FIS-10-Q 03-31-2013
Table of Contents

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-Q
_______________________________________________
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2013
Or
o
 
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)
Georgia
 
37-1490331
(State or other jurisdiction
 
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
 
 
 
601 Riverside Avenue
 
 
Jacksonville, Florida
 
32204
(Address of principal executive offices)
 
(Zip Code)
(904) 438-6000
(Registrant’s 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 x 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 x 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):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
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 x
As of April 30, 2013, 293,111,942 shares of the Registrant’s Common Stock were outstanding.
 
 
 
 
 
 
 
 
 
 


FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2013
INDEX
 
Page
 
 
 
EX- 4.1
 
 EX-31.1
 
 EX-31.2
 
 EX-32.1
 
 EX-32.2
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 


1
Table of Contents



FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
 
March 31, 2013
 
December 31, 2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
590.6

 
$
517.6

Settlement deposits
30.3

 
32.6

Trade receivables, net of allowance for doubtful accounts of $23.5 and $19.9 as of
March 31, 2013 and December 31, 2012, respectively
936.2

 
925.7

Settlement receivables
97.4

 
128.3

Other receivables
24.8

 
30.2

Due from Brazilian venture partner
45.2

 
42.0

Prepaid expenses and other current assets
140.5

 
111.9

Deferred income taxes
58.1

 
55.9

Total current assets
1,923.1

 
1,844.2

Property and equipment, net
422.3

 
419.5

Goodwill
8,487.2

 
8,381.5

Intangible assets, net
1,545.5

 
1,576.2

Computer software, net
851.1

 
847.0

Deferred contract costs, net
213.1

 
211.2

Other noncurrent assets
256.9

 
270.1

Total assets
$
13,699.2

 
$
13,549.7

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
685.9

 
$
624.6

Due to Brazilian venture partner
19.3

 
18.8

Settlement payables
125.0

 
172.2

Current portion of long-term debt
166.8

 
153.9

Deferred revenues
281.4

 
287.3

Total current liabilities
1,278.4

 
1,256.8

Deferred revenues
38.7

 
42.2

Deferred income taxes
809.9

 
821.8

Long-term debt, excluding current portion
4,436.2

 
4,231.6

Due to Brazilian venture partner
41.5

 
40.5

Other long-term liabilities
296.0

 
363.2

Total liabilities
6,900.7

 
6,756.1

Equity:
 
 
 
FIS stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of March 31, 2013 and December 31, 2012
—

 
—

Common stock, $0.01 par value, 600 shares authorized, 386.1 and 385.9 shares issued as of March 31, 2013 and December 31, 2012, respectively
3.8

 
3.8

Additional paid in capital
7,200.0

 
7,197.0

Retained earnings
2,185.7

 
2,105.8

Accumulated other comprehensive earnings
21.0

 
30.0

Treasury stock, $0.01 par value, 93.5 and 91.8 shares as of March 31, 2013 and December 31, 2012, respectively, at cost
(2,770.8
)
 
(2,695.7
)
Total FIS stockholders’ equity
6,639.7

 
6,640.9

Noncontrolling interest
158.8

 
152.7

Total equity
6,798.5

 
6,793.6

Total liabilities and equity
$
13,699.2

 
$
13,549.7

See accompanying notes to unaudited condensed consolidated financial statements.

2
Table of Contents

FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In millions, except per share data)
(Unaudited)

 
Three months ended
March 31,
 
2013
 
2012
Processing and services revenues (for related party activity, see note 2)
$
1,478.0

 
$
1,413.4

Cost of revenues
1,008.0

 
989.5

Gross profit
470.0

 
423.9

Selling, general, and administrative expenses (for related party activity, see note 2)
194.9

 
201.4

Operating income
275.1

 
222.5

Other income (expense):
 
 
 
Interest expense, net
(51.7
)
 
(59.4
)
Other income (expense), net
5.1

 
(20.9
)
Total other income (expense), net
(46.6
)
 
(80.3
)
Earnings from continuing operations before income taxes
228.5

 
142.2

Provision for income taxes
75.2

 
47.7

Earnings from continuing operations, net of tax
153.3

 
94.5

Earnings (loss) from discontinued operations, net of tax
(3.9
)
 
(4.4
)
Net earnings
149.4

 
90.1

Net (earnings) loss attributable to noncontrolling interest
(5.3
)
 
(3.0
)
Net earnings attributable to FIS
$
144.1

 
$
87.1

Net earnings per share — basic from continuing operations attributable to FIS common stockholders
$
0.51

 
$
0.32

Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
(0.01
)
 
(0.02
)
Net earnings per share — basic attributable to FIS common stockholders *
$
0.50

 
$
0.30

Weighted average shares outstanding — basic
291.0

 
289.7

Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
$
0.50

 
$
0.31

Net earnings (loss) per share — diluted from discontinued operations attributable to FIS common stockholders
(0.01
)
 
(0.01
)
Net earnings per share — diluted attributable to FIS common stockholders *
$
0.49

 
$
0.29

Weighted average shares outstanding — diluted
295.5

 
295.4

Cash dividends paid per share
$
0.22

 
$
0.20

Amounts attributable to FIS common stockholders:
 
 
 
Earnings from continuing operations, net of tax
$
148.0

 
$
91.5

Earnings (loss) from discontinued operations, net of tax
(3.9
)
 
(4.4
)
Net earnings attributable to FIS
$
144.1

 
$
87.1

* Amounts may not sum due to rounding.
See accompanying notes to unaudited condensed consolidated financial statements.

3
Table of Contents


FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings
(In millions)
(Unaudited)

 
Three months ended March 31,
 
2013
 
2012
Net earnings
 
 
$
149.4

 
 
 
$
90.1

Other comprehensive earnings, before tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and derivatives
$
(1.2
)
 
 
 
$
5.8

 
 
Reclassification adjustment for losses included in net earnings
1.7

 
 
 
2.5

 
 
Unrealized gain (loss) on investments and derivatives, net
0.5

 
 
 
8.3

 
 
Foreign currency translation adjustments
(7.2
)
 
 
 
24.4

 
 
Other comprehensive earnings (loss), before tax
(6.7
)
 
 
 
32.7

 
 
Provision for income tax expense (benefit) related to items of other comprehensive earnings
0.8

 
 
 
3.8

 
 
Other comprehensive earnings (loss), net of tax
$
(7.5
)
 
(7.5
)
 
$
28.9

 
28.9

Comprehensive earnings
 
 
141.9

 
 
 
119.0

Net (earnings) loss attributable to noncontrolling interest
 
 
(5.3
)
 
 
 
(3.0
)
Other comprehensive (earnings) losses attributable to noncontrolling interest
 
 
(1.5
)
 
 
 
(2.2
)
Comprehensive earnings attributable to FIS
 
 
$
135.1

 
 
 
$
113.8


See accompanying notes to unaudited condensed consolidated financial statements.





