FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
Or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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
(State or other jurisdiction
of incorporation or organization)
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37-1490331
(I.R.S. Employer
Identification No.) |
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601 Riverside Avenue |
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Jacksonville, Florida
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32204 |
(Address of principal executive offices)
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(Zip Code) |
(904) 854-5000
(Registrants telephone number, including area code)
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 þ NO o
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 þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
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Smaller reporting company 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 þ
As
of July 31, 2009, 191,832,618 shares of the Registrants Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2009
INDEX
2
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
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June 30, 2009 |
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December 31, 2008 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
227.9 |
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$ |
220.9 |
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Settlement deposits |
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38.0 |
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31.4 |
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Trade receivables, net of allowance for
doubtful accounts of $40.5 and $40.6 at
June 30, 2009 and December 31, 2008,
respectively |
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521.8 |
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|
538.1 |
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Settlement receivables |
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38.9 |
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52.1 |
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Other receivables |
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77.5 |
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121.1 |
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Receivable from FNF and LPS |
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11.4 |
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10.1 |
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Prepaid expenses and other current assets |
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98.9 |
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115.1 |
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Deferred income taxes |
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80.5 |
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77.4 |
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Total current assets |
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1,094.9 |
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1,166.2 |
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Property and equipment, net of accumulated
depreciation of $280.4 and $244.4 at June
30, 2009 and December 31, 2008,
respectively |
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271.4 |
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272.6 |
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Goodwill |
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4,200.2 |
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4,194.0 |
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Intangible assets, net of accumulated
amortization of $546.0 and $499.3 at June
30, 2009 and December 31, 2008,
respectively |
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905.4 |
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924.3 |
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Computer software, net of accumulated
amortization of $371.1 and $345.7 at June
30, 2009 and December 31, 2008,
respectively |
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640.5 |
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617.0 |
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Deferred contract costs |
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249.0 |
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241.2 |
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Long term note receivable from FNF |
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5.1 |
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5.5 |
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Other noncurrent assets |
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73.3 |
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79.6 |
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Total assets |
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$ |
7,439.8 |
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$ |
7,500.4 |
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LIABILITIES AND EQUITY
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
458.1 |
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$ |
444.8 |
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Settlement payables |
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81.6 |
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83.3 |
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Current portion of long-term debt |
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158.1 |
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105.5 |
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Deferred revenues |
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184.1 |
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182.9 |
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Total current liabilities |
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881.9 |
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816.5 |
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Deferred revenues |
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89.1 |
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86.7 |
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Deferred income taxes |
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331.2 |
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332.7 |
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Long-term debt, excluding current portion |
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2,134.0 |
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2,409.0 |
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Other long-term liabilities |
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115.3 |
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158.5 |
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Total liabilities |
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3,551.5 |
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3,803.4 |
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FIS stockholders equity: |
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Preferred stock $0.01 par value; 200 shares authorized, none issued and
outstanding at June 30, 2009 and December 31, 2008 |
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Common stock $0.01 par value; 600 shares authorized, 200.2 shares
issued at June 30, 2009 and December 31, 2008, respectively |
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2.0 |
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2.0 |
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Additional paid in capital |
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2,964.6 |
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2,959.8 |
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Retained earnings |
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1,149.2 |
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1,076.1 |
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Accumulated other comprehensive earnings (loss) |
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(15.7 |
) |
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(102.3 |
) |
Treasury stock, $0.01 par value, 8.8 and 9.3 shares at June 30, 2009
and December 31, 2008, respectively |
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(383.2 |
) |
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(402.8 |
) |
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Total FIS stockholders equity |
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3,716.9 |
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3,532.8 |
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Noncontrolling interest |
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171.4 |
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164.2 |
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Total equity |
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3,888.3 |
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3,697.0 |
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Total liabilities and equity |
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$ |
7,439.8 |
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$ |
7,500.4 |
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See accompanying notes to unaudited consolidated financial statements.
3
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
(In millions, except per share data)
(Unaudited)
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Three-month periods |
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Six-month periods |
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ended June 30, |
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ended June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Processing and services revenues (for related party activity, see note 3) |
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$ |
834.8 |
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$ |
869.7 |
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$ |
1,632.6 |
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$ |
1,700.0 |
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Cost of revenues (for related party activity, see note 3) |
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602.7 |
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674.0 |
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1,199.9 |
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1,322.7 |
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Gross profit |
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232.1 |
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195.7 |
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432.7 |
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377.3 |
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Selling, general, and administrative expenses (for related party activity,
see note 3) |
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93.2 |
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117.9 |
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189.3 |
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229.0 |
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Research and development costs |
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21.5 |
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19.9 |
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44.1 |
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39.2 |
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Operating income |
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117.4 |
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57.9 |
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199.3 |
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109.1 |
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Other income (expense): |
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Interest income |
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0.5 |
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1.5 |
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1.3 |
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4.3 |
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Interest expense |
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(31.8 |
) |
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(43.6 |
) |
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(63.8 |
) |
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(82.4 |
) |
Other income |
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5.5 |
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1.3 |
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6.7 |
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0.1 |
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Total other expense |
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(25.8 |
) |
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(40.8 |
) |
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(55.8 |
) |
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(78.0 |
) |
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Earnings from continuing operations before income taxes and equity in
losses of unconsolidated entities |
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91.6 |
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17.1 |
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143.5 |
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31.1 |
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Provision for income taxes |
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31.6 |
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3.3 |
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49.5 |
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6.6 |
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Equity in losses of unconsolidated entities |
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(0.2 |
) |
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(0.2 |
) |
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Earnings from continuing operations, net of tax |
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60.0 |
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13.6 |
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94.0 |
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24.3 |
|
(Losses) earnings from discontinued operations, net of tax |
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(0.4 |
) |
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59.2 |
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(1.7 |
) |
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118.8 |
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Net earnings |
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59.6 |
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|
72.8 |
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|
92.3 |
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|
143.1 |
|
Net earnings attributable to noncontrolling interest |
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|
(0.4 |
) |
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(0.9 |
) |
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(0.1 |
) |
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(0.7 |
) |
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Net earnings attributable to FIS |
|
$ |
59.2 |
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$ |
71.9 |
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$ |
92.2 |
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$ |
142.4 |
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Net earnings per share basic from continuing operations attributable to
FIS common stockholders |
|
$ |
0.31 |
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$ |
0.07 |
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$ |
0.49 |
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$ |
0.13 |
|
Net earnings (loss) per share basic from discontinued operations
attributable to FIS common stockholders |
|
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0.30 |
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(0.01 |
) |
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0.61 |
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Net earnings per share basic attributable to FIS common stockholders |
|
$ |
0.31 |
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$ |
0.37 |
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$ |
0.48 |
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$ |
0.74 |
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Weighted average shares outstanding basic |
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190.3 |
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192.5 |
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190.2 |
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193.5 |
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Net earnings per share diluted from continuing operations attributable to
FIS common stockholders |
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$ |
0.31 |
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$ |
0.07 |
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$ |
0.49 |
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$ |
0.12 |
|
Net earnings (loss) per share diluted from discontinued operations
attributable to FIS common stockholders |
|
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0.30 |
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(0.01 |
) |
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|
0.61 |
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Net earnings per share diluted attributable to FIS common stockholders |
|
$ |
0.31 |
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$ |
0.37 |
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$ |
0.48 |
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$ |
0.73 |
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Weighted average shares outstanding diluted |
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|
192.7 |
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|
194.4 |
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|
192.2 |
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|
195.5 |
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Cash dividends paid per share |
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$ |
0.05 |
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$ |
0.05 |
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$ |
0.10 |
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$ |
0.10 |
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Amounts attributable to FIS common stockholders: |
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Earnings from continuing operations, net of tax |
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$ |
59.6 |
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$ |
13.3 |
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$ |
93.9 |
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$ |
24.2 |
|
(Losses) earnings from discontinued operations, net of tax |
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|
(0.4 |
) |
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58.6 |
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(1.7 |
) |
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118.2 |
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Net earnings attributable to FIS |
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$ |
59.2 |
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$ |
71.9 |
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$ |
92.2 |
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$ |
142.4 |
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See accompanying notes to unaudited consolidated financial statements.
4
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statement of Equity
(In millions, except per share amounts)
(Unaudited)
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Amount |
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FIS Stockholders |
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Accumulated |
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Other |
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Number of Shares |
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Additional |
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Comprehensive |
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Common |
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Treasury |
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Common |
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Paid In |
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Retained |
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Earnings |
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Treasury |
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|
Noncontrolling |
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Comprehensive |
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Total |
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Shares |
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Stock |
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|
Stock |
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Capital |
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Earnings |
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|
(Loss) |
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Stock |
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Interest |
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Earnings |
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|
Equity |
|
Balances, December 31,
2008 |
|
|
200.2 |
|
|
|
(9.3 |
) |
|
$ |
2.0 |
|
|
$ |
2,959.8 |
|
|
$ |
1,076.1 |
|
|
$ |
(102.3 |
) |
|
$ |
(402.8 |
) |
|
$ |
164.2 |
|
|
$ |
|
|
|
$ |
3,697.0 |
|
Exercise of stock options |
|
|
|
|
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|
0.5 |
|
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|
(13.6 |
) |
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|
19.6 |
|
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|
6.0 |
|
Tax benefit associated
with exercise of stock
options |
|
|
|
|
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|
|
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|
0.1 |
|
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0.1 |
|
Stock-based compensation |
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18.3 |
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18.3 |
|
Cash dividends paid
($0.10 per share) and
other distributions |
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(19.1 |
) |
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(1.1 |
) |
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(20.2 |
) |
Comprehensive Earnings: |
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|
Net Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92.2 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
92.3 |
|
|
|
92.3 |
|
Other comprehensive
earnings, net of tax: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on
investments and
derivatives, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.2 |
|
|
|
|
|
|
|
|
|
|
|
21.2 |
|
|
|
21.2 |
|
Unrealized gain on
foreign currency
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65.4 |
|
|
|
|
|
|
|
8.2 |
|
|
|
73.6 |
|
|
|
73.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
187.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2009 |
|
|
200.2 |
|
|
|
(8.8 |
) |
|
$ |
2.0 |
|
|
$ |
2,964.6 |
|
|
$ |
1,149.2 |
|
|
$ |
(15.7 |
) |
|
$ |
(383.2 |
) |
|
$ |
171.4 |
|
|
|
|
|
|
$ |
3,888.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six-month periods |
|
|
|
ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
92.3 |
|
|
$ |
143.1 |
|
Adjustment to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
184.1 |
|
|
|
244.5 |
|
Amortization of debt issue costs |
|
|
1.7 |
|
|
|
2.9 |
|
Gain on sale of company assets |
|
|
|
|
|
|
(1.0 |
) |
Stock-based compensation |
|
|
18.3 |
|
|
|
42.2 |
|
Deferred income taxes |
|
|
(31.8 |
) |
|
|
3.0 |
|
Tax benefit associated with exercise of stock options |
|
|
(0.1 |
) |
|
|
(0.9 |
) |
Equity in losses of unconsolidated entities |
|
|
|
|
|
|
2.3 |
|
Changes in assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Net decrease (increase) in trade receivables |
|
|
93.8 |
|
|
|
(58.2 |
) |
Net decrease (increase) in prepaid expenses and other assets |
|
|
19.3 |
|
|
|
(6.7 |
) |
Net increase in deferred contract costs |
|
|
(25.3 |
) |
|
|
(39.5 |
) |
Net increase in deferred revenue |
|
|
2.5 |
|
|
|
15.7 |
|
Net decrease in accounts payable, accrued liabilities, and other liabilities |
|
|
(23.7 |
) |
|
|
(104.6 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
331.1 |
|
|
|
242.8 |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property and equipment |
|
|
(27.1 |
) |
|
|
(43.9 |
) |
Additions to capitalized software |
|
|
(69.1 |
) |
|
|
(111.7 |
) |
Other investing activities |
|
|
|
|
|
|
(4.7 |
) |
Net proceeds from sale of company assets |
|
|
|
|
|
|
33.5 |
|
Acquisitions, net of cash acquired |
|
|
(3.8 |
) |
|
|
(17.4 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(100.0 |
) |
|
|
(144.2 |
) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Borrowings |
|
|
1,198.7 |
|
|
|
2,699.6 |
|
Debt service payments |
|
|
(1,420.1 |
) |
|
|
(2,704.5 |
) |
Tax benefit associated with exercise of stock options |
|
|
0.1 |
|
|
|
0.9 |
|
Exercise of stock options |
|
|
6.0 |
|
|
|
11.5 |
|
Treasury stock purchases |
|
|
|
|
|
|
(236.2 |
) |
Cash dividends paid |
|
|
(19.1 |
) |
|
|
(19.3 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(234.4 |
) |
|
|
(248.0 |
) |
|
|
|
|
|
|
|
Effect of foreign currency exchange rates on cash |
|
|
10.3 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
7.0 |
|
|
|
(148.3 |
) |
Cash and cash equivalents, beginning of period |
|
|
220.9 |
|
|
|
355.3 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
227.9 |
|
|
$ |
207.0 |
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
61.8 |
|
|
$ |
124.2 |
|
|
|
|
|
|
|
|
Cash paid for taxes |
|
$ |
89.3 |
|
|
$ |
46.5 |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
6
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO 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.
