|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following section discusses management’s view of the financial condition and results of operations of FIS and its consolidated subsidiaries as of
December 31, 2016
and
2015
and for the years ended
December 31, 2016
,
2015
and
2014
.
This section should be read in conjunction with the audited Consolidated Financial Statements and related Notes of FIS included elsewhere in this Annual Report. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause future results to differ materially from those reflected in this section.
Overview
FIS is a global leader in financial services technology with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs more than 55,000 people worldwide and holds global leadership positions in payment processing, financial software and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500
®
Index.
We have grown organically as well as through acquisitions, which have contributed critical applications and services that complement or enhance our existing offerings, diversifying our revenues by customer, geography and service offering. The completion of the SunGard acquisition on November 30, 2015 increased our existing portfolio to include solutions that automate a wide range of complex business processes for financial services institutions and corporate and government treasury departments.
In 2015, FIS finalized a reorganization and began reporting its financial performance based on three segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other. We recast all previous periods to
conform to the new segment presentation. Following our November 30, 2015 acquisition of SunGard, the SunGard business was included within the GFS segment as its economic characteristics, international business model, and various
other factors largely aligned with those of our GFS segment. As we further integrated the acquired SunGard businesses through March 31, 2016, we reclassified certain SunGard businesses (corporate liquidity and wealth management) that are
oriented more to the retail banking and payments activities of IFS into that segment. Certain other businesses from both SunGard (public sector and education businesses which was divested in February 2017), and legacy FIS (global commercial services and retail check processing) were reclassified to the Corporate and Other segment, as have SunGard administrative expenses. Prior periods also have been reclassified to conform to the current segment presentation. A description of these segments is included in Note 19 of the Notes to Consolidated Financial Statements. Revenues by segment and the results of operations of our segments are discussed below in Segment Results of Operations.
Business Trends and Conditions
Our revenue is primarily derived from a combination of recurring technology and processing services, consulting and professional services and software license fees. The majority of our revenue has historically been recurring, provided under multi-year contracts that contribute relative stability to our revenue stream. These services, in general, are considered critical to our clients' operations. A considerable portion of these recurring revenues is derived from transaction processing fees that fluctuate with the level of accounts and card transactions, among other variable measures, associated with consumer, commercial, capital markets and trading volume activity. Consulting and professional services revenues are typically non-recurring, and sales of software licenses are less predictable, a portion of which can be regarded as discretionary spending by our clients. In 2016, macroeconomic challenges of a slowing global economy, as well as unique events such as Brexit, affected our clients, by predominantly delaying their buying decisions of consulting and professional services in certain markets.
The SunGard acquisition broadened our solution portfolio, enabling us to expand beyond our traditional retail banking and payments markets into the institutional and wholesale side of financial institutions as well as other buy-side organizations. It significantly expanded our existing solutions and client base in wealth management, treasury and corporate payments. These solutions are in demand among our regional and community financial institution clients as they look for ways to replace highly regulated fee revenues. The combination also favorably impacted our revenue mix, with a greater concentration of license revenues and higher margin services. As we continue to integrate SunGard into our existing operations, we anticipate
significant cost savings around administration and technology expenses, with a goal of achieving annual synergy run-rate savings of more than $275 million by the end of 2017.
We are actively migrating many financial institutions to outsourced integrated technology solutions to improve their profitability and address increasing and on-going regulatory requirements. As a provider of outsourcing solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of broader year-to-year economic and market changes that otherwise might have a larger impact on our results of operations. We believe our integrated solutions and outsourced services are well positioned to address this outsourcing trend across the markets we serve.
Consumer preference continues to shift from traditional branch banking services to digital banking solutions, and our clients seek to provide a single integrated banking experience through their branch, mobile, internet and voice banking channels. We are focused on enabling our clients to deliver this experience to their customers through our integrated solutions and services. We continue to innovate and invest in these integrated solutions and services to assist clients as they address this market demand. This is an area of increased competition from global banks, international providers, and disruptive technology innovators.
We continue to see demand for innovative solutions in the payments market that will deliver faster, more convenient payment solutions in mobile channels, internet applications and cards. We believe digital payments will grow and partially replace existing payment tender volumes over time as consumers and merchants embrace the convenience, incremental services and benefits. Digital payment volume is growing significantly but does not yet represent a meaningful amount of the payments market. Additionally, new formidable non-traditional payments competitors and large merchants are investing in and innovating digital payment technologies to address the emerging market opportunity, and it is unclear the extent to which particular technologies or services will succeed. We believe the growth of digital payments continues to present both an opportunity and a risk to us as the market develops. Although we cannot predict which digital payment technologies or solutions will be successful, we cautiously believe our client relationships, payments infrastructure and experience, adapted solutions and emerging solutions are well positioned to maintain or grow our clients' existing payment volumes, which is our focus.
High profile North American merchant payment card information security breaches have pushed the payment card industry towards EMV integrated circuit cards as financial institutions, card networks and merchants seek to improve information security and reduce fraud costs. We invested in our card management solutions and card manufacturing and processing capabilities to accommodate EMV integrated circuit cards so we can continue to guide our clients through this technology transition, and grow our card driven businesses. We believe the trend to migrate to EMV cards will continue.
The use of checks continues to decline as a percentage of total payments, which negatively impacts our check warranty and item-processing businesses, and we expect this trend to continue. In 2016 we saw a continued slowdown and decline in our check volumes.
We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity, which we believe as a whole is detrimental to our business. However, consolidation resulting from specific merger and acquisition transactions may be beneficial or detrimental to our business. When consolidations of financial institutions occur, merger partners often operate systems obtained from competing service providers. The newly formed entity generally makes a determination to migrate its core and payments systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by their expanding the use of our services if such services are chosen to survive the consolidation and support the newly combined entity. Conversely, we may lose market share if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to survive the consolidation and support the newly combined entity. It is also possible that larger financial institutions resulting from consolidation may have greater leverage in negotiating terms or could decide to perform in-house some or all of the services that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company. In 2016, consolidations resulted in our earning termination fees (which are paid to us when customers leave) slightly higher than the previous year.
Notwithstanding challenging global economic conditions, our international business continued to experience growth across all major regions, especially Brazil and Asia on a constant currency basis during the year ended December 31, 2016. By comparison with FIS, a greater percentage of SunGard's revenues have been contributed historically by international markets, which contributed to this growth trend. Demand for our solutions will also be driven in developing countries by government-led financial inclusion policies aimed to reduce the unbanked population and by growth in the middle classes in these markets driving the need for more sophisticated banking solutions. The majority of our European revenue is generated by clients in the United Kingdom, France and Germany. In 2016, we experienced adverse currency impacts in our international businesses as a
consequence of a relative strengthening of the U.S. dollar, particularly versus the British pound sterling due in part to Brexit. In 2017, we expect continued unfavorable foreign currency impacts.
Information Security
Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems.
FIS remains focused on making strategic investments in information security to protect our clients and our information systems. This includes both capital expenditures and operating expense on hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this growth opportunity in the financial services industry.
Critical Accounting Policies
The accounting policies described below are those we consider critical in preparing our Consolidated Financial Statements. These policies require management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. See Note 2 to the Consolidated Financial Statements for a more detailed description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements.
Revenue Recognition
The Company generates revenues from the delivery of bank processing, credit and debit card processing services, other payment processing services, professional services, software licensing, software as a service ("SaaS"), business process as a service ("BPaaS"), cloud revenue and software related services. Revenues are recognized when evidence of an arrangement exists, delivery has occurred, fees are fixed or determinable and collection is considered probable. Each of these primary revenue recognition criteria requires exercising an appropriate level of judgment. We are frequently a party to multiple concurrent contracts with the same client. These situations require judgment to determine whether the individual contracts should be aggregated or evaluated separately for purposes of revenue recognition. In making this determination, we consider the timing of negotiating and executing the contracts, whether the different elements of the contracts are interdependent and whether any of the payment terms of the contracts are interrelated. Our individual contracts also frequently include multiple elements. We must apply judgment in these circumstances in determining whether individual elements can be considered separate units of accounting or should instead be accounted for in combination with other deliverables. Judgment is also required in ascribing fair value to each deliverable for purposes of allocating consideration.
For certain agreements, we use contract accounting if the arrangement with the customer includes significant customization, modification, or production of software. For these arrangements, we use the percentage-of-completion method, which requires the use of reasonable estimates of total revenues and contract hours. These estimates are revised and updated at each reporting period. Additionally, a small percentage of revenues, including some equipment sales and merchant interchange fees, are recognized on a net-of-cost basis because the Company is not the primary obligor, among other criteria. The determination of gross versus net recognition requires judgment in evaluating the Company's contractual obligations to the customer.
Due to the large number, broad nature and average size of individual contracts we are party to, the impact of judgments and assumptions that we apply in recognizing revenue for any single contract is not likely to have a material effect on our consolidated operations or financial position. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of clients could significantly influence the timing and amount of revenue recognized in our historical and future results of operations or financial position. Additional information about our revenue recognition policies is included in Note 2 to the Consolidated Financial Statements.
Computer Software
Computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life, which is generally three to five years. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, which is three to ten years. The determination of fair value as part of the business combination purchase price allocation is complex and requires significant judgment. For any material acquisition, we engage independent valuation specialists to assist in making fair value determinations. The valuation technique most often applied for acquired software is a relief from royalty, income approach. This approach requires forecasts, estimates, and assumptions about future revenue streams, appropriate royalty rates, and the rate at which the underlying technology becomes obsolete. In addition, the income approach requires the use of risk adjusted discount rates and estimated future tax rates. As of December 31, 2016 and December 31, 2015, computer software, net of accumulated amortization, was
$1.6 billion
and
$1.6 billion
, respectively, and amortization of computer software was
$396 million
,
$229 million
, and
$210 million
for the years ended December 31, 2016, 2015, and 2014, respectively. Balances related to acquired software represent a significant portion of these balances, particularly for the periods after the acquisition of SunGard, which resulted in acquired software of
$674 million
.
The capitalization of software development costs is governed by FASB ASC Subtopic 985-20 if the software is to be sold, leased or otherwise marketed, or by FASB ASC Subtopic 350-40 if the software is for internal use. After the technological feasibility of the software has been established (for software to be marketed), or at the beginning of application development (for internal-use software), software development costs, which include primarily salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized. Research and development costs incurred prior to the establishment of technological feasibility (for software to be marketed), or prior to application development (for internal-use software), are expensed as incurred. Evaluating whether technological feasibility has been achieved requires the use of management judgment.
Software development costs are amortized on a product-by-product basis commencing on the date of general release of the solutions (for software to be marketed) or the date placed in service (for internal-use software). Software development costs for software to be marketed are amortized using the greater of (1) the straight-line method over its estimated useful life, which ranges from three to 10 years, or (2) the ratio of current revenues to total anticipated revenues over its useful life.
In determining useful lives, management considers historical results and technological trends that may influence the estimate. Useful lives for all computer software range from three to 10 years.
We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset (for software to be marketed). There are inherent uncertainties in determining the expected useful life or cash flows to be generated from computer software. For the years ended December 31, 2016, 2015, and 2014, respectively, we have not had more than minimal charges for impairments of software. While we have not historically experienced significant changes in these balances due to changes in estimates, our results of operations could be subject to such changes in the future.
Purchase Accounting, Goodwill and Other Intangible Assets
We are required to allocate the purchase price of acquired businesses to the assets acquired and liabilities assumed in the transaction at their estimated fair values. The estimates used to determine the fair value of long-lived assets, such as intangible assets, are complex and require a significant amount of management judgment. We generally engage independent valuation specialists to assist us in making fair value determinations.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to record provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the combination date or when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or we learn that more information is not obtainable.
We are also required to estimate the useful lives of intangible assets to determine the amount of acquisition-related intangible asset amortization expense to record in future periods. We periodically review the estimated useful lives assigned to our finite-lived intangible assets to determine whether such estimated useful lives continue to be appropriate. Additionally, we review our indefinite-lived intangible assets to determine if there is any change in circumstances that may indicate the asset’s useful life is no longer indefinite.
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. Goodwill and other intangible assets with indefinite useful lives should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment. FASB ASC Topic 350 allows an entity first to assess qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to in the guidance as "step zero." If an entity concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount (that is, a likelihood of more than 50 percent), the "step one" quantitative assessment must be performed for that reporting unit. ASC Topic 350 provides examples of events and circumstances that should be considered in performing the "step zero" qualitative assessment, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events affecting a reporting unit or the entity as a whole and a sustained decrease in share price.
In applying the quantitative analysis, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach. The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, goodwill is not impaired and further testing is not required. We engaged independent specialists to perform valuations of our reporting units effective January 1, 2015 in conjunction with our re-segmentation, and prior to that in 2012 as part of our annual impairment test. There was a substantial excess of fair value over carrying value for each of our reporting units in both the 2015 and 2012 independent valuations.
In conjunction with the organizational modifications in the first quarter of 2016, we reallocated goodwill associated with the reclassified businesses based on relative fair values as of January 1, 2016. We refreshed our step zero qualitative analysis, identifying no indications of impairment for any of our reporting units.
We assess goodwill for impairment on an annual basis during the fourth quarter using a September 30 measurement date unless circumstances require a more frequent measurement, as was the case in the first quarter of 2015 and the first quarter of 2016. For each of 2016, 2015, and 2014, we began our annual impairment test with the step zero qualitative analysis. In performing the step zero qualitative analysis for each year, examining those factors most likely to affect our valuations, 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. Consequently, we did not perform a step one quantitative analysis specifically for the purpose of our annual impairment test in any year presented in these financial statements.
We also estimate the fair value of acquired intangible assets with indefinite lives and compare this amount to the underlying carrying value annually. Similar to the ASC Topic 350 guidance for goodwill, ASC Section 360-10-35 allows an organization to first perform a qualitative assessment of whether it is more likely than not that an indefinite-lived intangible asset has been impaired.
We engaged independent specialists to perform a valuation of our indefinite-lived intangible assets in 2016 and 2015, and prior to that in 2012, using a form of income approach valuation known as the relief-from-royalty method. For 2016, we proceeded directly to a step one quantitative analysis. There was an excess of fair value over carrying value for each of our indefinite lived intangible assets in the 2016 and 2015 independent valuations. For 2014, we began our assessment of indefinite lived intangibles with the step zero qualitative analysis because there was a substantial excess of fair value over carrying value for each of our indefinite-lived intangible assets based on the 2012 valuation. Based upon the results of these assessments, there were no indications of impairment.
Determining the fair value of a reporting unit or acquired intangible assets with indefinite-lives involves judgment and the use of significant estimates and assumptions, which include assumptions regarding forecasted revenue growth rates, operating margins, capital expenditures, tax rates, and other factors used to calculate estimated future cash flows. In addition, risk-adjusted discount rates and future economic and market conditions and other assumptions are applied. Goodwill was
$14.2 billion
and
$14.7 billion
as of the years ended December 31, 2016 and 2015, respectively, and indefinite-lived intangibles was
$80 million
and
$81 million
as of the years ended December 31, 2016 and 2015, respectively. As a result, a meaningful change in one or more of the underlying forecasts, estimates, or assumptions used in testing these assets for impairment could result in a material impact on the Company's results of operations and financial position. However, because there was a substantial
excess of fair value over carrying value in each of our previous independent valuations, we believe the likelihood of obtaining materially different results based on a change of assumptions is low.
Accounting for Income Taxes
As part of the process of preparing the Consolidated Financial Statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and financial reporting purposes. These differences result in deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. Management uses bests estimates and assumptions available during this process.
We must then assess the likelihood that deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must reflect this increase or decrease as an expense or benefit within income tax expense in the Consolidated Statements of Earnings. We consider history of losses, forecasted earnings, statutory usage limitations of the deferred tax asset and possible tax planning strategies in determining whether or not we believe a valuation allowance is necessary.
Determination of the income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, changes in the geographic mix of revenues or in the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from period to period. We also receive periodic assessments from taxing authorities challenging our positions that must be taken into consideration in determining our tax reserves. Resolving these assessments, which may or may not result in additional taxes due, may also require an extended period of time. We believe our tax positions comply with applicable tax law and we adequately account for any known tax contingencies. We reserve for uncertain tax positions using a two-step process. First we determine if the tax position meets the more likely than not recognition threshold based on all available evidence and second, we estimate the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. However, final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period that a determination is made.
Related Party Transactions
We are a party to certain historical related party agreements as discussed in Note 17 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
Factors Affecting Comparability
Our Consolidated Financial Statements included in this report, which presents our financial position and results of operations, reflect the following significant transactions:
|
|
•
|
On November 30, 2015, we completed the SunGard acquisition for consideration of approximately 41.8 million shares of common stock of FIS and approximately $2,335 million in cash. In addition, we issued restricted stock units ("RSUs") to SunGard employees covering approximately 2.4 million shares of FIS common stock in exchange for unvested SunGard RSUs. FIS also repaid approximately $4.7 billion in aggregate principal amount of SunGard debt. We funded the cash portion of the merger consideration, the pay-off of the indebtedness of SunGard and the payment of transaction-related expenses through a combination of available cash-on-hand and proceeds from debt financings, including proceeds from an issuance in October 2015 of $4.5 billion aggregate principal amount of senior unsecured notes of FIS. SunGard's results of operations and financial position have been included in the Consolidated Financial Statements from and after the date of acquisition. See Note 3 to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
|
|
|
•
|
We have engaged in share repurchases in prior periods presented. There were no share repurchases in 2016. In 2015, we repurchased a total of approximately
5 million
shares for
$300 million
; in 2014, we repurchased a total of approximately
9 million
shares for
$476 million
.
|
As a result of the above transactions, our financial position, results of operations, earnings per share and cash flows in the periods covered by the Consolidated Financial Statements may not be directly comparable.
Consolidated Results of Operations
(in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Processing and services revenues
|
$
|
9,241
|
|
|
$
|
6,596
|
|
|
$
|
6,413
|
|
Cost of revenues
|
6,233
|
|
|
4,395
|
|
|
4,327
|
|
Gross profit
|
3,008
|
|
|
2,201
|
|
|
2,086
|
|
Selling, general, and administrative expenses
|
1,710
|
|
|
1,102
|
|
|
815
|
|
Operating income
|
1,298
|
|
|
1,099
|
|
|
1,271
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
20
|
|
|
16
|
|
|
15
|
|
Interest expense
|
(403
|
)
|
|
(199
|
)
|
|
(173
|
)
|
Other income (expense), net
|
(9
|
)
|
|
121
|
|
|
(60
|
)
|
Total other income (expense)
|
(392
|
)
|
|
(62
|
)
|
|
(218
|
)
|
Earnings from continuing operations before income taxes
|
906
|
|
|
1,037
|
|
|
1,053
|
|
Provision for income taxes
|
317
|
|
|
379
|
|
|
335
|
|
Earnings from continuing operations, net of tax
|
589
|
|
|
658
|
|
|
718
|
|
Earnings (loss) from discontinued operations, net of tax
|
1
|
|
|
(7
|
)
|
|
(11
|
)
|
Net earnings
|
590
|
|
|
651
|
|
|
707
|
|
Net (earnings) loss attributable to noncontrolling interest
|
(22
|
)
|
|
(19
|
)
|
|
(28
|
)
|
Net earnings attributable to FIS
|
$
|
568
|
|
|
$
|
632
|
|
|
$
|
679
|
|
Net earnings per share — basic from continuing operations attributable to FIS common stockholders
|
$
|
1.74
|
|
|
$
|
2.24
|
|
|
$
|
2.42
|
|
Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — basic attributable to FIS common stockholders *
|
$
|
1.74
|
|
|
$
|
2.22
|
|
|
$
|
2.38
|
|
Weighted average shares outstanding — basic
|
326
|
|
|
285
|
|
|
285
|
|
Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
|
$
|
1.72
|
|
|
$
|
2.21
|
|
|
$
|
2.39
|
|
Net earnings (loss) per share — diluted from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — diluted attributable to FIS common stockholders *
|
$
|
1.72
|
|
|
$
|
2.19
|
|
|
$
|
2.35
|
|
Weighted average shares outstanding — diluted
|
330
|
|
|
289
|
|
|
289
|
|
Amounts attributable to FIS common stockholders:
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
$
|
567
|
|
|
$
|
639
|
|
|
$
|
690
|
|
Earnings (loss) from discontinued operations, net of tax
|
1
|
|
|
(7
|
)
|
|
(11
|
)
|
Net earnings attributable to FIS
|
$
|
568
|
|
|
$
|
632
|
|
|
$
|
679
|
|
* Amounts may not sum due to rounding.