4
Table of Contents

FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
Three months ended March 31, 2013
(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
 
stock
 
interest
 
equity
Balances, December 31, 2012
385.9

 
(91.8
)
 
$
3.8

 
$
7,197.0

 
$
2,105.8

 
$
30.0

 
$
(2,695.7
)
 
$
152.7

 
$
6,793.6

Issuance of restricted stock
0.2

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of stock options and stock purchase right
—

 
1.1

 
—

 
(14.2
)
 
—

 
—

 
30.2

 
—

 
16.0

Treasury shares held for taxes due upon exercise of stock options
—

 
(0.1
)
 
—

 
—

 
—

 
—

 
(4.9
)
 
—

 
(4.9
)
Excess income tax benefit from exercise of stock options
—

 
—

 
—

 
4.0

 
—

 
—

 
—

 
—

 
4.0

Stock-based compensation
—

 
—

 
—

 
13.2

 
—

 
—

 
—

 
—

 
13.2

Cash dividends paid ($0.22 per share per quarter) and other distributions
—

 
—

 
—

 
—

 
(64.2
)
 
—

 
—

 
(0.7
)
 
(64.9
)
Purchases of treasury stock
—

 
(2.7
)
 
—

 
—

 
—

 
—

 
(100.4
)
 
—

 
(100.4
)
Net earnings
—

 
—

 
—

 
—

 
144.1

 
—

 
—

 
5.3

 
149.4

Other comprehensive earnings
—

 
—

 
—

 
—

 
—

 
(9.0
)
 
—

 
1.5

 
(7.5
)
Balances, March 31, 2013
386.1

 
(93.5
)
 
$
3.8

 
$
7,200.0

 
$
2,185.7

 
$
21.0

 
$
(2,770.8
)
 
$
158.8

 
$
6,798.5

See accompanying notes to unaudited condensed consolidated financial statements.


5
Table of Contents

FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)

 
Three months ended
March 31,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net earnings
$
149.4

 
$
90.1

Adjustment to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
153.2

 
158.1

Amortization of debt issue costs
2.8

 
21.4

Gain on mFoundry acquisition
(9.2
)
 
—

Stock-based compensation
13.2

 
26.3

Deferred income taxes
(15.4
)
 
19.0

Excess income tax benefit from exercise of stock options
(4.0
)
 
(7.0
)
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
 
 
 
Trade receivables
(12.0
)
 
(21.1
)
Settlement activity
(13.9
)
 
2.4

Prepaid expenses and other assets
(35.1
)
 
(6.1
)
Deferred contract costs
(19.7
)
 
(17.9
)
Deferred revenue
(8.3
)
 
3.3

Accounts payable, accrued liabilities, and other liabilities
6.5

 
(64.7
)
Net cash provided by operating activities
207.5

 
203.8

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property and equipment
(31.0
)
 
(24.2
)
Additions to computer software
(42.7
)
 
(40.8
)
Acquisitions, net of cash acquired
(115.0
)
 
—

Other investing activities, net
(7.0
)
 
—

Net cash used in investing activities
(195.7
)
 
(65.0
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings
2,206.3

 
4,631.7

Repayment of borrowings
(1,990.1
)
 
(4,598.5
)
Debt issuance costs
—

 
(44.5
)
Excess income tax benefit from exercise of stock options
4.0

 
7.0

Proceeds from exercise of stock options
18.8

 
128.4

Treasury stock activity
(105.3
)
 
(139.7
)
Dividends paid
(64.8
)
 
(58.8
)
Other financing activities, net
(0.7
)
 
(1.4
)
Net cash provided by (used in) financing activities
68.2

 
(75.8
)
Effect of foreign currency exchange rate changes on cash
(7.0
)
 
3.2

Net increase in cash and cash equivalents
73.0

 
66.2

Cash and cash equivalents, beginning of period
517.6

 
415.5

Cash and cash equivalents, end of period
$
590.6

 
$
481.7

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
80.8

 
$
82.1

Cash paid for income taxes
$
28.5

 
$
19.5

See accompanying notes to unaudited condensed consolidated financial statements.


6
Table of Contents

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.

(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, 2012. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements (Unaudited) and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Certain reclassifications have been made in the 2012 Condensed Consolidated Financial Statements (Unaudited) to conform to the classifications used in 2013.
We report the results of our operations in four reporting segments: 1) Financial Solutions Group (“FSG”), 2) Payment Solutions Group (“PSG”), 3) International Solutions Group (“ISG”) and 4) Corporate and Other (Note 12).

(2) Related Party Transactions
We are a party to certain agreements with related parties described below.
Revenues and Expenses
Related party transactions included in revenues for the three months ended March 31, 2013 and 2012, are as follows (in millions):
 
Three months ended
March 31,
 
2013
 
2012
Banco Bradesco Brazilian Venture revenue
$
75.1

 
$
75.4

FNF data processing services revenue
—

 
12.0

Ceridian data processing and services revenue
—

 
18.7

Total related party revenues
$
75.1

 
$
106.1


The 2012 period also included $1.1 million in expenses for administrative corporate support and other services with FNF (net of expense reimbursements) and $0.2 million of expenses related to employee benefits services provided by Ceridian. These costs were included in selling, general and administrative expenses.

Brazilian Venture

The Company operates a joint venture ("Brazilian Venture") with Banco Bradesco S.A. (“Banco Bradesco”) in which we own a 51% controlling interest, to provide comprehensive, fully outsourced transaction processing, call center, cardholder support and collection services to multiple card issuing clients in Brazil, including Banco Bradesco.

FNF

FIS had shared a number of directors and executives with Fidelity National Financial, Inc. ("FNF"), our former parent, subsequent to becoming an independent company. As a result, FNF qualified as a related party from an accounting perspective. As previously reported, William P. Foley II, who serves as Chairman of the Board of Directors of FNF, transitioned from Executive Chairman to Chairman of the Board of FIS in February 2011, and then to Vice Chairman in March 2012. Certain

7
Table of Contents
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


other key executives shared between the two companies ended their employment with FIS during 2012. As a result, FNF's level of influence over the management or operating policies of FIS was diminished below the level required to meet the definition of a related party as of September 30, 2012. All transactions with FNF are, therefore, included in the related party disclosures through that date.

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 two successive one-year periods, subject to certain early termination provisions (including the payment of minimum monthly service and termination fees). We also incurred expenses for amounts paid by us to FNF under cost-sharing agreements to use certain corporate aircraft and lease certain real estate.

