UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x | ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended September 30, 2018 |
For the quarterly period ended June 30, 2019
Or
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o | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from | | to | |
For the transition period from to
Commission File No. 001-16427
Fidelity National Information Services, Inc.
(Exact name of registrant as specified in its charter)
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| | | |
Georgia | | | 37-1490331 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
of incorporation or organization) | | | |
| | | |
601 Riverside Avenue | | | |
Jacksonville | Florida | | 32204 |
(Address of principal executive offices) | | (Zip Code) |
(904) (904) 438-6000
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
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| | | | |
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
| | Trading | | Name of each exchange |
Title of each class | | Symbol(s) | | on which registered |
Common Stock, par value $0.01 per share | | FIS | | New York Stock Exchange |
0.400% Senior Notes due 2021 | | FIS21A | | New York Stock Exchange |
Floating Rate Senior Notes due 2021 | | FIS21B | | New York Stock Exchange |
0.125% Senior Notes due 2021 | | FIS21C | | New York Stock Exchange |
1.700% Senior Notes due 2022 | | FIS22B | | New York Stock Exchange |
0.750% Senior Notes due 2023 | | FIS23A | | New York Stock Exchange |
1.100% Senior Notes due 2024 | | FIS24A | | New York Stock Exchange |
2.602% Senior Notes due 2025 | | FIS25A | | New York Stock Exchange |
1.500% Senior Notes due 2027 | | FIS27 | | New York Stock Exchange |
2.000% Senior Notes due 2030 | | FIS30 | | New York Stock Exchange |
3.360% Senior Notes due 2031 | | FIS31 | | New York Stock Exchange |
2.950% Senior Notes due 2039 | | FIS39 | | New York Stock Exchange |
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 x NO oYes ☒ No ☐
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 x NO Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | | | |
Large accelerated filerx | ☒ | Accelerated filero | ☐ |
Non-accelerated filer o(Do not check if a smaller reporting company)
| ☐ | Smaller reporting companyo | ☐ |
| | Emerging growth companyo | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o☐ NO x☒
As of October 29, 2018, 327,488,268August 5, 2019, 613,444,279 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended SeptemberJune 30, 20182019
INDEX
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EX-31.1 | |
EX-31.2 | |
EX-32.1 | |
EX-32.2 | |
EX-101 INSTANCE DOCUMENT | |
EX-101 SCHEMA DOCUMENT | |
EX-101 CALCULATION LINKBASE DOCUMENT | |
EX-101 DEFINITION LINKBASE DOCUMENT | |
EX-101 LABELS LINKBASE DOCUMENT | |
EX-101 PRESENTATION LINKBASE DOCUMENT | |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
| | | September 30, 2018 | | December 31, 2017 | | | | | |
| | | As Adjusted * | June 30, 2019 | | December 31, 2018 |
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | $ | 632 |
| | $ | 665 |
| $ | 9,756 |
| | $ | 703 |
|
Settlement deposits | 563 |
| | 677 |
| 538 |
| | 700 |
|
Trade receivables, net of allowance for doubtful accounts of $29 and $63 as of September 30, 2018 and December 31, 2017, respectively | 1,398 |
| | 1,624 |
| |
Trade receivables, net of allowance for doubtful accounts of $27 and $17 as of June 30, 2019 and December 31, 2018, respectively | | 1,366 |
| | 1,472 |
|
Contract assets | 115 |
| | 108 |
| 122 |
| | 123 |
|
Settlement receivables | 386 |
| | 291 |
| 289 |
| | 281 |
|
Other receivables | 198 |
| | 70 |
| 137 |
| | 166 |
|
Prepaid expenses and other current assets | 252 |
| | 253 |
| 297 |
| | 288 |
|
Assets held for sale | 53 |
| | — |
| |
Total current assets | 3,597 |
| | 3,688 |
| 12,505 |
| | 3,733 |
|
Property and equipment, net | 546 |
| | 610 |
| 541 |
| | 587 |
|
Goodwill | 13,585 |
| | 13,730 |
| 13,542 |
| | 13,545 |
|
Intangible assets, net | 3,304 |
| | 3,885 |
| 2,863 |
| | 3,132 |
|
Computer software, net | 1,710 |
| | 1,728 |
| 1,798 |
| | 1,795 |
|
Other noncurrent assets | | 1,049 |
| | 503 |
|
Deferred contract costs, net | 442 |
| | 354 |
| 561 |
| | 475 |
|
Other noncurrent assets | 510 |
| | 531 |
| |
Total assets | $ | 23,694 |
| | $ | 24,526 |
| $ | 32,859 |
| | $ | 23,770 |
|
LIABILITIES AND EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable and accrued liabilities | $ | 1,007 |
| | $ | 1,241 |
| |
Accounts payable, accrued and other liabilities | | $ | 1,030 |
| | $ | 1,099 |
|
Settlement payables | 925 |
| | 949 |
| 792 |
| | 972 |
|
Deferred revenue | 692 |
| | 776 |
| 788 |
| | 739 |
|
Short-term borrowings | | 1,507 |
| | 267 |
|
Current portion of long-term debt | 40 |
| | 1,045 |
| 53 |
| | 48 |
|
Liabilities held for sale | 28 |
| | — |
| |
Total current liabilities | 2,692 |
| | 4,011 |
| 4,170 |
| | 3,125 |
|
Long-term debt, excluding current portion | 8,998 |
| | 7,718 |
| 16,682 |
| | 8,670 |
|
Deferred income taxes | 1,402 |
| | 1,468 |
| 1,295 |
| | 1,360 |
|
Other long-term liabilities | | 664 |
| | 326 |
|
Deferred revenue | 61 |
| | 106 |
| 56 |
| | 67 |
|
Other long-term liabilities | 375 |
| | 403 |
| |
Total liabilities | 13,528 |
| | 13,706 |
| 22,867 |
| | 13,548 |
|
Equity: | | | | | | |
FIS stockholders’ equity: | | | | | | |
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of September 30, 2018 and December 31, 2017 | — |
| | — |
| |
Common stock, $0.01 par value, 600 shares authorized, 433 and 432 shares issued as of September 30, 2018 and December 31, 2017 | 4 |
| | 4 |
| |
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of June 30, 2019 and December 31, 2018 | | — |
| | — |
|
Common stock, $0.01 par value, 600 shares authorized, 433 and 433 shares issued as of June 30, 2019 and December 31, 2018 | | 4 |
| | 4 |
|
Additional paid in capital | 10,715 |
| | 10,534 |
| 10,887 |
| | 10,800 |
|
Retained earnings | 4,339 |
| | 4,109 |
| 4,599 |
| | 4,528 |
|
Accumulated other comprehensive earnings (loss) | (433 | ) | | (332 | ) | (438 | ) | | (430 | ) |
Treasury stock, 105 and 99 shares as of September 30, 2018 and December 31, 2017, respectively, at cost | (4,544 | ) | | (3,604 | ) | |
Treasury stock, $0.01 par value, 109 and 106 common shares as of June 30, 2019 and December 31, 2018, respectively, at cost | | (5,067 | ) | | (4,687 | ) |
Total FIS stockholders’ equity | 10,081 |
| | 10,711 |
| 9,985 |
| | 10,215 |
|
Noncontrolling interest | 85 |
| | 109 |
| 7 |
| | 7 |
|
Total equity | 10,166 |
| | 10,820 |
| 9,992 |
| | 10,222 |
|
Total liabilities and equity | $ | 23,694 |
| | $ | 24,526 |
| $ | 32,859 |
| | $ | 23,770 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Revenue | $ | 2,112 |
| | $ | 2,106 |
| | $ | 4,169 |
| | $ | 4,172 |
|
Cost of revenue | 1,404 |
| | 1,414 |
| | 2,785 |
| | 2,828 |
|
Gross profit | 708 |
| | 692 |
| | 1,384 |
| | 1,344 |
|
Selling, general and administrative expenses | 317 |
| | 339 |
| | 678 |
| | 697 |
|
Operating income | 391 |
| | 353 |
| | 706 |
| | 647 |
|
Other income (expense): | | | | | | | |
Interest expense, net | (72 | ) | | (73 | ) | | (147 | ) | | (144 | ) |
Other income (expense), net | (120 | ) | | (4 | ) | | (172 | ) | | (2 | ) |
Total other income (expense), net | (192 | ) | | (77 | ) | | (319 | ) | | (146 | ) |
Earnings before income taxes and equity method investment earnings (loss) | 199 |
| | 276 |
| | 387 |
| | 501 |
|
Provision (benefit) for income taxes | 40 |
| | 51 |
| | 72 |
| | 85 |
|
Equity method investment earnings (loss) | (4 | ) | | (7 | ) | | (11 | ) | | (8 | ) |
Net earnings | 155 |
| | 218 |
| | 304 |
| | 408 |
|
Net (earnings) loss attributable to noncontrolling interest | (1 | ) | | (6 | ) | | (2 | ) | | (14 | ) |
Net earnings attributable to FIS common stockholders | $ | 154 |
| | $ | 212 |
| | $ | 302 |
| | $ | 394 |
|
| | | | | | | |
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.48 |
| | $ | 0.64 |
| | $ | 0.93 |
| | $ | 1.20 |
|
Weighted average shares outstanding — basic | 324 |
| | 329 |
| | 323 |
| | 329 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.64 |
| | $ | 0.92 |
| | $ | 1.18 |
|
Weighted average shares outstanding — diluted | 327 |
| | 333 |
| | 327 |
| | 334 |
|
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| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| | | As Adjusted * | | | | As Adjusted * |
Revenue | $ | 2,084 |
| | $ | 2,096 |
| | $ | 6,256 |
| | $ | 6,502 |
|
Cost of revenue | 1,364 |
| | 1,386 |
| | 4,192 |
| | 4,397 |
|
Gross profit | 720 |
| | 710 |
| | 2,064 |
| | 2,105 |
|
Selling, general, and administrative expenses | 283 |
| | 325 |
| | 980 |
| | 1,104 |
|
Asset impairments | 95 |
| | — |
| | 95 |
| | — |
|
Operating income | 342 |
| | 385 |
| | 989 |
| | 1,001 |
|
Other income (expense): | | | | | | | |
Interest expense, net | (80 | ) | | (84 | ) | | (225 | ) | | (267 | ) |
Other income (expense), net | (58 | ) | | (182 | ) | | (60 | ) | | (123 | ) |
Total other income (expense), net | (138 | ) | | (266 | ) | | (285 | ) | | (390 | ) |
Earnings before income taxes and equity method investment earnings (loss) | 204 |
| | 119 |
| | 704 |
| | 611 |
|
Provision (benefit) for income taxes | 37 |
| | 50 |
| | 122 |
| | 260 |
|
Equity method investment earnings (loss) | (4 | ) | | — |
| | (11 | ) | | — |
|
Net earnings | 163 |
| | 69 |
| | 571 |
| | 351 |
|
Net (earnings) loss attributable to noncontrolling interest | (9 | ) | | (10 | ) | | (23 | ) | | (24 | ) |
Net earnings attributable to FIS common stockholders | $ | 154 |
| | $ | 59 |
| | $ | 548 |
| | $ | 327 |
|
| | | | | | | |
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.67 |
| | $ | 0.99 |
|
Weighted average shares outstanding — basic | 328 |
| | 331 |
| | 329 |
| | 330 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.65 |
| | $ | 0.98 |
|
Weighted average shares outstanding — diluted | 331 |
| | 336 |
| | 333 |
| | 335 |
|
Cash dividends paid per share | $ | 0.32 |
| | $ | 0.29 |
| | $ | 0.96 |
| | $ | 0.87 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(In millions)
(Unaudited)
| | | Three months ended September 30, | | Nine months ended September 30, | Three months ended June 30, | | Six months ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | As Adjusted * | | | | | | As Adjusted * | | | | | | | | | | | | | | | |
Net earnings | | | $ | 163 |
| | | | $ | 69 |
| | | | $ | 571 |
| | | | $ | 351 |
| | | $ | 155 |
| | | | $ | 218 |
| | | | $ | 304 |
| | | | $ | 408 |
|
Other comprehensive earnings, before tax: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unrealized gain (loss) on investments and derivatives | $ | — |
| | | | $ | 5 |
| | | | $ | — |
| | | | $ | (28 | ) | | | |
Reclassification adjustment for gain (loss) included in net earnings | — |
| | | | — |
| | | | — |
| | | | — |
| | | |
Unrealized gain (loss) on investments and derivatives, net | — |
| | | | 5 |
| | | | — |
| | | | (28 | ) | | | |
Unrealized gain (loss) on derivatives | | $ | (16 | ) | | | | $ | — |
| | | | $ | (16 | ) | | | | $ | — |
| | |
Reclassification adjustment for (gains) losses included in net earnings | | (4 | ) | | | | — |
| | | | (4 | ) | | | | — |
| | |
Unrealized gain (loss) on derivatives, net | | (20 | ) | | | | — |
| | | | (20 | ) | | | | — |
| | |
Foreign currency translation adjustments | (35 | ) | | | | 46 |
| | | | (123 | ) | | | | 20 |
| | | 11 |
| | | | (102 | ) | | | | 17 |
| | | | (88 | ) | | |
Minimum pension liability adjustment | — |
| | | | — |
| | | | — |
| | | | (10 | ) | | | — |
| | | | — |
| | | | (4 | ) | | | | — |
| | |
Other comprehensive earnings (loss), before tax: | (35 | ) | | | | 51 |
| | | | (123 | ) | | | | (18 | ) | | | (9 | ) | | | | (102 | ) | | | | (7 | ) | | | | (88 | ) | | |
Provision for income tax expense (benefit) related to items of other comprehensive earnings | — |
| | | | 2 |
| | | | — |
| | | | (11 | ) | | | 2 |
| | | | — |
| | | | 1 |
| | | | — |
| | |
Other comprehensive earnings (loss), net of tax | $ | (35 | ) | | (35 | ) | | $ | 49 |
| | 49 |
| | $ | (123 | ) | | (123 | ) | | $ | (7 | ) | | (7 | ) | $ | (11 | ) | | (11 | ) | | $ | (102 | ) | | (102 | ) | | $ | (8 | ) | | (8 | ) | | $ | (88 | ) | | (88 | ) |
Comprehensive earnings: | | | 128 |
| | | | 118 |
| | | | 448 |
| | | | 344 |
| | | 144 |
| | | | 116 |
| | | | 296 |
| | | | 320 |
|
Net (earnings) loss attributable to noncontrolling interest | | | (9 | ) | | | | (10 | ) | | | | (23 | ) | | | | (24 | ) | | | (1 | ) | | | | (6 | ) | | | | (2 | ) | | | | (14 | ) |
Other comprehensive (earnings) loss attributable to noncontrolling interest | | | 5 |
| | | | (4 | ) | | | | 22 |
| | | | (2 | ) | | | — |
| | | | 17 |
| | | | — |
| | | | 17 |
|
Comprehensive earnings attributable to FIS common stockholders | | | $ | 124 |
| | | | $ | 104 |
| | | | $ | 447 |
| | | | $ | 318 |
| | | $ | 143 |
| | | | $ | 127 |
| | | | $ | 294 |
| | | | $ | 323 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Equity
NineThree and six months ended SeptemberJune 30, 20182019
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Amount |
| | | | | FIS Stockholders | | | | |
| | | | | | | | | | | Accumulated | | | | | | |
| Number of shares | | | | Additional | | | | other | | | | | | |
| Common | | Treasury | | Common | | paid in | | Retained | | comprehensive | | Treasury | | Noncontrolling | | Total |
| shares | | shares | | stock | | capital | | earnings | | earnings (loss) | | stock | | interest | | equity |
Balances, March 31, 2019 | 433 |
| | (110 | ) | | $ | 4 |
| | $ | 10,844 |
| | $ | 4,558 |
| | $ | (427 | ) | | $ | (5,083 | ) | | $ | 7 |
| | $ | 9,903 |
|
Exercise of stock options | — |
| | 1 |
| | — |
| | 19 |
| | — |
| | — |
| | 16 |
| | — |
| | 35 |
|
Stock-based compensation | — |
| | — |
| | — |
| | 24 |
| | — |
| | — |
| | — |
| | — |
| | 24 |
|
Cash dividends paid ($0.35 per share per quarter) and other distributions | — |
| | — |
| | — |
| | — |
| | (113 | ) | | — |
| | — |
| | (1 | ) | | (114 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | 154 |
| | — |
| | — |
| | 1 |
| | 155 |
|
Other comprehensive earnings, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (11 | ) |
Balances, June 30, 2019 | 433 |
| | (109 | ) | | $ | 4 |
| | $ | 10,887 |
| | $ | 4,599 |
| | $ | (438 | ) | | $ | (5,067 | ) | | $ | 7 |
| | $ | 9,992 |
|
| | | | | | | Amount | | | | | Amount |
| | | | | FIS Stockholders | | | | | | | | | FIS Stockholders | | | | |
| | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | Accumulated | | | | | | |
| Number of shares | | | | Additional | | | | other | | | | | | | Number of shares | | | | Additional | | | | other | | | | | | |
| Common | | Treasury | | Common | | paid in | | Retained | | comprehensive | | Treasury | | Noncontrolling | | Total | Common | | Treasury | | Common | | paid in | | Retained | | comprehensive | | Treasury | | Noncontrolling | | Total |
| shares | | shares | | stock | | capital | | earnings | | earnings | | stock | | interest | | equity | shares | | shares | | stock | | capital | | earnings | | earnings (loss) | | stock | | interest | | equity |
Balances, December 31, 2017, as adjusted * | 432 |
| | (99 | ) | | $ | 4 |
| | $ | 10,534 |
| | $ | 4,109 |
| | $ | (332 | ) | | $ | (3,604 | ) | | $ | 109 |
| | $ | 10,820 |
| |
Issuance of restricted stock | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
Balances, December 31, 2018 | | 433 |
| | (106 | ) | | $ | 4 |
| | $ | 10,800 |
| | $ | 4,528 |
| | $ | (430 | ) | | $ | (4,687 | ) | | $ | 7 |
| | $ | 10,222 |
|
Exercise of stock options | — |
| | 4 |
| | — |
| | 126 |
| | — |
| | — |
| | 146 |
| | — |
| | 272 |
| — |
| | 1 |
| | — |
| | 44 |
| | — |
| | — |
| | 43 |
| | — |
| | 87 |
|
Treasury shares held for taxes due upon exercise of stock options | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (20 | ) | | — |
| | (31 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (23 | ) | | — |
| | (23 | ) |
Purchases of treasury stock | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | (1,066 | ) | | — |
| | (1,066 | ) | — |
| | (4 | ) | | — |
| | — |
| | — |
| | — |
| | (400 | ) | | — |
| | (400 | ) |
Stock-based compensation | — |
| | — |
| | — |
| | 66 |
| | — |
| | — |
| | — |
| | — |
| | 66 |
| — |
| | — |
| | — |
| | 43 |
| | — |
| | — |
| | — |
| | — |
| | 43 |
|
Cash dividends paid ($0.32 per share per quarter) and other distributions | — |
| | — |
| | — |
| | — |
| | (318 | ) | | — |
| | — |
| | (25 | ) | | (343 | ) | |
Cash dividends paid ($0.35 per share per quarter) and other distributions | | — |
| | — |
| | — |
| | — |
| | (226 | ) | | — |
| | — |
| | (2 | ) | | (228 | ) |
Other | | — |
| | — |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
| | (5 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | 548 |
| | — |
| | — |
| | 23 |
| | 571 |
| — |
| | — |
| | — |
| | — |
| | 302 |
| | — |
| | — |
| | 2 |
| | 304 |
|
Other comprehensive earnings, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (101 | ) | | — |
| | (22 | ) | | (123 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | (8 | ) | | — |
| | — |
| | (8 | ) |
Balances, September 30, 2018 | 433 |
| | (105 | ) | | $ | 4 |
| | $ | 10,715 |
| | $ | 4,339 |
| | $ | (433 | ) | | $ | (4,544 | ) | | $ | 85 |
| | $ | 10,166 |
| |
Balances, June 30, 2019 | | 433 |
| | (109 | ) | | $ | 4 |
| | $ | 10,887 |
| | $ | 4,599 |
| | $ | (438 | ) | | $ | (5,067 | ) | | $ | 7 |
| | $ | 9,992 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
Three and six months ended June 30, 2018
(In millions, except per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Amount |
| | | | | FIS Stockholders | | | | |
| | | | | | | | | | | Accumulated | | | | | | |
| Number of shares | | | | Additional | | | | other | | | | | | |
| Common | | Treasury | | Common | | paid in | | Retained | | comprehensive | | Treasury | | Noncontrolling | | Total |
| shares | | shares | | stock | | capital | | earnings | | earnings (loss) | | stock | | interest | | equity |
Balances, March 31, 2018 | 432 |
| | (102 | ) | | $ | 4 |
| | $ | 10,585 |
| | $ | 4,186 |
| | $ | (318 | ) | | $ | (3,962 | ) | | $ | 116 |
| | $ | 10,611 |
|
Issuance of restricted stock | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exercise of stock options | — |
| | 2 |
| | — |
| | 59 |
| | — |
| | — |
| | 53 |
| | — |
| | 112 |
|
Treasury shares held for taxes due upon exercise of stock options | — |
| | — |
| | — |
| | (10 | ) | | — |
| | — |
| | (3 | ) | | — |
| | (13 | ) |
Purchases of treasury stock | — |
| | (2 | ) | | — |
| | — |
| | — |
| | — |
| | (200 | ) | | — |
| | (200 | ) |
Stock-based compensation | — |
| | — |
| | — |
| | 25 |
| | — |
| | — |
| | — |
| | — |
| | 25 |
|
Cash dividends paid ($0.32 per share per quarter) and other distributions | — |
| | — |
| | — |
| | — |
| | (107 | ) | | — |
| | — |
| | — |
| | (107 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | 212 |
| | — |
| | — |
| | 6 |
| | 218 |
|
Other comprehensive earnings, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (85 | ) | | — |
| | (17 | ) | | (102 | ) |
Balances, June 30, 2018 | 433 |
| | (102 | ) | | $ | 4 |
| | $ | 10,659 |
| | $ | 4,291 |
| | $ | (403 | ) | | $ | (4,112 | ) | | $ | 105 |
| | $ | 10,544 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Amount |
| | | | | FIS Stockholders | | | | |
| | | | | | | | | | | Accumulated | | | | | | |
| Number of shares | | | | Additional | | | | other | | | | | | |
| Common | | Treasury | | Common | | paid in | | Retained | | comprehensive | | Treasury | | Noncontrolling | | Total |
| shares | | shares | | stock | | capital | | earnings | | earnings (loss) | | stock | | interest | | equity |
Balances, December 31, 2017 | 432 |
| | (99 | ) | | $ | 4 |
| | $ | 10,534 |
| | $ | 4,109 |
| | $ | (332 | ) | | $ | (3,604 | ) | | $ | 109 |
| | $ | 10,820 |
|
Issuance of restricted stock | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Exercise of stock options | — |
| | 3 |
| | — |
| | 91 |
| | — |
| | — |
| | 113 |
| | — |
| | 204 |
|
Treasury shares held for taxes due upon exercise of stock options | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (20 | ) | | — |
| | (31 | ) |
Purchases of treasury stock | — |
| | (6 | ) | | — |
| | — |
| | — |
| | — |
| | (601 | ) | | — |
| | (601 | ) |
Stock-based compensation | — |
| | — |
| | — |
| | 45 |
| | — |
| | — |
| | — |
| | — |
| | 45 |
|
Cash dividends paid ($0.32 per share per quarter) and other distributions | — |
| | — |
| | — |
| | — |
| | (212 | ) | | — |
| | — |
| | (1 | ) | | (213 | ) |
Net earnings | — |
| | — |
| | — |
| | — |
| | 394 |
| | — |
| | — |
| | 14 |
| | 408 |
|
Other comprehensive earnings, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (71 | ) | | — |
| | (17 | ) | | (88 | ) |
Balances, June 30, 2018 | 433 |
| | (102 | ) | | $ | 4 |
| | $ | 10,659 |
| | $ | 4,291 |
| | $ | (403 | ) | | $ | (4,112 | ) | | $ | 105 |
| | $ | 10,544 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| | | Nine months ended September 30, | Six months ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
Cash flows from operating activities: | | | As Adjusted * | | | |
Net earnings | $ | 571 |
| | $ | 351 |
| $ | 304 |
| | $ | 408 |
|
Adjustment to reconcile net earnings to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 1,060 |
| | 1,015 |
| 736 |
| | 706 |
|
Amortization of debt issue costs | 13 |
| | 15 |
| 10 |
| | 9 |
|
Asset impairments | 95 |
| | — |
| |
Loss (gain) on sale of businesses | 48 |
| | (55 | ) | |
Acquisition-related financing foreign exchange | | 104 |
| | — |
|
Loss (gain) on sale of businesses and investments | | — |
| | (6 | ) |
Loss (gain) other | | 17 |
| | — |
|
Loss on extinguishment of debt | 1 |
| | 192 |
| — |
| | 1 |
|
Stock-based compensation | 66 |
| | 86 |
| 43 |
| | 45 |
|
Deferred income taxes | (65 | ) | | (196 | ) | (68 | ) | | (24 | ) |
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | | | | | | |
Trade receivables | 151 |
| | (187 | ) | |
Trade and other receivables | | 93 |
| | 189 |
|
Contract assets | (10 | ) | | 77 |
| 1 |
| | (3 | ) |
Settlement activity | (6 | ) | | (27 | ) | (27 | ) | | 13 |
|
Prepaid expenses and other assets | 31 |
| | (20 | ) | (140 | ) | | (11 | ) |
Deferred contract costs | (180 | ) | | (111 | ) | (174 | ) | | (119 | ) |
Deferred revenue | (122 | ) | | (51 | ) | 39 |
| | (2 | ) |
Accounts payable, accrued liabilities, and other liabilities | (365 | ) | | (10 | ) | (118 | ) | | (383 | ) |
Net cash provided by operating activities | 1,288 |
| | 1,079 |
| 820 |
| | 823 |
|
| | | | | | |
Cash flows from investing activities: | | | | | | |
Additions to property and equipment | (115 | ) | | (98 | ) | (57 | ) | | (83 | ) |
Additions to computer software | (349 | ) | | (350 | ) | (228 | ) | | (233 | ) |
Proceeds from sale of businesses | 58 |
| | 1,307 |
| |
Net proceeds from sale of businesses and investments | | 43 |
| | 49 |
|
Other investing activities, net | (26 | ) | | (3 | ) | (42 | ) | | (6 | ) |
Net cash provided by (used in) investing activities | (432 | ) | | 856 |
| (284 | ) | | (273 | ) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Borrowings | 8,068 |
| | 7,900 |
| 19,201 |
| | 5,703 |
|
Repayment of borrowings and capital lease obligations | (7,725 | ) | | (9,594 | ) | |
Repayment of borrowings and other financing obligations | | (10,028 | ) | | (5,521 | ) |
Debt issuance costs | (30 | ) | | (13 | ) | (71 | ) | | (24 | ) |
Proceeds from exercise of stock options | 273 |
| | 168 |
| 86 |
| | 203 |
|
Treasury stock activity | (1,038 | ) | | (46 | ) | (423 | ) | | (637 | ) |
Dividends paid | (316 | ) | | (289 | ) | (226 | ) | | (211 | ) |
Distribution to Brazilian Venture partner | (23 | ) | | (23 | ) | |
Other financing activities, net | (3 | ) | | (36 | ) | (24 | ) | | (2 | ) |
Net cash provided by (used in) financing activities | (794 | ) | | (1,933 | ) | 8,515 |
| | (489 | ) |
| | | | | | |
Effect of foreign currency exchange rate changes on cash | (56 | ) | | 35 |
| 2 |
| | (43 | ) |
Less net change in cash balances classified as assets held for sale | (39 | ) | | — |
| |
Net increase (decrease) in cash and cash equivalents | (33 | ) | | 37 |
| 9,053 |
| | 18 |
|
Cash and cash equivalents, beginning of period | 665 |
| | 683 |
| 703 |
| | 665 |
|
Cash and cash equivalents, end of period | $ | 632 |
| | $ | 720 |
| $ | 9,756 |
| | $ | 683 |
|
| | | | | | |
Supplemental cash flow information: | | | | | | |
Cash paid for interest | $ | 199 |
| | $ | 266 |
| $ | 159 |
| | $ | 146 |
|
Cash paid for income taxes | $ | 442 |
| | $ | 485 |
| $ | 149 |
| | $ | 353 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless stated otherwise or the context otherwise requires, all references to “FIS,” “we,” the “Company” or the “registrant” are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
(1) Basis of Presentation
The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited) and the reported amounts of revenue and expenses during the reported periods. Actual results could differ from those estimates. Certain reclassifications have been made in the 20172018 Condensed Consolidated Financial Statements (Unaudited) to conform to the classifications used in 2018.2019. Amounts in tables in the financial statements and accompanying footnotes may not sum due to rounding.
The Company adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, all 2017 financial information has been adjusted for the implementation of Topic 606 (Note 3).
We report the results of our operations in three reporting segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other (Note(see Note 13).
(2) Summary of Significant Accounting Policies
| |
(a) | Change in Accounting Policy |
(a) Revenue RecognitionThe Company adopted Topic 842, Leases, with an initial application date of January 1, 2019. As a result, the Company has changed its accounting policy for leases. The accounting policy pursuant to Topic 842 for operating leases is disclosed below. The primary impact of adopting Topic 842 is the establishment of a right-of-use ("ROU") model that requires a lessee to recognize ROU assets and lease liabilities on the consolidated balance sheet for operating leases.
The Company generates revenueapplied Topic 842 using the effective date method; consequently, financial information was not updated and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019. For transition purposes, the Company elected the "package of practical expedients," which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient not to separate lease and non-lease components. The Company did not elect the use-of-hindsight practical expedient nor the short-term lease recognition exemption allowed under the new standard.
The adoption of ASC 842 resulted in a numberthe recognition of ways, including fromoperating lease ROU assets and lease liabilities on the deliveryCompany’s Condensed Consolidated Balance Sheet (Unaudited) of account-$442 million and $446 million, respectively, on January 1, 2019. The standard did not impact the Company’s results of operations or transaction-based processing, software as a service ("SaaS"), business process as a service ("BPaaS"), cloud offerings, software licensing, software related services, and professional services.cash flows.