(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
Companys Annual Report on Form 10-K, as amended by the Annual Report on Form 10-K/A, for the year
ended December 31, 2008. The preparation of these Consolidated Financial Statements 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 at the date of the Consolidated Financial Statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from
those estimates. Certain reclassifications have been made in the 2008 Consolidated Financial
Statements to conform to the classifications used in 2009.
We report the results of our operations in four reporting segments: 1) Financial Solutions, 2)
Payment Solutions, 3) International and 4) Corporate and Other (Note 8).
(2) Discontinued Operations
During 2008, we discontinued certain operations which are reported as discontinued operations
in the Consolidated Statements of Earnings for the three-month and six-month periods ended June 30,
2009 and 2008, in accordance with the authoritative guidance for the impairment or disposal of
long-lived assets. Interest is allocated to discontinued operations based on debt to be retired
and debt specifically identified as related to the respective discontinued operation.
LPS
On July 2, 2008 (the spin-off date), all of the shares of the common stock, par value
$0.0001 per share, of Lender Processing Services, Inc. (LPS) were distributed to FIS shareholders
through a stock dividend (the spin-off). At the time of the distribution, LPS consisted of
substantially all the assets, liabilities, businesses and employees related to FIS Lender
Processing Services segment. Upon the distribution, FIS shareholders received one-half share of LPS
common stock for every share of FIS common stock held as of the close of business on June 24, 2008.
The results of operations of the former LPS segment of FIS are reflected as discontinued operations
in the Consolidated Statements of Earnings for the three-month and six-month periods ended June 30,
2008. LPS had revenues of $460.4 million and $913.1 during the three-month and six-month periods
ended June 30, 2008, respectively. LPS had earnings before taxes of $93.0 million and $186.6
during the three-month and six-month periods ended June 30, 2008, respectively.
Certegy Australia, Ltd
On October 13, 2008, we sold Certegy Australia, Ltd. (Certegy Australia) for $21.1 million
in cash and other consideration, because its operations did not align with our strategic plans.
Certegy Australia had revenues of $9.0 million and $16.9 million during the three-month and
six-month periods ended June 30, 2008, respectively. Certegy Australia had (losses) earnings before
taxes of ($0.5) million and $5.4 million during the three-month periods ended June 30, 2009 and
2008 and ($2.4) million and $9.6 million during the six-month periods ended June 30, 2009 and 2008,
respectively.
Certegy Gaming Services, Inc.
On April 1, 2008, we sold Certegy Gaming Services, Inc. (Certegy Game) for $25.0 million,
realizing a pretax loss of $4.1 million, because its operations did not align with our strategic
plans. Certegy Game had revenues of $27.2 million and earnings before taxes of $0.3 million
(excluding the pretax loss realized on sale) during the six-month period ended June 30, 2008.
FIS Credit Services, Inc.
On February 29, 2008, we sold FIS Credit Services, Inc. (Credit) for $6.0 million, realizing
a pre-tax gain of $1.4 million, because its operations did not align with our strategic plans.
Credit had revenues of $1.4 million and losses before taxes of $0.2 million (excluding the realized
gain) during the six-month period ended June 30, 2008.
7
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Homebuilders Financial Network, LLC
During the year ended December 31, 2008, we discontinued and dissolved Homebuilders Financial
Network, LLC and its related entities (HFN) due to the loss of a major customer. HFN had revenues
of $0.2 million and $1.4 million during the three-month and six-month periods ended June 30, 2008,
respectively. HFN had earnings (losses) before taxes of $0.7 million and ($4.7) million during the
three-month and six-month periods ended June 30, 2008.
(3) Related Party Transactions
We are party to certain related party agreements described below.
Revenues and Expenses
A detail of related party items included in revenues for the three-month and six-month periods
ended June 30, 2009 and 2008 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
ABN AMRO Real card and item processing revenue |
|
$ |
24.3 |
|
|
$ |
28.3 |
|
|
$ |
44.1 |
|
|
$ |
43.0 |
|
Banco Bradesco card and item processing revenue |
|
|
25.1 |
|
|
|
23.8 |
|
|
|
46.0 |
|
|
|
44.7 |
|
Sedgwick data processing services revenue |
|
|
9.9 |
|
|
|
9.7 |
|
|
|
19.9 |
|
|
|
19.4 |
|
FNF data processing services revenue |
|
|
12.3 |
|
|
|
11.4 |
|
|
|
24.1 |
|
|
|
22.6 |
|
LPS services revenue |
|
|
1.6 |
|
|
|
1.7 |
|
|
|
3.3 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
73.2 |
|
|
$ |
74.9 |
|
|
$ |
137.4 |
|
|
$ |
133.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A detail of related party items included in operating expenses (net of expense reimbursements)
for the three-month and six-month periods ended June 30, 2009 and 2008 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Equipment and real estate leasing with FNF and LPS |
|
$ |
5.2 |
|
|
$ |
4.9 |
|
|
$ |
10.1 |
|
|
$ |
9.5 |
|
Administrative corporate support and other services with FNF and LPS |
|
|
2.2 |
|
|
|
1.9 |
|
|
|
4.2 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
7.4 |
|
|
$ |
6.8 |
|
|
$ |
14.3 |
|
|
$ |
13.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABN AMRO Real and Banco Bradesco
In March 2006, we entered into an agreement with ABN AMRO Real (ABN) and Banco Bradesco S.A.
(Bradesco) (collectively, banks) to form a venture to provide comprehensive, fully outsourced
card processing services to Brazilian card issuers. In exchange for a 51% controlling interest in
the venture, we contributed our existing Brazilian card processing business contracts and Brazilian
card processing infrastructure and committed to make enhancements to our card processing system to
meet the processing needs of the banks and their affiliates. The banks executed long-term contracts
to process their card portfolios with the venture in exchange for an aggregate 49% interest in the
venture. Additionally, we provide item processing services to Bradesco and ABN outside of the
Brazilian card processing venture.
Sedgwick
We provide data processing services to Sedgwick CMS, Inc. (Sedgwick), a company in which
Fidelity National Financial, Inc., (FNF) holds an approximate 32% equity interest.
FNF
We provide data processing services to FNF consisting primarily of infrastructure support and
data center management. Our agreement with FNF runs through June 30, 2013, with an option to renew
for one or two additional years, subject to certain early termination provisions
(including the payment of minimum monthly service and termination fees). We
also have a $5.9 million note receivable from FNF, of which $0.8 million is included in receivable
from FNF and LPS in the Consolidated Balance Sheets, which matures in September 2012, with interest
payable at a rate of LIBOR plus 0.45% (1.64% as of June 30, 2009). We recorded interest income
related to this note of less than $0.1 million and $0.1 million for the three-month periods ended
June 30, 2009 and 2008 and $0.1 million and $0.2 million for the six-month periods ended June 30,
2009 and 2008, respectively. Historically, FNF has provided to us, and to a lesser extent we have
provided to FNF, certain administrative support services relating to general management and
8
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
administration. The pricing for these services, both to and from FNF, is at cost. We also incurred
expenses for amounts paid by us to FNF under leases of certain personal property and technology
equipment.
LPS
We provide transitional services to LPS as a result of the spin-off. In addition, we have
entered into certain property management and real estate lease agreements with LPS relating to our
Jacksonville corporate headquarters.
We believe the amounts earned from or charged by us under each of the foregoing arrangements
are fair and reasonable. We believe our service arrangements are priced within the range of prices
we offer to third parties. However, the amounts we earned or that were charged under these
arrangements were not negotiated at arms-length, and may not represent the terms that we might
have obtained from an unrelated third party.
(4) Unaudited Net Earnings per Share
The basic weighted average shares and common stock equivalents for the three-month and
six-month periods ended June 30, 2009 and 2008 are computed using the treasury stock method.
The following table summarizes the earnings per share attributable to FIS common stockholders,
for the three-month and six-month periods ended June 30, 2009 and 2008 (in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net earnings from continuing operations attributable to FIS, net of tax |
|
$ |
59.6 |
|
|
$ |
13.3 |
|
|
$ |
93.9 |
|
|
$ |
24.2 |
|
Net earnings (losses) from discontinued operations attributable to
FIS, net of tax |
|
|
(0.4 |
) |
|
|
58.6 |
|
|
|
(1.7 |
) |
|
|
118.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to FIS, net of tax |
|
$ |
59.2 |
|
|
$ |
71.9 |
|
|
$ |
92.2 |
|
|
$ |
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
190.3 |
|
|
|
192.5 |
|
|
|
190.2 |
|
|
|
193.5 |
|
Plus: Common stock equivalent shares assumed from conversion of options |
|
|
2.4 |
|
|
|
1.9 |
|
|
|
2.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
192.7 |
|
|
|
194.4 |
|
|
|
192.2 |
|
|
|
195.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share from continuing operations attributable
to FIS common stockholders |
|
$ |
0.31 |
|
|
$ |
0.07 |
|
|
$ |
0.49 |
|
|
$ |
0.13 |
|
Basic net earnings (losses) per share from discontinued operations
attributable to FIS common stockholders |
|
|
|
|
|
|
0.30 |
|
|
|
(0.01 |
) |
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
|
$ |
0.31 |
|
|
$ |
0.37 |
|
|
$ |
0.48 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share from continuing operations attributable
to FIS common stockholders |
|
$ |
0.31 |
|
|
$ |
0.07 |
|
|
$ |
0.49 |
|
|
$ |
0.12 |
|
Diluted net earnings (losses) per share from discontinued operations
attributable to FIS common stockholders |
|
|
|
|
|
|
0.30 |
|
|
|
(0.01 |
) |
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net earnings per share attributable to FIS common stockholders |
|
$ |
0.31 |
|
|
$ |
0.37 |
|
|
$ |
0.48 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase approximately 11.3 million shares and 9.4 million shares of our common
stock for the three-month periods and 15.1 million shares and 9.0 million shares of our common
stock for the six-month periods ended June 30, 2009 and 2008, respectively, were not included in
the computation of diluted earnings per share because they were antidilutive.