Ceridian

We provide data processing services to Ceridian Corporation (“Ceridian”), and Ceridian provides us with outsourced employee benefits services. FNF holds an approximate 33% equity interest in Ceridian; therefore, transactions with Ceridian are included as related party activity through September 30, 2012, consistent with the inclusion of FNF as addressed above.

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 we were charged under these arrangements were not negotiated at arm's-length, and may not represent the terms that we might have obtained from an unrelated third party.

(3) Unaudited Net Earnings per Share
The basic weighted average shares and common stock equivalents for the three months ended March 31, 2013 and 2012 are computed using the treasury stock method.
The following table summarizes the earnings per share attributable to FIS common stockholders for the three months ended March 31, 2013 and 2012 (in millions, except per share amounts):
 
Three months ended
March 31,
 
2013
 
2012
Earnings from continuing operations attributable to FIS, net of tax
$
148.0

 
$
91.5

Earnings (loss) from discontinued operations attributable to FIS, net of tax
(3.9
)
 
(4.4
)
Net earnings attributable to FIS common stockholders
$
144.1

 
$
87.1

Weighted average shares outstanding — basic
291.0

 
289.7

Plus: Common stock equivalent shares
4.5

 
5.7

Weighted average shares outstanding — diluted
295.5

 
295.4

Net earnings per share — basic from continuing operations attributable to FIS common stockholders
$
0.51

 
$
0.32

Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
(0.01
)
 
(0.02
)
Net earnings per share — basic attributable to FIS common stockholders *
$
0.50

 
$
0.30

Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
$
0.50

 
$
0.31

Net earnings (loss) per share — diluted from discontinued operations attributable to FIS common stockholders
(0.01
)
 
(0.01
)
Net earnings per share — diluted attributable to FIS common stockholders *
$
0.49

 
$
0.29

 
 
 
 
* Amounts may not sum due to rounding.
 
 
 

8
Table of Contents
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Options to purchase approximately 1.7 million and 4.1 million shares of our common stock for the three months ended March 31, 2013 and 2012, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.

(4) Discontinued Operations

Certain operations are reported as discontinued in the Condensed Consolidated Statements of Earnings (Unaudited) for the three months ended March 31, 2013 and 2012.

 Healthcare Benefit Solutions Business

On June 25, 2012, we entered into a definitive agreement to sell our Healthcare Benefit Solutions Business ("Healthcare Business") because its operations did not align with our strategic plans. The all-cash transaction closed on August 15, 2012 and we received cash proceeds of $332.2 million. We recorded a pre-tax gain of $22.0 million and tax expense on the sale of $78.3 million, which resulted from the allocation of goodwill with minimal tax basis.

The results of operations of the Healthcare Business, which were previously included in the PSG segment, have been classified as discontinued operations for all periods presented. The Healthcare Business had pretax earnings of less than $0.1 million for the three months ended March 31, 2013 and had revenues and pretax earnings of $33.5 million and $7.0 million, respectively, during the 2012 first quarter.

Brazil Item Processing and Remittance Services Operations

During the third quarter 2010, the Company decided to pursue strategic alternatives for Fidelity National Participacoes Ltda. (“Participacoes”). There were no revenues for the 2013 and 2012 periods. Participacoes had losses before taxes of $6.0 million and $13.0 million during the three months ended March 31, 2013 and 2012, respectively. Participacoes' processing volume was transitioned to other vendors or back to its customers during the second quarter of 2011. As a result of the dismissal of employees related to the shut-down activities completed in 2011, the three-month periods ended March 31, 2013 and 2012 included charges of $4.7 million and $11.6 million, respectively, to settle claims or increase our provision for potential labor claims. The shut-down activities involved the transfer and termination of approximately 2,600 employees. As of March 31, 2013, there were approximately 1,500 active labor claims. Former employees generally had up to two years from the date of termination to file labor claims, which extended through April 2013. Consequently, we have continued exposure to such claims and adverse claim development, which were not transferred with other assets and liabilities in the disposal. Our accrued liability for active and unasserted labor claims considered probable of assertion, net of $17.1 million in court ordered deposits, is $38.5 million as of March 31, 2013. Any changes in the estimated liability related to these labor claims will be recorded as discontinued operations.

(5) Changes in Accumulated Other Comprehensive Earnings Attributable to FIS by Component, Net of Tax

The following table shows accumulated other comprehensive earnings ("AOCE") attributable to FIS by component, net of tax, for the three months ended March 31, 2013 (in millions):
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign
 
 
 
 
 
 
Interest Rate
 
Currency
 
 
 
 
 
 
Swap
 
Translation
 
 
 
 
 
 
Contracts
 
Adjustments
 
Other
 
Total
Balances, December 31, 2012
 
$
(6.1
)
 
$
36.3

 
$
(0.2
)
 
$
30.0

Other comprehensive loss before reclassifications
 
—

 
(8.9
)
 
(1.1
)
 
(10.0
)
Amounts reclassified from AOCE
 
1.0

 
—

 
—

 
1.0

Net current period AOCE attributable to FIS
 
1.0

 
(8.9
)
 
(1.1
)
 
(9.0
)
Balances, March 31, 2013
 
$
(5.1
)
 
$
27.4

 
$
(1.3
)
 
$
21.0



9
Table of Contents
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


The amount reclassified from AOCE for interest rate swap contracts includes $1.7 million recorded as interest expense, reduced by a related $0.7 million provision for income taxes.

(6) Condensed Consolidated Financial Statement Details
The following tables show the Company’s condensed consolidated financial statement details as of March 31, 2013 and December 31, 2012 (in millions):

 
March 31, 2013
 
December 31, 2012
 
Cost
 
Accumulated
depreciation and amortization
 
Net
 
Cost
 
Accumulated
depreciation and amortization
 
Net
Property and equipment
$
1,008.0

 
$
585.7

 
$
422.3

 
$
975.5

 
$
556.0

 
$
419.5

Intangible assets
$
2,983.8

 
$
1,438.3

 
$
1,545.5

 
$
2,962.6

 
$
1,386.4

 
$
1,576.2

Computer software
$
1,495.4

 
$
644.3

 
$
851.1

 
$
1,451.6

 
$
604.6

 
$
847.0

       
The Company entered into capital lease obligations of $1.7 million and $1.5 million during the three months ended March 31, 2013 and 2012, respectively, for certain computer hardware and software. The assets are included in property and equipment and computer software and the remaining capital lease obligation is classified as long-term debt on our Condensed Consolidated Balance Sheet (Unaudited) as of March 31, 2013. Periodic payments are included in repayment of borrowings on the Condensed Consolidated Statements of Cash Flows (Unaudited).

