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, 2020 and 2019, and for the years ended December 31, 2020, 2019 and 2018, unless otherwise noted.
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 Information" and "Risk Factors" in Item 1A of this Annual Report 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.
Business Trends and Conditions
Our revenue is primarily derived from a combination of technology and processing services, payment transaction fees, professional services and software license fees. While we are a global company and do business around the world, the majority of our revenue is generated by clients in the U.S. The majority of our international revenue is generated by clients in the U.K., Germany, Australia, Canada, Brazil and India. The majority of our revenue has historically been recurring and has been provided under multi-year Banking and Capital Markets contracts that contribute relative stability to our revenue stream. These services, in general, are considered critical to our clients' operations. Although Merchant has a lesser percentage of multi-year contracts, substantially all of its revenue is recurring. A considerable portion of our Merchant recurring revenue, and to a lesser extent a portion of our Banking and Capital Markets recurring revenue, is derived from transaction processing fees that fluctuate with the number or value of transactions processed, among other variable measures, associated with consumer, commercial and capital markets activity. Professional services revenue is typically non-recurring, though recognition often occurs over time rather than at a point in time. Sales of software licenses are typically non-recurring with point-in-time recognition and are less predictable.
COVID-19 continued to impact our financial results in the fourth quarter of 2020. In certain locations, where government lockdowns and shelter-in-place orders have been tightened, consumer spending impacting our Merchant payments volume, and related transaction revenue has been adversely impacted after partially recovering in the third quarter of 2020. Certain discretionary spending verticals, including travel, airlines and restaurants, continue to be significantly impacted. The Company's revenue continues to be impacted by reduced payment processing volumes within our Merchant segment and, to a lesser extent, transaction volume within our Banking segment.
We have seen some slowdown in customer decision-making on sales and implementation of our solutions, as well as on software licenses and professional services. These delays, due largely to client caution, have adversely affected our business, results of operations and financial condition in the fourth quarter of 2020 and could continue, although the magnitude and duration of their ultimate effect is not possible to predict and has not been material to date. We have continued to prioritize investments in solutions that help address the needs of our clients in order to increase the Company's potential to resume strong revenue growth following the pandemic.
In response to COVID-19, we are continuing to take several actions to manage discretionary expenses, including reducing office space, prohibiting most travel and reducing incentive compensation, as well as accelerating automation and functional alignment across the organization. These actions reduced such expenses by approximately $300 million in 2020. Of this amount, approximately $220 million relates to reduced incentive compensation for 2020, which we do not anticipate occurring with respect to 2021 incentive compensation.
Our extension of higher-than-usual levels of credit to our merchant clients as part of funds settlement in connection with payments to their customers, for, among other things, refunds for cancelled trips and events lessened as the year progressed, although increasing government lockdown orders in the fourth quarter could adversely impact credit extensions and chargebacks. We are exposed to losses if our merchant customers are unable to repay the credit we have extended or to fund their liability for chargebacks due to closure, insolvency, bankruptcy or other reasons. This increase in extended credit or potential liability for chargebacks did not have a material impact on our liquidity for the three- and twelve-month periods ended December 31, 2020, although certain of our merchant clients have ceased doing business, at least for a period of time, and we continue to monitor their impact on our liquidity, results of operations and financial condition.
We continue to assist financial institutions in migrating to outsourced integrated technology solutions to improve their profitability and address increasing and ongoing 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. However, delays in implementation of our solutions caused by the uncertainty of the COVID-19 pandemic may temporarily slow future revenue growth to an extent not yet determined.
Over the last five years, we have moved approximately 73% of our server compute, primarily in North America, to our FIS cloud located in our strategic data centers, and our goal is to increase that percentage to 80% by the end of 2021. This allows us to further enhance security for our clients' data and increases the flexibility and speed with which we can provide solutions and services to our clients, eventually at lesser cost. Concurrently, we have continued to consolidate our data centers, closing seven data centers in 2019 and an additional six data centers in 2020. Our consolidation has generated a savings for the Company as of year-end 2020 of approximately $240 million in run-rate annual expense reduction since the program's inception in mid-2016. We plan to close and consolidate approximately seven more data centers by the end of 2021, which should result in additional run rate annual expense reduction of approximately $10 million.
We continue to invest in modernization, innovation and integrated solutions and services to meet the demands of the markets we serve and compete with global banks, financial and other technology providers, and emerging technology innovators. We invest both organically and through investment opportunities in companies building complementary technologies in the financial services space. Our internal efforts in research and development activities have related primarily to the modernization of our proprietary core systems in each of our segments, design and development of next generation digital and innovative solutions and development of processing systems and related software applications and risk management platforms. We have increased our investments in these areas in each of the last three years. Our innovation efforts have recently resulted in bringing to market our Modern Banking Platform that is among the first cloud-native core banking solutions. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems to address emerging technology trends in response to the needs of our clients and to enhance the capabilities of our outsourcing infrastructure.
We have invested in the development of new solutions by establishing the position of the Chief Growth Officer in 2020 and building staff within that office. This office prioritizes development and investment in new solutions in collaboration with our segment leaders, including investment in fintech venture opportunities with innovative new solutions.
FIS continues to carefully monitor the effects of the ongoing COVID-19 pandemic as conditions continue to evolve. Since the beginning of the pandemic, the Company has taken several actions to protect its employees while maintaining business continuity, including implementing its comprehensive Pandemic Plan. The Pandemic Plan includes site-specific plans as well as travel restrictions, medical response protocols, work-from-home strategies and enhanced cleaning within our locations. As a critical infrastructure provider for the global economy, FIS continues to operate around the world to serve our clients.
The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, developing social distancing plans for our employees and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, clients and business partners. Where government lockdowns have prohibited or slowed down certain functions at specific locations, FIS has outfitted employees to provide services from home or transferred work to other locations. Nearly 95% of our employees remain in a work-from-home status and have been effectively outfitted to continue to provide all necessary services to our clients. We continued this work-from-home status in most locations since the impact of the pandemic began in mid-March 2020 through the end of the year, as the safety of our employees is a top priority. Additionally, for its employees, the Company has expanded sick leave for employees affected by COVID-19, expanded telemedicine internationally, provided special pay for certain employees involved in critical infrastructure who could not work from home, and expanded its FIS Cares program to benefit employees in need around the world.
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. The COVID-19 pandemic appears to be accelerating digitization of banking and payment services by requiring, in many cases, banks and bank customers to transact through digital channels. We have been providing our large regional banking customers in the U.S. with Digital One, an integrated digital banking platform, and are now adding functionality and offering Digital One to our community bank clients to provide a consistent, omnichannel experience for consumers of banking services across self-service channels like mobile banking and online banking, as well as supporting channels for bank staff operating in bank branches and contact centers. The uniform customer experience extends to support a broad range of financial services including opening new accounts, servicing of existing accounts, money movement services, and personal financial
management, as well as other consumer, small business and commercial banking capabilities. Digital One is integrated into several of the core banking platforms offered by FIS and is also offered to customers of non-FIS core banking systems.
We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity among financial institutions, which we believe as a whole is detrimental to the profitability of the financial technology industry. However, consolidation resulting from specific merger and acquisition transactions may be beneficial 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 to support the newly combined entity. Conversely, we may lose revenue 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 to 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.
As a result of the Worldpay acquisition completed on July 31, 2019, FIS is now a global leader in the merchant solutions industry, with differentiated solutions throughout the payments market, including capabilities in global eCommerce, integrated payments, and enterprise payments and data security solutions in business-to-business ("B2B") payments. These solutions bring together advanced payments technologies at each stage of the transaction life cycle. The Worldpay acquisition broadened our solution portfolio, enabling us to significantly expand our merchant acquiring solutions, including our capabilities in the growing eCommerce and integrated payment segments of the market, which are in demand among our merchant clients as they look for ways to integrate technology into their business models. The combination also favorably impacts our business mix with a greater concentration in higher growth and higher margin services. The Worldpay acquisition significantly increased our revenue as well as our amortization expense for acquired intangibles and our acquisition, integration and other costs. However, due to the COVID-19 pandemic, our merchant processing revenue has been adversely impacted, particularly in the discretionary spending areas of travel, airlines, and restaurants, and we expect revenue will continue to be adversely impacted until the economic effects and government, company, and public travel restrictions due to the pandemic subside around the world.
Following the Worldpay acquisition, we are focused on completing post-merger integration to achieve potential incremental revenue opportunities and expense efficiencies created by the combination of the two companies. We have a history of successfully integrating the operations and technology platforms of acquired companies, including winding down legacy environments and consolidating platforms from other acquisitions into our environment. Based on prior integration experience, we developed integration plans to achieve the potential benefits created by the Worldpay acquisition. As of the end of 2020, our achievement of revenue synergies remains on track to meet or exceed our current targets driven by successful cross-sell of our heritage Premium Payback solution into heritage Worldpay clients and by leveraging our heritage Worldpay sales and distribution teams, expanding on our existing relationships with financial institutions to establish merchant referral agreements and optimizing our network routing capabilities. We have also exceeded our original target for expense synergies, as we have successfully integrated organizational structures, reduced corporate overhead and achieved cost savings within our operating environment, and expect to continue to achieve additional expense synergies during 2021.
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. The payment processing industry is adopting new technologies, developing new solutions and services, evolving new business models and being affected by new market entrants and by an evolving regulatory environment. As merchants and financial institutions respond to these changes by seeking services to help them enhance their own offerings to consumers, including the ability to accept card-not-present ("CNP") payments in eCommerce and mobile environments as well as contactless cards and mobile wallets at the point-of-sale, FIS believes that payment processors will seek to develop additional capabilities in order to serve clients' evolving needs. To facilitate this expansion, we believe that payment processors will need to enhance their technology platforms so they can deliver these capabilities and differentiate their offerings from other providers. The COVID-19 pandemic appears to be accelerating digitization of payment services by requiring, in many cases, businesses and consumers to transact through digital channels.
We believe that these market changes present both an opportunity and a risk for us, and we cannot predict which emerging technologies or solutions will be successful. However, FIS believes that payment processors, like FIS, that have scalable, integrated business models, provide solutions across the payment processing value chain and utilize broad distribution capabilities will be best positioned to enable emerging alternative electronic payment technologies. Further, FIS believes that its depth of capabilities and breadth of distribution will enhance its position as emerging payment technologies are adopted by merchants and other businesses. FIS' ability to partner with non-financial institution enterprises, such as mobile payment
providers and internet, retail and social media companies, could create attractive growth opportunities as these new entrants seek to become more active participants in the development of alternative electronic payment technologies and to facilitate the convergence of retail, online, mobile and social commerce applications.
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. These investments include both capital expenditures and operating expense related to 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 and Estimates
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 revenue 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 revenue in a number of ways, including from the delivery of account- or transaction-based processing, SaaS, BPaaS, cloud offerings, software licensing, software-related services and professional services. Our contracts frequently contain non-standard terms that require judgment to determine the appropriate impact on revenue recognition. 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 combined 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 negotiated as a package with a single commercial objective, whether the solutions or services promised in the contracts are a single performance obligation, and whether any of the payment terms of the contracts are interrelated. Our individual contracts also frequently include multiple promised solutions or services. At contract inception, we assess the solutions and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - i.e., if a solution or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. We must apply judgment in these circumstances in determining whether individual promised solutions or services can be considered distinct or should instead be combined with other promised solutions or services in the contract. We recognize revenue when or as we satisfy a performance obligation by transferring control of a solution or service to a customer. We must use judgment to determine whether revenue is measured at a point in time or over time, to determine when the customer obtains control for performance obligations satisfied at a point in time and to determine the appropriate measure of progress for performance obligations satisfied over time. Judgment is also required in estimating and allocating variable consideration to one or more, but not all, performance obligations in a contract, determining the standalone selling prices of each performance obligation, and allocating the transaction price to each distinct performance obligation in a contract.
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 contracts 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.
Capitalized Software Development Costs
Capitalized software development costs require judgment in determining when costs should be capitalized, the appropriate period over which to amortize the capitalized costs, and whether there is impairment of unamortized capitalized costs. We capitalize software development costs when technological feasibility of the software has been established (for software to be marketed) or at the beginning of application development (for internal-use software). In determining useful lives for amortization, we consider historical results and technological trends that may influence the estimate. Useful lives for capitalized software development costs typically range from three to 10 years.
The Company assesses the recorded value of capitalized software development costs 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 (net realizable value analysis for software to be marketed). There are inherent uncertainties in determining the expected useful life or cash flows to be generated from capitalized software development costs. For the year ended December 31, 2019, we recorded $87 million in asset impairments, primarily related to certain software to be marketed. For the years ended December 31, 2020 and 2018, 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
We 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 and software, are complex and require a significant amount of management judgment. We typically engage third-party valuation specialists to assist us in making fair value determinations. The third-party valuation specialists generally use discounted cash flow models, which require internally-developed assumptions, to determine the acquisition fair value of customer relationship intangible assets and developed technology software assets. Assumptions for customer relationship asset valuations typically include forecasted revenue attributable to existing customer contracts and relationships, estimated annual attrition, forecasted EBITDA margin, and estimated weighted average cost of capital and discount rates. Assumptions for software asset valuations typically include forecasted revenue attributable to the software assets, obsolescence rates, estimated royalty rates and estimated weighted average cost of capital and discount rates.