Processing and Services Revenues
Processing and services revenues for 2016 increased
$2,645 million
, or
40.1%
, due to incremental revenues from the SunGard acquisition, as well as growth in our consulting business, increased demand for output solutions, increased card processing volumes in Brazil, card production activities associated with the roll-out of EMV cards across the industry, volume growth in debit payments and demand for regulatory and compliance solutions. The processing and services revenue increase was partially offset by
$192 million
of purchase accounting impact on deferred revenue (all of which was recorded as a contra-revenue item) and $100 million of unfavorable foreign currency impact primarily resulting from a stronger U.S. Dollar versus the Pound Sterling and Brazilian Real.
Processing and services revenues for 2015 increased
$183 million
, or
2.9%
, due to incremental revenues from the acquisitions of SunGard, Clear2Pay and Reliance, as well as card production activities associated with the roll-out of EMV cards across the industry and growth in digital solutions. These increases were partially offset by the loss of a major customer in the prior year period, the divestiture of our gaming industry check warranty business and $243 million of unfavorable foreign currency impact primarily resulting from a stronger U.S. Dollar versus the Brazilian Real and the Euro.
Cost of Revenues and Gross Profit
Cost of revenues totaled
$6,233 million
,
$4,395 million
and
$4,327 million
during
2016
,
2015
and
2014
, respectively resulting in gross profit of
$3,008 million
,
$2,201 million
and
$2,086 million
, respectively. Gross profit as a percentage of revenues (“gross margin”) was
32.6%
,
33.4%
and
32.5%
in
2016
,
2015
and
2014
, respectively. The increase in gross profit for
2016
as compared to
2015
primarily resulted from the revenue variances noted above. The gross profit percentage for
2016
as compared to
2015
was negatively impacted by higher acquired intangible asset amortization expense and higher incentive compensation during
2016
. This negative impact was partially offset by the addition of higher margin revenues from SunGard, as well as on-going operating leverage in key markets outside of North America. The increase in gross profit for
2015
as compared to
2014
primarily resulted from the revenue variances noted above. The increase in gross profit percentage for
2015
as compared to
2014
primarily resulted from proportionately higher license fees and lower professional services and consulting revenue, the restructuring activities taken earlier in 2015 in Europe as a result of a reorganization, and reductions in variable costs where performance did not meet expectations. These items were partially offset by the impact of lower termination fees in
2015
.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for
2016
increased
$608 million
, or
55.2%
, primarily resulting from incremental expenses associated with the SunGard acquisition and transaction costs, severance and costs of integration activities relating to acquisitions totaling $281 million.
Selling, general and administrative expenses for
2015
increased
$287 million
, or
35.2%
, primarily resulting from transaction costs, severance and costs of integration activities relating to acquisitions totaling $171 million, severance costs of $45 million in conjunction with the reorganization and streamlining of operations in our GFS segment and other incremental expenses of acquired companies.
Operating Income
Operating income totaled
$1,298 million
,
$1,099 million
and
$1,271 million
for
2016
,
2015
and
2014
, respectively. Operating income as a percentage of revenue (“operating margin”) was
14.0%
,
16.7%
and
19.8%
for
2016
,
2015
and
2014
, respectively. The annual changes in operating income and operating margin resulted from the revenue and cost variances addressed above.
Total Other Income (Expense)
Interest expense is the primary component of total other income (expense). The increase of
$204 million
in interest expense in
2016
as compared to
2015
is primarily due to higher outstanding debt associated with financing the SunGard acquisition, partially offset by lower borrowing rates as the result of the debt refinancing activity undertaken during 2016.
The increase of
$26 million
in interest expense in
2015
as compared to
2014
was primarily due to higher outstanding debt associated with financing the SunGard acquisition, partially offset by lower borrowing rates as the result of the debt refinancing activity undertaken during
2014
.
During 2016, FIS paid down the 2017 Term Loans and partially paid down the 2018 Term Loans resulting in a pre-tax charge upon extinguishment of approximately
$2 million
due to the write-off associated with previously capitalized debt issue costs. Additionally in 2016 as a result of these debt pay downs, FIS terminated interest rate swaps with a notional amount totaling
$1,250 million
resulting in a pre-tax loss of
$2 million
due to the release of fair value changes from other comprehensive earnings. Both of the charges were included in Other income (expense), net.
During the second quarter of 2015, we sold certain assets associated with our gaming industry check warranty business, resulting in proceeds of $238 million and a pre-tax gain of $139 million, which is included in Other income (expense), net. Other income expense, net for 2015 also includes financing costs of $17 million relating to the SunGard acquisition.
Other income (expense) net for 2014 includes a loss of $16 million on a foreign currency forward contract associated with the Euro-based purchase price for our Clear2Pay acquisition, the write-off of certain previously capitalized debt issuance costs of $7 million and the payment of a $30 million bond premium associated with the early redemption of certain debt.
Provision for Income Taxes
Income tax expense from continuing operations totaled
$317 million
,
$379 million
and
$335 million
for
2016
,
2015
and
2014
, respectively. This resulted in an effective tax rate on continuing operations of
35.0%
,
36.5%
and
31.8%
for
2016
,
2015
and
2014
, respectively. The effective tax rate for the 2015 period included a $90 million write-off of goodwill with no tax basis in connection with the sale of our gaming industry check warranty business, resulting in a book gain on sale lower than the tax gain. During 2014, we realized tax benefits related to certain acquired net operating loss carryovers. This and certain favorable audit resolutions in 2014 contributed to the rate differential for the 2014 period.
Earnings (Loss) from Discontinued Operations
During
2016
,
2015
and
2014
, certain operations are classified as discontinued, as discussed in Note 15 of the Notes to Consolidated Financial Statements. Reporting for discontinued operations classifies revenues and expenses as one line item, net of tax, in the Consolidated Statements of Earnings. The table below outlines the components of discontinued operations for
2016
,
2015
and
2014
, net of tax (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss), net of tax
|
2016
|
|
2015
|
|
2014
|
eCas business line
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
Participacoes operations
|
1
|
|
|
(3
|
)
|
|
(6
|
)
|
Total discontinued operations
|
$
|
1
|
|
|
$
|
(7
|
)
|
|
$
|
(11
|
)
|
During the second quarter of 2014, the Company committed to a plan to sell our business operation that provides eCas core banking software solutions to small financial institutions in China because it did not align with our strategic plans. We entered into a purchase agreement in January 2015 to sell this business and the transaction closed during the second quarter of 2015
.
Participacoes, our former item processing and remittance services business in Brazil, had no revenue in
2016
,
2015
and
2014
. Participacoes' processing volume was transitioned to other vendors or back to its clients during the second quarter of 2011. Participacoes had earnings (losses) before taxes of
$2 million
,
$(5) million
and
$(10) million
during the years ended
December 31, 2016
,
2015
and
2014
, respectively. The shut-down activities involved the transfer and termination of approximately
2,600
employees, which was completed in 2011. Former employees generally had up to
two years
from the date of terminations, extended through April 2013, to file labor claims and a number of them did file labor claims. As of
December 31, 2016
, there were approximately
475
active claims remaining. Consequently, we have continued exposure on these active claims, which were not transferred with other assets and liabilities in the disposal.
Net (Earnings) Loss Attributable to Noncontrolling Interest
Net (earnings) loss attributable to noncontrolling interest predominantly relates to the joint venture in Brazil (see Note 17 of the Notes to Consolidated Financial Statements) and totaled
$(22) million
,
$(19) million
and
$(28) million
for
2016
,
2015
and
2014
, respectively.
Earnings from Continuing Operations, Net of Tax, Attributable to FIS Common Stockholders
Earnings from continuing operations, net of tax, attributable to FIS common stockholders totaled
$567 million
,
$639 million
and
$690 million
for
2016
,
2015
and
2014
, respectively, or
$1.72
,
$2.21
and
$2.39
per diluted share, respectively, due to the factors described above coupled with the impact of our share repurchase initiatives.
Segment Results of Operations
Adjusted EBITDA is defined as EBITDA (defined as net income (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles), plus certain non-operating items. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to
the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments, acquisition, integration and severance costs, and restructuring expenses. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments. Financial information, including details of our adjustments to EBITDA, for each of our segments is set forth in Note 19 to the Consolidated Financial Statements included in Part II of this Annual Report.
Integrated Financial Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Processing and services revenues
|
$
|
4,566
|
|
|
$
|
3,846
|
|
|
$
|
3,679
|
|
Adjusted EBITDA
|
$
|
1,811
|
|
|
$
|
1,568
|
|
|
$
|
1,483
|
|
Year ended December 31, 2016:
Processing and services revenues increased
$720 million
, or
18.7%
, due to incremental revenues from our 2015 SunGard acquisition contributing 12.9%, demand for output solutions contributing 1.5%, card production activities associated with the roll-out of EMV across the industry contributing 1.0%, demand for regulatory and compliance solutions and IT solutions contributing 0.9%, volume growth in debit payments contributing 0.7%, and growth in mobile banking and internet solutions contributing 0.7%.
Adjusted EBITDA increased
$243 million
, or
15.5%
, primarily resulting from the revenue variances noted above. Adjusted EBITDA margin decreased
110
basis points to
39.7%
primarily resulting from the revenue mix and higher incentive compensation in
2016
.
Year ended December 31, 2015:
Processing and services revenues increased
$167 million
, or
4.5%
, due to incremental revenues from the SunGard acquisition contributing 1.4% and our 2014 acquisition of Reliance contributing 1.1%, card production activities associated with the roll-out of EMV across the industry contributing 1.4% and growth in digital solutions contributing 0.6%. These increases were partially offset by the net reporting of revenue associated with a change in vendor in our loyalty business contributing -0.9% and lower termination fees contributing -0.6%. Revenue had been recognized on a gross basis under the previous loyalty arrangement based on the contractual responsibilities for which FIS had been responsible.
Adjusted EBITDA increased
$85 million
, or
5.7%
, primarily resulting from the revenue variances noted above. Adjusted EBITDA margin increased
50
basis points to
40.8%
primarily resulting from the impact of cost containment initiatives and reductions in variable costs where performance did not meet expectations, partially offset by lower termination fees in
2015
.
Global Financial Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Processing and services revenues
|
$
|
4,250
|
|
|
$
|
2,360
|
|
|
$
|
2,198
|
|
Adjusted EBITDA
|
$
|
1,292
|
|
|
$
|
553
|
|
|
$
|
482
|
|
Year ended December 31, 2016:
Processing and services revenues increased
$1,890 million
, or
80.1%
, including approximately $92 million of unfavorable foreign currency impact, primarily resulting from a stronger U.S. Dollar versus the Pound Sterling and Brazilian Real. Excluding the foreign currency impact, revenue increases were primarily attributable to: (1) incremental revenue from the SunGard acquisition contributing 79.5%; (2) increased card processing volumes in Brazil contributing 1.7%; (3) growth in our consulting business contributing 1.4%; and (4) growth in payment processing in the Asia Pacific region contributing 0.9%.
Adjusted EBITDA increased
$739 million
, or
133.6%
, primarily resulting from the revenue variances noted above. Adjusted EBITDA margins increased
700
basis points to
30.4%
primarily resulting from the addition of higher margin revenues from SunGard and the execution of our integration plans contributing to margin expansion in the GFS segment.
Year ended December 31, 2015:
Processing and services revenues increased
$162 million
, or
7.4%
, including approximately $236 million of unfavorable foreign currency impact, primarily resulting from a stronger U.S. Dollar versus the Brazilian Real and the Euro. Excluding the foreign currency impact, revenue increases were primarily attributable to (1) incremental revenues from the acquisitions of SunGard and Clear2Pay contributing 15.4%; (2) growth in Latin America from transaction volumes, card issuances and expanded back office services contributing 1.2%; (3) our expanding presence in India, including core banking and payments contributing 1.1%; and (4) growth in Europe, primarily in core banking and payment solutions contributing 0.5%.
Adjusted EBITDA increased
$71 million
, or
14.7%
, primarily resulting from the revenue variances noted above. Adjusted EBITDA margins increased
150
basis points to
23.4%
primarily resulting from growth in high margin license deals, the restructuring activities undertaken earlier in the year in Europe as a result of our reorganization, and reductions in variable costs where performance did not meet expectations. The impact of these items was partially offset by unfavorable foreign currency exchange rates.
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In millions)
|
Processing and services revenues
|
$
|
425
|
|
|
$
|
390
|
|
|
$
|
536
|
|
Adjusted EBITDA
|
$
|
(158
|
)
|
|
$
|
(89
|
)
|
|
$
|
(38
|
)
|
The Corporate and Other segment results consist of selling, general and administrative expenses and depreciation and intangible asset amortization not otherwise allocated to the reportable segments. Corporate and Other also includes operations from non-strategic businesses, including commercial services, public sector and education, and check authorization.
Year ended December 31, 2016:
Processing and services revenues increased
$35 million
, or
9.0%
, and was primarily attributable to the additions of the businesses from the SunGard acquisition contributing 61.2%, partially offset by a
$192 million
purchase accounting impact on deferred revenue (all of which was recorded as a contra-revenue item in the Corporate and Other segment).
Adjusted EBITDA decreased
$69 million
, or
77.5%
, primarily resulting from the timing of incentives and incremental expenses of acquired companies, partially offset by the revenue variances noted above, higher add-backs for purchase accounting amortization, acquisition, integration and severance costs, and deferred revenue, all as detailed in Note 19.
Year ended December 31, 2015:
Processing and services revenues decreased
$146 million
, or
27.2%
, and was primarily attributable to a
$48 million
purchase accounting impact on deferred revenue (all of which was recorded as a contra-revenue item in the Corporate and Other segment) and lower revenue in commercial services contributing -15.7%, the impact of the divestiture of our check gaming business in the second quarter of 2015 contributing -5.8% and check authorization volume declines contributing -0.4%, partially offset by the additions of the businesses from the SunGard acquisition contributing 4.1%.
Adjusted EBITDA decreased
$51 million
, or
134.2%
, primarily resulting from the decline in revenue noted above and incremental expenses of acquired companies.
Liquidity and Capital Resources
Cash Requirements
Our ongoing cash requirements include operating expenses, income taxes, mandatory debt service payments, capital expenditures, stockholder dividends, working capital and timing differences in settlement-related assets and liabilities, and may
include discretionary debt repayments, share repurchases and business acquisitions. Our cash requirements also include payments for Capco's contingent consideration earn-out and for labor claims related to FIS' former item processing and remittance operations in Brazil (see Notes 3 and 15, respectively, of the Notes to Consolidated Financial Statements). Our principal sources of funds are cash generated by operations and borrowings, including the capacity under our Revolving Loan described in Note 10 of the Notes to Consolidated Financial Statements.
As of
December 31, 2016
, we had cash and cash equivalents of
$683 million
and debt of
$10,478 million
, including the current portion, net of capitalized debt issuance costs. Of the
$683 million
cash and cash equivalents, approximately
$470 million
is held by our foreign entities and would generally be subject to U.S. income taxation upon repatriation to the U.S. The majority of our domestic cash and cash equivalents represents net deposits-in-transit at the balance sheet dates and relates to daily settlement activity. We expect that cash and cash equivalents plus cash flows from operations over the next twelve months will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service.
We currently expect to continue to pay quarterly dividends. However, the amount, declaration and payment of future dividends is at the discretion of the Board of Directors and depends on, among other things, our investment opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A regular quarterly dividend of $0.29 per common share is payable on March 31, 2017 to shareholders of record as of the close of business on March 17, 2017.
Cash Flows from Operations
Cash flows from operations were
$1,925 million
,
$1,131 million
and
$1,165 million
in
2016
,
2015
and
2014
respectively. Our net cash provided by operating activities consists primarily of net earnings, adjusted to add back depreciation and amortization. Cash flows from operations increased
$794 million
in
2016
and decreased
$34 million
in
2015
. The
2016
increase in cash flows from operations is primarily due to increased net earnings, after the add back of non-cash depreciation and amortization, as a result of SunGard operations being included for the full year. The
2015
decrease in cash flows from operations is primarily due to a tax payment of $88 million of income taxes relating to the sale of check warranty contracts and other assets in the gaming industry and lower net earnings, partially offset by changes in working capital.
Capital Expenditures and Other Investing Activities
Our principal capital expenditures are for computer software (purchased and internally developed) and additions to property and equipment. We invested approximately
$616 million
,
$415 million
and
$372 million
in capital expenditures during
2016
,
2015
and
2014
, respectively. We expect to invest approximately 6%-7% of 2017 revenue in capital expenditures.
We used
$0 million
,
$1,720 million
and
$595 million
of cash during
2016
,
2015
and
2014
, respectively, for acquisitions and other equity investments. See Note 3 of the Notes to Consolidated Financial Statements for a discussion of the more significant items. Cash provided by net proceeds from sale of assets in 2015 relates principally to the sale of check warranty contracts and other assets in the gaming industry discussed in Note 15 of the Notes to Consolidated Financial Statements.
Financing
For information regarding the Company's long-term debt and financing activity, see Note 10 of the Notes to Consolidated Financial Statements.
Contractual Obligations
FIS’ long-term contractual obligations generally include its long-term debt, interest on long-term debt, lease payments on certain of its property and equipment and payments for data processing and maintenance. For information regarding the Company's long-term debt, see Note 10 of the Notes to Consolidated Financial Statements. The following table summarizes FIS’ significant contractual obligations and commitments as of
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
|
|
|
Less than
|
|
1-3
|
|
3-5
|
|
More than
|
Type of Obligations
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
Long-term debt (1)
|
|
$
|
10,591
|
|
|
$
|
332
|
|
|
$
|
1,573
|
|
|
$
|
2,536
|
|
|
$
|
6,150
|
|
Interest (2)
|
|
2,829
|
|
|
381
|
|
|
706
|
|
|
595
|
|
|
1,147
|
|
Operating leases
|
|
401
|
|
|
96
|
|
|
158
|
|
|
82
|
|
|
65
|
|
Data processing and maintenance
|
|
557
|
|
|
242
|
|
|
258
|
|
|
35
|
|
|
22
|
|
Other contractual obligations (3)
|
|
51
|
|
|
17
|
|
|
17
|
|
|
16
|
|
|
1
|
|
Total
|
|
$
|
14,429
|
|
|
$
|
1,068
|
|
|
$
|
2,712
|
|
|
$
|
3,264
|
|
|
$
|
7,385
|
|
|
|
(1)
|
On February 2, 2017, FIS issued a notice to redeem 100% of the outstanding aggregate principal amount of its
$700 million
5.000% Senior Notes due 2022 (the "Notes") on March 15, 2017. The Notes will be funded by borrowings under the Company’s Revolving Loan and cash proceeds from the sale of Public Sector and Education ("PS&E").
|
|
|
(2)
|
The calculations above assume that: (a) applicable margins and commitment fees remain constant; (b) all variable rate debt is priced at the one-month LIBOR rate in effect as of
December 31, 2016
; (c) no refinancing occurs at debt maturity; (d) only mandatory debt repayments are made; and (e) no new hedging transactions are effected.
|
|
|
(3)
|
Amount primarily includes the estimated payment for labor claims related to FIS' former item processing and remittance operations in Brazil (see Note 15 of the Notes to Consolidated Financial Statements), amounts due to the Brazilian venture partner, Capco contingent consideration payments (see Note 3 of the Notes to Consolidated Financial Statements) and other contractual obligations.
|
FIS believes that its existing cash balances, cash flows from operations and borrowing programs will provide adequate sources of liquidity and capital resources to meet FIS’ expected liquidity needs for the operations of its business and expected capital spending for the next 12 months.
