FNF 06.30.14 10-Q
Table of Contents


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

FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-32630
FIDELITY NATIONAL FINANCIAL, INC.
______________________________________________________________________________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware
 
16-1725106
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
 
 
601 Riverside Avenue, Jacksonville, Florida
 
32204
(Address of principal executive offices)
 
(Zip Code)
(904) 854-8100
___________________________________________________________________
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o NO R
The number of shares outstanding of the Registrant's common stock as of July 31, 2014 were:    
FNF Group Common Stock    277,474,875
FNFV Group Common Stock     91,711,237
 
 
 
 
 
 
 
 
 
 



FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2014
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i


Table of Contents


Part I: FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share data)
 
June 30,
2014
 
December 31,
2013
 
(Unaudited)
 
 
ASSETS
Investments:
 
 
 
Fixed maturity securities available for sale, at fair value, at June 30, 2014 and December 31, 2013 includes pledged fixed maturity securities of $350 and $261, respectively, related to secured trust deposits
$
3,092

 
$
2,959

Preferred stock available for sale, at fair value
187

 
151

Equity securities available for sale, at fair value
144

 
136

Investments in unconsolidated affiliates
316

 
357

Other long-term investments
208

 
162

Short-term investments
23

 
26

Total investments
3,970

 
3,791

Cash and cash equivalents, at June 30, 2014 and December 31, 2013 includes $365 and $339, respectively, of pledged cash related to secured trust deposits
1,126

 
1,969

Trade and notes receivables, net of allowance of $25 and $21, at June 30, 2014 and December 31, 2013, respectively
742

 
482

Goodwill
4,917

 
1,901

Prepaid expenses and other assets
810

 
682

Capitalized software, net
593

 
39

Other intangible assets, net
1,517

 
619

Title plants
395

 
370

Property and equipment, net
773

 
645

Income taxes receivable

 
26

 
$
14,843

 
$
10,524

LIABILITIES AND EQUITY
Liabilities:
 
 
 
Accounts payable and accrued liabilities, at December 31, 2013 includes accounts payable to related parties of $3
$
1,523

 
$
1,291

Notes payable
3,343

 
1,323

Reserve for title claim losses
1,661

 
1,636

Secured trust deposits
701

 
588

Income taxes payable
18

 

Deferred tax liability
541

 
144

Total liabilities
7,787

 
4,982

Commitments and Contingencies:
 
 
 
Redeemable non-controlling interest by 33% minority holder of Black Knight Financial Services, LLC and 35% minority holder of ServiceLink, LLC
687

 

Equity:
 
 
 
FNF Class A common stock, $0.0001 par value: authorized 600,000,000 as of December 31, 2013; issued 292,289,166 as of December 31, 2013

 

FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of June 30, 2014; issued 277,462,875 as of June 30, 2014

 

FNFV Group common stock, $0.0001 par value; authorized 113,000,000 shares as of June 30, 2014; issued 91,711,237 as of June 30, 2014

 

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

 

Additional paid-in capital
4,807

 
4,642

Retained earnings
1,089

 
1,096

Accumulated other comprehensive earnings
59

 
37

Less: treasury stock, 5,925 shares as of June 30, 2014 and 41,948,518 shares as of and December 31, 2013, at cost

 
(707
)
Total Fidelity National Financial, Inc. shareholders’ equity
5,955

 
5,068

Non-controlling interests
414

 
474

Total equity
6,369

 
5,542

 
$
14,843

 
$
10,524

See Notes to Condensed Consolidated Financial Statements

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Table of Contents


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

Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
 
(Unaudited)
 
(Unaudited)
Revenues:
 
 
 
 
 
 
 
Direct title insurance premiums
$
433

 
$
492

 
$
784

 
$
905

Agency title insurance premiums
518

 
625

 
922

 
1,149

Escrow, title related and other fees
716

 
489

 
1,362

 
924

Restaurant revenue
358

 
347

 
712

 
701

Auto parts revenue
300

 
284

 
602

 
568

Interest and investment income
35

 
37

 
65

 
70

Realized gains and losses, net
(1
)
 
5

 
1

 
3

Total revenues
2,359

 
2,279

 
4,448

 
4,320

Expenses:
 
 
 
 
 
 
 
Personnel costs
645

 
546

 
1,316

 
1,065

Agent commissions
395

 
473

 
702

 
870

Other operating expenses
417

 
366

 
846

 
691

Cost of auto parts revenue, includes $18 of depreciation and amortization for the three months ended June 30, 2014 and 2013, respectively, and $32 and $36 for the six months ended June 30, 2014 and 2013, respectively
251

 
241

 
505

 
481

Cost of restaurant revenue
303

 
295

 
603

 
597

Depreciation and amortization
85

 
35

 
203

 
68

Provision for title claim losses
57

 
79

 
110

 
144

Interest expense
38

 
21

 
74

 
44

Total expenses
2,191

 
2,056

 
4,359

 
3,960

Earnings from continuing operations before income taxes and equity in losses of unconsolidated affiliates
168

 
223

 
89

 
360

Income tax expense
57

 
72

 
20

 
118

Earnings from continuing operations before equity in losses of unconsolidated affiliates
111

 
151

 
69

 
242

Equity in losses of unconsolidated affiliates
(5
)
 
(3
)
 
(36
)
 
(6
)
Net earnings from continuing operations
106

 
148

 
33

 
236

Net loss from discontinued operations, net of tax
(1
)
 