While we use our best estimates and assumptions to determine the fair values of the assets acquired and the liabilities assumed, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to our consolidated statements of earnings.
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. The determination of asset lives affects our results of operations as different types of assets have different useful lives, and certain assets may be considered to have indefinite useful lives. 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.
See Note 3 to the consolidated financial statements for discussion of the Virtus acquisition in 2020 and Worldpay acquisition in 2019. We had no significant business combinations during 2018.
Goodwill
Goodwill was $53.3 billion and $52.2 billion as of December 31, 2020 and 2019, respectively. The Company assesses goodwill for impairment by reporting unit on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. Our reporting units are the same as our primary operating segments, with additional reporting units for certain non-strategic businesses within the Corporate and Other segment. Goodwill impairment assessments require a significant amount of management judgment, and a meaningful change in one or more of the underlying forecasts, estimates, or assumptions used in testing goodwill for impairment could result in a material impact on the Company's results of operations and financial position. Based on the results of our assessments for 2020, $94 million of goodwill related to certain non-strategic businesses within the Corporate and Other segment was impaired. For all other reporting units for all periods presented, goodwill was not impaired.
When performing a qualitative assessment, we consider events and circumstances to determine if it is more likely than not that a reporting unit's carrying amount exceeds its fair value, including factors such as macroeconomic conditions, industry and
market conditions, cost factors, overall financial performance, events affecting the reporting unit or Company as a whole, including a sustained decrease in stock price. We examine those factors most likely to affect each reporting unit's fair value.
When performing a quantitative assessment, we typically engage third-party valuation specialists to assist us in determining the fair value of the reporting unit based on a weighted average of multiple valuation techniques, typically 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. The income approach involves the use of significant estimates and assumptions regarding forecasted revenue, growth rates, operating margins, capital expenditures, 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. The market approach involves the selection of guideline public companies and earnings multiples considering factors such as markets of operation, solutions offered, and risk profiles.
For each of 2019 and 2018, we began our annual assessment with the qualitative assessment and concluded that it remained more likely than not that the fair value of each of our reporting units continued to exceed the carrying amounts. For 2020, we began our annual assessment for the Banking Solutions and Capital Market Solutions reporting units with qualitative assessments and concluded that that it remained more likely than not that the fair value of each of the reporting units continued to exceed their respective carrying amounts. Based on the qualitative assessment performed for these reporting units, and because there was a substantial excess of fair value over carrying amount in our previous third-party valuations performed in 2015 for Banking Solutions- and Capital Market Solutions-related businesses, we believe the likelihood of obtaining materially different results based on a change of assumptions is low.
For Merchant Solutions, we began our 2020 annual assessment with a quantitative assessment due to the economic impact of the COVID-19 pandemic on our Merchant Solutions business and its primary operations being recently acquired as part of the Worldpay acquisition. As a result of the assessment, the fair value of the reporting unit was estimated to be in excess of carrying amount by approximately 4%. The fair value was determined with the assistance of third-party valuation specialists, using an equal weighting of the income and market approaches based on an evaluation of the availability and relevance of guideline public companies having similar risks, participating in similar markets, and providing similar solutions for their customers.
For the income approach to estimating the fair value of the Merchant Solutions reporting unit, we estimated future cash flows using internal forecasts, which were developed considering historical operating performance, expected economic conditions and industry and market trends, including the impact of the COVID-19 global pandemic and expected impact of planned business initiatives. At the end of the forecast period, we used a long-term growth rate to determine the terminal value based on an evaluation of the minimum expected terminal growth rate of the Merchant Solutions reporting unit, as well as broader economic considerations such as inflation and foreign exchange rates. Due to the inherent uncertainties involved in making estimates and assumptions, actual results may differ from those determined based on our forecasts.
In computing the present value of estimated future cash flows, we used a risk-adjusted discount rate based on an assessment of the weighted average cost of capital calculation for the Merchant Solutions reporting unit and relevant guideline public companies. We believe the discount rate used is commensurate with the risks and uncertainties inherent in the Merchant Solutions business and in our internally developed forecasts, but the rate is subject to change in future periods based on changes in the U.S. Treasury rate, inflation, and other factors.
The estimated fair value of the Merchant Solutions reporting unit was derived from the valuation techniques described above, incorporating forecasts and assumptions. The estimated fair value of the Merchant Solutions reporting unit is sensitive to changes in these forecasts and assumptions, and such changes could impact the determination of goodwill impairment. We performed sensitivity analyses around certain assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair value. For example, a hypothetical 100-basis-point increase in the discount rate yielded an estimated fair value for the Merchant Solutions reporting unit below its carrying amount.
Given the results of the Merchant Solutions reporting unit quantitative assessment, the reporting unit is at risk for future goodwill impairment as it is reasonably possible that, among other factors, future developments related to the economic impact of the COVID-19 pandemic on our Merchant Solutions business, such as an extended duration of the pandemic and/or government-imposed shutdowns, prolonged economic downturn or recession, or lack of governmental support for recovery, could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill impairment and could result in future goodwill impairment.
Related-Party Transactions
We are a party to certain historical related-party agreements as discussed in Note 18 to the consolidated financial statements.
Factors Affecting Comparability
For information regarding factors affecting comparability, see "Item 6. Selected Financial Data." As a result of the transactions noted in Item 6. Selected Financial Data, 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
This section generally discusses fiscal year 2020 compared to 2019. Discussions of fiscal year 2019 compared to 2018 not included herein can be found in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for fiscal year 2019, filed with the Securities and Exchange Commission on February 23, 2020.
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|
|
|
|
|
|
|
Year ended December 31,
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|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In millions)
|
|
|
|
|
|
Revenue
|
$
|
12,552
|
|
|
$
|
10,333
|
|
|
$
|
2,219
|
|
|
21
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%
|
|
Cost of revenue
|
(8,348)
|
|
|
(6,610)
|
|
|
(1,738)
|
|
|
26
|
|
|
Gross profit
|
4,204
|
|
|
3,723
|
|
|
481
|
|
|
13
|
|
|
Gross profit margin
|
33
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%
|
|
36
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%
|
|
|
|
|
|
Selling, general and administrative expenses
|
(3,516)
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|
|
(2,667)
|
|
|
(849)
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|
|
32
|
|
|
Asset impairments
|
(136)
|
|
|
(87)
|
|
|
(49)
|
|
|
56
|
|
|
Operating income
|
552
|
|
|
969
|
|
|
(417)
|
|
|
(43)
|
|
|
Operating margin
|
4
|
%
|
|
9
|
%
|
|
|
|
|
Revenue
Revenue increased primarily due to incremental revenue from the Worldpay acquisition. Revenue was adversely impacted by reduced payment processing volumes within our Merchant Solutions segment and, to a lesser extent, transaction volume within our Banking Solutions segment, as a result of the COVID-19 pandemic. See Segment Results of Operations below for more detailed explanation.
Cost of Revenue, Gross Profit and Gross Profit Margin
Gross profit increased primarily due to the revenue variances noted above. Gross profit margin decreased primarily due to higher acquired intangible asset amortization expense, partially offset by higher margin revenue from the Worldpay acquisition.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased primarily due to incremental Worldpay corporate and infrastructure expenses and higher acquisition, integration and other costs. These increases were partially offset by lower discretionary spending during the COVID-19 pandemic.
Asset Impairments
During 2020, the Company recorded asset impairments totaling $136 million related to goodwill for certain non-strategic businesses and to certain long-lived assets related to reducing office space. During 2019, the Company recorded asset impairments totaling $87 million primarily related to certain software resulting from the Company's net realizable value analysis.
Operating Income and Operating Margin
The annual change in operating income resulted from the revenue and cost variances noted above. The operating margin during 2020 was negatively impacted by higher acquired intangible asset amortization expense, higher acquisition, integration and other costs and asset impairments of $136 million. The operating margin during 2019 was negatively impacted by higher acquired intangible asset amortization expense, higher acquisition, integration and other costs and asset impairments of $87 million.
Total Other Income (Expense), Net
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|
|
|
Year ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
Other income (expense):
|
(In millions)
|
|
|
|
|
|
Interest expense, net
|
$
|
(334)
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|
|
$
|
(337)
|
|
|
$
|
3
|
|
|
(1)
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%
|
|
Other income (expense), net
|
48
|
|
|
(219)
|
|
|
267
|
|
|
(122)
|
|
|
Total other income (expense), net
|
$
|
(286)
|
|
|
$
|
(556)
|
|
|
270
|
|
|
(49)
|
|
The decrease in interest expense, net is primarily due to a lower weighted average interest rate on the outstanding debt throughout the year, notwithstanding the increase in outstanding debt as a result of the Worldpay acquisition, partially offset by a decrease in interest income as compared to the prior year that included interest income on the proceeds from the Worldpay acquisition-related debt issuances prior to closing.
Other income (expense), net for 2020 primarily represents the fair value adjustment on certain non-operating assets and liabilities, foreign currency transaction remeasurement gains and losses and the pending settlement amount of the Reliance Trust claims, which is further described in Note 16 to the consolidated financial statements.
Other income (expense), net for 2019 primarily includes a pre-tax charge of approximately $217 million in tender premiums and fees and the write-off of previously capitalized debt issuance costs on the early redemption of approximately $3.0 billion in aggregate principal amount of our senior notes as well as approximately $33 million of acquisition financing costs related to the acquisition of Worldpay. These items were partially offset by the non-cash foreign currency gain on non-hedged Euro- and Pound Sterling-denominated notes issued to finance the Worldpay acquisition, during the period from the date of issue of the notes to the date of the acquisition.
Provision (Benefit) for Income Taxes
|
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|
|
|
|
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|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
|
|
2020
|
|
2019
|
|
$ Change
|
|
% Change
|
|
|
(In millions)
|
|
|
|
|
|
Provision (benefit) for income taxes
|
$
|
96
|
|
|
$
|
100
|
|
|
$
|
(4)
|
|
|
(4)
|
%
|
|
Effective tax rate
|
36
|
%
|
|
24
|
%
|
|
|
|
|
The effective tax rate for the 2020 period includes a one-time net remeasurement of certain deferred tax liabilities due to the increase in the U.K. corporate statutory tax rate from 17% to 19% enacted on July 22, 2020. The effective tax rate for 2019 includes a detriment of $44 million due to non-deductible executive stock compensation primarily driven by acceleration of converted heritage Worldpay stock compensation awards and the accrual of additional stock compensation due to reaching certain Worldpay synergy targets and a detriment of $21 million due to the post-acquisition combined state income tax rates.
Segment Results of Operations
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital
Market Solutions, and Corporate and Other. The Company reclassified certain non-strategic businesses from Merchant Solutions, Banking Solutions, and Capital Market Solutions into Corporate and Other during the year ended December 31, 2020, and recast all prior-period segment information presented.
Adjusted EBITDA is defined as net earnings (loss) before net interest expense, net other income (expense), income tax provision (benefit), equity method investment earnings (loss), depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature. 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 FASB ASC Topic 280, Segment Reporting. The non-operational items affecting the segment profit measure generally include purchase accounting adjustments; acquisition, integration and certain other costs and asset impairments. Adjusted EBITDA also excludes incremental and direct costs resulting from the COVID-19 pandemic. 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 Adjusted EBITDA, for each of our segments is set forth in Note 22 to the consolidated financial statements.
Merchant Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
|
2020 vs
|
|
2019 vs
|
|
2020 vs
|
|
2019 vs
|
|
|
2020
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
3,767
|
|
|
$
|
1,942
|
|
|
$
|
208
|
|
|
$
|
1,825
|
|
|
$
|
1,734
|
|
|
94
|
%
|
|
NM
|
|
Adjusted EBITDA
|
$
|
1,752
|
|
|
$
|
967
|
|
|
$
|
45
|
|
|
785
|
|
|
922
|
|
|
81
|
|
|
NM
|
|
Adjusted EBITDA margin
|
46.5
|
%
|
|
49.8
|
%
|
|
21.6
|
%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin basis points change
|
(330)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020:
Revenue increased primarily due to incremental revenue from the Worldpay acquisition totaling $1,834 million, including a favorable foreign currency impact of less than 1%, driven by a weaker U.S. Dollar versus the British Pound Sterling. Revenue was adversely impacted by declines in payment processing volumes in certain discretionary spending verticals, including travel, airlines and restaurants, as a result of the COVID-19 pandemic.
The increase in adjusted EBITDA primarily resulted from the incremental revenue from the Worldpay acquisition. The decrease in adjusted EBITDA margin was due to decreasing volumes of high-margin services as a result of the COVID-19 pandemic.
Year ended December 31, 2019:
Revenue increased primarily due to incremental revenue from the Worldpay acquisition totaling $1,722 million.
Adjusted EBITDA and adjusted EBITDA margin increased primarily due to the incremental revenue from the Worldpay acquisition at a higher margin.
