2007 in accordance with Statement of Financial Accounting
Standards No. 87, Employers Accounting for
Pensions, for the change in our minimum pension liability.
Equity Investments. Our equity investments are
in companies whose values are subject to significant volatility.
Should the fair value of these investments fall below our cost
basis and/or
the financial condition or prospects of these companies
deteriorate, we may determine in a future period that this
decline in fair value is other-than-temporary, requiring that an
impairment loss be recognized in the period such a determination
is made.
Off-Balance Sheet Arrangements. We do not
engage in off-balance sheet activities other than facility and
equipment leasing arrangements. On June 29, 2004, Old FNF
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 that is part of our
corporate campus and headquarters. The lease expires on
June 28, 2011, with renewal subject to consent of the
lessor and the lenders. The lessor is a third-party limited
liability company. The synthetic lease facility provides for
amounts up to $75.0 million. As of December 31, 2007,
the full $75.0 million had been drawn on the facility to
finance land costs and related fees and expenses and the
outstanding balance was $70.1 million. The lease includes
guarantees by us of up to 86.7% 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 financed the
acquisition of the facilities through funding provided by
third-party financial institutions. We have no affiliation or
relationship with the lessor or any of its employees, directors
or affiliates, and our transactions with the lessor are limited
to the operating lease agreement and the associated rent expense
that is included in other operating expenses in the Consolidated
Statements of Earnings.
51
We do not believe the lessor is a variable interest entity, as
defined in FASB Interpretation No. 46R, Consolidation
of Variable Interest Entities (FIN 46).
In addition, we have verified that even if the lessor was
determined to be a variable interest entity, we would not be
required to consolidate the lessor or the assets and liabilities
associated with the assets leased to us. This is because the
assets leased by us will not exceed 50% of the total fair value
of the lessors assets excluding any assets that should be
excluded from such calculation under FIN 46, nor did the
lessor finance 95% or more of the leased balance with
non-recourse debt, target equity or similar funding.
In conducting our operations, we routinely hold customers
assets in escrow, pending completion of real estate
transactions. Certain of these amounts are maintained in
segregated bank accounts and have not been included in the
Consolidated Balance Sheets. As a result of holding these
customers assets in escrow, we have ongoing programs for
realizing economic benefits during the year through favorable
borrowing and vendor arrangements with various banks. There were
no investments or loans outstanding as of December 31, 2007
related to these arrangements.
Recent
Accounting Pronouncements
For a description of recent accounting pronouncements, please
see note A of Notes to Consolidated Financial Statements
included elsewhere herein.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
In the normal course of business, we are routinely subject to a
variety of risks, as described in the Risk Factors section of
this Annual Report on
Form 10-K
and in our other filings with the Securities and Exchange
Commission. For example, we are exposed to the risk that
decreased real estate activity, which depends in part on the
level of interest rates, may reduce our title insurance revenues.
The risks related to our business also include certain market
risks that may affect our debt and other financial instruments.
At present, we face the market risks associated with our
marketable equity securities subject to equity price volatility
and with interest rate movements on our outstanding debt and
fixed income investments.
We regularly assess these market risks and have established
policies and business practices designed to protect against the
adverse effects of these exposures.
At December 31, 2007, we had $1.2 billion in long-term
debt, of which $544.1 million bears interest at a floating
rate. Our fixed maturity investments and borrowings are subject
to an element of market risk from changes in interest rates.
Increases and decreases in prevailing interest rates generally
translate into decreases and increases in fair values of those
instruments. Additionally, fair values of interest rate
sensitive instruments may be affected by the creditworthiness of
the issuer, prepayment options, relative values of alternative
investments, the liquidity of the instrument and other general
market conditions. We manage interest rate risk through a
variety of measures. We monitor our interest rate risk and make
investment decisions to manage the perceived risk. However, we
do not currently use derivative financial instruments in any
material amount to hedge these risks. .
Equity price risk is the risk that we will incur economic losses
due to adverse changes in equity prices. In the past, our
exposure to changes in equity prices primarily resulted from our
holdings of equity securities. At December 31, 2007, we
held $93.3 million in equity securities. The carrying
values of investments subject to equity price risks are based on
quoted market prices as of the balance sheet date. Market prices
are subject to fluctuation and, consequently, the amount
realized in the subsequent sale of an investment may
significantly differ from the reported market value. Fluctuation
in the market price of a security may result from perceived
changes in the underlying economic characteristics of the
investee, the relative price of alternative investments and
general market conditions. Furthermore, amounts realized in the
sale of a particular security may be affected by the relative
quantity of the security being sold. We principally manage
equity price risk through industry and issuer diversification
and asset allocation techniques.
For purposes of this Annual Report on
Form 10-K,
we perform a sensitivity analysis to determine the effects that
market risk exposures may have on the fair values of our debt
and other financial instruments.
52
The financial instruments that are included in the sensitivity
analysis with respect to interest rate risk include fixed
maturity investments and notes payable. The financial
instruments that are included in the sensitivity analysis with
respect to equity price risk include marketable equity
securities. It is not anticipated that there would be a
significant change in the fair value of other long-term
investments or short-term investments if there were a change in
market conditions, based on the nature and duration of the
financial instruments involved.
To perform the sensitivity analysis, we assess the risk of loss
in fair values from the effect of hypothetical changes in
interest rates and equity prices on market-sensitive
instruments. The changes in fair values for interest rate risks
are determined by estimating the present value of future cash
flows using various models, primarily duration modeling. The
changes in fair values for equity price risk are determined by
comparing the market price of investments against their reported
values as of the balance sheet date.
Information provided by the sensitivity analysis does not
necessarily represent the actual changes in fair value that we
would incur under normal market conditions because, due to
practical limitations, all variables other than the specific
market risk factor are held constant. For example, our reserve
for claim losses (representing 31.8% of total liabilities at
December 31, 2007) is not included in the hypothetical
effects.
We have no market risk sensitive instruments entered into for
trading purposes; therefore, all of our market risk sensitive
instruments were entered into for purposes other than trading.
The results of the sensitivity analysis at December 31,
2007, and December 31, 2006, are as follows:
Interest
Rate Risk
At December 31, 2007, an increase (decrease) in the levels
of interest rates of 100 basis points, with all other
variables held constant, would result in a (decrease) increase
in the fair value of our fixed maturity securities of
$91.9 million as compared with a (decrease) increase of
$100.7 million at December 31, 2006.