(3
)
 
(1
)
 
(2
)
Net earnings
105

 
145

 
32

 
234

Less: Net (loss) earnings attributable to non-controlling interests
(10
)
 
7

 
(61
)
 
6

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
115

 
$
138

 
$
93

 
$
228

Earnings per share
 
 
 
 
 
 
 
Basic
 
 
 
 
 
 
 
Net earnings from continuing operations attributable to Fidelity National Financial, Inc. common shareholders
$
0.42

 
$
0.62

 
$
0.34

 
$
1.02

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

 
(0.01
)
 

 
(0.01
)
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
0.42

 
$
0.61

 
$
0.34

 
$
1.01

Diluted
 
 
 
 
 
 
 
Net earnings from continuing operations attributable to Fidelity National Financial, Inc. common shareholders
$
0.41

 
$
0.61

 
$
0.33

 
$
1.00

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

 
(0.01
)
 

 
(0.01
)
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
0.41

 
$
0.60

 
$
0.33

 
$
0.99

Weighted average shares outstanding, basic basis
275

 
225

 
275

 
225

Weighted average shares outstanding, diluted basis
283

 
229

 
282

 
230

Cash dividends paid per share
$
0.18

 
$
0.16

 
$
0.36

 
$
0.32

 
 
 
 
 
 
 
 
Amounts attributable to Fidelity National Financial, Inc. common shareholders
 
 
 
 
 
 
 
Basic and diluted net earnings from continuing operations attributable to Fidelity National Financial, Inc. common shareholders
$
116

 
$
141

 
$
94

 
$
231

Basic and diluted net loss from discontinued operations attributable to Fidelity National Financial, Inc. common shareholders
(1
)
 
(3
)
 
(1
)
 
(3
)
Basic and diluted net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
115

 
$
138

 
$
93

 
$
228

See Notes to Condensed Consolidated Financial Statements

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FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
 
Three months ended June 30,
 
Six months ended June 30,
 
 
 
2014
 
2013
 
2014
 
2013
 
(Unaudited)
 
(Unaudited)
Net earnings
$
105

 
$
145

 
$
32

 
$
234

Other comprehensive earnings (loss):
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)
12

 
(37
)
 
21

 
(23
)
Unrealized gain (loss) on investments in unconsolidated affiliates (2)
5

 
(3
)
 
(1
)
 
(11
)
Unrealized gain (loss) on foreign currency translation and cash flow hedging (3)
6

 
(6
)
 
3

 
(9
)
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4)
(1
)
 
(4
)
 
(1
)
 
(5
)
     Minimum pension liability adjustment (5)

 

 

 
(1
)
Other comprehensive earnings (loss)
22

 
(50
)
 
22

 
(49
)
Comprehensive earnings
127

 
95

 
54

 
185

Less: Comprehensive (loss) earnings attributable to non-controlling interests
(10
)
 
7

 
(61
)
 
6

Comprehensive earnings attributable to Fidelity National Financial, Inc. common shareholders
$
137

 
$
88

 
$
115

 
$
179

_______________________________________
 
(1)
Net of income tax expense (benefit) of $7 million and $(22) million for the three-month periods ended June 30, 2014 and 2013, respectively, and $12 million and $(14) million for the six-month periods ended June 30, 2014 and 2013, respectively.
(2)
Net of income tax expense (benefit) of $3 million and $(2) million for the three-month periods ended June 30, 2014 and 2013, respectively, and $(1) million and $(7) million for the six-month periods ended June 30, 2014 and 2013, respectively.
(3)
Net of income tax expense (benefit) of $4 million and $(4) million for the three-month periods ended June 30, 2014 and 2013, respectively, and $2 million and $(6) million for the six-month periods ended June 30, 2014 and 2013, respectively.
(4)
Net of income tax expense of $2 million for the three-month period ended June 30, 2013, and less than $1 million and $3 million for the six-month periods ended June 30, 2014 and 2013, respectively.
(5)
Net of income tax benefit of less than $1 million for the six-month period ended June 30, 2013.
See Notes to Condensed Consolidated Financial Statements



3

Table of Contents


FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(In millions)
(Unaudited)
 
 
 
 
 
Fidelity National Financial, Inc. Common Shareholders
 
 
 
 
 
 
 
FNF
 
FNF
 
FNFV
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Class A
 
Group
 
Group
 
 
 
 
 
Other
 
 
 
 
 
 
 
Redeemable
 
Common
 
Common
 
Common
 
Additional
 
 
 
Comprehensive
 
Treasury
 
Non-
 
 
 
Non-
 
Stock
 
Stock
 
Stock
 
Paid-in
 
Retained
 
Earnings
 
Stock
 
controlling
 
Total
 
controlling
 
Shares
 
$
 
Shares
 
$
 
Shares
 
$
 
Capital
 
Earnings
 
(Loss)
 
Shares
 
$
 
Interests
 
Equity
 
Interests
Balance, December 31, 2013
292

 
$

 

 
$

 

 
$

 
$
4,642

 
$
1,096

 
$
37

 
42

 
$
(707
)
 
$
474

 
$
5,542

 
$

Acquisition of Lender Processing Services, Inc.
26

 

 

 

 

 

 
839

 

 

 

 

 

 
839

 

Exercise of stock options
1

 

 

 

 

 

 
16

 

 

 

 

 

 
16

 

Recapitalization of FNF stock
(277
)
 

