Exhibit 99.8
UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA OF FIS AND FNF
The following unaudited pro forma combined financial statements present historical financial statements of Fidelity National Information Services, Inc., referred to as FIS, with adjustments relating to the merger of Fidelity National Financial, Inc., referred to as FNF, with and into FIS pursuant to the agreement and plan of merger, dated as of June 25, 2006 and amended and restated as of September 18, 2006, which we refer to as the merger agreement, between FIS and FNF. Under the merger agreement, the merger was consummated twelve business days after the spin-off described below under a securities exchange and distribution agreement, which we refer to as the distribution agreement, between FNF and Fidelity National Title Group, Inc., referred to as FNT. The distribution agreement, which was entered into on June 25, 2006 and amended and restated as of September 18, 2006, provided for the contribution of substantially all of FNF’s assets (other than its ownership interest in FIS, FNT and FNF Capital Leasing, Inc., which we refer to as FNF Leasing) and liabilities to FNT in exchange for shares of FNT’s Class A common stock, followed immediately by the distribution by FNF to its stockholders as a dividend of all FNT shares held by FNF. The distribution of the FNT shares is referred to as the spin-off. After the spin-off and the merger of FNF Leasing into a wholly-owned subsidiary of FIS, which we refer to as the Leasing merger, and immediately prior to the merger, FNF’s only asset or liability was its ownership position in FIS. The following pro forma financial statements also combine Certegy’s historical statements of continuing operations with those of FIS for the periods that it was not already consolidated by FIS. The unaudited pro forma combined statements of continuing operations for the year ended December 31, 2005, and the nine months ended September 30, 2006, are presented as if the merger of FIS and Certegy and the merger of FNF and FIS had been completed on January 1, 2005. The unaudited pro forma combined balance sheet as of September 30, 2006, is presented as if the merger of FIS and FNF had been completed on September 30, 2006.
The Merger of FIS and Certegy
U.S. generally accepted accounting principles require that one of the two parties to the merger be designated as the acquirer for accounting purposes. FIS was designated as the accounting acquirer because immediately after the merger its stockholders held more than 50% of the common stock of FIS. As a result, the merger of FIS and Certegy was accounted for as a reverse acquisition under the purchase method of accounting. Under this accounting treatment, FIS was considered the acquiring entity and Certegy was considered the acquired entity for financial reporting purposes. The historical balance sheet of FIS as of September 30, 2006 includes the effects of the merger between FIS and Certegy as the merger was effective on February 1, 2006. The historical statements of continuing operations of FIS reflect the financial results of FIS on a historical basis, and include the results of operations of Certegy from the effective date of the merger, February 1, 2006.
These unaudited pro forma combined financial statements should be read in conjunction with FIS’s, FNF’s, and Certegy’s historical consolidated financial statements and accompanying notes thereto. The unaudited pro forma combined financial statements are not necessarily indicative of the results of operations or financial condition of FIS that would have been reported had the merger been completed as of the dates presented, and are not necessarily representative of the future consolidated results of operations or financial condition of FIS.
For the year ended December 31, 2005 and the one month period ended January 31, 2006, Certegy incurred costs related to the FIS and other mergers of $11.5 million and $81.8 million respectively, which are recorded in the historical financial statements of Certegy and not adjusted for in the pro forma presentation below. These transaction costs included investment banking fees, legal and accounting fees, change of control payments and severance payments. In addition, FIS recorded stock compensation expense of $24.5 million in the nine months ended September 30, 2006 relating to certain performance based stock options for which the performance criteria were met as a result of the merger between FIS and Certegy. No adjustment has been reflected in the pro forma presentation below for this stock compensation expense.
In addition, in the unaudited pro forma combined statement of continuing operations for the year ended December 31, 2005, FIS has provided adjustments to interest expense to reflect what the results would have been had FIS completed its recapitalization on January 1, 2005, instead of March 9, 2005. Also included are adjustments to amortization expense and minority interest expense as if FIS had acquired the 25.1% of Kordoba that it did not already own as of January 1, 2005, instead of September 30, 2005.