Additionally, for the year ended December 31, 2007, an
increase (decrease) of 100 basis points in the levels of
interest rates, with all other variables held constant, would
result in an increase (decrease) in the interest expense on our
average outstanding floating rate debt of $1.0 million. At
December 31, 2006, we had no floating rate debt outstanding.
Equity
Price Risk
At December 31, 2007, a 20% increase (decrease) in market
prices, with all other variables held constant, would result in
an increase (decrease) in the fair value of our equity
securities of $18.7 million, as compared with an increase
(decrease) of $43.3 million at December 31, 2006.
53
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Fidelity National Financial, Inc.:
We have audited Fidelity National Financial, Inc.s
internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control - Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Fidelity National Financial, Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Fidelity National Financial, Inc. maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on criteria
established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Balance Sheets of Fidelity National Financial, Inc.
and subsidiaries as of December 31, 2007 and 2006, and the
related Consolidated Statements of Earnings, Comprehensive
Earnings, Stockholders Equity and Cash Flows for each of
the years in the three-year period ended December 31, 2007,
and our report dated February 28, 2008 expressed an
unqualified opinion on those Consolidated Financial Statements.
/s/ KPMG LLP
February 28, 2008
Jacksonville, Florida
Certified Public Accountants
55
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Fidelity National Financial, Inc.:
We have audited the accompanying Consolidated Balance Sheets of
Fidelity National Financial, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the related Consolidated
Statements of Earnings, Comprehensive Earnings,
Stockholders Equity and Cash Flows for each of the years
in the three-year period ended December 31, 2007. These
Consolidated Financial Statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these Consolidated Financial Statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred
to above present fairly, in all material respects, the financial
position of Fidelity National Financial, Inc. and subsidiaries
as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles.
As discussed in Notes A and M to the Consolidated Financial
Statements, effective January 1, 2006, the Company adopted
the fair value method of accounting for stock-based compensation
as required by Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment. As discussed
in Note M to the Consolidated Financial Statements, the
Company adopted the recognition provisions of Statement of
Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, as of December 31, 2006.
As discussed in Note I to the Consolidated Financial
Statements, effective January 1, 2007, the Company adopted
the recognition and disclosure provisions of Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Fidelity National Financial, Inc.s internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report
dated February 28, 2008 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
/s/ KPMG LLP
February 28, 2008
Jacksonville, Florida
Certified Public Accountants
56
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except
|
|
|
|
share data)
|
|
|
ASSETS
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturities available for sale, at fair value, at
December 31, 2007 and 2006, includes pledged fixed
maturities of $335,270 and $288,420, respectively, related to
secured trust deposits and $264,202 and $305,313, respectively,
related to the securities lending program
|
|
$
|
2,824,572
|
|
|
$
|
2,901,964
|
|
Equity securities, at fair value
|
|
|
93,272
|
|
|
|
207,307
|
|
Investments in unconsolidated affiliates
|
|
|
738,356
|
|
|
|
153,962
|
|
Other long-term investments
|
|
|
18,255
|
|
|
|
10,147
|
|
Short-term investments, at December 31, 2007 and 2006
includes $178,568 and $408,363, respectively, of pledged
short-term investments related to secured trust deposits
|
|
|
427,366
|
|
|
|
848,371
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
4,101,821
|
|
|
|
4,121,751
|
|
Cash and cash equivalents, at December 31, 2007 and 2006,
includes pledged cash of $193,484 and $228,458, respectively,
related to secured trust deposits and $271,807 and $316,019,
respectively, related to the securities lending program
|
|
|
569,562
|
|
|
|
676,444
|
|
Trade and notes receivables, net of allowance of $13,091 and
$12,674 at December 31,2007 and 2006, respectively, and, at
December 31, 2006, includes $12,528 note receivable from FIS
|
|
|
227,849
|
|
|
|
251,544
|
|
Goodwill
|
|
|
1,339,705
|
|
|
|
1,154,298
|
|
Prepaid expenses and other assets
|
|
|
436,392
|
|
|
|
271,732
|
|
Capitalized software
|
|
|
93,413
|
|
|
|
83,538
|
|
Other intangible assets
|
|
|
122,383
|
|
|
|
95,787
|
|
Title plants
|
|
|
331,888
|
|
|
|
324,155
|
|
Property and equipment, net
|
|
|
266,156
|
|
|
|
254,350
|
|
Income taxes receivable
|
|
|
67,245
|
|
|
|
25,960
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,556,414
|
|
|
$
|
7,259,559
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities, at December 31,
2007 and 2006, includes $271,807 and $316,019, respectively, of