The Company enters into arrangements with customersleases certain of its property, primarily real estate, under operating leases. Operating lease ROU assets are included in other noncurrent assets, and operating lease liabilities are included in accounts payable, accrued and other liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets (Unaudited). ROU assets represent the Company’s right to provide services, softwareuse an underlying asset for the lease term and software-related services such as maintenance, implementationlease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and training either individually or as part of an integrated offering of multiple services. At contract inception, the Company assesses the solutions and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - i.e., if a solution or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources thatliabilities are readily available to the customer. To identify its performance obligations, the Company considers all of the solutions or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company recognizes revenue when or as it satisfies a performance obligation by transferring control of a solution or service to a customer.
Revenue is measuredrecognized at commencement date based on the considerationpresent value of lease payments over the lease term. Operating lease ROU assets also include any prepaid lease payments and exclude lease incentives received. The Company uses an incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend, generally ranging from one to five years, or to terminate the lease when it is reasonably certain that the Company expects to receive in a contract with a customer. The Company’s contracts with its customers frequently contain variable consideration. Variable consideration exists when the amount which the Company expects to receive in a contract is based on the occurrence or non-occurrence of future events, such as processing services performed under usage-based pricing arrangements or professional services billed on a time and materials basis. Variable consideration is also present in certain transactions in the form of discounts, credits, price concessions, penalties, and similar items. If the amount of a discount or rebate in a contract is fixed and not contingent, that discount or rebate is not variable consideration. The Company estimates variable consideration in its contracts primarily using the expected value method. In some contracts, the Company applies the most likely amount method by considering the single most likely amount in a limited range of possible consideration amounts. The Company develops estimates of variablewill
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
considerationexercise that option. Lease expense is recognized on a straight-line basis over the basis of both historical informationlease term. Lease agreements may include lease and current trends. Variable consideration included in the transaction price is constrained such that a significant revenue reversal is not probable.
Taxes collected from customers and remitted to governmental authorities are not included in revenue. Postage costs associated with print and mail servicesrelated non-lease components, which are accounted for as a fulfillment cost and are included in cost of revenue.
Technology or service components from third parties are frequently embedded in or combined with our applications or service offerings. We are often responsiblesingle lease component. Additionally, for billing the client in these arrangements and transmitting the applicable fees to the third party. The Company determines whether it is responsible for providing the actual solution or service as a principal, or for arranging for the solution or service to be provided by the third party as an agent. Judgment is applied to determine whether we are the principal or the agent by evaluating whethercertain equipment leases, the Company has control of the solution or service priorapplies a portfolio approach to it being transferred to the customer. The principal versus agent assessment is performed at the performance obligation level. Indicators that the Company considers in determining if it has control include whether the Company is primarily responsible for fulfilling the promise to provide the specified solution or service to the customer, the Company has inventory risk and the Company has discretion in establishing the price the customer ultimately pays for the solution or service. Depending upon the level of our contractual responsibilities and obligations for delivering solutions to end customers, we have arrangements where we are the principal and recognize the gross amount billed to the customer and other arrangements where we are the agent and recognize the net amount retained.
Once the Company has determined the transaction price, the total transaction price is allocated to each performance obligation in a manner depicting the amount of consideration to which the Company expects to be entitled in exchange for transferring the solution(s) or service(s) to the customer (the “allocation objective”). If the allocation objective is met at contractual prices, no allocations are made. Otherwise, the Company allocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis, except when the criteria are met for allocating variable consideration or a discount to one or more, but not all performance obligations in the contract. The Company allocates variable consideration to one or more, but not all performance obligations when the terms of the variable payment relate specifically to the Company’s efforts to satisfy the performance obligation (or transfer the distinct solution or service) and when such allocation is consistent with the allocation objective when considering all performance obligations in the contract. Determining whether the criteria for allocating variable consideration to one or more, but not all, performance obligations in the contract requires significant judgment and may affect the timing and amount of revenue recognized. The Company does not typically meet the requirements to allocate discounts to one or more, but not all, performance obligations in a contract.
In order to determine the standalone selling price of its promised solutions or services, the Company conducts a regular analysis to determine whether various solutions or services have an observable standalone selling price. If the Company does not have an observable standalone selling price for a particular solution or service, then standalone selling price for that particular solution or service is estimated using all information that is reasonably available and maximizing observable inputs with approaches including historical pricing, cost plus a margin, adjusted market assessment, and residual approach.
The following describes the nature of the Company’s primary types of revenue and the revenue recognition policies and significant payment terms as they pertain to the types of transactions the Company enters into with its customers.
Processing Services Revenue
Processing services are primarily comprised of data processing and application management, including our SaaS, BPaaS, and cloud offerings. Revenue from processing services are typically volume- or activity-based depending on factors such as the number of accounts processed, transactions or trades processed, users, number of hours of services or computer resources used. The payment terms may include tiered pricing structures with the base tier representing a minimum monthly usage fee. Pricing within the tiers typically resets on a monthly basis and minimum monthly volumes are generally met or exceeded. Contract lengths for processing services typically span multiple years. Payment is generally due in advance or in arrears on a monthly or quarterly basis and may include fixed or variable payment amounts depending on the specific payment terms and activity in the period.
For processing services revenue, the nature of the Company’s promise to the customer is to stand ready to provide continuous access to the Company’s processing platforms and perform an unspecified quantity of outsourced and transaction-processing services for a specified term or terms. Accordingly, processing services are generally viewed as a stand-ready performance obligation comprised of a series of distinct daily services. The Company typically satisfies its processing services
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
performance obligations over time as the services are provided. A time-elapsed output method is used to measure progress because the Company’s efforts are expended evenly throughout the period given the nature of the promise is a stand-ready service. The Company has evaluated its variable payment terms related to its processing services revenue accounted for as a series of distinct days of service and concluded that they generally meet the criteria for allocating variable consideration entirely to one or more, but not all, performance obligations in a contract. Accordingly, when the criteria are met, variable amounts based on the number and type of services performed during a period are allocated to and recognized on the day in which the Company performs the related services. Fixed fees for processing services are generally recognized ratably over the contract period.
License and Software Related Revenue
The Company’s software licenses generally have significant stand-alone functionality to the customer upon delivery and are considered to be functional intellectual property (“IP”). Additionally, the nature of the Company’s promise in granting these software licenses to a customer is typically to provide the customer a right to use the Company’s intellectual property. The Company’s software licenses are generally considered distinct performance obligations, and revenue allocated to the software license is typically recognized at a point in time upon delivery of the license.
In conjunction with software licenses, the Company commonly provides the customer with additional services such as maintenance as well as associated implementation and other professional services related to the software license. Payments for maintenance are typically due annually, quarterly, or monthly in advance. Maintenance is typically comprised of technical support and unspecified updates and upgrades. The Company generally satisfies these performance obligations evenly using a time-elapsed output method over the contract term given there is no discernible pattern of performance. When a software license contract also includes professional services that provide significant modification or customization of the software license, the Company combines the software license and professional services into a single performance obligation, and revenue for the combined performance obligation is recognized as the professional services are provided consistent with the methods described below for professional services revenue.
The Company has contracts where the licensed software is offered in conjunction with hosting services. The licensed software may be considered a separate performance obligation from the hosting services if the customer can take possession of the software during the contractual term without incurring a significant penalty and if it is feasible for the customer to run the software on its own infrastructure or hire a third party to host the software. If the licensed software and hosting services are separately identifiable, license revenue is recognized when the hosting services commence and it is within the customer's control to obtain a copy of the software, and hosting revenue is recognized using the time-elapsed output method as the service is provided. If the software license is not separately identifiable from the hosting service, then the related revenue for the combined performance obligation is recognized ratably over the hosting period.
Occasionally, the Company offers extended payment terms on its license transactions and evaluates whether any potential significant financing components exist. For certain of its business units, the Company will provide a software license through a rental model for customers who would prefer a periodic fee instead of a larger upfront payment. Revenue recognition under these arrangements follows the same recognition pattern as the arrangements outlined above; however, the customer generally pays for the software license and maintenance in monthly or quarterly installments as opposed to an upfront software license fee. Judgment is required to determine whether these arrangements contain a significant financing component. The Company evaluates whether there is a significant difference between the amount of promised consideration over the rental term and the cash selling price of the software license, and the overall impact of the time value of money on the transaction. Rental software license arrangements that include a significant financing component are adjusted for the time value of money at the Company’s incremental borrowing rate by recording a contract asset and interest income. The Company does not adjust the promised amount of consideration for the effects of the time value of money if it is expected, at contract inception, that the period between when the Company transfers a promised solution or service to a customer and when the customer pays for that solution or service will be one year or less.
Professional Services Revenue
Professional services revenue is comprised of implementation, conversion, and programming services associated with the Company’s data processing and application management agreements, implementation or installation services related to licensed software, and other consulting services. A significant portion of our professional services revenue is derived from contracts for dedicated personnel resources who are often working full-time at a client site and under the client's direction. This revenue
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
generally re-occurs as contracts are renewed. Payment terms for professional services may be based on an upfront fixed fee, fixed upon the achievement of milestones, or on a time and materials basis.
In assessing whether implementation services provided on data processing, application management or software agreements are a distinct performance obligation, the Company considers whether the services are both capable of being distinct (i.e., can the customer benefit from the services alone or in combination with other resources that are readily available to the customer) and distinct within the context of the contract (i.e., separately identifiable from the other performance obligations in the contract). Implementation services and other professional services are typically considered distinct performance obligations. However, when these services involve significant customization or modification of an underlying solution or offering, or if the services are complex and not available from a third-party provider and must be completed prior to a customer having the ability to benefit from a solution or offering, then such services and the underlying solution or offering will be accounted for as a combined performance obligation.
The Company’s professional services that are accounted for as distinct performance obligations and that are billed on a fixed fee basis are typically satisfied as services are rendered; thus the Company uses a cost-based input method, such as cost-to-cost or efforts expended (labor hours), to provide a faithful depiction of the transfer of those services. For professional services that are distinct and billed on a time and materials basis, revenue is generally recognized using an output method that corresponds with the time and materials billed and delivered, which is reflective of the transfer of the services to the customer. Professional services that are not distinct from an associated solution or offering are recognized over the common measure of progress for the overall performance obligation (typically a time-elapsed output measure that corresponds to the period over which the solution or offering is made available to the customer).
Hardware and Other Revenue
Hardware and other miscellaneous revenue is generally recognized at a point in time upon delivery. The Company typically does not stock in inventory the hardware solutions sold but arranges for delivery of hardware from third-party suppliers. The Company determines whether hardware delivered from third-party suppliers should be recognized on a gross or net basis by evaluating whether the Company has control of the solution or service prior to it being transferred to the customer.
Material Rights
Some of the Company’s contracts with customers include options for the customer to acquire additional solutions or services in the future, including options to renew existing services. Options may represent a material right to acquire solutions or services if the discount is incremental to the range of discounts typically given for those solutions or services to that class of customer in that geographical area or market, and the customer would not have obtained the option without entering into the contract. If deemed to be a material right, the Company willeffectively account for the material right as a separate performance obligationoperating lease ROU assets and determine the standalone selling price based on directly observable prices when available. If the standalone selling price is not directly observable, then the Company estimates the standalone selling price to be equal to the discount that the customer would obtain by exercising the option, as adjusted for any discount that the customer would receive without exercising the option and for the likelihood that the option will be exercised.liabilities.
(b) Deferred Contract Costs
The Company incurs costs as a result of both the origination and fulfillment of our contracts with customers. Origination costs relate primarily to the payment of sales commissions that are directly related to sales transactions. Fulfillment costs include the cost of implementation services related to SaaS and other cloud-based arrangements when the implementation service is not distinct from the ongoing service. When origination costs and fulfillment costs that will be used to satisfy future performance obligations are directly related to the execution of our contracts with customers, and the costs are recoverable under the contract, the costs are capitalized as a deferred contract cost.
Origination costs for contracts that contain a distinct software license recognized at a point in time are allocated between the license and all other performance obligations of the contract and amortized according to the pattern of performance for the respective obligations. Otherwise, origination costs are capitalized as a single asset for each contract and amortized using an appropriate single measure of performance considering all of the performance obligations in the contract. The Company amortizes origination costs over the expected benefit period to which the deferred contract cost relates. Origination costs related to initial contracts with a customer are amortized over the lesser of the useful life of the solution or the expected
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
customer relationship period. Commissions paid on renewals are amortized over the renewal period. Capitalized fulfillment costs are amortized over the lesser of the useful life of the solution or the expected customer relationship period.
(3) ChangesAcquisition of Worldpay
On March 17, 2019, FIS, Wrangler Merger Sub, Inc., a wholly owned subsidiary of FIS (“Merger Sub”), and Worldpay, Inc. (“Worldpay”) entered into an Agreement and Plan of Merger (the “merger agreement”) pursuant to which FIS would acquire Worldpay through a merger transaction (“Worldpay transaction,” “Transaction” or “ the merger”). On July 31, 2019, FIS completed the Transaction. Through its acquisition of Worldpay, FIS is now a global leader in Accounting Policies
technology, solutions and services for merchants, as well as banks and capital markets. The Company adopted Topic 606, Revenue from Contracts with Customers,Worldpay acquisition brings an integrated technology platform with a datecomprehensive suite of initial applicationproducts and services serving merchants and financial institutions. Worldpay processed over 40 billion transactions annually, supporting more than 300 payment types across 146 countries and 126 currencies. Through the Transaction, FIS will have enhanced global payment capabilities, robust risk and fraud solutions and advanced data analytics.
Pursuant to the merger agreement, FIS acquired 100 percent of January 1, 2018.the equity of Worldpay at the closing on July 31, 2019. At the closing, Worldpay shareholders received approximately 289 million shares of FIS common stock and $3.4 billion in cash, using an exchange ratio of 0.9287 FIS shares plus $11.00 in cash for each share of Worldpay common stock. FIS also converted approximately 7 million outstanding Worldpay equity awards into corresponding equity awards with respect to shares of FIS common stock pursuant to an exchange ratio in the merger agreement designed to maintain the intrinsic value of the applicable award immediately prior to conversion. In connection with the Transaction, FIS also repaid approximately $7.5 billion in Worldpay debt. The combination of stock and cash valued Worldpay at an enterprise value of approximately $50 billion, including the repayment of Worldpay debt of approximately $7.5 billion. As a result the Company has changed its accounting policy for revenue recognition. The details of the significant changesTransaction, legacy FIS shareholders own approximately 53 percent and quantitative impactlegacy Worldpay shareholders own approximately 47 percent of the changes are disclosed below.
The Company applied Topic 606 retrospectively using certain practical expedients in paragraph 606-10-65-1(f). For completed contracts that have variablecombined company on a fully diluted basis. FIS funded the cash portion of the merger consideration, the Company usedpay-off of the transaction price atindebtedness of Worldpay and the datepayment of transaction-related expenses through a combination of available cash-on-hand and proceeds from debt issuances, including proceeds from concurrent public offerings on May 21, 2019 of Euro-, Pound Sterling-, and U.S. Dollar-denominated senior unsecured notes of FIS and borrowings under the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. Further, the Company did not disclose the amountnewly established Euro-commercial paper program. See Note 7 for further discussion of consideration allocatedthese debt issuances.
Due to the remaining performance obligations or an explanationclose proximity in timing of when the Company expects to recognize that amount as revenueTransaction closing date and the Company's filing of this Quarterly Report on Form 10-Q, the initial accounting for the 2017 interim reporting periods presented before the date of the initial application. Lastly, the Company did not retrospectively restate contracts modified before the beginning of the earliest reporting period presented but reflects the aggregate effect of all modifications that occurred before the beginning of the earliest period presented.
Principal vs. Agent Considerations
In customer transactions that also involve third parties, the Company determines whether itbusiness combination is responsible for providing the ultimate solution or service as a principal, or whether it is merely arranging for the solution or service to be provided by the third party as an agent. Whenincomplete; therefore, the Company is acting as a principal in a transaction, the Company recognizes the gross amounts billed as revenue. When the Company is acting as an agent in a transaction, the Company recognizes the net amount retained as revenue. Previously, the Company followed the guidance ofunable to disclose certain information required by FASB ASC Topic 605, which lists eight specific indicators that are determinative in evaluating whether a contract is recorded on a gross or a net basis. Under Topic 606, the determination is based on whether an entity obtains control of goods or services prior to transfer to a customer.805, Business Combinations. The Company determined interchange and third-party network fees associated with certain parts of the payment processing business were significantly impacted by the adoption of Topic 606. Previously, gross accounting appliedplans to certain types of these transactions, dependingprovide preliminary purchase price allocation information in FIS' Quarterly Report on the specific facts and circumstances. However, under Topic 606 revenue from these arrangements will be presented on a net basis because the Company has concluded that it is acting as an agent in the transaction.
Software License Rentals
The Company previously recognized revenue for initial license fees only when a contract existed, the fee was fixed or determinable, software delivery had occurred, collection was deemed probable, and vendor specific objective evidence of fair value had been established for any undelivered elements in the arrangement. If those criteria were not met, the initial license revenue was either deferred or recognized over time depending on the specific facts and circumstances. Software license rentals typically include payments that are delayed for a period of time, causing the Company to conclude that some portion of the license fee was not fixed or determinable. In these arrangements, license revenue would be deferred until payments become due and payable. Under Topic 606, the Company’s software licenses are generally considered distinct performance obligations, and revenue allocated to the software license is typically recognized at a point in time upon delivery of the license. Software license revenue is also typically recognized at a point in time upon delivery of the license under Topic 606 even if it is sold in a rental model or with extended payment terms, provided collectability is probable. Accordingly, a larger portion of software license revenue is recognized upfront for such transactions under Topic 606 than under Topic 605.
Term License Early Renewals
The Company previously recognized revenue for term software license renewals upon execution of a license renewal contract, provided all other revenue recognition requirements were met. Under Topic 606, revenue attributable to software term license renewals is now recognized at a later date than it would have been recognized under the previous accounting policy.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Impacts on Financial Statements
The following tables summarize the impacts of Topic 606 adoption on the Company’s Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Balance Sheet (Unaudited) as of December 31, 2017 (in millions):
|
| | | | | | | | | | | |
| As Previously | | | | |
| Reported | | Adjustments | | As Adjusted |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 665 |
| | $ | — |
| | $ | 665 |
|
Settlement deposits | 677 |
| | — |
| | 677 |
|
Trade receivables, net | 1,650 |
| | (26 | ) | | 1,624 |
|
Contract assets | — |
| | 108 |
| | 108 |
|
Settlement receivables | 291 |
| | — |
| | 291 |
|
Other receivables | 70 |
| | — |
| | 70 |
|
Prepaid expenses and other current assets | 253 |
| | — |
| | 253 |
|
Total current assets | 3,606 |
| | 82 |
| | 3,688 |
|
Property and equipment, net | 610 |
| | — |
| | 610 |
|
Goodwill | 13,730 |
| | — |
| | 13,730 |
|
Intangible assets, net | 3,950 |
| | (65 | ) | | 3,885 |
|
Computer software, net | 1,728 |
| | — |
| | 1,728 |
|
Deferred contract costs, net | 362 |
| | (8 | ) | | 354 |
|
Other noncurrent assets | 531 |
| | — |
| | 531 |
|
Total assets | $ | 24,517 |
| | $ | 9 |
| | $ | 24,526 |
|
LIABILITIES AND EQUITY | | | | | |
Current liabilities: | | | | | |
Accounts payable and accrued liabilities | $ | 1,241 |
| | $ | — |
| | $ | 1,241 |
|
Settlement payables | 949 |
| | — |
| | 949 |
|
Deferred revenue | 688 |
| | 88 |
| | 776 |
|
Current portion of long-term debt | 1,045 |
| | — |
| | 1,045 |
|
Total current liabilities | 3,923 |
| | 88 |
| | 4,011 |
|
Long-term debt, excluding current portion | 7,718 |
| | — |
| | 7,718 |
|
Deferred income taxes | 1,508 |
| | (40 | ) | | 1,468 |
|
Deferred revenue | 21 |
| | 85 |
| | 106 |
|
Other long-term liabilities | 403 |
| | — |
| | 403 |
|
Total liabilities | 13,573 |
| | 133 |
| | 13,706 |
|
Equity: | | | | | |
FIS stockholders’ equity: | | | | | |
Preferred stock | — |
| | — |
| | — |
|
Common stock | 4 |
| | — |
| | 4 |
|
Additional paid in capital | 10,534 |
| | — |
| | 10,534 |
|
Retained earnings | 4,233 |
| | (124 | ) | | 4,109 |
|
Accumulated other comprehensive earnings | (332 | ) | | — |
| | (332 | ) |
Treasury stock, at cost | (3,604 | ) | | — |
| | (3,604 | ) |
Total FIS stockholders’ equity | 10,835 |
| | (124 | ) | | 10,711 |
|
Noncontrolling interest | 109 |
| | — |
| | 109 |
|
Total equity | 10,944 |
| | (124 | ) | | 10,820 |
|
Total liabilities and equity | $ | 24,517 |
| | $ | 9 |
| | $ | 24,526 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Earnings (Unaudited)Form 10-Q for the three months endedquarter ending September 30, 2017 (in millions):2019.
|
| | | | | | | | | | | |
| As previously | | | | |
| Reported | | Adjustments | | As Adjusted |
Revenue | $ | 2,198 |
| | $ | (102 | ) | | $ | 2,096 |
|
Cost of revenue | 1,483 |
| | (97 | ) | | 1,386 |
|
Gross profit | 715 |
| | (5 | ) | | 710 |
|
Selling, general, and administrative expenses | 327 |
| | (2 | ) | | 325 |
|
Operating income | 388 |
| | (3 | ) | | 385 |
|
Other income (expense): | | | | | |
Interest income (expense), net | (84 | ) | | — |
| | (84 | ) |
Other income (expense), net | (182 | ) | | — |
| | (182 | ) |
Total other income (expense), net | (266 | ) | | — |
| | (266 | ) |
Earnings before income taxes and equity method investment earnings (loss) | 122 |
| | (3 | ) | | 119 |
|
Provision (benefit) for income taxes | 51 |
| | (1 | ) | | 50 |
|
Equity method investment earnings (loss) | — |
| | — |
| | — |
|
Net earnings | 71 |
| | (2 | ) | | 69 |
|
Net (earnings) loss attributable to noncontrolling interest | (10 | ) | | — |
| | (10 | ) |
Net earnings attributable to FIS common stockholders | $ | 61 |
| | $ | (2 | ) | | $ | 59 |
|
| | | | | |
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.18 |
| | $ | (0.01 | ) | | $ | 0.18 |
|
Weighted average shares outstanding — basic | 331 |
| | 331 |
| | 331 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.18 |
| | $ | (0.01 | ) | | $ | 0.18 |
|
Weighted average shares outstanding — diluted | 336 |
| | 336 |
| | 336 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Earnings (Unaudited) for the nine months ended September 30, 2017 (in millions):
|
| | | | | | | | | | | |
| As previously | | | | |
| Reported | | Adjustments | | As Adjusted |
Revenue | $ | 6,794 |
| | $ | (292 | ) | | $ | 6,502 |
|
Cost of revenue | 4,677 |
| | (280 | ) | | 4,397 |
|
Gross profit | 2,117 |
| | (12 | ) | | 2,105 |
|
Selling, general, and administrative expenses | 1,110 |
| | (6 | ) | | 1,104 |
|
Operating income | 1,007 |
| | (6 | ) | | 1,001 |
|
Other income (expense): | | | | | |
Interest income (expense), net | (267 | ) | | — |
| | (267 | ) |
Other income (expense), net | (123 | ) | | — |
| | (123 | ) |
Total other income (expense), net | (390 | ) | | — |
| | (390 | ) |
Earnings before income taxes and equity method investment earnings (loss) | 617 |
| | (6 | ) | | 611 |
|
Provision (benefit) for income taxes | 262 |
| | (2 | ) | | 260 |
|
Equity method investment earnings (loss) | — |
| | — |
| | — |
|
Net earnings | 355 |
| | (4 | ) | | 351 |
|
Net (earnings) loss attributable to noncontrolling interest | (24 | ) | | — |
| | (24 | ) |
Net earnings attributable to FIS common stockholders | $ | 331 |
| | $ | (4 | ) | | $ | 327 |
|
| | | | | |
Net earnings per share — basic attributable to FIS common stockholders | $ | 1.00 |
| | $ | (0.01 | ) | | $ | 0.99 |
|
Weighted average shares outstanding — basic | 330 |
| | 330 |
| | 330 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.99 |
| | $ | (0.01 | ) | | $ | 0.98 |
|
Weighted average shares outstanding — diluted | 335 |
| | 335 |
| | 335 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Comprehensive Earnings (Unaudited) for the three months ended September 30, 2017 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As Previously | | | | |
| Reported | | Adjustments | | As Adjusted |
Net earnings | | | $ | 71 |
| | | | $ | (2 | ) | | | | $ | 69 |
|
Other comprehensive earnings, before tax: | | | | | | | | | | | |
Unrealized gain (loss) on investments and derivatives | $ | 5 |
| | | | $ | — |
| | | | $ | 5 |
| | |
Reclassification adjustment for gain (loss) included in net earnings | — |
| | | | — |
| | | | — |
| | |
Unrealized gain (loss) on investments and derivatives, net | 5 |
| | | | — |
| | | | 5 |
| | |
Foreign currency translation adjustments | 46 |
| | | | — |
| | | | 46 |
| | |
Minimum pension liability adjustments | — |
| | | | — |
| | | | — |
| | |
Other comprehensive earnings (loss), before tax | 51 |
| | | | — |
| | | | 51 |
| | |
Provision for income tax expense (benefit) related to items of other comprehensive earnings | 2 |
| | | | — |
| | | | 2 |
| | |
Other comprehensive earnings (loss), net of tax | $ | 49 |
| | 49 |
| | $ | — |
| | — |
| | $ | 49 |
| | 49 |
|
Comprehensive earnings: | | | 120 |
| | | | (2 | ) | | | | 118 |
|
Net (earnings) loss attributable to noncontrolling interest | | | (10 | ) | | | | — |
| | | | (10 | ) |
Other comprehensive (earnings) loss attributable to noncontrolling interest | | | (4 | ) | | | | — |
| | | | (4 | ) |
Comprehensive earnings attributable to FIS common stockholders | | | $ | 106 |
| | | | $ | (2 | ) | | | | $ | 104 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Comprehensive Earnings (Unaudited) for the nine months ended September 30, 2017 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As Previously | | | | |
| Reported | | Adjustments | | As Adjusted |
Net earnings | | | $ | 355 |
| | | | $ | (4 | ) | | | | $ | 351 |
|
Other comprehensive earnings, before tax: | | | | | | | | | | | |
Unrealized gain (loss) on investments and derivatives | $ | (28 | ) | | | | $ | — |
| | | | $ | (28 | ) | | |
Reclassification adjustment for gain (loss) included in net earnings | — |
| | | | — |
| | | | — |
| | |
Unrealized gain (loss) on investments and derivatives, net | (28 | ) | | | | — |
| | | | (28 | ) | | |
Foreign currency translation adjustments | 20 |
| | | | — |
| | | | 20 |
| | |
Minimum pension liability adjustments | (10 | ) | | | | — |
| | | | (10 | ) | | |
Other comprehensive earnings (loss), before tax | (18 | ) | | | | — |
| | | | (18 | ) | | |
Provision for income tax expense (benefit) related to items of other comprehensive earnings | (11 | ) | | | | — |
| | | | (11 | ) | | |
Other comprehensive earnings (loss), net of tax | $ | (7 | ) | | (7 | ) | | $ | — |
| | — |
| | $ | (7 | ) | | (7 | ) |
Comprehensive earnings: | | | 348 |
| | | | (4 | ) | | | | 344 |
|
Net (earnings) loss attributable to noncontrolling interest | | | (24 | ) | | | | — |
| | | | (24 | ) |
Other comprehensive (earnings) loss attributable to noncontrolling interest | | | (2 | ) | | | | — |
| | | | (2 | ) |
Comprehensive earnings attributable to FIS common stockholders | | | $ | 322 |
| | | | $ | (4 | ) | | | | $ | 318 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statement of Cash Flows (Unaudited) for the nine months ended September 30, 2017 (in millions):
|
| | | | | | | | | | | |
| As Previously | | | | |
| Reported | | Adjustments | | As Adjusted |
Cash flows from operating activities: | | | | | |
Net earnings | $ | 355 |
| | $ | (4 | ) | | $ | 351 |
|
Adjustment to reconcile net earnings to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 1,033 |
| | (18 | ) | | 1,015 |
|
Amortization of debt issue costs | 15 |
| | — |
| | 15 |
|
Gain on sale of assets | (55 | ) | | — |
| | (55 | ) |
Loss on extinguishment of debt | 192 |
| | — |
| | 192 |
|
Stock-based compensation | 86 |
| | — |
| | 86 |
|
Deferred income taxes | (197 | ) | | 1 |
| | (196 | ) |
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | | | | | |
Trade receivables | (105 | ) | | (82 | ) | | (187 | ) |
Contract assets | — |
| | 77 |
| | 77 |
|
Settlement activity | (27 | ) | | — |
| | (27 | ) |
Prepaid expenses and other assets | (20 | ) | | — |
| | (20 | ) |
Deferred contract costs | (121 | ) | | 10 |
| | (111 | ) |
Deferred revenue | (70 | ) | | 19 |
| | (51 | ) |
Accounts payable, accrued liabilities, and other liabilities | (7 | ) | | (3 | ) | | (10 | ) |
Net cash provided by operating activities | 1,079 |
| | — |
| | 1,079 |
|
| | | | | |
Cash flows from investing activities: | | | | | |
Additions to property and equipment | (98 | ) | | — |
| | (98 | ) |
Additions to computer software | (350 | ) | | — |
| | (350 | ) |
Net proceeds from sale of assets | 1,307 |
| | — |
| | 1,307 |
|
Other investing activities, net | (3 | ) | | — |
| | (3 | ) |
Net cash provided by (used in) investing activities | 856 |
| | — |
| | 856 |
|
| | | | | |
Cash flows from financing activities: | | | | | |
Borrowings | 7,900 |
| | — |
| | 7,900 |
|
Repayment of borrowings and capital lease obligations | (9,594 | ) | | — |
| | (9,594 | ) |
Debt issuance costs | (13 | ) | | — |
| | (13 | ) |
Proceeds from exercise of stock options | 168 |
| | — |
| | 168 |
|
Treasury stock activity | (46 | ) | | — |
| | (46 | ) |
Dividends paid | (289 | ) | | — |
| | (289 | ) |
Distribution to Brazilian Venture partner | (23 | ) | | — |
| | (23 | ) |
Other financing activities, net | (36 | ) | | — |
| | (36 | ) |
Net cash provided by (used in) financing activities | (1,933 | ) | | — |
| | (1,933 | ) |
Effect of foreign currency exchange rate changes on cash | 35 |
| | — |
| | 35 |
|
Net increase (decrease) in cash and cash equivalents | 37 |
| | — |
| | 37 |
|
Cash and cash equivalents, beginning of year | 683 |
| | — |
| | 683 |
|
Cash and cash equivalents, end of year | $ | 720 |
| | $ | — |
| | $ | 720 |
|
| | | | | |
Supplemental cash flow information: | | | | | |
Cash paid for interest | $ | 266 |
| | $ | — |
| | $ | 266 |
|
Cash paid for income taxes | $ | 485 |
| | $ | — |
| | $ | 485 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(4) Revenue
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market, type of revenue, and recurring nature of revenue recognized. The tables also include a reconciliation of the disaggregated revenue with the Company’s reportable segments.