(7) Long-Term Debt
Long-term debt as of March 31, 2013 and December 31, 2012, consisted of the following (in millions):

 
March 31, 2013
 
December 31, 2012
Term Loans A-2 (1)
$
—

 
$
250.0

Term Loans A-3, quarterly principal amortization (2)
1,995.0

 
2,021.3

Senior Notes due 2017, interest payable semi-annually at 7.625%
750.0

 
750.0

Senior Notes due 2020, interest payable semi-annually at 7.875%
500.0

 
500.0

Senior Notes due 2022, interest payable semi-annually at 5.000%
700.0

 
700.0

Revolving Loan (3)
621.8

 
126.3

Other
36.2

 
37.9

 
4,603.0

 
4,385.5

Current portion
(166.8
)
 
(153.9
)
Long-term debt, excluding current portion
$
4,436.2

 
$
4,231.6

__________________________________________
(1)
The Term Loans A-2 were repaid in full on January 11, 2013 through additional borrowings on our Revolving Loan.
(2)
Interest on the Term Loans A-3 is generally payable at LIBOR plus an applicable margin of up to 2.25% based upon the Company's corporate credit ratings and the ratings on the FIS Credit Agreement. As of March 31, 2013, the weighted average interest rate on the Term Loans A-3 was 1.70%.
(3)
Interest on the Revolving Loan is generally payable at LIBOR plus an applicable margin of up to 2.25% plus an unused commitment fee of up to 0.40%, each based upon the Company's corporate credit ratings and the ratings on the FIS Credit Agreement. As of March 31, 2013, the applicable margin on the Revolving Loan, excluding facility fees and unused commitment fees, was 1.50%.


On April 23, 2013, FIS amended and restated its syndicated credit agreement (the “FIS Credit Agreement”). The transaction resulted in the increase of FIS' revolving loan capacity by $850.0 million to $2,000.0 million and the amendment of certain terms and conditions, including the removal of provisions regarding the granting of collateral by FIS and its subsidiaries. Following the amendments, the FIS Credit Agreement provides total committed capital of $4,000.0 million comprised of: (1) a revolving credit facility in an aggregate maximum principal amount of $2,000.0 million maturing on March 30, 2017 (the "Revolving Loan"); and (2) term loans of $2,000.0 million maturing on March 30, 2017 (the "Term Loans A-4").

As of March 31, 2013, the FIS Credit Agreement provided total committed capital of $3,145.0 million comprised of: (1) a revolving credit facility in an aggregate maximum principal amount of $1,150.0 million maturing on March 30, 2017; and (2)

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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


term loans of $1,995.0 million maturing on March 30, 2017 (the "Term Loans A-3"). As of March 31, 2013, the outstanding principal balance of the Revolving Loan was $621.8 million, with $527.4 million of borrowing capacity remaining thereunder (net of $0.8 million in outstanding letters of credit issued under the Revolving Loan).

On April 15, 2013, FIS completed the issuance and sale of $250.0 million in aggregate principal amount of 2.0% unsecured senior notes due April 15, 2018 (the "2018 Notes") and $1,000.0 million in aggregate principal amount of 3.5% unsecured senior notes due April 15, 2023 (the "2023 Notes"). Net proceeds from the offering, after deducting the underwriting discounts and commissions, were $1,233.1 million. The 2018 Notes and 2023 Notes were offered and sold pursuant to the Form S-3 Automatic Shelf Registration filed with the Securities and Exchange Commission on March 5, 2013, as supplemented by the prospectus supplement dated April 10, 2013. On April 15, 2013, FIS used a portion of the proceeds from the offering to pay down the outstanding balance of its Revolving Loan. The Company plans to use the remaining proceeds of the offering after offering expenses, together with a borrowing under its Revolving Loan or other cash on hand, to fund the purchase, through a call for redemption, of the entire $750.0 million principal amount of its 2017 Notes, together with the related redemption premium and accrued interest. On April 15, 2013, FIS provided notice of redemption for the 2017 Notes with a redemption date of May 15, 2013. Pending application of the remaining net proceeds as described above, the Company expects to deposit them in interest or non-interest bearing accounts or invest them in certificates of deposit, United States government obligations or other short-term, high-quality debt instruments or funds selected at the Company's discretion.

The obligations of FIS under the FIS Credit Agreement and under all its outstanding senior notes rank equal in priority, are unsecured and are guaranteed by substantially all of the domestic subsidiaries of FIS. The FIS Credit Agreement and the senior notes remain subject to customary covenants, including, among others, limitations on the payment of dividends by FIS, and events of default.

The following table summarizes the mandatory annual principal payments pursuant to the FIS Credit Agreement, prior to the April 23, 2013 amendment, and the senior notes' indentures as of March 31, 2013 (in millions). There are no mandatory principal payments on the Revolving Loan and any balance outstanding on the Revolving Loan will be due and payable at its scheduled maturity date:
 
Term Loan
 
2017
 
2020
 
2022
 
 
 
A-3
 
Notes
 
Notes
 
Notes
 
Total
2013
$
118.1

 
$
—

 
$
—

 
$
—

 
$
118.1

2014
196.9

 
—

 
—

 
—

 
196.9

2015
288.7

 
—

 
—

 
—

 
288.7

2016
393.8

 
—

 
—

 
—

 
393.8

2017
997.5

 
750.0

 
—

 
—

 
1,747.5

Thereafter
—

 
—

 
500.0

 
700.0

 
1,200.0

Total
$
1,995.0

 
$
750.0

 
$
500.0

 
$
700.0

 
$
3,945.0


Voluntary prepayment of the Term Loans is generally permitted at any time without fee upon proper notice and subject to a minimum dollar requirement. In addition to scheduled principal payments, the Term Loans are (with certain exceptions) subject to mandatory prepayment upon the occurrence of certain events. There are no mandatory principal payments on the Revolving Loan and any balance outstanding on the Revolving Loan will be due and payable at its scheduled maturity date.

FIS may redeem some or all of the 2017 Notes, 2020 Notes, and the 2022 Notes on or before July 14, 2016, July 14, 2017, and May 14, 2020, respectively, at specified premiums to par, and thereafter at par. The Company expects to pay a premium of approximately $50.0 million upon the early redemption of the 2017 Notes. FIS may also redeem the 2018 Notes and the 2023 Notes at our option in whole or in part, at any time and from time to time, at a redemption price equal to the greater of 100% of the principal amount to be redeemed and a make-whole amount calculated as described in the related indenture in each case plus accrued and unpaid interest to, but excluding, the date of redemption; provided no make-whole amount will be paid for redemptions on the 2023 Notes during the three months prior to their maturity.