 
277

 

 
92

 

 
(2
)
 

 

 

 

 

 
(2
)
 

Tax benefit associated with the exercise of stock options

 

 

 

 

 

 
2

 

 

 

 

 

 
2

 

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

 

 

 

 

 

 

 

 
20

 

 

 

 
20

 

Other comprehensive earnings — unrealized loss on investments in unconsolidated affiliates

 

 

 

 

 

 

 

 
(1
)
 

 

 

 
(1
)
 

Other comprehensive earnings — unrealized gain on foreign currency translation and cash flow hedging

 

 

 

 

 

 

 

 
3

 

 

 
3

 
6

 

Stock-based compensation

 

 

 

 

 

 
17

 

 

 

 

 
8

 
25

 

Retirement of treasury shares
(42
)
 

 

 

 

 

 
(707
)
 

 

 
(42
)
 
707

 

 

 
 
Dividends declared

 

 

 

 

 

 

 
(100
)
 

 

 

 

 
(100
)
 

Contribution by minority owner to acquire minority interest in Black Knight Financial Services, LLC and ServiceLink, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 
687

Subsidiary dividends declared to non-controlling interests

 

 

 

 

 

 

 

 

 

 

 
(10
)
 
(10
)
 

Net earnings

 

 

 

 

 

 

 
93

 

 

 

 
(61
)
 
32

 

Balance, June 30, 2014

 

 
277

 


92



 
$
4,807

 
$
1,089

 
$
59

 

 
$

 
$
414

 
$
6,369

 
$
687

See Notes to Condensed Consolidated Financial Statements


4

Table of Contents


FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
 
For the Six Months Ended June 30,
 
 
2014
 
2013
 
(Unaudited)
Cash flows from operating activities:
 
 
 

Net earnings
$
32

 
$
234

Adjustments to reconcile net earnings to net cash used in operating activities:
 
 
 
            Depreciation and amortization
235

 
104

            Equity in losses of unconsolidated affiliates
36

 
6

Gain on sales of investments and other assets, net
(1
)
 
(4
)
Stock-based compensation cost
25

 
16

Tax benefit associated with the exercise of stock options
(2
)
 
(2
)
Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
Net decrease in pledged cash, pledged investments, and secured trust deposits

 
4

Net increase in trade receivables
(43
)
 
(12
)
Net increase in prepaid expenses and other assets
(75
)
 
(22
)
Net decrease in accounts payable, accrued liabilities, deferred revenue and other
(248
)
 
(45
)
Net decrease in reserve for title claim losses
(29
)
 
(55
)
Net change in income taxes
59

 
(10
)
Net cash (used in) provided by operating activities
(11
)
 
214

Cash flows from investing activities:
 
 
 
Proceeds from sales of investment securities available for sale
454

 
401

Proceeds from calls and maturities of investment securities available for sale
160

 
182

Proceeds from sale of other assets
2

 

Additions to property and equipment and capitalized software
(83
)
 
(77
)
Purchases of investment securities available for sale
(607
)
 
(536
)
Net proceeds from short-term investment securities
4

 
40

Net purchases of other long-term investments
(39
)
 
(67
)
Distribution from (contributions to) investments in unconsolidated affiliates
20

 
(15
)
Net other investing activities
(3
)
 
11

Acquisition of Lender Processing Services, Inc., net of cash acquired
(2,248
)
 

Acquisition of USA Industries, Inc., net of cash acquired
(40
)
 

Other acquisitions/disposals of businesses, net of cash acquired
2

 

Net cash used in investing activities
(2,378
)
 
(61
)
Cash flows from financing activities:
 
 
 
Borrowings
1,509

 
304

Debt service payments
(584
)
 
(305
)
Additional investment in non-controlling interest

 
(14
)
Proceeds from sale of 4% ownership interest of Digital Insurance, Inc.

 
3

Proceeds from sale of 35% of Black Knight Financial Services, LLC and ServiceLink, LLC to minority interest holder
687

 

Dividends paid
(99
)
 
(73
)
Subsidiary dividends paid to non-controlling interest shareholders
(9
)
 
(9
)
Exercise of stock options
16

 
18

Equity and debt issuance costs
(2
)
 
(10
)
Tax benefit associated with the exercise of stock options
2

 
2

Purchases of treasury stock

 
(34
)
Net cash provided by (used in) financing activities
1,520

 
(118
)
Net (decrease) increase in cash and cash equivalents, excluding pledged cash related to secured trust deposits
(869
)
 
35

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at beginning of period
1,630

 
866

Cash and cash equivalents, excluding pledged cash related to secured trust deposits at end of period
$
761

 
$
901

Supplemental cash flow information:
 
 
 
Income taxes paid, net
$
(48
)
 