Off-Balance Sheet Arrangements
FIS does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU 2014-08”). The standard raises the threshold for a disposal to qualify as a discontinued operation to one representing a strategic shift that has a major effect on the organization’s operations and financial results. The standard requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. ASU 2014-08 was effective for FIS as of January 1, 2015. This pronouncement could impact the presentation of future divestitures that may have qualified as discontinued operations in the past but do not meet the higher threshold of ASU 2014-08.
In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). ASU 2015-16 requires adjustments to provisional amounts initially recorded in a business combination that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. Prior to the issuance of the standard, entities were required to retrospectively apply adjustments made to provisional amounts recognized in a business combination. The guidance is effective for the fiscal years and interim periods within those years beginning after December 15, 2015. This guidance requires FIS to record and disclose any measurement-period adjustments for the SunGard acquisition or other future business combinations as current period adjustments as opposed to retroactive adjustments to the opening balance sheet of the acquired entity.
Recent Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends substantially all authoritative literature for revenue recognition, including industry-specific requirements, and converges the guidance under this topic with that of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The FASB has recently issued several amendments to Topic 606, including further guidance on principal versus agent considerations, clarification on identifying performance obligations and accounting for licenses of intellectual property.
The effective date of the standard was postponed to reporting periods beginning after December 15, 2017, with early adoption allowed for reporting periods beginning after December 15, 2016. We currently anticipate adopting the new standard effective January 1, 2018.
Entities can transition to the standard either with retrospective application to the earlier years presented in their financial statements or with a cumulative-effect adjustment as of the date of adoption. We currently anticipate adopting the new standard using the retrospective method with the application of certain practical expedients; however, a final decision regarding the adoption method has not been made. Our decision to adopt using the retrospective method is dependent on several factors, including the significance of the impact on our financial results and the completion of our analysis of information necessary to restate prior-period financial statements
.
While we are continuing to assess the impact the adoption of ASU 2014-09 will have on our financial position and results of operations, we currently anticipate the largest area of impact to relate to our accounting for set up and implementation services related to our data processing and application management service agreements. Currently, to the extent these activities have standalone value and the related fees are not contingent on the delivery of future services, they are recognized as performed. Under the new standard, to the extent these services are not considered distinct in the context of the related service contracts, the associated revenue and cost will be deferred and recognized over the estimated contract period. We also anticipate that the timing of recognition of certain term license early renewals will be deferred until the commencement of the renewal term under the original license agreement. Currently, term license renewals are generally recognized upon execution of the renewal agreement. The Company is in the process of quantifying the impact of the issues identified above as well as finalizing its accounting positions on other areas where the impact is not expected to be significant.
On February 25, 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of leases with a term of twelve months or less) at the commencement date: (a) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The pronouncement requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expire before the earliest comparative period presented. A full retrospective transition approach is not permitted. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the impact the adoption of ASU 2016-02 will have on our financial position and results of operations.
On March 30, 2016, the FASB issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”), “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments are intended to simplify and improve the accounting for employee share-based payments. Under the new guidance, all excess tax benefits and tax deficiencies over/under compensation expense recognized will be reflected in the income statement as they occur. This will replace the current guidance, which requires tax benefits that exceed compensation expense (windfalls) to be recognized in equity. It will also eliminate the need to maintain a “windfall pool,” and will remove the requirement to delay recognizing a windfall until it reduces current taxes payable. The new guidance will also change the cash flow presentation of excess tax benefits, classifying them as operating inflows, consistent with other cash flows related to income taxes. Under current guidance, windfalls are classified as financing activities. These changes may result in more volatile net earnings. Similarly, effective tax rates will be subject to more variability since the new guidance reflects all tax benefit excesses and deficiencies in tax expense. Under current practice, stock compensation generally does not impact the effective tax rate since any difference between compensation expense and the ultimate tax deduction is reflected in additional paid in capital. Also under the new guidance, excess tax benefits will no longer be included in assumed proceeds from applying the treasury stock method when computing diluted earnings per share since they will no longer be recognized in additional paid in capital. Consequently, the reduction to common stock equivalents for assumed purchases from proceeds will be lower and the impact of common stock equivalents will be more dilutive. For public companies, the amendments are effective for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period.
We expect to adopt the ASU in January 2017. During 2016, 2015 and 2014, we recorded $32 million, $29 million and $40 million, respectively, to consolidated equity as excess tax benefits from our stock plans.
On June 16, 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), “Financial Instrument - Credit Losses (Topic 326): Measurements on Credit Losses of Financial Instruments.” These amendments' primary objectives are to implement new methodology for calculating credit losses on financial instruments (e.g., trade receivables) based on expected credit losses and broadens the types of information companies must use when calculating the estimated losses. Under current guidance, the credit losses are calculated based on multiple credit impairment objectives and recognition is delayed until the loss is probable to occur. Under the new guidance, financial assets measured at amortized cost basis must now be shown as the net amount expected to be collected. The credit loss allowance is a contra-valuation account. Available-for-sale securities should continue to be recognized in a similar manner to current GAAP; however, the allowance should be presented as an allowance instead of a write-down of the basis of the asset. For public companies that are SEC filers, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for any organization in any interim or annual period beginning after December 15, 2018. We do not plan to early adopt and expect that the new guidance will not have a material impact on our financial statement presentation, financial position, or results of operations.
On August 26, 2016, the FASB issued Accounting Standards Update No. 2016-15 (“ASU 2016-15"), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The amendments are meant to reduce the diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. ASU 2016-15 provides guidance as to the presentation on the statement of cash flows for eight specific cash flow issues, which are 1) debt prepayment for debt extinguishment costs, 2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, 3) contingent consideration payments made after a business combination, 4) proceeds for the settlement of insurance claims, 5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, 6) distributions received from equity method investees, 7) beneficial interests in securitization transactions, and 8) separately identifiable cash flows and application of the predominance principle. For public companies, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods beginning after December 15, 2019. Early adoption is permitted for any organization in any interim or annual period. We do not plan to early adopt and expect that the new guidance will not have a material impact on our financial statement presentation.
Item 8. Financial Statements and Supplementary Data
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Fidelity National Information Services, Inc.:
We have audited Fidelity National Information Services, Inc.’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Fidelity National Information Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fidelity National Information Services, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive earnings, equity, and cash flows for each of the years in the three-year period ended December 31, 2016, and our report dated February 23, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
February 23, 2017
Jacksonville, Florida
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Fidelity National Information Services, Inc.:
We have audited the accompanying consolidated balance sheets of Fidelity National Information Services, Inc. and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of earnings, comprehensive earnings, equity, and cash flows for each of the years in the three‑year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fidelity National Information Services, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Fidelity National Information Services, Inc.’s and subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 23, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
February 23, 2017
Jacksonville, Florida
Certified Public Accountants
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
683
|
|
|
$
|
682
|
|
Settlement deposits
|
520
|
|
|
371
|
|
Trade receivables, net
|
1,639
|
|
|
1,731
|
|
Settlement receivables
|
175
|
|
|
162
|
|
Other receivables
|
65
|
|
|
197
|
|
Prepaid expenses and other current assets
|
236
|
|
|
266
|
|
Deferred income taxes
|
101
|
|
|
100
|
|
Assets held for sale
|
863
|
|
|
—
|
|
Total current assets
|
4,282
|
|
|
3,509
|
|
Property and equipment, net
|
626
|
|
|
611
|
|
Goodwill
|
14,178
|
|
|
14,745
|
|
Intangible assets, net
|
4,664
|
|
|
5,159
|
|
Computer software, net
|
1,608
|
|
|
1,584
|
|
Deferred contract costs, net
|
310
|
|
|
253
|
|
Other noncurrent assets
|
363
|
|
|
339
|
|
Total assets
|
$
|
26,031
|
|
|
$
|
26,200
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
1,146
|
|
|
$
|
1,196
|
|
Settlement payables
|
714
|
|
|
538
|
|
Deferred revenues
|
680
|
|
|
615
|
|
Current portion of long-term debt
|
332
|
|
|
15
|
|
Liabilities held for sale
|
279
|
|
|
—
|
|
Total current liabilities
|
3,151
|
|
|
2,364
|
|
Long-term debt, excluding current portion
|
10,146
|
|
|
11,429
|
|
Deferred income taxes
|
2,484
|
|
|
2,658
|
|
Deferred revenues
|
19
|
|
|
30
|
|
Other long-term liabilities
|
386
|
|
|
312
|
|
Total liabilities
|
16,186
|
|
|
16,793
|
|
Equity:
|
|
|
|
FIS stockholders’ equity:
|
|
|
|
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of December 31, 2016 and 2015
|
—
|
|
|
—
|
|
Common stock, $0.01 par value, 600 shares authorized, 431 and 430 shares issued as of
December 31, 2016 and 2015, respectively
|
4
|
|
|
4
|
|
Additional paid in capital
|
10,380
|
|
|
10,210
|
|
Retained earnings
|
3,299
|
|
|
3,073
|
|
Accumulated other comprehensive earnings
|
(331
|
)
|
|
(279
|
)
|
Treasury stock, $0.01 par value, 103 and 106 shares as of December 31, 2016 and 2015, respectively, at cost
|
(3,611
|
)
|
|
(3,687
|
)
|
Total FIS stockholders’ equity
|
9,741
|
|
|
9,321
|
|
Noncontrolling interest
|
104
|
|
|
86
|
|
Total equity
|
9,845
|
|
|
9,407
|
|
Total liabilities and equity
|
$
|
26,031
|
|
|
$
|
26,200
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 2016, 2015 and 2014
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
Processing and services revenues (for related party activity, see note 17)
|
$
|
9,241
|
|
|
$
|
6,596
|
|
|
$
|
6,413
|
|
Cost of revenues (for related party activity, see note 17)
|
6,233
|
|
|
4,395
|
|
|
4,327
|
|
Gross profit
|
3,008
|
|
|
2,201
|
|
|
2,086
|
|
Selling, general, and administrative expenses (for related party activity, see note17)
|
1,710
|
|
|
1,102
|
|
|
815
|
|
Operating income
|
1,298
|
|
|
1,099
|
|
|
1,271
|
|
Other income (expense):
|
|
|
|
|
|
Interest income
|
20
|
|
|
16
|
|
|
15
|
|
Interest expense
|
(403
|
)
|
|
(199
|
)
|
|
(173
|
)
|
Other income (expense), net
|
(9
|
)
|
|
121
|
|
|
(60
|
)
|
Total other income (expense)
|
(392
|
)
|
|
(62
|
)
|
|
(218
|
)
|
Earnings from continuing operations before income taxes
|
906
|
|
|
1,037
|
|
|
1,053
|
|
Provision for income taxes
|
317
|
|
|
379
|
|
|
335
|
|
Earnings from continuing operations, net of tax
|
589
|
|
|
658
|
|
|
718
|
|
Earnings (loss) from discontinued operations, net of tax
|
1
|
|
|
(7
|
)
|
|
(11
|
)
|
Net earnings
|
590
|
|
|
651
|
|
|
707
|
|
Net earnings attributable to noncontrolling interest
|
(22
|
)
|
|
(19
|
)
|
|
(28
|
)
|
Net earnings attributable to FIS common stockholders
|
$
|
568
|
|
|
$
|
632
|
|
|
$
|
679
|
|
Net earnings per share — basic from continuing operations attributable to FIS common stockholders
|
$
|
1.74
|
|
|
$
|
2.24
|
|
|
$
|
2.42
|
|
Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — basic attributable to FIS common stockholders *
|
$
|
1.74
|
|
|
$
|
2.22
|
|
|
$
|
2.38
|
|
Weighted average shares outstanding — basic
|
326
|
|
|
285
|
|
|
285
|
|
Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
|
$
|
1.72
|
|
|
$
|
2.21
|
|
|
$
|
2.39
|
|
Net earnings (loss) per share — diluted from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — diluted attributable to FIS common stockholders *
|
$
|
1.72
|
|
|
$
|
2.19
|
|
|
$
|
2.35
|
|
Weighted average shares outstanding — diluted
|
330
|
|
|
289
|
|
|
289
|
|
Amounts attributable to FIS common stockholders:
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
$
|
567
|
|
|
$
|
639
|
|
|
$
|
690
|
|
Earnings (loss) from discontinued operations, net of tax
|
1
|
|
|
(7
|
)
|
|
(11
|
)
|
Net earnings attributable to FIS common stockholders
|
$
|
568
|
|
|
$
|
632
|
|
|
$
|
679
|
|
* Amounts may not sum due to rounding.
The accompanying notes are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
Years Ended December 31, 2016, 2015 and 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Net earnings
|
|
|
$
|
590
|
|
|
|
|
$
|
651
|
|
|
|
|
$
|
707
|
|
Other comprehensive earnings, before tax:
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on investments and derivatives
|
$
|
(4
|
)
|
|
|
|
$
|
(17
|
)
|
|
|
|
$
|
(3
|
)
|
|
|
Reclassification adjustment for gains (losses) included in net earnings
|
9
|
|
|
|
|
4
|
|
|
|
|
6
|
|
|
|
Unrealized gain (loss) on investments and derivatives, net
|
5
|
|
|
|
|
(13
|
)
|
|
|
|
3
|
|
|
|
Foreign currency translation adjustments
|
(7
|
)
|
|
|
|
(196
|
)
|
|
|
|
(108
|
)
|
|
|
Minimum pension liability adjustments
|
(1
|
)
|
|
|
|
(1
|
)
|
|
|
|
(10
|
)
|
|
|
Other comprehensive earnings (loss), before tax
|
(3
|
)
|
|
|
|
(210
|
)
|
|
|
|
(115
|
)
|
|
|
Provision for income tax expense (benefit) related to items of other comprehensive earnings
|
31
|
|
|
|
|
(5
|
)
|
|
|
|
(7
|
)
|
|
|
Other comprehensive earnings (loss), net of tax
|
$
|
(34
|
)
|
|
(34
|
)
|
|
$
|
(205
|
)
|
|
(205
|
)
|
|
$
|
(108
|
)
|
|
(108
|
)
|
Comprehensive earnings
|
|
|
556
|
|
|
|
|
446
|
|
|
|
|
599
|
|
Net (earnings) loss attributable to noncontrolling interest
|
|
|
(22
|
)
|
|
|
|
(19
|
)
|
|
|
|
(28
|
)
|
Other comprehensive (earnings) losses attributable to noncontrolling interest
|
|
|
(19
|
)
|
|
|
|
32
|
|
|
|
|
11
|
|
Comprehensive earnings attributable to FIS common stockholders
|
|
|
$
|
515
|
|
|
|
|
$
|
459
|
|
|
|
|
$
|
582
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2016, 2015 and 2014
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2013
|
387
|
|
|
(96
|
)
|
|
$
|
4
|
|
|
$
|
7,248
|
|
|
$
|
2,342
|
|
|
$
|
(10
|
)
|
|
$
|
(3,003
|
)
|
|
$
|
157
|
|
|
$
|
6,738
|
|
Issuance of restricted stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options and stock purchase rights
|
—
|
|
|
3
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
61
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
|
—
|
|
|
(28
|
)
|
Excess income tax benefit from exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
Cash dividends declared ($0.96 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(274
|
)
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
|
(313
|
)
|
Purchases of treasury stock
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(476
|
)
|
|
—
|
|
|
(476
|
)
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
15
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
679
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
707
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
—
|
|
|
(11
|
)
|
|
(108
|
)
|
Balances, December 31, 2014
|
388
|
|
|
(103
|
)
|
|
$
|
4
|
|
|
$
|
7,337
|
|
|
$
|
2,747
|
|
|
$
|
(107
|
)
|
|
$
|
(3,424
|
)
|
|
$
|
135
|
|
|
$
|
6,692
|
|
Issuance of restricted stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
2
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
57
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
(20
|
)
|
Excess income tax benefit from exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
Cash dividends declared ($1.04 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(306
|
)
|
|
—
|
|
|
—
|
|
|
(27
|
)
|
|
(333
|
)
|
Purchases of treasury stock
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(300
|
)
|
|
—
|
|
|
(300
|
)
|
SunGard acquisition
|
42
|
|
|
—
|
|
|
—
|
|
|
2,744
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
2,748
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(13
|
)
|
|
(11
|
)
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
632
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
651
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172
|
)
|
|
—
|
|
|
(32
|
)
|
|
(204
|
)
|
Balances, December 31, 2015
|
430
|
|
|
(106
|
)
|
|
$
|
4
|
|
|
$
|
10,210
|
|
|
$
|
3,073
|
|
|
$
|
(279
|
)
|
|
$
|
(3,687
|
)
|
|
$
|
86
|
|
|
$
|
9,407
|
|
Issuance of restricted stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Exercise of stock options
|
—
|
|
|
3
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
88
|
|
|
—
|
|
|
109
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
—
|
|
|
—
|
|
|
(16
|
)
|
|
—
|
|
|
(40
|
)
|
Excess income tax benefit from exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
137
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
137
|
|
Cash dividends declared ($1.04 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(342
|
)
|
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
(365
|
)
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
8
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
568
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
590
|
|
Other comprehensive earnings, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(52
|
)
|
|
—
|
|
|
19
|
|
|
(33
|
)
|
Balances, December 31, 2016
|
431
|
|
|
(103
|
)
|
|
$
|
4
|
|
|
$
|
10,380
|
|
|
$
|
3,299
|
|
|
$
|
(331
|
)
|
|
$
|
(3,611
|
)
|
|
$
|
104
|
|
|
$
|
9,845
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2016, 2015 and 2014
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Cash flows from operating activities:
|
|
|
|
|
|
Net earnings
|
$
|
590
|
|
|
$
|
651
|
|
|
$
|
707
|
|
Adjustment to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
1,174
|
|
|
669
|
|
|
626
|
|
Amortization of debt issue costs
|
19
|
|
|
11
|
|
|
20
|
|
Gain on sale of assets
|
—
|
|
|
(149
|
)
|
|
—
|
|
Stock-based compensation
|
137
|
|
|
98
|
|
|
56
|
|
Deferred income taxes
|
(164
|
)
|
|
48
|
|
|
(6
|
)
|
Excess income tax benefit from exercise of stock options
|
(32
|
)
|
|
(29
|
)
|
|
(40
|
)
|
Other operating activities, net
|
(2
|
)
|
|
4
|
|
|
21
|
|
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
|
|
|
|
|
|
Trade receivables
|
57
|
|
|
(103
|
)
|
|
(115
|
)
|
Settlement activity
|
15
|
|
|
5
|
|
|
(6
|
)
|
Prepaid expenses and other assets
|
(8
|
)
|
|
(46
|
)
|
|
(34
|
)
|
Deferred contract costs
|
(138
|
)
|
|
(120
|
)
|
|
(87
|
)
|
Deferred revenue
|
182
|
|
|
63
|
|
|
33
|
|
Accounts payable, accrued liabilities, and other liabilities
|
95
|
|
|
29
|
|
|
(10
|
)
|
Net cash provided by operating activities
|
1,925
|
|
|
1,131
|
|
|
1,165
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Additions to property and equipment
|
(145
|
)
|
|
(133
|
)
|
|
(149
|
)
|
Additions to computer software
|
(471
|
)
|
|
(282
|
)
|
|
(223
|
)
|
Acquisitions, net of cash acquired
|
—
|
|
|
(1,720
|
)
|
|
(595
|
)
|
Net proceeds from sale of assets
|
—
|
|
|
241
|
|
|
—
|
|
Other investing activities, net
|
(3
|
)
|
|
(4
|
)
|
|
(18
|
)
|
Net cash used in investing activities
|
(619
|
)
|
|
(1,898
|
)
|
|
(985
|
)
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Borrowings
|
7,745
|
|
|
13,216
|
|
|
7,936
|
|
Repayment of borrowings and capital lease obligations
|
(8,749
|
)
|
|
(11,561
|
)
|
|
(7,364
|
)
|
Debt issuance costs
|
(25
|
)
|
|
(37
|
)
|
|
(14
|
)
|
Excess income tax benefit from exercise of stock options
|
32
|
|
|
29
|
|
|
40
|
|
Proceeds from exercise of stock options
|
112
|
|
|
57
|
|
|
61
|
|
Treasury stock activity
|
(40
|
)
|
|
(320
|
)
|
|
(522
|
)
|
Dividends paid
|
(341
|
)
|
|
(305
|
)
|
|
(275
|
)
|
Distributions to Brazilian Venture partner
|
(20
|
)
|
|
(24
|
)
|
|
(35
|
)
|
Other financing activities, net
|
(23
|
)
|
|
(40
|
)
|
|
(25
|
)
|
Net cash (used in) provided by financing activities
|
(1,309
|
)
|
|
1,015
|
|
|
(198
|
)
|
Effect of foreign currency exchange rate changes on cash
|
4
|
|
|
(59
|
)
|
|
(37
|
)
|
Net increase (decrease) in cash and cash equivalents
|
1
|
|
|
189
|
|
|
(55
|
)
|
Cash and cash equivalents, beginning of year
|
682
|
|
|
493
|
|
|
548
|
|
Cash and cash equivalents, end of year
|
$
|
683
|
|
|
$
|
682
|
|
|
$
|
493
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
Cash paid for interest
|
$
|
351
|
|
|
$
|
142
|
|
|
$
|
169
|
|
Cash paid for income taxes
|
$
|
341
|
|
|
$
|
355
|
|
|
$
|
292
|
|
The accompanying notes are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
FIS is a global leader in financial services technology with a focus on retail and institutional banking, payments, asset and wealth management, risk and compliance, consulting and outsourcing solutions.
