UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-Q
_______________________________________________
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2020
Or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from | to | ||||||||||
For the transition period from to
Commission File No. 001-16427
_______________________________________________
Fidelity National Information Services, Inc.
(Exact name of registrant as specified in its charter)
| Georgia | 37-1490331 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 601 Riverside Avenue | |||||||||||
| Jacksonville | Florida | 32204 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(904) 438-6000
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||||||||
| Trading | Name of each exchange | |||||||||||||
| Title of each class | Symbol(s) | on which registered | ||||||||||||
| Common Stock, par value $0.01 per share | FIS | New York Stock Exchange | ||||||||||||
| 0.400% Senior Notes due 2021 | FIS21A | New York Stock Exchange | ||||||||||||
| Floating Rate Senior Notes due 2021 | FIS21B | New York Stock Exchange | ||||||||||||
| 0.125% Senior Notes due 2021 | FIS21C | New York Stock Exchange | ||||||||||||
| 1.700% Senior Notes due 2022 | FIS22B | New York Stock Exchange | ||||||||||||
| 0.125% Senior Notes due 2022 | FIS22C | New York Stock Exchange | ||||||||||||
| 0.750% Senior Notes due 2023 | FIS23A | New York Stock Exchange | ||||||||||||
| 1.100% Senior Notes due 2024 | FIS24A | New York Stock Exchange | ||||||||||||
| 2.602% Senior Notes due 2025 | FIS25A | New York Stock Exchange | ||||||||||||
| 0.625% Senior Notes due 2025 | FIS25B | New York Stock Exchange | ||||||||||||
| 1.500% Senior Notes due 2027 | FIS27 | New York Stock Exchange | ||||||||||||
| 1.000% Senior Notes due 2028 | FIS28 | New York Stock Exchange | ||||||||||||
| 2.250% Senior Notes due 2029 | FIS29 | New York Stock Exchange | ||||||||||||
| 2.000% Senior Notes due 2030 | FIS30 | New York Stock Exchange | ||||||||||||
| 3.360% Senior Notes due 2031 | FIS31 | New York Stock Exchange | ||||||||||||
| 2.950% Senior Notes due 2039 | FIS39 | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||
Emerging growth company | ☐ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ☐ NO ☒
As of May 6, 2020, 617,833,816 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2020
INDEX
| Page | |||||
1
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
| March 31, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,373 | $ | 1,152 | |||||||
| Settlement deposits and merchant float | 2,337 | 2,882 | |||||||||
Trade receivables, net of allowance for credit losses of $74 and $60 at March 31, 2020 and December 31, 2019, respectively | 3,116 | 3,242 | |||||||||
| Contract assets | 141 | 124 | |||||||||
| Settlement receivables | 770 | 647 | |||||||||
| Other receivables | 275 | 337 | |||||||||
| Prepaid expenses and other current assets | 334 | 308 | |||||||||
| Total current assets | 8,346 | 8,692 | |||||||||
| Property and equipment, net | 870 | 900 | |||||||||
| Goodwill | 51,823 | 52,242 | |||||||||
| Intangible assets, net | 15,148 | 15,798 | |||||||||
| Software, net | 3,239 | 3,204 | |||||||||
| Other noncurrent assets | 2,299 | 2,303 | |||||||||
| Deferred contract costs, net | 749 | 667 | |||||||||
| Total assets | $ | 82,474 | $ | 83,806 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable, accrued and other liabilities | $ | 2,199 | $ | 2,374 | |||||||
| Settlement payables | 3,434 | 4,228 | |||||||||
| Deferred revenue | 898 | 817 | |||||||||
| Short-term borrowings | 743 | 2,823 | |||||||||
| Current portion of long-term debt | 652 | 140 | |||||||||
| Total current liabilities | 7,926 | 10,382 | |||||||||
| Long-term debt, excluding current portion | 18,982 | 17,229 | |||||||||
| Deferred income taxes | 4,131 | 4,281 | |||||||||
| Other noncurrent liabilities | 2,031 | 2,406 | |||||||||
| Deferred revenue | 47 | 52 | |||||||||
| Total liabilities | 33,117 | 34,350 | |||||||||
| Redeemable noncontrolling interest | $ | 175 | $ | — | |||||||
| Equity: | |||||||||||
| FIS stockholders’ equity: | |||||||||||
Preferred stock $0.01 par value; 200 shares authorized, none issued and outstanding at March 31, 2020 and December 31, 2019 | — | — | |||||||||
Common stock $0.01 par value, 750 shares authorized, 617 and 615 shares issued at March 31, 2020 and December 31, 2019, respectively | 6 | 6 | |||||||||
| Additional paid in capital | 45,548 | 45,358 | |||||||||
| Retained earnings | 3,952 | 4,161 | |||||||||
| Accumulated other comprehensive earnings (loss) | (248) | (33) | |||||||||