For the three months ended September 30, 2018 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 1,046 |
| | $ | 456 |
| | $ | 66 |
| | $ | 1,568 |
|
All others | | 44 |
| | 460 |
| | 12 |
| | 516 |
|
Total | | $ | 1,090 |
| | $ | 916 |
| | $ | 78 |
| | $ | 2,084 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 879 |
| | $ | 509 |
| | $ | 69 |
| | $ | 1,457 |
|
License and software related | | 92 |
| | 255 |
| | — |
| | 347 |
|
Professional services | | 40 |
| | 151 |
| | 2 |
| | 193 |
|
Hardware and other | | 79 |
| | 1 |
| | 7 |
| | 87 |
|
Total | | $ | 1,090 |
| | $ | 916 |
| | $ | 78 |
| | $ | 2,084 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 959 |
| | $ | 663 |
| | $ | 69 |
| | $ | 1,691 |
|
Non-recurring fees | | 131 |
| | 253 |
| | 9 |
| | 393 |
|
Total | | $ | 1,090 |
| | $ | 916 |
| | $ | 78 |
| | $ | 2,084 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the ninethree months ended SeptemberJune 30, 20182019 (in millions):
| | | | Reportable Segments | | Reportable Segments |
| | | | | | Corporate | | | | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total | | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | | | | | | | | | |
North America | | $ | 3,143 |
| | $ | 1,343 |
| | $ | 201 |
| | $ | 4,687 |
| | $ | 1,135 |
| | $ | 463 |
| | $ | 55 |
| | $ | 1,653 |
|
All others | | 132 |
| | 1,399 |
| | 38 |
| | 1,569 |
| | 44 |
| | 402 |
| | 13 |
| | 459 |
|
Total | | $ | 3,275 |
| | $ | 2,742 |
| | $ | 239 |
| | $ | 6,256 |
| | $ | 1,179 |
| | $ | 865 |
| | $ | 68 |
| | $ | 2,112 |
|
| | | | | | | | | | | | | | | | |
Type of Revenue: | | | | | | | | | | | | | | | | |
Processing and services | | $ | 2,711 |
| | $ | 1,566 |
| | $ | 217 |
| | $ | 4,494 |
| | $ | 947 |
| | $ | 463 |
| | $ | 57 |
| | $ | 1,467 |
|
License and software related | | 269 |
| | 730 |
| | 1 |
| | 1,000 |
| | 99 |
| | 242 |
| | — |
| | 341 |
|
Professional services | | 120 |
| | 438 |
| | 6 |
| | 564 |
| | 47 |
| | 156 |
| | 3 |
| | 206 |
|
Hardware and other | | 175 |
| | 8 |
| | 15 |
| | 198 |
| | 86 |
| | 4 |
| | 8 |
| | 98 |
|
Total | | $ | 3,275 |
| | $ | 2,742 |
| | $ | 239 |
| | $ | 6,256 |
| | $ | 1,179 |
| | $ | 865 |
| | $ | 68 |
| | $ | 2,112 |
|
| | | | | | | | | | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | | | | | | | | | |
Recurring fees | | $ | 2,901 |
| | $ | 2,042 |
| | $ | 218 |
| | $ | 5,161 |
| | $ | 1,029 |
| | $ | 617 |
| | $ | 57 |
| | $ | 1,703 |
|
Non-recurring fees | | 374 |
| | 700 |
| | 21 |
| | 1,095 |
| | 150 |
| | 248 |
| | 11 |
| | 409 |
|
Total | | $ | 3,275 |
| | $ | 2,742 |
| | $ | 239 |
| | $ | 6,256 |
| | $ | 1,179 |
| | $ | 865 |
| | $ | 68 |
| | $ | 2,112 |
|
For the six months ended June 30, 2019 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 2,221 |
| | $ | 904 |
| | $ | 107 |
| | $ | 3,232 |
|
All others | | 88 |
| | 824 |
| | 25 |
| | 937 |
|
Total | | $ | 2,309 |
| | $ | 1,728 |
| | $ | 132 |
| | $ | 4,169 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 1,859 |
| | $ | 926 |
| | $ | 117 |
| | $ | 2,902 |
|
License and software related | | 184 |
| | 492 |
| | — |
| | 676 |
|
Professional services | | 88 |
| | 302 |
| | 5 |
| | 395 |
|
Hardware and other | | 178 |
| | 8 |
| | 10 |
| | 196 |
|
Total | | $ | 2,309 |
| | $ | 1,728 |
| | $ | 132 |
| | $ | 4,169 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 2,022 |
| | $ | 1,235 |
| | $ | 117 |
| | $ | 3,374 |
|
Non-recurring fees | | 287 |
| | 493 |
| | 15 |
| | 795 |
|
Total | | $ | 2,309 |
| | $ | 1,728 |
| | $ | 132 |
| | $ | 4,169 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended SeptemberJune 30, 20172018 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 1,079 |
| | $ | 434 |
| | $ | 71 |
| | $ | 1,584 |
|
All others | | 45 |
| | 465 |
| | 12 |
| | 522 |
|
Total | | $ | 1,124 |
| | $ | 899 |
| | $ | 83 |
| | $ | 2,106 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 936 |
| | $ | 521 |
| | $ | 73 |
| | $ | 1,530 |
|
License and software related | | 92 |
| | 228 |
| | — |
| | 320 |
|
Professional services | | 43 |
| | 150 |
| | 2 |
| | 195 |
|
Hardware and other | | 53 |
| | — |
| | 8 |
| | 61 |
|
Total | | $ | 1,124 |
| | $ | 899 |
| | $ | 83 |
| | $ | 2,106 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 991 |
| | $ | 680 |
| | $ | 73 |
| | $ | 1,744 |
|
Non-recurring fees | | 133 |
| | 219 |
| | 10 |
| | 362 |
|
Total | | $ | 1,124 |
| | $ | 899 |
| | $ | 83 |
| | $ | 2,106 |
|
|
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | As Adjusted |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 997 |
| | $ | 464 |
| | $ | 70 |
| | $ | 1,531 |
|
All others | | 41 |
| | 511 |
| | 13 |
| | 565 |
|
Total | | $ | 1,038 |
| | $ | 975 |
| | $ | 83 |
| | $ | 2,096 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 852 |
| | $ | 545 |
| | $ | 76 |
| | $ | 1,473 |
|
License and software related | | 94 |
| | 232 |
| | 1 |
| | 327 |
|
Professional services | | 41 |
| | 197 |
| | 2 |
| | 240 |
|
Hardware and other | | 51 |
| | 1 |
| | 4 |
| | 56 |
|
Total | | $ | 1,038 |
| | $ | 975 |
| | $ | 83 |
| | $ | 2,096 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 911 |
| | $ | 703 |
| | $ | 77 |
| | $ | 1,691 |
|
Non-recurring fees | | 127 |
| | 272 |
| | 6 |
| | 405 |
|
Total | | $ | 1,038 |
| | $ | 975 |
| | $ | 83 |
| | $ | 2,096 |
|
For the six months ended June 30, 2018 (in millions):
20 |
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 2,096 |
| | $ | 886 |
| | $ | 135 |
| | $ | 3,117 |
|
All others | | 89 |
| | 940 |
| | 26 |
| | 1,055 |
|
Total | | $ | 2,185 |
| | $ | 1,826 |
| | $ | 161 |
| | $ | 4,172 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 1,831 |
| | $ | 1,064 |
| | $ | 147 |
| | $ | 3,042 |
|
License and software related | | 178 |
| | 475 |
| | 1 |
| | 654 |
|
Professional services | | 80 |
| | 287 |
| | 4 |
| | 371 |
|
Hardware and other | | 96 |
| | — |
| | 9 |
| | 105 |
|
Total | | $ | 2,185 |
| | $ | 1,826 |
| | $ | 161 |
| | $ | 4,172 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 1,942 |
| | $ | 1,379 |
| | $ | 148 |
| | $ | 3,469 |
|
Non-recurring fees | | 243 |
| | 447 |
| | 13 |
| | 703 |
|
Total | | $ | 2,185 |
| | $ | 1,826 |
| | $ | 161 |
| | $ | 4,172 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the nine months ended September 30, 2017 (in millions):
|
| | | | | | | | | | | | | | | | |
| | Reportable Segments |
| | As Adjusted |
| | | | | | Corporate | | |
| | IFS | | GFS | | and Other | | Total |
Primary Geographical Markets: | | | | | | | | |
North America | | $ | 3,044 |
| | $ | 1,473 |
| | $ | 238 |
| | $ | 4,755 |
|
All others | | 118 |
| | 1,591 |
| | 38 |
| | 1,747 |
|
Total | | $ | 3,162 |
| | $ | 3,064 |
| | $ | 276 |
| | $ | 6,502 |
|
| | | | | | | | |
Type of Revenue: | | | | | | | | |
Processing and services | | $ | 2,586 |
| | $ | 1,645 |
| | $ | 243 |
| | $ | 4,474 |
|
License and software related | | 289 |
| | 680 |
| | 14 |
| | 983 |
|
Professional services | | 146 |
| | 733 |
| | 10 |
| | 889 |
|
Hardware and other | | 141 |
| | 6 |
| | 9 |
| | 156 |
|
Total | | $ | 3,162 |
| | $ | 3,064 |
| | $ | 276 |
| | $ | 6,502 |
|
| | | | | | | | |
Recurring Nature of Revenue Recognition: | | | | | | | | |
Recurring fees | | $ | 2,763 |
| | $ | 2,112 |
| | $ | 251 |
| | $ | 5,126 |
|
Non-recurring fees | | 399 |
| | 952 |
| | 25 |
| | 1,376 |
|
Total | | $ | 3,162 |
| | $ | 3,064 |
| | $ | 276 |
| | $ | 6,502 |
|
Contract Balances
The following table provides information about trade receivables, contract assets, and deferred revenue from contracts with customers (in millions).
|
| | | | | | | | |
| | As of |
| | September 30, | | December 31, |
| | 2018 | | 2017 |
| | | | As adjusted |
| | | | |
Trade receivables | | $ | 1,398 |
| | $ | 1,624 |
|
Contract assets (current) | | 115 |
| | 108 |
|
Contract assets (non-current), included in other noncurrent assets | | 96 |
| | 118 |
|
Deferred revenue (current) | | 692 |
| | 776 |
|
Deferred revenue (non-current) | | 61 |
| | 106 |
|
The payment terms and conditions in our customer contracts may vary. In some cases, customers pay in advance of our delivery of solutions or services; in other cases, payment is due as services are performed or in arrears following the delivery of the solutions or services. Differences in timing between revenue recognition and invoicing result in accrued trade receivables, contract assets, or deferred revenue on our Condensed Consolidated Balance Sheets (Unaudited). Receivables are accrued when revenue is recognized prior to invoicing but the right to payment is unconditional (i.e., only the passage of time is required). This occurs most commonly when software term licenses recognized at a point in time are paid for periodically over the license term. Contract assets result when amounts allocated to distinct performance obligations are recognized when or as control of a solution or service is transferred to the customer but invoicing is contingent on performance of other performance
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
obligations or on completion of contractual milestones. Contract assets are transferred to receivables when the rights become unconditional, typically upon invoicing of the related performance obligations in the contract or upon achieving the requisite project milestone. Deferred revenue results from customer payments in advance of our satisfaction of the associated performance obligation(s) and relates primarily to prepaid maintenance or other recurring services. Deferred revenue is relieved as revenue is recognized. Contract assets and deferred revenue are reported on a contract-by-contract basis at the end of each reporting period. Changes in the contract assets and deferred revenue balances during the nine months ended September 30, 2018 were not materially impacted by any factors other than those described above.
The Company recognized revenue of $178$188 million and $185$170 million during the three months and $629$508 million and $598$452 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
During the three and nine months ended September 30, 2018 and 2017, amounts recognized from performance obligations satisfied (or partially satisfied) in prior periods were insignificant.
Transaction Price Allocated to the Remaining Performance Obligations
As of SeptemberJune 30, 2018,2019, approximately $19.5$20.0 billion of revenue is estimated to be recognized in the future from the Company’s remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 35% of our remaining performance obligations over the next 12 months, approximately another 25% over the next 13 to 24 months, and the balance thereafter.
(5) Condensed Consolidated Financial Statement Details
The following table shows the Company’s Condensed Consolidated Financial Statement (Unaudited) details as of SeptemberJune 30, 20182019 and December 31, 20172018 (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Cost | | Accumulated depreciation and amortization | | Net | | Cost | | Accumulated depreciation and amortization | | Net |
Property and equipment | $ | 1,784 |
| | $ | 1,243 |
| | $ | 541 |
| | $ | 1,645 |
| | $ | 1,058 |
| | $ | 587 |
|
Intangible assets | $ | 6,157 |
| | $ | 3,294 |
| | $ | 2,863 |
| | $ | 6,122 |
| | $ | 2,990 |
| | $ | 3,132 |
|
Computer software | $ | 3,230 |
| | $ | 1,432 |
| | $ | 1,798 |
| | $ | 3,103 |
| | $ | 1,308 |
| | $ | 1,795 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017, As adjusted |
| Cost | | Accumulated depreciation and amortization | | Net | | Cost | | Accumulated depreciation and amortization | | Net |
Property and equipment | $ | 1,686 |
| | $ | 1,140 |
| | $ | 546 |
| | $ | 1,657 |
| | $ | 1,047 |
| | $ | 610 |
|
Intangible assets | $ | 6,279 |
| | $ | 2,975 |
| | $ | 3,304 |
| | $ | 6,369 |
| | $ | 2,484 |
| | $ | 3,885 |
|
Computer software | $ | 3,002 |
| | $ | 1,292 |
| | $ | 1,710 |
| | $ | 2,862 |
| | $ | 1,134 |
| | $ | 1,728 |
|
The Company entered into capital lease and other financing obligations of $1 million and $1$0 million during the three months and $1$35 million and $80$0 million during the ninesix months ended SeptemberJune 30, 2019 and 2018, respectively, for certain computer hardware and 2017, respectively.software. The assets are included in property and equipment and computer software and the remainingother financing obligations are classified as long-term debt on our Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2018 and December 31, 2017.. Periodic payments are included in repayment of borrowings and other financing obligations on the Condensed Consolidated Statements of Cash Flows (Unaudited).
Changes in goodwill during the ninesix months ended SeptemberJune 30, 20182019 are summarized as follows (in millions):
|
| | | | |
| | |
| | Total |
Balance, December 31, 2018 | | $ | 13,545 |
|
Foreign currency adjustments | | (3 | ) |
Balance, June 30, 2019 | | $ | 13,542 |
|
|
| | | |
| Total |
Balance, December 31, 2017 | $ | 13,730 |
|
Goodwill distributed through sale of business | (67 | ) |
Brazilian Venture impairment | (25 | ) |
Foreign currency adjustments | (53 | ) |
Balance, September 30, 2018 | $ | 13,585 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of SeptemberJune 30, 2018,2019, intangible assets, net of amortization, includes $3,236$2,779 million of customer relationships and other amortizable intangible assets, $25$41 million of finite-lived trademarks, as well as $43 million of non-amortizable indefinite-lived trademarks. Amortization expense with respect to these intangible assets was $162$158 million and $167$169 million for the three months and $498$314 million and $502$336 million forduring the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
Effective August 31, 2018, FIS sold substantially all the assets of the Certegy Check Services business unit, resulting in a pre-tax loss of $54 million, including goodwill distributed through the sale of business of $43 million.
Asset Impairments
During September 2018, as a result of entering into an agreement to unwind the joint venture ("Brazilian Venture") that the Company operates with Banco Bradesco, the Company recorded pre-tax asset impairments totaling $95 million, including $42 million for the Brazilian Venture contract intangible asset, $25 million for goodwill, and $28 million for assets being held for sale that will be transferred to Banco Bradesco upon closing of the agreement (see Note 10).
Settlement Activity
We manage certain integrated electronic payment services and programs and wealth management processes for our clients that require us to hold and manage client cash balances used to fund their daily settlement activity. Settlement deposits represent funds we hold that were drawn from our clients to facilitate settlement activities. Settlement receivables represent amounts funded by us. Settlement payables consist of settlement deposits from clients, settlement payables to third parties, and
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
outstanding checks related to our settlement activities for which the right of offset does not exist or we do not intend to exercise our right of offset. Our accounting policy for such outstanding checks is to include them in settlement payables on the Condensed Consolidated Balance Sheets (Unaudited) and operating cash flows on the Condensed Consolidated Statements of Cash Flows (Unaudited).
(6) Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of SeptemberJune 30, 20182019 and December 31, 20172018 consisted of the following (in millions):
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Contract costs on implementations in progress | $ | 103 |
| | $ | 93 |
|
Incremental contract origination costs on completed implementations, net | 290 |
| | 219 |
|
Contract fulfillment costs on completed implementations, net | 168 |
| | 163 |
|
Total deferred contract costs, net | $ | 561 |
| | $ | 475 |
|
|
| | | | | | | |
| September 30, 2018 | | December 31, 2017 |
Contract costs on implementations in progress | 91 |
| | 104 |
|
Incremental contract origination costs on completed implementations, net | 196 |
| | 127 |
|
Contract fulfillment costs on completed implementations, net | 155 |
| | 123 |
|
Total deferred contract costs, net | $ | 442 |
| | $ | 354 |
|
Amortization of deferred contract costs on completed implementations was $30$44 million and $26$30 million during the three months and $89$87 million and $72$58 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and there were no impairment losses in relation to the costs capitalized for the periodsperiod presented.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7) Long-Term Debt
Long-term debt as of SeptemberJune 30, 20182019 and December 31, 20172018, consisted of the following (in millions):
|
| | | | | | | |
| June 30, | | December 31, |
| 2019 | | 2018 |
Senior Notes due October 2020, interest payable semi-annually at 3.625% ("2020 Notes") | $ | 1,150 |
| | $ | 1,150 |
|
Senior Euro Notes due January 2021, interest payable annually at 0.400% ("2021 Euro Notes") | 569 |
| | 572 |
|
Senior Euro Floating Rate Notes due May 2021, interest payable quarterly ("Floating Rate Notes") (1) | 569 |
| | — |
|
Senior Euro Notes due May 2021, interest payable annually at 0.125% ("May 2021 Euro Notes") | 569 |
| | — |
|
Senior Notes due August 2021, interest payable semi-annually at 2.250% ("2021 Notes") | 750 |
| | 750 |
|
Senior GBP Notes due June 2022, interest payable annually at 1.700% ("2022 GBP Notes") | 381 |
| | 382 |
|
Senior Notes due October 2022, interest payable semi-annually at 4.500% ("2022 Notes") | 300 |
| | 300 |
|
Senior Notes due April 2023, interest payable semi-annually at 3.500% ("2023 Notes") | 700 |
| | 700 |
|
Senior Euro Notes due May 2023, interest payable annually at 0.750% ("2023 Euro Notes") | 1,421 |
| | — |
|
Senior Notes due June 2024, interest payable semi-annually at 3.875% ("2024 Notes") | 400 |
| | 400 |
|
Senior Euro Notes due July 2024, interest payable annually at 1.100% ("2024 Euro Notes") | 569 |
| | 572 |
|
Senior GBP Notes due May 2025, interest payable annually at 2.602% ("2025 GBP Notes") | 794 |
| | — |
|
Senior Notes due October 2025, interest payable semi-annually at 5.000% ("2025 Notes") | 900 |
| | 900 |
|
Senior Notes due August 2026, interest payable semi-annually at 3.000% ("2026 Notes") | 1,250 |
| | 1,250 |
|
Senior Euro Notes due May 2027, interest payable annually at 1.500% ("2027 Euro Notes") | 1,421 |
| | — |
|
Senior Notes due May 2028, interest payable semi-annually at 4.250% ("2028 Notes") | 400 |
| | 400 |
|
Senior Notes due May 2029, interest payable semi-annually at 3.750% ("2029 Notes") | 1,000 |
| | — |
|
Senior Euro Notes due May 2030, interest payable annually at 2.000% ("2030 Euro Notes") | 1,137 |
| | — |
|
Senior GBP Notes due May 2031, interest payable annually at 3.360% ("2031 GBP Notes") | 794 |
| | — |
|
Senior Euro Notes due May 2039, interest payable annually at 2.950% ("2039 Euro Notes") | 569 |
| | — |
|
Senior Notes due August 2046, interest payable semi-annually at 4.500% ("2046 Notes") | 500 |
| | 500 |
|
Senior Notes due May 2048, interest payable semi-annually at 4.750% ("2048 Notes") | 600 |
| | 600 |
|
Revolving Credit Facility (2) | — |
| | 208 |
|
Other | (8 | ) | | 34 |
|
| 16,735 |
| | 8,718 |
|
Current portion of long-term debt | (53 | ) | | (48 | ) |
Long-term debt, excluding current portion | $ | 16,682 |
| | $ | 8,670 |
|
|
| | | | | | | |
| September 30, | | December 31, |
| 2018 | | 2017 |
Senior Notes due April 2018, interest payable semi-annually at 2.000% (1) | — |
| | 250 |
|
Senior Notes due October 2018, interest payable semi-annually at 2.850% | — |
| | 750 |
|
Senior Notes due October 2020, interest payable semi-annually at 3.625% ("2020 Notes") | 1,150 |
| | 1,150 |
|
Senior Euro Notes due January 2021, interest payable annually at 0.400% ("2021 Euro Notes") | 580 |
| | 599 |
|
Senior Notes due August 2021, interest payable semi-annually at 2.250% ("2021 Notes") | 750 |
| | 750 |
|
Senior GBP Notes due June 2022, interest payable annually at 1.700% ("2022 GBP Notes") | 391 |
| | 405 |
|
Senior Notes due October 2022, interest payable semi-annually at 4.500% ("2022 Notes") | 300 |
| | 300 |
|
Senior Notes due April 2023, interest payable semi-annually at 3.500% ("2023 Notes") | 700 |
| | 700 |
|
Senior Notes due June 2024, interest payable semi-annually at 3.875% ("2024 Notes") | 400 |
| | 400 |
|
Senior Euro Notes due July 2024, interest payable annually at 1.100% ("2024 Euro Notes") | 580 |
| | 599 |
|
Senior Notes due October 2025, interest payable semi-annually at 5.000% ("2025 Notes") | 900 |
| | 900 |
|
Senior Notes due August 2026, interest payable semi-annually at 3.000% ("2026 Notes") | 1,250 |
| | 1,250 |
|
Senior Notes due May 2028, interest payable semi-annually at 4.250% ("2028 Notes") | 400 |
| | — |
|
Senior Notes due August 2046, interest payable semi-annually at 4.500% ("2046 Notes") | 500 |
| | 500 |
|
Senior Notes due May 2048, interest payable semi-annually at 4.750% ("2048 Notes") | 600 |
| | — |
|
Revolving Credit Facility (2) | 582 |
| | 195 |
|
Other | (45 | ) | | 15 |
|
| 9,038 |
| | 8,763 |
|
Current portion | (40 | ) | | (1,045 | ) |
Long-term debt, excluding current portion | $ | 8,998 |
| | $ | 7,718 |
|
| |
(1) | These SeniorAs of June 30, 2019, the weighted-average interest rate of the Floating Rate Notes were repaid on April 13, 2018 with borrowings on the Revolving Credit Facility.was 0.09%. |
| |
(2) | Interest on the Revolving Credit Facility is generally payable at LIBOR plus an applicable margin of up to 1.625% plus an unused commitment fee of up to 0.225%, each based upon the Company's corporate credit ratings. As of September 30, 2018, the weighted average interest rate on the Revolving Credit Facility, excluding fees, was 3.42%. |
On May 21, 2019, FIS completed the issuance and sale of Euro- and Pound Sterling-denominated senior notes, consisting of €500 million in aggregate principal amount of Floating Rate Senior Notes due 2021 (the “Floating Rate Notes”), €500 million in aggregate principal amount of 0.125% Senior Notes due 2021 (the “2021 Euro Notes”), €1.25 billion in aggregate principal amount of 0.750% Senior Notes due 2023 (the “2023 Euro Notes”), €1.25 billion in aggregate principal amount of 1.500% Senior Notes due 2027 (the “2027 Euro Notes”), €1 billion in aggregate principal amount of 2.000% Senior Notes due 2030 (the “2030 Euro Notes”), €500 million in aggregate principal amount of 2.950% Senior Notes due 2039 (the “2039 Euro Notes”), £625 million of 2.602% Senior Notes due 2025 (the “2025 GBP Notes”), and £625 million of 3.360% Senior Notes due 2031 (the “2031 GBP Notes”). Also on May 21, 2019, FIS completed the issuance and sale of U.S. Dollar-denominated senior notes, consisting of $1.0 billion in aggregate principal amount of 3.750% Senior Notes due 2029 (the “2029 Notes”). The proceeds of the debt issuances were subsequently used to pay the cash portion of the purchase price and certain of the costs and expenses of the Worldpay transaction and to repay the outstanding Worldpay bank debt and notes.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
On May 29, 2019, FIS established a Euro-commercial paper program (the “ECP”) for the issuance and sale of senior, unsecured commercial paper notes (the “ECP Notes”), up to a maximum aggregate amount outstanding at any time of $4.7 billion (or its equivalent in other currencies). The ECP Notes will have maturities of up to 183 days from the date of issue. As of June 30, 2019, the outstanding principal balance of the ECP was $1.5 billion, recorded as short-term borrowings on the Condensed Consolidated Balance Sheet (Unaudited). The weighted-average interest rate on the ECP Notes was (0.19)% as of June 30, 2019, resulting in an offset to Interest expense, net. Subsequent to June 30, 2019, and prior to the closing of the Worldpay transaction, FIS issued an additional $1.4 billion in ECP Notes. As of July 31, 2019, the outstanding principal balance of the ECP was $2.9 billion, with a weighted-average interest rate of (0.15)%, which will result in an offset to Interest expense, net. The proceeds of the ECP Notes were used to pay for certain of the costs and expenses of the Worldpay transaction and will also be used for general corporate purposes.
During March 2019, concurrent with the execution of the Worldpay merger agreement (see Note 3), FIS secured $9.5 billion of bridge financing commitments to ensure our ability to fund the cash requirements related to the Worldpay transaction. The bridge financing commitments were terminated in full in May 2019 following the (a) amendment of the Restated Credit Agreement to modify certain provisions and covenants of the Revolving Credit Facility and (b) the issuance of the senior notes discussed above.
On December 21, 2018, FIS entered into an interest rate swap that effectively converted the 2024 Euro Notes from a fixed-rate to a floating rate debt obligation. This derivative instrument was designated as a fair value hedge of the debt obligation. The fair value of the interest rate swap was $14 million at June 30, 2019, reflected as an increase in the hedged debt balance.
On September 21, 2018, FIS established a U.S. commercial paper program (the “USCP”) for the issuance and sale of senior, unsecured commercial paper notes (the “USCP Notes”), up to a maximum aggregate amount outstanding at any time of $4.0 billion. On May 29, 2019, FIS increased the capacity on the USCP from $4 billion to $5.5 billion. The USCP Notes have maturities of up to 397 days from the date of issue. As of June 30, 2019 and December 31, 2018, the outstanding principal balance of the USCP was $0 million and $250 million, respectively, recorded as short-term borrowings on the Condensed Consolidated Balance Sheets (Unaudited).
On September 21, 2018, FIS entered into a Seventh Amendment and Restatement Agreement (“Credit Facility Amendment”Agreement”), which amendsamended and restatesrestated FIS’ existing credit agreement (as amended, the “Restated Credit Agreement”). The Credit Facility Amendment increasesAgreement increased the revolving credit commitments outstanding under the revolving credit facilityRevolving Credit Facility (“Revolving Credit Facility”) existing under the Restated Credit Agreement from $3.0 billion to $4.0 billion and extendsextended the term of the Restated Credit Agreement to September 21, 2023. BorrowingsOn May 29, 2019, FIS entered into an amendment to the Restated Credit Agreement to increase the revolving credit commitments outstanding under the Revolving Credit Facility from $4.0 billion to $5.5 billion. Borrowing under the Revolving Credit Facility will generally be used for general corporate purposes, including backstopping any Notesnotes that FIS may issue under the Commercial Paper ProgramUSCP and ECP described below.above. As of SeptemberJune 30, 2018,2019, the outstanding principal balance of the Revolving Credit Facility was $582$0 million, with $3,412$5,497 million of borrowing capacity remaining thereunder (net of $6$3 million in outstanding letters of credit issued under the Revolving Credit Facility).
On September 21, 2018, FIS established a U.S. commercial paper program (the “Commercial Paper Program”) for the issuance and sale of senior, unsecured commercial paper notes (the “Notes”), up to a maximum aggregate amount outstanding at any time of $4.0 billion. The Notes will have maturities of up to 397 days from the date of issue. The proceeds of the Notes are expected to be used for general corporate purposes. As of September 30, 2018, there were no outstanding Notes under the Commercial Paper Program.