$
104

Interest paid
$
66

 
$
43

See Notes to Condensed Consolidated Financial Statements

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

Note A — Basis of Financial Statements
The unaudited financial information in this report includes the accounts of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” or “FNF”) prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013.
Certain reclassifications have been made in the 2013 Condensed Consolidated Financial Statements to conform to classifications used in 2014.
Description of Business
We have organized our business into two groups, FNF Core Operations and FNF Ventures, known as "FNFV". We are a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. We are the nation’s largest title insurance company through our title insurance underwriters - Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York - that collectively issue more title insurance policies than any other title company in the United States. We also provide industry-leading mortgage technology solutions and transaction services, including MSP®, the leading residential mortgage servicing technology platform in the U.S., through our majority-owned subsidiaries, Black Knight Financial Services, LLC ("BKFS") and ServiceLink Holdings, LLC ("ServiceLink"). In addition, in our FNFV group, we own majority and minority equity investment stakes in a number of entities, including American Blue Ribbon Holdings, LLC ("ABRH"), J. Alexander’s, LLC ("J. Alexander's"), Remy International, Inc. ("Remy"), Ceridian HCM, Inc. and Comdata Inc. (collectively "Ceridian") and Digital Insurance, Inc. ("Digital Insurance").
Recent Developments
On June 30, 2014, we completed the recapitalization of FNF common stock into the two previously announced tracking stocks, FNF Group common stock and FNFV Group common stock.  Each share of the previously outstanding FNF Class A common stock was converted into one share of FNF Group common stock, which now trades on the New York Stock Exchange under the current trading symbol "FNF," and 0.3333 of a share of FNFV Group common stock, which now trades on the New York Stock Exchange under the trading symbol "FNFV."  Both FNF and FNFV began regular trading on July 1, 2014. 
Effective June 1, 2014, we completed an internal reorganization to contribute our subsidiary Property Insight, a company which provides information used by title insurance underwriters, title agents and closing attorneys to underwrite title insurance policies for real property sales and transfer, from our Title segment to BKFS. As a result of this transfer, our ownership percentage in BKFS increased to 67%. The results presented for the month ended June 30, 2014, reflect our now 67% ownership interest in BKFS and Thomas H. Lee partners' now 33% ownership of BKFS.
On January 13, 2014, Remy acquired substantially all of the assets of United Starters and Alternators Industries, Inc. ("USA Industries") pursuant to the terms and conditions of the Asset Purchase Agreement. USA Industries is a leading North American distributor of premium quality remanufactured and new alternators, starters, constant velocity axles and disc brake calipers for the light-duty aftermarket. Total consideration paid was $40 million, net of cash acquired.
On January 2, 2014, we completed the purchase of Lender Processing Services, Inc. ("LPS"). The purchase consideration paid was $37.14 per share, of which $28.10 per share was paid in cash and the remaining $9.04 was paid in FNF common shares. The purchase consideration represented an exchange ratio of 0.28742 FNF Class A common shares per share of LPS common stock. Total consideration paid for LPS was $3.4 billion, which consisted of $2,248 million in cash, net of cash acquired of $287 million and $839 million in FNF common stock. In order to pay the stock component of the consideration, we issued 25,920,078 shares to the former LPS shareholders. See Note B for further discussion.
Discontinued Operations
The results from a small software company, which we acquired with LPS and which was sold during the second quarter of 2014, are included in the Condensed Consolidated Statements of Earnings as discontinued operations for all periods presented. Total revenues included in discontinued operations were $1 million and $2 million for the three months ended June 30, 2014 and 2013, respectively, and $2 million and $4 million for the six months ending June 30, 2014 and 2013, respectively. Pre-tax earnings included in discontinued operations are $1 million for the three months ending June 30, 2014 and there were no pre-tax earnings for the three months ended June 30, 2013. There were pre-tax earnings of $1 million for the six months ended June 30, 2013 and there were no pre-tax earnings in the six months ended June 30, 2014. The results from two closed J. Alexander's locations and a settlement services company closed in the second quarter of 2013 are reflected in the Condensed Consolidated Statements of Earnings as discontinued operations for all periods presented. There were no revenues included in discontinued operations during

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FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — continued


the three and six months ended June 30, 2014. Total revenues included in discontinued operations were $1 million for the three months ending June 30, 2013, and $8 million for the six months ending June 30, 2013. There was no pre-tax loss included in discontinued operations for the three and six months ending June 30, 2014. Pre-tax loss included in discontinued operations was $2 million for the three months ending June 30, 2013.
Transactions with Related Parties
As we no longer have any officers in common with Fidelity National Information Services, Inc. ("FIS"), effective January 1, 2014, we no longer consider FIS a related party.
Agreements with FIS
A summary of the agreements that were in effect with FIS through December 31, 2013 is as follows:
Information Technology (“IT”) and data processing services from FIS. This agreement governs IT support services provided to us by FIS, primarily consisting of infrastructure support and data center management. Certain subsidiaries of FIS also provided technology consulting services to FNF during 2013.
Administrative aviation corporate support and cost-sharing services to FIS.
A detail of net revenues and expenses between us and FIS that were included in our results of operations for the periods presented is as follows:
 
Three months ended June 30, 2013
 
Six months ended June 30, 2013
 
(in millions)
Corporate services and cost-sharing revenue
$
2

 
$
3

Data processing expense
(8
)
 
(16
)
Net expense
$
(6
)
 