security loans related to the securities lending program
|
|
$
|
823,109
|
|
|
$
|
932,479
|
|
Accounts payable to FIS
|
|
|
13,890
|
|
|
|
5,208
|
|
Deferred revenue
|
|
|
114,705
|
|
|
|
130,543
|
|
Notes payable, at December 31, 2007, includes $7,059 note
payable to FIS
|
|
|
1,167,739
|
|
|
|
491,167
|
|
Reserve for claim losses
|
|
|
1,388,471
|
|
|
|
1,220,636
|
|
Secured trust deposits
|
|
|
689,935
|
|
|
|
905,461
|
|
Deferred tax liabilities
|
|
|
60,609
|
|
|
|
43,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,258,458
|
|
|
|
3,729,147
|
|
Minority interests
|
|
|
53,868
|
|
|
|
56,044
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, Class A, $0.0001 par value; authorized,
600,000,000 shares as of December 31, 2007 and 2006,
respectively; issued, 223,069,076 and 221,507,939 at
December 31, 2007 and 2006, respectively
|
|
|
22
|
|
|
|
22
|
|
Preferred stock, $0.0001 par value; authorized,
50,000,000 shares; issued and outstanding, none
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
3,236,866
|
|
|
|
3,193,904
|
|
Retained earnings
|
|
|
213,103
|
|
|
|
345,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,449,991
|
|
|
|
3,539,442
|
|
Accumulated other comprehensive loss
|
|
|
(16,630
|
)
|
|
|
(63,046
|
)
|
Less treasury stock, 10,032,449 shares and
94,781 shares as of December 31, 2007 and 2006,
respectively, at cost
|
|
|
(189,273
|
)
|
|
|
(2,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
3,244,088
|
|
|
|
3,474,368
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,556,414
|
|
|
$
|
7,259,559
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
57
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct title insurance premiums
|
|
$
|
1,601,768
|
|
|
$
|
1,957,064
|
|
|
$
|
2,261,499
|
|
Agency title insurance premiums
|
|
|
2,198,690
|
|
|
|
2,649,136
|
|
|
|
2,683,545
|
|
Escrow, title-related and other fees
|
|
|
1,132,415
|
|
|
|
1,114,047
|
|
|
|
1,205,979
|
|
Transaction processing
|
|
|
|
|
|
|
3,094,370
|
|
|
|
2,570,372
|
|
Specialty insurance
|
|
|
386,427
|
|
|
|
394,613
|
|
|
|
428,939
|
|
Interest and investment income
|
|
|
186,252
|
|
|
|
208,309
|
|
|
|
144,966
|
|
Gain on sale of minority interest in FIS
|
|
|
|
|
|
|
|
|
|
|
318,209
|
|
Realized gains and losses, net
|
|
|
18,458
|
|
|
|
18,562
|
|
|
|
41,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,524,010
|
|
|
$
|
9,436,101
|
|
|
$
|
9,654,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs
|
|
|
1,700,935
|
|
|
|
3,225,319
|
|
|
|
3,224,678
|
|
Other operating expenses
|
|
|
1,109,438
|
|
|
|
2,075,101
|
|
|
|
1,702,353
|
|
Agent commissions
|
|
|
1,698,215
|
|
|
|
2,035,423
|
|
|
|
2,060,467
|
|
Depreciation and amortization
|
|
|
130,092
|
|
|
|
460,750
|
|
|
|
406,259
|
|
Provision for claim losses
|
|
|
653,876
|
|
|
|
486,334
|
|
|
|
480,556
|
|
Interest expense
|
|
|
54,941
|
|
|
|
209,972
|
|
|
|
172,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,347,497
|
|
|
|
8,492,899
|
|
|
|
8,046,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and minority interest
|
|
|
176,513
|
|
|
|
943,202
|
|
|
|
1,607,940
|
|
Income tax expense
|
|
|
46,776
|
|
|
|
350,871
|
|
|
|
573,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before minority interest
|
|
|
129,737
|
|
|
|
592,331
|
|
|
|
1,034,549
|
|
Minority interest
|
|
|
(32
|
)
|
|
|
154,570
|
|
|
|
70,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
129,769
|
|
|
$
|
437,761
|
|
|
$
|
964,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share
|
|
$
|
0.60
|
|
|
$
|
2.40
|
|
|
$
|
5.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic basis
|
|
|
216,583
|
|
|
|
182,031
|
|
|
|
173,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share
|
|
$
|
0.59
|
|
|
$
|
2.39
|
|
|
$
|
5.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, diluted basis
|
|
|
219,989
|
|
|
|
182,861
|
|
|
|
173,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
58
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Net earnings
|
|
$
|
129,769
|
|
|
$
|
437,761
|
|
|
$
|
964,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investments and other financial
instruments, net(1)
|
|
|
44,516
|
|
|
|
25,632
|
|
|
|
(23,545
|
)
|
Foreign currency translation unrealized loss(2)
|
|
|
2,285
|
|
|
|
(497
|
)
|
|
|
(19,637
|
)
|
Reclassification adjustments for gains included in net
earnings(3)
|
|
|
(11,101
|
)
|
|
|
(13,398
|
)
|
|
|
(18,904
|
)
|
Reclassification adjustments relating to minority interests
|
|
|
|
|
|
|
(2,295
|
)
|
|
|
17,356
|
|
Minimum pension liability adjustment(4)
|
|
|
10,716
|
|
|
|
6,379
|
|
|
|
(6,784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss)
|
|
|
46,416
|
|
|
|
15,821
|
|
|
|
(51,514
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings
|
|
$
|
176,185
|
|
|
$
|
453,582
|
|
|
$
|
912,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of income tax expense (benefit) of $25.7 million,
$15.2 million, and $(12.9) million for 2007, 2006 and
2005, respectively. |
|
(2) |
|
Net of income tax expense (benefit) of $1.4 million,
$(0.1) million and $(0.5) million for 2007, 2006 and
2005, respectively. |
|
(3) |
|
Net of income tax expense of $(6.4) million,
$(7.9) million, and $(11.1) million for 2007, 2006 and
2005, respectively. |
|
(4) |
|
Net of income tax expense (benefit) of $6.2 million,
$4.0 million, and $(2.0) million for 2007, 2006 and
2005, respectively. |
See Notes to Consolidated Financial Statements.