1
The Merger of FNF and FIS
U.S. generally accepted accounting principles require that one of the two parties to the FNF Merger be designated as the acquirer for accounting purposes. However, Financial Accounting Standards Board Technical Bulletin 85-5, “Issues Relating to Accounting for Business Combinations” provides that if a transaction lacks substance, it is not a purchase event and should be accounted for based on existing carrying amounts. In the FNF Merger, the minority interest of FIS does not change and, in substance, the only assets and liabilities of the combined entity after the exchange are those of FIS prior to the exchange. Because a change in ownership of the minority interest has not taken place, the exchange will be accounted for based on the carrying amounts of FIS’s assets and liabilities. Accordingly, in the presentation of the pro forma combined balance sheet of FIS included below, no adjustments are required to the assets and liabilities of the combined companies as of September 30, 2006. Adjustments to the pro forma combined statements of continuing operations are described in the footnotes below.
FIS incurred approximately $3 million in transaction fees in connection with the merger with FNF for which no adjustment is provided for in the unaudited pro forma combined financial statements below. We have included the FNF balance sheet as of September 30, 2006 as if the contribution by FNF of all of its assets and liabilities to FNT (other than its ownership interest in the common stock of FIS, FNT and FNF Leasing), and the subsequent distribution of FNT common stock to existing FNF stockholders and the Leasing merger had been completed. As a result, the only asset and liability of FNF at the time of the merger with FIS was its investment in FIS.
These pro forma financial statements do not reflect adjustments relating to the Leasing merger which occurred prior to the merger of FNF into FIS. As of September 30, 2006, FNF Leasing had approximately $101 million in total assets and had recorded approximately $0.8 million in pretax income for the nine month period then ended. Any adjustments made to the unaudited pro forma combined balance sheet and unaudited pro forma combined statement of continuing operations are not significant for reporting purposes. These pro forma financial statements also do not reflect any adjustments relating to FIS’s purchase from FNT of approximately 1.4 million shares of its common stock that occurred prior to the distribution.
Unaudited Pro Forma Combined Balance Sheet
as of September 30, 2006
(In Thousands)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Pro Forma | | | | | | | |
| | | FIS | | | FNF (1) | | | Adjustments | | | Note | | | Pro Forma | |
| Cash and cash equivalents | | $ | 174,690 | | | $ | — | | | $ | — | | | | | | | $ | 174,690 | |
| Accounts receivable, net | | | 567,885 | | | | — | | | | — | | | | | | | | 567,885 | |
| Deferred income taxes | | | 90,415 | | | | — | | | | — | | | | | | | | 90,415 | |
| Prepaid and other current assets | | | 333,959 | | | | — | | | | — | | | | | | | | 333,959 | |
| | | | | | | | | | | | | | | | | |
| Total current assets | | | 1,166,949 | | | | — | | | | — | | | | | | | | 1,166,949 | |
| Property and equipment, net | | | 299,267 | | | | — | | | | — | | | | | | | | 299,267 | |
| Goodwill, net | | | 3,782,225 | | | | — | | | | — | | | | | | | | 3,782,225 | |
| Intangible assets, net | | | 1,054,065 | | | | — | | | | — | | | | | | | | 1,054,065 | |
| Computer software, net | | | 626,637 | | | | — | | | | — | | | | | | | | 626,637 | |
| Deferred contract costs | | | 231,452 | | | | — | | | | — | | | | | | | | 231,452 | |
| FNF Investment in FIS | | | — | | | | 1,562,783 | | | | (1,562,783 | ) | | | (1 | ) | | | — | |
| Investment in common stock and warrants of Covansys | | | 149,227 | | | | — | | | | — | | | | | | | | 149,227 | |
| Other non-current assets | | | 122,297 | | | | — | | | | — | | | | | | | | 122,297 | |
| | | | | | | | | | | | | | | | | |
| Total assets | | $ | 7,432,119 | | | $ | 1,562,783 | | | $ | (1,562,783 | ) | | | | | | $ | 7,432,119 | |
| | | | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
2
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Pro Forma | | | | | | | |
| | | FIS | | | FNF (1) | | | Adjustments | | | Note | | | Pro Forma | |
| Accounts payable and other accrued expenses | | $ | 494,166 | | | | — | | | | — | | | | | | | $ | 494,166 | |
| Other current liabilities | | | 352,698 | | | | — | | | | — | | | | | | | | 352,698 | |
| | | | | | | | | | | | | | | | | |
| Total current liabilities | | | 846,864 | | | | — | | | | — | | | | | | | | 846,864 | |
| Long-term debt | | | 2,844,651 | | | | — | | | | — | | | | | | | | 2,844,651 | |
| Deferred income taxes | | | 389,263 | | | | — | | | | — | | | | | | | | 389,263 | |
| Other long-term liabilities | | | 292,274 | | | | — | | | | — | | | | | | | | 292,274 | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | | $ | 4,373,052 | | | | — | | | | — | | | | | | | $ | 4,373,052 | |
| | | | | | | | | | | | | | | | | | | | | |
| Minority interest | | $ | 12,706 | | | $ | — | | | $ | — | | | | | | | $ | 12,706 | |
| Total equity | | | 3,046,361 | | | | 1,562,783 | | | | (1,562,783 | ) | | | (1 | ) | | | 3,046,361 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total liabilities & stockholders’ equity | | $ | 7,432,119 | | | $ | 1,562,783 | | | $ | (1,562,783 | ) | | | | | | $ | 7,432,119 | |
| | | | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
3
Unaudited Pro Forma Combined Statement of Continuing Operations
for the Year Ended December 31, 2005
(In Thousands Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Pro Forma
| | | | | | | | | | | | | |
| | | | | | | | | adjustments
| | | | | | Recapitalization
| | | | | | | |
| | | | | | Certegy
| | | relating to
| | | | | | and Other
| | | | | | FIS/Certegy
| |
| | | FIS | | | Acquisition | | | Certegy Merger | | | Note | | | Adjustments | | | Note | | | Pro Forma | |
| | | |
| |
| Total revenue | | $ | 2,766,085 | | | $ | 1,117,141 | | | $ | — | | | | | | | $ | — | | | | | | | $ | 3,883,226 | |
| Total cost of revenue | | | 1,793,285 | | | | 791,581 | | | | 82,279 | | | | (1 | ) | | | 1,690 | | | | (4 | ) | | | 2,667,791 | |
| | | | | | | | | | | | (1,044 | ) | | | (2 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit (loss) | | | 972,800 | | | | 325,560 | | | | (81,235 | ) | | | | | | | (1,690 | ) | | | | | | | 1,215,435 | |
| Selling, general and administrative | | | 422,623 | | | | 140,605 | | | | (5,239 | ) | | | (2 | ) | | | — | | | | | | | | 557,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Research and development costs | | | 113,498 | | | | — | | | | — | | | | | | | | — | | | | | | | | 113,498 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | 436,679 | | | | 184,955 | | | | (75,996 | ) | | | | | | | (1,690 | ) | | | | | | | 543,948 | |
| Interest income (expense) and other | | | (124,623 | ) | | | (10,397 | ) | | | — | | | | | | | | (21,031 | ) | | | (5 | ) | | | (156,051 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations before tax and minority interest | | | 312,056 | | | | 174,558 | | | | (75,996 | ) | | | | | | | (22,721 | ) | | | | | | | 387,897 | |
| Provision for income tax | | | 116,085 | | | | 68,927 | | | | (28,271 | ) | | | (3 | ) | | | (8,453 | ) | | | (3 | ) | | | 148,288 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | 195,971 | | | | 105,631 | | | | (47,725 | ) | | | | | | | (14,268 | ) | | | | | | | 239,609 | |
| Equity in earnings (loss) of unconsolidated entities, net of tax | | | 5,029 | | | | (117 | ) | | | — | | | | | | | | — | | | | | | | | 4,912 | |