We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Loan are comprised of a diversified set of financial institutions, both domestic and international. The combined commitments of our top 10 revolving lenders comprise about 66% of our Revolving Loan. The failure of any single

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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


lender to perform its obligations under the Revolving Loan would not adversely impact our ability to fund operations. If the single largest lender were to default under the terms of the FIS Credit Agreement (impacting the capacity of the Revolving Loan), the maximum loss of available capacity on the undrawn portion of the Revolving Loan, as of March 31, 2013, would be approximately $48.9 million.

In connection with a March 2012 refinancing and bond offering, we wrote off certain previously capitalized debt issuance costs and transaction expenses totaling $18.4 million and capitalized $29.3 million of other costs. Debt issuance costs of $49.2 million, net of accumulated amortization, remain capitalized as of March 31, 2013, related to all of the above outstanding debt. The Company incurred and will capitalize approximately $18.0 million in additional debt issuance costs with respect to the FIS Credit Agreement refinancing and the issuance of the 2018 Notes and the 2023 Notes, and expects to write off approximately $15.0 million of previously capitalized costs as well as certain transaction fees and expenses of under $2.0 million. Upon the early redemption of the 2017 Notes, the Company will also expense approximately $43.0 million, representing the $50.0 million early-redemption premium offset by the premium reflected in the carrying value of this debt.

The fair value of the Company’s long-term debt is estimated to be approximately $180.1 million higher than the carrying value as of March 31, 2013. This estimate is based on quoted prices of our senior notes and trades of our other debt in close proximity to March 31, 2013, which are considered Level 2-type measurements. This estimate is subjective in nature and involves uncertainties and significant judgment in the interpretation of current market data. Therefore, the values presented are not necessarily indicative of amounts the Company could realize or settle currently.

As of March 31, 2013, 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):

Effective date
 
Termination date
 
Notional amount
 
Bank pays
variable rate of
 
FIS pays
 fixed rate of
 
May 3, 2011
 
May 1, 2013
 
$
400.0

 
1 Month LIBOR (1)
 
0.73
%
(2)
September 1, 2011
 
September 1, 2014
 
150.0

 
1 Month LIBOR (1)
 
0.74
%
(2)
September 1, 2011
 
September 1, 2014
 
150.0

 
1 Month LIBOR (1)
 
0.74
%
(2)
September 1, 2011
 
September 1, 2014
 
300.0

 
1 Month LIBOR (1)
 
0.72
%
(2)
July 1, 2012
 
July 1, 2015
 
300.0

 
1 Month LIBOR (1)
 
0.58
%
(2)
February 1, 2013
 
February 3, 2014
 
200.0

 
1 Month LIBOR (1)
 
0.28
%
(2)
February 1, 2013
 
February 3, 2014
 
200.0

 
1 Month LIBOR (1)
 
0.28
%
(2)
February 3, 2014
 
February 1, 2017
 
400.0

 
1 Month LIBOR (1)
 
0.89
%
(2)
 
 
 
 
$
2,100.0

 
 
 
 

 
___________________________________
(1)
0.20% in effect as of March 31, 2013.
(2)
Does not include the applicable margin and facility fees paid to lenders on the Term Loans and Revolving Loan as described above.
We have designated these interest rate swaps as cash flow hedges and, as such, they are carried on the Condensed Consolidated Balance Sheets (Unaudited) at fair value with changes in fair value included in other comprehensive earnings, net of tax.

A summary of the fair value of the Company’s derivative instruments as of March 31, 2013 and December 31, 2012, is as follows (in millions):
 
March 31, 2013
 
December 31, 2012
 
Balance sheet location
 
Fair
value
 
Balance sheet location
 
Fair
value
Interest rate swap contracts
Accounts payable and accrued liabilities
 
$
0.5

 
Accounts payable and accrued liabilities
 
$
1.0

Interest rate swap contracts
Other long-term liabilities
 
8.3

 
Other long-term liabilities
 
9.4

Total derivatives designated as hedging instruments
 
 
$
8.8

 
 
 
$
10.4


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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



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 and the credit risk of the counterparties when determining the fair value of our interest rate swaps. Adjustments are made to these amounts and to AOCE within the Condensed Consolidated Statements of Equity (Unaudited) and the Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) as the factors that impact fair value change, including current and projected interest rates, time to maturity and required cash transfers/settlements with our counterparties. Periodic actual and estimated settlements with counterparties are recorded to interest expense as a yield adjustment to effectively fix the otherwise variable rate interest expense associated with the Term and Revolving Loans.

A summary of the effect of derivative instruments on the Company’s Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) and recognized in AOCE for the three months ended March 31, 2013 and 2012 is as follows (in millions):

 
 
Amount of loss recognized
in AOCE on
derivatives
 
 
 
Amount of loss reclassified
from AOCE into
income
Derivatives in cash
 
Three months ended
 
Location of loss
 
Three months ended
flow hedging
 
March 31,
 
reclassified from
 
March 31,
relationships
 
2013
 
2012
 
AOCE into income
 
2013
 
2012
Interest rate swap contracts
 
$
—

 
$
(1.8
)
 
Interest expense
 
$
(1.7
)
 
$
(2.5
)

Approximately $2.8 million of the balance in AOCE as of March 31, 2013, is expected to be reclassified into income over the next twelve months.
Our existing cash flow hedges are highly effective and there was no 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 March 31, 2013, 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 forecasted transactions remain probable of occurring.

(8) Supplemental Guarantor Financial Information

The following supplemental financial information sets forth for FIS and its guarantor and non-guarantor subsidiaries: (a) the Condensed Consolidating Balance Sheets as of March 31, 2013 and December 31, 2012; (b) the Condensed Consolidating Statements of Earnings and Comprehensive Earnings for the three months ended March 31, 2013 and 2012; and (c) the Condensed Consolidating Statements of Cash Flows for the three months ended March 31, 2013 and 2012.