Banking Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
|
2020 vs
|
|
2019 vs
|
|
2020 vs
|
|
2019 vs
|
|
|
2020
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
5,944
|
|
|
$
|
5,592
|
|
|
$
|
5,416
|
|
|
$
|
352
|
|
|
$
|
176
|
|
|
6
|
%
|
|
3
|
%
|
|
Adjusted EBITDA
|
$
|
2,556
|
|
|
$
|
2,402
|
|
|
$
|
2,192
|
|
|
154
|
|
|
210
|
|
|
6
|
|
|
10
|
|
|
Adjusted EBITDA margin
|
43.0
|
%
|
|
43.0
|
%
|
|
40.5
|
%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin basis points change
|
—
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020:
Revenue increased primarily due to incremental revenue from the Worldpay acquisition contributing 4% and other items contributing an aggregate of 5%. Other items in Banking Solutions revenue were attributable to increased demand for our core and digital banking offerings and COVID-19 pandemic-related programs including recurring revenue due to card production and prepaid card services and non-recurring revenue due to Paycheck Protection Program ("PPP") loan processing. Banking Solutions revenue was also adversely impacted by lower issuer processing due to the COVID-19 pandemic. These items were partially offset by (1) a decrease in non-recurring revenue from Latin America payments contributing less than (1%); (2) a
decrease in termination fees contributing less than (1%); and (3) an unfavorable foreign currency impact to growth contributing less than (1%), primarily driven by a stronger U.S. Dollar versus the Brazilian Real and Indian Rupee.
Adjusted EBITDA increased primarily due to the revenue variances noted above. Adjusted EBITDA margin was flat primarily due to lower-margin revenue mix offset by discretionary expense management.
Year ended December 31, 2019:
Revenue increased primarily due to (1) incremental revenue from the Worldpay acquisition contributing 3%; (2) increased termination fees contributing less than 1%; and (3) other items contributing an aggregate of 4% due in part to license and professional services growth in the wealth and retirement business, strong network and back-office volumes, and growth in the card production business. These items were partially offset by the unwinding of the Brazilian Venture offset in part by the new commercial agreement with Banco Bradesco and growth in Latin America payments contributing (3%) and the reduction in revenue from the sale of Reliance Trust Company of Delaware business contributing less than (1%). Banking Solutions had an unfavorable foreign currency impact contributing less than (1%), driven primarily by a stronger U.S. Dollar versus the Brazilian Real, Euro and British Pound.
Adjusted EBITDA increased primarily due to the revenue variances noted above. Adjusted EBITDA margin increased primarily due to positive revenue mix, the addition of higher margin Worldpay revenue, and the unwinding of lower margin Brazilian Venture revenue.
Capital Market Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
|
2020 vs
|
|
2019 vs
|
|
2020 vs
|
|
2019 vs
|
|
|
2020
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
2,440
|
|
|
$
|
2,318
|
|
|
$
|
2,258
|
|
|
$
|
122
|
|
|
$
|
60
|
|
|
5
|
%
|
|
3
|
%
|
|
Adjusted EBITDA
|
$
|
1,147
|
|
|
$
|
1,073
|
|
|
$
|
1,024
|
|
|
74
|
|
|
49
|
|
|
7
|
|
|
5
|
|
|
Adjusted EBITDA margin
|
47.0
|
%
|
|
46.3
|
%
|
|
45.4
|
%
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA margin basis points change
|
70
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020:
Revenue increased primarily due to the purchase of a majority interest in Virtus Partners contributing 3% and strong managed services growth contributing 2%. Revenue also benefited from a favorable foreign currency impact contributing less than 1%, primarily driven by a weaker U.S. Dollar versus the Euro and the Swedish Krona.
Adjusted EBITDA increased primarily due to the revenue impacts mentioned above. Adjusted EBITDA margin increased primarily due to ongoing expense initiatives and discretionary expense management.
Year ended December 31, 2019:
Revenue increased primarily due to strong managed services growth, contributing 1%, and the remaining revenue contributing 2% primarily due to increased demand for risk and compliance offerings. These items were partially offset by unfavorable foreign currency impact contributing less than (1%), primarily driven by a stronger U.S. Dollar versus the British Pound Sterling and Swedish Krona.
Adjusted EBITDA and adjusted EBITDA margin increased due to continued cost management.
Corporate and Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
$ Change
|
|
% Change
|
|
|
|
|
|
|
|
|
2020 vs
|
|
2019 vs
|
|
2020 vs
|
|
2019 vs
|
|
|
2020
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
401
|
|
|
$
|
481
|
|
|
$
|
541
|
|
|
$
|
(80)
|
|
|
$
|
(60)
|
|
|
(17)
|
%
|
|
(11)
|
%
|
|
Adjusted EBITDA
|
$
|
(195)
|
|
|
$
|
(238)
|
|
|
$
|
(128)
|
|
|
43
|
|
|
(110)
|
|
|
(18)
|
|
|
86
|
|
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.
Year ended December 31, 2020:
Revenue decreased primarily due to client attrition in certain of our non-strategic businesses.
Adjusted EBITDA increased primarily due to lower discretionary expenses during the COVID-19 pandemic and operating expense synergy cost actions, partially offset by adjusted EBITDA decline in non-strategic businesses.
Year ended December 31, 2019:
Revenue decreased primarily due to the sale of the Certegy Check Services business unit in North America during the third quarter of 2018.
Adjusted EBITDA decreased primarily due to incremental Worldpay corporate and infrastructure expenses and increased corporate health care and other benefit plan expenses.
Liquidity and Capital Resources
Cash Requirements
Our ongoing cash requirements include operating expenses, income taxes, tax receivable obligations, mandatory debt service payments, capital expenditures, stockholder dividends, regulatory requirements, working capital and timing differences in settlement-related assets and liabilities and may include discretionary debt repayments, share repurchases and business acquisitions. Our principal sources of funds are cash generated by operations and borrowings, including the capacity under our Revolving Credit Facility, the U.S. commercial paper program and the Euro-commercial paper program discussed in Note 12 to the consolidated financial statements.
As of December 31, 2020, the Company had $4,600 million of available liquidity, including $1,959 million of cash and cash equivalents and $2,641 million of capacity available under its Revolving Credit Facility. Approximately $1,443 million of cash and cash equivalents is held by our foreign entities. The majority of our cash and cash equivalents represents net deposits-in-transit at the balance sheet dates and relates to daily settlement activity and regulatory requirements. Debt outstanding totaled $20.0 billion, with an effective weighted average interest rate of 1.7%.
The Company's liquidity continued to improve throughout the year as compared to the onset of the pandemic. Additionally, the volume of consumer refunds continued to decline, thereby reducing the higher-than-usual levels of credit that were extended at the onset of the pandemic to our merchant clients as part of the funds settlement process. Our liquidity could be impacted if economic conditions deteriorate or as a result of governmental measures that might be imposed in response to the COVID-19 pandemic.
The Company remains committed to reducing its leverage incurred in the Worldpay acquisition while ensuring ample liquidity and expects to reach its target leverage in 2021.
We expect that cash and cash equivalents plus cash flows from operations over the next 12 months will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service payments.
We currently expect to continue to pay quarterly dividends. However, the amount, declaration and payment of future dividends is at the discretion of our Board of Directors and depends on, among other things, our investment opportunities,
results of operations, financial condition, cash requirements, future prospects, the duration and impact of the COVID-19 pandemic, 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. In January 2021, the Board of Directors approved a dividend increase of 11% to $0.39 per share per quarter beginning with the first quarter of 2021. A regular quarterly dividend of $0.39 per common share is payable on March 26, 2021, to shareholders of record as of the close of business on March 12, 2021.
The existing plan authorizing share repurchases approved by the Board of Directors in 2017 expired as of December 31, 2020. Management temporarily suspended share repurchases during 2020 as a result of the Worldpay transaction to accelerate debt repayment. In January 2021, our Board of Directors approved a new share repurchase program under which it authorized the Company to repurchase up to 100 million shares of our common stock at management's discretion from time to time on the open market or in privately negotiated transactions and through Rule 10b5-1 plans. The new repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time.
Cash Flows from Operations
Cash flows from operations were $4,442 million, $2,410 million and $1,993 million in 2020, 2019 and 2018, 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 $2,032 million in 2020 and $417 million in 2019. The 2020 increase in cash flows from operations is primarily due to increased cash flow from the Worldpay operations, including the timing of settlement activity, partially offset by Worldpay integration-related expenses and lower net earnings from the COVID-19 pandemic. The 2019 increase in cash flows from operations is primarily due to increased cash flow due to the Worldpay acquisition, partially offset by the timing of working capital and Worldpay acquisition transaction- and integration-related expenses. The 2018 period included U.S. federal estimated income tax payments normally due in the third and fourth quarters of 2017 that were paid during the first quarter of 2018 due to the Hurricane Irma Relief Program.
Capital Expenditures and Other Investing Activities
Our principal capital expenditures are for software (purchased and internally developed) and additions to property and equipment. We invested approximately $1,129 million, $828 million and $622 million in capital expenditures (excluding other financing obligations for certain hardware and software) during 2020, 2019 and 2018, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business.
In 2020 and 2019, we used $469 million and $6,629 million of cash (net of cash acquired, including restricted cash) primarily for the Virtus acquisition and for the Worldpay acquisition, respectively. See Note 3 to the consolidated financial statements.
Financing
For more information regarding the Company's debt and financing activity, see Note 12 to the 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 certain purchase commitments and other obligations. The following table summarizes FIS' significant contractual obligations and commitments as of December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
|
|
|
|
Less than
|
|
1-3
|
|
3-5
|
|
More than
|
|
Type of Obligation
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
|
Long-term debt (1)
|
|
$
|
17,383
|
|
|
$
|
1,314
|
|
|
$
|
4,177
|
|
|
$
|
3,258
|
|
|
$
|
8,634
|
|
|
Interest (2)
|
|
2,906
|
|
|
315
|
|
|
598
|
|
|
495
|
|
|
1,498
|
|
|
Operating leases
|
|
665
|
|
|
159
|
|
|
232
|
|
|
136
|
|
|
138
|
|
|
Purchase commitments (3)
|
|
791
|
|
|
335
|
|
|
397
|
|
|
59
|
|
|
—
|
|
|
Obligations under TRA (4)
|
|
532
|
|
|
85
|
|
|
379
|
|
|
68
|
|
|
—
|
|
|
Total
|
|
$
|
22,277
|
|
|
$
|
2,208
|
|
|
$
|
5,783
|
|
|
$
|
4,016
|
|
|
$
|
10,270
|
|
(1)The principal amounts assume no changes in currency rates for our notes denominated in Euro and GBP. See Note 12 to the consolidated financial statements for more details.
(2)The calculations above assume that (a) applicable margins and commitment fees remain constant; (b) all floating-rate debt is priced at the rates in effect as of December 31, 2020; (c) no refinancing occurs at debt maturity; (d) only mandatory debt repayments are made; (e) no new hedging transactions are effected; and (f) there are no currency effects.
(3)Includes obligations principally related to software, maintenance support, and telecommunication and network services as well as to third-party processors to provide gateway authorization and other processing services. Also includes the capital obligation related to the construction of our new headquarters.
(4)Obligation represents estimated Tax Receivable Agreement ("TRA") payments to Fifth Third Bank. See Note 16 to the consolidated financial statements for more details.
Off-Balance Sheet Arrangements
FIS does not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Recently Adopted Accounting Guidance
In August 2018, the FASB issued ASU No. 2018-15 ("ASU 2018-15"), Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU clarifies that implementation costs incurred by customers in cloud computing arrangements should be deferred and recognized over the term of the arrangement if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. FIS adopted ASU 2018-05 on January 1, 2020, using the prospective approach. The adoption of this new standard did not have a material impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurements on Credit Losses of Financial Instruments. This ASU was subsequently amended by ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses (collectively, "Topic 326"). The primary objectives of Topic 326 are to implement new methodology for calculating credit losses on financial instruments, such as trade receivables, based on lifetime expected credit losses and to broaden the types of information companies must use when calculating the estimated losses. The new guidance also applies to contract assets arising from contracts with customers. FIS adopted Topic 326 on January 1, 2020, using the modified retrospective approach and recorded an immaterial cumulative effect adjustment in retained earnings as of January 1, 2020.
Recent Accounting Guidance Not Yet Adopted
No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.
Item 8. Financial Statements and Supplementary Data
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
|
|
|
|
|
|
|
|
|
Page
Number
|
|
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
|
|
|
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Fidelity National Information Services, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Fidelity National Information Services, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) 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) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 18, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
Jacksonville, Florida
February 18, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Fidelity National Information Services, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Fidelity National Information Services, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, 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) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 18, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2(o) to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of software license revenue from arrangements with terms and conditions that are not standard
As discussed in Note 2(p) and 4 to the consolidated financial statements, the Company enters into arrangements containing software licenses. Software license revenue totaled $425 million for the year ended December 31, 2020. Software license revenue typically relates to the Company's promise to provide the customer a right to use the Company's intellectual property and is typically part of an offering of multiple services. Contracts that contain software licenses often have non-standard terms that require significant judgments to determine the amount and timing of revenue to be recognized.
We identified the evaluation of software license revenue from arrangements with terms and conditions that are not standard as a critical audit matter. Significant auditor judgment was required to evaluate the Company's assessment of the impact on revenue recognition of certain terms and conditions that are unique to individual contracts. Specifically, judgment was required to evaluate the Company's identification of performance obligations and the determination of the timing of revenue recognition for each distinct performance obligation, particularly for new contracts or renewals with software license performance obligations.