Treasury stock, $0.01 par value, 1 common shares as of March 31, 2020 and less than 1 common shares as of December 31, 2019, respectively, at cost | (91) | (52) | |||||||||
| Total FIS stockholders’ equity | 49,167 | 49,440 | |||||||||
| Noncontrolling interest | 15 | 16 | |||||||||
| Total equity | 49,182 | 49,456 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 82,474 | $ | 83,806 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In millions, except per share amounts)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenue | $ | 3,078 | $ | 2,057 | |||||||
| Cost of revenue | 2,089 | 1,381 | |||||||||
| Gross profit | 989 | 676 | |||||||||
| Selling, general, and administrative expenses | 881 | 361 | |||||||||
| Operating income | 108 | 315 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense, net | (80) | (75) | |||||||||
| Other income (expense), net | (39) | (52) | |||||||||
| Total other income (expense), net | (119) | (127) | |||||||||
| Earnings (loss) before income taxes and equity method investment earnings (loss) | (11) | 188 | |||||||||
| Provision (benefit) for income taxes | (30) | 32 | |||||||||
| Equity method investment earnings (loss) | (1) | (7) | |||||||||
| Net earnings | 18 | 149 | |||||||||
| Net (earnings) loss attributable to noncontrolling interest | (3) | (1) | |||||||||
| Net earnings attributable to FIS common stockholders | $ | 15 | $ | 148 | |||||||
| Net earnings per share-basic attributable to FIS common stockholders | $ | 0.02 | $ | 0.46 | |||||||
| Weighted average shares outstanding-basic | 616 | 323 | |||||||||
| Net earnings per share-diluted attributable to FIS common stockholders | $ | 0.02 | $ | 0.45 | |||||||
| Weighted average shares outstanding-diluted | 625 | 326 | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| Net earnings | $ | 18 | $ | 149 | |||||||||||||||||||
| Other comprehensive earnings (loss), before tax: | |||||||||||||||||||||||
| Unrealized gain (loss) on derivatives | $ | — | $ | — | |||||||||||||||||||
| Adjustment for (gain) loss reclassified to net earnings | — | — | |||||||||||||||||||||
| Unrealized gain (loss) on derivatives, net | — | — | |||||||||||||||||||||
| Foreign currency translation adjustments | (208) | 6 | |||||||||||||||||||||
| Minimum pension liability adjustments | 1 | (4) | |||||||||||||||||||||
| Other comprehensive earnings (loss), before tax | (207) | 2 | |||||||||||||||||||||
| Provision for income tax expense (benefit) related to items of other comprehensive earnings | 8 | (1) | |||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | $ | (215) | (215) | $ | 3 | 3 | |||||||||||||||||
| Comprehensive earnings | (197) | 152 | |||||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest | (3) | (1) | |||||||||||||||||||||
| Other comprehensive (earnings) loss attributable to noncontrolling interest | — | — | |||||||||||||||||||||
| Comprehensive earnings attribute to FIS common stockholders | $ | (200) | $ | 151 | |||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
Three months ended March 31, 2020 and 2019
(In millions, except per share amounts)
(Unaudited)
| Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FIS Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Treasury | Common | paid in | Retained | comprehensive | Treasury | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||
| shares | shares | stock | capital | earnings | earnings (loss) | stock | interest (1) | equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | 615 | — | $ | 6 | $ | 45,358 | $ | 4,161 | $ | (33) | $ | (52) | $ | 16 | $ | 49,456 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | (7) | — | — | 7 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 2 | — | — | 140 | — | — | — | — | 140 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock options | — | (1) | — | — | — | — | (46) | — | (46) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 56 | — | — | — | — | 56 | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.35 per share per quarter) and other distributions | — | — | — | — | (218) | — | — | (2) | (220) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | 1 | (6) | — | — | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 15 | — | — | 1 | 16 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | (215) | — | — | (215) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | 617 | (1) | $ | 6 | $ | 45,548 | $ | 3,952 | $ | (248) | $ | (91) | $ | 15 | $ | 49,182 | |||||||||||||||||||||||||||||||||||||
(1)Excludes redeemable noncontrolling interest that is not considered equity. See Note 3, Virtus Acquisition, for additional information.
| Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FIS Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Treasury | Common | paid in | Retained | comprehensive | Treasury | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||
| shares | shares | stock | capital | earnings | earnings (loss) | stock | interest | equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2018 | 433 | (106) | $ | 4 | $ | 10,800 | $ | 4,528 | $ | (430) | $ | (4,687) | $ | 7 | $ | 10,222 | |||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 25 | — | — | 27 | — | 52 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock options | — | — | — | — | — | — | (23) | — | (23) | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | (4) | — | — | — | — | (400) | — | (400) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 19 | — | — | — | — | 19 | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.35 per share per quarter) and other distributions | — | — | — | — | (113) | — | — | (1) | (114) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | (5) | — | — | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 148 | — | — | 1 | 149 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | 3 | — | — | 3 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2019 | 433 | (110) | $ | 4 | $ | 10,844 | $ | 4,558 | $ | (427) | $ | (5,083) | $ | 7 | $ | 9,903 | |||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 18 | $ | 149 | |||||||
| Adjustment to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 914 | 368 | |||||||||
| Amortization of debt issue costs | 8 | 4 | |||||||||
| Loss (gain) on sale of businesses, investments and other | 2 | 6 | |||||||||
| Stock-based compensation | 56 | 19 | |||||||||
| Deferred income taxes | (108) | (10) | |||||||||
| Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | |||||||||||
| Trade and other receivables | 96 | 13 | |||||||||
| Contract assets | (21) | (1) | |||||||||
| Settlement activity | (368) | (56) | |||||||||
| Prepaid expenses and other assets | 61 | (117) | |||||||||
| Deferred contract costs | (150) | (106) | |||||||||
| Deferred revenue | 86 | 110 | |||||||||
| Accounts payable, accrued liabilities, and other liabilities | (211) | (85) | |||||||||
| Net cash provided by operating activities | 383 | 294 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property and equipment | (55) | (37) | |||||||||
| Additions to software | (251) | (108) | |||||||||
| Acquisitions, net of cash acquired | (402) | — | |||||||||
| Net proceeds from sale of businesses and investments | — | 43 | |||||||||
| Other investing activities, net | 92 | (41) | |||||||||
| Net cash provided by (used in) investing activities | (616) | (143) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | 10,958 | 5,952 | |||||||||
| Repayment of borrowings and other financing obligations | (10,391) | (5,754) | |||||||||
| Proceeds from stock issued under stock-based compensation plans | 176 | 62 | |||||||||
| Treasury stock activity | (46) | (423) | |||||||||
| Dividends paid | (216) | (113) | |||||||||
| Other financing activities, net | (4) | 1 | |||||||||
| Net cash provided by (used in) financing activities | 477 | (275) | |||||||||
| Effect of foreign currency exchange rate changes on cash | (15) | (3) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 229 | (127) | |||||||||
| Cash and cash equivalents, beginning of period | 3,211 | 703 | |||||||||
| Cash and cash equivalents, end of period | $ | 3,440 | $ | 576 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 33 | $ | 49 | |||||||
| Cash paid for income taxes | $ | 65 | $ | 44 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless stated otherwise or the context otherwise requires, all references to "FIS," "we," the "Company" or the "registrant" are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
(1) Basis of Presentation
The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
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 as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The inputs into management’s critical and significant accounting estimates consider the economic impact of the outbreak of the novel coronavirus ("COVID-19") and the subsequently declared COVID-19 pandemic ("the pandemic") by the World Health Organization on March 11, 2020. The extent to which the pandemic further affects our financial statements will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Accordingly, our future results could be materially affected by changes in our estimates.
Certain reclassifications have been made in the 2019 consolidated financial statements to conform to the classifications used in 2020. Amounts in tables in the financial statements and accompanying footnotes may not sum due to rounding.
On July 31, 2019, FIS completed the acquisition of Worldpay, and Worldpay’s results of operations and financial position are included in the consolidated financial statements from and after the date of acquisition.