(5) Metavante Merger
On March 31, 2009, FIS and Metavante Technologies, Inc. (Metavante) entered into an
Agreement and Plan of Merger (the Merger Agreement), pursuant to which FIS will acquire
Metavante. The transaction will be structured as a tax-free reorganization whereby Metavante will
be merged with and into a newly formed subsidiary of FIS (the Merger).
Under the terms of the Merger Agreement, Metavante shareholders will receive a fixed exchange
ratio of 1.35 (the Exchange Ratio) shares of FIS common stock for each share of Metavante common
stock they own. In addition, outstanding Metavante stock options and other stock-based awards (other than performance shares) will be converted into stock
options and other stock-based awards, respectively, with respect to shares of FIS common stock
using the Exchange Ratio.
In connection with the Merger Agreement, FIS entered into an Investment Agreement (the
Investment Agreement) on March 31, 2009, with certain affiliates of Thomas H. Lee Partners, L.P.
(THL) and FNF, pursuant to which, the Company will issue and sell (a) to THL in a private
placement 12.9 million shares of common stock of the Company for an aggregate purchase price of
9
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
approximately $200.0 million and (b) to FNF in a private placement 3.2 million shares of common
stock of the Company for an aggregate purchase price of approximately $50.0 million. Pursuant to
the terms of the Investment Agreement, the Company will pay each of THL and FNF a transaction fee
equal to 3% of their respective investments.
On July 21, 2009, the Registration Statement filed by FIS with the Securities and Exchange
Commission was declared effective and FIS and Metavante have mailed the joint proxy
statement/prospectus relating to the shareholders meetings to their respective shareholders. On
September 4, 2009 FIS and Metavante will hold special meetings of their respective shareholders to
vote on the issuance of FIS common stock in connection with the Merger and the Investment
Agreement. FIS and Metavante shareholders of record as of June 29, 2009 will be entitled to vote at
the special meeting.
Completion of the merger remains subject to antitrust clearance in the United States, receipt
of FIS and Metavante shareholder approvals, and other customary closing conditions. FIS and
Metavante expect the merger to close during the fourth quarter of 2009.
(6) Long-Term Debt
Long-term debt as of June 30, 2009 and December 31, 2008 consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Term Loan A, secured, interest payable at LIBOR plus 0.88%
(1.20% at June 30, 2009), quarterly principal amortization,
maturing January 2012 |
|
$ |
1,942.5 |
|
|
$ |
1,995.0 |
|
Revolving Loan, secured, interest payable at LIBOR plus 0.70%
(Eurocurrency Borrowings), Fed-funds plus 0.70% (Swingline
Borrowings) or Prime plus 0.00% (Base Rate Borrowings) plus
0.18% facility fee (0.99%, 0.92% or 3.25% respectively at June
30, 2009), maturing January 2012. Total of $565.9 million unused
as of June 30, 2009 |
|
|
329.6 |
|
|
|
499.4 |
|
Other promissory notes with various interest rates and maturities |
|
|
20.0 |
|
|
|
20.1 |
|
|
|
|
|
|
|
|
|
|
|
2,292.1 |
|
|
|
2,514.5 |
|
Less current portion |
|
|
(158.1 |
) |
|
|
(105.5 |
) |
|
|
|
|
|
|
|
Long-term debt, excluding current portion |
|
$ |
2,134.0 |
|
|
$ |
2,409.0 |
|
|
|
|
|
|
|
|
The fair value of the Companys long-term debt at June 30, 2009 is estimated to be
approximately $321.0 million lower than the carrying value (based on values of trades of our debt
made in close proximity to quarter-end). These estimates are subjective in nature and involve
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.
As of June 30, 2009, we have entered into the following interest rate swap transactions
converting a portion of the interest rate exposure on our Term and Revolving Loans from variable to
fixed (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
|
Bank Pays |
|
|
FIS pays |
|
Effective Date |
|
Termination Date |
|
|
(in millions) |
|
|
Variable Rate of(1) |
|
|
Fixed Rate of(2) |
|
October 11, 2007 |
|
October 11, 2009 |
|
$ |
1,000.0 |
|
|
1 Month Libor |
|
|
4.73 |
% |
December 11, 2007 |
|
December 11, 2009 |
|
|
250.0 |
|
|
1 Month Libor |
|
|
3.80 |
% |
April 11, 2007 |
|
April 11, 2010 |
|
|
850.0 |
|
|
1 Month Libor |
|
|
4.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
0.32% in effect at June 30, 2009 under the agreements. |
|
(2) |
|
In addition to the fixed rates paid under the swaps, we
pay an applicable margin to our bank lenders on the
Term Loan A of 0.88% and the Revolving Loan of 0.70%
(plus a facility fee of 0.18%) as of June 30, 2009. |
We have designated these interest rate swaps as cash flow hedges. A portion of the amount
included in accumulated other comprehensive earnings is reclassified into interest expense as a
yield adjustment as interest payments are made on the Term and Revolving Loans. In accordance with the authoritative guidance for fair value measurements,
the inputs used to determine the estimated fair value of our interest rate swaps are Level 2-type
measurements. We considered our own credit risk when determining the fair value of our interest
rate swaps. During June 2008, we terminated the $750 million interest rate swap tied to the Term
Loan B that was retired during July 2008, without any significant impact to our financial position
or results of operations during the period as its fair value was approximately zero on the date of
termination.
10
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
A summary of the fair value of the Companys derivative instruments is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
June 30, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
Fair |
|
|
|
Balance Sheet Location |
|
|
Value |
|
|
Balance Sheet Location |
|
|
Value |
|
Interest rate swap contracts |
|
Accounts payable and accrued liabilities |
|
$ |
50.5 |
|
|
Accounts payable and accrued liabilities |
|
$ |
39.6 |
|
Interest rate swap contracts |
|
Other long-term liabilities |
|
|
|
|
|
Other long-term liabilities |
|
|
44.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments |
|
|
|
|
|
$ |
50.5 |
|
|
|
|
|
|
$ |
84.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the effect of derivative instruments on the Companys Consolidated Statements of
Earnings recognized in Other Comprehensive Earnings (OCE) are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain(Loss) |
|
|
|
|
|
|
Amount of Loss Reclassified |
|
|
|
Recognized in OCE on |
|
|
|
|
|
|
from Accumulated OCE into |
|
|
|
Derivative |
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
Three |
|
|
Location of Loss |
|
|
|
|
|
|
|
Derivatives in Cash |
|
Three Months |
|
|
Months |
|
|
Reclassified from |
|
|
Three Months |
|
|
Three Months |
|
Flow Hedging |
|
Ended June |
|
|
Ended June |
|
|
Accumulated OCE into |
|
|
Ended June |
|
|
Ended June |
|
Relationships |
|
30, 2009 |
|
|
30, 2008 |
|
|
Income |
|
|
30, 2009 |
|
|
30, 2008 |
|
Interest rate swap contracts |
|
$ |
3.8 |
|
|
$ |
(53.9 |
) |
|
Interest expense |
|
$ |
(22.7 |
) |
|
$ |
(12.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss Reclassified |
|
|
|
Amount of Gain Recognized |
|
|
|
|
|
|
from Accumulated OCE into |
|
|
|
in OCE on Derivative |
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
Location of Loss |
|
|
|
|
|
|
|
Derivatives in SFAS 133 |
|
Six Months |
|
|
Six Months |
|
|
Reclassified from |
|
|
Six Months |
|
|
Six Months |
|
Cash Flow Hedging |
|
Ended June |
|
|
Ended June |
|
|
Accumulated OCE into |
|
|
Ended June |
|
|
Ended June |
|
Relationships |
|
30, 2009 |
|
|
30, 2008 |
|
|
Income |
|
|
30, 2009 |
|
|
30, 2008 |
|
Interest rate swap contracts |
|
$ |
10.5 |
|
|
$ |
28.1 |
|
|
Interest expense |
|
$ |
(44.2 |
) |
|
$ |
(18.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our existing cash flow hedges are highly effective and there is no current impact on earnings
due to hedge ineffectiveness. It is our practice to execute such instruments with credit-worthy
banks at the time of execution and not to enter into derivative financial instruments for
speculative purposes. As of June 30, 2009, we believe that our interest rate swap counterparties
will be able to fulfill their obligations under our agreements and we believe we will have debt
outstanding through the various expiration dates of the swaps such that the future hedge cash flows
remain probable of occurring.
Principal maturities of long-term debt at June 30, 2009 are as follows (in millions):
|
|
|
|
|
2009 remainder |
|
$ |
53.0 |
|
2010 |
|
|
210.0 |
|
2011 |
|
|
157.5 |
|
2012 |
|
|
1,871.6 |
|
|
|
|
|
Total |
|
$ |
2,292.1 |
|
|
|
|
|
Through the eFunds Corporation (eFunds) acquisition on September 12, 2007, we assumed $100.0
million in long-term notes payable previously issued by eFunds (the eFunds Notes). On February
26, 2008, we redeemed the eFunds Notes for a total of $109.3 million, which included a make-whole
premium of $9.3 million.
(7) Commitments and Contingencies
Litigation
In the ordinary course of business, the Company is involved in various pending and threatened
litigation matters related to operations, some of which include claims for punitive or exemplary
damages. The Company believes that no actions, other than the matters listed below, depart from
customary litigation incidental to its business. As background to the disclosure below, please note
the following:
|
|
|
These matters raise difficult and complicated factual and legal issues and are subject
to many uncertainties and complexities. |
|
|
|
|
The Company reviews these matters on an on-going basis and follows the authoritative
provisions for accounting for contingencies when making accrual and disclosure decisions. A
liability must be accrued if (a) it is probable that an asset has been impaired or a
liability has been incurred and (b) the amount of loss can be reasonably estimated. If one
of these criteria has not been met, disclosure is required when there is at least a
reasonable possibility that a loss may have been incurred. When assessing reasonably
possible and probable outcomes, the Company bases decisions on the assessment of the
ultimate outcome following all appeals. Legal fees associated with defending these matters
are expensed as incurred. |
Litigation Related to the Merger
On April 7, 2009, a putative class action complaint was filed by a purported Metavante
shareholder against Metavante, its directors, certain officers, and FIS. The complaint alleges that
the Metavante directors and officers breached fiduciary duties to Metavante
12
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
shareholders and that
Metavante and FIS aided and abetted such breaches. The complaint seeks to enjoin the proposed
Merger transaction, preliminarily and permanently, and also seeks unspecified money damages,
attorneys fees, and class certification. An amended complaint was filed on April 23, 2009, adding
an additional plaintiff, but it is otherwise the same as the original complaint. The case is Lisa
Repinski, et al v. Michael Hayford, et al , Milwaukee County Circuit Court Case No. 09CV5325.
On April 24, 2009, a second putative class action containing similar allegations was filed by
another purported Metavante shareholder against Metavante and its directors and certain officers.
This complaint also seeks to enjoin the Merger transaction, preliminarily and permanently, and also
seeks unspecified money damages, attorneys fees, and class certification. The case is Samuel
Beren v. Metavante Technologies, Inc. et al., Milwaukee County Circuit Court Case No. 09CV6315.