The following are the primary procedures performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's revenue recognition process, including controls over the Company's assessment of contractual terms and conditions on software license revenue recognition, identification of performance obligations, and the determination of the timing of revenue recognition. We selected a sample of individual software license revenue transactions and:
•read the underlying contract and other documents that were part of the contract for each selection
•evaluated the Company's identification and assessment of terms and conditions that could give rise to additional performance obligations or different patterns of revenue recognition by assessing the Company's accounting analysis in accordance with the revenue recognition requirements
•tested the mathematical accuracy of management’s calculations of revenue recognized in the consolidated financial statements.
Additionally, we tested the Company's identification of performance obligations for certain of the Company's customers by inspecting external confirmation directly from the Company's customers and comparing the key terms and conditions relevant to the Company's revenue recognition to the Company's written customer agreement.
Assessment of the recoverability of the carrying value of goodwill for the Merchant Solutions reporting unit
As discussed in Note 2(h) to the consolidated financial statements, the Company performs goodwill impairment testing on an annual basis during the fourth quarter of each fiscal year or more frequently if circumstances indicate potential impairment. The goodwill balance as of December 31, 2020 related to the Merchant Solutions reportable segment was $36,267 million, which is the same as the Merchant Solutions reporting unit. In connection with its annual impairment test for the Merchant Solutions reporting unit, the Company performed a quantitative assessment of goodwill due to the economic impact of the COVID-19 pandemic on the Company's Merchant Solutions business.
We identified the assessment of the recoverability of the carrying value of goodwill for the Merchant Solutions reporting unit as a critical audit matter. We performed a sensitivity analysis to determine the significant assumptions used to value the Merchant Solutions reporting unit, individually and in the aggregate, which required significant auditor judgment. This included forecasted revenues, operating expenses, and the risk-adjusted discount rate used in the discounted cash flow model. Due to the impact of COVID-19 on the Company's business, there was significant uncertainty associated with these assumptions. In addition, professionals with specialized skills and knowledge were required to evaluate the risk-adjusted discount rate.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company's goodwill assessment process, including controls over the selection and development of the relevant assumptions used in the discounted cash flow model, including forecasted revenues, operating expenses, and the risk-adjusted discount rate. We evaluated the Merchant Solutions reporting unit's forecasted revenue and operating expense assumptions by comparing the assumptions to the reporting unit's historical revenues and operating expenses and to i) internal communications to management and the Board of Directors, ii) growth rates of comparable companies, and iii) industry and market conditions. We involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the Company's risk-adjusted discount rate, by comparing it to a risk-adjusted discount rate that was independently developed using publicly available market data for comparable entities
•evaluating the Company's estimated fair value of the reporting unit, by comparing it to a range of fair values that was independently developed using the reporting unit's cash flow forecast, an independently developed risk-adjusted discount rate, and publicly available market multiples for comparable entities.
/s/ KPMG LLP
We have served as the Company's auditor since 2004.
Jacksonville, Florida
February 18, 2021
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2020 and 2019
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,959
|
|
|
$
|
1,152
|
|
|
Settlement deposits and merchant float
|
3,252
|
|
|
2,882
|
|
|
Trade receivables, net of allowance for credit losses of $82 and $60, respectively
|
3,314
|
|
|
3,242
|
|
|
Contract assets
|
140
|
|
|
124
|
|
|
Settlement receivables
|
662
|
|
|
647
|
|
|
Other receivables
|
317
|
|
|
337
|
|
|
Prepaid expenses and other current assets
|
254
|
|
|
308
|
|
|
Total current assets
|
9,898
|
|
|
8,692
|
|
|
Property and equipment, net
|
887
|
|
|
900
|
|
|
Goodwill
|
53,268
|
|
|
52,242
|
|
|
Intangible assets, net
|
13,928
|
|
|
15,798
|
|
|
Software, net
|
3,370
|
|
|
3,204
|
|
|
Other noncurrent assets
|
1,574
|
|
|
2,303
|
|
|
Deferred contract costs, net
|
917
|
|
|
667
|
|
|
Total assets
|
$
|
83,842
|
|
|
$
|
83,806
|
|
|
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable, accrued and other liabilities
|
$
|
2,482
|
|
|
$
|
2,374
|
|
|
Settlement payables
|
4,934
|
|
|
4,228
|
|
|
Deferred revenue
|
881
|
|
|
817
|
|
|
Short-term borrowings
|
2,750
|
|
|
2,823
|
|
|
Current portion of long-term debt
|
1,314
|
|
|
140
|
|
|
Total current liabilities
|
12,361
|
|
|
10,382
|
|
|
Long-term debt, excluding current portion
|
15,951
|
|
|
17,229
|
|
|
Deferred income taxes
|
4,017
|
|
|
4,281
|
|
|
Other noncurrent liabilities
|
1,967
|
|
|
2,406
|
|
|
Deferred revenue
|
59
|
|
|
52
|
|
|
Total liabilities
|
34,355
|
|
|
34,350
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest
|
174
|
|
|
—
|
|
|
Equity:
|
|
|
|
|
FIS stockholders’ equity:
|
|
|
|
|
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of December 31, 2020 and 2019
|
—
|
|
|
—
|
|
|
Common stock, $0.01 par value, 750 shares authorized, 621 and 615 shares issued as of
December 31, 2020 and 2019, respectively
|
6
|
|
|
6
|
|
|
Additional paid in capital
|
45,947
|
|
|
45,358
|
|
|
Retained earnings
|
3,440
|
|
|
4,161
|
|
|
Accumulated other comprehensive earnings (loss)
|
57
|
|
|
(33)
|
|
|
Treasury stock, $0.01 par value, 1 and less than 1 common shares as of December 31, 2020 and 2019, respectively, at cost
|
(150)
|
|
|
(52)
|
|
|
Total FIS stockholders’ equity
|
49,300
|
|
|
49,440
|
|
|
Noncontrolling interest
|
13
|
|
|
16
|
|
|
Total equity
|
49,313
|
|
|
49,456
|
|
|
Total liabilities, redeemable noncontrolling interest and equity
|
$
|
83,842
|
|
|
$
|
83,806
|
|
See accompanying notes, which are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 2020, 2019 and 2018
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Revenue
|
$
|
12,552
|
|
|
$
|
10,333
|
|
|
$
|
8,423
|
|
|
Cost of revenue
|
8,348
|
|
|
6,610
|
|
|
5,569
|
|
|
Gross profit
|
4,204
|
|
|
3,723
|
|
|
2,854
|
|
|
Selling, general and administrative expenses
|
3,516
|
|
|
2,667
|
|
|
1,301
|
|
|
Asset impairments
|
136
|
|
|
87
|
|
|
95
|
|
|
Operating income
|
552
|
|
|
969
|
|
|
1,458
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest income
|
5
|
|
|
52
|
|
|
17
|
|
|
Interest expense
|
(339)
|
|
|
(389)
|
|
|
(314)
|
|
|
Other income (expense), net
|
48
|
|
|
(219)
|
|
|
(57)
|
|
|
Total other income (expense), net
|
(286)
|
|
|
(556)
|
|
|
(354)
|
|
|
Earnings (loss) before income taxes and equity method investment earnings (loss)
|
266
|
|
|
413
|
|
|
1,104
|
|
|
Provision (benefit) for income taxes
|
96
|
|
|
100
|
|
|
208
|
|
|
Equity method investment earnings (loss)
|
(6)
|
|
|
(10)
|
|
|
(15)
|
|
|
Net earnings
|
164
|
|
|
303
|
|
|
881
|
|
|
Net (earnings) loss attributable to noncontrolling interest
|
(6)
|
|
|
(5)
|
|
|
(35)
|
|
|
Net earnings attributable to FIS common stockholders
|
$
|
158
|
|
|
$
|
298
|
|
|
$
|
846
|
|
|
|
|
|
|
|
|
|
Net earnings per share-basic attributable to FIS common stockholders
|
$
|
0.26
|
|
|
$
|
0.67
|
|
|
$
|
2.58
|
|
|
Weighted average shares outstanding-basic
|
619
|
|
|
445
|
|
|
328
|
|
|
Net earnings per share-diluted attributable to FIS common stockholders
|
$
|
0.25
|
|
|
$
|
0.66
|
|
|
$
|
2.55
|
|
|
Weighted average shares outstanding-diluted
|
627
|
|
|
451
|
|
|
332
|
|
See accompanying notes, which 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, 2020, 2019 and 2018
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net earnings
|
|
|
$
|
164
|
|
|
|
|
$
|
303
|
|
|
|
|
$
|
881
|
|
|
Other comprehensive earnings (loss), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives
|
$
|
—
|
|
|
|
|
$
|
(17)
|
|
|
|
|
$
|
—
|
|
|
|
|
Adjustment for (gain) loss reclassified to net earnings
|
2
|
|
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
Unrealized gain (loss) on derivatives, net
|
2
|
|
|
|
|
(15)
|
|
|
|
|
—
|
|
|
|
|
Foreign currency translation adjustments
|
(78)
|
|
|
|
|
646
|
|
|
|
|
(120)
|
|
|
|
|
Minimum pension liability adjustments
|
5
|
|
|
|
|
(38)
|
|
|
|
|
5
|
|
|
|
|
Other comprehensive earnings (loss), before tax
|
(71)
|
|
|
|
|
593
|
|
|
|
|
(115)
|
|
|
|
|
Provision for income tax (expense) benefit related to items of other comprehensive earnings
|
161
|
|
|
|
|
(196)
|
|
|
|
|
(1)
|
|
|
|
|
Other comprehensive earnings (loss), net of tax
|
$
|
90
|
|
|
90
|
|
|
$
|
397
|
|
|
397
|
|
|
$
|
(116)
|
|
|
(116)
|
|
|
Comprehensive earnings (loss)
|
|
|
254
|
|
|
|
|
700
|
|
|
|
|
765
|
|
|
Net (earnings) loss attributable to noncontrolling interest
|
|
|
(6)
|
|
|
|
|
(5)
|
|
|
|
|
(35)
|
|
|
Other comprehensive (earnings) loss attributable to noncontrolling interest
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
18
|
|
|
Comprehensive earnings (loss) attributable to FIS common stockholders
|
|
|
$
|
248
|
|
|
|
|
$
|
695
|
|
|
|
|
$
|
748
|
|
See accompanying notes, which are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2020, 2019 and 2018
(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 (loss)
|
|
stock
|
|
interest (1)
|
|
equity
|
|
Balances, December 31, 2017
|
432
|
|
|
(99)
|
|
|
$
|
4
|
|
|
$
|
10,534
|
|
|
$
|
4,109
|
|
|
$
|
(332)
|
|
|
$
|
(3,604)
|
|
|
$
|
109
|
|
|
$
|
10,820
|
|
|
Issuance of restricted stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options
|
—
|
|
|
4
|
|
|
—
|
|
|
135
|
|
|
—
|
|
|
—
|
|
|
155
|
|
|
—
|
|
|
290
|
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
—
|
|
|
—
|
|
|
(22)
|
|
|
—
|
|
|
(32)
|
|
|
Purchases of treasury stock
|
—
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,216)
|
|
|
—
|
|
|
(1,216)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84
|
|
|
Cash dividends declared ($1.28 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(422)
|
|
|
—
|
|
|
—
|
|
|
(29)
|
|
|
(451)
|
|
|
Brazilian Venture divestiture
|
—
|
|
|
—
|
|
|
—
|
|
|
57
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(90)
|
|
|
(33)
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5)
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
846
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
881
|
|
|
Other comprehensive earnings (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(98)
|
|
|
—
|
|
|
(18)
|
|
|
(116)
|
|
|
Balances, December 31, 2018
|
433
|
|
|
(106)
|
|
|
$
|
4
|
|
|
$
|
10,800
|
|
|
$
|
4,528
|
|
|
$
|
(430)
|
|
|
$
|
(4,687)
|
|
|
$
|
7
|
|
|
$
|
10,222
|
|
|
Worldpay acquisition
|
180
|
|
|
109
|
|
|
2
|
|
|
34,040
|
|
|
—
|
|
|
—
|
|
|
5,042
|
|
|
11
|
|
|
39,095
|
|
|
Issuance of restricted stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
|
Exercise of stock options
|
1
|
|
|
1
|
|
|
—
|
|
|
117
|
|
|
—
|
|
|
—
|
|
|
46
|
|
|
—
|
|
|
163
|
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
(55)
|
|
|
—
|
|
|
(56)
|
|
|
Purchases of treasury stock
|
—
|
|
|
(4)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(400)
|
|
|
—
|
|
|
(400)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
402
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
402
|
|
|
Cash dividends declared ($1.40 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(658)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(665)
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
298
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
303
|
|
|
Other comprehensive earnings (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
397
|
|
|
—
|
|
|
—
|
|
|
397
|
|
|
Balances, December 31, 2019
|
615
|
|
|
—
|
|
|
$
|
6
|
|
|
$
|
45,358
|
|
|
$
|
4,161
|
|
|
$
|
(33)
|
|
|
$
|
(52)
|
|
|
$
|
16
|
|
|
$
|
49,456
|
|
|
Issuance of restricted stock
|
2
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
Exercise of stock options
|
4
|
|
|
—
|
|
|
—
|
|
|
317
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
317
|
|
|
Treasury shares held for taxes due upon exercise of stock options
|
—
|
|
|
(1)
|
|
|
—
|
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
(105)
|
|
|
—
|
|
|
(112)
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
—
|
|
|
283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
283
|
|
|
Cash dividends declared ($1.40 per share) and other distributions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(873)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
|
(880)
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
158
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
162
|
|
|
Other comprehensive earnings (loss), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|
—
|
|
|
—
|
|
|
90
|
|
|
Balances, December 31, 2020
|
621
|
|
|
(1)
|
|
|
$
|
6
|
|
|
$
|
45,947
|
|
|
$
|
3,440
|
|
|
$
|
57
|
|
|
$
|
(150)
|
|
|
$
|
13
|
|
|
$
|
49,313
|
|
(1) Excludes redeemable noncontrolling interest that is not considered equity. See Note 3, Virtus Acquisition, for additional information.
