The majority of our branch offices are leased from third parties (see Note M to Notes to Consolidated Financial Statements). Our subsidiaries conduct their business operations primarily in leased office space in 41 states, Washington, DC, Puerto Rico, Canada and India.
Our financial statements for the years ended December 31, 2013 and 2012 reflect transactions with Fidelity National Information Services ("FIS"), which was considered a related party until December 31, 2013. See Note A of the Notes to Consolidated Financial Statements.
them to comply with the increased regulatory oversight and burdens. BKFS has developed solutions that target this need, which has resulted in additional revenue.
Goodwill. We have made acquisitions in the past that have resulted in a significant amount of goodwill. As of December 31, 2014 and 2013, goodwill aggregated $4,721 million and $1,901 million, respectively. The majority of our goodwill as of December 31, 2014 relates to goodwill recorded in connection with the LPS acquisition on January 2, 2014, as well as the Chicago Title merger in 2000. In evaluating the recoverability of goodwill, we perform a qualitative analysis to determine whether it is more likely than not that our fair value exceeds our carrying value. Based on the results of this analysis, an annual goodwill impairment test may be completed based on an analysis of the discounted future cash flows generated by the underlying assets. The process of determining whether or not goodwill is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Future cash flow estimates are based partly on projections of market conditions such as the volume and mix of refinance and purchase transactions and interest rates, which are beyond our control and are likely to fluctuate. 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. 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 in the future.We have completed our annual goodwill impairment analysis in each of the past three years and as a result, no impairment charges were recorded to goodwill in 2014, 2013, or 2012. As of December 31, 2014, we have determined that our goodwill has a fair value which substantially exceeds our carrying value.
Title Revenue Recognition. 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. Historically, the time lag between the closing of these transactions by our agents and the reporting of these policies, or premiums, to us has been up to 15 months, with 70-80% reported within three months following closing, an additional 10-20% reported within the next three months and the remainder within seven to fifteen months. In addition to accruing these earned but unreported agency premiums, we also accrue agent commission expense, which was 75.7% of agent premiums earned in 2014, 76.1% of agent premiums earned in 2013 and 76.2% of agent premiums earned in 2012.We also record provision for claim losses at our average provision rate at the time we record the accrual for the premiums, which was 6.2% for 2014, and 7.0% for 2013 and 2012, and accruals for premium taxes and other expenses relating to our premium accrual. The resulting impact to pretax earnings in any period is less than 10% of the accrued premium amount. The impact of the change in the accrual for agency premiums and related expenses on our pretax earnings was a decrease of $9 million for the year ended December 31, 2014, a decrease of $7 million for the year ended 2013 and an increase of less than $1 million for the year ended 2012. The amount due from our agents relating to this accrual, i.e., the agent premium less their contractual retained commission, was approximately $55 million and $74 million at December 31, 2014 and 2013, respectively, which represents agency premiums of approximately $276 million and $364 million at December 31, 2014 and 2013, respectively, and agent commissions of $221 million and $290 million at December 31, 2014 and 2013, respectively. We may have changes in our accrual for agency revenue in the future if additional relevant information becomes available.
The change in expenses from the FNF Core segments and FNFV segments is discussed in further detail at the segment level below.
(1) Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.
For a description of recent accounting pronouncements, see Note T of Notes to Consolidated Financial Statements included elsewhere herein.
Changes in the balance of Other comprehensive earnings by component are as follows:
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
For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the years ended December 31, 2014, 2013 and 2012 are presented below. Pro-forma results presented assume the consolidation of LPS occurred as of the beginning of the 2012 period.
On August 25, 2014, we acquired a 70% ownership interest in LandCastle Title ("LandCastle"), in exchange for our agreement to fund any escrow shortfalls in LandCastle's escrow accounts. At the time of the acquisition, LandCastle was a large third-party agent of FNF, operating primarily in the State of Georgia. To date, FNF's total cash contribution to LandCastle is approximately $22 million and based on our current understanding of the business could increase by approximately $0 - $10 million. On January 31, 2015, we acquired an additional 5% ownership interest in LandCastle and we now have a 75% ownership interest in LandCastle.
Included in our other long-term investments were fixed-maturity structured notes. The structured notes were 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 Consolidated Statements of Earnings. During the third quarter of 2014, all of our outstanding structured notes matured and we received $39 million in cash upon maturity. We held no structured notes at December 31, 2014. The carrying value of the structured notes was $38 million as of December 31, 2013. We recorded a gain of $1 million related to the structured notes in the year ended December 31, 2014, a loss of $3 million related to the structured notes in 2013, and no gain or losses related to the structured notes in 2012.
in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the applicable conversion rate on such trading day; (iii) upon the occurrence of specified corporate transactions; or (iv) at any time on and after May 15, 2018. However, in all cases, the Notes will cease to be convertible at the close of business on the second scheduled trading day immediately preceding the maturity date. It is our intent and policy to settle conversions through “net-share settlement”. Generally, under “net-share settlement,” the conversion value is settled in cash, up to the principal amount being converted, and the conversion value in excess of the principal amount is settled in shares of our common stock. As of October 1, 2013, these notes were convertible under the 130% Sale Price Condition described above. On March 28, 2014, $42 thousand in principal of these bonds were converted at the election of the bondholder. These bonds had a fair value of $65 thousand. The conversion was completed in the second quarter of 2014.
Our net deferred tax liability was $703 million and $144 million at December 31, 2014, and 2013, respectively. The significant changes in the deferred taxes are as follows: The deferred tax asset related to Other Investments decreased by $163 million due to a book gain recorded on our investment in Ceridian. The deferred tax liability relating to partnerships increased by $473 million primarily due to purchase accounting for the LPS acquisition. The deferred tax asset on our pension plan increased by $8 million due to minimum pension liability adjustments through our comprehensive earnings. Total net deferred tax liabilities decreased by $31 million due to the deconsolidation of Remy. The deferred tax liability on amortization decreased by $165 million. The decrease was primarily due to the deconsolidation of Remy which resulted in a decrease of $115 million and the transfer of certain intangibles to ServiceLink, an entity which is taxed as a partnership and resulted in a decrease of $40 million. The deferred tax asset relating to net operating loss carryovers was reduced by $60 million. The reduction was primarily due to the deconsolidation of Remy which resulted in a decrease of $56 million.
Rent expense incurred under operating leases during the years ended December 31, 2014, 2013 and 2012 was $130 million, $194 million, and $159 million, respectively. Rent expense in 2014, 2013, and 2012 includes abandoned lease charges related to office closures of $4 million, $1 million, and $2 million, respectively.