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions, and Corporate and Other. As FIS continues to execute on its integration workflows and optimize its portfolio of assets, it reclassified certain non-strategic businesses from the Merchant Solutions and Banking Solutions segments into the Corporate and Other segment in the quarter ended March 31, 2020, and recast all prior-period segment information presented. These operations represented less than 2% of first quarter 2020 revenue. See Note 12 for a summary of each segment.
(2) Summary of Significant Accounting Policies
Change in Accounting Policy
The Company adopted FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses ("Topic 326"), with an adoption date of January 1, 2020. As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to Topic 326 for credit losses is disclosed below. The adoption of Topic 326 resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of January 1, 2020.
Allowance for Credit Losses
The Company monitors trade receivable balances including contract assets as well as other receivables and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events.
While the COVID-19 pandemic did not result in a significant increase in the Company’s expected credit loss allowance recorded as of March 31, 2020, the Company believes it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic could have a material impact on management’s estimates.
7
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(3) Acquisitions
Worldpay Acquisition
On July 31, 2019, FIS completed the acquisition of Worldpay by acquiring 100 percent of Worldpay’s equity. The Worldpay acquisition brought an integrated technology platform with a comprehensive suite of products and services serving merchants and financial institutions and provided FIS with enhanced global payment capabilities, robust risk and fraud solutions and advanced data analytics.
The total purchase price was as follows (in millions):
| Cash consideration | $ | 3,423 | |||
| Value of FIS share consideration | 38,635 | ||||
| Pay-off of Worldpay long-term debt not contractually assumed | 5,738 | ||||
| Value of outstanding converted equity awards attributed to services already rendered | 449 | ||||
| Total purchase price | $ | 48,245 | |||
The acquisition was accounted for as a business combination under FASB ASC Topic 805, Business Combinations ("Topic 805"). We recorded an allocation of the purchase price to Worldpay tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of July 31, 2019. The amounts for intangible assets were based on third-party valuations performed. Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired. Goodwill consists primarily of expected synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets. As of March 31, 2020, the Company has substantially completed its allocation of the purchase price. The principal open items relate to the valuation of certain income tax matters and contingencies as management is awaiting additional information to complete its assessment. Estimates have been recorded as of the acquisition date, and updates to these estimates may increase or decrease goodwill.
Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, we will recognize any provisional amount adjustments during the reporting period in which the adjustments are determined. We will also be required to record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.
The purchase price allocation as of March 31, 2020 is as follows (in millions):
| Cash acquired | $ | 305 | |||
| Settlement deposits and merchant float (1) | 2,445 | ||||
| Trade receivables | 1,599 | ||||
| Goodwill | 38,063 | ||||
| Intangible assets | 13,682 | ||||
| Computer software | 1,297 | ||||
| Other noncurrent assets (2) | 1,568 | ||||
| Accounts payable, accrued and other liabilities | (1,046) | ||||
| Settlement payables | (3,167) | ||||
| Deferred income taxes | (2,831) | ||||
| Long-term debt, subsequently repaid | (1,805) | ||||
| Other liabilities and noncontrolling interest (3) | (1,865) | ||||
| Total purchase price | $ | 48,245 | |||
(1)Includes $1,693 million of merchant float.
(2)Includes $534 million of other restricted cash.
(3)Includes $542 million of noncurrent tax receivable agreement liability (see Note 9) and $819 million contingent value rights liability (see Note 5).
8
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The gross contractual amount of trade receivables acquired was approximately $1,646 million. The difference between that total and the amount reflected above represents our best estimate at the acquisition date of the contractual cash flows not expected to be collected. This difference was derived using Worldpay’s historical bad debts, sales allowances and collection trends.
Intangible assets primarily consist of software, customer relationship assets and trademarks with weighted average estimated useful lives of seven years, ten years and five years, respectively, and fair value amounts assigned of $1,297 million, $13,272 million and $410 million, respectively.
See Note 9 for acquired contingencies resulting from the Worldpay acquisition.
Virtus Acquisition
On January 2, 2020, FIS acquired a majority interest in Virtus Partners ("Virtus"), previously a privately held company that provides high value managed services and technology to the credit and loan market. FIS acquired a 70% voting and financial interest in Virtus with 30% interest retained by the founders of Virtus ("Founders"). The acquisition was accounted for as a business combination under Topic 805. We recorded a provisional allocation of the $405 million cash purchase price and the $174 million fair value of redeemable noncontrolling interest to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, consisting primarily of $254 million in customer relationships and $51 million in software assets. We also recorded $248 million in goodwill for the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired. Our purchase price allocation is provisional as of March 31, 2020, and we expect to finalize as soon as practicable, but no later than one year from the acquisition date.