See accompanying notes, which 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, 2020, 2019 and 2018
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net earnings
|
$
|
164
|
|
|
$
|
303
|
|
|
$
|
881
|
|
|
Adjustment to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
3,714
|
|
|
2,444
|
|
|
1,420
|
|
|
Amortization of debt issue costs
|
31
|
|
|
24
|
|
|
17
|
|
|
Acquisition-related financing foreign exchange
|
—
|
|
|
(125)
|
|
|
—
|
|
|
Asset impairments
|
136
|
|
|
87
|
|
|
95
|
|
|
Loss (gain) on sale of businesses, investments and other
|
9
|
|
|
18
|
|
|
50
|
|
|
Loss on extinguishment of debt
|
—
|
|
|
217
|
|
|
1
|
|
|
Stock-based compensation
|
283
|
|
|
402
|
|
|
84
|
|
|
Deferred income taxes
|
(206)
|
|
|
(109)
|
|
|
(116)
|
|
|
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
|
|
|
|
|
|
|
Trade and other receivables
|
(75)
|
|
|
(161)
|
|
|
78
|
|
|
Contract assets
|
(14)
|
|
|
17
|
|
|
(20)
|
|
|
Settlement activity
|
862
|
|
|
(165)
|
|
|
9
|
|
|
Prepaid expenses and other assets
|
(264)
|
|
|
(129)
|
|
|
4
|
|
|
Deferred contract costs
|
(473)
|
|
|
(379)
|
|
|
(248)
|
|
|
Deferred revenue
|
58
|
|
|
40
|
|
|
(100)
|
|
|
Accounts payable, accrued liabilities, and other liabilities
|
217
|
|
|
(74)
|
|
|
(162)
|
|
|
Net cash provided by operating activities
|
4,442
|
|
|
2,410
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Additions to property and equipment
|
(263)
|
|
|
(200)
|
|
|
(127)
|
|
|
Additions to software
|
(866)
|
|
|
(628)
|
|
|
(495)
|
|
|
Acquisitions, net of cash acquired
|
(469)
|
|
|
(6,632)
|
|
|
—
|
|
|
Net proceeds from sale of businesses and investments
|
—
|
|
|
49
|
|
|
(16)
|
|
|
Other investing activities, net
|
684
|
|
|
(90)
|
|
|
(30)
|
|
|
Net cash provided by (used in) investing activities
|
(914)
|
|
|
(7,501)
|
|
|
(668)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Borrowings
|
47,695
|
|
|
33,352
|
|
|
26,371
|
|
|
Repayment of borrowings and other financing obligations
|
(49,067)
|
|
|
(24,672)
|
|
|
(26,148)
|
|
|
Debt issuance costs
|
—
|
|
|
(101)
|
|
|
(30)
|
|
|
Proceeds from stock issued under stock-based compensation plans
|
332
|
|
|
161
|
|
|
288
|
|
|
Treasury stock activity
|
(112)
|
|
|
(453)
|
|
|
(1,255)
|
|
|
Dividends paid
|
(868)
|
|
|
(656)
|
|
|
(421)
|
|
|
Other financing activities, net
|
(731)
|
|
|
(50)
|
|
|
(41)
|
|
|
Net cash provided by (used in) financing activities
|
(2,751)
|
|
|
7,581
|
|
|
(1,236)
|
|
|
Effect of foreign currency exchange rate changes on cash
|
42
|
|
|
18
|
|
|
(51)
|
|
|
Net increase (decrease) in cash and cash equivalents
|
819
|
|
|
2,508
|
|
|
38
|
|
|
Cash and cash equivalents, beginning of year
|
3,211
|
|
|
703
|
|
|
665
|
|
|
Cash and cash equivalents, end of year (see Note 2(b))
|
$
|
4,030
|
|
|
$
|
3,211
|
|
|
$
|
703
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
428
|
|
|
$
|
332
|
|
|
$
|
298
|
|
|
Cash paid for income taxes
|
$
|
282
|
|
|
$
|
321
|
|
|
$
|
503
|
|
See accompanying notes, which 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 leading provider of technology solutions for merchants, banks and capital markets firms globally.
On July 31, 2019, FIS completed the acquisition of Worldpay Inc. ("Worldpay"), and Worldpay's results of operations and financial position are included in the consolidated financial statements from and after the date of acquisition. See Note 3 for additional discussion.
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions, and Corporate and Other. The Company regularly assesses its portfolio of assets and reclassified certain non-strategic businesses from the Merchant Solutions, Banking Solutions, and Capital Market Solutions segments into the Corporate and Other segment during the year ended December 31, 2020, and recast all prior-period segment information presented. These operations represented approximately 3% of 2020 revenue. See Note 22 for a summary of each segment.
(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 on the consolidated balance sheets. The carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value. The Company records restricted cash in captions other than Cash and cash equivalents in the consolidated balance sheets. The reconciliation between Cash and cash equivalents in the consolidated balance sheets and the consolidated statements of cash flows is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31.
|
|
|
2020
|
|
2019
|
|
Cash and cash equivalents on the consolidated balance sheets
|
$
|
1,959
|
|
|
$
|
1,152
|
|
|
Merchant float restricted cash (in Settlement deposits and merchant float) (see Note 2(f))
|
2,071
|
|
|
1,519
|
|
|
Other restricted cash (see Note 11 - Visa Europe and contingent value rights)
|
—
|
|
|
540
|
|
|
Total Cash and cash equivalents per the consolidated statements of cash flows
|
$
|
4,030
|
|
|
$
|
3,211
|
|
(c)Fair Value Measurements
Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
In a business combination transaction, an acquirer recognizes, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree and generally measures these items 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
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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 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 also 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 acquisition 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. Contingent consideration liabilities or receivables recorded in connection with business acquisitions are also adjusted for changes in fair value until settled.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for settlement deposits and merchant float, receivables, payables and short-term borrowings approximate their fair values because of their immediate or short-term maturities. The fair value of the Company's long-term debt is based on quoted prices of our senior notes and trades of our debt in close proximity to year end, which are considered Level 2-type measurements. The Company also holds, or has held, certain derivative instruments, specifically interest rate swaps and foreign currency exchange forward contracts, which are also valued using Level 2-type measurements. 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.
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 the following:
•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.
(d)Derivative Financial Instruments
The Company records all derivatives, whether designated in hedging relationships or not, on the consolidated balance sheets at fair value. During all periods presented, the Company used cross-currency interest rate swaps to engage in hedging activities relating to its investment in foreign-currency denominated operations. The Company designated these cross-currency interest rate swaps as net investment hedges. The Company also used interest rate swaps to engage in hedging activities relating
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
to changes in the fair value of its long-term debt. The Company designated these interest rate swaps as fair value hedges. During 2019, the Company entered into foreign currency forward contracts as well as treasury lock and interest rate swap contracts to reduce the volatility in the Company's cash flows during the period leading up to the Company's debt issuances related to the Worldpay acquisition. The Company designated these treasury lock and interest rate swap contracts as cash flow hedges.
Derivative instruments are included in the accompanying consolidated balance sheets in Prepaid expenses and other current assets; Other noncurrent assets; Accounts payable, accrued and other liabilities; or Other noncurrent liabilities, as appropriate. Changes in fair value are recorded as a component of Accumulated other comprehensive earnings (loss), net of tax, for all derivative instruments except the fair value hedges, which are recorded as an adjustment to long-term debt, and the foreign currency forward contracts, which are recorded through Other income (expense), net. The amounts included in Accumulated other comprehensive earnings (loss) for the cash flow hedges are recorded in interest expense as yield adjustments over the periods in which the related interest payments that were hedged are made. As of December 31, 2020 and 2019, the Company had no outstanding cash flow hedge contracts. The Company also utilizes foreign-currency denominated debt as non-derivative net investment hedges in order to reduce the volatility of the net investment value of its foreign currency denominated operations. The change in fair value of the net investment hedges due to remeasurement of the effective portion, net of tax, is recorded as a component of Accumulated other comprehensive earnings (loss). Any ineffective portion of these hedging instruments impacts net earnings when the ineffectiveness occurs. See Notes 13 and 20 for additional details.
(e)Trade Receivables
Change in Accounting Policy
The Company adopted FASB Accounting Standards Codification ("ASC") Topic 326, Financial Instruments - Credit Losses ("Topic 326"), with an adoption date of January 1, 2020. As a result, the Company changed its accounting policy for allowance for credit losses. The accounting policy pursuant to Topic 326 for credit losses is disclosed below. The adoption of Topic 326 resulted in an immaterial cumulative effect adjustment recorded in retained earnings as of January 1, 2020.
Allowance for Credit Losses
The Company monitors trade receivable balances including contract assets as well as other receivables and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events. The allowance for credit losses is separate from the chargeback liability described in Note 16.
While the COVID-19 pandemic did not result in a significant increase in the Company's expected credit loss allowance recorded as of December 31, 2020, it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic could have a material impact on management's estimates.
(f)Settlement Activity and Merchant Float
The payment solution services that give rise to the settlement balances described below 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.
Banking Solutions
We manage certain 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 or clients, 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 sheets and operating cash flows on the consolidated statements of cash flows.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Merchant Solutions
Settlement deposits and merchant float, Settlement receivables, and Settlement payables represent intermediary balances arising from the settlement process which involves the transferring of funds between card issuers, merchants and various financial institutions ("Sponsoring Members"). Funds are processed under two models, a sponsorship model and a direct member model. In the U.S., the Company operates under the sponsorship model, and outside the U.S., the Company operates under the direct membership model.
Under the sponsorship model, in order for the Company to provide electronic payment processing services, Visa, MasterCard and other payment networks require sponsorship by a member clearing bank. The Company has an agreement with Sponsoring Members to provide sponsorship services to the Company. Under the sponsorship agreements, the Company is registered as a Visa Third-Party Agent and a MasterCard Service Provider. The sponsorship services allow us to route transactions under the Sponsoring Members' membership to clear card transactions through Visa, MasterCard and other networks. Under this model, the standards of the payment networks restrict us from performing funds settlement and, as such, require that these funds be in the possession of the Sponsoring Member until the merchant is funded. Accordingly, settlement receivables and settlement payables resulting from the submission of settlement files to the network or cash received from the network in advance of funding the network are the responsibility of the Sponsoring Member and are not recorded on the Company's consolidated balance sheets.
Settlement receivables and settlement payables are also recorded in the U.S. as a result of intermediary balances due to/from the Sponsoring Member. The Company receives funds from certain networks which are owed to the Sponsoring Member for settlement. In other cases, the Company transfers funds to the Sponsoring Member for settlement in advance of receiving funds from the network. These timing differences result in settlement receivables and settlement payables. The amounts are generally collected or paid the following one to three business days. Additionally, U.S. settlement receivables and settlement payables arise related to interchange expenses, merchant reserves and exception items.
Under the direct membership model, the Company is a direct member in Visa, MasterCard and other payment networks as third party sponsorship to the networks is not required. This results in the Company performing settlement between the networks and the merchant and requires adherence to the standards of the payment networks in which the Company is a direct member. Settlement deposits and merchant float, settlement receivables and settlement payables result when the Company submits the merchant file to the network or when funds are received by the Company in advance of paying the funds to the merchant. The amounts are generally collected or paid the following one to three business days.
Under the direct membership model, merchant float represents cash balances the Company holds on behalf of merchants when the incoming amount from the card networks precedes when the funding to merchants falls due. Merchant float funds held in segregated accounts in a fiduciary capacity are considered restricted cash (see Note 2(b)).
(g)Contract Related Balances
The payment terms and conditions in our customer contracts may vary. In some cases, customers pay in advance of our delivery of solutions or services; in other cases, payment is due as services are performed or in arrears following the delivery of the solutions or services. Differences in timing between revenue recognition and invoicing result in accrued trade receivables, contract assets, or deferred revenue on our consolidated balance sheets. Receivables are accrued when revenue is recognized prior to invoicing but the right to payment is unconditional (i.e., only the passage of time is required). This occurs most commonly when software term licenses recognized at a point in time are paid for periodically over the license term. Contract assets result when amounts allocated to distinct performance obligations are recognized when or as control of a solution or service is transferred to the customer but invoicing is contingent on performance of other performance obligations or on completion of contractual milestones. Contract assets are transferred to receivables when the rights become unconditional, typically upon invoicing of the related performance obligations in the contract or upon achieving the requisite project milestone. Deferred revenue results from customer payments in advance of our satisfaction of the associated performance obligation(s) and relates primarily to prepaid maintenance or other recurring services. Deferred revenue is relieved as revenue is recognized. Contract assets and deferred revenue are reported on a contract-by-contract basis at the end of each reporting period. Changes in the contract assets and deferred revenue balances for the years ended December 31, 2020 and 2019, were not materially impacted by any factors other than those described above. Also, in some cases, signing bonuses are paid, or credits are offered, to customers in connection with the origination or renewal of customer contracts. These incentives are recorded as Other noncurrent assets on our consolidated balance sheets and amortized on a straight-line basis as a reduction of revenue over the
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lesser of the useful life of the solution or the expected customer relationship period for new contracts or over the contract period for renewal contracts.