The obligations of FIS under the FISRevolving Credit Agreement, Commercial Paper ProgramFacility, USCP, ECP, and under all of its outstanding senior notes rank equal in priority and are unsecured. The FISRevolving Credit AgreementFacility and the senior notes are subject to customary covenants, including, among others, customary events of default, and for the Revolving Credit Facility, a provision allowing for financing related to the acquisition of Worldpay and limitations on the payment of dividends by FIS.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
covenants, including, among others, limitations under the FIS Credit Agreement on the payment of dividends by FIS, and customary events of default.
On March 15, 2017, FIS redeemed 100% of the outstanding aggregate principal amount of its $700 million 5.000% Senior Notes due March 2022 (the "March 2022 Notes"). On February 1, 2017, the Company also paid down the outstanding balance on the syndicated term loan agreement ("2018 Term Loans"). The redemption of the March 2022 Notes and the repayment of the 2018 Term Loans were funded by borrowings under the Revolving Credit Facility and cash proceeds from the sale of the Public Sector and Education business. As a result of the redemption of the March 2022 Notes and the repayment of the 2018 Term Loans, FIS incurred a pre-tax charge of approximately $25 million consisting of the call premium on the March 2022 Notes and the write-off of previously capitalized debt issuance costs.
On July 10, 2017, FIS issued €1,000 million and £300 million principal amount of senior notes in an inaugural European bond offering. The senior notes include €500 million of Senior Notes due in 2021 that bear interest at 0.400%, £300 million of Senior Notes due in 2022 that bear interest at 1.700% and €500 million of Senior Notes due in 2024 that bear interest at 1.100%. Net proceeds from the offering, after deducting discounts and underwriting fees, were $1,491 million using a conversion rate of 1.12 EUR/USD and 1.27 GBP/USD.
On July 25, 2017, pursuant to cash tender offers ("Tender Offers"), FIS repurchased approximately $2,000 million in aggregate principal amount of debt securities with a weighted average coupon of approximately 4%. The following approximate amounts of FIS' debt securities were repurchased: $600 million of its 3.625% notes due 2020, $600 million of its 5.000% notes due 2025, $200 million of its 4.500% notes due 2022, $300 million of its 3.875% notes due 2024 and $300 million of its 3.500% notes due 2023. The Company funded the Tender Offers with proceeds from the European bond offering and borrowings on its Revolving Credit Facility, approximately $469 million of which were almost immediately repaid with proceeds from the sale of a majority ownership stake in the Capco consulting business and risk and compliance consulting business, which was completed on July 31, 2017 (see Note 12). FIS paid approximately $150 million in tender premiums to par to purchase the notes in the Tender Offers and incurred a pre-tax charge upon extinguishment of approximately $167 million in tender premiums, the write-off of previously capitalized debt issue costs and other direct costs.
On May 16, 2018, FIS issued $1,000 million principal amount of new senior notes, including $400 million of Senior Notes due in 2028 that bear interest at 4.250% and $600 million of Senior Notes due in 2048 that bear interest at 4.750%. Net proceeds from the offering, after deducting discounts and underwriting fees, were $979 million. FIS used the proceeds to partially repay its Revolving Credit Facility.
On June 15, 2018, FIS redeemed 100% of the outstanding aggregate principal amount of its $750 million 2.850% Senior Notes due October 2018. As a result of the redemption, FIS incurred a pre-tax charge of approximately $1 million consisting of the call premium and the write-off of previously capitalized debt issuance costs.
The following summarizes the aggregate maturities of our long-term debt and capital leasesother financing obligations based on stated contractual maturities, excluding the fair value of the interest rate swap and net unamortized non-cash bond premiums and discounts of $41$33 million, as of SeptemberJune 30, 20182019 (in millions).:
|
| | | | |
| | Total |
2019 remaining period | | $ | 26 |
|
2020 | | 1,198 |
|
2021 | | 2,502 |
|
2022 | | 692 |
|
2023 | | 2,130 |
|
Thereafter | | 10,334 |
|
Total principal payments | | 16,882 |
|
Debt issuance costs, net of accumulated amortization | | (114 | ) |
Total long-term debt | | $ | 16,768 |
|
|
| | | | |
| | Total |
2018 | | $ | 13 |
|
2019 | | 36 |
|
2020 | | 1,157 |
|
2021 | | 1,331 |
|
2022 | | 691 |
|
Thereafter | | 5,912 |
|
Total principal payments | | 9,140 |
|
Debt issuance costs, net of accumulated amortization | | (61 | ) |
Total long-term debt | | $ | 9,079 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
There are no mandatory principal payments on the Revolving Credit Facility and any balance outstanding on the Revolving Credit Facility will be due and payable at its scheduled maturity date, which occurs at September 21, 2023.
FIS may redeem the 2020 Notes, 2021 Euro Notes, May 2021 Euro Notes, 20222021 Notes, 2022 GBP Notes, 2022 Notes, 2023 Notes, 2023 Euro Notes, 2024 Notes, 2024 Euro Notes, 2025 GBP Notes, 2025 Notes, 2026 Notes, 2027 Euro Notes, 2028 Notes, 2029 Notes, 2030 Euro Notes, 2031 GBP Notes, 2039 Euro Notes, 2046 Notes and 2048 Notes at its option in whole or in part, at any time and from time to time, at a redemption price equal to the greater of 100% of the principal amount to be redeemed and a make-whole amount calculated as described in the related indenture in each case plus accrued and unpaid interest to, but excluding, the date of redemption, provided no make-whole amount will be paid for redemptions of the 2020 Notes, the 2021 Euro Notes, the May 2021 Euro Notes, the 2021 EuroNotes, the 2022 GBP Notes and the 2022 GBP2023 Euro Notes during the one month prior to their maturity, the 2022 Notes during the two months prior to their maturity, the 2023 Notes, the 2024 Notes, the 2024 Euro Notes, the 2025 GBP Notes, the 2025 Notes, the 2026 Notes, the 2027 Euro Notes, the 2028 Notes, the 2029 Notes, the 2030 Euro Notes, the 2031 GBP Notes and the 20282039 Euro Notes during the three months prior to their maturity, and the 2046 Notes and 2048 Notes during the six months prior to their maturity.
Debt issuance costs of $61$114 million, net of accumulated amortization, remain capitalized as of SeptemberJune 30, 2018,2019, related to all of the above outstanding debt.
We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Credit Facility are comprised of a diversified set of financial institutions, both domestic and international. The failure of any single lender to perform its obligations under the Revolving Credit Facility would not adversely impact our ability to fund operations.
The fair value of the Company’s long-term debt is estimated to be approximately $97$759 million lowerhigher than the carrying value excluding the fair value of the interest rate swap and unamortized discounts as of SeptemberJune 30, 2018.2019. This estimate is based on quoted prices of our senior notes and trades of our other debt in close proximity to SeptemberJune 30, 20182019, which are considered Level 2-type measurements. This estimate is subjective in nature and involves uncertainties and significant judgment in the interpretation of current market data. Therefore, the values presented are not necessarily indicative of amounts the Company could realize or settle currently.
(8) Financial Instruments
AsForward Contracts
During the second quarter of September 30, 2018, we had no outstanding interest rate swap transactions and no significant forward contracts.
Net Investment Hedges
In June 2017,2019, the Company entered into two Euro-denominated foreign currency forward exchange forward contracts totaling €999 million and a GBP-denominated foreign currency exchange forward contract of £298 million, which were designated as a net investment hedge of its investment in Euro and GBP denominated operations, respectively, in order to reduce the volatility in the income statement caused byCompany's cash flows due to foreign exchange rate fluctuations during the changes in foreign currency exchange rates of the Euro and GBP with respectperiod leading up to the U.S. dollar.
In July 2017, the forward contracts above were terminatedCompany’s Euro- and the Company designated its Euro-denominated Senior Notes due 2021 (€500 million) and Senior Notes due 2024 (€500 million) and GBP-denominated Senior Notes due 2022 (£300 million) as a net investment hedge of its investment in Euro and GBP denominated operations, respectively, in order to reduce the volatility in the income statement caused by the changes in foreign currency exchange rates of the Euro and GBP with respectPound Sterling-denominated debt issuances related to the U.S. dollar.Worldpay transaction (see Note 7 for further discussion of
The change in fair value of the net investment hedges due to remeasurement of the effective portion is recorded in other comprehensive income (loss). The ineffective portion of the hedging instruments impacts net income when the ineffectiveness occurs. During the three months and nine months ended September 30, 2018, net investment hedge combined gains of $10 million and $38 million, net of tax, respectively, were recognized in other comprehensive income as a component of foreign currency translation adjustments. No ineffectiveness was recorded on the net investment hedges above.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
these debt issuances). For the quarter ended June 30, 2019, these derivatives resulted in a net pre-tax loss of $15 million recorded as Other income (expense), net on the Company’s Condensed Consolidated Statement of Earnings (Unaudited). Settlement cash flows related to these derivatives were recorded as Other financing activities, net on the Condensed Consolidated Statement of Cash Flows (Unaudited). The Company had foreign currency forward exchange contracts outstanding at June 30, 2019, with a net fair value of $14 million recorded as a liability on the Condensed Consolidated Balance Sheet (Unaudited) related to €1.5 billion in note issuances under the ECP. These contracts were subsequently settled on July 31, 2019, resulting in a $1 million net pre-tax gain recorded during the third quarter of 2019. As of December 31, 2018, the Company had no significant forward contracts outstanding.
Cash Flow Hedges
During the second quarter of 2019, the Company entered into treasury lock and forward-starting interest rate swap contracts with total notional amounts of €1.5 billion, £500 million, and $500 million to reduce the volatility in the Company’s cash flows due to changes in the benchmark interest rates during the period leading up to the Company’s fixed-rate debt issuances related to the Worldpay transaction (see Note 7 for further discussion of these debt issuances). The Company designated these derivatives as cash flow hedges for accounting purposes. During May 2019, in conjunction with the debt issuances, the Company terminated these contracts for an aggregate cash settlement payment of $17 million, which was recorded as a component of Other comprehensive earnings on the Condensed Consolidated Statement of Comprehensive Earnings (Unaudited). The amounts in Other comprehensive earnings are reclassified as an adjustment to interest expense on the Condensed Consolidated Statement of Earnings (Unaudited) over the respective periods during which the related interest payments that were hedged are recognized in income, which range from four to 12 years. Settlement cash flows related to these contracts were recorded as Other financing activities, net on the Condensed Consolidated Statement of Cash Flows (Unaudited). As of June 30, 2019, and December 31, 2018, the Company had no outstanding cash flow hedge contracts.
Fair Value Hedge
During the fourth quarter of 2018, the Company entered into an interest rate swap with a €500 million notional value converting the interest rate exposure on the Company's 2024 Euro Notes from fixed to variable. The Company designated this interest rate swap as a fair value hedge for accounting purposes. The fair value of the interest rate swap was a $14 million asset at June 30, 2019, reflected as an increase in the hedged debt balance (see Note 7).
Net Investment Hedges
During the fourth quarter of 2018, the Company entered into cross-currency interest rate swaps with an aggregate notional amount of $716 million, which were designated as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations. The fair value of the cross-currency interest rate swaps was a net $10 million asset at June 30, 2019.
During the third quarter of 2017, the Company designated its 2021 Euro Notes (€500 million) and 2024 Euro Notes (€500 million) and 2022 GBP Notes (£300 million) as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations, respectively.
The purpose of the Company's net investment hedges is to reduce the volatility of FIS' net investment value in its Euro- and Pound Sterling-denominated operations due to changes in foreign currency exchange rates.
The Company recorded net investment hedge aggregate gain (loss), net of tax, for the change in fair value as Foreign currency translation adjustments within Other comprehensive earnings on the Condensed Consolidated Statement of Comprehensive Earnings (Unaudited) of $6 million and $67 million, during the three months and $13 million and $28 million during the six months ended June 30, 2019 and 2018, respectively. No ineffectiveness was recorded on the net investment hedges.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(9) Operating Leases
The classification of the Company’s operating lease ROU assets and liabilities in the Condensed Consolidated Balance Sheet (Unaudited) as of June 30, 2019 was as follows (in millions):
|
| | | | | | |
| | Classification | | June 30, 2019 |
Operating lease ROU assets | | Other noncurrent assets | | $ | 419 |
|
| | | | |
Operating lease liabilities | | Accounts payable, accrued and other liabilities | | $ | 105 |
|
| | Other long-term liabilities | | 321 |
|
Total operating lease liabilities | | | | $ | 426 |
|
Operating lease cost was $33 million and variable lease cost was $8 million for the three months and $64 million and $15 million for the six months ended June 30, 2019 respectively. Cash paid for amounts included in the measurement of operating lease liabilities included in operating cash flows was $61 million for the six months ended June 30, 2019. Operating lease ROU assets obtained in exchange for operating lease liabilities was $37 million for the six months ended June 30, 2019. The weighted average remaining operating lease term was 5.4 years and the weighted average operating lease discount rate was 3.7% as of June 30, 2019.
Maturities of operating lease liabilities, as of June 30, 2019 were as follows (in millions):
|
| | | | |
2019 remaining period | | $ | 58 |
|
2020 | | 111 |
|
2021 | | 88 |
|
2022 | | 60 |
|
2023 | | 45 |
|
Thereafter | | 108 |
|
Total lease payments | | 470 |
|
Less: Imputed interest | | (44 | ) |
Total operating lease liabilities | | $ | 426 |
|
Aggregate future minimum operating lease payments for each of the years in the five years ending December 31, 2023, and thereafter, as of December 31, 2018 consisted of the following (in millions):
|
| | | | |
2019 | | $ | 121 |
|
2020 | | 104 |
|
2021 | | 80 |
|
2022 | | 51 |
|
2023 | | 38 |
|
Thereafter | | 86 |
|
Total | | $ | 480 |
|
(10) Commitments and Contingencies
Reliance Trust Claims
Reliance Trust Company (“Reliance”), the Company’s subsidiary, is named as a defendant in a class action arising out of its provision of services as the discretionary trustee for a 401(k) Plan (the “Plan”) for one of its customers. Plaintiffs in the
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
action seek damages and attorneys’ fees, as well as equitable relief, on behalf of Plan participants for alleged breaches of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act of 1974. The action also makes claims1974 against Reliance and the Plan's sponsor and record-keeper. Reliance is vigorously defending the action and believes that it has meritorious defenses. Pre-trial discovery has now been completed. Reliance contends that no breaches of fiduciary duty or prohibited transactions occurred and that the Plan suffered no damages. Plaintiffs allege damages of approximately $125 million.$115 million against all defendants. While we are unable at this time to estimate more precisely the potential loss or range of loss because of unresolved questions of fact and law, we believe that the ultimate resolution of the matter will not have a material impact on our financial condition. We do not believe a liability for this action is probable and, therefore, have not recorded a liability for this action.
Brazilian Tax Authorities Claims
In 2004, Proservvi Empreendimentos e Servicos, Ltda., the predecessor to Fidelity National Servicos de Tratamento de Documentos e Informatica Ltda. (“Servicos”), a subsidiary of Fidelity National Participacoes Ltda., our former item processing and remittance services operation in Brazil, acquired certain assets and employees and leased certain facilities from the Transpev Group (“Transpev”) in Brazil. Transpev’s remaining assets were later acquired by Prosegur, an unrelated third party. When Transpev discontinued its operations after the asset sale to Prosegur, it had unpaid federal taxes and social contributions owing to the Brazilian tax authorities. The Brazilian tax authorities brought a claim against Transpev and beginning in 2012 brought claims against Prosegur and Servicos on the grounds that Prosegur and Servicos were successors in interest to Transpev. To date, the Brazilian tax authorities filed 1113 claims against Servicos asserting potential tax liabilities of approximately $13$14 million. There are potentially 2625 additional claims against Transpev/Prosegur for which Servicos is named as a co-defendant or may be named, but for which Servicos has not yet been served. These additional claims amount to approximately $51$50 million making the total potential exposure for all 3738 claims approximately $64 million. We do not believe a liability for these 3738 total claims is probable and, therefore, have not recorded a liability for any of these claims.
Acquired Contingencies (SunGard)
TheFIS and certain of its wholly owned subsidiaries acquired SunGard and SunGard Capital Corp. II (collectively, "SunGard") on November 30, 2015 (the "SunGard acquisition"). As part of the SunGard acquisition, the Company became responsible for certain contingencies whichthat were assumed in the SunGard acquisition.assumed. The Condensed Consolidated Balance Sheet (Unaudited) as of SeptemberJune 30, 20182019 includes liabilitiesa liability of $66$46 million largely related to tax compliance matters.
Indemnifications and Warranties
The Company generally indemnifies its clients, subject to certain limitations and exceptions, against damages and costs resulting from claims of patent, copyright, or trademark infringement associated solely with its customers' use of the Company's software applications or services. Historically, the Company has not made any material payments under such indemnifications, but continues to monitor the conditions that are subject to the indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses when they are estimable. In addition, the Company warrants to customers that its software operates substantially in accordance with the software specifications. Historically, no material costs have been incurred related to software warranties and no accruals for warranty costs have been made.
(10)(11) Related Party Transactions
Cardinal Holdings
FIS holds a 38% ownership stake in Cardinal Holdings, L.P. ("Cardinal") as of June 30, 2019 and December 31, 2018. The ownership stake in Cardinal is recorded as an equity method investment included within other noncurrent assets on the Condensed Consolidated Balance Sheet (Unaudited). The carrying value of this equity method investment as of June 30, 2019 and December 31, 2018 was $137 million and $151 million, respectively.
On July 31, 2017, FIS closed on the sale of a majority ownership stake in its Capco consulting business and risk and compliance consulting business to Clayton, Dubilier & Rice L.P., by and through certain funds that it manages ("CD&R"). CD&R acquired a 60% interest in the entity (Cardinal Holdings, L.P. ("Cardinal")) and FIS obtained the remaining 40% interest, in each case before equity issued to management (Note 12). Cardinal became a related party effective July 31, 2017.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Uponupon closing on the sale of the Capco consulting business and risk and compliance consulting business, FIS and Cardinal entered into a short-term Transition Services Agreement ("TSA"), whereby FIS providesprovided various agreed upon services to Cardinal.Cardinal in 2018. FIS also provides ongoing management consulting services and other services to Cardinal. Amounts transacted through these agreements were not significant to the 20182019 and 20172018 periods presented.
Capco provided Banco Bradesco S.A. ("Banco Bradesco") with consulting services. Capco revenue and related party receivables from Banco Bradesco through the July 31, 2017 closing are included below under Brazilian Venture revenue and trade receivables from Banco Bradesco.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Brazilian Venture
The Company operatesoperated the Brazilian Venture with Banco Bradesco, in which FIS ownsowned a 51% controlling interest in a joint venture, to providethrough December 31, 2018, and provided comprehensive, fully-outsourced transaction processing, call center, cardholder support and collection services to multiple card issuing clients in Brazil, including Banco Bradesco. The original accounting for thisFIS closed a transaction resulted in the establishment of a contract intangible asset and a liability for amounts payable to the original partner banks upon final migration of their respective card portfolios and achieving targeted volumes.
On September 28, 2018, FIS entered into an agreement with Banco Bradesco on December 31, 2018 to unwind the Brazilian Venture. Under thisVenture pursuant to an agreement the Brazilian Venture will spin-off certain assets of the business that also provide services to non-Bradesco clients toentered into September 28, 2018. As a new wholly-owned FIS subsidiary. The subsidiary will enter into a long-term commercial agreement to provide current and new services toresult, Banco Bradesco that include software application licensing and management, card portfolio migration, business process outsourcing, fraud management and professional services. Banco Bradesco will then own 100% of the entity that previously housed the Brazilian Venture and its remaining assets that relate to card processing for Banco Bradesco, which Banco Bradesco will thereafter perform internally. FIS expects to complete the transaction in the first half of 2019. As of September 30, 2018, FIS met the criteria to present the assets and liabilities that it will no longer control as held for sale in its balance sheet. The transaction does not meet the standard necessary to be reported as discontinued operations. In the third quarter of 2018, FIS incurred impairment charges of $95 millionwas a related to the expected disposal, including impairments of its contract intangible asset, goodwill and its assets held for sale to fair value less cost to sell (see Note 5). The impairment charges are included in the Corporate and Other segment results. The unamortized contract intangible asset balance as of September 30, 2018 was $0 million as a result of the impairment.
The board of directors for the Brazilian Venture declared a dividend during the three months ended September 30, 2018 and 2017, resulting in payments to Banco Bradesco of $23 million and $23 million, respectively. The carrying value of the noncontrolling interest as of September 30, 2018 was $78 million.
party through December 31, 2018. The Company recorded related party revenue of $77$80 million and $81$167 million during the three months and $244 million and $250 million during the ninesix months ended SeptemberJune 30, 2018 and 2017, respectively, from Banco Bradesco. Revenue from Banco Bradesco included $19 million and $31 million of unfavorable currency impact during the three and nine months ended September 30, 2018, respectively, resulting from foreign currency exchange rate fluctuations between the U.S. Dollar and Brazilian Real.
A summary of the Company’s related party receivables and payables is as follows (in millions):
|
| | | | | | | | | | |
| | | | September 30, | | December 31, |
Related Party | | Balance Sheet Location | | 2018 | | 2017 |
| | | | | �� | As Adjusted |
Banco Bradesco | | Trade receivables | | $ | 9 |
| | $ | 47 |
|
Banco Bradesco | | Contract assets | | 7 |
| | 5 |
|
Banco Bradesco | | Assets held for sale | | 32 |
| | — |
|
Banco Bradesco | | Accounts payable and accrued liabilities | | 9 |
| | 10 |
|
Banco Bradesco | | Other long-term liabilities | | 15 |
| | 17 |
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(11)(12) Net Earnings per Share
The basic weighted average shares and common stock equivalents for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 are computed using the treasury stock method.
The following table summarizes thenet earnings and net earnings per share attributable to FIS common stockholders for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Net earnings attributable to FIS common stockholders | $ | 154 |
| | $ | 212 |
| | $ | 302 |
| | $ | 394 |
|
Weighted average shares outstanding — basic | 324 |
| | 329 |
| | 323 |
| | 329 |
|
Plus: Common stock equivalent shares | 3 |
| | 4 |
| | 4 |
| | 5 |
|
Weighted average shares outstanding — diluted | 327 |
| | 333 |
| | 327 |
| | 334 |
|
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.48 |
| | $ | 0.64 |
| | $ | 0.93 |
| | $ | 1.20 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.64 |
| | $ | 0.92 |
| | $ | 1.18 |
|
|
| | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
| | | As Adjusted | | | | As Adjusted |
Net earnings attributable to FIS common stockholders | $ | 154 |
| | $ | 59 |
| | $ | 548 |
| | $ | 327 |
|
Weighted average shares outstanding — basic | 328 |
| | 331 |
| | 329 |
| | 330 |
|
Plus: Common stock equivalent shares | 3 |
| | 5 |
| | 4 |
| | 5 |
|
Weighted average shares outstanding — diluted | 331 |
| | 336 |
| | 333 |
| | 335 |
|
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.67 |
| | $ | 0.99 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.65 |
| | $ | 0.98 |
|
Options to purchase approximately 1 million and 41 million shares of our common stock for the three months and 1 million and 41 million shares for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.
On July 20, 2017 our Board of Directors approved a plan authorizing repurchases of up to $4.0 billion of our outstanding common stock in the open market at prevailing market prices or in privately negotiated transactions through December 31, 2020. This share repurchase authorization replaced any existing share repurchase authorization.
(12) Divestitures
On July 31, 2017, FIS closed on the sale of a majority ownership stake in its Capco consulting business and risk and compliance consulting business to CD&R for cash proceeds of approximately $469 million, resulting in a pre-tax loss of approximately $41 million. The divestiture is consistent with our strategy to focus on our IP-led businesses. CD&R acquired preferred units convertible into 60% of the common units of Cardinal and FIS obtained common units representing the remaining 40%, in each case before equity is issued to management. The preferred units are entitled to a quarterly dividend at an annual rate of 12%, payable in cash (if available) or additional preferred units at FIS' option. The businesses sold were included within the GFS and IFS segments. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the pre-tax loss and related prior period earnings remain reported within earnings. Prior to the sale, the Capco consulting business and risk and compliance consulting business' pre-tax earnings (loss), excluding certain unallocated corporate costs, for the three and nine months ended September 30, 2017 were $(4) million and $15 million, respectively.
FIS' ownership stake in Cardinal was initially valued at $172 million and is recorded as an equity method investment included within other noncurrent assets on the Condensed Consolidated Balance Sheet (Unaudited). After the sale on July 31, 2017, FIS began to recognize after-tax equity method investment earnings (loss) outside of operating income and segment Adjusted EBITDA. The carrying value of this equity method investment as of September 30, 2018 was $156 million. For periods prior to July 31, 2017, the Capco consulting business and risk and compliance consulting business were included within operating income and segment Adjusted EBITDA.
On February 1, 2017, the Company closed on the sale of the SunGard Public Sector and Education ("PS&E") business for $850 million, resulting in a pre-tax gain of $85 million. The transaction included all PS&E solutions, which provided a comprehensive set of technology solutions to address public safety and public administration needs of government entities as well as the needs of K-12 school districts. The divestiture is consistent with our strategy to serve the financial services markets.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Cash proceeds were used to reduce outstanding debt (see Note 7). Net cash proceeds, after payment of taxes and transaction-related expenses, were approximately $500 million. The PS&E business was included in the Corporate and Other segment. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the gain and related prior period earnings remain reported within earnings. Prior to the sale, PS&E's pre-tax earnings, excluding certain unallocated corporate costs, for the three and nine months ended September 30, 2017 were $0 million and $3 million, respectively.
(13) Segment Information
Integrated Financial Solutions ("IFS")
The IFS segment is focused primarily on serving North American clients for transaction and account processing, payment solutions, channel solutions, lending and wealth and retirement solutions, corporate liquidity, digital channels, risk and compliance solutions, and services, capitalizing on the continuing trend to outsource these solutions. Clients in this segment include regional and community banks, credit unions and commercial lenders, as well as government institutions, merchants and other commercial organizations. IFS’ primary software applications function as the underlying infrastructure of a financial institution's processing environment. These applications include core bank processing software, which banks use to maintain the primary records of their customer accounts, and complementary applications and services that interact directly with the core processing applications. This market isThese markets are primarily served through integrated solutions and characterized by multi-year processing contracts that generate highly recurring revenue. The predictable nature of cash flows generated from this segment provides opportunities for further investments in innovation, integration, information and security, and compliance in a cost
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
effective manner. The business solutions in this segment included the risk and compliance consultingReliance Trust Company of Delaware business through its divestiture on JulyDecember 31, 2017 (Note 12).2018.
Global Financial Solutions ("GFS")
The GFS segment is focused on serving the largest global financial institutions and/or international financial institutions with a broad array of capital markets and asset management and insurance solutions, as well as banking and payments solutions.
GFS clients include the largest global financial institutions, including those headquartered in the United States, as well as all international financial institutions we serve as clients in more than 130 countries.countries around the world, and asset managers, buy- and sell-side securities and trading firms, insurers and private equity firms. These institutions face unique business and regulatory challenges and account for the majority of financial institution information technology spend globally. The purchasing patterns of GFS clients vary from those of IFS clients who typically purchase solutions on an outsourced basis. GFS clients purchase our solutions and services in various ways including licensing and managing technology “in-house,” fully outsourced end-to-end solutions, and using consulting and third-party service providers.providers as well as fully outsourced end-to-end solutions. We have long-established relationships with many of these financial institutions that generate significant recurring revenue. GFS clients also include asset managers, buy- and sell-side securities and trading firms, insurers and private equity firms. This segment also includes the Company's consolidated Brazilian Venture (Note 10). The business solutions in this segment included the Capco consultingCompany's Brazilian Venture business divested as part of the joint venture unwinding transaction through its divestiture on JulyDecember 31, 2017 (Note 12).2018.
Corporate and Other
The Corporate and Other segment consists of corporate overhead expense, certain leveraged functions and miscellaneous expenses that are not included in the operating segments as well as certain non-strategic businesses. The non-strategic businessesAt June 30, 2019, the only business unit remaining in this segment includeis the PS&EGlobal Commercial Services business, through its divestiture on February 1, 2017 (Note 12),as the non-strategic businesses were divested. In particular, the Certegy Check Services business unit through its divestiturein North America was divested on August 31, 2018 (Note 5), and the global commercial services business.2018. The overhead and leveraged costs relate to marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs that are not considered when management evaluates revenue-generating segment performance, such as acquisition, integration and certain other costs. The Corporate and Other segment also includes the impact on revenue for 2018the three and 2017six months ended June 30, 2018 of adjusting SunGard's deferred revenue from the SunGard acquisition to fair value.
During the three and ninesix months ended SeptemberJune 30, 20182019, the Company recorded acquisition and integration costs primarily related to the SunGard acquisitionWorldpay transaction, and certain other costs including those associated with data center consolidation activities of $16$17 million and $122$25 million, respectively. During the three and ninesix months ended SeptemberJune 30, 20172018, the Company recorded acquisition, integration and integrationcertain other costs primarily related to the SunGard acquisition of $22$49 million and $141$106 million, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Adjusted EBITDA
This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards CodificationFASB ASC Topic 280, "Segment Reporting."Segment Reporting. Adjusted EBITDA is defined as EBITDA (defined as net incomeearnings (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles),amortization) plus certain non-operating items. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments;adjustments and acquisition, integration and certain other costs; and asset impairments.costs. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments.
Summarized financial information for the Company’s segments is shown in the following tables.