On April 28, 2009, a motion was filed to consolidate the Repinski and Beren actions; that
motion has not yet been decided. FIS believes these actions are without merit and intends to defend
vigorously against the claims.
McCormick, April v. Certegy Payment Recovery Services, Inc., et al
This is a putative class action filed during the first quarter of 2006 in the U.S. District
Court for the Northern District of Texas against Certegy Check Services, Inc. and Certegy Payment
Recovery Services, Inc. The complaint seeks damages and declaratory relief for breach of contract
as well as alleged violations of the Fair Debt Collection Practices Act (FDCPA), Texas Debt
Collections Act, and Texas Deceptive Trade Practices Act (TDTPA). The Plaintiff wrote a check to
a retailer that was dishonored on presentment. The dishonored check was assigned to Certegy for
recovery and collection of associated service charges. The Plaintiff contends that there was no
authority to collect a $30 service charge on her bounced check, that the collection letters she
received were misleading and that Certegys actions were oppressive. Point-of-sale signage
indicated that a fee of $25 or the maximum allowed by law would be owed for any bounced check. In
addition, the check was stamped at the point-of-sale with a similar statement that the plaintiff
signed. The service charge statute in Texas allows a reasonable fee of up to $30 for bounced
checks. The court dismissed multiple claims arising out of the FDCPA, including all claims based on
alleged misrepresentations or oppressive conduct. The only FDCPA claim remaining is Plaintiffs
claim against Certegy Payment Recovery Services under Section 808. Certegy filed a motion to
dismiss the state law claims and a motion for summary judgment as to all counts, arguing that
Plaintiff expressly agreed to pay a service charge if her check bounced. The court dismissed the
declaratory judgment claim and found that Certegy did not make false, deceptive or misleading
representations under the TDTPA; however, the court declined to dismiss the remainder of the state
law claims. The Plaintiff filed a motion for class certification, and in the first quarter of 2009
the court granted that motion with respect to the FDCPA claim against Certegy Payment Recovery
Services, but denied it with respect to all other claims and against all other defendants. Certegy
Payment Recovery Services has appealed the decision to the 5th Circuit Court of Appeals. The matter
was mediated during the second quarter of 2009 and settled. The settlement is subject to court
approval.
Drivers Privacy Protection Act
A putative class action lawsuit styled Richard Fresco, et al. v. Automotive Directions, Inc.
et al., was filed against eFunds and seven other non-related parties in the U.S. District Court for
the Southern District of Florida during the second quarter of 2003. The complaint alleged that
eFunds purchased motor vehicle records that were used for marketing and other purposes that are not
permitted under the Federal Drivers Privacy Protection Act (DPPA). The plaintiffs sought
statutory damages, plus costs, attorneys fees and injunctive relief. eFunds and five of the other
seven defendants settled the case with the plaintiffs. That settlement was approved by the court
over the objection of a group of Texas drivers and motor vehicle record holders. The plaintiffs
have since moved to amend the courts order approving the settlement in order to seek a greater
attorneys fee award and to recover supplemental costs. In the meantime, the objectors filed two
class action complaints styled Sharon Taylor, et al. v. Biometric Access Company et al. and Sharon
Taylor, et al. v. Acxiom et al. in the U.S. District Court for the Eastern District of Texas
during the first quarter of 2007 alleging similar violations of the DPPA. The Acxiom action was
filed against the Companys ChexSystems, Inc. subsidiary, while the Biometric suit was filed
against the Companys Certegy Check Services, Inc. subsidiary. The judge recused himself in the
action against Certegy because he was a potential member of the class. The lawsuit was then
assigned to a new judge and Certegy filed a motion to dismiss. The court granted Certegys motion
to dismiss with prejudice in the third quarter of 2008. ChexSystems filed a motion to dismiss or
stay its action based upon the earlier settlement and the Court granted the motion to stay pending
resolution of the Florida case. The court dismissed the ChexSystems lawsuit with prejudice against
the remaining defendants in the third quarter of 2008. The plaintiffs moved the court to amend the
dismissal to exclude defendants that were parties to the Florida settlement. That motion was
granted. The plaintiffs then appealed the dismissal. The plaintiffs appeals of the dismissals in
both lawsuits are pending.
13
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Searcy, Gladys v. eFunds Corporation
This is a nationwide putative class action that was originally filed against eFunds
Corporation and its affiliate Deposit Payment Protection Services, Inc. in the U.S. District Court
for the Northern District of Illinois during the first quarter of 2008. The complaint alleges
willful violation of the Fair Credit Reporting Act (FCRA) in connection with the operation of the
Shared Check Authorization Network. Plaintiffs principal allegation is that consumers did not
receive appropriate disclosures pursuant to §1681g of the FCRA because the disclosures did not
include: (i) all information in the consumers file at the time of the request; (ii) the source of
the information in the consumers file; and/or (iii) the names of any persons who requested
information related to the consumers check writing history during the prior year. The Company is
vigorously defending the matter.
Indemnifications and Warranties
The Company often indemnifies its customers against damages and costs resulting from claims of
patent, copyright, or trademark infringement associated with use of its software through software
licensing agreements. Historically, the Company has not made any 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 costs have been
incurred related to software warranties and none are expected in the future, and as such no
accruals for warranty costs have been made.
(8) Segment Information
Summarized financial information for the Companys segments is shown in the following tables.
As of and for the three-month period ended June 30, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Payment |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Solutions |
|
|
Solutions |
|
|
International |
|
|
and Other |
|
|
Total |
|
Processing and services revenues |
|
$ |
277.0 |
|
|
$ |
380.0 |
|
|
$ |
178.4 |
|
|
$ |
(0.6 |
) |
|
$ |
834.8 |
|
Operating expenses |
|
|
186.3 |
|
|
|
285.6 |
|
|
|
163.5 |
|
|
|
82.0 |
|
|
|
717.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
90.7 |
|
|
$ |
94.4 |
|
|
$ |
14.9 |
|
|
$ |
(82.6 |
) |
|
|
117.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
91.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
28.7 |
|
|
$ |
10.8 |
|
|
$ |
14.6 |
|
|
$ |
38.0 |
|
|
$ |
92.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
25.2 |
|
|
$ |
7.2 |
|
|
$ |
17.6 |
|
|
$ |
0.9 |
|
|
$ |
50.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,858.9 |
|
|
$ |
2,232.0 |
|
|
$ |
1,432.7 |
|
|
$ |
823.1 |
|
|
$ |
7,346.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
2,096.2 |
|
|
$ |
1,677.6 |
|
|
$ |
426.4 |
|
|
$ |
|
|
|
$ |
4,200.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three-month period ended June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Payment |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Solutions |
|
|
Solutions |
|
|
International |
|
|
and Other |
|
|
Total |
|
Processing and services revenues |
|
$ |
280.8 |
|
|
$ |
383.4 |
|
|
$ |
206.8 |
|
|
$ |
(1.3 |
) |
|
$ |
869.7 |
|
Operating expenses |
|
|
202.9 |
|
|
|
295.9 |
|
|
|
199.2 |
|
|
|
113.8 |
|
|
|
811.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
77.9 |
|
|
$ |
87.5 |
|
|
$ |
7.6 |
|
|
$ |
(115.1 |
) |
|
|
57.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
25.9 |
|
|
$ |
9.7 |
|
|
$ |
15.2 |
|
|
$ |
47.0 |
|
|
$ |
97.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
19.2 |
|
|
$ |
10.0 |
|
|
$ |
24.4 |
|
|
$ |
(1.5 |
) |
|
$ |
52.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,982.9 |
|
|
$ |
2,318.2 |
|
|
$ |
1,290.2 |
|
|
$ |
1,149.1 |
|
|
$ |
7,740.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
2,112.2 |
|
|
$ |
1,686.6 |
|
|
$ |
426.7 |
|
|
$ |
|
|
|
$ |
4,225.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
As of and for the six-month period ended June 30, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Payment |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Solutions |
|
|
Solutions |
|
|
International |
|
|
and Other |
|
|
Total |
|
Processing and services revenues |
|
$ |
548.3 |
|
|
$ |
744.7 |
|
|
$ |
340.7 |
|
|
$ |
(1.1 |
) |
|
$ |
1,632.6 |
|
Operating expenses |
|
|
384.0 |
|
|
|
566.2 |
|
|
|
315.6 |
|
|
|
167.5 |
|
|
|
1,433.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
164.3 |
|
|
$ |
178.5 |
|
|
$ |
25.1 |
|
|
$ |
(168.6 |
) |
|
|
199.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
143.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
57.1 |
|
|
$ |
21.9 |
|
|
$ |
27.8 |
|
|
$ |
77.3 |
|
|
$ |
184.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
51.1 |
|
|
$ |
14.9 |
|
|
$ |
26.9 |
|
|
$ |
3.3 |
|
|
$ |
96.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the six-month period ended June 30, 2008 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
Payment |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
Solutions |
|
|
Solutions |
|
|
International |
|
|
and Other |
|
|
Total |
|
Processing and services revenues |
|
$ |
561.2 |
|
|
$ |
756.7 |
|
|
$ |
383.7 |
|
|
$ |
(1.6 |
) |
|
$ |
1,700.0 |
|
Operating expenses |
|
|
413.8 |
|
|
|
598.3 |
|
|
|
363.9 |
|
|
|
214.9 |
|
|
|
1,590.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
147.4 |
|
|
$ |
158.4 |
|
|
$ |
19.8 |
|
|
$ |
(216.5 |
) |
|
|
109.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) unallocated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
61.4 |
|
|
$ |
24.1 |
|
|
$ |
28.7 |
|
|
$ |
86.9 |
|
|
$ |
201.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
44.7 |
|
|
$ |
19.8 |
|
|
$ |
65.6 |
|
|
$ |
0.3 |
|
|
$ |
130.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brazil, Germany and the U.K. accounted for the majority of the sales to non-U.S. based
customers.
Total assets at June 30, 2009 and 2008, excludes $93.1 million and $2,038.0 million,
respectively, related to discontinued operations. Goodwill at June 30, 2008, exclude $1,112.1
million related to discontinued operations.
Financial Solutions
The Financial Solutions segment focuses on serving the processing needs of financial
institutions of all sizes, commercial lenders, finance companies and other businesses. The
Companys primary software applications function as the underlying infrastructure of a financial
institutions processing environment. These applications include core bank processing software,
which banks use to maintain the primary records of their customer accounts. The Company also
provides a number of complementary applications and services that interact directly with the core
processing applications, including applications that facilitate interactions between the Companys
financial institution customers and their clients. The Company offers applications and services
through a range of delivery and service models, including on-site outsourcing and remote processing
arrangements, as well as on a licensed software basis for installation on customer-owned and
operated systems.
Payment Solutions
The Payment Solutions segment focuses on serving the payment processing and risk management
needs of financial institutions, retailers and other businesses. This segment includes card issuer
services, which enable banks, credit unions, and others to issue VISA and MasterCard credit and
debit cards, private label cards, and other electronic payment cards for use by both consumer and
business accounts. In addition, this segment provides risk management services to retailers and
financial institutions. The Company offers applications and services through a range of delivery
and service models, including on-site outsourcing and remote processing arrangements, as well as on
a licensed software basis for installation on customer-owned and operated systems.
International
The International segment offers both financial solutions and payment solutions to a wide
array of international financial institutions. Also, this segment includes the Companys
consolidated Brazilian card processing venture (see note 3). Included in this segment are long-term
assets, excluding Goodwill and other Intangible assets, located outside of the United States
totaling $442.7 million and $472.1 million at June 30, 2009 and 2008, respectively. These assets are predominantly
located in Germany, Brazil, the U.K. and India.