We recorded the 30% interest retained by the Founders at the acquisition date as redeemable noncontrolling interest, which is reflected outside of stockholders’ equity on the consolidated balance sheet, given the agreement between FIS and the Founders that provides FIS with a call option and the Founders with a put option requiring FIS to purchase all of the Founders’ retained interest in Virtus at a redemption value determined pursuant to the agreement. The call option and put option are exercisable at any time after two years and three years, respectively, following the acquisition date. Changes in the estimated redemption value are accreted through equity from the acquisition date to the date the call option becomes exercisable, to the extent the estimated redemption value is greater than the initial redeemable noncontrolling interest value recorded, as adjusted for the Founders’ share of the cumulative impact of net earnings (loss).
(4) Revenue
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market and type of revenue. The tables also include a reconciliation of the disaggregated revenue with the Company’s reportable segments. Prior-period amounts have been reclassified to conform to the new reportable segment presentation as discussed in Note 12.
9
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended March 31, 2020 (in millions):
| Reportable Segments | ||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | |||||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | ||||||||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||||||||
| North America | $ | 661 | $ | 1,243 | $ | 404 | $ | 40 | $ | 2,348 | ||||||||||||||||||||||
| All others | 274 | 219 | 227 | 10 | 730 | |||||||||||||||||||||||||||
| Total | $ | 935 | $ | 1,462 | $ | 631 | $ | 50 | $ | 3,078 | ||||||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||||||||
| Transaction processing and services | $ | 910 | $ | 1,096 | $ | 311 | $ | 47 | $ | 2,364 | ||||||||||||||||||||||
| Software maintenance | 1 | 88 | 122 | — | 211 | |||||||||||||||||||||||||||
| Other recurring | 21 | 44 | 24 | — | 89 | |||||||||||||||||||||||||||
| Total recurring | 932 | 1,228 | 457 | 47 | 2,664 | |||||||||||||||||||||||||||
| Software license | 1 | 19 | 72 | — | 92 | |||||||||||||||||||||||||||
| Professional services | — | 143 | 102 | 1 | 246 | |||||||||||||||||||||||||||
| Other non-recurring | 2 | 72 | — | 2 | 76 | |||||||||||||||||||||||||||
| Total | $ | 935 | $ | 1,462 | $ | 631 | $ | 50 | $ | 3,078 | ||||||||||||||||||||||
For the three months ended March 31, 2019 (in millions):
| Reportable Segments | ||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | |||||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | ||||||||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||||||||
| North America | $ | 50 | $ | 1,126 | $ | 356 | $ | 47 | $ | 1,579 | ||||||||||||||||||||||
| All others | — | 247 | 216 | 15 | 478 | |||||||||||||||||||||||||||
| Total | $ | 50 | $ | 1,373 | $ | 572 | $ | 62 | $ | 2,057 | ||||||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||||||||
| Transaction processing and services | $ | 49 | $ | 991 | $ | 272 | $ | 59 | $ | 1,371 | ||||||||||||||||||||||
| Software maintenance | — | 89 | 121 | — | 210 | |||||||||||||||||||||||||||
| Other recurring | — | 44 | 27 | — | 71 | |||||||||||||||||||||||||||
| Total recurring | 49 | 1,124 | 420 | 59 | 1,652 | |||||||||||||||||||||||||||
| Software license | — | 39 | 57 | — | 96 | |||||||||||||||||||||||||||
| Professional services | — | 139 | 95 | 1 | 235 | |||||||||||||||||||||||||||
| Other non-recurring | 1 | 71 | — | 2 | 74 | |||||||||||||||||||||||||||
| Total | $ | 50 | $ | 1,373 | $ | 572 | $ | 62 | $ | 2,057 | ||||||||||||||||||||||
10
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Contract Balances
The Company recognized revenue of $338 million and $321 million during the three months ended March 31, 2020 and 2019, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Transaction Price Allocated to the Remaining Performance Obligations
As of March 31, 2020, approximately $20.5 billion of revenue is estimated to be recognized in the future primarily from the Banking Solutions and Capital Market Solutions segments’ remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 35% of the Banking Solutions and Capital Market Solutions segments’ remaining performance obligations over the next 12 months, approximately another 25% over the next 13 to 24 months, and the balance thereafter.