On August 12, 2015, FIS and certain of its wholly owned subsidiaries entered into an Agreement and Plan of Merger with SunGard and SunGard Capital Corp. II (collectively “SunGard”) pursuant to which, through a series of mergers, FIS acquired SunGard (collectively the "SunGard acquisition"). FIS completed the SunGard acquisition on November 30, 2015, and SunGard's results of operations and financial position are included in the Consolidated Financial Statements from and after the date of acquisition.
We report the results of our operations in three reporting segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other (Note 19).
(2)
Summary of Significant Accounting Policies
The following describes the significant accounting policies of the Company used in preparing the accompanying Consolidated Financial Statements.
(a)
Principles of Consolidation
The Consolidated Financial Statements include the accounts of FIS, its wholly-owned subsidiaries and subsidiaries that are majority-owned. All significant intercompany profits, transactions and balances have been eliminated in consolidation.
(b)
Cash and Cash Equivalents
The Company considers all cash on hand, money market funds and other highly liquid investments with original maturities of
three months
or less to be cash and cash equivalents. As part of the Company’s payment processing business, the Company provides cash settlement services to financial institutions and state and local governments. These services involve the movement of funds between the various parties associated with automated teller machines ("ATM"), point-of-sale or electronic benefit transactions ("EBT") and this activity results in a balance due to the Company at the end of each business day that it recoups over the next few business days. The in-transit balances due to the Company are included in cash and cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate their fair value. As of
December 31, 2016
and
2015
, cash and cash equivalents also included
$0 million
and
$5 million
, respectively in deposits set aside under performance guarantees. As of
December 31, 2016
, we had cash and cash equivalents of
$683 million
of which approximately
$470 million
is held by our foreign entities.
(c)
Fair Value Measurements
Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
ASC Topic 805,
Business Combinations,
requires an acquirer to recognize, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree, and to measure these items generally at their acquisition date fair values. Goodwill is recorded as the residual amount by which the purchase price exceeds the fair value of the net assets acquired. Fair values are determined using the framework outlined below under
Fair Value Hierarchy
and the methodologies addressed in the individual subheadings. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to report provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the combination date or when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable.
Fair Value of Financial Instruments
The carrying amounts reported in the Consolidated Balance Sheets for receivables and accounts payable approximate their fair values because of their immediate or short-term maturities. The fair value of the Company’s long-term debt is estimated to be approximately
$183 million
and
$30 million
higher than the carrying value as of
December 31, 2016
and
2015
, respectively. These estimates are based on values of trades of our debt in close proximity to year end, which are considered Level 2-type measurements, as discussed below. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. Therefore, the values presented are not necessarily indicative of amounts the Company could realize or settle currently. The Company holds, or has held, certain derivative instruments, specifically interest rate swaps and foreign exchange forward contracts. Derivative instruments are valued using Level 2-type measurements.
Fair Value Hierarchy
The authoritative accounting literature defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy based on the quality of inputs used to measure fair value.
The fair value hierarchy includes three levels that are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). If the inputs used to measure the fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the asset or liability. The three levels of the fair value hierarchy are described below:
Level 1.
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2.
Inputs to the valuation methodology include:
•
Quoted prices for similar assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in inactive markets;
•
Inputs other than quoted prices that are observable for the asset or liability;
|
|
•
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3.
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Fair Value Measurements
Generally accepted accounting principles require that, subsequent to their initial recognition, certain assets be reviewed for impairment on a nonrecurring basis by comparison to their fair value. As more fully discussed in their respective subheadings below, this includes goodwill, long-lived assets, intangible assets, computer software and investments. There were no significant fair value measurement impairments for
2016
,
2015
or
2014
.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contingent consideration liabilities recorded in connection with business acquisitions must also be adjusted for changes in fair value until settled. See Note 3 for discussion of The Capital Markets Company BVBA ("Capco") contingent consideration liability.
(d)
Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 815,
Derivatives and Hedging
. During
2016
,
2015
and
2014
, the Company engaged in hedging activities relating to its variable rate debt through the use of interest rate swaps. The Company designates these interest rate swaps as cash flow hedges. The estimated fair values of the cash flow hedges are determined using Level 2 type measurements. They are recorded as an asset or liability of the Company and are included in the accompanying Consolidated Balance Sheets in prepaid expenses and other current assets, other non-current assets, accounts payable and accrued liabilities or other long-term liabilities, as appropriate, and as a component of accumulated other comprehensive earnings, net of deferred taxes. A portion of the amount included in accumulated other comprehensive earnings is recorded in interest expense as a yield adjustment as interest payments are made on the Company’s Term and Revolving Loans (Note 10). The Company’s existing cash flow hedge is highly effective and there was no impact on
2016
earnings due to hedge ineffectiveness. It is our policy to execute such instruments with credit-worthy banks and not to enter into derivative financial instruments for speculative purposes. As of
December 31, 2016
, we believe that our interest rate swap counterparty will be able to fulfill its obligations under our agreement.
The Company's foreign exchange risk management policy permits the use of derivative instruments, such as forward contracts and options, to reduce volatility in the Company's results of operations and/or cash flows resulting from foreign exchange rate fluctuations. During
2016
and
2015
, the Company entered into foreign currency forward exchange contracts to hedge foreign currency exposure to intercompany loans. As of
December 31, 2016
and
2015
, the notional amount of these derivatives was approximately
$143 million
and
$81 million
, respectively, and the fair value was nominal. These derivatives have not been designated as hedges for accounting purposes.
We also use currency forward contracts to manage our exposure to fluctuations in costs caused by variations in Indian Rupee ("INR") exchange rates. As of
December 31, 2016
, the notional amount of these derivatives was approximately
$7 million
and the fair value was less than
$1 million
, which is included in Prepaid Expenses and Other Current Assets in the Consolidated Balance Sheets. These INR forward contracts are designated as cash flow hedges. The fair value of these currency forward contracts is determined using currency exchange market rates, obtained from reliable, independent, third party banks, at the balance sheet date. The fair value of forward contracts is subject to changes in currency exchange rates. The Company has no ineffectiveness related to its use of currency forward contracts in connection with INR cash flow hedges.
In September 2015, the Company entered into treasury lock hedges with a total notional amount of
$1.0 billion
, reducing the risk of changes in the benchmark index component of the 10-year treasury yield. The Company designated these derivatives as cash flow hedges. On October 13, 2015, in conjunction with the pricing of the
$4.5 billion
senior notes, the Company terminated these treasury lock contracts for a cash settlement payment of
$16 million
, which was recorded as a component of Other Comprehensive Earnings and will be reclassified as an adjustment to interest expense over the
ten
years during which the related interest payments that were hedged will be recognized in income.
(e)
Trade Receivables
A summary of trade receivables, net, as of
December 31, 2016
and
2015
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Trade receivables — billed
|
$
|
1,452
|
|
|
$
|
1,546
|
|
Trade receivables — unbilled
|
228
|
|
|
201
|
|
Total trade receivables
|
1,680
|
|
|
1,747
|
|
Allowance for doubtful accounts
|
(41
|
)
|
|
(16
|
)
|
Total trade receivables, net
|
$
|
1,639
|
|
|
$
|
1,731
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Approximately
$41 million
of unbilled receivables as of
December 31, 2016
relates to services provided under ongoing long-term contracts that were not yet billable pursuant to the terms of those agreements but will be invoiced in 2017. We expect the unbilled receivables for continuing services under these contracts to be
$23 million
as of December 31, 2017.
When evaluating the adequacy of the allowance for doubtful accounts, the Company considers historical bad debts, customer creditworthiness, current economic trends, changes in customer payment terms and collection trends. Any change in the assumptions used may result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs.
A summary roll forward of the allowance for doubtful accounts, for
2016
,
2015
and
2014
is as follows (in millions):
|
|
|
|
|
Allowance for doubtful accounts as of December 31, 2013
|
$
|
(16
|
)
|
Bad debt expense
|
(9
|
)
|
Write-offs, net of recoveries
|
9
|
|
Allowance for doubtful accounts as of December 31, 2014
|
(16
|
)
|
Bad debt expense
|
(10
|
)
|
Write-offs, net of recoveries
|
10
|
|
Allowance for doubtful accounts as of December 31, 2015
|
(16
|
)
|
Bad debt expense
|
(29
|
)
|
Write-offs, net of recoveries
|
4
|
|
Allowance for doubtful accounts as of December 31, 2016
|
$
|
(41
|
)
|
(f)
Settlement Deposits, Receivables and Payables
We manage certain integrated electronic payment services and programs and wealth management processes for our clients that require us to hold and manage client cash balances used to fund their daily settlement activity. Settlement deposits represent funds we hold that were drawn from our clients to facilitate settlement activities. Settlement receivables represent amounts funded by us. Settlement payables consist of settlement deposits from clients, settlement payables to third parties and outstanding checks related to our settlement activities for which the right of offset does not exist or we do not intend to exercise our right of offset. Our accounting policy for such outstanding checks is to include them in settlement payables on the Consolidated Balance Sheet and operating cash flows on the Consolidated Statements of Cash Flows. The payment solution services that give rise to these settlement balances are separate and distinct from those settlement activities referred to under
(b) Cash and Cash Equivalents,
where the services we provide primarily facilitate the movement of funds.
(g)
Goodwill
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. FASB ASC Topic 350,
Intangibles — Goodwill and Other,
requires that goodwill and other intangible assets with indefinite useful lives not be amortized, but rather be tested for impairment annually, or more frequently if circumstances indicate potential impairment. The guidance allows an entity first to assess qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value, referred to as "step zero." If an entity concludes that it is more likely than not that a reporting unit's fair value is less than its carrying amount (that is, a likelihood of more than
50
percent), the "step one" quantitative assessment must be performed for that reporting unit. ASC Topic 350 provides examples of events and circumstances that should be considered in performing the "step zero" qualitative assessment, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events affecting a reporting unit or the entity as a whole and a sustained decrease in share price.
In applying the quantitative analysis, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach, which are Level 3 and Level 2 type measurements. The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies. If the fair value of a reporting unit exceeds the carrying value of the reporting unit’s net assets, goodwill is not impaired and further testing is not required. We engaged independent specialists to perform valuations of our reporting units effective January 1, 2015 in
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
conjunction with our re-segmentation, and prior to that in 2012. There was a substantial excess of fair value over carrying value for each of our reporting units in both the 2015 and 2012 independent valuations.
In conjunction with the organizational modifications in the first quarter of 2016, we reallocated goodwill associated with the reclassified businesses based on relative fair values as of January 1, 2016. We refreshed our step zero qualitative analysis identifying no indications of impairment for any of our reporting units.
The Company assesses goodwill for impairment on an annual basis during the
fourth
quarter using a September 30 measurement date unless circumstances require a more frequent measurement. For each of 2016, 2015, and 2014, we began our assessment with the step zero qualitative analysis. In performing the step zero qualitative analysis for each year, examining those factors most likely to affect our valuations, 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. Consequently, we did not perform a step one quantitative analysis specifically for the purpose of our annual impairment test in any year presented in these financial statements.
(h)
Long-Lived Assets
Long-lived assets and intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset, which are Level 3-type measurements. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.
(i)
Intangible Assets
The Company has intangible assets that consist primarily of customer relationships and trademarks that are recorded in connection with acquisitions at their fair value based on the results of valuation analyses. Customer relationships are amortized over their estimated useful lives using an accelerated method that takes into consideration expected customer attrition rates up to a
10
-year period. Intangible assets with finite lives (principally customer relationships and certain trademarks) are reviewed for impairment in accordance with FASB ASC Section 360-10-35,
Impairment or Disposal of Long-Lived Assets
, while certain trademarks determined to have indefinite lives are reviewed for impairment at least annually in accordance with FASB ASC Topic 350. Similar to the guidance for goodwill, ASC Topic 350 allows an organization to first perform a qualitative assessment of whether it is more likely than not that an asset has been impaired.
We engaged independent specialists to perform a valuation of our indefinite lived intangible assets in 2016 and 2015, and prior to that in 2012, using a form of income approach valuation known as the relief-from-royalty method, which is a Level 3 type measurement. For 2016, we proceeded directly to a step one quantitative analysis. There was an excess of fair value over carrying value for each of our indefinite-lived intangible assets in the 2016 and 2015 independent valuations. For 2014, we began our assessment with the step zero qualitative analysis because there was a substantial excess of fair value over carrying value for each of our indefinite-lived intangible assets based on the 2012 valuation. Based upon the results of these assessments, there were no indications of impairment.
(j)
Computer Software
Computer software includes software acquired in business combinations, purchased software and capitalized software development costs. Software acquired in business combinations is generally valued using the relief-from-royalty method, a Level 3 type measurement. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life and software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from
five
to
10
years.
The capitalization of software development costs is governed by FASB ASC Subtopic 985-20 if the software is to be sold, leased or otherwise marketed, or by FASB ASC Subtopic 350-40 if the software is for internal use. After the technological feasibility of the software has been established (for software to be marketed) or at the beginning of application development (for internal-use software), software development costs, which primarily include salaries and related payroll costs and costs of independent contractors incurred during development, are capitalized. Research and development costs incurred prior to the establishment of technological feasibility (for software to be marketed) or prior to application development (for internal-use
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
software), are expensed as incurred. Software development costs are amortized on a product-by-product basis commencing on the date of general release (for software to be marketed) or the date placed in service (for internal-use software). Software development costs for software to be marketed are amortized using the greater of (1) the straight-line method over its estimated useful life, which ranges from
three
to
10
years, or (2) the ratio of current revenues to total anticipated revenues over its useful life.
(k)
Deferred Contract Costs
Costs of sales, including costs incurred for bid and proposal activities, are generally expensed as incurred. However, certain costs incurred upon initiation of a contract, including sales commissions, are deferred and amortized as expense over the contract life. These costs represent incremental external costs or certain specific internal costs that are directly related to the contract acquisition or transition activities.
In the event indications exist that a particular deferred contract cost balance may be impaired, undiscounted estimated cash flows of the contract are projected over its remaining term and compared to the unamortized deferred contract cost balance. If the projected cash flows are not adequate to recover the unamortized cost balance, the balance would be adjusted to equal the contract’s net realizable value, including any termination fees provided for under the contract, in the period such a determination is made.
(l)
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed primarily using the straight-line method based on the estimated useful lives of the related assets:
30
years for buildings and
three
to
seven
years for furniture, fixtures and computer equipment. Leasehold improvements are amortized using the straight-line method over the lesser of the initial term of the applicable lease or the estimated useful lives of such assets.
(m)
Income Taxes
The Company recognizes deferred income tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities and expected benefits of using net operating loss and credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred income taxes of changes in tax rates and laws, if any, is reflected in the Consolidated Financial Statements in the period enacted. A valuation allowance is established for any portion of a deferred income tax asset for which management believes it is more likely than not that the Company will not be able to realize the benefits of all or a portion of that deferred income tax asset.
(n)
Revenue Recognition
The Company generates revenues from the delivery of bank processing, credit and debit card and wealth management processing services, other payment processing services, professional services, software licensing, software as a service ("SaaS"), business process as a service ("BPaaS"), cloud revenue and software related services. The Company recognizes revenue when: (i) evidence of an arrangement exists; (ii) delivery has occurred; (iii) the fees are fixed or determinable; and (iv) collection is considered probable. Taxes collected from customers and remitted to governmental authorities are not included in revenue. Revenue generated from contracts executed outside of our North American operations represented approximately
24%
,
22%
and
22%
of total revenue in
2016
,
2015
and
2014
, respectively.
The Company enters into arrangements with customers to provide services, software and software-related services such as post-contract customer support and implementation and training either individually or as part of an integrated offering of multiple services. The revenues for services provided under these multiple element arrangements are recognized in accordance with the applicable revenue recognition accounting principles as further described below.
In multiple-element arrangements, consideration is allocated to each deliverable using the relative selling price method. The selling price for each deliverable is based on vendor-specific objective evidence (“VSOE”) if available, third-party evidence (“TPE”) if VSOE is not available, or estimated selling price (“ESP”) if neither VSOE or TPE are available. A
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
delivered item in a multiple element arrangement is considered a separate unit of accounting if (a) the item has value to the customer on a standalone basis; and (b) delivery or performance of the undelivered item or items is considered probable and substantially in the Company's control if the arrangement includes a general right of return relative to the delivered item.
We establish VSOE of selling price using the price charged when the same element is sold separately, or in the case of post-contract customer support , when a substantive stated renewal rate is provided to the customer. In certain circumstances, the Company is not able to establish VSOE for all deliverables in a multiple element arrangement. This may be due to infrequent standalone sales for an element, a limited sales history for new solutions or pricing within a broader range than permissible by our policy to establish VSOE. In those circumstances, we proceed to the alternative levels in the hierarchy of determining selling price. TPE of selling price is established by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. The Company is typically not able to determine TPE and we rarely use this measure since we are generally unable to reliably verify standalone prices of competitive solutions. ESP is established in those instances where neither VSOE nor TPE are available, considering internal factors such as margin objectives, pricing practices and controls, customer segment pricing strategies and the product life cycle. Consideration is also given to market conditions such as competitor pricing strategies and industry technology life cycles.