15
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Continued
Corporate and Other
The Corporate and Other segment consists of the corporate overhead costs that are not
allocated to operating segments. These include costs related to human resources, finance, legal,
accounting, domestic sales and marketing and amortization of acquisition-related intangibles and
other costs that are not considered when management evaluates segment performance.
(9) Subsequent Events
The Company has evaluated transactions, events and circumstances for consideration of
recognition or disclosure through August 5, 2009, the date these interim financial statements were
issued, and has reflected or disclosed those items within the Consolidated Financial Statements as
deemed appropriate.
16
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.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Item 1: Consolidated Financial
Statements and the Notes thereto included elsewhere in this report. The discussion below contains
forward-looking statements that involve a number of risks and uncertainties. Statements that are
not historical facts, including statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements are based on managements beliefs, as well as assumptions
made by, and information currently available to, management. Because such statements are based on
expectations as to future economic performance and are not statements of fact, actual results may
differ materially from those projected. The risks and uncertainties which forward-looking
statements are subject to include, without limitation: changes in general economic, business and
political conditions, including changes in the financial markets; the effect of governmental
regulations, including the possibility that there are unexpected delays in obtaining regulatory
approvals for our merger with Metavante; the failure to obtain required transaction approvals from
FIS and Metavantes shareholders; the effects of our substantial leverage which may limit the
funds available to make acquisitions and invest in our business; the risks of reduction in revenue
from the elimination of existing and potential customers due to consolidation in the banking,
retail and financial services industries or due to financial failures suffered by firms in those
industries; failures to adapt our services to changes in technology or in the marketplace; our
potential inability to find suitable acquisition candidates or difficulties in integrating
acquisitions; significant competition that our operating subsidiaries face; and other risks
detailed in the Statement Regarding Forward-Looking Information, Risk Factors and other
sections of the Companys Form 10-K and other filings with the Securities and Exchange Commission.
All forward-looking statements included in this document are based on information available at the
time the document was filed. FIS assumes no obligation to update any forward-looking statement.
Overview
We are one of the largest global providers of processing services to financial institutions
and businesses, serving customers in over 90 countries throughout the world. We are among the
market leaders in core processing, card issuing services and check point-of-sale verification and
guarantee. We offer a diversified service mix, and benefit from the opportunity to cross-sell
multiple services across our broad customer base. We have four reporting segments: Financial
Solutions, Payment Solutions, International and Corporate and Other. A description of these
segments is included in Note 8 to the Notes to Consolidated Financial Statements (Unaudited).
Revenues by segment and the results of operations of our segments are discussed below in Segment
Results of Operations.
Business Trends and Conditions
A significant portion of our revenue is derived from transaction processing fees. As a result,
the number of deposit and card transactions can affect our business and thus the condition of the
overall economy can have an effect on our growth. In light of current economic conditions, we are
seeking to manage our costs and capital expenditures prudently. We reduced both domestic headcount
and capital expenditures in 2009 from 2008 levels.
Card transactions continue to increase as a percentage of total point-of-sale payments, which
fuels continuing demand for card-related services. We continue to launch new services aimed at
accommodating this demand. In recent years, we have introduced a variety of stored-value card
types, Internet banking, and electronic bill presentment/payment services, as well as a number of
card enhancement and loyalty/reward programs. The common goal of these offerings continues to be
convenience and security for the consumer coupled with value to the financial institution. At the
same time, the use of checks continues to decline as a percentage of total point-of-sale payments.
We have announced that we are considering strategic alternatives for our remaining check
businesses, although no assurance can be given as to whether or when any disposal transaction or
other change with respect to those businesses will be accomplished.
We compete for both licensing and outsourcing business, and thus are affected by the decisions
of financial institutions to utilize our services under an outsourced arrangement or to process
in-house under a software license and maintenance agreement. As a provider of outsourcing
solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of
year to year economic changes on our results of operations. Generally, demand for outsourcing
solutions has increased over time as service providers such as us realize economies of scale and
improve their ability to provide services that improve customer efficiencies and reduce costs.
17
Consolidation within the banking industry may be beneficial or detrimental to our businesses.
When consolidations occur, merger partners often operate disparate systems licensed from competing
service providers. The newly formed entity generally makes a determination to migrate its core
systems to a single platform. When a financial institution processing client is involved in a
consolidation, we may benefit by 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 market
share if a customer of ours is involved in a consolidation and our services are not chosen to
survive the consolidation and support the newly combined entity. While it is difficult to mitigate
the risks of consolidations, we seek to do so through offering competitive services and trying to
take advantage of situations on a case by case basis depending on the specific opportunities at the
combined company.
We believe that we are in the midst of one of the most difficult times that has ever existed
for financial institutions, retailers and other businesses in the United States and
internationally. We expect there to be a significant number of bank failures in the next few years,
which may be offset to a degree by somewhat decreased bank acquisition activity. However, we
believe that our potential exposure to bank failures and forced government actions that have
occurred to date is less than one percent of our revenues. Additionally, this exposure does not
consider any incremental revenues we may generate from potential license fees or service associated
with assisting surviving institutions with integrating acquired assets resulting from financial
failures. In the current economy, we believe customers may turn more to outsourcing as a means to
reduce fixed costs and gain a competitive edge. However, although we have lately seen an increase
in requests for outsourcing proposals, it is not yet certain how many of these requesting financial
institutions will move forward with their potential projects given current economic conditions.
Financial institutions may defer upgrades or other outsourcing projects until conditions improve.
We believe that software sales and to a lesser degree professional services will be the most at
risk as far as purchases that financial institutions may defer, because in general they tend to be
more discretionary than outsourcing projects. The software sales and professional services
represented approximately 14% of our revenues during the year ended December 31, 2008. We are
addressing the foregoing trends and business conditions in part by managing our costs and capital
expenditures, as described above, and by ensuring that the pricing and quality of our services
continue to deliver value for our existing and potential customers.
While we believe that we are well positioned to withstand the current financial crisis, there
are factors outside our control that might impact our operating results that we may not be able to
fully anticipate as to timing and severity, including but not limited to adverse effects if banks
are nationalized, continued global economic conditions worsen, causing further slowdowns in
consumer spending and lending, and the impact on our ability to access capital should any of our
lenders fail.
Critical Accounting Policies
There have been no significant changes to our critical accounting policies since our Form 10-K
was filed on February 27, 2009, as amended by our Form 10-K/A filed on March 10, 2009.
Transactions with Related Parties
See Note 3 to the Notes to Consolidated Financial Statement for a detailed description of
transactions with related parties.
Discontinued Operations
See Note 2 to the Notes to Consolidated Financial Statements for a detailed description of
discontinued operations.
Factors Affecting Comparability
On July 2, 2008, we completed the LPS spin-off. The results of operations of the Lender
Processing Services segment through the spin-off date are reflected as discontinued operations in
the Consolidated Statements of Earnings for all periods presented.
As a result of the above transaction, the results of operations in the periods covered by the
Consolidated Financial Statements may not be directly comparable.
18
Comparisons of three-month and six-month periods ended June 30, 2009 and 2008
Consolidated Results of Operations
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Processing and services revenues |
|
$ |
834.8 |
|
|
$ |
869.7 |
|
|
$ |
1,632.6 |
|
|
$ |
1,700.0 |
|
Cost of revenues |
|
|
602.7 |
|
|
|
674.0 |
|
|
|
1,199.9 |
|
|
|
1,322.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
232.1 |
|
|
|
195.7 |
|
|
|
432.7 |
|
|
|
377.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative expenses |
|
|
93.2 |
|
|
|
117.9 |
|
|
|
189.3 |
|
|
|
229.0 |
|
Research and development costs |
|
|
21.5 |
|
|
|
19.9 |
|
|
|
44.1 |
|
|
|
39.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
117.4 |
|
|
|
57.9 |
|
|
|
199.3 |
|
|
|
109.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
0.5 |
|
|
|
1.5 |
|
|
|
1.3 |
|
|
|
4.3 |
|
Interest expense |
|
|
(31.8 |
) |
|
|
(43.6 |
) |
|
|
(63.8 |
) |
|
|
(82.4 |
) |
Other income |
|
|
5.5 |
|
|
|
1.3 |
|
|
|
6.7 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(25.8 |
) |
|
|
(40.8 |
) |
|
|
(55.8 |
) |
|
|
(78.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes
and equity in losses of unconsolidated entities |
|
|
91.6 |
|
|
|
17.1 |
|
|
|
143.5 |
|
|
|
31.1 |
|
Provision for income taxes |
|
|
31.6 |
|
|
|
3.3 |
|
|
|
49.5 |
|
|
|
6.6 |
|
Equity in losses of unconsolidated entities |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax |
|
|
60.0 |
|
|
|
13.6 |
|
|
|
94.0 |
|
|
|
24.3 |
|
(Losses) earnings from discontinued operations, net of tax |
|
|
(0.4 |
) |
|
|
59.2 |
|
|
|
(1.7 |
) |
|
|
118.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
59.6 |
|
|
|
72.8 |
|
|
|
92.3 |
|
|
|
143.1 |
|
Net earnings attributable to noncontrolling interest |
|
|
(0.4 |
) |
|
|
(0.9 |
) |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to FIS |
|
$ |
59.2 |
|
|
$ |
71.9 |
|
|
$ |
92.2 |
|
|
$ |
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic from continuing operations
attributable to FIS common stockholders |
|
$ |
0.31 |
|
|
$ |
0.07 |
|
|
$ |
0.49 |
|
|
$ |
0.13 |
|
Net earnings (loss) per share basic from discontinued
operations attributable FIS common stockholders |
|
|
|
|
|
|
0.30 |
|
|
|
(0.01 |
) |
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic attributable to FIS common
stockholders |
|
$ |
0.31 |
|
|
$ |
0.37 |
|
|
$ |
0.48 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic |
|
|
190.3 |
|
|
|
192.5 |
|
|
|
190.2 |
|
|
|
193.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted from continuing operations
attributable to FIS common stockholders |
|
$ |
0.31 |
|
|
$ |
0.07 |
|
|
$ |
0.49 |
|
|
$ |
0.12 |
|
Net earnings per share diluted from discontinued operations
attributable to FIS common stockholders |
|
|
|
|
|
|
0.30 |
|
|
|
(0.01 |
) |
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted attributable to FIS common
stockholders |
|
$ |
0.31 |
|
|
$ |
0.37 |
|
|
$ |
0.48 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted |
|
|
192.7 |
|
|
|
194.4 |
|
|
|
192.2 |
|
|
|
195.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to FIS common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax |
|
$ |
59.6 |
|
|
$ |
13.3 |
|
|
$ |
93.9 |
|
|
$ |
24.2 |
|
(Losses) earnings from discontinued operations, net of tax |
|
|
(0.4 |
) |
|
|
58.6 |
|
|
|
(1.7 |
) |
|
|
118.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to FIS |
|
$ |
59.2 |
|
|
$ |
71.9 |
|
|
$ |
92.2 |
|
|
$ |
142.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing and Services Revenues
Processing and services revenues totaled $834.8 million and $869.7 million for the three-month
periods and $1,632.6 million and $1,700.0 million for the six-month periods ended June 30, 2009 and
2008, respectively. The decrease in revenue of $34.9 million, or 4.0% during the three-month period
and $67.4 million or 4.0% during the six-month period ended June 30, 2009, as compared to the 2008
periods is primarily attributable to the impact of unfavorable foreign currency translations
resulting from a strengthening of the U.S. dollar. Excluding the impact of unfavorable foreign
currency translations, our International revenue growth was offset by declines in Financial
Solutions and Payment Solutions segment revenues during both the three-month and six month periods
ended June 30, 2009.