As permitted by ASC 606, Revenue from Contracts with Customers, the Company has elected to exclude from this disclosure an estimate for the Merchant Solutions segment, which is primarily comprised of contracts with an original duration of one year or less or variable consideration that meet specific criteria. This segment’s core performance obligations consist of variable consideration under a stand-ready series of distinct days of service, and revenue from the segment’s products and service arrangements are generally billed and recognized as the services are performed. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
(5) Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
The Company includes restricted cash in the cash and cash equivalents balance reported in the consolidated statements of cash flows. The reconciliation between cash and cash equivalents in the consolidated balance sheets and the consolidated statements of cash flows is as follows (in millions):
| March 31, 2020 | December 31, 2019 | |||||||||||||
| Cash and cash equivalents on the consolidated balance sheets | $ | 1,373 | $ | 1,152 | ||||||||||
| Merchant float restricted cash (in Settlement deposits and merchant float) | 1,536 | 1,519 | ||||||||||||
| Other restricted cash (in Other noncurrent assets) | 531 | 540 | ||||||||||||
| Total Cash and cash equivalents per the consolidated statements of cash flows | $ | 3,440 | $ | 3,211 | ||||||||||
Property and Equipment, Intangible Assets and Computer Software
The following table shows the Company’s consolidated financial statement details as of March 31, 2020 and December 31, 2019 (in millions):
| March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
| Cost | Accumulated depreciation and amortization | Net | Cost | Accumulated depreciation and amortization | Net | ||||||||||||||||||||||||||||||
| Property and equipment | $ | 2,179 | $ | 1,309 | $ | 870 | $ | 2,177 | $ | 1,277 | $ | 900 | |||||||||||||||||||||||
| Intangible assets | $ | 18,487 | $ | 3,339 | $ | 15,148 | $ | 18,564 | $ | 2,766 | $ | 15,798 | |||||||||||||||||||||||
| Computer software | $ | 4,962 | $ | 1,723 | $ | 3,239 | $ | 4,820 | $ | 1,616 | $ | 3,204 | |||||||||||||||||||||||
As of March 31, 2020, intangible assets, net of amortization, includes $14,718 million of customer relationships and other amortizable intangible assets, $388 million of finite-lived trademarks, as well as $42 million of non-amortizable indefinite-lived trademarks. Amortization expense with respect to these intangible assets was $598 million and $156 million for the three months ended March 31, 2020 and 2019, respectively.
11
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Goodwill
Changes in goodwill during the three months ended March 31, 2020 are summarized below (in millions). Prior-period amounts have been reclassified to conform to the new reportable segment presentation as discussed in Note 12.
| Capital | Corporate | ||||||||||||||||||||||||||||
| Merchant | Banking | Market | And | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | Other | Total | |||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | 35,543 | $ | 12,225 | $ | 4,382 | $ | 92 | $ | 52,242 | |||||||||||||||||||
| Goodwill attributable to acquisitions (1) | (5) | — | 248 | — | 243 | ||||||||||||||||||||||||
| Foreign currency adjustments | (603) | (49) | (9) | (1) | (662) | ||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | 34,935 | $ | 12,176 | $ | 4,621 | $ | 91 | $ | 51,823 | |||||||||||||||||||
(1)The amount of goodwill attributable to the acquisitions of Worldpay and Virtus, including its allocation to reportable segments, is preliminary and subject to change.
We assess goodwill for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. We concluded as a result of our fourth quarter 2019 step zero annual impairment tests that it remained more likely than not that the fair value of each of our reporting units continued to exceed their carrying amounts. Due to the economic impact of the COVID-19 pandemic, we evaluated if events and circumstances as of March 31, 2020, indicated potential impairment. We performed a qualitative assessment by examining factors most likely to affect our valuations and considered the impact to our business from the COVID-19 pandemic. The factors examined involve significant use of management judgment and included, among others, (1) forecasted revenue, growth rates, operating margins, and capital expenditures used to calculate estimated future cash flows, (2) future economic and market conditions and (3) the reduction in FIS’ market capitalization.
Based on our interim impairment assessment as of March 31, 2020, we concluded that it remained more likely than not that the fair value of each of our reporting units continued to exceed their carrying amounts; therefore, goodwill was not impaired. However, the Company believes it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic on our Merchant Solutions business, such as an extended duration of the pandemic and/or governmental imposed shutdowns, prolonged economic downturn or recession, or lack of governmental support for recovery, could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill impairment and could result in future goodwill impairment.