(h)Goodwill
Goodwill represents the excess of cost over the fair value of identifiable assets acquired and liabilities assumed in business combinations. Goodwill is not amortized but is assessed for impairment by reporting unit. The Company assesses goodwill for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. An impairment charge is recognized when and to the extent a reporting unit's carrying amount is determined to exceed its fair value. Our reporting units are the same as our primary operating segments, with additional reporting units for certain non-strategic businesses within the Corporate and Other segment.
The Company has the option to first assess qualitatively whether it is more likely than not that a reporting unit's carrying amount exceeds its fair value. The option of whether to perform the qualitative assessment is made annually and may vary by reporting unit. Events and circumstances that are considered in performing the qualitative assessment include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, events affecting the reporting unit or Company as a whole, including a sustained decrease in stock price. When performing the qualitative assessment, we examine those factors most likely to affect each reporting unit's fair value. If we conclude that it is more likely than not that the reporting unit's fair value is less than its carrying amount (that is, a likelihood of more than 50 percent) as a result of the qualitative assessment, or we elect to bypass the qualitative assessment for a reporting unit, then we must perform the quantitative assessment for that reporting unit.
In applying the quantitative assessment, we typically engage third-party valuation specialists to assist us in determining the fair value of a reporting unit based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach, which are Level 3-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 the reporting unit determined using the quantitative analysis exceeds the carrying amount of the reporting unit's net assets, goodwill is not impaired.
For each of 2019 and 2018, we began our annual assessment with the qualitative assessment and concluded that that it remained more likely than not that the fair value of each of our reporting units continued to exceed the carrying amounts. For 2020, we began our annual assessment for the Banking Solutions and Capital Market Solutions reporting units with qualitative assessments and concluded that it remained more likely than not that the fair value of each of the reporting units continued to exceed their respective carrying amounts. For Merchant Solutions, we began our 2020 annual assessment with a quantitative assessment due to the economic impact of the COVID-19 pandemic on our Merchant Solutions business and its primary operations being recently acquired as part of the Worldpay acquisition. As a result of the assessment, the fair value of the reporting unit was estimated to be in excess of carrying amount by approximately 4%. Based on the results of our assessments for 2020, $94 million of goodwill related to certain non-strategic businesses within the Corporate and Other segment was impaired. For all other reporting units for all periods presented, goodwill was not impaired.
In addition, due to the continued economic impact of the COVID-19 pandemic, we evaluated if events and circumstances as of December 31, 2020, indicated potential impairment. We performed a qualitative assessment by examining factors most likely to affect our reporting units' fair values and considered the impact to our business from the COVID-19 pandemic. The factors examined involve significant use of management judgment and included, among others, (1) forecasted revenue, growth rates, operating margins, and capital expenditures used to calculate estimated future cash flows, (2) future economic and market conditions and (3) FIS' market capitalization. Based on our impairment assessment as of December 31, 2020, we concluded that it remained more likely than not that the fair value continues to exceed the carrying amount for each of our reporting units; therefore, goodwill was not impaired.
However, it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic on our Merchant Solutions business, such as an extended duration of the pandemic and/or government-imposed shutdowns, prolonged economic downturn or recession, or lack of governmental support for recovery, could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill impairment and could result in future goodwill impairment.
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(i)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. During 2020, the Company recorded impairment losses totaling $42 million of certain long-lived assets related to reducing office space, including $30 million for operating lease right-of-use assets.
(j)Intangible Assets
The Company has intangible assets that consist primarily of customer relationships and trademarks (i.e., a collective term for trademarks, trade names, and related intellectual property rights) that are recorded in connection with acquisitions at their fair value based on the results of valuation analyses. Customer relationships and trademarks acquired in business combinations are generally valued using the multi-period excess earnings method and relief-from-royalty method, respectively, which are Level 3-type measurements. 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. Trademarks determined to have indefinite lives are not amortized. Trademarks with finite lives are amortized over periods ranging up to five years. Intangible assets with finite lives (principally customer relationships and certain trademarks) are reviewed for impairment following the same approach as long-lived assets, while certain trademarks determined to have indefinite lives are reviewed for impairment, following the same approach as goodwill.
The Company assesses indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. For each of 2020, 2019 and 2018, we performed a qualitative assessment examining those factors most likely to affect our valuations and concluded that it is more likely than not that our indefinite-lived intangible assets were not impaired.
(k)Software
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 one to 10 years.
The capitalization of software development costs is based on whether the software is to be sold, leased or otherwise marketed, or 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 software), are expensed as incurred. Software development costs are amortized on a solution-by-solution 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 revenue to total anticipated revenue over its useful life. The Company assesses the recorded value of software to be marketed 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 (i.e., a net realizable value analysis) and reviews internal-use software for recoverability pursuant to long-lived asset guidance discussed above.
(l)Deferred Contract Costs
The Company incurs costs as a result of both the origination and fulfillment of our contracts with customers. Origination costs relate primarily to the payment of sales commissions that are directly related to sales transactions. Fulfillment costs include the cost of implementation services related to software as a service ("SaaS") and other cloud-based arrangements when the implementation service is not distinct from the ongoing service. When origination costs and fulfillment costs that will be
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used to satisfy future performance obligations are directly related to the execution of our contracts with customers, and the costs are recoverable under the contract, the costs are capitalized as a deferred contract cost. Impairment losses are recognized if the carrying amounts of the deferred contract costs are not recoverable. There were no significant impairment losses recognized on deferred contract costs for 2020, 2019, or 2018.
Origination costs for contracts that contain a distinct software license recognized at a point in time are allocated between the license and all other performance obligations of the contract and amortized according to the pattern of performance for the respective obligations. Otherwise, origination costs are capitalized as a single asset for each contract or portfolio of similar contracts and amortized using an appropriate single measure of performance considering all of the performance obligations in the contracts. The Company amortizes origination costs over the expected benefit period to which the deferred contract cost relates. Origination costs related to initial contracts with a customer are amortized over the lesser of the useful life of the solution or the expected customer relationship period. Commissions paid on renewals are amortized over the renewal period. Capitalized fulfillment costs are amortized over the lesser of the useful life of the solution or the expected customer relationship period.
(m)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 as follows: 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.
(n)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. Certain of the Company's earnings are indefinitely reinvested offshore and could be subject to additional income tax if repatriated. It is not practicable to determine the unrecognized deferred tax liability on a hypothetical distribution of those earnings.
(o)Leases
Change in Accounting Policy
The Company adopted Topic 842, Leases, with an initial application date of January 1, 2019. As a result, the Company has changed its accounting policy for leases. The accounting policy pursuant to Topic 842 for operating leases is disclosed below. The primary impact of adopting Topic 842 is the establishment of a right-of-use ("ROU") model that requires a lessee to recognize ROU assets and lease liabilities on the consolidated balance sheet for operating leases.
The Company applied Topic 842 using the effective date method; consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019. For transition purposes, the Company elected the "package of practical expedients," which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient not to separate lease and non-lease components. The Company did not elect the use-of-hindsight practical expedient nor the short-term lease recognition exemption allowed under the new standard.
The adoption of ASC 842 resulted in the recognition of operating lease ROU assets and lease liabilities on the Company's Consolidated Balance Sheet of $442 million and $446 million, respectively, on January 1, 2019. The standard did not impact the Company's results of operations or cash flows.
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Operating Leases
The Company leases certain of its property, primarily real estate, under operating leases. Operating lease right-of-use ("ROU") assets are included in Other noncurrent assets, and operating lease liabilities are included in Accounts payable, accrued and other liabilities and Other noncurrent liabilities on the consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of fixed lease payments over the lease term. Operating lease ROU assets also include any prepaid lease payments and exclude lease incentives received. The Company uses an incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Lease term for accounting purposes may include options to extend (generally ranging from one to five years) or to terminate the lease when it is reasonably certain that the Company will exercise that option. For certain equipment leases, the Company applies a portfolio approach to effectively account for the operating lease ROU assets and liabilities. Lease agreements may include lease and related non-lease components, which are accounted for as a single lease component. Fixed costs included in the measurement of ROU assets are recognized as operating lease cost generally on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature, instead they are recognized as variable lease cost when incurred.
(p)Revenue Recognition
The Company generates revenue in a number of ways, including from the delivery of account- or transaction-based processing, SaaS, business process as a service ("BPaaS"), cloud offerings, software licensing, software-related services and professional services.
The Company enters into arrangements with customers to provide services, software and software-related services such as maintenance, implementation and training either individually or as part of an integrated offering of multiple services. At contract inception, the Company assesses the solutions and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a solution or service (or bundle of solutions or services) that is distinct - i.e., if a solution or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. To identify its performance obligations, the Company considers all of the solutions or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company recognizes revenue when or as it satisfies a performance obligation by transferring control of a solution or service to a customer.
Revenue is measured based on the consideration that the Company expects to receive in a contract with a customer. The Company's contracts with its customers frequently contain variable consideration. Variable consideration exists when the amount which the Company expects to receive in a contract is based on the occurrence or non-occurrence of future events, such as processing services performed under usage-based pricing arrangements or professional services billed on a time-and-materials basis. Variable consideration is also present in certain transactions in the form of discounts, credits, price concessions, penalties, and similar items. If the amount of a discount or rebate in a contract is fixed and not contingent, that discount or rebate is not variable consideration. The Company estimates variable consideration in its contracts primarily using the expected value method. In some contracts, the Company applies the most likely amount method by considering the single most likely amount in a limited range of possible consideration amounts. The Company develops estimates of variable consideration on the basis of both historical information and current trends. Variable consideration included in the transaction price is constrained such that a significant revenue reversal is not probable.
Taxes collected from customers and remitted to governmental authorities are not included in revenue. Postage costs associated with print and mail services are accounted for as a fulfillment cost and are included in cost of revenue.
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. The Company determines whether it is responsible for providing the actual solution or service as a principal or for arranging for the solution or service to be provided by the third party as an agent. Judgment is applied to determine whether we are the principal or the agent by evaluating whether the Company has control of the solution or service prior to it being transferred to the customer. The principal versus agent assessment is performed at the performance obligation level. Indicators that the Company considers in determining if it has control include whether the Company is primarily responsible for fulfilling
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the promise to provide the specified solution or service to the customer, the Company has inventory risk and the Company has discretion in establishing the price the customer ultimately pays for the solution or service. Depending upon the level of our contractual responsibilities and obligations for delivering solutions to end customers, we have arrangements where we are the principal and recognize the gross amount billed to the customer and other arrangements where we are the agent and recognize the net amount retained.
The total transaction price of a contract is allocated to each performance obligation in a manner depicting the amount of consideration to which the Company expects to be entitled in exchange for transferring the solution(s) or service(s) to the customer (the "allocation objective"). If the allocation objective is met at contractual prices, no allocation adjustments from contract prices are made. Otherwise, the Company reallocates the transaction price to each performance obligation identified in the contract on a relative standalone selling price basis, except when the criteria are met for allocating variable consideration to one or more, but not all, performance obligations in the contract. The Company allocates variable consideration to one or more, but not all performance obligations when the terms of the variable payment relate specifically to the Company's efforts to satisfy the performance obligation (or transfer the distinct solution or service) and when such allocation is consistent with the allocation objective when considering all performance obligations in the contract. Determining whether the criteria for allocating variable consideration to one or more, but not all, performance obligations in the contract requires significant judgment and may affect the timing and amount of revenue recognized.
To determine the standalone selling price of its promised solutions or services, the Company conducts a regular analysis to determine whether various solutions or services have an observable standalone selling price. If the Company does not have an observable standalone selling price for a particular solution or service, then standalone selling price for that particular solution or service is estimated using all information that is reasonably available and maximizing observable inputs with approaches including historical pricing, cost plus a margin, adjusted market assessment, and residual approach.
The following describes the nature of the Company's primary types of revenue and the revenue recognition policies and significant payment terms as they pertain to the types of transactions the Company enters into with its customers.
Transaction Processing and Services Revenue
Transaction processing and services revenue is primarily comprised of payment processing, data processing, application management, and outsourced services, including our SaaS, BPaaS and cloud offerings. Revenue from transaction processing and services is recurring and is typically volume- or activity-based depending on factors such as the number of payments, transactions, accounts or trades processed, number of users, number of hours of services or amount of computer resources used. Fees may include tiered pricing structures with the base tier representing a minimum monthly usage fee. Pricing within the tiers typically resets on a monthly basis, and minimum monthly volumes are generally met or exceeded. Contract lengths for processing services typically span one or more years; however, when distinct hosting services are offered, they are often cancelable without a significant penalty with 30-days' notice. Payment is generally due in advance or in arrears on a monthly or quarterly basis and may include fixed or variable payment amounts depending on the specific payment terms and activity in the period.