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AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
March 31, 2013
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8.3

 
$
198.8

 
$
383.5

 
$
—

 
$
590.6

Settlement deposits
—

 
30.3

 
—

 
—

 
30.3

Trade receivables, net
—

 
692.4

 
243.8

 
—

 
936.2

Investment in subsidiaries, intercompany and receivables from related parties
9,464.3

 
9,777.7

 
1,026.4

 
(20,223.2
)
 
45.2

Other current assets
32.1

 
241.3

 
47.4

 
—

 
320.8

Total current assets
9,504.7

 
10,940.5

 
1,701.1

 
(20,223.2
)
 
1,923.1

Property and equipment, net
8.0

 
327.8

 
86.5

 
—

 
422.3

Goodwill
—

 
7,205.5

 
1,281.7

 
—

 
8,487.2

Intangible assets, net
—

 
1,143.1

 
402.4

 
—

 
1,545.5

Computer software, net
38.9

 
639.5

 
172.7

 
—

 
851.1

Other noncurrent assets
85.4

 
300.2

 
84.4

 
—

 
470.0

Total assets
$
9,637.0

 
$
20,556.6

 
$
3,728.8

 
$
(20,223.2
)
 
$
13,699.2

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
122.5

 
$
260.1

 
$
303.3

 
$
—

 
$
685.9

Settlement payables
—

 
116.8

 
8.2

 
—

 
125.0

Current portion of long-term debt
157.5

 
6.5

 
2.8

 
—

 
166.8

Deferred revenues
—

 
212.6

 
68.8

 
—

 
281.4

Other current liabilites
—

 
—

 
19.3

 
—

 
19.3

Total current liabilities
280.0

 
596.0

 
402.4

 
—

 
1,278.4

Deferred income taxes
—

 
792.0

 
17.9

 
—

 
809.9

Long-term debt, excluding current portion
4,429.8

 
5.9

 
0.5

 
—

 
4,436.2

Other long-term liabilities
28.5

 
91.5

 
256.2

 
—

 
376.2

Total liabilities
4,738.3

 
1,485.4

 
677.0

 
—

 
6,900.7

Total equity
4,898.7

 
19,071.2

 
3,051.8

 
(20,223.2
)
 
6,798.5

Total liabilities and equity
$
9,637.0

 
$
20,556.6

 
$
3,728.8

 
$
(20,223.2
)
 
$
13,699.2

 
December 31, 2012
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Assets
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
18.4

 
$
226.8

 
$
272.4

 
$
—

 
$
517.6

Settlement deposits
—

 
32.6

 
—

 
—

 
32.6

Trade receivables, net
—

 
693.9

 
231.8

 
—

 
925.7

Investment in subsidiaries, intercompany and receivables from related parties
9,207.5

 
9,482.0

 
1,087.8

 
(19,735.3
)
 
42.0

Other current assets
21.2

 
259.6

 
45.5

 
—

 
326.3

Total current assets
9,247.1

 
10,694.9

 
1,637.5

 
(19,735.3
)
 
1,844.2

Property and equipment, net
12.0

 
328.8

 
78.7

 
—

 
419.5

Goodwill
—

 
7,205.7

 
1,175.8

 
—

 
8,381.5

Intangible assets, net
—

 
1,191.4

 
384.8

 
—

 
1,576.2

Computer software, net
39.7

 
641.9

 
165.4

 
—

 
847.0

Other noncurrent assets
103.2

 
288.3

 
89.8

 
—

 
481.3

Total assets
$
9,402.0

 
$
20,351.0

 
$
3,532.0

 
$
(19,735.3
)
 
$
13,549.7

Liabilities and Equity
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
110.7

 
$
257.1

 
$
256.8

 
$
—

 
$
624.6

Settlement payables
—

 
165.6

 
6.6

 
—

 
172.2

Current portion of long-term debt
144.4

 
7.4

 
2.1

 
—

 
153.9

Deferred revenues
—

 
224.0

 
63.3

 
—

 
287.3

Other current liabilites
—

 
—

 
18.8

 
—

 
18.8

Total current liabilities
255.1

 
654.1

 
347.6

 
—

 
1,256.8

Deferred income taxes
—

 
820.4

 
1.4

 
—

 
821.8

Long-term debt, excluding current portion
4,224.1

 
7.2

 
0.3

 
—

 
4,231.6

Other long-term liabilities
29.0

 
99.7

 
317.2

 
—

 
445.9

Total liabilities
4,508.2

 
1,581.4

 
666.5

 
—

 
6,756.1

Total equity
4,893.8

 
18,769.6

 
2,865.5

 
(19,735.3
)
 
6,793.6

Total liabilities and equity
$
9,402.0

 
$
20,351.0

 
$
3,532.0

 
$
(19,735.3
)
 
$
13,549.7



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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
Three months ended March 31, 2013
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Processing and services revenues
$
—

 
$
1,159.4

 
$
318.6

 
$
—

 
$
1,478.0

Operating expenses
61.5

 
866.4

 
275.0

 
—

 
1,202.9

Operating income
(61.5
)
 
293.0

 
43.6

 
—

 
275.1

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(50.2
)
 
(0.4
)
 
(1.1
)
 
—

 
(51.7
)
Other income (expense)
9.6

 
0.1

 
(4.6
)
 
—

 
5.1

Net earnings (loss) of equity affiliates
222.3

 
—

 
—

 
(222.3
)
 
—

Total other income (expense)
181.7

 
(0.3
)
 
(5.7
)
 
(222.3
)
 
(46.6
)
Earnings (loss) from continuing operations before income taxes
120.2

 
292.7

 
37.9

 
(222.3
)
 
228.5

Provision for income taxes
(33.1
)
 
94.9

 
13.4

 
—

 
75.2

Net earnings (loss) from continuing operations
153.3

 
197.8

 
24.5

 
(222.3
)
 
153.3

Earnings (loss) from discontinued operations, net of tax
(3.9
)
 
0.1

 
(4.0
)
 
3.9

 
(3.9
)
Net earnings (loss)
149.4

 
197.9

 
20.5

 
(218.4
)
 
149.4

Net (earnings) loss attributable to noncontrolling interest
(5.3
)
 
0.2

 
(5.5
)
 
5.3

 
(5.3
)
Net earnings (loss) attributable to FIS common stockholders
$
144.1

 
$
198.1

 
$
15.0

 
$
(213.1
)
 
$
144.1

Comprehensive earnings (loss) attributable to FIS
$
145.1

 
$
198.5

 
$
6.4

 
$
(214.9
)
 
$
135.1



 
Three months ended March 31, 2012
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Processing and services revenues
$
—

 
$
1,120.5

 
$
292.9

 
$
—

 
$
1,413.4

Operating expenses
64.5

 
866.9

 
259.5

 
—

 
1,190.9

Operating income
(64.5
)
 
253.6

 
33.4

 
—

 
222.5

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense, net
(58.1
)
 
(0.1
)
 
(1.2
)
 
—

 
(59.4
)
Other income (expense)
(16.4
)
 
(3.8
)
 
(0.7
)
 
—

 
(20.9
)
Net earnings (loss) of equity affiliates
187.1

 
—

 
—

 
(187.1
)
 
—

Total other income (expense)
112.6

 
(3.9
)
 
(1.9
)
 
(187.1
)
 
(80.3
)
Earnings (loss) from continuing operations before income taxes
48.1

 
249.7

 
31.5

 
(187.1
)
 
142.2

Provision for income taxes
(46.4
)
 