59
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Investment by
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Parent /Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Earnings (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
Balance, December 31, 2004
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
3,212,229
|
|
|
$
|
1,515,215
|
|
|
$
|
(27,353
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
4,700,091
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,874
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,846
|
|
Tax benefit associated with the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,844
|
|
Acquisition of Hansen Quality Loan Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,625
|
|
Other comprehensive loss unrealized loss on foreign
currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,637
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,637
|
)
|
Other comprehensive loss unrealized loss on
investments and other financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,449
|
)
|
|
|
|
|
|
|
|
|
|
|
(42,449
|
)
|
Other comprehensive loss minimum pension liability
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,784
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,784
|
)
|
Other comprehensive loss Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,581
|
|
|
|
|
|
|
|
|
|
|
|
4,581
|
|
Amortization of unearned compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,451
|
|
Distribution of common stock
|
|
|
30,370
|
|
|
|
3
|
|
|
|
143,176
|
|
|
|
14
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Restricted stock
|
|
|
777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,856
|
|
Dividend of 17.5% of Fidelity National Title Group,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,268
|
)
|
|
|
12,775
|
|
|
|
|
|
|
|
|
|
|
|
(422,493
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,940,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,940,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
964,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
964,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
|
31,147
|
|
|
$
|
3
|
|
|
|
143,176
|
|
|
$
|
14
|
|
|
$
|
3,254,960
|
|
|
$
|
103,665
|
|
|
$
|
(78,867
|
)
|
|
|
|
|
|
|
|
|
|
$
|
3,279,775
|
|
Exercise of Old FNF stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,051
|
|
Exercise of new stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,597
|
|
Shares withheld for taxes and Cancelled
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,498
|
)
|
Tax benefit associated with the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,776
|
|
Closing of Securities Exchange and Distribution Agreement
|
|
|
188,646
|
|
|
|
19
|
|
|
|
(143,176
|
)
|
|
|
(14
|
)
|
|
|
(1,046,315
|
)
|
|
|
|
|
|
|
(17,189
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,063,499
|
)
|
Issuance of Restricted stock
|
|
|
1,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Certegy Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
862,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
862,296
|
|
Issuance of Subsidiary stock, net of minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,343
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Investment by
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Parent /Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Earnings
|
|
|
Earnings (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
(In thousands, except per share data)
|
|
|
Other comprehensive earnings unrealized loss on
foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
(497
|
)
|
Other comprehensive earnings unrealized gain on
investments and other financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,234
|
|
|
|
|
|
|
|
|
|
|
|
12,234
|
|
Other comprehensive earnings minimum pension
liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,379
|
|
|
|
|
|
|
|
|
|
|
|
6,379
|
|
Other comprehensive earnings minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,894
|
|
|
|
|
|
|
|
|
|
|
|
14,894
|
|
Capital Contribution to Fidelity National Information Services,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,218
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,912
|
|
Shares withheld for taxes and in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
|
|
|
|
(2,028
|
)
|
|
|
(2,028
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(195,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
437,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
221,508
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
$
|
3,193,904
|
|
|
$
|
345,516
|
|
|
$
|
(63,046
|
)
|
|
|
95
|
|
|
|
(2,028
|
)
|
|
$
|
3,474,368
|
|
Exercise of stock options
|
|
|
1,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,409
|
|
Treasury Stock repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,675
|
|
|
|
(183,148
|
)
|
|
|
(183,148
|
)
|
Tax benefit associated with the exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,687
|
|
Issuance of restricted stock
|
|
|
473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings unrealized loss on
foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,285
|
|
|
|
|
|
|
|
|
|
|
|
2,285
|
|
Other comprehensive earnings unrealized gain on
investments and other financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,415
|
|
|
|
|
|
|
|
|
|
|
|
33,415
|
|
Other comprehensive earnings minimum pension
liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,716
|
|
|
|
|
|
|
|
|
|
|
|
10,716
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,866
|
|
Shares withheld for taxes and in treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
262
|
|
|
|
(4,097
|
)
|
|
|
(4,097
|
)
|
Cash dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262,182
|
)
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
223,069
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
$
|
3,236,866
|
|
|
$
|
213,103,
|
|
|
$
|
(16,630
|
)
|
|
|
10,032
|
|
|
$
|
(189,273
|
)
|
|
$
|
3,244,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
61
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
129,769
|
|
|
$
|
437,761
|
|
|
$
|
964,106
|
|
Adjustment to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
130,092
|
|
|
|
460,750
|
|
|
|
406,259
|
|
Minority interest
|
|
|
(32
|
)
|
|
|
154,570
|
|
|
|
70,443
|
|
Gain on issuance of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
(318,209
|
)
|
Gain on sales of investments and other assets
|
|
|
(18,458
|
)
|
|
|
(18,562
|
)
|
|
|
(53,876
|
)
|
Stock-based compensation cost
|
|
|
29,866
|
|
|
|
64,984
|
|
|
|
34,108
|
|
Tax benefit associated with the exercise of stock options
|
|
|
(4,687
|
)
|
|
|
(81,776
|
)
|
|
|
34,844
|
|
Transaction fee income
|
|
|
(12,293
|
)
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease (increase) in secured trust deposits
|
|
|
2,392
|
|
|
|
(11,700
|
)
|
|
|
(3,054
|
)
|
Net decrease (increase) in trade receivables
|
|
|
22,286
|
|
|
|
98,540
|
|
|
|
(65,103
|
)
|
Net decrease (increase) in prepaid expenses and other assets
|
|
|
11,352
|
|
|
|
(227,034
|
)
|
|
|
(183,437
|
)
|
Net (decrease) increase in accounts payable, accrued
liabilities, deferred revenue and other
|
|
|
(83,664
|
)
|
|
|
(173,771
|
)
|
|
|
149,236
|
|
Net increase in reserve for claim losses
|
|
|
167,835
|
|
|
|
114,866
|
|
|
|
114,289
|
|
Net (decrease) increase in income taxes
|
|
|
(32,527
|
)
|
|
|
(97,480
|
)
|
|
|
166,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
341,931
|
|
|
|
721,148
|
|
|
|
1,316,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities available for sale
|
|
|
4,632,657
|
|
|
|
2,981,431
|
|
|
|
3,187,813
|
|