$
(13
)
We believe the amounts earned by us or charged to us under each of the foregoing arrangements are fair and reasonable. The IT infrastructure support and data center management services provided to us are priced within the range of prices that FIS offers to its unaffiliated third party customers for the same types of services. However, the amounts we earned or were charged under these arrangements were not negotiated at arm’s-length, and may not represent the terms that we might have obtained from an unrelated third party. The net amount due to FIS as a result of these agreements was $3 million as of December 31, 2013.
Included in equity securities available for sale at December 31, 2013, are 1,303,860 shares of FIS stock which were purchased during the fourth quarter of 2009 in connection with a merger between FIS and Metavante Technologies, Inc. The fair value of our investment was $70 million as of December 31, 2013.
Also included in fixed maturities available for sale are FIS bonds with a fair value of $42 million as of December 31, 2013.
Earnings Per Share
Basic earnings per share, as presented on the Condensed Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted earnings per share is equal to basic earnings per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain options and shares of restricted stock as well as convertible debt instruments which have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.
Options to purchase shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. There were no antidilutive options during the three and six month periods ended June 30, 2014. There were one million shares related to antidilutive options excluded for the three and six month periods ended June 30, 2013.
As of the close of business on June 30, 2014, we completed the recapitalization of FNF Class A common stock into the two previously announced tracking stocks, FNF Group common stock and FNFV Group common stock. As a result of the recapitalization, there were 277,462,875 shares of FNF Group common stock and 91,711,237 shares of FNFV Group common stock outstanding as of June 30, 2014. As the recapitalization did not occur until June 30, 2014, the weighted average shares

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outstanding presented on the Condensed Consolidated Statements of Earnings does not include any shares of FNF Group common stock or FNFV Group common stock. Earnings per share for the three and six months ending June 30, 2014 was fully attributed to the previous class of FNF common stock, known as FNF Class A common stock.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU provides a new comprehensive revenue recognition model that requires companies to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting. This update is effective for annual and interim periods beginning on or after December 15, 2016, with early application not permitted.
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU raises the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. This ASU is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015, with early adoption permitted. We plan to adopt this ASU for the annual and interim periods beginning January 1, 2015 and do not expect this update to have a material impact on our financial statements.
Note B — Acquisition of Lender Processing Services, Inc.
The results of operations and financial position of the entities acquired during any year are included in the Condensed Consolidated Financial Statements from and after the date of acquisition.
On January 2, 2014, we completed the purchase of LPS. The purchase consideration paid was $37.14 per share, of which $28.10 per share was paid in cash and the remaining $9.04 was paid in FNF common shares. The purchase consideration represented an exchange ratio of 0.28742 FNF Class A common shares per share of LPS common stock. Total consideration paid for LPS was $3.4 billion, which consisted of $2,248 million in cash, net of $287 million cash acquired and $839 million in FNF common stock. In order to pay the stock component of the consideration, we issued 25,920,078 shares to the former LPS shareholders. Goodwill has been recorded based on the amount that the purchase price exceeded the fair value of the net assets acquired.
The initial purchase price is as follows (in millions):
Cash paid for LPS outstanding shares
$
2,535

Less: cash acquired from LPS
(287
)
Net cash paid for LPS
2,248

FNF common stock issued (25,920,078 shares)
839

Total net consideration paid
$
3,087

The purchase price has been initially allocated to the LPS assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. This estimate is preliminary and subject to adjustments as we complete our valuation process with respect to capitalized software, intangible assets, legal contingencies, taxes and goodwill, which we expect to have complete by the end of 2014.






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The initial purchase price allocation is as follows (in millions):
Trade and notes receivable
$
184

Investments
77

Prepaid expenses and other assets
59

Property and equipment
150

Capitalized software
557

Intangible assets including title plants
1,007

Income tax receivable
40

Goodwill
3,004

Total assets
5,078

Notes payable
1,091

Reserve for title claims
54

Deferred tax liabilities
409

Other liabilities assumed
437

Total liabilities
1,991

Net assets acquired
$
3,087

Subsequent to the LPS acquisition, we formed a wholly-owned subsidiary, Black Knight Holdings, Inc. ("Black Knight"). Black Knight is the mortgage and finance industries' leading provider of integrated technology, data and analytics solutions, and transaction services. Black Knight has two operating businesses, ServiceLink and BKFS. We retained a 65% ownership interest in each of the subsidiaries and issued the remaining 35% minority ownership interest to funds affiliated with Thomas H. Lee Partners and certain related entities on January 3, 2014. ServiceLink and BKFS now own and operate the former LPS businesses and our legacy ServiceLink business.
The following table summarizes the intangible assets acquired (in millions, except for useful life):
 
 
Fair Value as of Consolidation
 
Weighted Average Useful Life in Years as of Consolidation
 
Residual Value as of June 30, 2014
Amortizing intangible assets:
 
 
 
 
 
 
Developed technology
 
$
534

 
8

 
$
503

Purchased technology
 
23

 
3

 
19

Trade names
 
13

 
10

 
12

Customer relationships
 
911

 
10

 
829

Non-compete agreements
 
5

 
3

 
4

 
 
 
 
 
 
 
Non-amortizing intangible assets:
 
 
 
 
 
 
Developed technology
 
54

 
 
 
54

Title plants
 
24

 
 
 
24

Total intangible assets and capitalized software
 
$
1,564

 
 
 
$
1,445

Pro-forma Financial Results
For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the three and six months ending June 30, 2014 and 2013 are presented below. Pro-forma results presented assume the consolidation of Black Knight occurred

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as of the beginning of the 2013 period. Amounts reflect our 65% ownership interest in BKFS and our 65% ownership interest in ServiceLink and were adjusted to exclude costs directly attributable to the acquisition of LPS including transaction costs, severance costs and costs related to our synergy bonus program associated with the acquisition (in millions).
 