19
Cost of Revenues
Cost of revenues totaled $602.7 million and $674.0 million for the three-month periods and
$1,199.9 million and $1,322.7 million for the six-month periods ended June 30, 2009 and 2008,
respectively, resulting in gross profit of $232.1 million and $195.7 million for the three-month
periods and $432.7 million and $377.3 million for the six-month periods ended June 30, 2009 and
2008, respectively. Gross profit as a percentage of revenues (gross margin) was 27.8% and 22.5%
in the three-month periods and 26.5% and 22.2% in the six-month periods ended June 30, 2009 and
2008, respectively. The decrease in cost of revenues of $71.3 million in the three-month period and
$122.8 million in the six-month period ended June 30, 2009, as compared to the 2008 periods is
primarily attributable to foreign currency adjustments resulting from a strengthening of the U.S.
dollar and the decrease in revenue across our three operating segments. The increase in gross
margin of 5.3% in the three-month period and 4.3% in the six-month period ended June 30, 2009 over
2008 periods was primarily driven by cost reduction activities and improved operating efficiency.
Selling, General and Administrative Expenses
Selling, general and administrative expenses totaled $93.2 million and $117.9 million for the
three-month periods and $189.3 million and $229.0 million for the six-month periods ended June 30,
2009 and 2008, respectively. The decrease of $24.7 million in the three-month period and $39.7
million in the six-month period ended June 30, 2009, as compared to 2008 is primarily due to
higher costs in the prior year related to integration of the 2007 eFunds acquisition and
restructuring activities related to the LPS spin-off. Stock-based compensation decreased $2.3
million and $14.8 during the three-month and six-month periods ended June 30, 2009, respectively,
as compared to the 2008 periods. The reduction in stock-based compensation for the three month
period was mainly attributable to $2.6 million of acceleration charges related to terminations
included in the prior year period. The six-month period ended June 30, 2008, also included $14.1
million related to the accelerated vesting of all stock awards held by eFunds employees assumed in
the eFunds acquisition. In addition to the acceleration of stock compensation, the three and six
month periods ended June 30, 2008 included $8.1 million and $13.8 million, respectively, in other
integration and restructuring costs. These amounts are partially offset by merger related costs
incurred in the 2009 three-month and six-month periods related to the planned Metavante
acquisition. Also included in 2008 were $9.0 million and $18.0 million in the three-month and
six-month periods, respectively, for administrative costs associated with LPS that did not qualify
for discontinued operations treatment.
Research and Development Costs
Research and development costs totaled $21.5 million and $19.9 million for the three-month
periods and $44.1 million and $39.2 million for the six-month periods ended June 30, 2009 and 2008,
respectively. The increase in research and development costs for the 2009 periods as compared to
the 2008 periods results from the determination of which costs are capitalized versus expensed
based on the nature and progression of the projects underway in the respective periods.
Operating Income
Operating income totaled $117.4 million and $57.9 million for the three-month periods and
$199.3 million and $109.1 million for the six-month periods ended June 30, 2009 and 2008,
respectively. Operating income as a percentage of revenue (operating margin) was 14.1% and 6.7%
in the three-month periods and 12.2% and 6.4% in the six-month periods ended June 30, 2009 and
2008, respectively. The increase in operating margin for 2009 periods as compared to 2008 periods
is attributable to the decreased stock compensation costs, restructuring and integration charges,
and charges associated with the LPS spin-off noted previously and the impact of cost-containment
activities, as well as improved operating efficiency.
Interest Expense
Interest expense totaled $31.8 million and $43.6 million for the three-month periods and $63.8
million and $82.4 million for the six-month periods ended June 30, 2009 and 2008, respectively. The
decrease of $11.8 million and $18.6 million in interest expense in the three-month and six-month
periods ended June 30, 2009 as compared to the 2008 periods results from a reduction in our overall
debt balance and a favorable decrease in borrowing rates under our credit facility. Additionally,
the six-month period ended June 30, 2008 also included a $9.3 million make-whole premium on the
redemption of the eFunds Notes.
Provision for Income Taxes
Income tax expense from continuing operations totaled $31.6 million and $3.3 million for the
three-month periods and $49.5 million and $6.6 million for the six-month periods ended June 30,
2009 and 2008, respectively. This resulted in an effective tax rate on continuing operations of
34.5% for the three-month and six-month periods ended June 30, 2009 and 19.3% and 21.2% for the
three-month and six-month periods ended June 30, 2008, respectively. The increase in tax expense
for the 2009 periods as
20
compared to the 2008 periods is attributable to increased operating income
in the 2009 periods. The increase in the 2009 periods overall effective tax rate is primarily
related to the impact of the LPS spin-off in 2008.
Net Earnings from Continuing Operations Attributable to FIS Common Stockholders
Net earnings from continuing operations attributable to FIS common stockholders totaled $59.6
million and $13.3 million for the three-month periods ended June 30, 2009 and 2008, respectively,
or $0.31 and $0.07 per diluted share, respectively, due to the factors described above. Net
earnings from continuing operations attributable to FIS common stockholders totaled $93.9 million
and $24.2 million for the six-month periods ended June 30, 2009 and 2008, respectively, or $0.49
and $0.12 per diluted share, respectively, due to the factors described above.
Segment Results of Operations
Financial Solutions
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Processing and services revenues |
|
$ |
277.0 |
|
|
$ |
280.8 |
|
|
$ |
548.3 |
|
|
$ |
561.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
90.7 |
|
|
$ |
77.9 |
|
|
$ |
164.3 |
|
|
$ |
147.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the Financial Solutions segment totaled $277.0 million and $280.8 million for the
three-month periods and $548.3 million and $561.2 million for the six-month periods ended June 30,
2009 and 2008, respectively. The overall segment decrease of $3.8 million and $12.9 million in the
three-month and six-month periods ended June 30, 2009, respectively, as compared to the 2008
periods resulted primarily from lower software license and professional services revenue, partially
offset by increased demand in risk management and higher commercial outsourcing services revenue.
Operating income for the Financial Solutions segment totaled $90.7 million and $77.9 million
for the three-month periods and $164.3 million and $147.4 million for the six-month periods ended
June 30, 2009 and 2008, respectively. Operating margin was approximately 32.7% and 27.7% for the
three-month periods and 30.0% and 26.3% for the six-month periods ended June 30, 2009 and 2008,
respectively. The increased operating margins in the three-month and six-month periods ended June
30, 2009 as compared to 2008 periods primarily resulted from the impact of $10.3 million in
severance and integration related costs incurred in the three-month period ended June 30, 2008
coupled with additional current year targeted cost reductions.
Payment Solutions
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Processing and services revenues |
|
$ |
380.0 |
|
|
$ |
383.4 |
|
|
$ |
744.7 |
|
|
$ |
756.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
94.4 |
|
|
$ |
87.5 |
|
|
$ |
178.5 |
|
|
$ |
158.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the Payment Solutions segment totaled $380.0 million and $383.4 million for the
three-month periods and $744.7 million and $756.7 million for the six-month periods ended June 30,
2009 and 2008, respectively. The overall segment decrease of $3.4 million and $12.0 million in the
three-month and six-month periods ended June 30, 2009, respectively, as compared to the 2008
periods resulted primarily from declines in the Companys retail check guarantee business and item
processing services. Excluding the Companys retail check guarantee business, revenue from both
periods, Payment Solutions revenue increased 0.4% and 0.5% for the three-month and six-month
periods ended June 30, 2009, respectively, as growth in debit processing and printing services was
offset by declines in prepaid, merchant and item processing activity.
Operating income for the Payment Solutions segment totaled $94.4 million and $87.5 million for
the three-month periods and $178.5 million and $158.4 million for the six-month periods ended June
30, 2009 and 2008, respectively. Operating margin was approximately 24.8% and 22.8% for the
three-month periods and 24.0% and 20.9% for the six-month periods ended June 30, 2009 and 2008,
respectively. The increase in 2009 periods as compared to 2008 periods primarily resulted from
increased operating margin efficiencies and targeted cost reductions.
21
International
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Processing and services revenues |
|
$ |
178.4 |
|
|
$ |
206.8 |
|
|
$ |
340.7 |
|
|
$ |
383.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
14.9 |
|
|
$ |
7.6 |
|
|
$ |
25.1 |
|
|
$ |
19.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues for the International segment totaled $178.4 million and $206.8 million for the
three-month periods and $340.7 million and $383.7 million for the six-month periods ended June 30,
2009 and 2008, respectively. The overall segment decrease of $28.4 million and $43.0 million in the
three-month and six-month periods ended June 30, 2009, respectively, as compared to 2008 periods
resulted primarily from unfavorable currency effects of $31.2 million and $66.1 million for the
three-month and six-month periods ended June 30, 2009, respectively. Excluding the impact of
unfavorable foreign currency, total International Segment revenue increased 1.4% and 6.0% for the
three-month and six-month periods ended June 30, 2009, respectively, in constant currency driven by
growth in core processing in Europe and transaction volumes in Brazil.
Operating income for the International segment totaled $14.9 million and $7.6 million for the
three-month periods and $25.1 million and $19.8 million for the six-month periods ended June 30,
2009 and 2008, respectively. Operating margin was approximately 8.4% and 3.7% for the three-month
periods and 7.4% and 5.2% for the six-month periods ended June 30, 2009 and 2008, respectively. The
increase in 2009 periods as compared to 2008 periods primarily resulted from increased operating
margin efficiencies and targeted cost reductions.
Corporate and Other
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 expenses were $82.6 million and $115.1 million for the
three-month periods and $168.6 million and $216.5 million for the six-month periods ended June 30,
2009 and 2008, respectively. The overall Corporate and Other decrease of $32.5 million and $47.9
million for three-month and six-month periods ended June 30, 2009, respectively, as compared to the
2008 periods is primarily attributable to higher costs in the prior year related to integration of
the 2007 eFunds acquisition and restructuring activities related to the LPS spin-off.
Stock-based compensation decreased $2.3 million and $14.8 million during the three-month and
six-month periods ended June 30, 2009, respectively, as compared to the 2008 periods. The reduction
in stock-based compensation for the three-month period was mainly attributable to $2.6 million of
acceleration charges related to terminations included in the prior year period. The 2008 six-month
period also included $14.1 million related to the accelerated vesting of all stock awards held by
eFunds employees assumed in the eFunds acquisition. In addition to the acceleration of stock
compensation, the three and six month periods ended June 30, 2008 included $8.1 million and $13.8
million, respectively, in other integration and restructuring costs. These amounts are partially
offset by merger related costs incurred in the 2009 three-month and six-month periods related to
the planned Metavante acquisition. Also included in 2008 were $9.0 million and $18.0 million in
the three-month and six-month periods, respectively, for administrative costs associated with LPS
that did not qualify for discontinued operations treatment.
In addition to these factors, amortization of purchase accounting related intangibles declined
$6.3 million and $12.7 million, respectively, for the three and six month periods ended June 30,
2009 as compared to the prior year periods due to accelerated amortization in the earlier years
following an acquisition.