| Minority interests in earnings, net of tax | | | (4,450 | ) | | | — | | | | — | | | | | | | | 2,368 | | | | (6 | ) | | | (2,082 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 196,550 | | | $ | 105,514 | | | $ | (47,725 | ) | | | | | | $ | (11,900 | ) | | | | | | $ | 242,439 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income per share-basic | | $ | 1.54 | | | $ | 1.70 | | | | | | | | | | | | | | | | | | | $ | 1.28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pro forma weighted average shares-basic | | | 127,920 | | | | 62,011 | | | | | | | | | | | | | | | | | | | | 189,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income per share-diluted | | $ | 1.53 | | | $ | 1.66 | | | | | | | | | | | | | | | | | | | $ | 1.26 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pro forma weighted average shares-diluted | | | 128,354 | | | | 63,391 | | | | | | | | | | | | | | | | | | | | 191,745 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
4
Unaudited Pro Forma Combined Statement of Continuing Operations
for the Year Ended December 31, 2005 — (Continued)
(In Thousands Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | FNF Merger
| | | | | | | | | | | | | |
| | | FIS/Certegy
| | | Pro Forma
| | | | | | | | | | | | | |
| | | Pro Forma | | | Adjustments | | | Note | | | Pro Forma | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| |
| Total revenue | | $ | 3,883,226 | | | $ | — | | | | | | | $ | 3,883,226 | | | | | | | | | |
| Total cost of revenue | | | 2,667,791 | | | | — | | | | | | | | 2,667,791 | | | | | | | | | |
| | | | | | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit (loss) | | | 1,215,435 | | | | — | | | | | | | | 1,215,435 | | | | | | | | | |
| Selling, general and administrative | | | 557,989 | | | | 6,397 | | | | (7 | ) | | | 564,386 | | | | | | | | | |
| | | | | | | | | | | | | | | | — | | | | | | | | | |
| Research and development costs | | | 113,498 | | | | — | | | | | | | | 113,498 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | 543,948 | | | | (6,397 | ) | | | | | | | 537,551 | | | | | | | | | |
| Interest income (expense) and other | | | (156,051 | ) | | | — | | | | | | | | (156,051 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations before tax and minority interest | | | 387,897 | | | | (6,397 | ) | | | | | | | 381,500 | | | | | | | | | |
| Provision for income tax | | | 148,288 | | | | (2,405 | ) | | | (3 | ) | | | 145,883 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | 239,609 | | | | (3,992 | ) | | | | | | | 235,617 | | | | | | | | | |
| Equity in earnings (loss) of unconsolidated entities, net of tax | | | 4,912 | | | | — | | | | | | | | 4,912 | | | | | | | | | |
| Minority interests in earnings, net of tax | | | (2,082 | ) | | | — | | | | | | | | (2,082 | ) | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | $ | 242,439 | | | $ | (3,992 | ) | | | | | | $ | 238,447 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income per share-basic | | $ | 1.28 | | | | | | | | | | | $ | 1.26 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Pro forma weighted average shares-basic | | | 189,931 | | | | | | | | | | | | 189,931 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income per share-diluted | | $ | 1.26 | | | | | | | | | | | $ | 1.24 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Pro forma weighted average shares-diluted | | | 191,745 | | | | | | | | | | | | 192,245 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
5
Unaudited Pro Forma Combined Statement of Continuing Operations
for the Nine Months Ended September 30, 2006
(In Thousands Except Per Share Data)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Pro Forma | | | | | | | | |
| | | | | | | Certegy Acquisition | | | adjustments | | | | | | | | |
| | | | | | | January 1-January | | | relating to Certegy | | | | | | | FIS/Certegy Pro | |
| | | FIS | | | 31, 2006 | | | Merger | | | Note | | | Forma | |
| Total revenue | | $ | 3,003,533 | | | $ | 92,915 | | | $ | — | | | | | | | $ | 3,096,448 | |
| Total cost of revenue | | | 2,114,635 | | | | 73,218 | | | | 6,856 | | | | (1 | ) | | | 2,194,709 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Gross profit (loss) | | | 888,898 | | | | 19,697 | | | | (6,856 | ) | | | | | | | 901,739 | |
| General and administrative | | | 384,319 | | | | 87,412 | | | | (522 | ) | | | (2 | ) | | | 471,209 | |
| Research and development costs | | | 77,561 | | | | — | | | | | | | | | | | | 77,561 | |
| | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | 427,018 | | | | (67,715 | ) | | | (6,334 | ) | | | | | | | 352,969 | |