As of and for the three months ended September 30, 2018 (in millions):
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 1,090 |
| | $ | 916 |
| | $ | 78 |
| | $ | 2,084 |
|
Operating expenses | 681 |
| | 632 |
| | 429 |
| | 1,742 |
|
Depreciation and amortization | 87 |
| | 71 |
| | 15 |
| | 173 |
|
Purchase accounting amortization | — |
| | — |
| | 181 |
| | 181 |
|
EBITDA | 496 |
| | 355 |
| | (155 | ) | | 696 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 1 |
| | 1 |
|
Acquisition, integration and other costs | — |
| | — |
| | 16 |
| | 16 |
|
Asset impairments | — |
| | — |
| | 95 |
| | 95 |
|
Adjusted EBITDA | $ | 496 |
| | $ | 355 |
| | $ | (43 | ) | | $ | 808 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 696 |
|
Interest expense, net | | | | | | | 80 |
|
Depreciation and amortization | | | | | | | 173 |
|
Purchase accounting amortization | | | | | | | 181 |
|
Other income (expense) unallocated | |
| | |
| | |
| | (62 | ) |
Provision (benefit) for income taxes | | | | | | | 37 |
|
Net (earnings) loss attributable to noncontrolling interest | | | | | | | 9 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 154 |
|
Capital expenditures (1) | $ | 79 |
| | $ | 66 |
| | $ | 4 |
| | $ | 149 |
|
Total assets | $ | 10,724 |
| | $ | 8,027 |
| | $ | 4,943 |
| | $ | 23,694 |
|
Goodwill | $ | 7,662 |
| | $ | 5,796 |
| | $ | 127 |
| | $ | 13,585 |
|
| |
(1) | Capital expenditures for the three months ended September 30, 2018 include $1 million of capital leases. |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Summarized financial information for the Company’s segments is shown in the following tables.
As of and for the three months ended SeptemberJune 30, 20172019 (in millions):
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 1,179 |
| | $ | 865 |
| | $ | 68 |
| | $ | 2,112 |
|
Operating expenses | 739 |
| | 636 |
| | 346 |
| | 1,721 |
|
Depreciation and amortization | 95 |
| | 83 |
| | 190 |
| | 368 |
|
EBITDA | 535 |
| | 312 |
| | (88 | ) | | 759 |
|
Acquisition, integration and other costs | — |
| | — |
| | 35 |
| | 35 |
|
Adjusted EBITDA | $ | 535 |
| | $ | 312 |
| | $ | (53 | ) | | $ | 794 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 759 |
|
Interest expense, net | | | | | | | 72 |
|
Depreciation and amortization | | | | | | | 368 |
|
Other income (expense) unallocated | |
| | |
| | |
| | (124 | ) |
Provision (benefit) for income taxes | | | | | | | 40 |
|
Net earnings attributable to noncontrolling interest | | | | | | | 1 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 154 |
|
Capital expenditures (1) | $ | 73 |
| | $ | 62 |
| | $ | 6 |
| | $ | 141 |
|
Total assets | $ | 10,824 |
| | $ | 8,349 |
| | $ | 13,686 |
| | $ | 32,859 |
|
Goodwill | $ | 7,648 |
| | $ | 5,767 |
| | $ | 127 |
| | $ | 13,542 |
|
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 1,038 |
| | $ | 975 |
| | $ | 83 |
| | $ | 2,096 |
|
Operating expenses | 648 |
| | 702 |
| | 361 |
| | 1,711 |
|
Depreciation and amortization | 79 |
| | 64 |
| | 16 |
| | 159 |
|
Purchase accounting amortization | — |
| | — |
| | 183 |
| | 183 |
|
EBITDA | 469 |
| | 337 |
| | (79 | ) | | 727 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 2 |
| | 2 |
|
Acquisition, integration and other costs | — |
| | — |
| | 22 |
| | 22 |
|
Adjusted EBITDA | $ | 469 |
| | $ | 337 |
| | $ | (55 | ) | | $ | 751 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 727 |
|
Interest expense, net | | | | | | | 84 |
|
Depreciation and amortization | | | | | | | 159 |
|
Purchase accounting amortization | | | | | | | 183 |
|
Other income (expense) unallocated | | | | | | | (182 | ) |
Provision (benefit) for income taxes | | | | | | | 50 |
|
Net (earnings) loss attributable to noncontrolling interest | | | | | | | 10 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 59 |
|
Capital expenditures (1) | $ | 82 |
| | $ | 66 |
| | $ | 4 |
| | $ | 152 |
|
Total assets | $ | 10,268 |
| | $ | 8,460 |
| | $ | 5,577 |
| | $ | 24,305 |
|
Goodwill | $ | 7,662 |
| | $ | 5,867 |
| | $ | 170 |
| | $ | 13,699 |
|
| |
(1) | Capital expenditures for the three months ended SeptemberJune 30, 20172019 include $1 million of capital leases.in other financing obligations for certain hardware and software. |
As of and for the ninethree months ended SeptemberJune 30, 2018 (in millions):
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 1,124 |
| | $ | 899 |
| | $ | 83 |
| | $ | 2,106 |
|
Operating expenses | 719 |
| | 655 |
| | 379 |
| | 1,753 |
|
Depreciation and amortization | 87 |
| | 70 |
| | 197 |
| | 354 |
|
EBITDA | 492 |
| | 314 |
| | (99 | ) | | 707 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 1 |
| | 1 |
|
Acquisition, integration and other costs | — |
| | — |
| | 49 |
| | 49 |
|
Adjusted EBITDA | $ | 492 |
| | $ | 314 |
| | $ | (49 | ) | | $ | 757 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 707 |
|
Interest expense, net | | | | | | | 73 |
|
Depreciation and amortization | | | | | | | 354 |
|
Other income (expense) unallocated | | | | | | | (11 | ) |
Provision (benefit) for income taxes | | | | | | | 51 |
|
Net earnings attributable to noncontrolling interest | | | | | | | 6 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 212 |
|
Capital expenditures | $ | 76 |
| | $ | 64 |
| | $ | 4 |
| | $ | 144 |
|
Total assets (1) | $ | 10,570 |
| | $ | 8,118 |
| | $ | 5,180 |
| | $ | 23,868 |
|
Goodwill | $ | 7,662 |
| | $ | 5,834 |
| | $ | 170 |
| | $ | 13,666 |
|
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 3,275 |
| | $ | 2,742 |
| | $ | 239 |
| | $ | 6,256 |
|
Operating expenses | 2,094 |
| | 1,977 |
| | 1,196 |
| | 5,267 |
|
Depreciation and amortization | 259 |
| | 208 |
| | 44 |
| | 511 |
|
Purchase accounting amortization | — |
| | — |
| | 549 |
| | 549 |
|
EBITDA | 1,440 |
| | 973 |
| | (364 | ) | | 2,049 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 4 |
| | 4 |
|
Acquisition, integration and other costs | — |
| | — |
| | 122 |
| | 122 |
|
Asset impairments | — |
| | — |
| | 95 |
| | 95 |
|
Adjusted EBITDA | $ | 1,440 |
| | $ | 973 |
| | $ | (143 | ) | | $ | 2,270 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 2,049 |
|
Interest expense, net | | | | | | | 225 |
|
Depreciation and amortization | | | | | | | 511 |
|
Purchase accounting amortization | | | | | | | 549 |
|
Other income (expense) unallocated | |
| | |
| | |
| | (71 | ) |
Provision (benefit) for income taxes | | | | | | | 122 |
|
Net (earnings) loss attributable to noncontrolling interest | | | | | | | 23 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 548 |
|
Capital expenditures (1) | $ | 254 |
| | $ | 201 |
| | $ | 10 |
|
| $ | 465 |
|
| |
(1) | Capital expenditures for the nine months ended September 30, 2018 include $1 million of capital leases. |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As of and for the ninesix months ended SeptemberJune 30, 20172019 (in millions):
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 2,309 |
| | $ | 1,728 |
| | $ | 132 |
| | $ | 4,169 |
|
Operating expenses | 1,468 |
| | 1,271 |
| | 724 |
| | 3,463 |
|
Depreciation and amortization | 192 |
| | 164 |
| | 380 |
| | 736 |
|
EBITDA | 1,033 |
| | 621 |
| | (212 | ) | | 1,442 |
|
Acquisition, integration and other costs | — |
| | — |
| | 81 |
| | 81 |
|
Adjusted EBITDA | $ | 1,033 |
| | $ | 621 |
| | $ | (131 | ) | | $ | 1,523 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 1,442 |
|
Interest expense, net | | | | | | | 147 |
|
Depreciation and amortization | | | | | | | 736 |
|
Other income (expense) unallocated | |
| | |
| | |
| | (183 | ) |
Provision (benefit) for income taxes | | | | | | | 72 |
|
Net earnings attributable to noncontrolling interest | | | | | | | 2 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 302 |
|
Capital expenditures (1) | $ | 168 |
| | $ | 142 |
| | $ | 10 |
| | $ | 320 |
|
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 3,162 |
| | $ | 3,064 |
| | $ | 276 |
| | $ | 6,502 |
|
Operating expenses | 2,018 |
| | 2,317 |
| | 1,166 |
| | 5,501 |
|
Depreciation and amortization | 230 |
| | 193 |
| | 48 |
| | 471 |
|
Purchase accounting amortization | — |
| | — |
| | 544 |
| | 544 |
|
EBITDA | 1,374 |
| | 940 |
| | (298 | ) | | 2,016 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 6 |
| | 6 |
|
Acquisition, integration and other costs | — |
| | — |
| | 141 |
| | 141 |
|
Adjusted EBITDA | $ | 1,374 |
| | $ | 940 |
| | $ | (151 | ) | | $ | 2,163 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 2,016 |
|
Interest expense, net | | | | | | | 267 |
|
Depreciation and amortization | | | | | | | 471 |
|
Purchase accounting amortization | | | | | | | 544 |
|
Other income (expense) unallocated | | | | | | | (123 | ) |
Provision (benefit) for income taxes | | | | | | | 260 |
|
Net (earnings) loss attributable to noncontrolling interest | | | | | | | 24 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 327 |
|
Capital expenditures (1) | $ | 289 |
| | $ | 224 |
| | $ | 15 |
| | $ | 528 |
|
| |
(1) | Capital expenditures for the ninesix months ended SeptemberJune 30, 20172019 include $80$35 million of capital leases.in other financing obligations for certain hardware and software. |
Clients in Brazil, the United Kingdom, Germany, India, Australia, FranceAs of and Switzerland accounted for the majority of the revenue from clients based outside of North America for all periods presented. Long-term assets, excluding goodwill and other intangible assets, located outside of the United States total $535 million and $532 million as of Septembersix months ended June 30, 2018 and 2017, respectively. These assets are predominantly located in the United Kingdom, India, Belgium, Germany, France, Australia and Brazil.(in millions):
|
| | | | | | | | | | | | | | | |
| IFS | | GFS | | Corporate and Other | | Total |
Revenue | $ | 2,185 |
| | $ | 1,826 |
| | $ | 161 |
| | $ | 4,172 |
|
Operating expenses | 1,414 |
| | 1,345 |
| | 766 |
| | 3,525 |
|
Depreciation and amortization | 172 |
| | 137 |
| | 397 |
| | 706 |
|
EBITDA | 943 |
| | 618 |
| | (208 | ) | | 1,353 |
|
Acquisition deferred revenue adjustment | — |
| | — |
| | 3 |
| | 3 |
|
Acquisition, integration and other costs | — |
| | — |
| | 106 |
| | 106 |
|
Adjusted EBITDA | $ | 943 |
| | $ | 618 |
| | $ | (99 | ) | | $ | 1,462 |
|
| | | | | | | |
EBITDA | | | | | | | $ | 1,353 |
|
Interest expense, net | | | | | | | 144 |
|
Depreciation and amortization | | | | | | | 706 |
|
Other income (expense) unallocated | | | | | | | (10 | ) |
Provision (benefit) for income taxes | | | | | | | 85 |
|
Net earnings attributable to noncontrolling interest | | | | | | | 14 |
|
Net earnings attributable to FIS common stockholders | | | | | | | $ | 394 |
|
Capital expenditures | $ | 175 |
| | $ | 135 |
| | $ | 6 |
| | $ | 316 |
|
(14) Share Repurchase Program
Our Board of Directors has approved a series of plans authorizing repurchases of our common stock in the open market at prevailing market prices or in privately negotiated transactions, the most current of which on July 20, 2017, authorized repurchases of up to $4.0 billion through December 31, 2020. This share repurchase authorization replaced any existing share repurchase authorization plan. Approximately $2.8 billion of plan capacity remained available for repurchases as of September 30, 2018.
The table below summarizes annual share repurchase activity under these plans (in millions, except per share amounts):
|
| | | | | | | | | | | |
| | | | | | Total cost of shares |
| | | | | | purchased as part of |
| | Total number of | | Average price | | publicly announced |
Three months ended | | shares purchased | | paid per share | | plans or programs |
September 30, 2018 | | 4.3 |
| | $ | 106.98 |
| | $ | 465 |
|
June 30, 2018 | | 2.1 |
| | $ | 95.83 |
| | $ | 200 |
|
March 31, 2018 | | 4.1 |
| | $ | 97.70 |
| | $ | 401 |
|
December 31, 2017 | | 1.1 |
| | $ | 93.24 |
| | $ | 105 |
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless stated otherwise or the context otherwise requires, all references to “FIS,” “we,” the “Company” or the “registrant” are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
The following discussion should be read in conjunction with Item 1: Condensed Consolidated Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The statements contained in this Form 10-Q or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about anticipated financial outcomes, including any earnings guidance of the Company, business and market conditions, outlook, foreign currency exchange rates, expected dividends and share repurchases, the Company’s sales pipeline and anticipated profitability and growth, as well as other statements about our expectations, beliefs, intentions, or strategies regarding the future are forward-looking statements. These statements relate to future events and our future results and involve a number of risks and uncertainties. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Any statements that refer to beliefs, expectations, projections or other characterizations of future events or circumstances and other statements that are not historical facts are forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms and other comparable terminology.
Actual results, performance or achievement could differ materially from those contained in these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to include the following without limitation:
the risk that the Worldpay transaction will not provide the expected benefits, or that we will not be able to achieve the cost or revenue synergies anticipated;
the risk that the integration of FIS and Worldpay will be more difficult, time-consuming or expensive than anticipated;
the risk of customer loss or other business disruption in connection with the Worldpay transaction, or of the loss of key employees;
the fact that unforeseen liabilities of FIS or Worldpay may exist;
the risk that acquired businesses will not be integrated successfully, or that the integration will be more costly or more time-consuming and complex than anticipated;
the risk that cost savings and other synergies anticipated to be realized from acquisitions may not be fully realized or may take longer to realize than expected;
the riskrisks of doing business internationally;
changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, changes in either or both the United States and international lending, capital and financial markets and currency fluctuations;
the effect of legislative initiatives or proposals, statutory changes, governmental or other applicable regulations and/or changes in industry requirements, including privacy and cybersecurity laws and regulations;
the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in, or new laws or regulations affecting, the banking, retail and financial services industries or due to financial failures or other setbacks suffered by firms in those industries;
changes in the growth rates of the markets for our solutions;
failures to adapt our solutions to changes in technology or in the marketplace;
internal or external security breaches of our systems, including those relating to unauthorized access, theft, corruption or loss of personal information and computer viruses and other malware affecting our software or platforms, and the reactions of customers, card associations, government regulators and others to any such events;
the risk that implementation of software (including software updates) for customers or at customer locations or employee error in monitoring our software and platforms may result in the corruption or loss of data or customer information, interruption of business operations, outages, exposure to liability claims or loss of customers;
the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters;
competitive pressures on pricing related to the decreasing number of community banks in the U.S., the development of new disruptive technologies competing with one or more of our solutions, increasing presence of international competitors in the U.S. market and the entry into the market by global banks and global companies with respect to certain competitive solutions, each of which may have the impact of unbundling individual solutions from a comprehensive suite of solutions we provide to many of our customers;
the failure to innovate in order to keep up with new emerging technologies, which could impact our solutions and our ability to attract new, or retain existing, customers;
the failure to meet financial goals to grow the business in Brazil after the unwinding of the Brazilian Venture;
the risks of reduction in revenue from the loss of existing and/or potential customers in Brazil after the unwinding of the Brazilian Venture;
an operational or natural disaster at one of our major operations centers;
failure to comply with applicable requirements of payment networks or card schemes or changes in those requirements;
fraud by merchants or bad actors; and
other risks detailed elsewhere in this document under Part II Item 1A. Risk Factors, and in the Risk Factors and other sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and in our other filings with the Securities and Exchange Commission.
Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, results of operations and prospects. Accordingly, readers should not place undue reliance on these forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Except as required by applicable law or regulation, we do not undertake (and expressly disclaim) any obligation and do not intend to publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
Overview
FIS is a global leader in financial services technology, with a focus onproviding solutions and services to clients in the retail and institutional banking, payments, capital markets, asset management, and wealth and retirement risk and compliance and outsourcing solutions.markets. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 52,00047,000 people worldwide and holds leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of the Standard & Poor’s 500® Index.
We have grown organically, as well as through acquisitions, which have contributed critical applications and services that complement or enhance our existing offerings, diversifying our revenue by customer, geography and service offering. We evaluate possible acquisitions that might contribute to our growth or performance on an ongoing basis.
On March 17, 2019, FIS entered into a merger agreement to acquire Worldpay. On July 31, 2019, FIS completed the acquisition of Worldpay. See Note 3 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for additional discussion. Through its acquisition of Worldpay, FIS is now a global leader in technology, solutions and services for merchants, as well as banks and capital markets. The completionWorldpay acquisition brings an integrated technology platform with a comprehensive suite of products and services serving merchants and financial institutions. Worldpay processed over 40 billion transactions annually, supporting more than 300 payment types across 146 countries and 126 currencies. Through the SunGard acquisition on November 30, 2015 increased our existing portfolio to includeWorldpay transaction, FIS will have enhanced global payment capabilities, robust risk and fraud solutions that automate a wide range of complex business processes for financial services institutions and corporate and government treasury departments.advanced data analytics.
FIS reports its financial performance based on three segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other. A description of these segments is included in Note 13 to the Notes to Condensed Consolidated Financial Statements (Unaudited). Revenue by segment and the adjusted EBITDA of our segments are discussed below in Segment Results of Operations. We are in the process of updating our operating segments as a result of the Worldpay transaction.
Business Trends and Conditions
Our revenue is primarily derived from a combination of recurring technology and processing services, professional services and software license fees. The majority of our revenue has historically been recurring, and has been provided under multi-year contracts that contribute relative stability to our revenue stream. These services, in general, are considered critical to our clients' operations. A considerable portion of our recurring revenue is derived from transaction processing fees that fluctuate with the level of accounts and card transactions, among other variable measures, associated with consumer, commercial and capital markets activity. Professional services revenue is typically non-recurring, and sales of software licenses are less predictable, a portion of which can be regarded as discretionary spending by our clients.
The SunGard acquisition broadened our solution portfolio, enabling usWe continue to expand beyond our traditional banking and payments markets into the institutional and wholesale side ofassist financial institutions as well as other capital markets organizations. It also significantly expanded our existing solutions and client base in wealth and retirement, treasury and corporate payments. These solutions are in demand among our regional and community financial institution clients as they look for ways to replace highly regulated fee revenue. The combination also favorably impacted our revenue mix, with a greater concentration of license revenue and higher margin services. Through the integration of SunGard into our existing operations, we achieved significant cost savings around administration and technology expenses and exited 2017 with a cost synergy run-rate savings exceeding $325 million.
We are actively migrating many financial institutions to outsourced integrated technology solutions to improve their profitability and address increasing and ongoing regulatory requirements. As a provider of outsourcing solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of broader year-to-year economic and market changes that otherwise might have a larger impact on our results of operations. We believe our integrated solutions and outsourced services are well-positionedwell positioned to address this outsourcing trend across the markets we serve.
Over the last three years, we have moved approximately 50% of our server compute to our FIS cloud located in our strategic data centers and our goal is to increase that percentage to 65% by the end of 2019 and approximately 80% by the end of 2021. This allows us to further enhance security for our clients’ data and increases the flexibility and speed with which we can provide services and solutions to our clients, eventually at lesser cost. Concurrently, we have continued to consolidate our data centers, closing 10 additional data centers in 2018. Our consolidation has generated a savings for the Company as of year-end 2018 exceeding $100 million in run rate annual expense reduction since the program’s inception in mid-2016. We plan to close and consolidate approximately 20 more data centers by 2021, which should result in additional run rate annual expense reduction of approximately $150 million.
We continue to invest in modernization, innovation and integrated solutions and services in order to meet the demands of the markets we serve and compete with global banks, international providers, and disruptive technology innovators. We invest both organically and through investment opportunities in companies building complementary technologies in the financial services space. Our internal efforts in research and development activities have related primarily to the modernization of our proprietary core systems, design and development of next generation digital and innovative solutions and development of processing systems and related software applications and risk management platforms. We have increased our investments in these areas in each of the last three years. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems to address emerging technology trends in response to the needs of our clients and to enhance the capabilities of our outsourcing infrastructure.
Consumer preference continues to shift from traditional branch banking services to digital banking solutions, and our clients seek to provide a single integrated banking experience through their branch, mobile, internet and voice-bankingvoice banking channels. We have been providing our large regional banking customers in the U.S. with Digital One, an integrated digital banking platform, and are focused on enablingnow adding functionality and offering Digital One to our community bank clients to deliver thisprovide a consistent, omnichannel experience for consumers of banking services across self-service channels like mobile banking and online banking, as well as supporting channels for bank staff operating in bank branches and contact centers. The uniform customer experience will extend to theirsupport a broad range of financial services including opening new accounts, servicing of existing accounts, providing money movement services, and personal financial management, as well as a broad range of other consumer, small business and commercial banking capabilities. Digital One will be integrated into and will extend the core banking platforms offered by FIS and will also be offered to customers through our integrated solutionsof non-FIS core banking systems.
and services. We continue to innovate and invest in these integrated solutions and services to assist clients as they address this market demand. This is an area of ongoing competition from global banks, international providers and disruptive technology innovators.
We continue to see demand for innovative solutions in the payments market that will deliver faster, more convenient payment solutions in mobile channels, internet applications and cards. We believe digital payments will grow and partially replace existing payment tender volumes over time as consumers and merchants embrace the convenience, incremental services and benefits. Additionally, new formidable non-traditional payments competitors and large merchants are investing in and innovating digital payment technologies to address the emerging market opportunity, and it is unclear the extent to which particular technologies or services will succeed. We believe the growth of digital payments continues to present both an opportunity and a risk to us as the market develops. Although we cannot predict which digital payment technologies or solutions will be successful, we cautiously believe our client relationships, payments infrastructure and experience, adapted solutions and emerging solutions are well-positionedwell positioned to maintain or grow our clients' existing payment volumes, which is our focus.
High profile North American merchant payment card information security breaches have pushed the payment card industry towards EMV integrated circuit cards as financial institutions, card networks and merchants seek to improve information security and reduce fraud costs. We invested in our card management solutions and card manufacturing and processing capabilities to accommodate EMV integrated circuit cards so we can continue to guide our clients through this technology transition and grow our card-driven businesses. A large portion of the migration to EMV is complete. The remaining portion will continue as financial institutions issue replacement cards.
We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity among financial institutions, which we believe as a whole is detrimental to our business. However, consolidation resulting from specific merger and acquisition transactions may be beneficial to our business. When consolidations of financial institutions occur, merger partners often operate systems obtained from competing service providers. The newly formed entity generally makes a determination to migrate its core and payments systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by their expanding the use of our services if such services are chosen to survive the consolidation and support the newly combined entity. Conversely, we may lose revenue if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to survive the consolidation and support the newly combined entity. It is also possible that larger financial institutions resulting from consolidation may have greater leverage in negotiating terms or could decide to perform in-house some or all of the services
that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company.
Notwithstanding challenging global economic conditions, our ongoingIn certain of the international markets in which we do business, continuedwe continue to experience growth in the first nine months of 2018 on a constant currency basis. Demand for our solutions may also continue to be driven in developing countries by government-led financial inclusion policies aiming to reduce the unbanked population and by growth in the middle classes in these markets driving the need for more sophisticated banking solutions. The majority of our international revenue is generated by clients in the United Kingdom, Brazil, Germany, Canada, India, and Switzerland. For the full year of 2018,2019, we anticipate an approximate $55$80 million adverse impact to revenue due to foreign currency translation.translation, although the actual amount of impact is uncertain due to the many factors that affect exchange rates.
On September 28,December 31, 2018, FIS entered into an agreement with Banco Bradescoclosed the transaction we previously announced to unwind the Brazilian Venture.Venture with Banco Bradesco. Under this agreement, the Brazilian Venture will spin-offspun-off certain assets of the business that also provide services to non-Bradesco clients to a new wholly-owned FIS subsidiary. TheThis subsidiary will enterentered into a long-term commercial agreement to provide current and new services to Banco Bradesco effective January 1, 2019 that include software application licensing, andmaintenance, application management, card portfolio migration, business process outsourcing, fraud management and professional services. As a result of the transaction, Banco Bradesco will then ownowns 100% of the entity that previously housed the Brazilian Venture and its remaining assets that relate to card processing for Banco Bradesco, which Banco Bradesco will thereafter perform internally. FIS expects to complete the transaction in the first half of 2019. Post-closing, theThe transaction is expected to result in an annualized reduction in FIS’ reported revenue of approximately $200 million with minimal impact to its net earnings.$225 million. In addition, it resulted in impairment charges of $95 million in the third quarter of 2018. The transaction is subject to Brazilian regulatory approval and FIS expects to complete the transaction in the first half of 2019. For further detail on our Brazilian Venture see Note 10 of the Notes to Condensed Consolidated Financial Statements (Unaudited) and Item 1A. Risk Factors included in Part II in this report on Form 10-Q.
Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide
range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems.
FIS remains focused on making strategic investments in information security to protect our clients and our information systems. This includes both capital expenditures and operating expense on hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this growth opportunity in the financial services industry.
As described in Note 12 of the Notes to Condensed Consolidated Financial Statements (Unaudited), on July 31, 2017, we sold a majority interest in certain of our consulting businesses to affiliates of CD&R. These businesses had lower margins than many of our other businesses. The consulting businesses sold were included within the GFS and IFS segments. Also, on February 1, 2017, we sold our PS&E business, which had been included in our Corporate and Other segment. These divestitures affect the comparability of our results of operations for the 2018 and 2017 periods presented.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, except for "Revenue Recognition" noted below.2018.
Revenue Recognition
The Company generates revenue in a number of ways, including from the delivery of account- or transaction-based processing, software as a service ("SaaS"), business process as a service ("BPaaS"), cloud offerings, software licensing, software related services, and professional services. We are frequently a party to multiple concurrent contracts with the same client. These situations require judgment to determine whether the individual contracts should be combined 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 negotiated as a package with a single commercial objective, whether the solutions or services promised in the contracts are a single performance obligation, and whether any of the payment terms of the contracts are interrelated. Our individual contracts also frequently include multiple promised solutions or services. At contract inception, we assess the solutions and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - i.e., if a solution or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. We must apply judgment in these circumstances in determining whether individual promised solutions or services can be considered distinct or should instead be combined with other promised solutions or services in the contract. We recognize revenue when or as we satisfy a performance obligation by transferring control of a solution or service to a customer. We must use judgment to determine the appropriate measure of progress for performance obligations satisfied over time and the timing of when the customer obtains control for performance obligations satisfied at a point in time. Judgment is also required in estimating and allocating variable consideration to one or more, but not all, performance obligations in a contract, determining the standalone selling prices of each performance obligation, and allocating the transaction price to each distinct performance obligation in a contract.
Due to the large number, broad nature and average size of individual contracts we are 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 or financial position. However, the broader accounting policy assumptions that we apply across similar contracts or classes of clients could significantly influence the timing and amount of revenue recognized in our historical and future results of operations or financial position. Additional information about our revenue recognition policies is included in Notes 2 and 3 to the Condensed Consolidated Financial Statements (Unaudited).
Transactions with Related Parties
See Note 1011 of the Notes to Condensed Consolidated Financial Statements (Unaudited) for a detailed description of transactions with related parties.
Consolidated Results of Operations (Unaudited)
(in millions, except per share amounts)
| | | Three months ended September 30, | | Nine months ended September 30, | Three months ended June 30, | | Six months ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
| | | As Adjusted * | | | | As Adjusted * | | | | | | | |
Revenue | $ | 2,084 |
| | $ | 2,096 |
| | $ | 6,256 |
| | $ | 6,502 |
| $ | 2,112 |
| | $ | 2,106 |
| | $ | 4,169 |
| | $ | 4,172 |
|
Cost of revenue | 1,364 |
| | 1,386 |
| | 4,192 |
| | 4,397 |
| 1,404 |
| | 1,414 |
| | 2,785 |
| | 2,828 |
|
Gross profit | 720 |
| | 710 |
| | 2,064 |
| | 2,105 |
| 708 |
| | 692 |
| | 1,384 |
| | 1,344 |
|
Selling, general, and administrative expenses | 283 |
| | 325 |
| | 980 |
| | 1,104 |
| |
Asset impairments | 95 |
| | — |
| | 95 |
| | — |
| |
Selling, general and administrative expenses | | 317 |
| | 339 |
| | 678 |
| | 697 |
|
Operating income | 342 |
| | 385 |
| | 989 |
| | 1,001 |
| 391 |
| | 353 |
| | 706 |
| | 647 |
|
Other income (expense): | | | | | | | | | | | | | | |
Interest expense, net | (80 | ) | | (84 | ) | | (225 | ) | | (267 | ) | (72 | ) | | (73 | ) | | (147 | ) | | (144 | ) |
Other income (expense), net | (58 | ) | | (182 | ) | | (60 | ) | | (123 | ) | (120 | ) | | (4 | ) | | (172 | ) | | (2 | ) |
Total other income (expense), net | (138 | ) | | (266 | ) | | (285 | ) | | (390 | ) | (192 | ) | | (77 | ) | | (319 | ) | | (146 | ) |
Earnings before income taxes and equity method investment earnings (loss) | 204 |
| | 119 |
| | 704 |
| | 611 |
| 199 |
| | 276 |
| | 387 |
| | 501 |
|
Provision (benefit) for income taxes | 37 |
| | 50 |
| | 122 |
| | 260 |
| 40 |
| | 51 |
| | 72 |
| | 85 |
|
Equity method investment earnings (loss) | (4 | ) | | — |
| | (11 | ) | | — |
| (4 | ) | | (7 | ) | | (11 | ) | | (8 | ) |
Net earnings | 163 |
| | 69 |
| | 571 |
| | 351 |
| 155 |
| | 218 |
| | 304 |
| | 408 |
|
Net (earnings) loss attributable to noncontrolling interest | (9 | ) | | (10 | ) | | (23 | ) | | (24 | ) | (1 | ) | | (6 | ) | | (2 | ) | | (14 | ) |
Net earnings attributable to FIS common stockholders | $ | 154 |
| | $ | 59 |
| | $ | 548 |
| | $ | 327 |
| $ | 154 |
| | $ | 212 |
| | $ | 302 |
| | $ | 394 |
|
| | | | | | | | | | | | | | |
Net earnings per share — basic attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.67 |
| | $ | 0.99 |
| $ | 0.48 |
| | $ | 0.64 |
| | $ | 0.93 |
| | $ | 1.20 |
|
Weighted average shares outstanding — basic | 328 |
| | 331 |
| | 329 |
| | 330 |
| 324 |
| | 329 |
| | 323 |
| | 329 |
|
Net earnings per share — diluted attributable to FIS common stockholders | $ | 0.47 |
| | $ | 0.18 |
| | $ | 1.65 |
| | $ | 0.98 |
| $ | 0.47 |
| | $ | 0.64 |
| | $ | 0.92 |
| | $ | 1.18 |
|
Weighted average shares outstanding — diluted | 331 |
| | 336 |
| | 333 |
| | 335 |
| 327 |
| | 333 |
| | 327 |
| | 334 |
|
* See Note 3 of the Notes to Condensed Consolidated Financial Statements (Unaudited).