Visa Europe and Contingent Value Rights
As part of the Worldpay acquisition, the Company acquired certain assets and liabilities related to the June 2016 Worldpay Group plc (Legacy Worldpay) disposal of its ownership interest in Visa Europe to Visa Inc. As part of the disposal, Legacy Worldpay received consideration from Visa Inc. in the form of cash and convertible Visa Inc. Series B preferred stock ("preferred stock"), the value of which may be reduced by settlement of potential liabilities relating to ongoing interchange-related litigation involving Visa Europe. Also in connection with the disposal, Legacy Worldpay agreed to pay former Legacy Worldpay owners 90% of the net-of-tax proceeds from the disposal, known as contingent value rights ("CVR"), pending the finalization of the proceeds from disposal, which is expected to occur no later than June 2028, at which time the preferred stock is subject to mandatory conversion into Visa Inc. Class A common stock.
The Company has elected the fair value option under ASC 825, Financial Instruments ("ASC 825"), for measuring its preferred stock asset and related CVR liability. The estimated fair value of the preferred stock and related CVR liability are determined using Level 3-type measurements. Significant inputs into the valuation of the preferred stock include the Visa Inc. Class A common stock price per share and the conversion ratio, which are observable, and an estimate of potential losses that will result from the ongoing litigation involving Visa Europe, which is unobservable. The Company engaged third-party valuation specialists and external counsel to assist management in making the fair value determination for the preferred stock. The fair value of the preferred stock was $320 million and $400 million at March 31, 2020 and December 31, 2019, respectively, recorded in Other noncurrent assets on the consolidated balance sheets.
The fair value of the CVR liability is determined based on 90% of the net-of-tax proceeds from the disposal, including the preferred stock and the cash consideration. The portion of the cash consideration that is payable as part of the CVR liability is
12
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
segregated pursuant to contractual provisions and reflected as restricted cash in the amount of $531 million and $540 million at March 31, 2020 and December 31, 2019, respectively, recorded in Other noncurrent assets on the consolidated balance sheets. The fair value of the CVR liability was $770 million and $838 million at March 31, 2020 and December 31, 2019, respectively, recorded in Other noncurrent liabilities on the consolidated balance sheets. Pursuant to ASC 825, the Company remeasures the fair value of the preferred stock and related CVR liability each reporting period. The net change in fair value was $20 million during the three months ended March 31, 2020, recorded in Other income (expense), net on the consolidated statement of earnings.
(6) Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of March 31, 2020 and December 31, 2019 consists of the following (in millions):
| March 31, 2020 | December 31, 2019 | ||||||||||
| Contract costs on implementations in progress | $ | 190 | $ | 138 | |||||||
| Contract origination costs on completed implementations, net | 374 | 352 | |||||||||
| Contract fulfillment costs on completed implementations, net | 185 | 177 | |||||||||
| Total Deferred contract costs, net | $ | 749 | $ | 667 | |||||||
Amortization of deferred contract costs on completed implementations was $51 million and $44 million during the three months ended March 31, 2020 and 2019, respectively, and there were no significant impairment losses in relation to the costs capitalized for the periods presented.
(7) Debt
Long-term debt as of March 31, 2020 and December 31, 2019, consists of the following (in millions):
| March 31, 2020 | ||||||||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||||||
| Interest | Interest | March 31, | December 31, | |||||||||||||||||||||||||||||
| Rates | Rate | Maturities | 2020 | 2019 | ||||||||||||||||||||||||||||
| Fixed Rate Notes | ||||||||||||||||||||||||||||||||
| Senior USD Notes | 3.0% - 5.0% | 3.8% | 2023 - 2048 | $ | 4,938 | $ | 4,938 | |||||||||||||||||||||||||
| Senior Euro Notes | 0.1% - 3.0% | 1.1% | 2021 - 2039 | 8,526 | 8,694 | |||||||||||||||||||||||||||
| Senior GBP Notes | 1.7% - 3.4% | 2.7% | 2022 - 2031 | 2,288 | 2,440 | |||||||||||||||||||||||||||
| Senior Euro Floating Rate Notes | 0.0% | 2021 | 550 | 561 | ||||||||||||||||||||||||||||
| Revolving Credit Facility (1) | 2.0% | 2023 | 3,250 | 600 | ||||||||||||||||||||||||||||