The Company's arrangements with multiple deliverables may include one or more elements that are subject to the software revenue recognition guidance. The consideration for these multiple element arrangements is allocated to the software deliverables and the non-software deliverables based on the relative selling prices of all of the elements in the arrangement using the above hierarchy. The appropriate revenue recognition guidance is then applied to the respective software and non-software elements.
The following describes the Company’s primary types of revenues and its revenue recognition policies as they pertain to the types of transactions the Company enters into with its customers.
Processing Services Revenues
Processing services are comprised of data processing and application and/or facility management, including our SaaS and cloud offerings. Revenues from processing services are typically volume- or activity-based depending on factors such as the number of accounts processed, transactions or trades processed, users, number of hours of services or computer resources used. They can also be based on minimum monthly usage fees. Revenues from these arrangements are recognized as services are performed. Processing services represented
67%
of total revenues in
2016
and
75%
of total revenues in
2015
and
2014
.
Technology or service components from third parties are frequently embedded in or combined with our applications or service offerings. We are often responsible for billing the client in these arrangements and transmitting the applicable fees to the third party. Whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the relevant facts and circumstances. Certain factors or indicators have been identified in the authoritative literature that should be considered in the evaluation. I
n certain of these arrangements, we have concluded that recognizing the gross amount billed is appropriate while in others we recognize the net amount retained, depending upon the level of our contractual responsibilities and obligations for delivering solutions to end customers.
Professional Services Revenues
Revenues and costs related to implementation, conversion and programming services associated with the Company’s data processing and application management agreements during the implementation phase are deferred and subsequently recognized using the straight-line method over the term of the related services agreement when these upfront services do not have standalone value or if revenue otherwise allocable to these elements is contingent upon delivery of other elements in the arrangement. Revenues and costs related to other consulting service agreements are recognized as the services are provided, assuming the separation criteria outlined above are satisfied. Professional services as a percentage of total revenues were
15%
,
14%
and
15%
in
2016
,
2015
and
2014
, respectively. A significant portion of our professional services revenues is derived from contracts for dedicated personnel resources who are often working full-time at a client site and under their direction. These revenues generally re-occur as contracts are renewed.
License and Software Related Revenues
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company recognizes software license and post-contract customer support fees, as well as associated implementation, training, conversion and programming fees in accordance with FASB ASC Subtopic 985-605. Initial license fees are recognized when a contract exists, the fee is fixed or determinable, software delivery has occurred and collection of the receivable is deemed probable, provided that VSOE of fair value has been established for any undelivered elements in the arrangement. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. If evidence of fair value does not exist for one or more undelivered elements of a contract, then all revenue is deferred until all elements are delivered or VSOE of fair value is determined for all remaining undelivered elements. Revenue from post-contract customer support is recognized ratably over the term of the agreement. The Company records deferred revenue for all billings invoiced prior to revenue recognition.
Software license fees in certain of our SunGard businesses include rental fees for clients who would prefer a periodic fee instead of a larger up-front payment. Software rentals combine the license and maintenance services into a bundled element, and the fee is recognized ratably over the corresponding services period when the client has the right to use the software product and receive maintenance and support services.
Software license revenue and related post-contract customer support represented approximately
16%
,
9%
and
7%
of total revenues in
2016
,
2015
and
2014
, respectively, with over
60%
of the revenue representing post-contractual support revenue.
When the arrangement with the customer includes significant customization, modification, or production of software, the Company recognizes revenue applying contract accounting. For elements accounted for under contract accounting, revenue is recognized using the percentage-of-completion method since reasonably dependable estimates of revenues and contract hours applicable to various elements of a contract can be made. Cost-to-cost or efforts-expended (labor hours) methods are used to measure progress toward completion. Revenues in excess of billings on these agreements are recorded as unbilled receivables and are included in trade receivables. Billings in excess of revenue recognized on these agreements are recorded as deferred revenue until revenue recognition criteria are met. Changes in estimates for revenues, costs and profits are recognized in the period in which they are determinable. If and when the Company’s estimates indicate that the entire contract will be performed at a loss, a provision for the entire loss is recorded in that accounting period.
In arrangements where the licensed software includes hosting the software for the customer, a software element is only considered present if the customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty and it is feasible for the customer to either operate the software on their own hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of the license revenues described above, a software element is present and license revenues are recognized when the software is delivered and hosting revenues are recognized as the service is provided. If a separate software element as described above is not present, the related revenues are combined and recognized ratably over the hosting or maintenance period, whichever is longer.
Hardware and Other Revenues
Hardware and other miscellaneous revenues including termination fees represented approximately
2%
,
2%
and
3%
of our total revenues in
2016
,
2015
and
2014
, respectively, and are recognized following the separation and recognition criteria discussed above. The Company generally does not stock in inventory the hardware products sold, but arranges for delivery of hardware from third-party suppliers. The Company evaluates the gross vs. net indicators for these transactions and records the revenue related to hardware transactions on a gross basis as appropriate and the related costs are included in cost of revenue as appropriate if the Company is considered the primary obligor by the customer, bears risk of loss and has latitude in establishing prices on the equipment.
Recent Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 amends substantially all authoritative literature for revenue recognition, including industry-specific requirements, and converges the guidance under this topic with that of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. The FASB has recently issued several amendments to
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Topic 606, including further guidance on principal versus agent considerations, clarification on identifying performance obligations and accounting for licenses of intellectual property.
The effective date of the standard was postponed to reporting periods beginning after December 15, 2017, with early adoption allowed for reporting periods beginning after December 15, 2016. We currently anticipate adopting the new standard effective January 1, 2018.
Entities can transition to the standard either with retrospective application to the earlier years presented in their financial statements or with a cumulative-effect adjustment as of the date of adoption. We currently anticipate adopting the new standard using the retrospective method with the application of certain practical expedients; however, a final decision regarding the adoption method has not been made. Our decision to adopt using the retrospective method is dependent on several factors, including the significance of the impact on our financial results and the completion of our analysis of information necessary to restate prior-period financial statements
.
While we are continuing to assess the impact the adoption of ASU 2014-09 will have on our financial position and results of operations, we currently anticipate the largest area of impact to relate to our accounting for set up and implementation services related to our data processing and application management service agreements. Currently, to the extent these activities have standalone value and the related fees are not contingent on the delivery of future services, they are recognized as performed. Under the new standard, to the extent these services are not considered distinct in the context of the related service contracts, the associated revenue and cost will be deferred and recognized over the estimated contract period. We also anticipate that the timing of recognition of certain term license early renewals will be deferred until the commencement of the renewal term under the original license agreement. Currently, term license renewals are generally recognized upon execution of the renewal agreement. The Company is in the process of quantifying the impact of the issues identified above as well as finalizing its accounting positions on other areas where the impact is not expected to be significant.
(o)
Cost of Revenue and Selling, General and Administrative Expenses
Cost of revenue includes payroll, employee benefits, occupancy costs and other costs associated with personnel employed in customer service and service delivery roles, including program design and development and professional services. Cost of revenue also includes data processing costs, amortization of software, customer relationship intangible assets and depreciation on operating assets.
Selling, general and administrative expenses include payroll, employee benefits, occupancy and other costs associated with personnel employed in sales, marketing, human resources, finance, risk management and other administrative roles. Selling, general and administrative expenses also include depreciation on non-operating corporate assets, advertising costs and other marketing-related programs.
(p)
Stock-Based Compensation Plans
The Company accounts for stock-based compensation plans using the fair value method. Thus, compensation cost is measured based on the fair value of the award at the grant date and is recognized over the service period. Certain of our stock awards also contain performance conditions. In those circumstances, compensation cost is recognized over the service period when it is probable the outcome of that performance condition will be achieved. If the Company concludes at any point prior to completion of the requisite service period that it is not probable that the performance condition will be met, any previously recorded expense would be reversed.
(q)
Foreign Currency Translation
The functional currency for the foreign operations of the Company is either the U.S. Dollar or the local foreign currency. For foreign operations where the local currency is the functional currency, the translation into U.S. Dollars for consolidation is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate during the period. The adjustments resulting from the translation are included in accumulated other comprehensive earnings (loss) in the Consolidated Statements of Equity and Consolidated Statements of Comprehensive Earnings and are excluded from net earnings.
Gains or losses resulting from foreign currency transactions are included in other income.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(r)
Management Estimates
The preparation of these Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
(s)
Provision for Check Guarantee Losses
In the Company’s check guarantee business, if a guaranteed check presented to a merchant customer is dishonored by the check writer’s bank, the Company reimburses the merchant customer for the check’s face value and pursues collection of the amount from the delinquent check writer. Loss provisions and anticipated recoveries are determined by performing a historical analysis of the Company’s check loss and recovery experience and considering other factors that could affect that experience in the future. Such factors include the general economy, the overall industry mix of customer volumes, statistical analysis of check fraud trends within customer volumes, and the quality of returned checks. The estimated check returns and recovery amounts are subject to risk that actual amounts returned and recovered may be different than the Company’s estimates. The Company had accrued claims payable balances of
$9 million
and
$11 million
as of
December 31, 2016
and
2015
, respectively, related to these estimations. The Company had accrued claims recoverable of
$12 million
and
$13 million
as of
December 31, 2016
and
2015
, respectively, related to these estimations. In addition, the Company recorded provisions for check guarantee losses, net of anticipated recoveries excluding service fees, of
$40 million
,
$49 million
and
$57 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The amount paid to merchant customers, net of amounts recovered from check writers excluding service fees, was
$32 million
,
$41 million
and
$52 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
(t)
Net Earnings per Share
The basic weighted average shares and common stock equivalents for the years ended
December 31, 2016
,
2015
and
2014
are computed using the treasury stock method.
Net earnings and earnings per share for the years ended
December 31, 2016
,
2015
and
2014
are as follows (in millions, except per share data):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Earnings from continuing operations attributable to FIS, net of tax
|
$
|
567
|
|
|
$
|
639
|
|
|
$
|
690
|
|
Earnings (loss) from discontinued operations attributable to FIS, net of tax
|
1
|
|
|
(7
|
)
|
|
(11
|
)
|
Net earnings attributable to FIS common stockholders
|
$
|
568
|
|
|
$
|
632
|
|
|
$
|
679
|
|
Weighted average shares outstanding — basic
|
326
|
|
|
285
|
|
|
285
|
|
Plus: Common stock equivalent shares
|
4
|
|
|
4
|
|
|
4
|
|
Weighted average shares outstanding — diluted
|
330
|
|
|
289
|
|
|
289
|
|
Net earnings per share — basic from continuing operations attributable to FIS common stockholders
|
$
|
1.74
|
|
|
$
|
2.24
|
|
|
$
|
2.42
|
|
Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — basic attributable to FIS common stockholders *
|
$
|
1.74
|
|
|
$
|
2.22
|
|
|
$
|
2.38
|
|
Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
|
$
|
1.72
|
|
|
$
|
2.21
|
|
|
$
|
2.39
|
|
Net earnings (loss) per share — diluted from discontinued operations attributable to FIS common stockholders
|
—
|
|
|
(0.03
|
)
|
|
(0.04
|
)
|
Net earnings per share — diluted attributable to FIS common stockholders *
|
$
|
1.72
|
|
|
$
|
2.19
|
|
|
$
|
2.35
|
|
|
|
|
|
|
|
* amounts may not sum due to rounding.
|
|
|
|
|
|
Options to purchase approximately
3 million
,
4 million
and
4 million
shares of our common stock for the years ended
December 31, 2016
,
2015
and
2014
, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.
(u)
Certain Reclassifications
Certain reclassifications have been made in the
2015
and
2014
Consolidated Financial Statements to conform to the classifications used in
2016
.
(3)
Acquisitions
SunGard
FIS completed the SunGard acquisition on November 30, 2015, and SunGard's results of operations and financial position are included in the Consolidated Financial Statements from and after the date of acquisition. The SunGard acquisition increased our existing portfolio of solutions to automate a wide range of complex business processes for financial services institutions and corporate and government treasury departments, adding trading, securities operations, administering investment portfolios, accounting for investment assets, and managing risk and compliance requirements.
Through a series of mergers, FIS acquired
100
percent of the equity of SunGard, for a total purchase price as follows (in millions):
|
|
|
|
|
Cash consideration, including SunGard transaction fees paid at closing
|
$
|
2,335
|
|
Value of stock and vested equity awards exchanged for FIS shares
|
2,697
|
|
Value of vested portion of SunGard stock awards exchanged for FIS awards
|
47
|
|
|
$
|
5,079
|
|
As of December 31, 2015, we recorded a preliminary allocation of the purchase price to SunGard tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of November 30, 2015. The provisional amounts for intangible assets were based on independent third-party valuations performed. Land and building valuations were based on appraisals performed by certified property appraisers. Goodwill was recorded as the residual amount
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
by which the purchase price exceeded the provisional fair value of the net assets acquired. Land and building valuations based on appraisals performed by certified property appraisers were underway as of December 31, 2015 and were completed during 2016. Our evaluations of the facts and circumstances available as of November 30, 2015 to assign fair values to other assets acquired and liabilities assumed has been completed as of December 31, 2016, as are our assessments of the economic characteristics of the acquired software and other intangibles.
In accordance with ASU 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
, the financial statements were not retrospectively adjusted for any measurement-period adjustments that occurred in subsequent periods. Rather, any adjustments to provisional amounts that were identified during the measurement period are recorded in the reporting period in which the adjustment was determined. During the year ended December 31, 2016, adjustments were recorded to increase the fair values assigned to intangible assets, deferred taxes, other liabilities and property and equipment and to reduce the value assigned to goodwill. We are also required to record, in the same period’s financial statements in which adjustments are recorded, 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 adjustment had been completed at the acquisition date. Additional depreciation and amortization of
$5 million
that would have been recognized in 2015 was recorded during the year ended December 31, 2016 related to the changes in provisional values of intangible assets.
The purchase price allocation as adjusted for measurement period adjustments recorded through December 31, 2016 is as follows (in millions):
|
|
|
|
|
Cash
|
$
|
631
|
|
Trade receivables
|
526
|
|
Other receivables
|
57
|
|
Property and equipment
|
145
|
|
Computer software
|
674
|
|
Intangible assets
|
4,560
|
|
Other assets
|
67
|
|
Goodwill
|
5,800
|
|
Liabilities assumed and noncontrolling interest
|
(7,381
|
)
|
|
$
|
5,079
|
|
The following table summarizes the liabilities assumed in the SunGard acquisition (in millions):
|
|
|
|
|
Long-term debt (subsequently retired)
|
$
|
4,738
|
|
Deferred income taxes
|
1,772
|
|
Deferred revenue
|
278
|
|
Other liabilities and noncontrolling interest
|
593
|
|
|
$
|
7,381
|
|
The gross contractual amount of trade receivables acquired was approximately
$546 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 SunGard's historical bad debts, sales allowances and collection trends.
In connection with the SunGard acquisition, we also granted approximately
2 million
restricted stock units in replacement of similar outstanding unvested awards held by SunGard employees. The amounts attributable to services already rendered were included as an adjustment to the purchase price and the amounts attributable to future services will be expensed over the remaining vesting period based on a valuation as of the date of closing.
Pro Forma Results
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SunGard's revenues and pre-tax loss from continuing operations of
$254 million
and
$12 million
, respectively, from November 30, 2015 through December 31, 2015, are included in the Consolidated Statements of Earnings. Selected unaudited pro forma results of operations for the years ended December 31, 2015 and 2014, assuming the SunGard acquisition had occurred as of January 1, 2014, are presented for comparative purposes below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
Total processing and services revenues
|
$
|
9,139
|
|
|
$
|
8,986
|
|
Net earnings (loss) from continuing operations attributable to FIS common stockholders
|
$
|
389
|
|
|
$
|
(35
|
)
|
Pro forma earnings (loss) per share - basic from continuing operations attributable to FIS common stockholders
|
$
|
1.19
|
|
|
$
|
(0.11
|
)
|
Pro forma earnings (loss) per share - diluted from continuing operations attributable to FIS common stockholders
|
$
|
1.17
|
|
|
$
|
(0.11
|
)
|
Pro forma results include impairment charges of
$339 million
and merger and integration related costs of
$200 million
on a pre-tax basis for 2014. The pro forma results do not include any anticipated synergies, but do include the impacts of purchase accounting adjustments and conforming commission policies. SunGard elected to expense commission payments as incurred whereas FIS recognizes commission expense over the period that the related revenue is recognized. The pro forma earnings (pre-tax) have been increased by
$12 million
and
$15 million
for 2015 and 2014, respectively, to conform SunGard’s expense recognition to FIS' policy. SunGard’s policies and practices surrounding software development and capitalization of related costs differed from those used by FIS and were conformed to those of FIS prospectively. As a result, more development costs qualify to be capitalized than SunGard had recorded historically. It is not practicable to determine what the impact of the changes in application of the capitalization principles would have been for purposes of these pro forma results.
Excluding the impact of deferred revenue adjustments, total pro forma revenues would be
$9,149 million
and
$9,223 million
for 2015 and 2014, respectively.
Other Acquisitions
The Company completed a number of other acquisitions in
2015
and
2014
that were not significant, individually or in the aggregate, including Clear2Pay NV. ("Clear2Pay") for
$462 million
in October 2014, Reliance Financial Corporation ("Reliance") for
$110 million
in July 2014, and Credit Management Solutions, Inc. ("CMSI") for
$29 million
in April 2014. The results of operations and financial position of these entities are included in the Consolidated Financial Statements from and after the date of acquisition.
The addition of Clear2Pay expanded FIS’ global payments capabilities and enhanced our ability to deliver differentiated enterprise payments solutions. Because the Clear2Pay purchase price was denominated in Euros, we initiated a foreign currency forward contract to purchase Euros and sell U.S. Dollars to manage the risk arising from fluctuations in exchange rates until the closing. As this derivative did not qualify for hedge accounting, we recorded a charge of
$16 million
in Other income (expense), net during the third quarter of 2014. This forward contract was settled on October 1, 2014.
Our acquisition of Atlanta-based Reliance enabled us to provide a full-service wealth management and retirement offerings encompassing technology, full back-office operations outsourcing, custody services and retirement trust and fiduciary services.
Capco Contingent Consideration
The Capco purchase price in 2010 included cash consideration of
$298 million
at closing plus future contingent consideration valued at
$114 million
based on targeted operating performance in 2013 through 2015. We recorded an additional charge of
$85 million
in December 2013 as a result of amendments to the earn-out provisions based on management's outlook and increased projections of Capco's future results in light of its consistently improving performance. The amendments established a final agreed amount in total cash contingent consideration and number of shares in equity contingent consideration, subject to reduction and forfeiture provisions if operating performance targets are not met. The liability had previously been reduced by
$22 million
in 2011 and increased by
$44 million
in 2013 based on forecasts of achievement of targeted operating performance. No adjustments were required in 2016, 2015, 2014 and 2012. The remaining
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
contingent consideration liability is
$6 million
as of
December 31, 2016
, and is included in accounts payable and accrued liabilities in the Consolidated Balance Sheets. The remaining payments will be made in 2017, subject to any forfeitures and indemnities.
In conjunction with the acquisition, Capco and FIS established a New Hires and Promotions Incentive Plan ("NHP") to attract new employees and to retain and incent existing employees and management. This plan provided for aggregate payments of up to
$68 million
to eligible participants upon achievement of targeted operating performance in 2013 through 2015. The NHP was amended and restated in December 2013 to: (1) fix the total amount payable at
$43 million
, subject to reduction and forfeiture provisions; (2) establish the named participants and their respective unit allocations; and (3) eliminate any continued service requirements to FIS by the participants after the amendment date. Based on management's expectation that the operating performance measures would be achieved, the liability for the NHPP was adjusted to the present value of the amended total payout, with the resulting increase of
$18 million
recorded in 2013. Prior to the amendment, the expected liability was being expensed over the performance period, which was deemed to equal the service period.