83.0

 
11.1

 
—

 
47.7

Net earnings (loss) from continuing operations
94.5

 
166.7

 
20.4

 
(187.1
)
 
94.5

Earnings (loss) from discontinued operations, net of tax
(4.4
)
 
4.3

 
(8.7
)
 
4.4

 
(4.4
)
Net earnings (loss)
90.1

 
171.0

 
11.7

 
(182.7
)
 
90.1

Net (earnings) loss attributable to noncontrolling interest
(3.0
)
 
0.3

 
(3.3
)
 
3.0

 
(3.0
)
Net earnings (loss) attributable to FIS common stockholders
$
87.1

 
$
171.3

 
$
8.4

 
$
(179.7
)
 
$
87.1

Comprehensive earnings (loss) attributable to FIS
$
113.8

 
$
172.4

 
$
35.3

 
$
(207.7
)
 
$
113.8



15
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
Three months ended March 31, 2013
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Cash flows from operating activities
$
(48.8
)
 
$
227.8

 
$
16.4

 
$
12.1

 
$
207.5

Cash flows from investing activities
(0.1
)
 
(61.1
)
 
(134.5
)
 
—

 
(195.7
)
Cash flows from financing activities
38.8

 
(194.6
)
 
236.1

 
(12.1
)
 
68.2

Effect of foreign currency exchange rates on cash
—

 
—

 
(7.0
)
 
—

 
(7.0
)
Net increase (decrease) in cash
$
(10.1
)
 
$
(27.9
)
 
$
111.0

 
$
—

 
$
73.0


 
Three months ended March 31, 2012
 
 
 
Guarantor
 
Non-guarantor
 
 
 
 
 
FIS
 
subsidiaries
 
subsidiaries
 
Eliminations
 
Consolidated
 
(in millions)
Cash flows from operating activities
$
(68.7
)
 
$
218.4

 
$
45.4

 
$
8.7

 
$
203.8

Cash flows from investing activities
(2.1
)
 
(54.5
)
 
(8.4
)
 
—

 
(65.0
)
Cash flows from financing activities
64.1

 
(153.4
)
 
22.2

 
(8.7
)
 
(75.8
)
Effect of foreign currency exchange rates on cash
—

 
—

 
3.2

 
—

 
3.2

Net increase (decrease) in cash
$
(6.7
)
 
$
10.5

 
$
62.4

 
$
—

 
$
66.2


(9) 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 matter listed below, depart from customary litigation incidental to its business. As background to the disclosures below, please note the following:

•
This matter raises difficult and complicated factual and legal issues and is subject to many uncertainties and complexities.

•
The Company reviews all of its litigation 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 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.

   CheckFree Corporation and CashEdge, Inc. v. Metavante Corporation and Fidelity National Information Services, Inc.

This is a patent infringement action that was filed by CheckFree Corporation and CashEdge, Inc., wholly-owned subsidiaries of Fiserv, Inc., against Fidelity National Information Services, Inc. and our subsidiary, Metavante Corporation (collectively the “Defendants”) in the U.S. District Court for the Middle District of Florida, Jacksonville Division on January 5, 2012. The complaint seeks damages, injunctive relief and attorneys' fees for the alleged infringement of three patents. Plaintiffs allege that the Defendants infringe the patents at issue by providing customers financial and payment solutions that process payment instructions, provide electronic biller notifications, and/or process account-to-account funds transfer transactions and have requested financial damages and injunctive relief. Defendants filed their Answer and Counterclaims to Plaintiffs' complaint for patent infringement denying the claims of patent infringement and asserting defenses, including non-infringement and invalidity. Additionally, Defendants filed counterclaims asserting patent infringement of three patents and adding Fiserv, Inc. as a Counter Defendant. Defendants seek damages, injunctive relief and attorneys' fees. Plaintiffs and

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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Counter Defendant Fiserv, Inc., filed their Answer to Defendants' counterclaims denying the claims of patent infringement and asserting defenses, including non-infringement and invalidity. In the fourth quarter of 2012, the Court granted Plaintiffs' Motion to Amend its First Amended Complaint to add a fourth patent and Defendants' Motion to Amend its First Amended Answer and Counterclaims. On December 3, 2012, Defendants filed a Motion for Summary Judgment seeking an order invalidating all of the Plaintiffs' asserted patents. On January 15, 2013, Plaintiffs filed a Motion for Summary Judgment seeking to invalidate select patent claims from one of Defendants' asserted patents.   The Court has not yet ruled on either of the summary judgment motions. Trial is scheduled for January 2014. Discovery is ongoing. Due to the early stage of this litigation, an estimate of a possible loss or range of loss, if any, for this litigation cannot be made at this time.
 Indemnifications and Warranties

     The Company generally indemnifies its customers, subject to certain exceptions, against damages and costs resulting from claims of patent, copyright, or trademark infringement associated with its customers' use of the Company's products or services. Historically, the Company has not made any significant 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 significant costs have been incurred related to software warranties and no accruals for warranty costs have been made.

(10) Stock Purchase Right

As of the date of acquisition of our subsidiary, Metavante Technologies, Inc., WPM, L.P., a Delaware limited partnership affiliated with Warburg Pincus Private Equity IX, L.P. (collectively “Warburg Pincus”) owned 25% of the outstanding shares of Metavante common stock, and was a party to a purchase right agreement with Metavante that granted Warburg Pincus the right to purchase additional shares of Metavante common stock under certain conditions in order to maintain its relative ownership interest. The Company and Warburg Pincus entered into a replacement stock purchase right agreement effective upon consummation of the Metavante merger, granting Warburg Pincus the right to purchase comparable FIS shares in lieu of Metavante shares. The purchase right agreement relates to Metavante employee stock options that were outstanding as of the date of Warburg Pincus' initial investment in Metavante. The stock purchase right may be exercised quarterly for a number of shares equal to one-third of the number of said employee stock options exercised during the preceding quarter, at a price equal to one-third of the aggregate exercise prices for such options. Alternatively, the right may be exercised for a number of shares equal to the difference between (i) one-third of the number of said employee stock options exercised during the preceding quarter and (ii) the quotient of one-third of the aggregate exercise prices of such options exercised divided by the quoted closing price of a common share on the day immediately before exercise of the purchase right, at a price equal to $0.01 per share (“Net Settlement Feature”). As of March 31, 2013, approximately 1.1 million employee stock options remained outstanding that were subject to this purchase right; therefore, the right will permit Warburg Pincus to purchase, at most, an additional 0.4 million shares. On March 6, 2013, Warburg Pincus sold 19.3 million shares of FIS common stock in a secondary public offering, constituting substantially all its remaining ownership position, other than shares it is still entitled to buy under the purchase right agreement.  