Proceeds from maturities of investment securities available for
sale
|
|
|
466,744
|
|
|
|
302,842
|
|
|
|
402,285
|
|
Proceeds from sales of assets
|
|
|
8,064
|
|
|
|
4,656
|
|
|
|
21,877
|
|
Collections of notes receivable
|
|
|
8,480
|
|
|
|
4,337
|
|
|
|
6,798
|
|
Cash (expended) received as collateral on loaned securities, net
|
|
|
(3,100
|
)
|
|
|
5,942
|
|
|
|
4,822
|
|
Additions to title plants
|
|
|
(11,453
|
)
|
|
|
(18,493
|
)
|
|
|
(10,437
|
)
|
Additions to property and equipment
|
|
|
(83,852
|
)
|
|
|
(145,387
|
)
|
|
|
(149,911
|
)
|
Additions to capitalized software
|
|
|
(29,335
|
)
|
|
|
(180,875
|
)
|
|
|
(166,081
|
)
|
Additions to notes receivable
|
|
|
(980
|
)
|
|
|
(4,458
|
)
|
|
|
(6,765
|
)
|
Purchases of investment securities available for sale
|
|
|
(5,168,850
|
)
|
|
|
(2,960,536
|
)
|
|
|
(4,259,006
|
)
|
Net proceeds from (purchases of) short-term investment activities
|
|
|
421,006
|
|
|
|
213,340
|
|
|
|
(313,432
|
)
|
Distribution of FIS
|
|
|
|
|
|
|
(145,562
|
)
|
|
|
|
|
Sale of subsidiary, net of cash sold
|
|
|
|
|
|
|
|
|
|
|
454,337
|
|
Contributions to investments in unconsolidated affiliates
|
|
|
(509,173
|
)
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash acquired
|
|
|
(245,825
|
)
|
|
|
(172,955
|
)
|
|
|
(193,061
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(515,617
|
)
|
|
|
(115,718
|
)
|
|
|
(1,020,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
570,468
|
|
|
|
642,203
|
|
|
|
3,001,017
|
|
Debt service payments
|
|
|
(29,431
|
)
|
|
|
(873,109
|
)
|
|
|
(1,159,553
|
)
|
Debt issuance costs
|
|
|
(904
|
)
|
|
|
(1,004
|
)
|
|
|
(35,156
|
)
|
Dividends paid
|
|
|
(262,182
|
)
|
|
|
(195,910
|
)
|
|
|
(1,940,388
|
)
|
Subsidiary dividends paid to minority interest shareholders
|
|
|
(2,024
|
)
|
|
|
(40,896
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
8,409
|
|
|
|
50,648
|
|
|
|
51,846
|
|
Exercise of subsidiary stock options
|
|
|
|
|
|
|
45,852
|
|
|
|
|
|
Tax benefit associated with the exercise of stock options
|
|
|
4,687
|
|
|
|
81,776
|
|
|
|
|
|
Subsidiary purchases of treasury stock
|
|
|
|
|
|
|
(145,689
|
)
|
|
|
|
|
Purchases of treasury stock
|
|
|
(187,245
|
)
|
|
|
|
|
|
|
(70,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
101,778
|
|
|
|
(436,129
|
)
|
|
|
(153,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents, excluding
pledged cash related to secured trust deposits
|
|
|
(71,908
|
)
|
|
|
169,301
|
|
|
|
142,663
|
|
Cash and cash equivalents, excluding pledged cash related to
secured trust deposits, at beginning of year
|
|
|
447,986
|
|
|
|
278,685
|
|
|
|
136,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, excluding pledged cash related to
secured trust deposits, at end of year
|
|
$
|
376,078
|
|
|
$
|
447,986
|
|
|
$
|
278,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
62
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
|
|
A.
|
Summary
of Significant Accounting Policies
|
The following describes the significant accounting policies of
Fidelity National Financial, Inc. and its subsidiaries
(collectively, the Company or FNF) which
have been followed in preparing the accompanying Consolidated
Financial Statements.
Description
of Business
Fidelity National Financial, Inc. is a holding company that is a
provider, through its subsidiaries, of title insurance,
specialty insurance, claims management services, and information
services. FNF is one of the nations largest title
insurance companies through its title insurance
underwriters Fidelity National Title, Chicago Title,
Ticor Title, Security Union Title, and Alamo Title
which issued approximately 27.7% of all title insurance policies
issued nationally during 2006. FNF also provides flood
insurance, personal lines insurance, and home warranty insurance
through its specialty insurance subsidiaries. FNF is also a
leading provider of outsourced claims management services to
large corporate and public sector entities through its
minority-owned affiliate, Sedgwick CMS (Sedgwick).
FNF is also a provider of information services in the human
resource, retail, and transportation markets through another
minority-owned affiliate, Ceridian Corporation
(Ceridian).
Prior to October 18, 2005, the Company was known as
Fidelity National Title Group, Inc. (FNT) and
was a wholly-owned subsidiary of another publicly traded
company, also called Fidelity National Financial, Inc.
(Old FNF). On October 17, 2005, Old FNF
distributed to its shareholders a minority interest in FNT,
making FNT a majority-owned, publicly traded company. On
October 24, 2006, Old FNF transferred certain assets,
including its specialty insurance business, its interest in
certain claims management operations, certain timber and real
estate holdings, certain smaller operations, cash and certain
investment assets, to FNT in return for the issuance of
45,265,956 shares of FNT common stock to Old FNF. Old FNF
then distributed to its shareholders all of its shares of FNT
common stock, making FNT a stand alone public company (the
2006 Distribution). On November 9, 2006, Old
FNF was then merged with and into another of its subsidiaries,
Fidelity National Information Services, Inc. (FIS),
after which FNTs name was changed to Fidelity National
Financial, Inc. As a result of these transactions, the
Companys chairman of the board is also executive chairman
of the board of FIS and other key members of our senior
management and our board of directors serve in similar
capacities at FIS.
Under applicable accounting principles, following these
transactions, Old FNFs historical financial statements,
with the exception of equity and earnings per share, became
FNFs historical financial statements, including the
results of FIS through the date of FNFs spin-off from Old
FNF. For periods prior to October 24, 2006 the
Companys equity has been derived from FNTs
historical equity and its historical basic and diluted earnings
per share have been calculated using FNTs basic and
diluted weighted average shares outstanding.
FNF currently has three reporting segments as follows:
|
|
|
|
|
Fidelity National Title Group. This
segment consists of the operation of FNFs title insurance
underwriters and related businesses. This segment provides core
title insurance and escrow and other title related services
including collection and trust activities, trustees sales
guarantees, recordings and reconveyances.
|
|
|
|
Specialty Insurance. The specialty insurance
segment consists of certain subsidiaries that issue flood, home
warranty, homeowners, automobile and other personal lines
insurance policies.
|
|
|
|
Corporate and Other. The corporate and other
segment consists of the operations of the parent holding
company, certain other unallocated corporate overhead expenses,
the operations of Fidelity National Real Estate Solutions, Inc.
(FNRES), other smaller operations, and the
Companys share in the operations of certain equity
investments, including Sedgwick, Ceridian and Remy
International, Inc. (Remy).
|
Through October 23, 2006, the Companys results also
included the operations of FIS as a separate segment. This
segment provided transaction processing services, consisting
principally of technology solutions for banks and other
financial institutions, credit and debit card services and check
risk management and related services for
63
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
retailers and others. This segment also provided lender
processing services, consisting principally of technology
solutions for mortgage lenders, selected mortgage origination
services such as title agency and closing services, default
management and mortgage information services.