(4)
Property and Equipment
Property and equipment as of
December 31, 2016
and
2015
consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Land
|
$
|
31
|
|
|
$
|
30
|
|
Buildings
|
204
|
|
|
203
|
|
Leasehold improvements
|
137
|
|
|
139
|
|
Computer equipment
|
909
|
|
|
846
|
|
Furniture, fixtures, and other equipment
|
207
|
|
|
178
|
|
|
1,488
|
|
|
1,396
|
|
Accumulated depreciation and amortization
|
(862
|
)
|
|
(785
|
)
|
|
$
|
626
|
|
|
$
|
611
|
|
During the years ended
December 31, 2016
and
2015
, the Company entered into capital lease and other financing obligations of
$43 million
and
$9 million
, 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 Consolidated Balance Sheets as of
December 31, 2016
. Periodic payments are included in repayment of borrowings on the Consolidated Statements of Cash Flows.
Depreciation and amortization expense on property and equipment, including that recorded under capital leases, amounted to
$185 million
,
$139 million
and
$130 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
(5)
Goodwill
Changes in goodwill during the years ended
December 31, 2016
and
2015
are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFS
|
|
GFS
|
|
Corporate & Other
|
|
Total
|
Balance, December 31, 2014
|
$
|
6,627
|
|
|
$
|
1,990
|
|
|
$
|
261
|
|
|
$
|
8,878
|
|
Goodwill acquired during 2015
|
1,049
|
|
|
4,653
|
|
|
301
|
|
|
6,003
|
|
Goodwill distributed through sale of non-strategic assets
|
—
|
|
|
—
|
|
|
(98
|
)
|
|
(98
|
)
|
Purchase price and foreign currency adjustments
|
—
|
|
|
(38
|
)
|
|
—
|
|
|
(38
|
)
|
Balance, December 31, 2015
|
7,676
|
|
|
6,605
|
|
|
464
|
|
|
14,745
|
|
Purchase price and foreign currency adjustments
|
—
|
|
|
(273
|
)
|
|
65
|
|
|
(208
|
)
|
Goodwill relating to PS&E included in assets held for sale
|
—
|
|
|
—
|
|
|
(359
|
)
|
|
(359
|
)
|
Balance, December 31, 2016
|
$
|
7,676
|
|
|
$
|
6,332
|
|
|
$
|
170
|
|
|
$
|
14,178
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In conjunction with the organizational modifications in the first quarter of 2016, we reallocated goodwill associated with the reclassified businesses based on relative fair value as of January 1, 2016. We refreshed our step zero qualitative analysis, identifying no indications of impairment for any of our reporting units. In performing the step zero qualitative analysis for 2016, examining those factors most likely to affect our valuations, 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. As a result, no reporting units were at risk of impairment as of the
September 30, 2016
measurement date (see Note 2 (g)).
(6)
Intangible Assets
Customer relationships intangible assets are obtained as part of acquired businesses and are amortized over their estimated useful lives, generally
five
to
10
years, using accelerated methods. Trademarks determined to have indefinite lives are not amortized. Certain other trademarks are amortized over periods ranging up to
15
years. As of
December 31, 2016
and
2015
, trademarks carried at
$80 million
and
$81 million
, respectively, were classified as indefinite-lived.
Intangible assets as of
December 31, 2016
consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Customer relationships
|
$
|
6,367
|
|
|
$
|
(1,840
|
)
|
|
$
|
4,527
|
|
Trademarks
|
180
|
|
|
(43
|
)
|
|
137
|
|
|
$
|
6,547
|
|
|
$
|
(1,883
|
)
|
|
$
|
4,664
|
|
Intangible assets as of
December 31, 2015
consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
Customer relationships
|
$
|
6,782
|
|
|
$
|
(1,782
|
)
|
|
$
|
5,000
|
|
Trademarks
|
181
|
|
|
(22
|
)
|
|
159
|
|
|
$
|
6,963
|
|
|
$
|
(1,804
|
)
|
|
$
|
5,159
|
|
Amortization expense for intangible assets with finite lives was
$507 million
,
$231 million
and
$215 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Estimated amortization of intangibles, including the contract intangible in our Brazilian Venture, which is amortized as a reduction in revenue, for the next five years is as follows (in millions):
|
|
|
|
|
2017
|
$
|
681
|
|
2018
|
678
|
|
2019
|
667
|
|
2020
|
489
|
|
2021
|
453
|
|
(7)
Computer Software
Computer software as of
December 31, 2016
and
2015
consists of the following (in millions):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Software from business acquisitions
|
$
|
1,138
|
|
|
$
|
1,189
|
|
Capitalized software development costs
|
1,066
|
|
|
985
|
|
Purchased software
|
172
|
|
|
126
|
|
Computer software
|
2,376
|
|
|
2,300
|
|
Accumulated amortization
|
(768
|
)
|
|
(716
|
)
|
Computer software, net of accumulated amortization
|
$
|
1,608
|
|
|
$
|
1,584
|
|
Amortization expense for computer software was
$396 million
,
$229 million
and
$210 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
(8)
Deferred Contract Costs
Deferred contract costs as of
December 31, 2016
and
2015
consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Installations and conversions in progress
|
$
|
57
|
|
|
$
|
34
|
|
Installations and conversions completed, net
|
108
|
|
|
93
|
|
Sales commissions and other, net
|
145
|
|
|
126
|
|
Deferred contract costs, net
|
$
|
310
|
|
|
$
|
253
|
|
Amortization of deferred contract costs was
$87 million
,
$71 million
and
$72 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
(9)
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities as of
December 31, 2016
and
2015
consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Salaries and incentives
|
$
|
379
|
|
|
$
|
325
|
|
Accrued benefits and payroll taxes
|
98
|
|
|
114
|
|
Trade accounts payable and other accrued liabilities
|
512
|
|
|
564
|
|
Accrued interest payable
|
89
|
|
|
62
|
|
Taxes other than income tax
|
62
|
|
|
65
|
|
Capco acquisition related liabilities
|
6
|
|
|
66
|
|
Total accounts payable and accrued liabilities
|
$
|
1,146
|
|
|
$
|
1,196
|
|
(10)
Long-Term Debt
Long-term debt as of
December 31, 2016
and
2015
consisted of the following (in millions):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
2017 Term Loans (1)
|
$
|
—
|
|
|
$
|
1,300
|
|
2018 Term Loans (2)
|
550
|
|
|
1,500
|
|
Senior Notes due June 2017, interest payable semi-annually at 1.450%
|
300
|
|
|
300
|
|
Senior Notes due April 2018, interest payable semi-annually at 2.000%
|
250
|
|
|
250
|
|
Senior Notes due October 2018, interest payable semi-annually at 2.850%
|
750
|
|
|
750
|
|
Senior Notes due October 2020, interest payable semi-annually at 3.625%
|
1,750
|
|
|
1,750
|
|
Senior Notes due August 2021, interest payable semi-annually at 2.250%
|
750
|
|
|
—
|
|
Senior Notes due March 2022, interest payable semi-annually at 5.000%
|
700
|
|
|
700
|
|
Senior Notes due October 2022, interest payable semi-annually at 4.500%
|
500
|
|
|
500
|
|
Senior Notes due April 2023, interest payable semi-annually at 3.500%
|
1,000
|
|
|
1,000
|
|
Senior Notes due June 2024, interest payable semi-annually at 3.875%
|
700
|
|
|
700
|
|
Senior Notes due October 2025, interest payable semi-annually at 5.000%
|
1,500
|
|
|
1,500
|
|
Senior Notes due August 2026, interest payable semi-annually at 3.000%
|
1,250
|
|
|
—
|
|
Senior Notes due August 2046, interest payable semi-annually at 4.500%
|
500
|
|
|
—
|
|
Revolving Loan, (3)
|
36
|
|
|
1,250
|
|
Other
|
(58
|
)
|
|
(56
|
)
|
|
10,478
|
|
|
11,444
|
|
Current portion
|
(332
|
)
|
|
(15
|
)
|
Long-term debt, excluding current portion
|
$
|
10,146
|
|
|
$
|
11,429
|
|
__________________________________________
|
|
(1)
|
Interest on the 2017 Term Loans was generally payable at LIBOR plus an applicable margin of up to
1.75%
based upon the Company's corporate credit ratings.
|
|
|
(2)
|
Interest on the 2018 Term Loans is generally payable at LIBOR plus an applicable margin of up to
1.75%
based upon the Company's corporate credit ratings. As of
December 31, 2016
, the weighted average interest rate on the 2018 Term Loans was
1.87%
.
|
|
|
(3)
|
Interest on the Revolving Loan is generally payable at LIBOR plus an applicable margin of up to
1.75%
plus an unused commitment fee of up to
0.25%
, each based upon the Company's corporate credit ratings. As of
December 31, 2016
, the weighted average interest rate on the Revolving Loan, excluding fees, was
1.75%
.
|
On August 10, 2016, FIS amended and extended its syndicated credit agreement (the “Credit Agreement”) and paid down the balance of
$600 million
on the 2017 Term Loans. As of
December 31, 2016
, the Credit Agreement provided total committed capital of
$3,000 million
in the form of a revolving credit facility (the "Revolving Loan") maturing on August 10, 2021. FIS is also a party to a syndicated term loan agreement (the "Term Loan Agreement" and together with the Credit Agreement, the "FIS Credit Agreements"), which as of
December 31, 2016
provided term loans of
$550 million
maturing on November 30, 2018 (the "2018 Term Loans"). As of
December 31, 2016
, the outstanding principal balance of the Revolving Loan was
$36 million
, with
$2,957 million
of borrowing capacity remaining thereunder (net of
$7 million
in outstanding letters of credit issued under the Revolving Loan).
On August 11, 2016, FIS issued
$2,500 million
of new senior notes, including
$750 million
of Senior Notes due in 2021 (the "2021 Notes") that bear interest at
2.250%
,
$1,250 million
of Senior Notes due in 2026 (the "2026 Notes") that bear interest at
3.000%
and
$500 million
of Senior Notes due in 2046 (the "2046 Notes") that bear interest at
4.500%
. Net proceeds from the offering, after deducting discounts and underwriting fees, were
$2,461 million
. FIS used the proceeds to pay down the outstanding balance of its Revolving Loan and partially pay down the 2018 Term Loans.
The obligations of FIS under the FIS Credit Agreements and under all of its outstanding senior notes rank equal in priority and are unsecured. The FIS Credit Agreements and the senior notes remain subject to customary covenants, including, among others, limitations on the payment of dividends by FIS, and customary events of default.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Due to the extension of the Revolving Loan and issuance of the 2021, 2026, and 2046 Notes, FIS recorded approximately
$25 million
of deferred financing costs in 2016, which will be amortized into interest expense over the life of the loan and notes. Also, as a result of the pay down of the 2017 Term Loans and the partial pay down of the 2018 Term Loans, FIS incurred a pre-tax charge upon extinguishment of approximately
$2 million
in 2016 due to the write-off of associated previously capitalized debt issue costs.
The following summarizes the aggregate maturities of our debt and capital leases on stated contractual maturities, excluding unamortized non-cash bond premiums and discounts of
$36 million
as of
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
Total
|
2017
|
|
$
|
332
|
|
2018
|
|
1,564
|
|
2019
|
|
9
|
|
2020
|
|
1,750
|
|
2021
|
|
786
|
|
Thereafter
|
|
6,150
|
|
Total principal payments
|
|
10,591
|
|
Debt issuance costs, net of accumulated amortization
|
|
(77
|
)
|
Total long-term debt
|
|
10,514
|
|
Voluntary prepayment of the term loans is generally permitted at any time without fee upon proper notice and subject to a minimum dollar requirement. 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, which occurs at August 10, 2021.
On February 2, 2017, FIS issued a notice to redeem
100%
of the outstanding aggregate principal amount of its
$700 million
5.000%
Senior Notes due 2022 (the "Notes") on March 15, 2017. The Notes are expected to be funded by borrowings under the Company’s Revolving Loan and cash proceeds from the sale of Public Sector and Education ("PS&E") (see Note 15).
FIS may redeem the 2017 Notes, the April and October 2018 Notes, 2020 Notes, 2021 Notes, October 2022 Notes, 2023 Notes, 2024 Notes, 2025 Notes, 2026 Notes, and 2046 Notes at its option in whole or in part, at any time and from time to time, at a redemption price equal to the greater of
100%
of the principal amount to be redeemed and a make-whole amount calculated as described in the related indenture in each case plus accrued and unpaid interest to, but excluding, the date of redemption; provided no make-whole amount will be paid for redemptions of the 2020 Notes and the 2021 Notes during the one month prior to their maturity, the October 2022 Notes during the two months prior to its maturity, the 2023 Notes, the 2024 Notes, the 2025 Notes, and the 2026 Notes during the three months prior to their maturity, and the 2046 Notes during the six months prior to their maturity.
Debt issuance costs of
$77 million
, net of accumulated amortization, remain capitalized as of
December 31, 2016
, related to all of the above outstanding debt.
We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Loan are comprised of a diversified set of financial institutions, both domestic and international. The failure of any single lender to perform its obligations under the Revolving Loan would not adversely impact our ability to fund operations.
The fair value of the Company’s long-term debt is estimated to be approximately
$183 million
higher than the carrying value as of
December 31, 2016
. This estimate is based on quoted prices of our senior notes and trades of our other debt in close proximity to
December 31, 2016
, 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.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11)
Financial Instruments
As of
December 31, 2016
, we have entered into the following interest rate swap transaction 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
|
|
January 4, 2016
|
|
January 1, 2018
|
|
$
|
500
|
|
|
One Month LIBOR (1)
|
|
0.92
|
%
|
(2)
|
___________________________________
|
|
(1)
|
0.77%
in effect as of
December 31, 2016
.
|
|
|
(2)
|
Does not include the applicable margin and facility fees paid to lenders on Term and Revolving Loans as described above.
|
We have designated this interest rate swap as a cash flow hedge and, as such, it is carried on the Consolidated Balance Sheets at fair value with changes in fair value included in other comprehensive earnings, net of tax.
Due to the Term and Revolving Loans reductions discussed in Note 10, interest rate swaps with a notional amount totaling
$1,250 million
were terminated as of December 31, 2016. As a result, FIS recognized an approximate
$2 million
before tax loss due to the release of fair value changes from other comprehensive earnings.
A summary of the fair value of the Company’s interest rate derivative instruments is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
|
Balance sheet location
|
|
Fair
value
|
|
Balance sheet location
|
|
Fair
value
|
Interest rate swap contracts
|
Other noncurrent assets
|
|
$
|
—
|
|
|
Other noncurrent assets
|
|
$
|
1
|
|
Interest rate swap contracts
|
Accounts payable and accrued liabilities
|
|
—
|
|
|
Accounts payable and accrued liabilities
|
|
—
|
|
Interest rate swap contracts
|
Other long-term liabilities
|
|
—
|
|
|
Other long-term liabilities
|
|
1
|
|
In accordance with the authoritative guidance for fair value measurements, the inputs used to determine the estimated fair value of our interest rate swap 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 swap. Adjustments are made to these amounts and to accumulated other comprehensive earnings ("AOCE") within the Consolidated Statements of Comprehensive Earnings and Consolidated Statements of Equity 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 for hedge notional amounts.
A summary of the effect of derivative instruments on the Consolidated Statements of Comprehensive Earnings and recognized in AOCE for the years ended
December 31, 2016
,
2015
and
2014
are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) recognized
in AOCE on derivatives
|
Derivatives in cash flow hedging relationships
|
|
2016
|
|
2015
|
|
2014
|
Interest rate derivative contracts
|
|
$
|
(7
|
)
|
|
$
|
(17
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified
from AOCE into income
|
Location of gain (loss) reclassified from AOCE into income
|
|
2016
|
|
2015
|
|
2014
|
Interest expense
|
|
$
|
(9
|
)
|
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Approximately
$1 million
of the balance in AOCE as of
December 31, 2016
, is expected to be reclassified into income over the next twelve months.
Our existing cash flow hedge is 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
December 31, 2016
, we believe that our interest rate swap counterparty will be able to fulfill their obligations under our agreement and we believe we will have debt outstanding through the various expiration date of the swap such that the forecasted transactions remain probable of occurring.
(12)
Income Taxes
Income tax expense (benefit) attributable to continuing operations for the years ended
December 31, 2016
,
2015
and
2014
consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Current provision:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
308
|
|
|
$
|
248
|
|
|
$
|
248
|
|
State
|
54
|
|
|
33
|
|
|
32
|
|
Foreign
|
131
|
|
|
52
|
|
|
64
|
|
Total current provision
|
$
|
493
|
|
|
$
|
333
|
|
|
$
|
344
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(147
|
)
|
|
$
|
50
|
|
|
$
|
(4
|
)
|
State
|
(12
|
)
|
|
5
|
|
|
(2
|
)
|
Foreign
|
(17
|
)
|
|
(9
|
)
|
|
(3
|
)
|
Total deferred provision
|
(176
|
)
|
|
46
|
|
|
(9
|
)
|
Total provision for income taxes
|
$
|
317
|
|
|
$
|
379
|
|
|
$
|
335
|
|
The provision for income taxes is based on pre-tax income from continuing operations, which is as follows for the years ended
December 31, 2016
,
2015
and
2014
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
571
|
|
|
$
|
864
|
|
|
$
|
789
|
|
Foreign
|
335
|
|
|
173
|
|
|
264
|
|
Total
|
$
|
906
|
|
|
$
|
1,037
|
|
|
$
|
1,053
|
|
Total income tax expense for the years ended
December 31, 2016
,
2015
and
2014
is allocated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Tax expense per statements of earnings
|
$
|
317
|
|
|
$
|
379
|
|
|
$
|
335
|
|
Tax expense attributable to discontinued operations
|
1
|
|
|
(2
|
)
|
|
(3
|
)
|
Unrealized (loss) gain on foreign currency translation
|
30
|
|
|
—
|
|
|
(5
|
)
|
Other components of other comprehensive income
|
1
|
|
|
(5
|
)
|
|
(2
|
)
|
Total income tax expense (benefit) allocated to other comprehensive income
|
31
|
|
|
(5
|
)
|
|
(7
|
)
|
Tax benefit from exercise of stock options
|
(32
|
)
|
|
(29
|
)
|
|
(40
|
)
|
Total income tax expense
|
$
|
317
|
|
|
$
|
343
|
|
|
$
|
285
|
|
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate for the years ended
December 31, 2016
,
2015
and
2014
is as follows:
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State income taxes
|
3.0
|
|
|
4.6
|
|
|
4.6
|
|
Federal benefit of state taxes
|
(1.0
|
)
|
|
(1.6
|
)
|
|
(1.6
|
)
|
Foreign rate differential
|
(3.0
|
)
|
|
(2.6
|
)
|
|
(2.6
|
)
|
Other
|
1.0
|
|
|
1.1
|
|
|
(3.6
|
)
|
Effective income tax rate
|
35.0
|
%
|
|
36.5
|
%
|
|
31.8
|
%
|
The significant components of deferred income tax assets and liabilities as of
December 31, 2016
and
2015
consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Deferred income tax assets:
|
|
|
|
|
|
Net operating loss carryforwards
|
$
|
223
|
|
|
$
|
228
|
|
Employee benefit accruals
|
111
|
|
|
98
|
|
Other deferred tax assets
|
151
|
|
|
112
|
|
Total gross deferred income tax assets
|
485
|
|
|
438
|
|
Less valuation allowance
|
(177
|
)
|
|
(167
|
)
|
Total deferred income tax assets
|
308
|
|
|
271
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
Amortization of goodwill and intangible assets
|
2,464
|
|
|
2,606
|
|
Deferred contract costs
|
131
|
|
|
103
|
|
Other deferred tax liabilities
|
75
|
|
|
100
|
|
Total deferred income tax liabilities
|
2,670
|
|
|
2,809
|
|
Net deferred income tax liability
|
$
|
2,362
|
|
|
$
|
2,538
|
|
Deferred income taxes have been classified in the Consolidated Balance Sheets as of
December 31, 2016
and
2015
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Current assets
|
$
|
101
|
|
|
$
|
100
|
|
Noncurrent assets (included in other noncurrent assets)
|
25
|
|
|
22
|
|
Total deferred income tax assets
|
126
|
|
|
122
|
|
Current liabilities (included in accounts payable and accrued liabilities)
|
(4
|
)
|
|
(2
|
)
|
Noncurrent liabilities
|
(2,484
|
)
|
|
(2,658
|
)
|
Total deferred income tax liabilities
|
(2,488
|
)
|
|
(2,660
|
)
|
Net deferred income tax liability
|
$
|
(2,362
|
)
|
|
$
|
(2,538
|
)
|
We believe that based on our historical pattern of taxable income, projections of future income, tax planning strategies and other relevant evidence, the Company will produce sufficient income in the future to realize its deferred income tax assets. A valuation allowance is established for any portion of a deferred income tax asset for which we believe it is more likely than not that the Company will not be able to realize the benefits of all or a portion of that deferred income tax asset. We also receive periodic assessments from taxing authorities challenging our positions that must be taken into consideration in determining our tax accruals. Resolving these assessments, which may or may not result in additional taxes due, may require an extended period of time. Adjustments to the valuation allowance will be made if there is a change in our assessment of the amount of deferred income tax asset that is realizable.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred tax assets and liabilities associated with assets held for sale are presented as a component of Assets held for sale in the Consolidated Balance Sheet. As of December 31, 2016, the Company has deferred tax assets of
$2 million
and deferred tax liabilities of
$157 million
included as a component of Assets held for sale.
