Fidelity National Financial, Inc. (FNF)

FNF 
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Fidelity National Financial (FNF)

Q4 2010 Earnings Call

January 28, 2011 10:00 am ET

Executives

Raymond Quirk - President

Daniel Murphy - Senior Vice President of Finance and Investor Relations of Fidelity National Financial

Anthony Park - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Alan Stinson - Executive Vice President

George Scanlon - Chief Executive Officer and Chief Operating Officer

William Foley - Executive Chairman, Chairman of Executive Committee and Chairman of FNF Holding

Analysts

William Clark - Keefe, Bruyette, & Woods, Inc.

Brett Huff - Stephens Inc.

Robert Napoli - Piper Jaffray Companies

Doug Mewhirter - FBW

Mark DeVries - Barclays Capital

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the FNF 2010 Fourth Quarter Earnings Call. [Operator Instructions] And now I would like to turn the conference over to your host, Mr. Dan Murphy. Please go ahead, sir.

Daniel Murphy

Thanks. Good morning, everyone and thanks for joining us for our fourth quarter 2010 earnings conference call. Joining me today are Bill Foley, our Chairman; George Scanlon, our CEO; Randy Quirk, President; Tony Park, CFO; and Al Stinson, Executive Vice President. We'll begin with a brief strategic overview from Bill Foley. George Scanlon will provide an update on the Title business and our operating companies. Tony Park will finish with a review of the financial highlights. We'll then open the call for your questions and finish with some concluding remarks from Bill Foley.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future economic performance and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to the risks and other factors detailed in our press release dated yesterday and in the statement regarding forward-looking information, Risk Factors and other sections of the company's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at 12:30 p.m. Eastern Time today through February 4. The replay number is (800) 475-6701 and the access code is 187500. Let me now turn the call over to our Chairman, Bill Foley.

William Foley

Thanks, Dan. 2010 was a successful year for FNF on a number of fronts. The Title business experienced strong refinance volumes due to the low mortgage interest rate environment, and we continue to closely manage our expense levels, producing our strongest title earnings and pretax margin in a number of years. The fourth quarter was particularly strong, with a 13.8% pretax margin. The strength of our 2010 earnings allowed us to set our annual 2011 common stock dividend at $0.48 or $0.12 per share per quarter based upon a 2011 dividend payout ratio of 30% of 2010 earnings. We remain the largest and most profitable title company in the country and despite a potentially more challenging environment, we are focused on producing strong title insurance earnings in 2011. We are also able to generate meaningful gains from our other investments and portfolio of companies.

In the spring, we realized a $26 million pretax gain from the sale of MSX International bonds, a distressed debt investment. On a percentage basis, that was a 120% gain in approximately 12 months. In May, we also successfully closed the sale of our 32% ownership stake in Sedgwick, generating a pretax gain of approximately $98 million. The sale of Sedgwick clearly achieved our ongoing goal of creating significant value for our shareholders from a portfolio company, doubling our original investment and with the culmination of very successful four-year investment for FNF.

Finally, we sold approximately half our investment at FIS stock through the company's August tender offer, selling 1.6 million shares at a tender price of $29 million with a $22 million gain. We continue to own another 1.6 million shares of FIS with a current value of approximately $50 million.

We are also very excited about the prospects for Remy International, an auto parts manufacturer. We own approximately 47% of Remy, that recently completed a debt refinancing and common stock rights offering. In December 2010, Remy closed on a new five-year credit facility and a new six-year term loan using primarily the new term loan proceeds to repay its existing first, second and third lien term loans. In January, through a common stock rights offering, eligible Remy shareholders exercised rights for approximately 19.7 million shares of common stock, resulting in proceeds of approximately $217 million, including the tender of approximately $93.5 million worth of Remy preferred stock. The debt refinancing and recent rights offering will reduce Remy's total debt plus preferred stock by $211 million from $535 million to $324 million.

Remy will produce more than $120 million of EBITDA this year in 2010 and we are excited about the company's business outlook, simplified capital structure and significantly reduced fixed charge obligation resulting from the rights offering and the debt refinancing completed last December. We can now turn our focus to a number of strategic alternatives for Remy that could generate meaningful value for FNF shareholders, including but not limited to a secondary offering.

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