| Interest income (expense) and other | | | (139,954 | ) | | | (1,204 | ) | | | — | | | | | | | | (141,158 | ) |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations before tax and minority interest | | | 287,064 | | | | (68,919 | ) | | | (6,334 | ) | | | | | | | 211,811 | |
| Provision for income tax | | | 106,915 | | | | (26,396 | ) | | | (2,626 | ) | | | (3 | ) | | | 77,893 | |
| | | | | | | | | | | | | | | | | |
| Income from continuing operations | | | 180,149 | | | | (42,523 | ) | | | (3,708 | ) | | | | | | | 133,918 | |
| Equity in earnings (loss) of unconsolidated entities, net | | | 3,778 | | | | — | | | | — | | | | | | | | 3,778 | |
| Minority interests in earnings, net of tax | | | 40 | | | | — | | | | — | | | | | | | | 40 | |
| Net income | | $ | 183,967 | | | $ | (42,523 | ) | | $ | (3,708 | ) | | | | | | $ | 137,736 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income per share-basic | | $ | 1.00 | | | $ | (0.68 | ) | | | | | | | | | | $ | 0.72 | |
| | | | | | | | | | | | | | | | | | |
| Pro forma Weighted average shares-basic | | | 184,373 | | | | 62,326 | | | | | | | | | | | | 191,567 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Net income per share-diluted | | $ | 0.98 | | | $ | (0.67 | ) | | | | | | | | | | $ | 0.71 | |
| | | | | | | | | | | | | | | | | | |
| Pro forma Weighted average shares-diluted | | | 187,405 | | | | 63,796 | | | | | | | | | | | | 194,700 | |
| | | | | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
6
Unaudited Pro Forma Combined Statement of Continuing Operations — (Continued)
for the Nine Months Ended September 30, 2006
(In Thousands Except Per Share Data)
| | | | | | | | | | | | | | | | | |
| | | FIS/Certegy Pro | | | FNF Merger Pro | | | | | | | |
| | | Forma | | | Forma Adjustments | | | Note | | | Pro Forma | |
| Total revenue | | $ | 3,096,448 | | | $ | — | | | | | | | $ | 3,096,448 | |
| Total cost of revenue | | | 2,194,709 | | | | — | | | | | | | | 2,194,709 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Gross profit (loss) | | | 901,739 | | | | — | | | | | | | | 901,739 | |
| General and administrative | | | 471,209 | | | | 9,418 | | | | (7 | ) | | | 480,627 | |
| Research and development costs | | | 77,561 | | | | — | | | | | | | | 77,561 | |
| | | | | | | | | | | | | | |
| Income (loss) from operations | | | 352,969 | | | | (9,418 | ) | | | | | | | 343,551 | |
| Interest income (expense) and other | | | (141,158 | ) | | | — | | | | | | | | (141,158 | ) |
| | | | | | | | | | | | | | |
| Income from continuing operations before tax and minority interest | | | 211,811 | | | | (9,418 | ) | | | | | | | 202,393 | |
| Provision for income tax | | | 77,893 | | | | (2,514 | ) | | | (3 | ) | | | 75,379 | |
| | | | | | | | | | | | | | |
| Income from continuing operations | | | 133,918 | | | | (6,903 | ) | | | | | | | 127,015 | |
| Equity in earnings (loss) of unconsolidated entities, net | | | 3,778 | | | | — | | | | | | | | 3,778 | |
| Minority interests in earnings, net of tax | | | 40 | | | | — | | | | | | | | 40 | |
| Net income | | $ | 137,736 | | | $ | (6,903 | ) | | | | | | $ | 130,833 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net income per share-basic | | $ | 0.72 | | | | | | | | | | | $ | 0.68 | |
| | | | | | | | | | | | | | | |
| Pro forma Weighted average shares-basic | | | 191,567 | | | | | | | | | | | | 191,567 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net income per share-diluted | | $ | 0.71 | | | | | | | | | | | $ | 0.67 | |
| | | | | | | | | | | | | | | |
| Pro forma Weighted average shares-diluted | | | 194,700 | | | | | | | | | | | | 194,700 | |
| | | | | | | | | | | | | | | |
(See accompanying Notes to Unaudited Pro Forma Combined Financial Statements)
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Notes to Unaudited Pro Forma Combined Financial Statements
Notes to Unaudited Pro Forma Combined Balance Sheet as of September 30, 2006
This combined balance sheet include the historical balance sheets of FIS and FNF as though the merger had occurred on September 30, 2006.