Comparisons of three-month and nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 20172018
Revenue
Revenue decreased $12increased $6 million, or 0.6%0.3%, during the three-month period, primarily due to growth in (1) all IFS divisions; (2) GFS banking and payments solutions in North America; (3) institutional and wholesale solutions; and (4) GFS Latin America payments. These increases were offset by (1) the unwinding of the Brazilian Venture; (2) the reduction in revenue from the sale of the Capco consultingCertegy Check Services business and the risk and compliance consulting businessunit in North America during the third quarter of 20172018; (3) the reduction in revenue from the sale of Reliance Trust Company of Delaware during the fourth quarter of 2018; and (4) unfavorable foreign currency impact of $18 million primarily driven by a stronger U.S. Dollar versus the Brazilian Real, British Pound Sterling and Euro.
Revenue decreased $3 million, or 0.1%, during the six-month period, primarily due to (1) the unwinding of the Brazilian Venture, offset in part by the new commercial agreement with Banco Bradesco and growth in GFS Latin America payments; (2) the reduction in revenue from the sale of the Certegy Check Services business unit in North America during the third quarter of 2018.2018; (3) the reduction in revenue from the sale of Reliance Trust Company of Delaware during the fourth quarter of 2018; and (4) unfavorable foreign currency impact of $44 million primarily driven by a stronger U.S. Dollar versus the Brazilian Real, British Pound Sterling and Euro. These decreases were partially offset by (1) growth in retail payments;across all IFS divisions; (2) increased volumes in banking and wealth solutions (excluding the effects of the sale of the risk and compliance consulting business); (3) growth in GFS banking and payments solutions in North America; and (4) payments growth(3) increased IFS termination fees.
See "Segment Results of Operations (Unaudited)" belowfor more detailed explanation.
Cost of Revenue and Gross Profit
Cost of revenue decreased $10 million or 0.7% for the three-month period of 2019 as compared to 2018 resulting in Latin America. Additionally,a gross profit increase of $16 million or 2.3%. Gross profit as a percentage of revenue was 33.5% and 32.9% during the three-month periods ended June 30, 2019 and 2018, respectively. The change in gross profit during the 2019 period as compared to 2018 primarily resulted from lower acquired intangible asset amortization expense. The gross profit percentage change during the three months ended SeptemberJune 30, 2019, as compared to 2018, was also impacted from a $30 million unfavorable foreign currency impact primarily resulting from a stronger U.S. Dollar in 2018 versus the Brazilian Real.positively affected by lower acquired intangible asset amortization expense, favorable revenue mix and continued cost management initiatives.
RevenueCost of revenue decreased $246$43 million or 3.8%1.5% for the six-month period of 2019 as compared to 2018 resulting in a gross profit increase of $40 million or 3.0%. Gross profit as a percentage of revenue was 33.2% and 32.2% during the nine-monthsix-month periods ended June 30, 2019 and 2018, respectively. The change in gross profit during the 2019 period dueas compared to 2018 primarily resulted from the revenue variances noted above and lower acquired intangible asset amortization expense. The gross profit percentage change during the six months ended June 30, 2019, as compared to 2018, was positively affected by lower acquired intangible asset amortization expense, favorable revenue mix and continued cost management initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $22 million or 6.5% for the three-month period of 2019 as compared to 2018. The year-over-year decreases were primarily driven by (1) the reduction in revenue fromlower acquisition, integration and other costs; (2) the sale of the Capco consulting business and the risk and compliance consulting businessReliance Trust Company of Delaware during the thirdfourth quarter of 2017; (2) the reduction in revenue from the sale of the PS&E business during the first quarter of 2017; and2018; (3) a decline in retail check processing volumes and the sale of the Certegy Check Services business unit in North America during the third quarter of 2018. This decrease was partially offset by (1) increased volumes in banking2018; and wealth solutions (excluding the effects of the sale of the risk and compliance consulting business); (2) growth in GFS banking and payments solutions in North America; (3) growth in corporate and digital solutions; (4) growth in retail payments; and (5) payments growth in Latin America. Additionally, the nine months
ended September 30, 2018 was also impacted by a $9 million unfavorable foreign currency impact primarily resulting from a stronger U.S. Dollar in 2018 versus the Brazilian Real.
See "Segment Results of Operations (Unaudited)" belowfor more detailed explanation.
Cost of Revenue and Gross Profit
Cost of revenue totaled $1,364 million and $1,386 million during the three-month periods and $4,192 million and $4,397 million during the nine-month periods ended September 30, 2018 and 2017, respectively, resulting in gross profit of $720 million and $710 million during the respective three-month periods and $2,064 million and $2,105 million during the nine-month periods ended September 30, 2018 and 2017, respectively. Gross profit as a percentage of revenue was 34.5% and 33.9% during the three-month periods and 33.0% and 32.4% during the nine-month periods ended September 30, 2018 and 2017, respectively. The change in gross profit during the 2018 period as compared to 2017 primarily resulted from the revenue variances noted above. The gross profit percentage change during the three and nine months ended September 30, 2018, as compared to 2017, was positively affected by the Capco consulting business divestiture during 2017 as well ascontinued cost management initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $283decreased $19 million and $325 million duringor 2.7% for the three-month periods and $980 million and $1,104 million during the nine-month periods ended September 30, 2018 and 2017, respectively.six-month period of 2019 as compared to 2018. The year-over-year decrease isdecreases were primarily driven by (1) lower acquisition, integration and other costs; (2) the sale of PS&EReliance Trust Company of Delaware during the firstfourth quarter of 2017,2018; (3) the sale of the Capco consultingCertegy Check Services business and risk and compliance consulting businessunit in North America during the third quarter of 2017, the sale of Certegy Check Services business unit during the third quarter of 20182018; and (4) continued cost management initiatives. These decreases were partially offset by increases in health care and other benefit plan expenses and compensation expense.
Asset Impairments
During September 2018, as a result of entering into an agreement to unwind the Brazilian Venture that the Company operates with Banco Bradesco, the Company recorded pre-tax asset impairments totaling $95 million, including $42 million for the Brazilian Venture contract intangible asset, $25 million for goodwill, and $28 million for the assets being held for sale that will be transferred to Banco Bradesco upon closing of the agreement (see Note 10 of the Notes to Condensed Consolidated Financial Statements (Unaudited)).
Operating Income
Operating income totaled $342increased $38 million and $385 million duringor 10.8%, for the three-month periodsperiod and $989$59 million and $1,001 million duringor 9.1% for the nine-month periods ended September 30,six-month period of 2019 as compared to 2018, and 2017, respectively. Operating income as a percentage of revenue (“operating margin”) was 16.4%18.5% and 18.4% during16.8% for the three-month periods and 15.8%16.9% and 15.4% during15.5% for the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The changes in operating income for the three-month and nine-monthsix-month periods of 20182019 as compared to 2017 resulted from2018 and the variances addressed above. The change in operating margin during the 2019 periods as compared to 2018 periods was negatively impacted by asset impairments. Excludingresulted from the asset impairments, operating margins improved primarily fromrevenue and cost management initiatives and the Capco consulting business divestiture during 2017.variances noted above.
Total Other Income (Expense), Net
Interest expense is typically the primary component of total other income (expense); however, during the nine-month periodthree-month and six-month periods ended SeptemberJune 30, 2017,2019, other income (expense) was also a significant component.
The decrease of $4 million and $42$1 million in interest expense, net during the three-month and nine-month periodsperiod ended SeptemberJune 30, 20182019 as compared to the 2017 periods2018 period is primarily due to a lower weighted averageweighted-average interest rate on the outstanding debt.
Otherdebt and an increase in interest income (expense)on the proceeds from the Worldpay acquisition-related debt issuances, partially offset by higher outstanding debt. The increase of $3 million in interest expense, net decreased $124 million forduring the three-month periods and $63 million for the nine-month periodssix-month period ended SeptemberJune 30, 20182019 as compared to the 2017 periods. 2018 period is primarily due to higher outstanding debt, partially offset by lower weighted-average interest rate on the outstanding debt and increased interest income on the proceeds from the Worldpay acquisition-related debt issuances.
Other income (expense), net decreased $116 million and $170 million during the three-month and six-month periods ended June 30, 2019 as compared to the 2018 periods, respectively. Other income (expense), net for the three and ninesix months ended SeptemberJune 30, 20182019 includes a pre-tax loss of $54 million on the sale of the Certegy Check Services business unit. Other income (expense) net for the three-month period ended September 30, 2017, includes a pre-tax loss of $33 million on the sale of the Capco consulting and risk and compliance business and other divestitures and a pre-tax charge of $167 million in tender premiumsacquisition financing costs and the write-offnon-cash foreign currency impact of previously capitalized debt issuance costs onnon-hedged Euro- and Pound Sterling-denominated notes issued during the repurchase of approximately $2,000 million in aggregate principal of debt securities. Additionally, the ninethree months ended SeptemberJune 30, 2017 also include a pre-2019 to finance the Worldpay acquisition.
tax gain of $85 million on the sale of the PS&E business and a pre-tax charge of approximately $25 million due to the redemption of the Senior Notes due March 2022 and the pay down of the 2018 Term Loans, consisting of the call premium on the Senior Notes due March 2022 and the write-off of previously capitalized debt issuance costs.
Provision (Benefit) for Income Taxes
Income tax expense totaled $37$40 million and $50$51 million during the three-month periods and $122$72 million and $260$85 million during the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, resulting in effective tax rates of 18%20.1% and 42%18.5% for the three-month periods and 17%18.6% and 43%17.0% for the the nine-monthsix-month periods, respectively. The 2018 effective tax rate includes the impact of the reduction in the U.S. federal income tax rate from 35% to 21% due to tax reform enacted December 22, 2017. In addition to the federal tax rate of 35% for 2017, the 2017 effective tax rates include the impact of the write-off of goodwill with no tax basis in connection with the sale of our PS&E business and additional taxes related to book basis in the units of Cardinal in excess of tax basis.
The Company included provisional amounts in its December 31, 2017 annual financial statements for certain tax reform items. These items were provisional as the data necessary for their completion was not fully available. As the amounts are finalized during the measurement period, the required adjustments, if any, will be recorded in the quarter when the final amount is determined.
Equity Method Investment Earnings (Loss)
On July 31, 2017, FIS obtainedholds a minority equity interest38% ownership stake in Cardinal, as further described in Note 1211 of the Notes to Condensed Consolidated Financial Statements (Unaudited). WeAs a result, we recorded losses from this equity method investment totalinglosses of $4 million and $11$7 million during the three-three-month periods and nine-month$11 million and $8 million during the six-month periods ended SeptemberJune 30, 2019 and 2018, respectively.
Net (Earnings) Loss Attributable to Noncontrolling Interest
Net (earnings) loss attributable to noncontrolling interest predominantly related to the joint venture in Brazil that was unwound on December 31, 2018 and totaled $(1) million and $(6) million for the three months and $(2) million and $(14) million during the six months ended June 30, 2019 and 2018, respectively.
Net Earnings Attributable to FIS Common Stockholders
Net earnings attributable to FIS common stockholders totaled $154 million and $59$212 million resulting in earnings per diluted share of $0.47 and $0.18$0.64 for the three-month periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $548$302 million and $327$394 million resulting in earnings per diluted share of $1.65$0.92 and $0.98$1.18 for the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively. These results reflect the variances described above.
Segment Results of Operations (Unaudited)
Adjusted EBITDA is defined as EBITDA (defined as net incomeearnings (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles),amortization) plus certain non-operating items. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards CodificationFASB ASC Topic 280, "Segment Reporting."Segment Reporting. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments;adjustments and acquisition, integration and certain other costs; and asset impairments.costs. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments. Financial information, including details of our adjustments to EBITDA, for each of our segments is set forth in Note 13 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I of this Quarterly Report.
Integrated Financial Solutions
(in millions)
| | | | | | | | | | | | | | | | | Three months ended | | Six months ended |
| Three months ended | | Nine months ended | June 30, | | June 30, |
| September 30, | | September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | (In millions) | | (In millions) |
Revenue | $ | 1,090 |
| | $ | 1,038 |
| | $ | 3,275 |
| | $ | 3,162 |
| $ | 1,179 |
| | $ | 1,124 |
| | $ | 2,309 |
| | $ | 2,185 |
|
Adjusted EBITDA | $ | 496 |
| | $ | 469 |
| | $ | 1,440 |
| | $ | 1,374 |
| $ | 535 |
| | $ | 492 |
| | $ | 1,033 |
| | $ | 943 |
|
Three months ended SeptemberJune 30:
Revenue increased $52$55 million, or 5.0%4.9%, due to (1) growth in retail payments contributing 2.7%; (2) increased volumes in banking and wealth solutions (excluding the effects of the sale of the risk and compliance consultingReliance Trust Company of Delaware business) contributing 2.3%2.8%; (2) growth in payment solutions contributing 2.0%; and (3) growth in corporate and digital solutions contributing 0.5%1.1%. These items were partially offset by the reduction in revenue from the sale of the risk and compliance consultingReliance Trust Company of Delaware business contributing (0.5%(0.8%).
Adjusted EBITDA increased $27$43 million, or 5.8%8.7%, primarily resulting from the revenue variances noted above and continued cost management initiatives. Adjusted EBITDA margin increased 30150 basis points to 45.5%45.3% primarily driven by operating efficiencies.resulting from continued cost management initiatives.
NineSix months ended SeptemberJune 30:
Revenue increased $113$124 million, or 3.6%5.7%, due to (1) increased volumesgrowth in banking and wealth solutions (excluding the effects of the sale of the risk and compliance consultingReliance Trust Company of Delaware business) contributing 2.5%; (2) growth in payment solutions contributing 2.5%; (3) increased termination fees contributing 0.9%; and (4) growth in corporate and digital solutions contributing 1.0%; and (3) growth in retail payments contributing 0.9%0.8%. These items were partially offset by the reduction in revenue from the sale of the risk and compliance consultingReliance Trust Company of Delaware business contributing (0.8%).
Adjusted EBITDA increased $66$90 million, or 4.8%9.5%, primarily resulting from the revenue variances noted above and continued cost management initiatives. Adjusted EBITDA margin increased 50150 basis points to 44.0%44.7% primarily driven by a revenue mix shiftresulting from higher termination fees, lower bad debt expense and operating efficiencies.continued cost management initiatives.
Global Financial Solutions
(in millions)
| | | | | | | | | | | | | | | | | Three months ended | | Six months ended |
| Three months ended | | Nine months ended | June 30, | | June 30, |
| September 30, | | September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | (In millions) | | (In millions) |
Revenue | $ | 916 |
| | $ | 975 |
| | $ | 2,742 |
| | $ | 3,064 |
| $ | 865 |
| | $ | 899 |
| | $ | 1,728 |
| | $ | 1,826 |
|
Adjusted EBITDA | $ | 355 |
| | $ | 337 |
| | $ | 973 |
| | $ | 940 |
| $ | 312 |
| | $ | 314 |
| | $ | 621 |
| | $ | 618 |
|
Three months ended SeptemberJune 30:
Revenue decreased $59$34 million, or 6.1%3.8%, primarily due to (1) the saleunwinding of the Capco consulting business and other divestituresBrazilian Venture, contributing (5.4%(5.9%); and (2) unfavorable foreign currency impact contributing (3.1%(1.9%) or approximately $30$17 million primarily driven by a stronger U.S. Dollar versus the Brazilian Real.Real, British Pound Sterling and Euro. These decreases were partially offset by (1) growth in GFS banking and payments solutions in North America contributing 1.7%1.6%; (2) growth in institutional and wholesale solutions contributing 1.5%; and (2) and payments(3) growth in Latin America payments contributing 0.9%0.8%.
Adjusted EBITDA increased $18decreased $2 million, or 5.3%0.6%, primarily due to the revenue variances noted above and continued cost management initiatives.impacts mentioned above. Adjusted EBITDA margins increased 420120 basis points to 38.8% resulting from36.1%, due to the positive impactunwinding of the Capco consulting business divestiture during 2017, as well as continued cost management initiatives.Brazilian Venture and other favorable revenue mix.
NineSix months ended SeptemberJune 30:
Revenue decreased $322$98 million, or 10.5%5.4%, primarily due to (1) the saleunwinding of the Capco consulting businessBrazilian Venture, offset in part by the new commercial agreement with Banco Bradesco and other divestituresgrowth in Latin America payments contributing (11.5%(3.8%); and (2) unfavorable foreign currency impact contributing (0.4%(2.3%) or approximately $11$42 million primarily driven by a stronger U.S. Dollar versus the Brazilian Real, British Pound Sterling and Euro; (3) decline in Europe banking non-recurring revenue contributing (0.5%); and (4) decline in Asia-Pacific payments contributing (0.4%). These decreases were partially offset by (1) growth in GFS banking and payments solutions in North America contributing 0.7%; and (2) payments growth in Latin America contributing 0.7%1.5%.
Adjusted EBITDA increased $33$3 million, or 3.5%0.5%, primarily resulting from favorable revenue mix and continued cost management initiatives. Adjustedadjusted EBITDA margins increased 480210 basis points to 35.5% resulting from35.9%, due to the positive impactunwinding of the Capco consulting business divestiture during 2017, as well as continued cost management initiatives.Brazilian Venture and other favorable revenue mix.
Corporate and Other
(in millions)
| | | | | | | | | | | | | | | | | Three months ended | | Six months ended |
| Three months ended | | Nine months ended | June 30, | | June 30, |
| September 30, | | September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| 2018 | | 2017 | | 2018 | | 2017 | (In millions) | | (In millions) |
Revenue | $ | 78 |
| | $ | 83 |
| | $ | 239 |
| | $ | 276 |
| $ | 68 |
| | $ | 83 |
| | $ | 132 |
| | $ | 161 |
|
Adjusted EBITDA | $ | (43 | ) | | $ | (55 | ) | | $ | (143 | ) | | $ | (151 | ) | $ | (53 | ) | | $ | (49 | ) | | $ | (131 | ) | | $ | (99 | ) |
The Corporate and Other segment results consist of selling, general and administrative expenses and depreciation and intangible asset amortization not otherwise allocated to the reportable segments. Corporate and Other also includes operations from non-strategic businesses, including our global commercial servicesthe Global Commercial Services business and the Certegy Check Services business unit (whichin North America, which was divested on August 31, 2018), and PS&E business (which was divested on February 1, 2017).2018.
Three months ended SeptemberJune 30:
Revenue decreased $5$15 million, or 6.0%18.1%, primarily from the reduction in revenue fromdue to the sale of the Certegy Check Services business unit in North America during the third quarter of 2018.
Adjusted EBITDA increased $12decreased $4 million, or 21.8%8.2%, primarily resulting from the early results of our data center consolidation program.due to an increase in IT expenses, partially offset by a decrease in compensation expense.
NineSix months ended SeptemberJune 30:
Revenue decreased $37$29 million, or 13.4%18.0%, primarily from the reduction in revenue from the sale of the PS&E business during the first quarter of 2017, as well as a decline in retail check processing volumes anddue to the sale of the Certegy Check Services business unit in North America during the third quarter of 2018.
Adjusted EBITDA increased $8decreased $32 million, or 5.3%32.3%, primarily resulting from a reductiondue to an increase in infrastructure technologyIT expenses along with an increase in health care and the early results of of our data center consolidation program, partially offset by the revenue variance noted above.other benefit plan expenses.
Liquidity and Capital Resources
Cash Requirements
Our ongoing cash requirements include operating expenses, income taxes, mandatory debt service payments, capital expenditures, stockholder dividends, working capital and timing differences in settlement-related assets and liabilities, and may include discretionary debt repayments, share repurchases and business acquisitions. Our principal sources of funds are cash generated by operations and borrowings, including the capacity under our Revolving Credit Facility, the U.S. commercial paper program and the Commercial Paper ProgramEuro-commercial paper program described in Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited).
As of SeptemberJune 30, 20182019, we had cash and cash equivalents of $632 million$9.8 billion and long-term debt of $9.0$18.2 billion, including the current portion, net of capitalized debt issuance costs. Of the $632 million$9.8 billion cash and cash equivalents, approximately $367$552 million is held by our foreign entities. The majority of our domestic cash and cash equivalents at June 30, 2019, represents the proceeds from the Worldpay acquisition-related debt issuances during the second quarter of 2019; the remaining amount represents net deposits-in-transit at the balance sheet dates and relates to daily settlement activity. See Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited) for a discussion of the debt issuances related to the Worldpay acquisition.
We expect that cash and cash equivalents plus cash flows from operations over the next 12 months will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service.
We currently expect to continue to pay quarterly dividends. However, the amount, declaration and payment of future dividends is at the discretion of our Board of Directors and depends on, among other things, our investment opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A regular quarterly dividend of $0.32$0.35 per common share was paidis payable on September 28, 201827, 2019 to shareholders of record as of the close of business on September 14, 2018.13, 2019.
On July 20, 2017, our Board of Directors approved a plan authorizing repurchases of up to $4.0 billion of our outstanding common stock in the open market at prevailing market prices or in privately negotiated transactions through December 31, 2020. This share repurchase authorization replaced any existing share repurchase authorization. Approximately $2.3 billion of plan capacity remained available for repurchases as of June 30, 2019. Management suspended share repurchases as a result of the Worldpay transaction.
Cash Flows from Operations
Cash flows from operations were $1,288$820 million and $1,079$823 million during the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Our net cash provided by operating activities consists primarily of net earnings, adjusted to add back depreciation and amortization. Cash flows from operations were $209$3 million higherlower in the 20182019 period primarily due to (1) higher net earnings during 2018 due to the impact of the reduction in the U.S. federal income tax rate from 35% to 21% due to tax reform enacted December 22, 2017 resulting in lower U.S. federal income tax payments and (2) lower trade receivables from increased collections resulting from a reduction in days sales outstanding. These increases were partially offset by U.S. federal estimated income tax payments normally due in the third and fourth quarters of 2017 that were paid during the first quarter of 2018 due to the Hurricane Irma Relief Program and timing of working capital.transaction-related expenses.
Capital Expenditures and Other Investing Activities
Our principal capital expenditures are for computer software (purchased and internally developed) and additions to property and equipment. We invested approximately $464$285 million and $448$316 million in capital expenditures (excluding capital leases)other financing obligations for certain hardware and software) during the nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
Financing
For more information regarding the Company’s long-term debt and financing activity see Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited).
Contractual Obligations
There were no material changes in our contractual obligations during the first ninesix months of 20182019 in comparison to the table included in our Annual Report on Form 10-K as filed on February 22, 2018,21, 2019, except as disclosed in Note 7 and Note 9 of the Notes to Condensed Consolidated Financial Statements (Unaudited).
Off-Balance Sheet Arrangements
FIS does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
In August 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The amendments are meant to reduce the diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 provides guidance as to the presentation on the statement of cash flows for eight specific cash flow issues, which are 1) debt prepayment for debt extinguishment costs, 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, 3) contingent consideration payments made after a business combination, 4) proceeds for the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows and application of the predominance principle. For public companies, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods beginning after December 15, 2019. Early adoption is permitted for any organization in any interim or annual period. FIS elected to adopt this standard in the third quarter of 2017. FIS has applied the presentation guidance above to its statements of cash flows and all adjustments have been reflected on a retrospecive basis. The primary impact of adopting the new guidance is our 2017 presentation of debt prepayment and related costs being reflected in financing activities rather than operating activities.
In August 2017, the FASB issued ASU No. 2017-12 (“ASU 2017-12”), “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” The amendments were meant to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update also make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years; the ASU allows for early adoption in any interim period after issuance of the update. FIS elected to adopt this
standard as of January 1, 2018. The adoption of this ASU did not have an impact on the Company's Condensed Consolidated Financial Statements (Unaudited).
In March 2017, the FASB issued ASU No. 2017-07 (“ASU 2017-07”), “Compensation - Retirement Benefits.” The ASU improves the presentation of net periodic pension cost and net periodic postretirement benefit cost in the statements of operations. Under ASU 2017-07, the service cost component of the net periodic benefit cost is disclosed in the same income statement line item as other employee compensation costs arising from services rendered during the period, and the other components are reported separately from the line item that includes the service cost and outside of any subtotal of operating income. ASU 2017-07 is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. FIS adopted the provisions of ASU 2017-07 as of January 1, 2018. There was no material impact on the Company's Condensed Consolidated Financial Statements (Unaudited) resulting from the adoption of this guidance.
In November 2016, the FASB issued ASU No. 2016-18 (“ASU 2016-18”), “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18requires companies to include restricted amounts with Cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the Statements of Cash Flows. FIS adopted the provisions of ASU 2016-18 as of January 1, 2018. FIS had no restricted cash during 2017 or 2018. As a result, there was no effect on the Company’s Condensed Consolidated Financial Statements (Unaudited).
In January 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”), “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends guidance on the classification and measurement of financial instruments, including significant revisions in accounting related to the classification and measurement of investments in equity securities and presentation of certain fair value changes for financial liabilities when the fair value option is elected. The amendment requires equity securities to be measured at fair value with changes in fair value recognized through net earnings and amends certain disclosure requirements associated with the fair value of financial instruments. In the period of adoption, the Company is required to reclassify the unrealized gains/losses on equity securities within accumulated other comprehensive income (loss) to retained earnings. In February 2018, the FASB issued ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10),”which clarified certain aspects of the previously issued ASU. FIS adopted the provisions of ASU 2016-01 as of January 1, 2018. As a result, there was no material effect on the Company’s Condensed Consolidated Financial Statements (Unaudited).
In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).” ASU 2014-09 amends substantially all authoritative literature for revenue recognition, including industry-specific requirements, and converges the guidance under this topic with that of the International Financial Reporting Standards. It also includes guidance on accounting for the incremental costs of obtaining and costs incurred to fulfill a contract with a customer. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows from contracts with customers. The FASB has issued several amendments to Topic 606, including further guidance on principal versus agent consideration, clarification on identifying performance obligations and accounting for licenses of intellectual property.
The effective date of the standard was postponed to reporting periods beginning after December 15, 2017, with early adoption allowed for reporting periods beginning after December 15, 2016. We adopted the new standard effective January 1, 2018.
Entities can transition to the standard with retrospective application to the earliest years presented in their financial statements, retrospectively using certain practical expedients, or with a cumulative-effect adjustment as of the date of adoption. We adopted the new standard using the retrospective method with the application of certain practical expedients.
The largest impacts from the adoption of Topic 606 on our revenue recognition are related to the following areas:
Certain revenues, particularly those related to interchange and third-party network fees associated with our payment processing business, previously recorded on a gross basis as a principal are now recorded on a net basis as an agent to the extent the Company does not control the good or service before it is transferred to the customer.
Recognition of certain term license early renewals are now deferred until the conclusion of the term in effect at the time of renewal. Previously, term license early renewals were generally recognized upon execution of the renewal agreement.
We now recognize the license portion of software rental fees in certain of our global trading, asset management, and securities processing businesses upon delivery. Previously, software license rental fees were recognized ratably over the rental period as the payments became due and payable.
Impacts related to other changes introduced by the standard were substantially less significant than those listed above.
Upon retrospective application of Topic 606, our revenue decreased by approximately $455 million and $410 million and net earnings decreased approximately $58 million and $43 million for the years ended December 31, 2017 and 2016, respectively. We recorded a net reduction to opening retained earnings of approximately $23 million as of January 1, 2016 due to the cumulative impact of adopting the standard. The impact of Topic 606 on our 2017 and 2016 operating results may or may not be representative of the impact on subsequent years’ results.
Recent Accounting Guidance Not Yet Adopted
On February 25, 2016, the FASB issued ASU No. 2016-02, “LeasesLeases (Topic 842),” which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, “LandLand Easement Practical Expedient for Transition to Topic 842;”842; ASU No. 2018-10, “CodificationCodification Improvements to Topic 842, Leases;” Leases; ASU No. 2018-11, Targeted Improvements; ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors; and ASU No. 2018-11, “Targeted Improvements”2019-1, Leases (Topic 842): Codification Improvements (collectively, the “new standard”"new standard"). The new standard establishes a right-of-use ("ROU") model (ROU) that requires a lessee to recognize aan ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Under the new standard, lessor accounting is largely unchanged.
The new standard is effective for public business entities on January 1, 2019, with early adoption permitted. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date (the "effective date method") or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. We will adoptFIS adopted the new standard oneffective January 1, 2019 and useusing the effective date as our date of initial application.method. Consequently, financial information willwas not be updated and the disclosures required under the new standard willwere not be provided for dates and periods before January 1, 2019.
