We may be affected by the industry consolidation trend in the banking industry. This trend may be beneficial or detrimental to our financial institution software and services businesses. When consolidations occur, merger partners often operate disparate systems licensed from competing service providers. The newly formed entity generally makes a determination to migrate its core systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by expanding the use of our services if they are chosen to survive the consolidation and support the newly combined entity. Conversely, we may lose market share if a customer of ours is involved in a consolidation and our services are not chosen to survive the consolidation and support the newly combined entity.
Also included in net realized gains for 2003 is an $8.9 million loss as a result of the disposal of assets in connection with the migration of data center operations from FNIS to FI. See Note B of Notes to Consolidated Financial Statements.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the internal control over financial reporting of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Tradeway Commission (COSO), and our report dated March 16, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.
The Company’s title insurance and specialty insurance segments make up the Company’s insurance underwriting businesses, while the Company’s financial institution software and services, lender outsourcing solutions and information services segments make up the technology solutions, processing and information-based services businesses of the Company’s subsidiary Fidelity National Information Services, Inc. (“FIS”).
Gross 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 December 31, 2004 were as follows:
The term of options may not exceed 10 years from the date of grant (five years in the case of an incentive stock option granted to a person who owns or is deemed to own more than 10% of the total combined voting power of all classes of stock of the Company), and are exercisable subject to the terms and conditions set by the Board of Directors. The option exercise price for each share granted pursuant to an incentive stock option may not be less than 100% of the fair market value of a share of common stock at the time such option is granted (110% of fair value in the case of an incentive stock option granted to a person who owns more than 10% of the combined voting power of all classes of stock of the Company). The option exercise price for each share granted pursuant to a nonqualified stock option may be less than the fair value of the common stock at the date of grant to reflect the application of the optionee’s deferred bonus, if applicable. The 2001 Plan allows for exercise prices with a fixed discount from the quoted market price. Options were granted in 2003 at an exercise price of $15.36 to key employees of the Company who applied deferred bonuses expensed in 2002 amounting to $4.6 million to the exercise price. Pursuant to the terms of the 2001 Plan, there are no future exercise price decreases to options granted under this Plan in 2003 and beyond. In 2002, options were granted at an exercise price of $11.41 to key employees of the Company who applied deferred bonuses expensed in 2001 amounting to $5.7 million to the exercise price. The exercise price of these options decreases approximately $.35 per year through 2007 and $.22 per year from 2008 through 2013, at which time the exercise price will be $8.33. The Company recorded compensation expense relating to the exercise price decrease in the 1991 and 2001 Plans of $73, $370 and $829, for the years ended December 31, 2004, 2003 and 2002, respectively.
The corporate segment consists of the operations of the parent holding company, the parent holding company of FIS, certain other unallocated corporate overhead expenses, smaller entities that do not fit in our other segment classifications including the Company’s leasing operations, as well as the issuance and repayment of corporate debt obligations. Included in this segment for 2004, 2003 and 2002, respectively, were pretax charges of $75.1 million, $39.5 million and $21.6 million for the parent holding company of FIS. Included in the Corporate and other segment for the year ended December 31, 2003 is $1.6 million in pre-tax expenses relating to the relocation of the Company’s Corporate headquarters to Jacksonville, Florida, pursuant to SFAS No. 146.
The following steps were undertaken to consummate the FIS recapitalization plan and the minority equity interest sale in FIS. On March 8, 2005, FIS issued a $2.7 billion note to FNF as payment of the dividend. On March 9, 2005, FIS borrowed $2.8 billion under its new senior credit facilities. FIS then paid FNF $2.7 billion, plus interest, to repay the $2.7 billion note issued on March 8, 2005. FNF used $400 million of these funds to repay all outstanding principal and interest on its bank debt. The remainder will be used to fund the $10 per share dividend and for general corporate purposes at FNF, which may include acquisitions. The minority equity interest sale in FIS was then closed through the payment of $500 million from the investment group led by THL and TPG to FIS. FIS then repaid approximately $410 million outstanding under its current credit facility. Finally, FIS paid all expenses related to the transactions. These expenses totaled $80.4 million, consisting of $33.2 million in bank fees and $47.2 million in fees relating to the minority interest sale, including placement fees payable to the investors. All remaining proceeds will be utilized for other general corporate purposes at FIS.