(1) Reflects the elimination of FNF’s investment in FIS upon consummation of the merger.
Notes to Unaudited Pro Forma Combined Statements of Continuing Operations for the Nine Months Ended September 30, 2006 and Year Ended December 31, 2005
These pro forma combined statements of continuing operations include the historical statements of continuing operations of FIS and Certegy, as though the merger had occurred on January 1, 2005, adjusted for items related to the merger of FIS and Certegy and the merger of FIS and FNF as described below:
(1) Reflects the increase in amortization expense as a result of allocating an assumed portion of the merger consideration to intangible assets of Certegy, namely customer relationship intangibles, acquired software and trademarks and amortizing such intangibles over their estimated useful lives commencing as of the assumed acquisition date, offset by the amortization expense for such intangibles actually recorded by Certegy during the respective periods. Customer relationships are being amortized over 10 years on an accelerated method. Acquired computer software is being amortized over its estimated useful life of up to 10 years on an accelerated method. The acquired trademarks are considered to have indefinite useful lives and, therefore, are not reflected in these adjustments. The increase in amortization expense is $111.7 million offset by historical amortization of $29.4 million, or $82.3 million for the year ended December 31, 2005 and $6.9 million for January 2006, prior to the merger of FIS and Certegy.
(2) Under the merger agreement, all Certegy stock options and restricted stock and restricted stock units will vest upon the closing of the merger. Accordingly, this adjustment reflects the elimination of historical stock compensation expense relating to the vesting of Certegy options in 2005, because such expense will be reflected at the time of closing of the merger. This adjustment amounts to a reduction in cost of revenues of $1.0 million and in selling, general and administrative costs of $11.2 million for the year ended December 31, 2005 and $1.0 million for January 2006, the period prior to the merger of FIS and Certegy. Also, at closing, FIS granted approximately (1) 1.1 million options, which have a fair value under SFAS No. 123R of approximately $11 per option, vesting over four years, and (2) 750,000 options, which based on current assumptions would have a fair value under SFAS No. 123R of approximately $12 per option, vesting over three years. The pro forma adjustment to increase stock compensation expense for these option grants is $5.9 million in 2005, all of which is reflected in selling, general and administrative costs and $0.5 million in January 2006.
(3) Reflects the tax benefit relating to the pro forma adjustments at the FIS tax rate of approximately 37.2% for the year ended December 31, 2005, and approximately 37.2% for the nine months ended September 30, 2006.
(4) Reflects the increase in amortization expense of $1.7 million as if FIS had acquired the 25.1% minority interest in Kordoba as of January 1, 2005 instead of September 30, 2005.
(5) Reflects an increase in interest expense for the year ended December 31, 2005 of $21.0 million, as if the recapitalization completed on March 9, 2005 was completed on January 1, 2005.
(6) Reflects the decrease in minority interest expense of $2.4 million as if FIS had acquired the 25.1% minority interest in Kordoba as of January 1, 2005 instead of September 30, 2005.
(7) Upon the consummation of the merger of FNF with and into FIS, FIS will assume unvested options held by certain executives of FNF for which the associated compensation expense was recorded in the financial statements of FNF. This compensation expense is $4.5 million for the nine months ended September 30, 2006. Also, at closing, FIS will grant approximately 1.4 million options to certain officers and directors of FIS, which based on current assumptions, would have a fair value under SFAS No. 123 of approximately $14 per option, vesting over three years. The pro forma adjustment to increase stock compensation expense for these option grants and unvested options is $6.4 million in 2005 and $4.9 million for the nine months ended September 30, 2006, all of which is reflected in selling, general and administrative costs.
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