Principles
of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements include the
accounts of the Company and its wholly-owned and majority-owned
subsidiaries. All intercompany profits, transactions and
balances have been eliminated. The Companys investments in
non-majority-owned partnerships and affiliates are accounted for
using the equity method until such time that they become wholly
or majority owned. Minority interest expense is recorded on the
consolidated statement of earnings relating to majority owned
subsidiaries and the appropriate minority interest liability is
recorded on the Consolidated Balance Sheets in each period.
Distribution
of Fidelity National Title Group
On October 17, 2005, Old FNF completed a pro rata
distribution of shares representing 17.5% of the outstanding
common stock of FNT to Old FNFs shareholders. This
distribution completed a restructuring that resulted in FNT
becoming the parent company of Old FNFs title insurance
businesses. From the time of this distribution until
October 24, 2006, FNT was a majority-owned subsidiary of
FNF and a separate registrant reporting its results on a
stand-alone basis. During that time, Old FNF continued to
consolidate FNT in its results, and recorded minority interest
liabilities and expense relating to the 17.5% minority interest.
This restructuring was a taxable transaction to Old FNF and its
shareholders. Old FNF recognized income tax expense of
approximately $100 million in the fourth quarter of 2005
relating to this restructuring.
Recapitalization
of Fidelity National Information Services, Inc.
(FIS) and Minority Interest Sale Resulting in a Gain
on Issuance of Subsidiary Stock
The recapitalization of FIS was completed on March 9, 2005
through $2.8 billion in borrowings under new senior credit
facilities consisting of an $800 million Term Loan A
facility, a $2.0 billion Term Loan B facility
(collectively, the Term Loan Facilities) and an
undrawn $400 million revolving credit facility (the
Revolver). FIS fully drew upon the entire
$2.8 billion in Term Loan Facilities while the Revolver
remained undrawn at the closing and used $2.7 billion of
such funds to repay a note that had previously been distributed
by it to Old FNF.
The minority equity interest sale was accomplished through FIS
selling an approximately 25% minority equity interest in the
common stock of FIS to an investment group led by Thomas H. Lee
Partners (THL) and Texas Pacific Group
(TPG). FIS issued a total of 50 million shares
of the common stock of FIS to the investment group for a total
purchase price of $500 million, before certain expenses
paid by FIS. The minority equity interest sale resulted in a
non-operating gain of $318.2 million. This gain was
calculated under the provisions of Securities and Exchange
Commission (SEC) Staff Accounting
Bulletin Topic 5H (SAB Topic 5H) and
relates to the issuance of securities of a non-wholly owned
subsidiary. The gain represents the difference between the
Companys book value investment in FIS immediately prior to
the transaction and its book value investment in FIS immediately
following the transaction. No deferred income taxes were
recorded in connection with this transaction as the tax basis of
the investment was greater than the book basis on the date of
the sale.
Investments
Fixed maturity securities are purchased to support the
investment strategies of the Company, which are developed based
on factors including rate of return, maturity, credit risk, tax
considerations and regulatory requirements. Fixed maturity
securities which may be sold prior to maturity to support the
Companys investment strategies are carried at fair value
and are classified as available for sale as of the balance sheet
dates. Fair values for fixed maturity securities are principally
a function of current interest rates and market conditions and
are based on quoted market prices. Discount or premium is
recorded for the difference between the purchase price and the
64
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
principal amount. The discount or premium is amortized using the
interest method and is recorded as an adjustment to interest and
investment income. The interest method results in the
recognition of a constant rate of return on the investment equal
to the prevailing rate at the time of purchase or at the time of
subsequent adjustments of book value. Changes in prepayment
assumptions are accounted for retrospectively.
Equity securities are considered to be available for sale and
carried at fair value as of the balance sheet dates. Fair values
are based on quoted market prices.
Investments in unconsolidated affiliates are recorded using the
equity method of accounting (see note C).
Short-term investments, which consist primarily of securities
purchased under agreements to resell, commercial paper and money
market instruments, which have an original maturity of one year
or less, are carried at amortized cost, which approximates fair
value.
Realized gains and losses on the sale of investments are
determined on the basis of the cost of the specific investments
sold and are credited or charged to income on a trade date
basis. Unrealized gains or losses on fixed maturity and equity
securities which are classified as available for sale, net of
applicable deferred income taxes (benefits), are excluded from
earnings and credited or charged directly to a separate
component of stockholders equity. If any unrealized losses
on fixed maturity or equity securities are deemed
other-than-temporary, such unrealized losses are recognized as
realized losses. Unrealized losses are deemed
other-than-temporary if factors exist that cause management to
believe that the value will not increase to a level sufficient
to recover the Companys cost basis.
Cash
and Cash Equivalents
Highly liquid instruments purchased with original maturities of
three months or less are considered cash equivalents. The
carrying amounts reported in the Consolidated Balance Sheets for
these instruments approximate their fair value.
Fair
Value of Financial Instruments
The fair values of financial instruments presented in the
Companys Consolidated Financial Statements are estimates
of the fair values at a specific point in time using available
market information and appropriate valuation methodologies.
These estimates are subjective in nature and involve
uncertainties and significant judgment in the interpretation of
current market data. Therefore, the fair values presented are
not necessarily indicative of amounts the Company could realize
or settle currently. The Company does not necessarily intend to
dispose of or liquidate such instruments prior to maturity.
Trade
and Notes Receivables
The carrying values reported in the Consolidated Balance Sheets
for trade and notes receivables approximate their fair value.
Goodwill
Goodwill represents the excess of cost over fair value of
identifiable net assets acquired and assumed in a business
combination. SFAS No. 142, Goodwill and
Intangible Assets (SFAS 142) provides
that goodwill and other intangible assets with indefinite useful
lives should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances
indicate potential impairment, through a comparison of fair
value to its carrying amount. The Company measures for
impairment on an annual basis.
As required by SFAS 142, the Company completed its annual
goodwill impairment tests in the fourth quarter of each
respective year using a September 30 measurement date, and
determined fair values were in excess of carrying values.
Accordingly, no goodwill impairments have been recorded.
65
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Capitalized
Software
Capitalized software includes software acquired in business
acquisitions, purchased software and internally developed
capitalized software. Purchased software is recorded at cost and
amortized using the straight-line method over a
3-year
period and software acquired in a business acquisition is
recorded at its fair value upon acquisition and amortized using
straight-line and accelerated methods over its estimated useful
life, generally 5 to 10 years. Capitalized computer
software development costs are accounted for in accordance with
either SFAS 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed
(SFAS 86), or with American Institute of
Certified Public Accountants Statement of Position
(SOP)
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1).