Liquidity and Capital Resources
Cash Requirements
Our cash requirements include cost of revenues, selling, general and administrative expenses,
income taxes, debt service payments, capital expenditures, systems development expenditures,
stockholder dividends, and business acquisitions. Our principal sources of funds are cash generated
by operations and borrowings.
At June 30, 2009, we had cash on hand of $227.9 million and debt of approximately $2,292.1
million, including the current portion. Of the $227.9 million cash on hand, approximately $175.3
million is held by our operations in foreign jurisdictions. We expect that cash flows from
operations over the next twelve months will be sufficient to fund our operating cash requirements
and pay principal and interest on our outstanding debt absent any unusual circumstances such as
acquisitions or adverse changes in the business environment. The proposed Merger with Metavante is
not expected to have a significant immediate impact on cash operating requirements.
22
We currently pay a $0.05 dividend on a quarterly basis, and expect to continue to do so in the
future. The declaration and payment of future dividends is at the discretion of the Board of
Directors and depends on, among other things, our investment policy and 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 $0.05 per common share was paid on June 30, 2009 to shareholders of
record as of the close of business on June 16, 2009.
Cash Flows from Operations
Cash flows from operations were $331.1 million and $242.8 million for the six-month periods
ended June 30, 2009 and 2008, respectively. Cash flows from operations in 2008 include cash flows
from LPS of $136.7 million. Excluding the impact of LPS in 2008, cash flows from operations
increased by $225.0 million due to higher earnings and better working capital management during the
six-month period ended June 30, 2009.
Capital Expenditures
Our principal capital expenditures are for computer software (purchased and internally
developed) and additions to property and equipment. We spent approximately $96.2 million and $155.6
million on capital expenditures during the six-month periods ended June 30, 2009 and 2008,
including approximately $25.2 million during the 2008 period related to discontinued operations
including LPS prior to the spin-off. In 2009, we expect to spend approximately 5% to 7% of 2009
revenue on capital expenditures.
Financing
On January 18, 2007, we entered into a credit agreement with JPMorgan Chase Bank, N.A., as
Administrative Agent, Swing Line Lender, and Letter of Credit Issuer, Bank of America, N.A., as
Swing Line Lender, and other financial institutions party thereto (the Credit Agreement). The
Credit Agreement, which became secured as of September 12, 2007, provides for a committed $2.1
billion five-year term facility denominated in U.S. Dollars (the Term Loan A) and a committed
$900 million revolving credit facility (the Revolving Loan) with a sublimit of $250 million for
letters of credit and a sublimit of $250 million for swing line loans, maturing on the fifth
anniversary of the closing date, January 18, 2012 (the Maturity Date). On July 30, 2007, we,
along with the requisite lenders, executed an amendment to the existing Credit Agreement to
facilitate our acquisition of eFunds. The amendment permitted the issuance of up to $2.1 billion in
additional loans. The amendment became effective September 12, 2007. On September 12, 2007, we
entered into a joinder agreement to obtain a secured $1.6 billion tranche of term loans denominated
in U.S. Dollars (the Term Loan B) under the Credit Agreement, utilizing $1.6 billion of the $2.1
billion uncommitted incremental loan amount. The Term Loan B proceeds were used to finance the
eFunds Acquisition, and pay related fees and expenses. On July 2, 2008, we completed the spin-off
of our former Lender Processing Services segment into a separate publicly traded company, Lender
Processing Services, Inc., referred to as LPS. In conjunction with the LPS spin-off, we immediately
retired the outstanding $1,585.0 million principal balance of the Term Loan B. Debt issuance costs
of $7.4 million are capitalized as of June 30, 2009. The $12.4 million remaining balance of Term
Loan B debt issuance costs were written-off during July 2008 in conjunction with the LPS spin-off
and retirement of the Term Loan B.
As of June 30, 2009, the Term Loan A balance was $1,942.5 million and a total of $329.6
million was outstanding under the Revolving Loan. The obligations under the Credit Agreement have
been jointly and severally, unconditionally guaranteed by certain of our domestic subsidiaries.
Additionally, we and certain subsidiary guarantors pledged certain equity interests in other
entities (including certain of our direct and indirect subsidiaries) as collateral security for the
obligations under the credit facility and the guarantee.
We may borrow, repay and re-borrow amounts under the Revolving Loan from time to time until
the maturity of the Revolving Loan. We must make quarterly principal payments under the Term Loan A
in scheduled installments of: (a) $26.3 million per quarter from September 30, 2009 through
December 31, 2009; and (b) $52.5 million per quarter from March 31, 2010 through September 30,
2011, with the remaining balance of approximately $1.5 billion payable on the Maturity Date.
In addition to the scheduled principal payments, the Term Loan is (with certain exceptions)
subject to mandatory prepayment upon the occurrence of certain events. There were no mandatory
prepayments owed for the period ended June 30, 2009. Voluntary prepayment of the Loan is generally
permitted at any time without fee upon proper notice and subject to a minimum dollar requirement.
Commitment reductions of the Revolving Loan are also permitted at any time without fee upon proper
notice. The Revolving Loan has no scheduled principal payments, but it will be due and payable in
full on the Maturity Date.
The outstanding balance on the Loans bears interest at a floating rate. As of June 30, 2009,
we have entered into interest rate swap transactions converting a portion of the interest rate
exposure on our Term and Revolving Loans from variable to fixed (see Item 3).
23
The Credit Agreement contains affirmative, negative and financial covenants and events of
default, that, in each case, are customary for financings of this type. Upon an event of default,
the Administrative Agent can accelerate the maturity of the Loans. We were in compliance with all
covenants related to the Credit Agreement at June 30, 2009.
As of June 30, 2009, one financial institution that was a party to our credit facility had
failed, thereby reducing the amount available to us under our credit facility by an immaterial
amount. No other financial institutions that are a party to our credit facility or our interest
rate swap agreements have failed to date. We continue to monitor the financial stability of our
counterparties on an ongoing basis. The lenders under our credit facility are a diversified set of
financial institutions both domestic and international. Concentration has increased due to recent
consolidation with the top 10 lenders thereunder having about 62% of the overall facility. The loss
of any single participant would not adversely impact our ability to fund operations. The revolving
facility is bifurcated into two tranches each with a distinct group of lenders and we retain
capacity under both tranches. If the single largest lender were to default under the terms of the
credit agreement, the maximum loss of liquidity on the undrawn portion of the revolver would be
about $70.8 million.
Contractual Obligations
Our contractual obligations have not changed materially from the table included in our Form
10-K as filed on February 27, 2009, as amended by our Form 10-K/A filed on March 10, 2009.
Off-Balance Sheet Arrangements
FIS does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (FASB) issued new guidance
requiring an acquirer in a business combination to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree at their fair values at the acquisition
date, with limited exceptions. The costs of the acquisition and any related restructuring costs
will be recognized separately. When the fair value of assets acquired exceeds the fair value of
consideration transferred plus any noncontrolling interest in the acquiree, the excess will be
recognized as a gain. All business combinations will be accounted for prospectively by applying the
acquisition method, including combinations among mutual entities and combinations by contract
alone. In April 2009, the FASB amended and clarified the initial recognition and measurement,
subsequent measurement and accounting, and related disclosures arising from contingencies in a
business combination. Assets and liabilities arising from contingencies in a business combination
are to be recognized at their fair value on the acquisition date if fair value can be determined
during the measurement period. If fair value cannot be determined, the existing guidance for
contingencies and other authoritative literature should be followed. This new guidance is
effective for periods beginning on or after December 15, 2008, and will apply to business
combinations occurring after the effective date. The Company will apply the provisions to
business combinations subsequent to December 31, 2008.
In June 2009, the FASB issued new guidance for transfers and servicing of financial assets.
The primary changes include: (1) the elimination of the qualified special purpose entity concept,
and the exception that allowed many transferors to deconsolidate such entities; (2) a new
participating interest definition that must be met for transfers of portions of financial assets
to be eligible for sale accounting; (3) clarification and amendments to the derecognition criteria
for a transfer to be accounted for as a sale; (4) a change to the amount of recognized gain/loss
on a transfer accounted for as a sale when beneficial interests are received by the transferor; and
(5) enhanced disclosure requirements. This new guidance will be applied prospectively to new
transfers of financial assets occurring in fiscal years beginning after November 15, 2009.
In June 2009, the FASB issued new consolidation guidance for variable interest entities
(VIEs). It requires an enterprise to qualitatively assess the determination of the primary
beneficiary (or consolidator) of a VIE based on whether the entity (1) has the power to direct
matters that most significantly impact the activities of the VIE, and (2) has the obligation to
absorb losses or the right to receive benefits of the VIE that could potentially be significant to
the VIE. The new guidance changes the consideration of kick-out rights in determining if an entity
is a VIE which may cause certain additional entities to be considered VIEs. It also requires an
ongoing reconsideration of the primary beneficiary, and amends the events that trigger a
reassessment of whether an entity is a VIE. The new guidance is effective January 1, 2010 for
calendar year-end companies. There is no grandfathering of previous consolidation conclusions. As
a result, any existing VIEs at date of adoption must be re-evaluated. The Company currently has
no unconsolidated VIEs; thus, this new guidance is not expected to have an impact on the Companys
financial position or results of operations.
24
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. On a limited basis, we use certain derivative financial instruments, including
interest rate swaps, to manage interest rate risk. We do not use derivatives for trading purposes,
to generate income or to engage in speculative activity.
Interest Rate Risk
At the present time, our only material market risk-sensitive instruments are our debt and
related interest rate swaps. We have issued debt that bears interest at floating rates. We use
interest rate swaps for the purpose of controlling interest expense by managing the mix of fixed
and floating rate debt. We do not seek to make a profit from changes in interest rates. We manage
interest rate sensitivity by measuring potential increases in interest expense that would result
from a probable change in interest rates. When the potential increase in interest expense exceeds
an acceptable amount, we reduce risk through the purchase of derivatives.
As of June 30, 2009, we are paying interest on our Revolving Loan at LIBOR plus 0.70% and on
our Term Loan A at LIBOR plus 0.88%. An increase of 100 basis points in the LIBOR rate would increase our
annual debt service under our Credit Agreement, after we calculate the impact of our interest rate
swaps, by $1.9 million (based on principal amounts outstanding at June 30, 2009). We performed the
foregoing sensitivity analysis based on the principal amount of our floating rate debt as of June
30, 2009, less the principal amount of such debt that was then subject to an interest rate swap
converting such debt into fixed rate debt. This sensitivity analysis is based solely on the
principal amount of such debt as of June 30, 2009 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 or in the notional amount of outstanding interest rate swaps in respect of our
debt. Further, in this sensitivity analysis, the change in interest rates is assumed to be
applicable for an entire year. For comparison purposes, based on
principal amounts on the Revolving Loan and Term Loan A outstanding as
of June 30, 2008, and calculated in the same manner as set forth
above, an increase of 100 basis points in the LIBOR
rate would have increased our annual debt service, after we calculate the impact of our interest
rate swaps, by $3.9 million.