Three months ended June 30,
 
Six months ended June 30,
 
2014
 
2013
 
2014
 
2013
Total revenues
$
2,359

 
$
2,748

 
$
4,448

 
$
5,261

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
146

 
157

 
175

 
301

As a result of our acquisition of LPS, the following additions have been made to our significant accounting policies during the first quarter of 2014:
BKFS Revenue Recognition
Within our BKFS segment, we recognize revenues in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition (“ASC 605”). Recording revenues requires judgment, including determining whether an arrangement includes multiple elements, whether any of the elements are essential to the functionality of any other elements, and the allocation of the consideration based on each element's relative selling price. Customers receive certain contract elements over time and changes to the elements in an arrangement, or in our determination of the relative selling price for these elements, could materially impact the amount of earned and unearned revenue reflected in our financial statements.
The primary judgments relating to our revenue recognition are determining when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. Judgment is also required to determine 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 the deliverables under a contract are software related, we determine the appropriate units of accounting and how the arrangement consideration should be measured and allocated to the separate units. This determination, as well as management’s ability to establish vendor specific objective evidence (“VSOE”) for the individual deliverables, can impact both the amount and the timing of revenue recognition under these agreements. The inability to establish VSOE for each contract deliverable results in having to record deferred revenues and/or applying the residual method. For arrangements where we determine VSOE for software maintenance using a stated renewal rate within the contract, we use judgment to determine whether the renewal rate represents fair value for that element as if it had been sold on a stand-alone basis. For a small percentage of revenues, we use contract accounting when the arrangement with the customer includes significant customization, modification, or production of software. For elements accounted for under contract accounting, revenue is recognized using the percentage-of-completion method since reasonably dependable estimates of revenues and contract hours applicable to various elements of a contract can be made.
We are often party to multiple concurrent contracts with the same customer. These situations require judgment to determine whether the individual contracts should be aggregated or evaluated separately for purposes of revenue recognition. In making this determination we consider the timing of negotiating and executing the contracts, whether the different elements of the contracts are interdependent and whether any of the payment terms of the contracts are interrelated.
Due to the large number, broad nature and average size of individual contracts we are a party to, the impact of judgments and assumptions that we apply in recognizing revenue for any single contract is not likely to have a material effect on our consolidated operations. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of customers could significantly influence the timing and amount of revenue recognized in our result of operations.
Capitalized Software
Capitalized software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from 5 to 10 years. In our BKFS segment we have significant internally developed software. These costs are amortized using the straight-line method over the estimated useful life. Useful lives of computer software range from 3 to 10 years. Capitalized software development costs are accounted for in accordance with either ASC Topic 985, Software, Subtopic 20, Costs of Software to Be Sold, Leased, or Marketed (“ASC 985-20”), or ASC 350, Subtopic 40, Internal-

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Use Software (“ASC 350-40”). For software products to be sold, leased, or otherwise marketed (ASC 985-20 software), all costs incurred to establish the technological feasibility are research and development costs, and are expensed as they are incurred. Costs incurred subsequent to establishing technological feasibility, such as programmers' salaries and related payroll costs and costs of independent contractors, are capitalized and amortized on a product by product basis commencing on the date of general release to customers. We do not capitalize any costs once the product is available for general release to customers. For internal-use computer software products (ASC 350-40 software), internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use.
We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There is an inherent uncertainty in determining the expected useful life of or cash flows to be generated from computer software. We have not historically experienced material changes in these estimates but could be subject to them in the future.
Redeemable Non-controlling Interest 
As discussed above, subsequent to the acquisition of LPS we issued 35% ownership interest in BKFS and ServiceLink to funds affiliated with Thomas H. Lee Partners ("THL" or "the minority interest holder"). As part of the Unit Purchase Agreement with THL, THL has an option to put their ownership interests of either or both of BKFS and ServiceLink to us if no public offering of the corresponding business has been consummated after four years from the date of FNF's purchase of LPS. The units owned by THL ("redeemable noncontrolling interests") may be settled in cash or common stock of FNF or a combination of both at our election. The redeemable noncontrolling interests will be settled at the current fair value at the time we receive notice of THL's put election as determined by the parties or by a third party appraisal under the terms of the Unit Purchase Agreement. As of June 30, 2014, we do not believe the exercise of this put right to be probable.
As these redeemable noncontrolling interests provide for redemption features not solely within the control of us, the issuer, we classify the redeemable noncontrolling interests outside of permanent equity in accordance with ASC 480-10, “Distinguishing Liabilities from Equity”. Redeemable noncontrolling interests held by third parties in subsidiaries owned or controlled by FNF is reported on the Condensed Consolidated Balance Sheet outside permanent equity; and the Condensed Consolidated Statement of Earnings reflects the respective redeemable noncontrolling interests in Net earnings (loss) attributable to non-controlling interests, the effect of which is removed from the net earnings attributable to Fidelity National Financial, Inc. common shareholders.



