For processing services revenue, the nature of the Company's promise to the customer is to stand ready to provide continuous access to the Company's processing platforms and perform an unspecified quantity of outsourced and transaction-processing services for a specified term or terms. Accordingly, processing services are generally viewed as a stand-ready performance obligation comprised of a series of distinct daily services. The Company typically satisfies its processing services performance obligations over time as the services are provided. A time-elapsed output method is used to measure progress because the Company's efforts are expended evenly throughout the period given the nature of the promise is a stand-ready service. The Company has evaluated its variable payment terms related to its processing services revenue accounted for as a series of distinct days of service and concluded that they generally meet the criteria for allocating variable consideration entirely to one or more, but not all, performance obligations in a contract. Accordingly, when the criteria are met, variable amounts based on the number and type of services performed during a period are allocated to and recognized on the day in which the Company performs the related services. Fixed fees for processing services are generally recognized ratably over the contract period.
Processing revenue also includes network, interchange, and other pass-through fees. Pass-through fees generally represent variable consideration and are allocated to and recognized on the day on which the related services are performed. Pass-through fees are billed monthly. Network and interchange fees are presented on a net basis; other pass through fees may be recorded on either a gross or a net basis depending on whether the Company is acting as a principal or an agent.
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Software Maintenance Revenue
Software maintenance is comprised of technical support services and unspecified software updates and upgrades provided on a when-and-if-available basis. Software maintenance revenue is generally based on fixed fees. Payment terms are typically annually, quarterly, or monthly in advance. Contract terms vary and can span multiple years. The Company generally satisfies its maintenance-related performance obligations evenly using a time-elapsed output method over the contract term given there is no discernible pattern of performance.
Other Recurring Revenue
Other recurring revenue is comprised primarily of services provided by dedicated personnel resources who work full time at client sites and under the client's direction. Revenue from dedicated resource agreements is generally based on fixed monthly fees per resource. Payment terms are typically annually, quarterly, or monthly in advance. Contract terms vary and can span multiple years. The Company generally satisfies its dedicated resource obligations evenly using a time-elapsed output method over the contract term given there is no discernible pattern of performance.
Software License Revenue
The Company's software licenses generally have significant stand-alone functionality to the customer upon delivery and are considered to be functional intellectual property. Additionally, the nature of the Company's promise in granting these software licenses to a customer is typically to provide the customer a right to use the Company's intellectual property. The Company's software licenses are generally considered distinct performance obligations. Revenue allocated to software licenses is typically recognized at a point in time upon delivery of the license and is non-recurring. Contracts that contain software licenses often have non-standard terms that require significant judgments that may affect the amount and timing of revenue recognized.
When a software license requires frequent updates that are integral to maintaining the utility of the license to the customer, the Company combines the software license and the maintenance into a single performance obligation, and revenue for the combined performance obligation is recognized in other recurring revenue as the maintenance is provided, consistent with the treatment described for maintenance above. When a software license contract also includes professional services that provide significant modification or customization of the software license, the Company combines the software license and professional services into a single performance obligation, and revenue for the combined performance obligation is recognized as the professional services are provided, consistent with the methods described below for professional services revenue.
The Company has contracts where the licensed software is offered in conjunction with hosting services. The licensed software may be considered a separate performance obligation from the hosting services if the customer can take possession of the software during the contractual term without incurring a significant penalty and if it is feasible for the customer to run the software on its own infrastructure or hire a third party to host the software. If the licensed software and hosting services are separately identifiable, license revenue is recognized when the hosting services commence and it is within the customer's control to obtain a copy of the software. If the software license is not separately identifiable from the hosting service, then the related revenue for the combined performance obligation is recognized ratably over the hosting period and classified as processing revenue.
Occasionally, the Company offers extended payment terms on its license transactions and evaluates whether any potential significant financing components exist. For certain of its business units, the Company will provide a software license through a rental model wherein the customer generally pays for the software license and maintenance in monthly or quarterly installments as opposed to an upfront software license fee. Revenue recognition under these arrangements follows the same recognition pattern as the arrangements outlined above. Judgment is required to determine whether these arrangements contain a significant financing component. The Company evaluates whether there is a significant difference between the amount of promised consideration over the rental term and the cash selling price of the software license, the degree to which financing is the reason for any such difference, and the overall impact of the time value of money on the transaction. If we conclude a significant financing component exists, then the transaction price is adjusted for the time value of money at the Company's incremental borrowing rate by recording a contract asset and interest income. The Company does not adjust the promised amount of consideration for the effects of the time value of money if the difference between the promised consideration and the cash selling price arises for reasons other than the provision of finance or it is expected, at contract inception, that the period between when the Company transfers a promised solution or service to a customer and when the customer pays for that solution or service will be one year or less.
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Professional Services Revenue
Professional services revenue is comprised of implementation, conversion, and programming services associated with the Company's data processing and application management agreements and implementation or installation services related to licensed software. Although this revenue is non-recurring in nature, it is generally recognized over time, with service durations spanning from several weeks to several years, depending on the scope and complexity of the work. Payment terms for professional services may be based on an upfront fixed fee, fixed upon the achievement of milestones, or on a time-and-materials basis.
In assessing whether implementation services provided on data processing, application management or software agreements are a distinct performance obligation, the Company considers whether the services are both capable of being distinct (i.e., can the customer benefit from the services alone or in combination with other resources that are readily available to the customer) and distinct within the context of the contract (i.e., separately identifiable from the other performance obligations in the contract). Implementation services and other professional services are typically considered distinct performance obligations. However, when these services involve significant customization or modification of an underlying solution or offering, or if the services are complex and not available from a third-party provider and must be completed prior to a customer having the ability to benefit from a solution or offering, then such services and the underlying solution or offering will be accounted for as a combined performance obligation.
The Company's professional services that are accounted for as distinct performance obligations and that are billed on a fixed fee basis are typically satisfied as services are rendered; thus, the Company uses a cost-based input method, such as cost-to-cost or efforts expended (labor hours), to provide a faithful depiction of the transfer of those services. For professional services that are distinct and billed on a time-and-materials basis, revenue is generally recognized using an output method that corresponds with the time and materials billed and delivered, which is reflective of the transfer of the services to the customer. Professional services that are not distinct from an associated solution or offering are recognized over the common measure of progress for the overall performance obligation (typically a time-elapsed output measure that corresponds to the period over which the solution or offering is made available to the customer).
Other Non-recurring Revenue
Other non-recurring revenue is comprised primarily of hardware, one-time card production, and early termination fees. The Company typically does not stock in inventory the hardware solutions sold but arranges for delivery of hardware from third-party suppliers. The Company determines whether hardware delivered from third-party suppliers should be recognized on a gross or net basis by evaluating whether the Company has control of the solution or service prior to it being transferred to the customer. Equipment and one-time card production revenue is generally recognized at a point in time upon delivery. Early contract terminations are treated as contract modifications. Early termination fees are added to a contract's transaction price once it becomes likely that liquidated damages will be charged to a customer, typically upon notification of early termination. Early termination fees are recognized over the remaining period of the related performance obligation(s).
Material Rights
Some of the Company's contracts with customers include options for the customer to acquire additional solutions or services in the future, including options to renew existing services. Options may represent a material right to acquire solutions or services if the discount is incremental to the range of discounts typically given for those solutions or services to that class of customer in that geographical area or market, and the customer would not have obtained the option without entering into the contract. If deemed to be a material right, the Company will account for the material right as a separate performance obligation and determine the standalone selling price based on directly observable prices when available. If the standalone selling price is not directly observable, then the Company estimates the standalone selling price to be equal to the discount that the customer would obtain by exercising the option, as adjusted for any discount that the customer would receive without exercising the option and for the likelihood that the option will be exercised.
(q)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
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revenue also includes data processing costs, amortization of software, customer relationship and trademark 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.
(r)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 is reversed. Certain of our stock awards contain market conditions. In those circumstances, compensation cost is recognized over the service period and is not reversed even if the award does not become exercisable because the market condition is not achieved.
(s)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 measuring foreign currency transactions into the respective functional currency are included in Other income (expense), net in the consolidated statements of earnings.
(t)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 revenue and expenses during the reporting periods. Actual results could differ from those estimates.
(u)Net Earnings per Share
The basic weighted average shares and common stock equivalents for the years ended December 31, 2020, 2019 and 2018 are computed using the treasury stock method.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Net earnings and earnings per share for the years ended December 31, 2020, 2019 and 2018 are as follows (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
Net earnings attributable to FIS common stockholders
|
$
|
158
|
|
|
$
|
298
|
|
|
$
|
846
|
|
|
Weighted average shares outstanding-basic
|
619
|
|
|
445
|
|
|
328
|
|
|
Plus: Common stock equivalent shares
|
8
|
|
|
6
|
|
|
4
|
|
|
Weighted average shares outstanding-diluted
|
627
|
|
|
451
|
|
|
332
|
|
|
Net earnings per share-basic attributable to FIS common stockholders
|
$
|
0.26
|
|
|
$
|
0.67
|
|
|
$
|
2.58
|
|
|
Net earnings per share-diluted attributable to FIS common stockholders
|
$
|
0.25
|
|
|
$
|
0.66
|
|
|
$
|
2.55
|
|
Options to purchase less than 1 million, and approximately 1 million and 1 million shares of our common stock for the years ended December 31, 2020, 2019 and 2018, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.
(v)Certain Reclassifications
Certain reclassifications have been made in the 2019 and 2018 consolidated financial statements to conform to the classifications used in 2020.
(3)Acquisitions
Worldpay Acquisition
On July 31, 2019, FIS completed the acquisition of Worldpay by acquiring 100 percent of Worldpay's equity. The Worldpay acquisition brought an integrated technology platform with a comprehensive suite of solutions and services serving merchants and financial institutions and provided FIS with enhanced global payment capabilities, robust risk and fraud solutions and advanced data analytics.
The total purchase price was as follows (in millions):
|
|
|
|
|
|
|
|
Cash consideration
|
$
|
3,423
|
|
|
Value of FIS share consideration (1)
|
38,635
|
|
|
Pay-off of Worldpay long-term debt not contractually assumed
|
5,738
|
|
|
Value of outstanding converted equity awards attributed to services already rendered
|
449
|
|
|
Total purchase price
|
$
|
48,245
|
|
(1) Worldpay shareholders received approximately 289 million shares of FIS common stock valued based on the share price of $133.69 per share, the closing price of the Company's common stock on the New York Stock Exchange on July 30, 2019.
The acquisition was accounted for as a business combination. We recorded an allocation of the purchase price to Worldpay tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of July 31, 2019. The amounts for intangible assets were based on third-party valuations performed. Goodwill was recorded as the residual amount by which the purchase price exceeded the fair value of the net assets acquired. Goodwill consists primarily of expected synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets. The Company completed its assessment of the fair value of assets acquired and liabilities assumed within the one-year period from the date of acquisition. The Company recorded measurement period adjustments due to additional information received primarily related to contingencies and income taxes, resulting in a decrease in the value assigned to goodwill. There was no material impact on earnings as a result of the measurement period adjustments recorded.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The final purchase price allocation is as follows (in millions):
|
|
|
|
|
|
|
|
Cash acquired
|
$
|
305
|
|
|
Settlement deposits and merchant float (1)
|
2,444
|
|
|
Trade receivables
|
1,594
|
|
|
Goodwill
|
38,057
|
|
|
Intangible assets
|
13,682
|
|
|
Computer software
|
1,297
|
|
|
Other noncurrent assets (2)
|
1,641
|
|
|
Accounts payable, accrued and other liabilities
|
(1,021)
|
|
|
Settlement payables
|
(3,167)
|
|
|
Deferred income taxes
|
(2,860)
|
|
|
Long-term debt, subsequently repaid
|
(1,805)
|
|
|
Other liabilities and noncontrolling interest (3)
|
(1,922)
|
|
|
Total purchase price
|
$
|
48,245
|
|
(1)Includes $1,693 million of merchant float.
(2)Includes $534 million of other restricted cash.
(3)Includes $542 million of noncurrent tax receivable agreement liability (see Note 16) and $875 million contingent value rights liability (see Note 11).
The gross contractual amount of trade receivables acquired was approximately $1,646 million. The difference between that total and the amount reflected above represents our best estimate at the acquisition date of the contractual cash flows not expected to be collected. This difference was derived using Worldpay's historical bad debts, sales allowances and collection trends.
Intangible assets primarily consist of software, customer relationship assets and trademarks with weighted average estimated useful lives of seven years, ten years and five years, respectively, and fair value amounts assigned of $1,297 million, $13,272 million and $410 million, respectively.
See Note 16 for acquired contingencies resulting from the Worldpay acquisition.
Unaudited Supplemental Pro Forma Results Giving Effect to the Worldpay Acquisition
Worldpay's revenues and pre-tax loss of $1,880 million and $436 million, respectively, which include the impact of purchase accounting adjustments, are included in the consolidated statements of earnings for the period from July 31, 2019 through December 31, 2019.