As of June 30, 2009, we have entered into the following interest rate swap transactions
converting a portion of the interest rate exposure on our Term and Revolving Loans from variable to
fixed (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount |
|
|
Bank Pays |
|
|
FIS pays |
|
Effective Date |
|
Termination Date |
|
|
(in millions) |
|
|
Variable Rate of(1) |
|
|
Fixed Rate of(2) |
|
October 11, 2007 |
|
October 11, 2009 |
|
$ |
1,000.0 |
|
|
1 Month Libor |
|
|
4.73 |
% |
December 11, 2007 |
|
December 11, 2009 |
|
|
250.0 |
|
|
1 Month Libor |
|
|
3.80 |
% |
April 11, 2007 |
|
April 11, 2010 |
|
|
850.0 |
|
|
1 Month Libor |
|
|
4.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
0.32% in effect at June 30, 2009 under the agreements. |
|
(2) |
|
In addition to the fixed rates paid under the swaps, we
pay an applicable margin to our bank lenders on the
Term Loan A of 0.88% and the Revolving Loan of 0.70%
(plus a facility fee of 0.18%) as of June 30, 2009. |
Foreign Currency Risk
Our exposure to foreign currency exchange risks arises from our non-U.S. operations generally,
to the extent they are conducted in local currency. Changes in foreign currency exchange rates
affect translations of revenues denominated in currencies other than U.S. Dollars. Our
international operations generated approximately $178.4 million and $340.7 million in revenues
during the three-month and six-month periods ended June 30, 2009, of which approximately $146.4
million and $275.5 million, respectively, were denominated in currencies other than the U.S.
Dollar. The major currencies that we are exposed to are the Brazilian Real, the Euro and the
British Pound Sterling. 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 had
the following effects on our reported revenues for the three-month and six-month periods ended June
30, 2009 and 2008 (in millions):
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
Currency |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Real |
|
$ |
6.3 |
|
|
$ |
7.2 |
|
|
$ |
11.7 |
|
|
$ |
12.6 |
|
Euro |
|
|
4.7 |
|
|
|
5.4 |
|
|
|
9.3 |
|
|
|
9.9 |
|
Pound Sterling |
|
|
1.7 |
|
|
|
2.0 |
|
|
|
3.0 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impact |
|
$ |
12.7 |
|
|
$ |
14.6 |
|
|
$ |
24.0 |
|
|
$ |
27.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact on earnings of the foregoing assumed 10% change in each of the periods presented
would not have been significant.
We do not have an established policy or procedure to manage foreign exchange rate risk at this
time. As our international operations grow, we will evaluate the need to implement foreign exchange
rate risk management policies, and we are currently analyzing our operations and related foreign
currency risk. If a policy were established to manage foreign exchange rate risk, we would consider
hedging both fair value and cash flow exposures using derivatives such as foreign currency forward
contracts, collars and other types of option contracts to minimize foreign exchange rate risk.
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
(the Exchange Act). Based on this evaluation, our principal executive officer and principal
financial officer concluded that the 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 Act
is: (a) recorded, processed, summarized and reported, within the time periods specified in the
Commissions 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.
Part II: OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of Litigation in Note 7 to the consolidated financial statements included in
Item 1 of Part I of this Report, which is incorporated by reference into this Part II, Item 1.
Item 1A. Risk Factors
There have been no material changes in the Risk Factors described in our Annual Report on Form
10-K for the year ended December 31, 2008, other than as described in our Quarterly Report on Form
10-Q for the quarter ended March 31, 2009.
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Stockholders was held on May 28, 2009. The results of matters submitted
to a vote were as follows:
Nominees for Class I directors to serve until the 2012 FIS Annual Meeting of Shareholders were
elected by the following vote:
|
|
|
|
|
|
|
|
|
|
|
Shares Voted |
|
Authority to Vote |
|
|
For |
|
Withheld |
William P. Foley, II |
|
|
158,287,773 |
|
|
|
13,622,351 |
|
Thomas M. Hagerty |
|
|
107,020,544 |
|
|
|
64,889,580 |
|
Keith W. Hughes |
|
|
152,674,812 |
|
|
|
19,235,312 |
|
Nominee for Class III directors to serve until the 2011 FIS Annual Meeting of Shareholders was
elected by the following vote:
|
|
|
|
|
|
|
|
|
|
|
Shares Voted |
|
Authority to Vote |
|
|
For |
|
Withheld |
Richard N. Massey |
|
|
158,832,051 |
|
|
|
13,078,073 |
|
26
Directors whose term of office as a director continued after the meeting are as follows: David
K. Hunt and Lee A. Kennedy.
The proposal to approve the ratification of the appointment of KPMG LLP as the independent
registered public accounting firm for FIS for the 2009 fiscal year received the following votes:
|
|
|
|
|
|
|
|
|
|
|
Votes |
|
Percentage |
Shares Voted For |
|
|
169,273,255 |
|
|
|
98.47 |
% |
Shares Voted Against |
|
|
1,112,558 |
|
|
|
0.65 |
% |
Shares Voted Abstain |
|
|
1,524,911 |
|
|
|
0.88 |
% |
Item 6. Exhibits
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.1
|
|
Assignment and Assumption of Lease and Other Operative Documents, dated as of June 25, 2001, among
Equifax Inc., Certegy Inc., Prefco VI Limited Partnership, Atlantic Financial Group, Ltd. and
SunTrust Bank. (1) |
|
|
|
10.2
|
|
Tax Sharing and Indemnification Agreement, dated as of June 30, 2001, between Equifax Inc. and
Certegy Inc. (1) |
|
|
|
10.3
|
|
Intellectual Property Agreement, dated as of June 30, 2001, between Equifax Inc. and Certegy Inc. (1) |
|
|
|
10.4
|
|
Agreement Regarding Leases, dated as of June 30, 2001, between Equifax Inc. and Certegy Payment
Services, Inc. (1) |
|
|
|
10.5
|
|
2003 Renewal Service Agreement, dated as of June 1, 2003, between ICBA Bancard, Inc. and Certegy
Card Services, Inc. (1) (2) |
|
|
|
10.6
|
|
2004 Restated CSCU Card Processing Service Agreement, dated as of January 1, 2004, between Card
Services for Credit Unions, Inc. and Certegy Card Services, Inc. (1) (2) |
|
|
|
10.7
|
|
Certegy Inc. Special Supplemental Executive Retirement Plan, effective as of November 7, 2003. (1) |
|
|
|
10.8
|
|
Certegy Inc. Supplemental Executive Retirement Plan, effective as of November 5, 2003. (1) |
|
|
|
10.9
|
|
Master Agreement for Operations Support Services, dated as of June 29, 2001, between Certegy Inc.
and International Business Machines Corporation (Master Agreement) (Document omits information
pursuant to a Request for Confidential Treatment granted under Rule 24b-2 of the Securities Exchange
Act of 1934.) (1) |
|
|
|
10.10
|
|
Transaction Document #03-01 under the Master Agreement, effective as of March 5, 2003, between
Certegy Inc. and International Business Machines Corporation (Document omits information pursuant to
a Request for Confidential Treatment granted under Rule 24b-2 of the Securities Exchange Act of
1934.) (1) |
|
|
|
10.11
|
|
Credit Agreement, dated as of January 18, 2007, among Fidelity National Information Services, Inc.,
certain of its subsidiaries, JPMorgan Chase Bank, N.A., Bank of America, N.A., and other financial
institutions party thereto (the Credit Agreement). (1) |
|
|
|
10.12
|
|
Amendment No. 1 to the Credit Agreement, dated as of July 30, 2007. (1) |
|
|
|
10.13
|
|
Joinder Agreement, dated as of September 12, 2007, by and among Fidelity National Information
Services, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wachovia Bank N.A. (1) |
|
|
|
31.1
|
|
Certification of Lee A. Kennedy, 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 George P. Scanlon, 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 Lee A. Kennedy, 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 George P. Scanlon, 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. |
27
|
|
|
(1) |
|
Note The contracts filed with this 10-Q were previously filed without the exhibits thereto.
They are being refiled merely to put the full agreements on file, including exhibits. |
|
(2) |
|
Portions of this Exhibit have been omitted and filed separately with the Securities and
Exchange Commission as part of an application for confidential treatment pursuant to the Securities
Exchange Act of 1934, as amended. |
28
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.
|
|
|
|
|
Date: August 5, 2009 |
Fidelity National Information Services, Inc.
|
|
|
By: |
/s/ GEORGE P. SCANLON
|
|
|
|
George P. Scanlon |
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
|
|
29
FIDELITY NATIONAL INFORMATION SERVICES, INC.
FORM 10-Q
INDEX TO EXHIBITS
The following documents are being filed with this Report:
|
|
|
Exhibit |
|
|
No. |
|
Description |
10.1
|
|
Assignment and Assumption of Lease and Other Operative Documents, dated as of June 25, 2001, among
Equifax Inc., Certegy Inc., Prefco VI Limited Partnership, Atlantic Financial Group, Ltd. and
SunTrust Bank. (1) |
|
|
|
10.2
|
|
Tax Sharing and Indemnification Agreement, dated as of June 30, 2001, between Equifax Inc. and
Certegy Inc. (1) |
|
|
|
10.3
|
|
Intellectual Property Agreement, dated as of June 30, 2001, between Equifax Inc. and Certegy Inc. (1) |
|
|
|
10.4
|
|
Agreement Regarding Leases, dated as of June 30, 2001, between Equifax Inc. and Certegy Payment
Services, Inc. (1) |
|
|
|
10.5
|
|
2003 Renewal Service Agreement, dated as of June 1, 2003, between ICBA Bancard, Inc. and Certegy
Card Services, Inc. (1) (2) |
|
|
|
10.6
|
|
2004 Restated CSCU Card Processing Service Agreement, dated as of January 1, 2004, between Card
Services for Credit Unions, Inc. and Certegy Card Services, Inc. (1) (2) |
|
|
|
10.7
|
|
Certegy Inc. Special Supplemental Executive Retirement Plan, effective as of November 7, 2003. (1) |
|
|
|
10.8
|
|
Certegy Inc. Supplemental Executive Retirement Plan, effective as of November 5, 2003. (1) |
|
|
|
10.9
|
|
Master Agreement for Operations Support Services, dated as of June 29, 2001, between Certegy Inc.
and International Business Machines Corporation (Master Agreement) (Document omits information
pursuant to a Request for Confidential Treatment granted under Rule 24b-2 of the Securities Exchange
Act of 1934.) (1) |
|
|
|
10.10
|
|
Transaction Document #03-01 under the Master Agreement, effective as of March 5, 2003, between
Certegy Inc. and International Business Machines Corporation (Document omits information pursuant to
a Request for Confidential Treatment granted under Rule 24b-2 of the Securities Exchange Act of
1934.) (1) |
|
|
|
10.11
|
|
Credit Agreement, dated as of January 18, 2007, among Fidelity National Information Services, Inc.,
certain of its subsidiaries, JPMorgan Chase Bank, N.A., Bank of America, N.A., and other financial
institutions party thereto (the Credit Agreement). (1) |
|
|
|
10.12
|
|
Amendment No. 1 to the Credit Agreement, dated as of July 30, 2007. (1) |
|
|
|
10.13
|
|
Joinder Agreement, dated as of September 12, 2007, by and among Fidelity National Information
Services, Inc., Bank of America, N.A., JPMorgan Chase Bank, N.A. and Wachovia Bank N.A. (1) |
|
|
|
31.1
|
|
Certification of Lee A. Kennedy, 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 George P. Scanlon, 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 Lee A. Kennedy, 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 George P. Scanlon, 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. |
|
|
|
(1) |
|
Note The contracts filed with this 10-Q were previously filed without the exhibits thereto.
They are being refiled merely to put the full agreements on file, including exhibits. |
|
(2) |
|
Portions of this Exhibit have been omitted and filed separately with the Securities and
Exchange Commission as part of an application for confidential treatment pursuant to the Securities
Exchange Act of 1934, as amended. |
30