The new standard provides a number ofseveral optional practical expedients in transition.transition and for an entity’s ongoing accounting. We expect to electelected the "package of practical expedients," which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We doalso elected the practical expedient not expect to separate lease and non-lease components. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements. The new standard also provides practical expedients for an entity’s ongoing accounting includingnor the short-term lease recognition and measurement exemption and non-separation of lease and non-lease components by asset class. We are currently assessing the extent to which we will elect these practical expedients.exemption.
We expect that this standard will have an immaterial effect on results of operations. While we continue to assess allThe adoption of the effects of adoption, we currently believe the most significant effects relate tonew standard resulted in the recognition of newoperating lease ROU assets and lease liabilities on the Company’s Condensed Consolidated Balance Sheet of $442 million and $446 million, respectively, on January 1, 2019. The standard did not impact our balance sheetresults of operations or cash flows. The Company’s accounting for our real estate operatingfinance leases, which are immaterial, remained substantially unchanged.
On February 14, 2018 the FASB issued ASU No. 2018-02 ("ASU 2018-02"), Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. ASU 2018-02 allows companies to elect whether to reclassify from accumulated other comprehensive income to retained earnings the tax effects of items within accumulated other comprehensive income, referred to as stranded tax effects, resulting from the Tax Cuts and providing new disclosures about our leasing activities.Jobs Act. FIS adopted ASU 2018-02 on January 1, 2019, and did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. As a result, the adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.
Recent Accounting Guidance Not Yet Adopted
On June 16, 2016, the FASB issued ASU No. 2016-13 (“("ASU 2016-13”2016-13"), “Financial Instrument Financial Instruments - Credit Losses (Topic 326): Measurements on Credit Losses of Financial Instruments.”Instruments. This ASU'sASU was subsequently amended by ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (collectively, "Topic 326"). The primary objectives of Topic 326 are to implement new methodology for calculating credit losses on financial instruments (e.g., trade receivables) based on expected credit losses and broadensto broaden the types of information companies must use when calculating the estimated losses. Under current guidance, the credit losses are calculated based on multiple credit impairment objectives and recognition is delayed until the loss is probable to occur. Under the new guidance, financial assets measured at amortized cost basis must be shown as the net amount expected to be collected. The credit loss allowance is a contra-valuation account. Available-for-sale securities should continue to be recognized in a similar manner to current GAAP; however, the allowance should be presented as an allowance instead of a write-down of the basis of the asset. For public business entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period beginning after December 15, 2018. We do not plan to early adopt and expect that the new guidance will not have a material impact on our financial statement presentation, financial position, or results of operations.
On August 29, 2018, the FASB issued ASU No. 2018-15 (“ASU 2018-15”), “Intangibles-GoodwillIntangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”Contract. This ASU clarifies that implementation costs incurred by customers in cloud computing arrangements should be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The provisions in ASU 2018-15 should
be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. For public business entities, ASU 2018-15 is effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. We are currently assessing the impact the adoption of ASU 2018-15 will have on our financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
Market Risk
We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. We periodically use certain derivative financial instruments, including interest rate swaps and foreign currency forward contracts, to manage interest rate and foreign currency risk. We do not use derivatives for trading purposes, to generate income or to engage in speculative activity.
Interest Rate Risk
In addition to existing cash balances and cash provided by operating activities, we use fixed-rate and variable-rate debt to finance our operations. We are exposed to interest rate risk on these debt obligations and related interest rate swaps, if any.swaps.
The senior notes as(as described in Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited)) represent substantially allthe majority of our fixed-rate long-term debt obligations as of SeptemberJune 30, 2018.2019. The carrying value excluding the fair value of the interest rate swap and unamortized discounts of the senior notes was $8,501 million$16.7 billion as of SeptemberJune 30, 2018.2019. The fair value of the senior notes was approximately $8,405 million$17.5 billion as of SeptemberJune 30, 2018.2019. The potential reduction in fair value of the
senior notes from a hypothetical 10 percent increase in market interest rates would not be material to the overall fair value of the debt.
Our floating rate long-term debt obligationsrisk principally relaterelates to borrowings under the FISour U.S. commercial paper program, Euro-commercial paper program, Revolving Credit AgreementFacility, Floating Rate Notes (as defined in Note 7 of the Notes to Condensed Consolidated Financial Statements (Unaudited)). An increase and an interest rate swap on our fixed-rate long-term debt. At June 30, 2019, our weighted-average cost of debt was 2.5% with a weighted-average maturity of 7.2 years; 85% of our debt was fixed-rate and the remaining 15% of our debt was floating-rate. A 100 basis pointspoint increase in the LIBORweighted-average interest rate on our floating rate debt would increasehave increased our annual debt service under the FIS Credit Agreementinterest expense by approximately $6 million (based on principal amounts outstanding as of September 30, 2018).$27 million. We performed the foregoing sensitivity analysis based solely on the principal amount of our floating rate debt as of SeptemberJune 30, 2018.2019. This sensitivity analysis is based solely on the principal amount of such debt as of September 30, 2018, and does not take into account any changes that occurred in the prior 12 months or that may take place in the next 12 months in the amount of our outstanding debt. Further, in this sensitivity analysis assumes the change in interest rates is assumed to be applicable for an entire year. For comparison purposes, based on principal amounts of floating rate debt outstanding as of SeptemberJune 30, 2017,2018, and calculated in the same manner as set forth above, an increase of 100 basis points in the LIBORweighted-average interest rate would have increased our annual interest expense after we calculateby approximately $4 million.
As of June 30, 2019, the impact of ourfollowing interest rate swaps,swap converting the interest rate exposure on our Senior Euro Notes due July 2024 from fixed to variable is outstanding (in millions):
|
| | | | | | | | | | | | |
| | | | | | Bank pays | | FIS pays |
Effective Date | | Maturity Date | | Notional | | fixed rate of | | variable rate of |
December 21, 2018 | | July 15, 2024 | | € | 500 |
| | 1.100 | % | | 3-month Euribor + 0.878% | (1) |
(1) 0.568% in effect as of June 30, 2019.
We designated the interest rate swap as a fair value hedge for accounting purposes as described in Note 8 of the Notes to Condensed Consolidated Financial Statements (Unaudited). A 100 basis point increase in the 3-month Euribor rate would increase our annual interest expense on this swap by approximately $6 million.
As of September 30, 2018, we had no interest rate swaps.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a location's functional currency. We manage the exposure to these risks through a combination of normal operating activities and the use of foreign currency forward contracts and non-derivative and derivative investment hedges. Contracts are denominated in currencies of major industrial countries.
Our exposure to foreign currency exchange risks generally arises from our non-U.S. operations, to the extent they are conducted in local currency. Changes in foreign currency exchange rates affect translations of revenue denominated in currencies other than the U.S. Dollar. DuringWe generated approximately $317 million and $378 million during the three months and nine$626 million and $757 million during the six months ended SeptemberJune 30, 2018, we generated approximately $376 million2019 and $1,133 million,2018, respectively, in revenue denominated in currencies other than the U.S. Dollar. The major currencies to which our revenues are exposed are the Brazilian Real, the Euro, the British Pound Sterling and the Indian Rupee. A 10% move in average exchange rates for these currencies (assuming a simultaneous and immediate 10% change in all of such rates for the relevant period) would have resulted in the following increase or decrease in our reported revenue for the three and ninesix months ended SeptemberJune 30, 20182019 and 20172018 (in millions):
| | | | Three months ended September 30, | | Nine months ended September 30, | | Three months ended June 30, | | Six months ended June 30, |
Currency | | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Pound Sterling | | $ | 8 |
| | $ | 11 |
| | $ | 25 |
| | $ | 33 |
| | $ | 9 |
| | $ | 9 |
| | $ | 17 |
| | $ | 17 |
|
Euro | | 8 |
| | 8 |
| | 22 |
| | 27 |
| | 7 |
| | 7 |
| | 14 |
| | 15 |
|
Real | | 9 |
| | 10 |
| | 27 |
| | 29 |
| | 4 |
| | 9 |
| | 8 |
| | 19 |
|
Indian Rupee | | 3 |
| | 4 |
| | 10 |
| | 10 |
| |
Rupee | | | 3 |
| | 3 |
| | 6 |
| | 6 |
|
Total increase or decrease | | $ | 28 |
| | $ | 33 |
| | $ | 84 |
| | $ | 99 |
| | $ | 23 |
| | $ | 28 |
| | $ | 45 |
| | $ | 57 |
|
While our results of operations have been impacted by the effects of currency fluctuations, our international operations' revenue and expenses are generally denominated in local currency, which reduces our economic exposure to foreign exchange risk in those jurisdictions.
Revenue included $30$18 million and $9$44 million of unfavorable foreign currency impact during the three and ninesix months ended SeptemberJune 30, 2018, respectively,2019 resulting from changes in the U.S. Dollar during 2018the 2019 period as compared to 2017.2018. Net earnings attributable to FIS common stockholders included $5$18 million and $5$39 million of unfavorable foreign currency impact during the three and ninesix months ended SeptemberJune 30, 2019, respectively, resulting from changes in the U.S. Dollar during the 2019 period as compared to 2018. For the full year of 2018,2019, we anticipate an approximate $55$80 million adverse impact to revenue due to foreign currency translation.translation, although the actual amount of impact is uncertain due to the many factors that affect exchange rates.
Our foreign exchange risk management policy permits the use of derivative instruments, such as forward contracts and options, to reduce volatility in our results of operations and/or cash flows resulting from foreign exchange rate fluctuations. We do not enter into foreign currency derivative instruments for trading purposes or to engage in speculative activity. We do periodically enter into foreign currency forward exchange contracts to hedge foreign currency exposure to intercompany loans. We did not have significantloans and other balance sheet items. During the second quarter of 2019, we entered into foreign currency forward exchange contracts to reduce the volatility in the Company's cash flows due to foreign exchange rate fluctuations during the period leading up to the Company’s Euro- and Pound Sterling-denominated debt issuances related to the Worldpay acquisition, as discussed in Note 8 of September 30, 2018.the Notes to Condensed Consolidated Financial Statements (Unaudited). The Company also utilizes non-derivativeforeign currency denominated debt and cross-currency interest rate swaps designated as net investment hedges in order to reduce the volatility inof the income statement caused by the changes in foreign currency exchange ratesnet investment value of certain of its Euro and Pound Sterling functional subsidiaries (see Note 8 of the Notes to Condensed Consolidated Financial Statements (Unaudited)).
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, in connection with the adoption of ASC 606, we did implement changes to our processes related to revenue recognition and the control activities within those processes. These included the development of new policies based on the new standard, new training, and gathering of information provided for disclosures.
Part II: OTHER INFORMATION
Item 1A. Risk Factors
See “ItemThe following information with respect to our acquisition of Worldpay and its subsidiaries supplements the disclosure set forth under Part I, Item 1A. Risk Factors” inFactors of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for a detailed discussion of risk factors affecting2018. In addition to the Company. The following new risk factor replacesmatters set forth below, the risks associated with the Worldpay business are similar to those FIS faces in its entiretymany respects, and therefore the risk factormerger will in many cases increase our exposure to the risks set forth in our Form 10-K10-K. Additional risks and uncertainties not presently known to us or that are currently not believed to be significant to our business may also affect our actual results and could harm our business, financial condition and results of operations. If any of the risks or uncertainties described below or any additional risks and uncertainties actually occur, our business, results of operations and financial condition could be materially and adversely affected.
Risk Factors Relating to the Merger
The market price for FIS common stock following the year-ended December 31, 2017, titled, “Weclosing may be affected by factors different from those that historically have affected or currently affect FIS common stock.
At the effective time of the merger, Worldpay stockholders were entitled to receive shares of FIS common stock. The combined company’s business and financial position will differ from the business and financial position of each of FIS and
Worldpay before the completion of the merger, and the results of operations of the combined company will be affected by some factors that are different from those affecting the results of operations of FIS and those currently affecting the results of operations of Worldpay. Accordingly, the market price and performance of FIS common stock after the completion of the merger is likely to be different from the performance of Worldpay Class A common stock in the absence of the merger. In addition, general fluctuations in stock markets could have a substantial investmentmaterial adverse effect on the market for, or liquidity of, FIS common stock, regardless of FIS’ actual operating performance.
Legacy FIS shareholders generally have a reduced ownership and voting interest in FIS after the merger.
Immediately after the completion of the merger, the shares of FIS common stock held by each FIS shareholder immediately prior to the completion of the merger remain outstanding but represent a percentage ownership of FIS that is smaller than the percentage ownership of FIS represented by such shares immediately prior to the completion of the merger. As a result of this reduced ownership percentage, such shares represent less voting power in FIS after the completion of the merger than they represented prior to the completion of the merger. Immediately following the completion of the merger, the shares of FIS common stock outstanding immediately prior to the completion of the merger constituted approximately 53%, and the shares of FIS common stock that former Worldpay stockholders received in the merger constituted approximately 47%, of the issued and outstanding shares of the combined company.
Uncertainties associated with the merger may cause a loss of management personnel and other key employees of FIS and Worldpay, which could adversely affect the future business and operations of FIS following the merger.
FIS and Worldpay are dependent on the experience and industry knowledge of their officers and other key employees to execute their business plans. FIS’ success after the merger will depend in part upon its ability to retain key management personnel and other key employees. Current and prospective employees of FIS may experience uncertainty about their roles within FIS following the merger or other concerns regarding the operations of FIS following the merger, any of which may have an adverse effect on the ability of FIS to retain or attract key management and other key personnel. If FIS is unable to retain personnel after the merger, including FIS’ key management, who are critical to the future operations of the company, FIS could face disruptions in its operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the merger. No assurance can be given that FIS, following the merger, will be able to retain or attract key management personnel and other key employees of FIS and Worldpay to the same extent that FIS and Worldpay have previously been able to retain or attract their own employees.
FIS’ and Worldpay’s business relationships may be subject to disruption due to uncertainty associated with the transaction.
The business relationships of FIS and Worldpay may be subject to disruption due to uncertainty associated with the merger, which could have a material adverse effect on the results of operations, cash flows and financial position of the combined company following the merger.
Parties with which FIS or Worldpay do business may experience uncertainty associated with the merger, including with respect to current or future business relationships with FIS following the merger. FIS’ business relationships may be subject to disruption as customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners may attempt to delay or defer entering into new business relationships, negotiate changes in existing business relationships or consider entering into business relationships with parties other than FIS following the merger. These disruptions could have a material and adverse effect on the results of operations, cash flows and financial position of FIS, regardless of whether the merger is completed, as well as a material and adverse effect on FIS’ ability to realize the expected cost savings and other benefits of the merger.
Risk Factors Relating to FIS Following the Merger
FIS may be unable to integrate the business of Worldpay successfully or realize the anticipated benefits of the merger.
The merger involves the combination of two companies that currently operate as independent public companies. The combination of two independent businesses is complex, costly and time consuming, and FIS will be required to devote significant management attention and resources to integrating the business practices and operations of Worldpay into FIS. Potential difficulties that FIS may encounter as part of the integration process include the following:
the inability to successfully combine the business of Worldpay in a manner that permits FIS to achieve, on a timely basis, or at all, the enhanced revenue opportunities and cost savings and other benefits anticipated to result from the merger;
complexities associated with managing the combined businesses, including difficulty addressing possible differences in corporate cultures and management philosophies and the challenge of integrating complex systems, technology, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; and
potential unknown liabilities and unforeseen increased expenses or delays associated with the merger.
In addition, FIS and Worldpay operated independently until the completion of the merger. It is possible that the integration process could result in:
diversion of the attention of FIS' management; and
the disruption of, or the loss of momentum in, FIS' ongoing businesses or inconsistencies in standards, controls, procedures and policies.
Any of these issues could adversely affect FIS' ability to maintain relationships with customers, suppliers, employees and other constituencies or achieve the anticipated benefits of the merger, or could reduce FIS' earnings or otherwise adversely affect the business and financial results of FIS following the merger.
The complexity of the integration and transition associated with the merger, together with the resulting increased scale and global presence, may affect FIS’ internal control over financial reporting and ability to effectively and timely report financial results.
The additional scale of the combined company’s operations, together with the complexity of the integration effort, including changes to or implementation of critical information technology systems, may adversely affect FIS’ ability to report financial results on a timely basis. In addition, FIS will have to train new employees and third party providers, and assume operations in jurisdictions where FIS has not previously had operations. FIS expects that the merger may necessitate significant modifications to its internal control systems, processes and information systems, both on a transition basis and over the longer-term as FIS fully integrates the combined company. Due to the complexity of the merger, FIS cannot be certain that changes to internal control over financial reporting will be effective for any period, or on an ongoing basis. If FIS is unable to accurately report FIS’ financial results in a timely manner, or is unable to assert that FIS’ internal controls over financial reporting are effective, FIS’ business, financial condition and results of operations and the market perception thereof may be materially adversely affected.
Security breaches or attacks, or our failure to comply with information security laws or regulations or industry security requirements, could harm the business of the combined company by disrupting delivery of services and damaging the reputation of FIS and could result in a breach of one or more client contracts.
FIS electronically receives, processes, stores and transmits sensitive business information of its clients. In addition, FIS collects personal consumer data, such as names and addresses, social security numbers, driver’s license numbers, cardholder data and payment history records. Such information is necessary to support our clients’ transaction processing and to conduct our check authorization and collection businesses. The uninterrupted operation of information systems, as well as the confidentiality of the customer/consumer information that resides on such systems, is critical to the successful operation of FIS following the merger. For that reason, cybersecurity is one of the principal operational risks FIS faces as a provider of services to financial institutions. If FIS fails to maintain an adequate security infrastructure, adapt to emerging security threats, or implement sufficient security standards and technology to protect against security breaches, the confidentiality of the information FIS secures could be compromised. Unauthorized access to the computer systems or databases of FIS could result in the theft or publication of confidential information, the deletion or modification of records, damages from legal actions from clients and/or their customers, or otherwise cause interruptions in FIS' operations and damage to its reputation. These risks are greater with increased information transmission over the Internet, the increasing level of sophistication posed by cyber criminals and the integration of FIS and Worldpay systems.
As a provider of services to financial institutions and a provider of card processing services, FIS is bound by the same limitations on disclosure of the information FIS receives from clients as apply to the clients themselves. If FIS fails to comply with these regulations and industry security requirements, it could be exposed to damages from legal actions from clients and/or their customers, governmental proceedings, governmental notice requirements, and the imposition of significant fines or
prohibitions on card processing services. In addition, if more restrictive privacy laws, rules or industry security requirements are adopted in the future on the federal or state level, or by a specific industry body, they could have an adverse impact on FIS through increased costs or restrictions on business processes. Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could cause existing clients to lose confidence in FIS systems and terminate their agreements with FIS, inhibit FIS' ability to attract new clients, result in increasing regulation, or bring about other adverse consequences from the government agencies that regulate FIS following the merger.
Unknown or developing Worldpay litigation or claims could result in the payment of damages or other remedies or cause reputational injury to FIS.
Worldpay may be exposed to unknown or developing claims, which could result in a litigation matter being asserted against FIS. If we are unsuccessful in our Brazilian Venturedefense of these litigation matters, we may be forced to pay damages and/or other remedies, any of which could have a material adverse effect on our business and results of operations or cause reputational injury to FIS.
The indebtedness of FIS and its subsidiaries following completion of the merger will be substantially greater than FIS’ indebtedness prior to completion of the merger. This increased level of indebtedness could adversely affect FIS, including by decreasing FIS’ business flexibility and increasing its interest expense.
FIS has incurred acquisition-related financing of approximately $11.1 billion, all of which is expected to be used to refinance certain outstanding indebtedness of Worldpay and its subsidiaries on the closing date, pay a portion of the merger consideration and pay fees and expenses related to the merger, the refinancing and the related transactions. Accordingly, the indebtedness of FIS and its subsidiaries following completion of the merger will be substantially greater than FIS’ indebtedness prior to completion of the merger. FIS’ substantially increased indebtedness following completion of the merger could have the effect, among other things, of reducing FIS’ flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to pay interest has increased due to FIS’ increased indebtedness levels, thus the demands on FIS’ cash resources will be greater than the amount of cash flows required to service the indebtedness of FIS prior to the merger. FIS will also incur various costs and expenses associated with the financing of the merger. The increased levels of indebtedness following completion of the merger could also reduce funds available to fund FIS’ efforts to integrate the business of Worldpay and realize the expected benefits of the merger and to engage in investments in product development, fund working capital, capital expenditures, acquisitions and other general corporate purposes, and may create competitive disadvantages for FIS relative to other companies with lower debt levels. If FIS does not achieve the expected benefits and cost savings from the merger, or if the financial performance of the combined company does not meet current expectations, then FIS’ ability to service its indebtedness, or to reduce leverage levels based on debt repayments or cash flow generation, may be adversely impacted.
Certain of the indebtedness incurred in connection with the merger bears interest at variable interest rates. If interest rates increase, variable rate debt will create higher debt service requirements, which could adversely affect FIS’ cash flows.
In addition, FIS’ credit ratings impact the cost and availability of future borrowings and, accordingly, FIS’ cost of capital. FIS’ ratings reflect each rating organization’s opinion of FIS’ financial strength, operating performance and ability to meet its debt obligations. In connection with the debt financing, FIS has obtained ratings of its indebtedness from Moody’s Investors Service, Inc., Standard & Poor’s Financial Services LLC and Fitch Ratings, Inc. There can be no assurance that FIS will maintain a particular rating in the future or that FIS’ ratings will not be adversely affected by the factors described above. Agency credit ratings are not a recommendation to buy, sell or hold any security.
Moreover, FIS may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. FIS’ ability to arrange additional financing will depend on, among other factors, FIS’ financial position and performance, as well as prevailing market conditions and other factors beyond FIS’ control. FIS cannot assure you that it will be able to obtain significant revenue through that venture that would be lostadditional financing on terms acceptable to FIS or at all.
The synergies attributable to the merger may vary from expectations.
FIS may fail to realize the anticipated benefits and resultsynergies expected from the merger, which could adversely affect FIS’ business, financial condition and operating results. The success of the merger will depend, in significant termination costspart, on FIS’ ability to successfully integrate the acquired business, grow the revenue of the combined company and realize the anticipated strategic benefits and synergies from the combination. FIS believes that the addition of Worldpay will complement FIS’ strategy by providing scale and revenue diversity, accelerate FIS’ growth strategy and enable FIS to have a strong global footprint.
However, achieving these goals requires growth of the revenue of the combined company and realization of the targeted cost synergies expected from the merger. This growth and the anticipated benefits of the transaction may not be realized fully or at all, or may take longer to realize than expected. Actual operating, technological, strategic and revenue opportunities, if our venture partner wereachieved at all, may be less significant than expected or may take longer to terminateachieve than anticipated. If FIS is not able to achieve these objectives and realize the agreement, toanticipated benefits and synergies expected from the extent not replaced by further commercial agreements.”merger within the anticipated timing or at all, FIS’ business, financial condition and operating results may be adversely affected.
The future results of our Brazilian operations may not meet our financial goalsFIS following the unwinding ofmerger will suffer if FIS does not effectively manage its expanded operations.
Following the Brazilian Venture.
On September 28, 2018, FIS entered into an agreement with Banco Bradesco to unwindmerger, the Brazilian Venture. Under this agreement, the Brazilian Venture will spin-off certain assetssize of the business that also provide servicesof FIS increased significantly beyond the prior size of either FIS’ or Worldpay’s business. FIS’ future success will depend, in part, upon its ability to non-Bradesco clientsmanage this expanded business, which will pose substantial challenges for management, including challenges related to a new wholly-owned FIS subsidiary. The subsidiary will enter into a long-term commercial agreement to provide current and new services to Banco Bradesco that include software application licensing and management, card portfolio migration, business process outsourcing, fraudthe management and professional services. Banco Bradesco will then own 100%monitoring of new operations and associated increased costs and complexity. FIS may also face increased scrutiny from governmental authorities as a result of the entitysignificant increase in the size of its business. There can be no assurances that previously housedFIS will be successful or that it will realize the Brazilian Ventureexpected operating efficiencies, cost savings, revenue enhancements or other benefits currently anticipated from the merger.
FIS is expected to incur substantial expenses related to the merger and integration.
FIS is expected to incur substantial expenses in connection with the merger and the related integration. There are a large number of processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, sales, payroll, pricing and benefits. While FIS has assumed that a certain level of expenses will be incurred, there are many factors beyond its remaining assetscontrol that relatecould affect the total amount or the timing of the integration expenses. Moreover, many of the expenses that will be incurred are, by their nature, difficult to card processing for Banco Bradesco, which Banco Bradesco will thereafter perform internally.estimate accurately. These expenses could, particularly in the near term, exceed the savings that FIS expects to completeachieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses may result in FIS taking significant charges against earnings following the completion of the merger, and the amount and timing of such charges are uncertain at present. Any material delays, difficulties or unanticipated additional expenses associated with integration activities may harm FIS’ business, financial condition and results of operations.
The merger may result in a loss of customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners and may result in the termination of existing contracts.
Following the merger, some of the customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners of FIS or Worldpay may terminate or scale back their current or prospective business relationships with FIS. Some customers may not wish to source a larger percentage of their needs from a single company or may feel that FIS is too closely allied with one of their competitors. In addition, FIS and Worldpay have contracts with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners that may require FIS or Worldpay to obtain consents from these other parties in connection with the merger, which may not be obtained on favorable terms or at all. If relationships with customers, distributors, suppliers, vendors, landlords, joint venture partners and other business partners are adversely affected by the merger, or if FIS, following the merger, loses the benefits of the contracts of FIS or Worldpay, FIS’ business and financial performance could suffer.
Certain of Worldpay’s agreements may contain change of control provisions which, if not waived, would have material adverse effects on the combined company.
Worldpay is a party to various agreements with third parties, including certain financing agreements, service contracts, IT contracts and technology licenses that may contain change of control provisions that will be triggered upon the completion of the merger. Agreements with change of control provisions typically provide for or permit the termination of the agreement upon the occurrence of a change of control of one of the parties which can be waived by the relevant counterparties. If FIS determines that one or more such waivers are necessary, it will seek to obtain these waivers. Although the combined company believes the likelihood of a material consent being withheld is low, there can be no assurance that such consent will be obtained at all or on favorable terms, and as of the date of this document no such waivers have been sought or obtained. The inability to obtain waivers from more than one relevant counterparty could have a material adverse effect on the combined company.
Following the merger, FIS’ business may be adversely affected by geopolitical, regulatory and other risks associated with operations outside of the United States and the combined company may incur higher than anticipated costs and may become more susceptible to these risks.
After completion of the merger, the combined company will have significantly expanded its international presence by offering merchant acquiring, including e-commerce, services outside of the United States, including in the United Kingdom and European Union countries, where Worldpay’s principal non-U.S. operations are currently located. FIS’ revenues derived from these and other non-U.S. operations will be subject to additional risks, including those resulting from social and geopolitical instability and unfavorable political or diplomatic developments, all of which could negatively impact its financial results. For example, the United Kingdom’s decision to leave the European Union may add cost and complexity in various aspects of FIS’ business as United Kingdom and European Union laws and regulations diverge. FIS will also be subject to potential non-U.S. governmental intervention and new laws and new regulations that it was not previously subject to, which could increase costs and may have potential negative effects on FIS’ business.
Privacy laws and regulations, such as the General Data Protection Regulation, which we refer to as the GDPR, will require FIS and Worldpay to adopt new business practices and contractual provisions in existing and new contracts which may require transitional and incremental expenses which may impact the future operating results of the combined business.
New privacy laws, such as the GDPR in the European Union, continue to develop in unpredictable ways. Privacy laws may be interpreted and applied inconsistently from country to country and impose inconsistent or conflicting requirements. Complying with varying jurisdictional requirements could increase the costs and complexity of compliance and associated recordkeeping costs or require us to change our business practices in a manner adverse to our business. Violations of privacy laws can result in significant penalties and damage to our brand and business. Worldpay's and FIS’ implementation of compliance programs to comply with the known obligations under the GDPR may differ significantly. The combined company may incur significant costs to synchronize the compliance programs. Failure to comply with the requirements of the GDPR could result in significant penalties and loss of business, among other things.
New privacy laws in California and Brazil are expected to issue clarifying regulations prior to becoming effective in 2020. There are also several additional privacy laws being considered by state legislatures, the federal legislature and countries around the world, so a more substantial compliance effort with varying regimes in different jurisdictions is considered probable in the future, which will increase the costs and complexities of the combined business.
The Referendum on the United Kingdom’s Membership in the European Union could cause disruption to and create uncertainty surrounding our business.
Material portions of Worldpay’s business are located in, and service clients in, the United Kingdom. The referendum on the United Kingdom’s membership in the European Union, which we refer to as Brexit, approving the exit of the United Kingdom from the European Union could cause disruption to and create uncertainty surrounding the combined business, including affecting relationships with existing and future clients, suppliers and employees, which could have a material adverse effect on the business, financial results and operations of the combined business. The effects of Brexit will depend on the agreements, if any, the U.K. makes with the European Union to retain access to European Union markets at the time Brexit takes effect (which deadline, if not suspended or further delayed, is currently October 31, 2019), during a transitional period or more permanently. In addition, because the terms of trade between the U.K. and jurisdictions other than the European Union may be currently governed by trade agreements between the European Union and such other jurisdictions, the U.K. may be required to negotiate new terms of trade with such other jurisdictions. These potential measures could disrupt the markets the combined business will serve and the tax jurisdictions in which it will operate and could adversely change tax benefits or liabilities in these or other jurisdictions, and may cause the combined business to lose clients, suppliers, and employees. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K. determines which European Union laws to replace or replicate, including competition laws.
Actions to implement Brexit may also create global economic uncertainty, which may cause clients to closely monitor their costs and reduce their spending on our solutions and services.
Any of these effects of Brexit, among others, could materially adversely affect the business, business opportunities, results of operations, financial condition and cash flows of the combined business.
We cannot assure our shareholders that we will be able to continue paying dividends at the current rate.
FIS plans to continue its current dividend practices following the transaction. However, based on the number of issued and outstanding shares of Worldpay Class A common stock as of the close of business on the Worldpay record date, FIS would issue approximately 289 million shares of FIS common stock in the merger. Continuing FIS’ current dividend practices following the merger will require additional cash to pay such dividends, which it may not have. For this and other reasons generally affecting the ability to pay dividends, FIS shareholders may not receive the same dividends as FIS shareholders have received in the past following the transaction.