(11) Share Repurchase Program

On February 7, 2012, our Board of Directors approved a plan authorizing repurchases of up to $1.0 billion of our outstanding common stock in the open market at prevailing market prices or in privately negotiated transactions through December 31, 2015. This share repurchase authorization replaced any existing share repurchase authorization. During the 2013 first quarter, we repurchased 2.7 million shares of our common stock for $100.4 million at an average price of $37.17. We repurchased 10.3 million shares of our common stock for $350.3 million at an average price of $33.84 during the year ended December 31, 2012 under this plan, including the repurchase of 5.7 million shares from WPM, L.P. for $200.0 million, or $35.03 per share, in December 2012. Approximately $549.3 million of plan capacity remained available for repurchases as of March 31, 2013.

On October 18, 2011, our Board of Directors approved a plan authorizing repurchases of up to $500.0 million of our outstanding common stock through December 31, 2013. In January 2012, we repurchased 3.7 million shares of our common stock for $101.1 million at an average price of $27.32. This plan was replaced by the February 7, 2012 authorization plan approved by our Board of Directors.


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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


(12) Segment Information
Summarized financial information for the Company’s segments is shown in the following tables.
As of and for the three months ended March 31, 2013 (in millions):

 
FSG
 
PSG
 
ISG
 
Corporate
and Other
 
Total
Processing and services revenues
$
575.3

 
$
611.8

 
$
291.6

 
$
(0.7
)
 
$
1,478.0

Operating expenses
386.9

 
373.3

 
251.3

 
191.4

 
1,202.9

Operating income
$
188.4

 
$
238.5

 
$
40.3

 
$
(192.1
)
 
275.1

Other income (expense) unallocated
 
 
 
 
 
 
 
 
(46.6
)
Income from continuing operations
 
 
 
 
 
 
 
 
$
228.5

Depreciation and amortization
$
39.2

 
$
19.8

 
$
18.8

 
$
75.4

 
$
153.2

Capital expenditures (1)
$
40.6

 
$
14.4

 
$
17.4

 
$
3.0

 
$
75.4

Total assets
$
5,433.2

 
$
4,715.4

 
$
1,925.8

 
$
1,622.4

 
$
13,696.8

Goodwill
$
4,058.0

 
$
3,833.1

 
$
596.1

 
$
—

 
$
8,487.2

(1)
Includes capital leases of $1.7 million for certain computer hardware and software.

As of and for the three months ended March 31, 2012 (in millions):

 
FSG
 
PSG
 
ISG
 
Corporate
and Other
 
Total
Processing and services revenues
$
538.9

 
$
597.1

 
$
276.8

 
$
0.6

 
$
1,413.4

Operating expenses
372.1

 
380.9

 
243.8

 
194.1

 
1,190.9

Operating income
$
166.8

 
$
216.2

 
$
33.0

 
$
(193.5
)
 
222.5

Other income (expense) unallocated
 
 
 
 
 
 
 
 
(80.3
)
Income from continuing operations
 
 
 
 
 
 
 
 
$
142.2

Depreciation and amortization
$
41.1

 
$
21.7

 
$
18.4

 
$
72.7

 
$
153.9

Capital expenditures (1)
$
40.3

 
$
11.3

 
$
10.7

 
$
4.2

 
$
66.5

Total assets
$
5,217.9

 
$
4,903.0

 
$
1,890.2

 
$
1,889.4

 
$
13,900.5

Goodwill
$
3,908.5

 
$
4,038.2

 
$
598.8

 
$
—

 
$
8,545.5

(1)
Includes capital leases of $1.5 million for certain computer hardware and software.

Total assets as of March 31, 2013 and 2012 exclude $2.4 million and $3.9 million related to discontinued operations.

Financial Solutions Group

FSG focuses on serving the processing needs of financial institutions, commercial lenders, finance companies and other businesses in North America. FSG's primary software applications function as the underlying infrastructure of a financial institution's processing environment. These applications include core bank processing software, which banks use to maintain the primary records of their customer accounts, and complementary applications and services that interact directly with the core processing applications. FSG 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. Additionally, our Capco subsidiary provides strategic consulting, technology integration and complex, large-scale transformation services.

Payment Solutions Group

PSG provides a comprehensive set of software and services for EFT, network, card processing, image, bill payment and government solutions for North America. PSG is focused on servicing the payment and EFT needs of North American

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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


headquartered banks, credit unions and independent community and savings institutions as well as other commercial enterprises.

International Solutions Group

ISG offers both financial solutions and payment solutions to a wide array of international financial institutions. Also, this segment includes the Company's consolidated Brazilian Venture (Note 2) and the international operations of Capco. Customers in Brazil, Germany and the United Kingdom accounted for the majority of the revenues from non-U.S. based customers for all periods presented. Included in this segment are long-term assets, excluding goodwill and other intangible assets, located outside of the United States totaling $368.1 million and $400.0 million as of March 31, 2013 and 2012, respectively. These assets are predominantly located in Germany, Brazil, the United Kingdom and India.

Corporate and Other

The Corporate and Other segment consists of the corporate overhead costs that are not allocated to operating segments. Corporate overhead costs relate to human resources, legal, risk, information security, finance and accounting, domestic sales and marketing, amortization of acquisition-related intangibles and other costs that are not considered when management evaluates segment performance.

During the first quarter of 2012, the Company recorded compensation charges of $18.5 million in payments and accelerated vesting of certain stock option and restricted stock grants triggered by changes in responsibilities of certain executives. These charges are included in selling, general and administrative expenses in the Corporate and Other segment.

(13) Acquisitions

In March 2013, the Company completed the acquisition of mFoundry, Inc. ("mFoundry"), paying $115.0 million, net of cash acquired, for the remaining interest that it did not already own. mFoundry is a leading provider of mobile banking and payment solutions for financial institutions and retailers. Owning underlying technology that enables mobile commerce will significantly enhance our strategic positioning as the mobile channel continues to expand, and will enable us to leverage our capabilities over a broader customer base.   The acquisition of the remaining interest resulted in a $9.2 million pretax gain on our pre-acquisition investment in mFoundry, which is included in Other Income (Expense).




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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. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with Item 1: Condensed Consolidated Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The discussion below contains forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements regarding our expectations, hopes, intentions, or strategies regarding the future, are forward-looking statements. These statements relate to, among other things, future events and our future results, and involve a number of risks and uncertainties. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Any statements that refer to beliefs, expectations, projections or other characterizations of future events or circumstances and other statements that are not historical facts are forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms and other comparable terminology.
Actual results, performance or achievement could differ materially from those contained in these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to include without limitation:

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