As of
December 31, 2016
and
2015
, the Company had income taxes receivable of
$13 million
and
$139 million
, respectively. These amounts are included in Other receivables in the Consolidated Balance Sheets.
As of
December 31, 2016
and
2015
, the Company has federal, state and foreign net operating loss carryforwards resulting in deferred tax assets of
$223 million
and
$228 million
, respectively. The federal and state net operating losses result in deferred tax assets as of
December 31, 2016
and
2015
of
$49 million
and
$53 million
, respectively, which expire between 2020 and 2036. The Company has a valuation allowance related to these deferred tax assets for net operating loss carryforwards in the amounts of
$34 million
and
$35 million
as of
December 31, 2016
and
2015
. The Company has foreign net operating loss carryforwards resulting in deferred tax assets as of
December 31, 2016
and
2015
of
$174 million
and
$175 million
, respectively. The Company has valuation allowances related to these net operating losses as of
December 31, 2016
and
2015
of
$143 million
and
$132 million
, respectively. As of
December 31, 2016
and
2015
, the Company had foreign tax credit carryforwards of
$1 million
and
$14 million
, respectively, which expire between 2020 and 2025.
The Company participates in the IRS' Compliance Assurance Process (CAP), which is a real-time continuous audit. The IRS has completed its review for years through 2014. Currently, we believe the ultimate resolution of the IRS examinations will not result in a material adverse effect to the Company's financial position or results of operations. Substantially all material foreign income tax return matters have been concluded through 2009. Substantially all state income tax returns have been concluded through 2011.
The Company provides for United States income taxes on earnings of foreign subsidiaries unless they are considered permanently reinvested outside the United States. As of
December 31, 2016
and
2015
U.S. income taxes have not been provided on a cumulative total of
$813 million
and
$674 million
of such earnings. At this time, a determination of the amount of unrecognized deferred tax liability is not practicable.
As of
December 31, 2016
and
2015
, the Company had gross unrecognized tax benefits of
$87 million
and
$98 million
of which
$67 million
and
$75 million
would favorably impact our income tax rate in the event that the unrecognized tax benefits are recognized.
The following table reconciles the gross amounts of unrecognized tax benefits at the beginning and end of the period (in millions):
|
|
|
|
|
|
Gross Amount
|
Amounts of unrecognized tax benefits as of January 1, 2015
|
$
|
18
|
|
Amount of decreases due to lapse of the applicable statute of limitations
|
(5
|
)
|
Assumed in SunGard acquisition
|
82
|
|
Increases as a result of tax positions taken in the current period
|
1
|
|
Increases as a result of tax positions taken in a prior period
|
2
|
|
Amount of unrecognized tax benefit as of December 31, 2015
|
98
|
|
Amount of decreases due to lapse of the applicable statute of limitations
|
(4
|
)
|
Amount of decreases due to settlements
|
(23
|
)
|
Increases as a result of tax positions taken in the current period
|
2
|
|
Increases as a result of tax positions taken in a prior period
|
14
|
|
Amount of unrecognized tax benefit as of December 31, 2016
|
$
|
87
|
|
The total amount of interest expense recognized in the Consolidated Statements of Earnings for unpaid taxes is
$6 million
,
$2 million
and
$2 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The total amount of interest and penalties included in the Consolidated Balance Sheets is
$25 million
and
$27 million
as of
December 31, 2016
and
2015
, respectively. Interest and penalties are recorded as a component of income tax expense in the Consolidated Statements of Earnings.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Due to the expiration of various statutes of limitation in the next
twelve
months, an estimated
$5 million
of gross unrecognized tax benefits may be recognized during that
twelve
-month period.
(13)
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 no actions, other than the matters listed below, depart from customary litigation incidental to its business. As background to the disclosure below, please note the following:
|
|
•
|
These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities.
|
|
|
•
|
The Company reviews all of its litigation 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 material loss may be 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 litigation matters are expensed as incurred.
|
DataTreasury Corporation v. Fidelity National Information Services, Inc. et. al.
On May 28, 2013, DataTreasury Corporation (the “Plaintiff”) filed a patent infringement lawsuit against the Company and multiple banks in the U.S. District Court for the Eastern District of Texas, Marshall Division. Plaintiff alleges that the Company infringes the patents at issue by making, using, selling or offering to sell systems and methods for image-based check processing. The Plaintiff seeks damages, injunctive relief and attorneys' fees for the alleged infringement of
two
patents. On October 25, 2013, the Company filed for covered business method ("CBM") post-grant reviews of the validity of the Plaintiff's asserted patents at the U.S. Patent and Trademark Office ("USPTO"). The Company filed a Motion to Stay the case pending the outcome of the CBM post-grant reviews. On April 29, 2014, the USPTO instituted the Company's
two
CBM petitions. On August 14, 2014, the Court granted the Company's Motion to Stay the litigation pending the outcome of the CBM review proceedings. On April 29, 2015, the Patent Trial and Appeal Board ("PTAB") issued final written decisions on the Company’s
two
CBM petitions holding that all claims of the Plaintiff’s
two
patents are unpatentable ("Final Written Decision"). On August 27, 2015, the Plaintiff filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit of the USPTO’s Final Written Decisions. On October 13, 2016, the Federal Circuit affirmed the USPTO's Final Written Decisions finding the Plaintiff's
two
patents to be unpatentable. On January 11, 2017, the Plaintiff filed a petition for certiorari to the Supreme Court of the United States seeking to appeal certain findings of the Federal Circuit. We do not believe a liability is probable or reasonably estimable and, therefore, have not recorded a liability for these claims.
Acquired Contingencies (SunGard)
The Company became responsible for certain contingencies which were assumed in the SunGard acquisition. The Consolidated Balance Sheet as of December 31, 2016 includes a liability of
$104 million
mostly related to unclaimed property examinations and tax compliance matters.
Reliance Trust Claims
Reliance Trust Company, the Company’s subsidiary, is named as a defendant in a class action arising out of its provision of services as the discretionary trustee for a 401(k) Plan for one of its customers. Plaintiffs in the action seek damages and attorneys’ fees, as well as equitable relief, for alleged breaches of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act of 1974. The action also makes claims against the Plan's sponsor and recordkeeper. Reliance Trust Company is vigorously defending the action and believes that it has meritorious defenses. While we believe that the ultimate resolution of the matter will not have a material impact on our financial condition, we are unable at this time to make an estimate of potential losses arising from the action because the matter is at an early state and involves unresolved questions of fact and law.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Brazilian Tax Authorities Claims
In 2004, Proservvi Empreendimentos e Servicos, Ltda., the predecessor to Fidelity National Servicos de Tratamento de Documentos e Informatica Ltda. (“Servicos”), a subsidiary of Fidelity National Participacoes Ltda., our former item processing and remittance services operation in Brazil, acquired certain assets and employees and leased certain facilities from the Transpev Group (“Transpev”) in Brazil. Transpev’s remaining assets were later acquired by Prosegur, an unrelated third party. When Transpev discontinued its operations after the asset sale to Prosegur, it had unpaid federal taxes and social contributions owing to the Brazilian tax authorities. The Brazilian tax authorities brought a claim against Transpev and beginning in 2012 brought claims against Prosegur and Servicos on the grounds that Prosegur and Servicos were successors in interest to Transpev. To date, the Brazilian tax authorities filed
nine
claims against Servicos asserting potential tax liabilities of approximately
$14 million
. There are potentially
26
additional claims against Transpev/Prosegur for which Servicos is named as a co-defendant or may be named, but for which Servicos has not yet been served. These additional claims amount to approximately
$56 million
making the total potential exposure for all
35
claims approximately
$70 million
. We do not believe a liability for these
35
total claims is probable or reasonably estimable and, therefore, have not recorded a liability for any of these claims.
Indemnifications and Warranties
The Company generally indemnifies its clients, subject to certain limitations and exceptions, against damages and costs resulting from claims of patent, copyright, or trademark infringement associated solely with its customers' use of the Company's software applications or services. Historically, the Company has not made any material payments under such indemnifications, but continues to monitor the conditions that are subject to the indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses when they are estimable. In addition, the Company warrants to customers that its software operates substantially in accordance with the software specifications. Historically, no material costs have been incurred related to software warranties and no accruals for warranty costs have been made.
Leases
The Company leases certain of its property under leases which expire at various dates. Several of these agreements include escalation clauses and provide for purchases and renewal options for periods ranging from
one
to
five
years.
Future minimum operating lease payments for leases with remaining terms greater than
one
year for each of the years in the five years ending December 31, 2021, and thereafter, in the aggregate, are as follows (in millions):
|
|
|
|
|
2017
|
$
|
96
|
|
2018
|
91
|
|
2019
|
67
|
|
2020
|
49
|
|
2021
|
33
|
|
Thereafter
|
65
|
|
Total
|
$
|
401
|
|
In addition, the Company has operating lease commitments relating to office equipment and computer hardware with annual lease payments of approximately
$4 million
per year that renew on a short-term basis. See Note 4 for information on the Company's capital lease obligations.
Rent expense incurred under all operating leases during the years ended
December 31, 2016
,
2015
and
2014
, was
$143 million
,
$93 million
and
$85 million
, respectively.
Data Processing, Maintenance and Other Service Agreements.
The Company has agreements with various vendors, which expire between 2017 and 2023, principally for portions of its computer data processing operations and related functions. The Company’s estimated aggregate contractual obligation remaining under these agreements was approximately
$557 million
as of
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 2016
. However, this amount could be more or less depending on various factors such as the inflation rate, foreign exchange rates, the introduction of significant new technologies, or changes in the Company’s data processing needs.
(14)
Employee Benefit Plans
Stock Purchase Plan
FIS employees participate in an Employee Stock Purchase Plan (ESPP). Eligible employees may voluntarily purchase, at current market prices, shares of FIS’ common stock through payroll deductions. Pursuant to the ESPP, employees may contribute an amount between
3%
and
15%
of their base salary and certain commissions. Shares purchased are allocated to employees based upon their contributions. The Company contributes varying matching amounts as specified in the ESPP. The Company recorded expense of
$19 million
,
$26 million
and
$26 million
, respectively, for the years ended
December 31, 2016
,
2015
and
2014
, relating to the participation of FIS employees in the ESPP.
401(k) Profit Sharing Plans
The Company’s U.S. employees are covered by a qualified 401(k) plan. Eligible employees may contribute up to
40%
of their pretax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. The Company generally matches
50%
of each dollar of employee contribution up to
6%
of the employee’s total eligible compensation. The Company recorded expense of
$80 million
,
$38 million
and
$36 million
, respectively, for the years ended
December 31, 2016
,
2015
and
2014
, relating to the participation of FIS employees in the 401(k) plan.
SunGard and its subsidiaries also maintained savings and other defined contribution plans in and outside of the U.S. The U.S. 401(k) plan was frozen with respect to new contributions effective with the SunGard acquisition and during 2016 was merged with the FIS plan, in which legacy SunGard employees now participate.
Stock Compensation Plans
In
2008
, the Company adopted the FIS
2008
Omnibus Incentive Plan ("FIS Plan"). The FIS Plan was amended and restated in 2013 and combined with a plan assumed in conjunction with the 2009 Metavante acquisition ("FIS Restated Plan"). The restatement authorized an additional
6 million
shares for issuances, which was approved by stockholders in 2013. In May 2015, another
12 million
shares were authorized for issuance under the FIS Restated Plan and approved by stockholders.
On November 30, 2015, in conjunction with the SunGard acquisition, the Company registered an additional
10 million
shares, representing the remaining shares available for issuance under the SunGard 2005 Management Incentive Plan, as amended ("the SG Plan"), immediately prior to the consummation of the SunGard acquisition. These shares are now available for grant under the FIS Restated Plan for legacy SunGard employees and new FIS employees.
Also on November 30, 2015, in conjunction with the SunGard acquisition, the Company registered up to approximately
2 million
shares of FIS common stock on a Post-Effective Amendment on Form S-8, reserved for issuance with respect to converted restricted stock units ("RSU's") under the SG Plan. This SG Plan will remain in existence until such time as these RSU's vest and the shares are exercised or the SG Plan is otherwise terminated.
A summary of the options granted (all of which vest over three years), outstanding and shares available for grant under the FIS Restated Plan follows (in millions):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
FIS Restated Plan
|
Available for grant as of December 31, 2014
|
7
|
|
Granted in 2014
|
3
|
|
Outstanding as of December 31, 2015
|
16
|
|
Available for grant as of December 31, 2015
|
26
|
|
Granted in 2016
|
5
|
|
Outstanding as of December 31, 2016
|
17
|
|
Available for grant as of December 31, 2016
|
21
|
|
The following schedule summarizes the stock option activity for the years ended
December 31, 2016
,
2015
and
2014
(in millions except for per share amounts):
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise Price
|
Balance, December 31, 2013
|
14
|
|
|
$
|
32.49
|
|
Granted
|
4
|
|
|
58.72
|
|
Exercised
|
(3
|
)
|
|
22.69
|
|
Cancelled
|
—
|
|
|
46.21
|
|
Balance, December 31, 2014
|
15
|
|
|
41.56
|
|
Granted
|
3
|
|
|
65.91
|
|
Exercised
|
(2
|
)
|
|
29.67
|
|
Cancelled
|
—
|
|
|
54.08
|
|
Balance, December 31, 2015
|
16
|
|
|
47.19
|
|
Granted
|
5
|
|
|
63.58
|
|
Exercised
|
(3
|
)
|
|
36.15
|
|
Cancelled
|
(1
|
)
|
|
62.25
|
|
Balance, December 31, 2016
|
17
|
|
|
53.21
|
|
The intrinsic value of options exercised during the years ended
December 31, 2016
,
2015
and
2014
was
$103 million
,
$73 million
and
$93 million
, respectively. The Company generally issues shares from treasury stock for stock options exercised.
The following table summarizes information related to stock options outstanding and exercisable as of
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
Exercisable Options
|
Range of Exercise Price
|
Number
of
Options
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Intrinsic
Value as of
December 31,
2016 (a)
|
|
Number of Options
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Intrinsic
Value as of
December 31,
2016 (a)
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
|
(In millions)
|
|
|
|
|
|
(In millions)
|
$ 0.00 - $ 25.66
|
1
|
|
|
1.80
|
|
$
|
24.71
|
|
|
$
|
73
|
|
|
1
|
|
|
1.80
|
|
$
|
24.71
|
|
|
$
|
73
|
|
$ 25.67 - $ 27.40
|
1
|
|
|
0.82
|
|
27.11
|
|
|
58
|
|
|
1
|
|
|
0.82
|
|
27.11
|
|
|
58
|
|
$ 27.41 - $ 48.75
|
4
|
|
|
3.40
|
|
45.21
|
|
|
108
|
|
|
4
|
|
|
3.40
|
|
45.21
|
|
|
108
|
|
$ 48.76 - $ 59.91
|
3
|
|
|
4.68
|
|
58.19
|
|
|
53
|
|
|
2
|
|
|
4.40
|
|
58.15
|
|
|
20
|
|
$ 59.92 - $ 62.92
|
4
|
|
|
6.10
|
|
62.92
|
|
|
51
|
|
|
—
|
|
|
3.00
|
|
62.92
|
|
|
2
|
|
$ 62.93 - $ 79.41
|
4
|
|
|
5.58
|
|
66.17
|
|
|
34
|
|
|
—
|
|
|
3.93
|
|
64.82
|
|
|
4
|
|
$ 0.00 - $ 79.41
|
17
|
|
|
4.42
|
|
53.21
|
|
|
$
|
377
|
|
|
8
|
|
|
2.86
|
|
41.74
|
|
|
$
|
265
|
|
_________________________
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
(a)
|
Intrinsic value is based on a closing stock price as of
December 31, 2016
of
$75.64
.
|
The weighted average fair value of options granted during the years ended
December 31, 2016
,
2015
and
2014
was estimated to be
$9.35
,
$10.67
and
$9.15
, respectively, using the Black-Scholes option pricing model with the assumptions below:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Risk free interest rate
|
1.2
|
%
|
|
1.4
|
%
|
|
1.4
|
%
|
Volatility
|
20.4
|
%
|
|
21.7
|
%
|
|
21.2
|
%
|
Dividend yield
|
1.6
|
%
|
|
1.6
|
%
|
|
1.6
|
%
|
Weighted average expected life (years)
|
4.2
|
|
|
4.2
|
|
|
4.2
|
|
The Company estimates future forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company bases the risk-free interest rate that is used in the stock option valuation model on U.S. Treasury securities issued with maturities similar to the expected term of the options. The expected stock volatility factor is determined using historical daily price changes of the Company's common stock over the most recent period commensurate with the expected term of the option and the impact of any expected trends. The dividend yield assumption is based on the current dividend yield at the grant date or management's forecasted expectations. The expected life assumption is determined by calculating the average term from the Company's historical stock option activity and considering the impact of expected future trends.
The Company granted a total of
1 million
restricted stock shares at prices ranging from
$56.44
to
$79.41
on various dates in 2016. The Company granted a total of
1 million
restricted stock shares at prices ranging from
$61.33
to
$69.33
on various dates in
2015
. The Company granted a total of
1 million
restricted stock shares at prices ranging from
$52.85
to
$64.04
on various dates in
2014
. These shares were granted at the closing market price on the date of grant and vest annually over
three
years. As of
December 31, 2016
and
2015
, we have approximately
3 million
and
4 million
unvested restricted shares remaining. The
December 31, 2016
balance includes those RSU's converted in connection with the SunGard acquisition as noted above.
The Company has provided for total stock compensation expense of
$137 million
,
$98 million
and
$56 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively, which is included in selling, general, and administrative expense in the Consolidated Statements of Earnings, unless the expense is attributable to a discontinued operation. Of the total stock compensation expense,
$2 million
for
2014
relates to liability based awards that will not be credited to additional paid in capital until issued. Total compensation expense for
2016
and
2015
did not include amounts relating to liability based awards.