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Note C — Fair Value Measurements
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013, respectively:
 
June 30, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Assets:
 
 
 
 
 
 
 
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agencies
$

 
$
126

 
$

 
$
126

State and political subdivisions

 
1,056

 

 
1,056

Corporate debt securities

 
1,771

 

 
1,771

Mortgage-backed/asset-backed securities

 
101

 

 
101

Foreign government bonds

 
38

 

 
38

Preferred stock available for sale
40

 
147

 

 
187

Equity securities available for sale
144

 

 

 
144

Other long-term investments

 

 
40

 
40

Foreign currency contracts

 
7

 

 
7

Total assets
$
184

 
$
3,246

 
$
40

 
$
3,470

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swap contracts
$

 
$
2

 
$

 
$
2

Commodity contracts

 
1

 

 
1

Foreign currency contracts

 
2

 

 
2

Total liabilities
$

 
$
5

 
$

 
$
5


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December 31, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agencies
$

 
$
126

 
$

 
$
126

State and political subdivisions

 
1,075

 

 
1,075

Corporate debt securities

 
1,606

 

 
1,606

Mortgage-backed/asset-backed securities

 
109

 

 
109

Foreign government bonds

 
43

 

 
43

Preferred stock available for sale
73

 
78

 

 
151

Equity securities available for sale
136

 

 

 
136

Other long-term investments

 

 
38

 
38

Foreign currency contracts

 
4

 

 
4

Interest rate swap contracts

 
2

 

 
2

Total assets
$
209

 
$
3,043

 
$
38

 
$
3,290

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swap contracts
$

 
$
1

 
$

 
$
1

Commodity contracts

 
2

 

 
2

Total liabilities
$

 
$
3

 
$

 
$
3

Our Level 2 fair value measures for fixed-maturities available for sale are provided by third-party pricing services. We utilize one firm for our taxable bond and preferred stock portfolio and another for our tax-exempt bond portfolio. These pricing services are leading global providers of financial market data, analytics and related services to financial institutions. We rely on one price for each instrument to determine the carrying amount of the assets on our balance sheet. The inputs utilized in these pricing methodologies include observable measures such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. We review the pricing methodologies for all of our Level 2 securities by obtaining an understanding of the valuation models and assumptions used by the third-party as well as independently comparing the resulting prices to other publicly available measures of fair value and internally developed models. The pricing methodologies used by the relevant third party pricing services are as follows:
U.S. government and agencies: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers.
State and political subdivisions: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers. Factors considered include relevant trade information, dealer quotes and other relevant market data.
Corporate debt securities: These securities are valued based on dealer quotes and related market trading activity. Factors considered include the bond's yield, its terms and conditions, and any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
Mortgage-backed/asset-backed securities: These securities are comprised of agency mortgage-backed securities, collaterized mortgage obligations, and asset-backed securities. They are valued based on available trade information, dealer quotes, cash flows, relevant indices and market data for similar assets in active markets.
Foreign government bonds: These securities are valued based on a discounted cash flow model incorporating observable market inputs such as available broker quotes and yields of comparable securities.
Preferred stocks: Preferred stocks are valued by calculating the appropriate spread over a comparable U.S. Treasury security. Inputs include benchmark quotes and other relevant market data.
Our Level 2 fair value measures for our interest rate swap, foreign currency contracts, and commodity contracts are valued using the income approach. This approach uses techniques to convert future amounts to a single present value amount based upon market expectations (including present value techniques, option-pricing and excess earnings models).
Our Level 3 investments consist of structured notes that were purchased in 2009. The structured notes had a par value of $38 million and fair value of $40 million at June 30, 2014, and a par value and a fair value of $38 million at December 31, 2013. The

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structured notes are held for general investment purposes and represent approximately one percent of our total investment portfolio. The structured notes are classified as other long-term investments and are measured in their entirety at fair value with changes in fair value recognized in earnings. The fair value of these instruments represents exit prices obtained from a broker-dealer. These exit prices are the product of a proprietary valuation model utilized by the trading desk of the broker-dealer and contain assumptions relating to volatility, the level of interest rates, and the value of the underlying commodity indices. We reviewed the pricing methodologies for our Level 3 investments to ensure that they are reasonable and we believe they represent an exit price for the securities as of June 30, 2014.
The following table presents the changes in our investments that are classified as Level 3 for the period ended June 30, 2014 (in millions):
Balance, December 31, 2013
$
38

Net realized gain
2

Balance, June 30, 2014
$
40

The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature. Additional information regarding the fair value of our investment portfolio is included in Note D.
Note D — Investments
The carrying amounts and fair values of our available for sale securities at June 30, 2014 and December 31, 2013 are as follows:
 
June 30, 2014
 
Carrying
 
Cost
 
Unrealized
 
Unrealized
 
Fair
 
Value
 
Basis
 
Gains
 
Losses
 
Value
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
126

 
$
121

 
$
5

 
$

 
$
126

State and political subdivisions
1,056

 
1,018

 
38

 

 
1,056

Corporate debt securities
1,771

 
1,720

 
54

 
(3
)
 
1,771

Foreign government bonds
38

 
38

 
1

 
(1
)
 
38

Mortgage-backed/asset-backed securities
101

 
97

 
4

 

 
101

Preferred stock available for sale
187

 
184

 
5

 
(2
)
 
187

Equity securities available for sale
144

 
71

 
73

 

 
144

Total
$
3,423

 
$
3,249

 
$
180

 
$
(6
)
 
$
3,423

 
December 31, 2013
 
Carrying
 
Cost
 
Unrealized
 
Unrealized
 
Fair
 
Value
 
Basis
 
Gains
 
Losses
 
Value
 
(In millions)
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. government and agencies
$
126

 
$
121

 
$
5

 
$

 
$
126

State and political subdivisions
1,075

 
1,042

 
36

 
(3
)
 
1,075

Corporate debt securities
1,606

 
1,565

 
47

 
(6
)
 
1,606

Foreign government bonds
43

 
44

 
1

 
(2
)
 
43

Mortgage-backed/asset-backed securities
109

 
105

 
4

 

 
109

Preferred stock available for sale
151

 
158

 
3

 
(10
)
 
151

Equity securities available for sale
136

 
71

 
65

 

 
136

Total
$
3,246

 
$
3,106

 
$
161

 
$
(21
)
 
$
3,246

The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or discount since the date of purchase.