FIS shareholders also should be aware that they have no contractual or other legal right to dividends that have not been declared.
The payment processing industry is highly competitive in merchant solutions. Such competition could adversely affect the transaction and other fees received from merchants and financial institutions, and as a result, FIS’ margins, business, financial condition and results of operations following the merger.
Worldpay is a leading merchant solutions company. Its competitors in this business include financial institutions and well-established payment processing companies, including Adyen, Bank of America Merchant Services, Barclays plc, Chase Paymentech Solutions, Elavon Inc. (a subsidiary of U.S. Bancorp), First Data Corporation, Global Payments, Inc., and Total System Services, Inc.
In addition, Worldpay’s U.S. competitors that are financial institutions or are affiliated with financial institutions may not incur the sponsorship costs Worldpay incurs for registration with the payment networks. Accordingly, these competitors may be able to offer more attractive fees to Worldpay’s current and prospective clients or other services that Worldpay does not provide. Competition could result in a loss of existing clients of Worldpay, and greater difficulty attracting new clients. Furthermore, if competition causes Worldpay to reduce the fees it charges in order to attract or retain clients, there is no assurance Worldpay can successfully control its costs in order to maintain our profit margins. One or more of these factors could have a material adverse effect on FIS’ business, financial condition and results of operations following the merger.
Worldpay is currently facing new competitive pressure from non-traditional payments processors and other parties entering the payments industry, such as PayPal, Google, Apple, Alibaba, Amazon, Square and Stripe, who may compete in one or more of the functions performed in processing merchant transactions. These companies have significant financial resources and robust networks and are highly regarded by consumers. If these companies gain a greater share of total electronic payments transactions or if the combined company is unable to successfully react to changes in the first halfindustry spurred by the entry of 2019. Post-closing,these new market participants, it could have a material adverse effect on FIS’ business, financial condition and results of operations.
Following the merger, the combined company could be subject to certain risks associated with the implementation of Worldpay’s new proprietary global acquiring platform.
Worldpay has made significant progress toward implementation of its proprietary global acquiring platform project. As the combined company continues to implement this project, through the migration of existing merchant customers and onboarding of new merchant customers to the platform, the scale and complexity associated with this project presents the increased potential for service level delays or disruptions in the processing of transactions, telecommunications failures or other difficulties. Such delays or disruptions could result in reputational harm, loss of business and increased operational or technological costs.
Following the merger, the combined company may not be able to continue to expand its share of the existing payment processing markets or expand into new markets, which would inhibit FIS’ ability to grow and increase its profitability.
Following the merger, FIS’ future growth and profitability will depend in part upon the growth of the payment processing markets in which Worldpay currently operates and its ability to increase its penetration and service offerings within these markets, as well as the emergence of new markets for Worldpay’s services and its ability to penetrate these new markets. Attracting new clients is difficult because of potential disadvantages associated with switching payment processing vendors, such as transition costs, business disruption and loss of accustomed functionality. Following the merger, FIS will seek to overcome these factors by making investments to enhance the functionality of the combined company’s platforms and differentiate its services. However, there can be no assurance that these efforts will be successful, and this resistance may adversely affect its growth.
The combined company’s expansion into new markets will also be dependent upon its ability to adapt Worldpay’s existing payment processing technology and offerings or to develop new or innovative applications to meet the particular service needs of each new market. In order to do so, FIS will need to anticipate and react to market changes and devote appropriate financial and technical resources to its development efforts, and there can be no assurance that it will be successful in these efforts.
Furthermore, in response to market developments, FIS may continue to expand into new geographical markets and foreign countries in which neither it nor Worldpay currently has any operating experience. However, there can be no assurance that FIS will be able to successfully continue such expansion efforts due to this lack of experience and the multitude of risks associated with global operations or lack of appropriate regulatory approval.
Worldpay’s payments business is subject to regulation, supervision, and enforcement authority of numerous governmental and regulatory bodies in the jurisdictions in which it operates, which includes banking regulators and the Consumer Financial Protection Bureau (“CFPB”) in the United States, the FCA and PSR in the United Kingdom, and the Dutch Central Bank.
Because Worldpay is a technology service provider to U.S. Financial Institutions, it is are subject to regular oversight and examination by the Federal Financial Institutions Examination Council (“FFIEC”), which is an inter-agency body of federal banking regulators. The FFIEC has broad discretion in the implementation, interpretation and enforcement of banking and consumer protection laws. A failure to comply with these laws, or its failure to meet the supervisory expectations of the banking regulators, could result in adverse action against the combined company following the merger. The regulators have the power to, among other things, enjoin “unsafe or unsound” practices; require affirmative actions to correct any violation or practice; issue administrative orders that can be judicially enforced; direct the sale of subsidiaries or other assets; and assess civil money penalties.
Worldpay is also subject to on-going supervision by regulatory and governmental bodies across the world, including economic and conduct regulators such as the U.K. Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) in the United Kingdom and the Dutch Central Bank (De Nederlandsche Bank or DNB) in the Netherlands, and regulatory and governmental bodies responsible for issuing anti-money laundering, anti-bribery, and global economic sanctions regulations. These various regulatory regimes require Worldpay to be in compliance across many aspects of its activities in respect of capital requirements, safeguarding, training, authorization and supervision of personnel, systems, processes and documentation. If Worldpay fails to comply with relevant regulations or applicable economic sanctions, it risks reputational damage, potential civil and criminal sanctions, fines or other action imposed by regulatory or governmental authorities, including the potential suspension or revocation of the permission-based regulatory licenses which authorize Worldpay to provide core services to customers. Certain aspects of Worldpay’s business may be determined by an appropriate regulator, quasi regulatory body or the courts as not being conducted in accordance with applicable laws or regulations, or Worldpay may face allegations of direct or indirect non-compliance with relevant regulatory regimes (such as the misselling of financial products), or other actions in the United Kingdom, the Netherlands and other jurisdictions, as well as private litigation resulting from such actions. This could result in an adverse effect on FIS’ business, reputation and customer relationships, which in turn could adversely affect its financial position and performance.
Specifically, the PSR has announced it will carry out a market review into card-acquiring services provided by merchant acquirers in the U.K. with the scope of such review to include: the nature and characteristics of card-acquiring services; who provides card-acquiring services and how their market shares have developed historically; how merchants buy card-acquiring services; whether there are credible alternatives to card-acquiring services for some or all merchants; the outcomes of the competitive process including the fees merchants pay and the quality of service they receive. Because the PSR is an economic regulator in the U.K., it has the power to issue directions in relation to the functioning of the card acquiring market in the U.K. as a result of this review. Further, the European Commission is conducting a review of the Regulation of the European Parliament and the Council on interchange fees for card-based payment transactions (IFR) to examine the appropriateness of the levels of interchange fees (taking into account the use and cost of the various means of payments), the level of entry of new players, new technology and the impact of innovative business models on the market. The primary purpose of this review is to understand whether overall costs for card acceptance for merchants, including the overall merchant service charge, have gone up, down or broadly stayed the same since the introduction of the IFR. The E.U. has overall authority to enforce and establish new standards or guidance which may require banks and payments institutions, including Worldpay as part of FIS following the merger, to modify current pricing and fee structures, and the E.U. could choose to exercise such authority prior to or after conclusion of this review.
Worldpay may fail to realize the anticipated benefits and operating synergies expected from its 2018 acquisition of Worldpay Group plc, which could adversely affect FIS’ business, financial condition and operating results following the merger.
The success of Worldpay’s acquisition of Worldpay Group plc depends, in significant part, on its ability to successfully integrate the acquired business, grow its revenue and realize the anticipated strategic benefits and synergies. Achieving Worldpay’s strategic goals for the acquisition requires growth of the revenue and realization of the targeted operating synergies expected from the acquisition. This growth and the anticipated benefits may not be realized fully or at all, or may take longer to realize than Worldpay expects. Actual operating, technological, strategic and revenue opportunities, if achieved at all, may be less significant than Worldpay expects or may take longer to achieve than anticipated and could be impacted by its inability to renew certain business relationships maintained by Worldpay Group plc on terms favorable to Worldpay or at all. If the combined company is not able to achieve these objectives and realize the anticipated benefits and synergies expected from the acquisition within a reasonable time, its business, financial condition and operating results may be adversely affected.
Worldpay’s acquisition of Worldpay Group plc has resulted in significant integration costs and any material delays or unanticipated additional expenses may harm FIS’ business, financial condition and results of operations post-merger.
The complexity and magnitude of the integration effort associated with Worldpay’s acquisition of Worldpay Group plc are significant and, following the merger, require that FIS fund significant capital and operating expenses to support the integration of the combined operations. Such expenses have included significant transaction, consulting and third party service fees. Worldpay incurred integration planning costs during 2017 and 2018 and, following the merger, FIS anticipates that it may incur additional integration implementation costs in the future. Following the merger, FIS expects to continue to incur additional operating expenses while it continues to integrate the combined company. The integration of the departments, systems, business units, operating procedures and information technologies of the two businesses continue to present certain challenges to management. There can be no assurance that FIS following the merger, will be able to continue to integrate and manage these operations effectively or that such operations, once fully-integrated, will provide the benefits it anticipates.
In addition to transition costs, following the merger FIS expects to continue to incur increased expenses. Any material delays, difficulties or unanticipated additional expenses associated with integration activities, or the failure to successfully integrate the business in a timely manner, or at all, may harm FIS’ business, financial condition and results of operations.
If the Worldpay business fails to comply with the applicable requirements of the Visa, Mastercard or other payment networks, those payment networks could seek to fine the combined company, suspend the Worldpay business or terminate its registrations through its financial institution sponsors or directly. Fines could have a material adverse effect on FIS’ business, financial condition or results of operations, and if these registrations are terminated, the combined company may not be able to conduct its business.
In order to provide Worldpay’s transaction processing services in the U.S. and certain other jurisdictions, Worldpay is registered through its bank sponsorships with the Visa, Mastercard and other payment networks as service providers for member institutions. Worldpay and many of its clients are subject to payment network rules. If Worldpay or its associated participants do not comply with the payment network requirements, the payment networks could seek to fine Worldpay, suspend Worldpay or terminate its registrations. Worldpay has occasionally received notices of noncompliance and fines, which have typically related to excessive chargebacks by a merchant or data security failures on the part of a merchant. If Worldpay is unable to recover fines from or pass through costs to its merchants or other associated participants, then following the merger FIS would experience a financial loss. The termination of its registration, or any changes in the payment network rules that would impair Worldpay’s registration, could require Worldpay to stop providing payment network services to the Visa, Mastercard or other payment networks, which would have a material adverse effect on FIS’ business, financial condition and results of operations following the merger.
Outside of the U.S., Worldpay primarily provides acquiring and processing services directly, through international credit and debit card schemes run by Visa, Mastercard and other payment networks. In order to access the card schemes’ networks Worldpay must maintain the relevant jurisdictional operating licenses or memberships. In some markets where it is not feasible or possible for Worldpay to have a direct acquiring license with a card scheme, Worldpay has a relationship with a local financial institution sponsor. As part of Worldpay’s registration with card schemes (either directly or indirectly through local sponsors), Worldpay is subject to operating rules, including mandatory technology requirements, promulgated by the card schemes that could subject Worldpay and its customers to a variety of fines and penalties, as well as suspension and termination of membership or access. Furthermore, to access these card scheme networks, Worldpay must pay card scheme membership fees, which are subject to change from time to time, and which Worldpay may be unable to pass along to its customers, which could result in the combined company absorbing a portion or all of such increases in the future.
Changes in the contracts, rules or standards of payment networks and card schemes could adversely affect FIS’ post-merger business, financial condition and results of operations.
Payment network and card scheme rules are established and changed from time to time by each payment network or card scheme, as applicable, as they may determine in their sole discretion and with or without advance notice to their participants. In the case of card scheme rules, failure to comply in a timely manner with rule changes could result in fines, penalties or reputational damage, and could negatively impact Worldpay’s licenses in various jurisdictions. In some cases, payment networks and card schemes compete with Worldpay, and their ability to modify and enhance their rules in their sole discretion may provide them an advantage in selling or developing their own services that may compete directly or indirectly with Worldpay’s services. Any changes in the rules or standards of these payment networks and card schemes, or the way they are implemented, could increase the cost of doing business or limit the ability to provide transaction processing services to or through Worldpay’s clients and have a material adverse effect on FIS’ business, financial condition and results of operations.
Moreover, as payment networks and card schemes become more dependent on proprietary technology, modify their technological approach or operating practices, and/or seek to provide value added services to issuers and merchants, there is heightened risk that rules and standards may be governed by their own self-interest, or the self-interest of third parties with influence over them, which could materially impact FIS’ competitive position and operations.
If Worldpay cannot pass along to its merchants increases in interchange and other fees from payment networks or card schemes, the operating margins of the Worldpay business would be reduced.
Worldpay pays interchange, assessment, transaction and other fees set by the payment networks and card schemes to such networks and schemes and, in some cases, to the card issuing financial institutions for each transaction Worldpay processes. From time to time, the payment networks and card schemes increase the interchange fees and other fees that they charge payment processors and the financial institution sponsors. At their sole discretion, Worldpay’s financial institution sponsors have the right to pass any increases in interchange and other fees on to Worldpay and they have consistently done so in the past. Worldpay is generally permitted under the contracts into which it enters, and in the past Worldpay has been able to, pass these fee increases along to its merchants through corresponding increases in Worldpay’s processing fees. However, if Worldpay is unable to pass through these and other fees in the future, the inability to pass through such fees could have a material adverse effect on FIS’ post-merger business, financial condition and results of operations.
Furthermore, in order to access the card schemes directly, as Worldpay does primarily outside the U.S., Worldpay must pay card scheme membership fees, which are subject to change from time to time, and which Worldpay may be unable to pass along to its merchants, potentially resulting in FIS absorbing a portion or all of such increases in the future.
If Worldpay’s agreements with U.S. financial institution sponsors and clearing service providers to process electronic payment transactions are terminated or otherwise expire and Worldpay is unable to renew existing or secure new sponsors or clearing service providers, Worldpay will not be able to conduct its business in the United States.
In the United States and certain other markets, the Visa, Mastercard and other payment network rules require Worldpay to be sponsored by a member bank in order to process electronic payment transactions. Because Worldpay is not a U.S. bank, Worldpay is unable to directly access these payment networks in the U.S. Worldpay is currently registered with the Visa, Mastercard and other payment networks through Fifth Third Bank in the U.S. and other sponsor banks elsewhere. Worldpay’s current agreement with Fifth Third Bank expires in December 2024. These agreements with Fifth Third Bank and other sponsors give such sponsors substantial discretion in approving certain aspects of Worldpay’s business practices, including Worldpay’s solicitation, application and qualification procedures for merchants and the terms of Worldpay’s agreements with merchants. Worldpay’s financial institution sponsors’ discretionary actions under these agreements could have a material adverse effect on Worldpay’s business, financial condition and results of operations. Worldpay also relies on Fifth Third Bank and various other financial institutions to provide clearing services in connection with Worldpay’s settlement activities. Without these sponsorships or clearing services agreements, Worldpay would not be able to process Visa, Mastercard and other payment network transactions or settle transactions in relevant markets, including the U.S. which would have a material adverse effect on FIS’ business, financial condition and results of operations. Furthermore, FIS’ financial results could be adversely affected if the costs associated with such sponsorships or clearing services agreements increase.
Increased merchant, financial institution or referral partner attrition and decreased transaction volume could cause FIS’ post-merger revenues to decline.
Worldpay may experience attrition and declines in merchant and financial institution credit, debit or prepaid card processing volume resulting from several factors, including business closures, consolidations, loss of accounts to competitors, account closures that it initiates due to heightened credit risks, and reductions in its merchants’ sales volumes. Worldpay’s referral partners, many of which are not exclusive, such as merchant banks, technology solution partners, payment facilitators, independent sales organizations and trade associations are contributors to Worldpay’s revenue growth in its Merchant Solutions and Technology Solutions segments. If a referral partner switches to another transaction processor, shuts down or becomes insolvent, Worldpay will no longer receive new merchant referrals from the referral partner, and Worldpay risks losing existing merchants that were originally enrolled by the referral partner. FIS cannot predict the level of attrition and decreased transaction volume in the future and its revenues could decline as a result of higher than expected attrition, which could have a material adverse effect on FIS’ business, financial condition and results of operations.
Fraud by merchants or others could have a material adverse effect on FIS’ business, financial condition and results of operations following the merger.
Worldpay faces potential liability for fraudulent electronic payment transactions initiated by merchants, third parties or other associated participants. Examples of merchant fraud include when a merchant or other party knowingly accepts payment by a stolen or counterfeit credit, debit or prepaid card, card number or other credentials records a false sales transaction utilizing a stolen or counterfeit card or credentials, processes an invalid card, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. In the event a dispute between a cardholder and a merchant is not resolved in favor of the merchant, the transaction is normally charged back to the merchant and the purchase price is credited or otherwise refunded to the cardholder. Failure to effectively manage risk and prevent fraud would increase Worldpay’s chargeback liability or other liability. In addition, beginning October 2015, U.S. merchants that cannot process EMV chip-based cards are held financially responsible for certain fraudulent transactions conducted using such cards. This will likely increase the amount of risk for merchants who are not yet EMV-compliant and could result in the Worldpay business having to seek increased chargebacks from such merchants. Increases in chargebacks or other liability could have a material adverse effect on FIS’ business, financial condition and results of operations following the merger.
Worldpay’s operating results are subject to seasonality, which could result in fluctuations in FIS’ quarterly net income.
Worldpay has experienced in the past, and expects to continue to experience, seasonal fluctuations in its revenues as a result of consumer spending patterns. Historically Worldpay’s revenues have been strongest in its fourth quarter, and weakest in its first quarter. This is due to the increase in the number and amount of electronic payment transactions related to seasonal retail events.
Worldpay is party to tax receivable agreements and the amounts it may be required to pay under these agreements are expected to resultbe significant. In certain cases, payments under the tax receivable agreements may be accelerated and/or significantly exceed the actual benefits FIS realizes following the merger in an annualized reduction in FIS’ reported revenuerespect of the tax attributes subject to the tax receivable agreements.
Worldpay is party to tax receivable agreements (“TRAs”). As of June 30, 2019, Worldpay has a liability recorded of approximately $200$918.7 million associated with minimal impact to its net earnings.
While FIS expects the net earnings from current non-Bradesco customers and the current and new services provided to Bradesco by FIS to substantially replace the net earnings lost from the unwinding of the Brazilian Venture, no assurance can be made in this regard, and FIS may fail to meet its financial goals to grow the business following the closing of the transaction. Further, itTRAs. It is possible that existing non-Bradesco clientsfuture transactions or events, including changes in tax rates, could increase or decrease the actual tax benefits realized and the corresponding TRA payments. There may reducebe a material adverse effect on FIS’ liquidity if, as a result of timing discrepancies or otherwise, distributions to Worldpay by Worldpay Holding are not sufficient to permit Worldpay to make payments under the amountTRAs.
The TRAs provide that, upon certain mergers, asset sales, other forms of services we perform for thembusiness combination or certain other changes of control, Worldpay’s obligations to make payments with respect to tax benefits would be based on certain assumptions, including that Worldpay would have sufficient taxable income to fully use the NOLs or deductions arising from increased tax basis of assets. As a result, following the unwindingmerger FIS could be required to make payments under the TRAs that are greater than 85% of Worldpay’s actual tax savings.
If the Internal Revenue Service, or the IRS, challenges the tax basis increases or NOLs that give rise to payments under the TRAs and the tax basis increases or NOLs are subsequently disallowed, payments under the TRAs could exceed its actual tax savings, and the combined company may not be able to recoup previous payments under the TRAs that were calculated on the assumption that the disallowed tax savings were available.
Litigation relating to the merger transactions could (i) require FIS and/or Worldpay to incur significant costs and suffer management distraction, (ii) delay and/or enjoin the merger and/or (iii) result in the payment of damages or other remedies.
Following the initial filing, on April 15, 2019, of the Brazilian Venture. In addition,registration statement on Form S-4, on April 30, 2019, a purported Worldpay stockholder filed a putative class action complaint, captioned Sabatini v. Worldpay, Inc., et al., Case No. 1:19-cv-00794-LPS, against Worldpay, its directors, FIS and Merger Sub in the United States District Court for the District of Delaware. The complaint asserts a claim for violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against Worldpay and its directors and a claim for violations of Section 20(a) of the Exchange Act against the Worldpay directors and FIS. The complaint alleges, among other things, that Worldpay and its directors disseminated an allegedly false and materially misleading registration statement on Form S-4. The complaint seeks, among other things, to enjoin the merger, a declaration that the registration statement violated federal securities laws, unspecified damages, and an award of attorneys’ and experts’ fees.
On May 1, 2019, a purported Worldpay stockholder filed a second complaint, captioned Stein v. Worldpay, Inc., et al., Case No. 1:19-cv-00813-LPS, against Worldpay and its directors in the United States District Court for the District of Delaware. The complaint asserts a claim for violations of Section 14(a) of the Exchange Act, SEC Rule 14a-9, and 17 C.F.R. § 244.100 against Worldpay and its directors and a claim for violations of Section 20(a) of the Exchange Act against the Worldpay directors. The complaint alleges, among other things, that Worldpay and its directors disseminated an allegedly false and materially misleading registration statement on Form S-4. The complaint seeks, among other things, to enjoin the merger, unspecified damages, and an award of attorneys’ and experts’ fees.
On June 4, 2019, a purported Worldpay stockholder filed a third complaint, captioned Johnson v. Worldpay, Inc., et al., Case No. 1:19-cv-01034-UNA, against Worldpay and its directors in the United States District Court for the District of Delaware. The complaint asserts a claim for violations of Section 14(a) of the Exchange Act and SEC Rule 14a-9 against Worldpay and its directors and a claim for violations of Section 20(a) of the Exchange Act against the Worldpay directors. The complaint alleges, among other things, that Worldpay and its directors disseminated an allegedly false and materially misleading registration statement on Form S-4. The complaint seeks, among other things, to enjoin the merger, a declaration that the registration statement violated federal securities laws, unspecified damages, and an award of attorneys’ and experts’ fees.
The outcome of any such action is uncertain. If the actions remain unresolved, they could result in significant costs to Worldpay and/or FIS, including costs associated with the indemnification of unwindingtheir respective directors and officers. Other plaintiffs may also file lawsuits against FIS, Worldpay, Merger Sub and/or directors and officers thereof in connection with the Brazilian Venturemerger, requiring FIS, Worldpay, Merger Sub and their respective directors and officers to defend against multiple lawsuits potentially filed in different jurisdictions. The defense or settlement of operating in Brazil on a stand-alone basis could be higher than we anticipate.any lawsuits or claims relating to the merger transactions may adversely affect the combined company’s business, financial condition, results of operations and cash flows.
For further detail on our Brazilian Venture see Note 10 of the Notes to Condensed Consolidated Financial Statements (Unaudited) included in this report on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes purchases of equity securities by the issuer during the three-month period ended September 30, 2018:
|
| | | | | | | | | | | | | | | |
| | | | | | | | Approximate dollar |
| | | | | | | | value of shares that |
| | | | | | Total cost of shares | | may yet be |
| | | | | | purchased as part of | | purchased under |
| | Total number of | | | | publicly announced | | the plans or |
| | shares purchased | | Average price | | plans or programs | | programs (1) |
Period | | (in millions) | | paid per share | | (in millions) | | (in millions) |
July 2018 | | 1.9 |
| | $ | 107.37 |
| | $ | 200 |
| | $ | 3,094 |
|
August 2018 | | 1.7 |
| | $ | 105.41 |
| | 175 |
| | $ | 2,919 |
|
September 2018 | | 0.8 |
| | $ | 109.28 |
| | 90 |
| | $ | 2,830 |
|
| | 4.3 |
| | | | $ | 465 |
| | |
Amounts in table may not sum or calculate due to rounding.
| |
(1) | Our Board of Directors has approved a series of plans authorizing repurchases of our common stock in the open market at prevailing market prices or in privately negotiated transactions, the most current of which on July 20, 2017, authorized repurchases of up to $4.0 billion through December 31, 2020. This share repurchase authorization replaced any existing share repurchase authorization plan. Approximately $2.8 billion of plan capacity remained available for repurchases as of September 30, 2018. |
Item 6. Exhibits
(a) Exhibits:
|
| | | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
3.1 | Articles of Amendment to the Articles of Incorporation of Fidelity National Information Services, Inc., Effective as of July 31, 2019. | 8-K | 001-16427 | 3.1 |
| 7/31/2019 | |
4.1 | Seventeenth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.1 |
| 5/21/2019 | |
4.2 | Eighteenth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.2 |
| 5/21/2019 | |
4.3 | Nineteenth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.3 |
| 5/21/2019 | |
4.4 | Twentieth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.4 |
| 5/21/2019 | |
4.5 | Twenty-First Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.5 |
| 5/21/2019 | |
4.6 | Twenty-Second Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.6 |
| 5/21/2019 | |
4.7 | Twenty-Third Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.7 |
| 5/21/2019 | |
4.8 | Twenty-Fourth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.8 |
| 5/21/2019 | |
4.9 | Twenty-Fifth Supplemental Indenture, dated as of May 21, 2019 between FIS and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. | 8-K | 001-16427 | 4.9 |
| 5/21/2019 | |
10.1 | Second Amendment Agreement, dated as of April 5, 2019, by and among Fidelity National Information Services, Inc., the financial institutions party thereto as lenders and JPMorgan Chase Bank, N.A., as administrative agent. | 8-K | 001-16427 | 10.1 |
| 4/11/2019 | |
10.2 | Third Amendment and Joinder Agreement, dated as of May 29, 2019, by and among Fidelity National Information Services, Inc., the financial institutions party thereto as lenders and JPMorgan Chase Bank, N.A., as administrative agent. | 8-K | 001-16427 | 10.1 |
| 6/4/2019 | |
|
| | | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
31.110.3 | Amendment to Employment Agreement, effective as of May 21, 2019, by and among Fidelity National Information Services, Inc., and Gary A. Norcross. (1) | | | | | * |
10.4 | Terms and Conditions of Employment, effective as of April 2, 2018, by and among FIS Systems (U.K.) Limited. and Martin Boyd. (1) | | | | | * |
10.5 | Letter Agreement, effective as of August 1, 2019, by and among Fidelity National Information Services, Inc., and Charles Drucker. (1) | | | | | * |
10.6 | Employment Agreement, effective as of August 1, 2019, by and between Fidelity National Information Services, Inc., and Mark Heimbouch. (1) | | | | | * |
10.7 | Employment Agreement, effective as of August 1, 2019, by and between Fidelity National Information Services, Inc., and Stephanie Ferris. (1) | | | | | * |
10.8 | Consulting Agreement, effective as of August 1, 2019, by and among Fidelity National Information Services, Inc., and Stephan A. James. (1) | | | | | * |
31.1 | Certification of Gary A. Norcross, President and Chief Executive Officer of Fidelity National Information Services, Inc., pursuant to rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | * |
31.2 |
| Certification of James W. Woodall, Corporate Executive Vice President and Chief Financial Officer of Fidelity National Information Services, Inc., pursuant to rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | | | | * |
32.1 |
| Certification of Gary A. Norcross, President and and Chief Executive Officer of Fidelity National Information Services, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | * |
32.2 |
| Certification of James W. Woodall, Corporate Executive Vice President and Chief Financial Officer of Fidelity National Information Services, Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | | | * |
101.INS+101.INS | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | * |
101.SCH+101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | | | | * |
101.CAL+101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | * |
101.DEF+ |
| | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | * |
101.LAB+101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | * |
101.PRE+101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | * |
(1) Management contract or compensatory plan or arrangement.
* Filed or furnished herewith
+ Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | |
| FIDELITY NATIONAL INFORMATION SERVICES, INC. |
Date: October 30, 2018August 6, 2019 | By: | /s/ JAMES W. WOODALL |
| | James W. Woodall |
| | Corporate Executive Vice President and Chief Financial Officer (Principal Financial Officer ) |
|
| | |
| FIDELITY NATIONAL INFORMATION SERVICES, INC. |
Date: October 30, 2018August 6, 2019 | By: | /s/ KATY T. THOMPSON |
| | Katy T. Thompson |
| | Corporate Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
FORM 10-Q
INDEX TO EXHIBITS
|
| | | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
3.1 | | 8-K | 001-16427 | 3.1 |
| 7/31/2019 | |
4.1 | | 8-K | 001-16427 | 4.1 |
| 5/21/2019 | |
4.2 | | 8-K | 001-16427 | 4.2 |
| 5/21/2019 | |
4.3 | | 8-K | 001-16427 | 4.3 |
| 5/21/2019 | |
4.4 | | 8-K | 001-16427 | 4.4 |
| 5/21/2019 | |
4.5 | | 8-K | 001-16427 | 4.5 |
| 5/21/2019 | |
4.6 | | 8-K | 001-16427 | 4.6 |
| 5/21/2019 | |
4.7 | | 8-K | 001-16427 | 4.7 |
| 5/21/2019 | |
4.8 | | 8-K | 001-16427 | 4.8 |
| 5/21/2019 | |
4.9 | | 8-K | 001-16427 | 4.9 |
| 5/21/2019 | |
10.1 | | 8-K | 001-16427 | 10.1 |
| 4/11/2019 | |
10.2 | | 8-K | 001-16427 | 10.1 |
| 6/4/2019 | |
|
| | | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
31.1 | 10.3 | | | | | | * |
10.4 | | | | | | * |
10.5 | | | | | | * |
10.6 | | | | | | * |
10.7 | | | | | | * |
10.8 | | | | | | * |
31.1 | | | | | | * |
31.2 |
| | | | | | * |
32.1 |
| | | | | | * |
32.2 |
| | | | | | * |
101.INS+101.INS | XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | | * |
101.SCH+101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | | | | * |
101.CAL+101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | | * |
101.DEF+ |
| | | | | | |
| | Incorporated by Reference | |
Exhibit | | | SEC File | | | Filed/ Furnished |
No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | | * |
101.LAB+101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | | | | | * |
101.PRE+101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | | * |
(1) Management contract or compensatory plan or arrangement.
* Filed or furnished herewith
+ Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.