As of
December 31, 2016
and
2015
, the total unrecognized compensation cost related to non-vested stock awards is
$141 million
and
$206 million
, respectively, which is expected to be recognized in pre-tax income over a weighted average period of
1.4
years and
1.6
years, respectively.
German Pension Plans
Our German operations have unfunded, defined benefit plan obligations. These obligations relate to benefits to be paid to German employees upon retirement. The accumulated benefit obligation as of
December 31, 2016
and
2015
, was
$49 million
and
$48 million
, respectively, and the projected benefit obligation was
$50 million
and
$49 million
, respectively. The plan remains unfunded as of
December 31, 2016
.
(15)
Divestitures and Discontinued Operations
On December 7, 2016, the Company entered into a definitive agreement to sell the SunGard Public Sector and Education ("PS&E") businesses for
$850 million
. The transaction included all PS&E solutions, which provide a comprehensive set of technology solutions to address public safety and public administration needs of government entities as well as the needs of K-12 school districts. The divestiture is consistent with our strategy to serve the financial services markets. We received cash proceeds, net of taxes and transaction-related expenses of approximately
$500 million
. Net cash proceeds are expected to be used to reduce outstanding debt (see Note 10). The PS&E businesses are included in the Corporate and Other segment. The transaction closed on February 1, 2017, resulting in an expected pre-tax gain ranging from
$85 million
to
$90 million
that will
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
be recognized in the first quarter of 2017. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the pre-tax gain and related prior period earnings remain reported within earnings from continuing operations.
During the second quarter of 2015, we sold certain assets associated with our gaming industry check warranty business, resulting in a pre-tax gain of
$139 million
, which is included in Other income (expense), net. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the gain and related prior period earnings remain reported within earnings from continuing operations.
As described below, certain operations are reported as discontinued in the Consolidated Statements of Earnings for the years ended
December 31, 2016
,
2015
and
2014
. The revenues and earnings (losses) of the businesses included in discontinued operations for the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
2016
|
|
2015
|
|
2014
|
|
eCas business line
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations net of tax:
|
2016
|
|
2015
|
|
2014
|
|
eCas business line
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(5
|
)
|
|
Participacoes operations
|
1
|
|
|
(3
|
)
|
|
(6
|
)
|
|
Total discontinued operations
|
$
|
1
|
|
|
$
|
(7
|
)
|
|
$
|
(11
|
)
|
China eCas Business Line
During the second quarter of 2014, the Company committed to a plan to sell our business operation that provides eCas core banking software solutions to small financial institutions in China because it did not align with our strategic plans. We entered into a purchase agreement in January 2015 to sell this business and the transaction closed during the second quarter of 2015.
Brazil Item Processing and Remittance Services Operations
During the third quarter of 2010, the Company decided to pursue strategic alternatives for Fidelity National Participacoes Ltda. (“Participacoes”). Participacoes' processing volume was transitioned to other vendors or back to its clients during the second quarter of 2011. Participacoes had earnings (losses) before taxes of
$2 million
,
$(5) million
and
$(10) million
during the years ended
December 31, 2016
,
2015
and
2014
, respectively. The shut-down activities involved the transfer and termination of approximately
2,600
employees, which was completed in 2011. Former employees generally had up to
two years
from the date of terminations, extended through April 2013, to file labor claims and a number of them did file labor claims. As of
December 31, 2016
, there were approximately
475
active claims remaining. Consequently, we have continued exposure on these active claims, which were not transferred with other assets and liabilities in the disposal. Our accrued liability for active labor claims, net of
$12 million
in court ordered deposits, is
$10 million
as of
December 31, 2016
. Any changes in the estimated liability related to these labor claims will be recorded as discontinued operations.
(16)
Components of Other Comprehensive Earnings
The following table shows accumulated other comprehensive earnings ("AOCE") attributable to FIS by component, net of tax, for the year ended
December 31, 2016
(in millions):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Interest Rate
|
|
Currency
|
|
|
|
|
|
|
Swap
|
|
Translation
|
|
|
|
|
|
|
Contracts
|
|
Adjustments
|
|
Other (1)
|
|
Total
|
Balances, December 31, 2015
|
|
$
|
1
|
|
|
$
|
(259
|
)
|
|
$
|
(21
|
)
|
|
$
|
(279
|
)
|
Other comprehensive gain/(loss) before reclassifications
|
|
(5
|
)
|
|
(55
|
)
|
|
3
|
|
|
(57
|
)
|
Amounts reclassified from AOCE
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Net current period AOCE attributable to FIS
|
|
—
|
|
|
(55
|
)
|
|
3
|
|
|
(52
|
)
|
Balances, December 31, 2016
|
|
$
|
1
|
|
|
$
|
(314
|
)
|
|
$
|
(18
|
)
|
|
$
|
(331
|
)
|
|
|
(1)
|
Includes the cash settlement payment on treasury lock contracts associated with bridge financing for the SunGard acquisition. This amount will be amortized as an adjustment to interest expense over the
ten
years in which the related interest payments that were hedged are recognized in income.
|
The amount reclassified from AOCE for interest rate derivative contracts includes
$8 million
recorded as interest expense, reduced by a related
$3 million
provision for income taxes. See Note 12 for the tax provision associated with each component of other comprehensive income.
(17)
Related Party Transactions
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. The original accounting for this transaction resulted in the establishment of a contract intangible asset and a liability for amounts payable to the original partner banks upon final migration of their respective card portfolios and achieving targeted volumes (the “Brazilian Venture Notes”). The unamortized contract intangible asset balance as of
December 31, 2016
was
$88 million
. Upon the exit of one partner bank, certain terms of the Brazilian Venture were subsequently renegotiated between Banco Bradesco and FIS and were memorialized in an Amended Association Agreement in November 2010. Among other things, the payout for the Brazilian Venture Notes was extended over a
ten
-year period. Additional performance remuneration provisions upon the achievement of targeted account and transaction volumes were renegotiated, for which additional related party payables were recorded as of December 31,
2011
, based on management's expectation that the targets will be met. The passage of time and the achievement of certain targets triggered payments to Banco Bradesco of
$6 million
and
$5 million
in
2016
and
2015
, respectively. In addition, the board of directors for the Brazilian Venture declared a dividend during the years ended
December 31, 2016
and
2015
, resulting in payments of
$20 million
and
$24 million
respectively, to Banco Bradesco. The carrying value of the noncontrolling interest as of
December 31, 2016
was
$99 million
.
The Company recorded revenues of
$272 million
,
$237 million
and
$281 million
during the years ended
December 31, 2016
,
2015
and
2014
, respectively, from Banco Bradesco. Revenues included
$12 million
and
$96 million
of unfavorable currency impact during the years ended
December 31, 2016
and
2015
, respectively, resulting from foreign currency exchange rate fluctuations between the U.S. Dollar and Brazilian Real in
2016
as compared to
2015
and
2015
as compared to
2014
.
The Brazilian Venture currently processes appro
ximately
80 million
cards for clients in Brazil and provides call center, cardholder support and collection services for their card portfolios.
A summary of the Company’s related party receivables and payables is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
Related Party
|
|
Balance sheet location
|
|
2016
|
|
2015
|
Banco Bradesco
|
|
Trade receivables
|
|
$
|
45
|
|
|
$
|
31
|
|
Banco Bradesco
|
|
Accounts payable and accrued liabilities
|
|
10
|
|
|
9
|
|
Banco Bradesco
|
|
Other long-term liabilities
|
|
22
|
|
|
24
|
|
(18)
Concentration of Risk
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company generates a significant amount of revenues from large clients, however,
no
individual client accounted for
10%
or more of total revenues in the years ended
December 31, 2016
,
2015
and
2014
.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and trade receivables.
The Company places its cash equivalents with high credit-quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse clients make up the Company’s client base, thus spreading the trade receivables credit risk. The Company controls credit risk through monitoring procedures.
(19)
Segment Information
In 2015, FIS finalized a reorganization and began reporting its financial performance based on
three
segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other. We recast all previous periods to conform to the new segment presentation. Following our November 30, 2015 acquisition of SunGard, the SunGard business was included within the GFS segment as its economic characteristics, international business model, and various other factors largely aligned with those of our GFS segment. As we further integrated the acquired SunGard businesses through March 31, 2016, we reclassified certain SunGard businesses (corporate liquidity and wealth management) that are oriented more to the retail banking and payments activities of IFS into that segment. Certain other businesses from both SunGard (public sector and education businesses, which was divested on February 1, 2017), and legacy FIS (global commercial services and check processing) were reclassified to the Corporate and Other segment, as have SunGard administrative expenses.
Summarized financial information for the Company’s segments is shown in the following tables reclassified to conform to the current segment presentation.
As of and for the year ended
December 31, 2016
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFS
|
|
GFS
|
|
Corporate
and Other
|
|
Total
|
Processing and services revenues
|
$
|
4,566
|
|
|
$
|
4,250
|
|
|
$
|
425
|
|
|
$
|
9,241
|
|
Operating expenses
|
3,029
|
|
|
3,211
|
|
|
1,703
|
|
|
7,943
|
|
Depreciation and amortization from continuing operations
|
273
|
|
|
247
|
|
|
64
|
|
|
584
|
|
Purchase accounting amortization
|
1
|
|
|
6
|
|
|
583
|
|
|
590
|
|
EBITDA
|
1,811
|
|
|
1,292
|
|
|
(631
|
)
|
|
2,472
|
|
Acquisition deferred revenue adjustment
|
—
|
|
|
—
|
|
|
192
|
|
|
192
|
|
Acquisition, integration and severance costs
|
—
|
|
|
—
|
|
|
281
|
|
|
281
|
|
Adjusted EBITDA
|
$
|
1,811
|
|
|
$
|
1,292
|
|
|
$
|
(158
|
)
|
|
$
|
2,945
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
$
|
2,472
|
|
Interest expense
|
|
|
|
|
|
|
383
|
|
Depreciation and amortization from continuing operations
|
|
|
|
|
|
|
584
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
590
|
|
Other income (expense) unallocated
|
|
|
|
|
|
|
(9
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
317
|
|
Net earnings (loss) from discontinued operations
|
|
|
|
|
|
|
1
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
22
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
$
|
568
|
|
Capital expenditures (1)
|
$
|
294
|
|
|
$
|
317
|
|
|
$
|
48
|
|
|
$
|
659
|
|
Total assets
|
$
|
10,249
|
|
|
$
|
9,028
|
|
|
$
|
6,748
|
|
|
$
|
26,025
|
|
Goodwill
|
$
|
7,676
|
|
|
$
|
6,332
|
|
|
$
|
170
|
|
|
$
|
14,178
|
|
(1) Capital expenditures include
$43 million
of capital leases and other financing obligations.
As of and for the year ended
December 31, 2015
(in millions):
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFS
|
|
GFS
|
|
Corporate
and Other
|
|
Total
|
Processing and services revenues
|
$
|
3,846
|
|
|
$
|
2,360
|
|
|
$
|
390
|
|
|
$
|
6,596
|
|
Operating expenses
|
2,504
|
|
|
1,953
|
|
|
1,040
|
|
|
5,497
|
|
Depreciation and amortization from continuing operations
|
226
|
|
|
146
|
|
|
59
|
|
|
431
|
|
Purchase accounting amortization
|
—
|
|
|
—
|
|
|
238
|
|
|
238
|
|
EBITDA
|
1,568
|
|
|
553
|
|
|
(353
|
)
|
|
1,768
|
|
Acquisition deferred revenue adjustment
|
—
|
|
|
—
|
|
|
48
|
|
|
48
|
|
Acquisition, integration and severance costs
|
—
|
|
|
—
|
|
|
171
|
|
|
171
|
|
Global restructure
|
—
|
|
|
—
|
|
|
45
|
|
|
45
|
|
Adjusted EBITDA
|
$
|
1,568
|
|
|
$
|
553
|
|
|
$
|
(89
|
)
|
|
$
|
2,032
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
$
|
1,768
|
|
Interest expense
|
|
|
|
|
|
|
183
|
|
Depreciation and amortization from continuing operations
|
|
|
|
|
|
|
431
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
|
|
|
238
|
|
Other income (expense) unallocated
|
|
|
|
|
|
|
121
|
|
Provision for income taxes
|
|
|
|
|
|
|
379
|
|
Net earnings (loss) from discontinued operations
|
|
|
|
|
|
|
(7
|
)
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
19
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
$
|
632
|
|
Capital expenditures (1)
|
$
|
235
|
|
|
$
|
168
|
|
|
$
|
21
|
|
|
$
|
424
|
|
Total assets
|
$
|
10,035
|
|
|
$
|
9,508
|
|
|
$
|
6,656
|
|
|
$
|
26,199
|
|
Goodwill
|
$
|
7,676
|
|
|
$
|
6,605
|
|
|
$
|
464
|
|
|
$
|
14,745
|
|
(1) Capital expenditures include
$9 million
of capital leases.
As of and for the year ended
December 31, 2014
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IFS
|
|
GFS
|
|
Corporate
and Other
|
|
Total
|
Processing and services revenues
|
$
|
3,679
|
|
|
$
|
2,198
|
|
|
$
|
536
|
|
|
$
|
6,413
|
|
Operating expenses
|
2,419
|
|
|
1,849
|
|
|
874
|
|
|
5,142
|
|
Depreciation and amortization from continuing operations
|
214
|
|
|
133
|
|
|
64
|
|
|
411
|
|
Purchase accounting amortization
|
—
|
|
|
—
|
|
|
215
|
|
|
215
|
|
EBITDA
|
1,474
|
|
|
482
|
|
|
(59
|
)
|
|
1,897
|
|
Contract settlement
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Acquisition, integration and severance costs
|
—
|
|
|
—
|
|
|
21
|
|
|
21
|
|
Adjusted EBITDA
|
$
|
1,483
|
|
|
$
|
482
|
|
|
$
|
(38
|
)
|
|
1,927
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
$
|
1,897
|
|
Interest expense
|
|
|
|
|
|
|
158
|
|
Depreciation and amortization from continuing operations
|
|
|
|
|
|
|
411
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
215
|
|
Other income (expense) unallocated
|
|
|
|
|
|
|
(60
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
335
|
|
Net earnings (loss) from discontinued operations
|
|
|
|
|
|
|
(11
|
)
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
28
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
$
|
679
|
|
Capital expenditures (1)
|
$
|
207
|
|
|
$
|
155
|
|
|
$
|
36
|
|
|
$
|
398
|
|
Total assets
|
$
|
8,631
|
|
|
$
|
3,699
|
|
|
$
|
2,182
|
|
|
$
|
14,512
|
|
Goodwill
|
$
|
6,627
|
|
|
$
|
1,990
|
|
|
$
|
261
|
|
|
$
|
8,878
|
|
(1) Capital expenditures include
$26 million
of capital leases.
Total assets as of
December 31, 2016
,
2015
and
2014
exclude
$6 million
,
$1 million
and
$8 million
, respectively related to discontinued operations.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Revenue generated from contracts executed outside of our North American operations represented approximately
24%
,
22%
and
22%
of total revenue in
2016
,
2015
and
2014
, respectively. Clients in Brazil, the United Kingdom, France and Germany accounted for the majority of the revenues from clients based outside of North America for all periods presented. FIS conducts business in over 130 countries, with no individual country outside of North America accounting for more than 10% of total revenue for the years ended
December 31, 2016
,
2015
and
2014
.
Long-term assets, excluding goodwill and other intangible assets, located outside of the United States totaled
$550 million
and
$470 million
as of
December 31, 2016
and
2015
, respectively. These assets are predominantly located in Brazil, India, Germany and the United Kingdom.
Integrated Financial Solutions ("IFS")
The IFS segment is focused on serving the North American regional and community bank and savings institution market for transaction and account processing, payment solutions, channel solutions, lending and wealth management solutions, digital channels, risk and compliance solutions, and services, capitalizing on the continuing trend to outsource these solutions. IFS also includes corporate liquidity and wealth management solutions acquired in the SunGard acquisition. IFS’ primary software applications function as the underlying infrastructure of a financial institution's processing environment. These applications include core bank processing software, which banks use to maintain the primary records of their customer accounts, and complementary applications and services that interact directly with the core processing applications. Clients in this segment include regional and community banks, credit unions and commercial lenders, as well as government institutions, merchants and other commercial organizations. This market is primarily served through integrated solutions and characterized by multi-year processing contracts that generate highly recurring revenues. The predictable nature of cash flows generated from this segment provides opportunities for further investments in innovation, product integration, information and security, and compliance in a cost effective manner.
Global Financial Solutions ("GFS")
The GFS segment is focused on serving the largest global financial institutions and/or international financial institutions with a broad array of capital markets and asset management and insurance solutions, as well as banking and payments solutions and consulting and transformation services.
GFS clients include the largest global financial institutions, including those headquartered in the United States, as well as all international financial institutions we serve as clients in more than
130
countries around the world. These institutions face unique business and regulatory challenges and account for the majority of financial institution information technology spend globally. The purchasing patterns of GFS clients vary from those of IFS clients who typically purchase solutions on an outsourced basis. GFS clients purchase our solutions and services in various ways including licensing and managing technology “in-house,” using consulting and third party service providers as well as fully outsourced end-to-end solutions. We have long-established relationships with many of these financial institutions that generate significant recurring revenue. GFS clients now also include asset managers, buy- and sell-side securities and trading firms, insurers and private equity firms due to the addition of SunGard. This segment also includes the Company's consolidated Brazilian Venture (see Note 17 of the Notes to Consolidated Financial Statements).
Corporate and Other
The Corporate and Other segment consists of corporate overhead expense, certain leveraged functions and miscellaneous expenses that are not included in the operating segments, as well as certain non-strategic businesses. The business solutions in this segment include public sector and education, commercial services and check authorization. The overhead and leveraged costs relate to marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs that are not considered when management evaluates revenue generating segment performance, such as acquisition integration and severance costs. The Corporate and Other segment also includes the impact on revenue for 2016 and 2015 of adjusting SunGard's deferred revenue to fair value. The composition of our Corporate and Other segment changed with the new segment presentation in 2015. Specifically, costs such as sales, finance, human resources, risk and information security and other administrative support functions that are directly attributable to IFS or GFS are recorded to those reportable segments.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During
2016
the Company recorded certain costs relating to integration and severance activity primarily from the SunGard acquisition of
$281 million
. During
2015
the Company recorded transaction and other costs, including integration activity, related to SunGard and other recent acquisitions and other severance costs of
$171 million
and severance costs in connection with the reorganization and streamlining of operations in our GFS segment of
$45 million
. During
2014
the Company recorded transaction and other costs, including integration activity, related to recent acquisitions and other severance costs of
$21 million
.
(20)
Share Repurchase Program
Our Board of Directors has approved a series of plans authorizing repurchases of our common stock in the open market at prevailing market prices or in privately negotiated transactions, the most current of which on January 29, 2014, authorized repurchases of up to
$2.0 billion
through December 31, 2017. This share repurchase authorization replaced any existing share repurchase authorization plan. Approximately
$1,224 million
of plan capacity remained available for repurchases as of
December 31, 2016
.
The table below summarizes annual share repurchase activity under these plans (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of shares
|
|
|
|
|
|
|
purchased as part of
|
|
|
Total number of
|
|
Average price
|
|
publicly announced
|
Year ended
|
|
shares purchased
|
|
paid per share
|
|
plans or programs
|
December 31, 2016
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31, 2015
|
|
5
|
|
|
$
|
66.10
|
|
|
$
|
300
|
|
December 31, 2014
|
|
9
|
|
|
$
|
54.89
|
|
|
$
|
476
|
|
There were no share repurchases in 2016.