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The following table presents certain information regarding contractual maturities of our fixed maturity securities at June 30, 2014:
 
 
June 30, 2014
 
 
Amortized
 
% of
 
Fair
 
% of
Maturity
 
Cost
 
Total
 
Value
 
Total
 
 
(Dollars in millions)
One year or less
 
$
346

 
12
%
 
$
348

 
11
%
After one year through five years
 
1,990

 
67

 
2,056

 
67

After five years through ten years
 
550

 
18

 
574

 
19

After ten years
 
11

 

 
13

 

Mortgage-backed/asset-backed securities
 
97

 
3

 
101

 
3

Total
 
$
2,994

 
100
%
 
$
3,092

 
100
%
Subject to call
 
$
1,745

 
58
%
 
$
1,791

 
58
%
Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Included above in amounts subject to call are $1,399 million and $1,436 million in amortized cost and fair value, respectively, of fixed maturity securities with make-whole call provisions as of June 30, 2014.
Included in our other long-term investments are fixed maturity structured notes purchased in 2009 and various cost-method investments. The structured notes are carried at fair value (see Note C) and changes in the fair value of these structured notes are recorded as Realized gains and losses in the Condensed Consolidated Statements of Earnings. The carrying value of the structured notes was $40 million and $38 million as of June 30, 2014 and December 31, 2013, respectively. We recorded no gain or loss relating to the structured notes during the three month period ended June 30, 2014. We recorded a $2 million gain relating to the structured notes during the six month period ended June 30, 2014, and recorded a net loss of $1 million and $2 million in the three and six-month periods ended June 30, 2013, respectively.
Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2014 and December 31, 2013, were as follows (in millions):
June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
Corporate debt securities
$
187

 
$
(2
)
 
$
47

 
$
(1
)
 
$
234

 
$
(3
)
Foreign government bonds
7

 

 
11

 
(1
)
 
18

 
(1
)
Preferred stock available for sale
44

 
(1
)
 
12

 
(1
)
 
56

 
(2
)
Total temporarily impaired securities
$
238

 
$
(3
)
 
$
70

 
$
(3
)
 
$
308

 
$
(6
)
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
States and political subdivisions
$
123

 
$
(3
)
 
$

 
$

 
$
123

 
$
(3
)
Corporate debt securities
367

 
(4
)
 
39

 
(2
)
 
406

 
(6
)
Foreign government bonds
17

 
(1
)
 
14

 
(1
)
 
31

 
(2
)
Preferred stock available for sale
95

 
(10
)
 

 

 
95

 
(10
)
Total temporarily impaired securities
$
602

 
$
(18
)
 
$
53

 
$
(3
)
 
$
655

 
$
(21
)
During the three and six month period ended June 30, 2014, we recorded no impairment charges relating to investments that were determined to be other-than-temporarily impaired. During the three-month period ended June 30, 2013, we recorded no impairment charges relating to investments that were determined to be other-than-temporarily impaired. During the

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six month period ended June 30, 2013, we recorded impairment charges on fixed maturity securities relating to investments that were determined to be other-than-temporarily impaired, which resulted in additional expense of $1 million. As of June 30, 2014, we held no fixed maturity securities for which an other-than-temporary impairment had been previously recognized. It is possible that future events may lead us to recognize potential future impairment losses related to our investment portfolio and that unanticipated future events may lead us to dispose of certain investment holdings and recognize the effects of any market movements in our condensed consolidated financial statements.
The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the three and six-month periods ending June 30, 2014 and 2013, respectively:
 
 
Three months ended June 30, 2014
 
Six months ended June 30, 2014
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(Dollars in millions)
 
(Dollars in millions)
Fixed maturity securities available for sale
 
$
1

 
$

 
$
1

 
$
255

 
$
3

 
$

 
$
3

 
$
556

Preferred stock available for sale
 

 
(1
)
 
(1
)
 
30

 

 
(3
)
 
(3
)
 
58

Other long-term investments
 
 
 
 
 

 


 
 
 
 
 
2

 

Other assets
 
 
 
 
 
(1
)
 


 
 
 
 
 
(1
)
 
2

Total
 
 
 
 
 
$
(1
)
 
$
285

 
 
 
 
 
$
1

 
$
616

 
 
Three months ended June 30, 2013
 
Six months ended June 30, 2013
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(Dollars in millions)
 
(Dollars in millions)
Fixed maturity securities available for sale
 
$
4

 
$

 
$
4

 
$
221

 
$
7

 
$
(3
)
 
$
4

 
$
466

Preferred stock available for sale
 
6

 
(2
)
 
4

 
110

 
6


(2
)
 
4

 
110

Equity securities available for sale
 
1

 

 
1

 
4

 
2



 
2

 
7

Other long-term investments
 
 
 
 
 
(1
)
 

 
 
 
 
 
(2
)
 

Debt extinguishment costs
 
 
 
 
 
(3
)
 

 
 
 
 
 
(3
)
 

Other assets
 
 
 
 
 

 

 
 
 
 
 
(2
)
 

Total
 
 
 
 
 
$
5

 
$
335

 
 
 
 
 
$
3

 
$