After the technological feasibility of the software has been
established (for SFAS 86 software), or at the beginning of
application development (for
SOP 98-1
software), software development costs, which include salaries
and related payroll costs and costs of independent contractors
incurred during development, are capitalized. Research and
development costs incurred prior to the establishment of
technological feasibility (for SFAS 86 software), or prior
to application development (for
SOP 98-1
software), of a product are expensed as incurred and are not
significant. The cost of internally developed computer software
that is subject to the provisions of SFAS 86 is amortized
on a
product-by-product
basis commencing on the date of general release of the products,
generally the greater of (1) the straight-line method over
its estimated useful life, which ranges from three to ten years
or (2) the ratio of current revenues to total anticipated
revenue over its useful life. The cost of purchased software
that is subject to the provisions of
SOP 98-1
is amortized on a straight-line basis over its estimated useful
life.
At December 31, 2007, capitalized software costs were
$176.0 million, less accumulated amortization of
$82.6 million. At December 31, 2006, capitalized
software costs were $142.2 million, less accumulated
amortization of $58.7 million.
Amortization expense relating to computer software was
$24.5 million, $127.4 million, and $110.7 million
for the years ended December 31, 2007, 2006 and 2005,
respectively, and was primarily related to amortization expense
recorded by FIS in 2006 and in 2005.
Other
Intangible Assets
The Company has other intangible assets, not including software,
which consist primarily of customer relationships and contracts
and trademarks which are generally recorded in connection with
acquisitions at their fair value. SFAS 142 requires that
intangible assets with estimable lives be amortized over their
respective estimated useful lives to their estimated residual
values and reviewed for impairment in accordance with
SFAS 144. Customer relationships are amortized over their
estimated useful lives using an accelerated method which takes
into consideration expected customer attrition rates over a
ten-year period. Contractual relationships are generally
amortized over their contractual life. Trademarks are considered
intangible assets with indefinite lives and are reviewed for
impairment at least annually in accordance with SFAS 142.
During 2005, in accordance with SFAS 144, the Company
determined that the carrying value of certain of its intangible
assets, software and license fees may not be recoverable and
recorded impairment expense of $9.3 million relating to the
impairment of these assets. This expense amount was included in
other operating expenses in the Consolidated Statements of
Earnings for the year ended December 31, 2005. There was no
such expense recorded in 2007 or 2006.
Title Plants
Title plants are recorded at the cost incurred to construct or
obtain and organize historical title information to the point it
can be used to perform title searches. Costs incurred to
maintain, update and operate title plants are expensed as
incurred. Title plants are not amortized as they are considered
to have an indefinite life if maintained. Sales of title plants
are reported at the amount received net of the adjusted costs of
the title plant sold. Sales of title
66
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
plant copies are reported at the amount received. No cost is
allocated to the sale of copies of title plants unless the
carrying value of the title plant is diminished or impaired.
Property
and Equipment
Property and equipment are recorded at cost, less depreciation.
Depreciation is computed primarily using the straight-line
method based on the estimated useful lives of the related
assets: thirty years for buildings and three to seven years for
furniture, fixtures and equipment. Leasehold improvements are
amortized on a straight-line basis over the lesser of the term
of the applicable lease or the estimated useful lives of such
assets.
Reserve
for Claim Losses
The Companys reserve for claim losses includes known
claims for title and specialty insurance as well as losses the
Company expects to incur, net of recoupments. Each known claim
is reserved based on a review by the Company as to the estimated
amount of the claim and the costs required to settle the claim.
Reserves for claims which are incurred but not reported are
established at the time premium revenue is recognized based on
historical loss experience and other factors, including industry
trends, claim loss history, current legal environment,
geographic considerations and type of policy written. For
specialty insurance, reserve for claims incurred but not
reported are estimated based on historical loss experience.
The reserve for claim losses also includes reserves for losses
arising from the escrow, closing and disbursement functions due
to fraud or operational error.
If a loss is related to a policy issued by an independent agent,
the Company may proceed against the independent agent pursuant
to the terms of the agency agreement. In any event, the Company
may proceed against third parties who are responsible for any
loss under the title insurance policy under rights of
subrogation.
Secured
Trust Deposits
In the state of Illinois, a trust company is permitted to
commingle and invest customers assets with those of the
Company, pending completion of real estate transactions.
Accordingly, the Companys Consolidated Balance Sheets
reflect a secured trust deposit liability of $689.9 million
and $905.5 million at December 31, 2007 and 2006,
respectively, representing customers assets held by us and
corresponding assets including cash and investments pledged as
security for those trust balances.
Income
Taxes
The Company recognizes deferred tax assets and liabilities for
temporary differences between the financial reporting basis and
the tax basis of the Companys assets and liabilities and
expected benefits of utilizing net operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The impact on deferred taxes of changes
in tax rates and laws, if any, are applied to the years during
which temporary differences are expected to be settled and
reflected in the financial statements in the period enacted.
Reinsurance
In a limited number of situations, the Company limits its
maximum loss exposure by reinsuring certain risks with other
insurers. The Company also earns a small amount of additional
income, which is reflected in the Companys direct
premiums, by assuming reinsurance for certain risks of other
insurers. The Company also cedes a portion of certain policy and
other liabilities under agent fidelity, excess of loss and
case-by-case
reinsurance agreements. Reinsurance agreements provide that in
the event of a loss (including costs, attorneys fees and
expenses) exceeding the retained amounts, the reinsurer is
liable for the excess amount assumed. However, the ceding
company remains primarily liable in the event the reinsurer does
not meet its contractual obligations.
67
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Fidelity National Title Group. Direct
title insurance premiums and escrow and other title-related fees
are recognized as revenue at the time of closing of the related
transaction as the earnings process is considered complete,
whereas premium revenues from agency operations and agency
commissions include an accrual based on estimates of the volume
of transactions that have closed in a particular period for
which premiums have not yet been reported to us. The accrual for
agency premiums is necessary because of the lag between the
closing of these transactions and the reporting of these
policies to us by the agent.
