Acquisitions

9 Months Ended

Sep. 30, 2020

F&G

On June 1, 2020, we acquired 100% of the outstanding equity of F&G for approximately $2.7 billion. In connection with the Merger, we issued approximately 24 million shares of FNF common stock and paid approximately $1.8 billion in cash to former holders of F&G ordinary and preferred shares. On August 26, 2020, we issued an additional 1 million shares of FNF common stock and paid approximately $100 million in cash to Kingfishers, LP., Kingstown Partners Master, LTD., Kingstown Partners II, LP., Kingstown 1740 Fund, LP. and Ktown, LP. (collectively the "Kingstown Dissenters"), who are former owners of F&G common stock. For more information related to the Kingstown Dissenters, refer to Note H Commitments and Contingencies. At closing, all outstanding shares of F&G common stock, excluding shares associated with the liability to former owners, were converted into the right to receive the Merger Consideration (as defined in the Merger Agreement). Additionally, each outstanding F&G Option and F&G Phantom unit was cancelled and converted into options to purchase FNF common stock and phantom units denominated in FNF common stock, and each outstanding warrant to purchase F&G common stock was converted into the right to purchase and receive upon exercise $8.18 in cash and .0833 shares of FNF common stock. At closing, our subsidiaries' ownership of F&G common and preferred shares was converted into approximately 7 million shares of FNF common stock, which are reflected as treasury shares in the Condensed Consolidated Financial Statements as of September 30, 2020.

The initial purchase price is as follows (in millions):


Cash paid for outstanding F&G shares	$	1,903
Less: Cash Acquired	827
Net cash paid for F&G	1,076
Value of FNF share consideration	806
Value of outstanding converted equity awards attributed to services already rendered	28

Total net consideration paid	$	1,910

The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805").The purchase price has been allocated to F&G's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed represent a preliminary allocation as our evaluation of facts and circumstances available as of June 1, 2020 is ongoing. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition. The goodwill recorded is not expected to be deductible for tax purposes, except for $16 million related to a prior F&G transaction.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, we will recognize any provisional adjustments as we obtain information not available as of the completion of this preliminary fair value calculation as determined within the measurement period. We will also be required to record, in the same period as the financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

The following table summarizes the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (dollars in millions):


	Fair Value
Fixed maturity securities	$	22,389
Preferred securities	876
Equity securities	52
Derivative instruments	313
Mortgage loans	1,755
Investments in unconsolidated affiliates	1,049
Other long-term investments	430
Short-term investments	37

Trade and notes receivable	1
Reinsurance recoverable	3,241

Goodwill	1,731
Prepaid expenses and other assets	353
Lease assets	8
Other intangible assets	2,102
Income taxes receivable	27
Deferred tax asset	258
Assets of discontinued operations	2,392
Total assets acquired	37,014

Contractholder funds	26,456
Future policy benefits	4,106
Accounts payable and accrued liabilities	860
Notes payable	589
Funds withheld for reinsurance liabilities	816

Lease liabilities	9


Liabilities of discontinued operations	2,268
Total liabilities assumed	35,104



Net assets acquired	$	1,910

The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the F&G acquisition consist of the following (dollars in millions):


	Gross Carrying Value		Weighted Average Estimated Useful Life (in years)

Other intangible assets:

Value of business acquired	$	1,903	Various
Value of distribution network acquired	140		15
Trademarks and licenses	38		10
Software	21		2
Total Other intangible assets	2,102

During the three months ended September 30, 2020, we adjusted the provisional amounts as of June 1, 2020 that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition dates that, if known, would have affected the measurement of the amounts recognized as of the acquisition date. Such adjustments resulted in an increase in Investments in unconsolidated affiliates of approximately $30 million, an increase in Goodwill of approximately $6 million, a decrease in Other intangible assets of approximately $37 million, an increase in Deferred tax asset of approximately $4 million, and various other, individually immaterial items. The related amortization and expense not previously recognized related to these adjustments is immaterial for the one month period ended June 30, 2020.

Pro-forma Financial Results

F&G's financial results since the acquisition date are reflected in our Condensed Consolidated Financial Statements. F&G's revenues and net earnings of $442 million and $38 million, respectively, are included in the Condensed Consolidated Statements of Earnings for the three months ended September 30, 2020. F&G's revenues and net loss of $566 million and $1 million, respectively, are included in the Condensed Consolidated Statements of Earnings for the nine months ended September 30, 2020. For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the three and nine-month periods ending September 30, 2020 and 2019 are presented below. Pro-forma results presented assume the consolidation of F&G occurred as of the beginning of the respective 2019 periods.




	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
	(In millions)
Total revenues	$	2,976	$	2,669	$	7,127	$	7,517
Net earnings attributable to FNF common shareholders	378		294		432		876

Amounts reflect certain pro forma adjustments to revenue and net earnings that were directly attributable to the acquisition, and for the elimination of historical activity between FNF and F&G prior to the acquisition. These adjustments include the following:

•elimination of valuation changes on FNF's investment in F&G common and preferred shares prior to the acquisition;

•elimination of dividends received by FNF related to its holdings of F&G's common and preferred shares prior to the acquisition

•elimination of advisory fees F&G paid to FNF

•elimination of transaction costs paid by F&G

•adjustment to record interest expense related to financing associated with the acquisition

•adjustment to reflect the elimination of historical amortization of F&G intangibles and the additional amortization of F&G intangibles measured at fair value as of the acquisition date

•adjustment to reflect the prospective reclassification from accumulated other comprehensive earnings of the unrealized gains on available-for-sale securities to a premium which will be amortized into income based on the expected life of the investment securities