Specialty Insurance. Revenues from home
warranty and personal lines insurance policies are recognized
over the life of the policy, which is one year. Revenues and
commissions related to the sale of flood insurance are
recognized when the policy is reported.
Fidelity National Information Services,
Inc. In this segment, the Company earned revenues
from processing services, software licensing and software
related services and data and information services.
The Company recognized revenues relating to bank processing
services and mortgage processing services along with software
licensing and software related services. Several of the
Companys contracts included a software license and one or
more of the following services: data processing, development,
implementation, conversion, training, programming, maintenance
and application management. In some cases, these services were
offered in combination with one another and in other cases the
Company offered them individually. Revenues from bank and
mortgage processing services were typically volume-based
depending on factors such as the estimated number of accounts,
transactions processed and computer resources utilized.
The substantial majority of the revenues in this business were
from outsourced data processing and application management
arrangements. Revenues from these arrangements were recognized
as services were performed in accordance with SEC Staff
Accounting Bulletin No. 104
(SAB 104), Revenue Recognition and
related interpretations. SAB 104 sets forth guidance as to
when revenue is realized or realizable and earned when all of
the following criteria are met: (1) persuasive evidence of
an arrangement exists; (2) delivery has occurred or
services have been rendered; (3) the sellers price to
the buyer is fixed and determinable; and (4) collectibility
is reasonably assured. Revenue and deferred costs related to
implementation, conversion and programming services associated
with the Companys data processing and application
management agreements were deferred during the implementation
phase and subsequently recognized using the straight-line method
over the term of the related agreement. The Company evaluated
these deferred costs for impairment in the event any indications
of impairment existed.
In the event that the Companys arrangements with its
customers included more than one product or service, the Company
determined whether the individual elements could be recognized
separately in accordance with the provisions of EITF
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
EITF 00-21
addresses the determination of whether an arrangement involving
more than one deliverable contains more than one unit of
accounting and how the arrangement consideration should be
measured and allocated to the separate units of accounting. If
all of the products and services were software related products
and services as determined under the provisions of
SOP 97-2
(SOP 97-2),
entitled Software Revenue Recognition, and
SOP 98-9,
entitled Modification of
SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain
Transactions, the Company applied these pronouncements and
related interpretations to determine the appropriate units of
accounting and how the arrangement consideration should be
measured and allocated to the separate units of accounting.
The Company recognized software license and maintenance fees as
well as associated development, implementation, training,
conversion and programming fees in accordance with
SOP 97-2
and
SOP 98-9.
Initial license fees were recognized when a contract exists, the
fee was fixed or determinable, software delivery had occurred
and collection of the receivable was deemed probable, provided
that vendor-specific objective evidence, or VSOE, had been
established for each element or for the undelivered elements.
The Company determined the fair value of each element or the
undelivered elements in multi-element software arrangements
based on VSOE. If the arrangement was subject to accounting
under
SOP 97-2,
VSOE for each element was based on the price charged when the
same
68
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
element was sold separately. If evidence of fair value of all
undelivered elements existed but evidence did not exist for one
or more delivered elements, then revenue was recognized using
the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining
portion of the arrangement fee is recognized as revenue. If
evidence of fair value does not exist for one or more
undelivered elements of a contract, then all revenue is deferred
until all elements are delivered or fair value is determined for
all remaining undelivered elements. Revenue from maintenance and
support was recognized ratably over the term of the agreement.
The Company recorded deferred revenue for maintenance amounts
invoiced prior to revenue recognition.
With respect to a small percentage of revenues, the Company used
contract accounting, as required by
SOP 97-2,
when the arrangement with the customer included significant
customization, modification, or production of software. For
elements accounted for under contract accounting, revenue was
recognized in accordance with
SOP 81-1,
Accounting for Performance of Construction Type and Certain
Production-Type Contracts, using the
percentage-of-completion method since reasonably dependable
estimates of revenues and contract hours applicable to various
elements of a contract could be made. Revenues in excess of
billings on these agreements were recorded as unbilled
receivables and were included in accounts receivable. Billings
in excess of revenue recognized on these agreements were
recorded as deferred revenue until revenue recognition criteria
were met. Changes in estimates for revenues, costs and profits
were recognized in the period in which they were determinable.
When the Companys estimate indicated that the entire
contract would be performed at a loss, a provision for the
entire loss was recorded in that accounting period.
The Company recognized revenues from mortgage origination
services and default management services. Mortgage origination
services consisted of centralized title agency and closing
services for various types of lenders. Revenues relating to
centralized title agency and closing services were recognized at
the time of closing of the related real estate transaction.
Ancillary service fees were recognized when the service is
provided. Default management services consisted of services
provided to assist customers through the default and foreclosure
process, including property preservation and maintenance
services (such as lock changes, window replacement, debris
removal and lawn service), posting and publication of
foreclosure and auction notices, title searches, document
preparation and recording services, and referrals for legal and
property brokerage services. Revenue derived from these services
was recognized as the services were performed in accordance with
SAB 104 as described above.
The Company recorded revenue from providing data or data-related
services. These services principally included appraisal and
valuation services, property records information, real estate
tax services, borrower credit and flood zone information and
multiple listing software and services. Revenue derived from
these services was recognized as the services were performed in
accordance with SAB 104 as described above.
The Companys flood and tax units provided various services
including life-of-loan monitoring services. Revenue for
life-of-loan services was deferred and recognized ratably over
the estimated average life of the loan service period, which was
determined based on the Companys historical experience.
The Company evaluated its historical experience on a periodic
basis, and adjusted the estimated life of the loan service
period prospectively. Revenue derived from software and service
arrangements was recognized in accordance with
SOP 97-2.
Revenues from other services in this segment were recognized as
the services were performed in accordance with SAB 104 as
described above.
Earnings
Per Share
Basic earnings per share is computed by dividing net earnings
available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings
per share is calculated by dividing net earnings available to
common stockholders by the weighted average number of common
shares outstanding plus the impact of assumed conversions of
potentially dilutive securities. The Company has granted certain
options, warrants and restricted stock which have been treated
as common share equivalents for purposes of calculating diluted
earnings per share.
69
FIDELITY
NATIONAL FINANCIAL, INC. AND SUBSIDIARIES