Unaudited supplemental pro forma results of operations for the years ended December 31, 2019 and 2018, assuming the acquisition had occurred as of January 1, 2018, are presented below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2019
|
|
2018
|
|
Revenue
|
|
$
|
12,724
|
|
|
$
|
12,373
|
|
|
Net earnings (loss) attributable to FIS common stockholders
|
|
$
|
254
|
|
|
$
|
(57)
|
|
|
Net earnings (loss) per share-basic attributable to FIS common stockholders
|
|
$
|
0.41
|
|
|
$
|
(0.09)
|
|
|
Net earnings (loss) per share-diluted attributable to FIS common stockholders
|
|
$
|
0.41
|
|
|
$
|
(0.09)
|
|
The unaudited pro forma results include certain pro forma adjustments to revenue and net earnings that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2018, including the following:
•additional amortization expense that would have been recognized relating to the acquired intangible assets;
•adjustment to interest expense to reflect the removal of Worldpay debt and the addition of borrowings of FIS in conjunction with the acquisition; and
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
•a reduction in expenses for the year ended December 31, 2019 of $260 million and an increase in expenses for the year ended December 31, 2018 of $267 million for acquisition-related transaction costs and other one-time non-recurring costs.
Virtus Acquisition
On January 2, 2020, FIS acquired a majority interest in Virtus Partners ("Virtus"), previously a privately held company that provides high-value managed services and technology to the credit and loan market. FIS acquired a 70% voting and financial interest in Virtus with 30% interest retained by the founders of Virtus ("Founders"). The acquisition was accounted for as a business combination. We recorded an allocation of the $404 million cash purchase price and the $173 million fair value of redeemable noncontrolling interest to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values, consisting primarily of $254 million in customer relationships and $51 million in software assets. We also recorded $253 million in goodwill for the residual amount by which the purchase price exceeded the fair value of the net assets acquired. The Company completed its assessment of the fair value of assets acquired and liabilities assumed within the one-year period from the date of acquisition.
We recorded the 30% interest retained by the Founders at the acquisition date as redeemable noncontrolling interest, which is reflected outside of stockholders' equity on the consolidated balance sheet, given the agreement between FIS and the Founders that provides FIS with a call option and the Founders with a put option requiring FIS to purchase all of the Founders' retained interest in Virtus at a redemption value determined pursuant to performance goals stated in the agreement. The call option and put option are exercisable at any time after two years and three years respectively, following the acquisition date. Changes in the estimated redemption value are accreted through equity from the acquisition date to the date the call option becomes exercisable, to the extent the estimated redemption value is greater than the initial redeemable noncontrolling interest value recorded, as adjusted for the Founders' share of the cumulative impact of net earnings (loss).
(4)Revenue
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market and type of revenue. The tables also include a reconciliation of the disaggregated revenue with the Company's reportable segments. Prior-period amounts have been recast to conform to the new reportable segment presentation as discussed in Note 22.
For the year ended December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate and Other
|
|
Total
|
|
Primary Geographical Markets:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
2,719
|
|
|
$
|
5,105
|
|
|
$
|
1,453
|
|
|
$
|
274
|
|
|
$
|
9,551
|
|
|
All others
|
|
1,048
|
|
|
839
|
|
|
987
|
|
|
127
|
|
|
3,001
|
|
|
Total
|
|
$
|
3,767
|
|
|
$
|
5,944
|
|
|
$
|
2,440
|
|
|
$
|
401
|
|
|
$
|
12,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Transaction processing and services
|
|
$
|
3,680
|
|
|
$
|
4,443
|
|
|
$
|
1,091
|
|
|
$
|
374
|
|
|
$
|
9,588
|
|
|
Software maintenance
|
|
2
|
|
|
352
|
|
|
493
|
|
|
1
|
|
|
848
|
|
|
Other recurring
|
|
77
|
|
|
165
|
|
|
99
|
|
|
2
|
|
|
343
|
|
|
Total recurring
|
|
3,759
|
|
|
4,960
|
|
|
1,683
|
|
|
377
|
|
|
10,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
2
|
|
|
89
|
|
|
328
|
|
|
6
|
|
|
425
|
|
|
Professional services
|
|
1
|
|
|
605
|
|
|
427
|
|
|
5
|
|
|
1,038
|
|
|
Other non-recurring fees
|
|
5
|
|
|
290
|
|
|
2
|
|
|
13
|
|
|
310
|
|
|
Total
|
|
$
|
3,767
|
|
|
$
|
5,944
|
|
|
$
|
2,440
|
|
|
$
|
401
|
|
|
$
|
12,552
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
For the year ended December 31, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate and Other
|
|
Total
|
|
Primary Geographical Markets:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
1,409
|
|
|
$
|
4,738
|
|
|
$
|
1,398
|
|
|
$
|
314
|
|
|
$
|
7,859
|
|
|
All others
|
|
533
|
|
|
854
|
|
|
920
|
|
|
167
|
|
|
2,474
|
|
|
Total
|
|
$
|
1,942
|
|
|
$
|
5,592
|
|
|
$
|
2,318
|
|
|
$
|
481
|
|
|
$
|
10,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Transaction processing and services
|
|
$
|
1,890
|
|
|
$
|
4,056
|
|
|
$
|
993
|
|
|
$
|
420
|
|
|
$
|
7,359
|
|
|
Software maintenance
|
|
2
|
|
|
360
|
|
|
482
|
|
|
—
|
|
|
844
|
|
|
Other recurring
|
|
37
|
|
|
177
|
|
|
106
|
|
|
—
|
|
|
320
|
|
|
Total recurring
|
|
1,929
|
|
|
4,593
|
|
|
1,581
|
|
|
420
|
|
|
8,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
8
|
|
|
150
|
|
|
328
|
|
|
13
|
|
|
499
|
|
|
Professional services
|
|
1
|
|
|
581
|
|
|
406
|
|
|
6
|
|
|
994
|
|
|
Other non-recurring fees
|
|
4
|
|
|
268
|
|
|
3
|
|
|
42
|
|
|
317
|
|
|
Total
|
|
$
|
1,942
|
|
|
$
|
5,592
|
|
|
$
|
2,318
|
|
|
$
|
481
|
|
|
$
|
10,333
|
|
For the year ended December 31, 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate and Other
|
|
Total
|
|
Primary Geographical Markets:
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
208
|
|
|
$
|
4,353
|
|
|
$
|
1,359
|
|
|
$
|
363
|
|
|
$
|
6,283
|
|
|
All others
|
|
—
|
|
|
1,063
|
|
|
899
|
|
|
178
|
|
|
2,140
|
|
|
Total
|
|
$
|
208
|
|
|
$
|
5,416
|
|
|
$
|
2,258
|
|
|
$
|
541
|
|
|
$
|
8,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Recurring revenue:
|
|
|
|
|
|
|
|
|
|
|
|
Transaction processing and services
|
|
$
|
197
|
|
|
$
|
4,005
|
|
|
$
|
953
|
|
|
$
|
504
|
|
|
$
|
5,659
|
|
|
Software maintenance
|
|
3
|
|
|
351
|
|
|
479
|
|
|
1
|
|
|
834
|
|
|
Other recurring
|
|
—
|
|
|
197
|
|
|
114
|
|
|
10
|
|
|
321
|
|
|
Total recurring
|
|
200
|
|
|
4,553
|
|
|
1,546
|
|
|
515
|
|
|
6,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software license
|
|
4
|
|
|
101
|
|
|
311
|
|
|
—
|
|
|
416
|
|
|
Professional services
|
|
1
|
|
|
562
|
|
|
401
|
|
|
6
|
|
|
970
|
|
|
Other non-recurring fees
|
|
3
|
|
|
200
|
|
|
—
|
|
|
20
|
|
|
223
|
|
|
Total
|
|
$
|
208
|
|
|
$
|
5,416
|
|
|
$
|
2,258
|
|
|
$
|
541
|
|
|
$
|
8,423
|
|
Contract Balances
The Company recognized revenue of $764 million, $762 million and $740 million, during the years ended December 31, 2020, 2019 and 2018, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2020, approximately $22.0 billion of revenue is estimated to be recognized in the future primarily from the Banking Solutions and Capital Market Solutions segments' remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 32% of the Banking Solutions and Capital Market Solutions segments' remaining performance obligations over the next 12 months, approximately another 22% over the next 13 to 24 months, and the balance thereafter.
As permitted by ASC 606, Revenue from Contracts with Customers, the Company has elected to exclude from this disclosure an estimate for the Merchant Solutions segment, which is primarily comprised of contracts with an original duration of one year or less or variable consideration that meet specific criteria. This segment's core performance obligations consist of variable consideration under a stand-ready series of distinct days of service, and revenue from the segment's products and service arrangements are generally billed and recognized as the services are performed. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
(5)Property and Equipment
Property and equipment as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Land
|
$
|
48
|
|
|
$
|
34
|
|
|
Buildings
|
295
|
|
|
275
|
|
|
Leasehold improvements
|
157
|
|
|
163
|
|
|
Computer equipment
|
1,622
|
|
|
1,382
|
|
|
Furniture, fixtures, and other equipment
|
170
|
|
|
323
|
|
|
|
2,292
|
|
|
2,177
|
|
|
Accumulated depreciation and amortization
|
(1,405)
|
|
|
(1,277)
|
|
|
Total Property and equipment, net
|
$
|
887
|
|
|
$
|
900
|
|
During the years ended December 31, 2020 and 2019, the Company entered into other financing obligations of $21 million and $215 million, respectively, for certain hardware and software. The assets are included in property and equipment and software and the other financing obligations are classified as Long-term debt on our consolidated balance sheets. Periodic payments are included in repayment of borrowings on the consolidated statements of cash flows.
Depreciation and amortization expense on property and equipment totaled $252 million, $201 million and $184 million for the years ended December 31, 2020, 2019 and 2018, respectively.
(6)Goodwill
Changes in goodwill during the years ended December 31, 2020 and 2019, are summarized below (in millions). Prior-period amounts have been recast to conform to the new reportable segment presentation as discussed in Note 22.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate and Other
|
|
Total
|
|
Balance, December 31, 2018
|
$
|
276
|
|
|
$
|
8,811
|
|
|
$
|
4,344
|
|
|
$
|
114
|
|
|
$
|
13,545
|
|
|
Goodwill attributable to acquisitions
|
34,657
|
|
|
3,414
|
|
|
—
|
|
|
—
|
|
|
38,071
|
|
|
Foreign currency adjustments
|
620
|
|
|
(8)
|
|
|
14
|
|
|
—
|
|
|
626
|
|
|
Balance, December 31, 2019
|
35,553
|
|
|
12,217
|
|
|
4,358
|
|
|
114
|
|
|
52,242
|
|
|
Goodwill attributable to acquisitions
|
(11)
|
|
|
57
|
|
|
253
|
|
|
—
|
|
|
299
|
|
|
Foreign currency adjustments
|
725
|
|
|
5
|
|
|
91
|
|
|
—
|
|
|
821
|
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
(94)
|
|
|
(94)
|
|
|
Balance, December 31, 2020
|
$
|
36,267
|
|
|
$
|
12,279
|
|
|
$
|
4,702
|
|
|
$
|
20
|
|
|
$
|
53,268
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(7)Intangible Assets
Intangible assets as of December 31, 2020, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Customer relationships and other
|
$
|
18,586
|
|
|
$
|
(5,024)
|
|
|
$
|
13,562
|
|
|
Finite-lived trademarks
|
511
|
|
|
(189)
|
|
|
322
|
|
|
Indefinite-lived trademarks
|
44
|
|
|
—
|
|
|
44
|
|
|
Total Intangible assets, net
|
$
|
19,141
|
|
|
$
|
(5,213)
|
|
|
$
|
13,928
|
|
Intangible assets as of December 31, 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Customer relationships and other
|
$
|
18,018
|
|
|
$
|
(2,681)
|
|
|
$
|
15,337
|
|
|
Finite-lived trademarks
|
503
|
|
|
(85)
|
|
|
418
|
|
|
Indefinite-lived trademarks
|
43
|
|
|
—
|
|
|
43
|
|
|
Total Intangible assets, net
|
$
|
18,564
|
|
|
$
|
(2,766)
|
|
|
$
|
15,798
|
|
Amortization expense for intangible assets with finite lives, including the contract intangible in our Brazilian Venture, which was amortized as a reduction of revenue until impaired during the third quarter of 2018 (see Note 19), was $2,400 million, $1,444 million and $659 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Estimated amortization of intangible assets for the next five years is as follows (in millions):
|
|
|
|
|
|
|
|
2021
|
$
|
2,378
|
|
|
2022
|
2,226
|
|
|
2023
|
2,035
|
|
|
2024
|
1,836
|
|
|
2025
|
1,667
|
|
(8)Software
Software as of December 31, 2020 and 2019, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Software from acquisitions
|
$
|
2,077
|
|
|
$
|
1,959
|
|
|
Capitalized software development costs
|
2,826
|
|
|
2,258
|
|
|
Purchased software
|
632
|
|
|
603
|
|
|
|
5,535
|
|
|
4,820
|
|
|
Accumulated amortization
|
(2,165)
|
|
|
(1,616)
|
|
|
Total Software, net
|
$
|
3,370
|
|
|
$
|
3,204
|
|
During the year ended December 31, 2019, the Company recorded asset impairments of $87 million, primarily related to certain software resulting from the Company's net realizable value analysis.
Amortization expense for software was $837 million, $616 million and $468 million for the years ended December 31, 2020, 2019 and 2018, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(9)Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Contract costs on implementations in progress
|
$
|
245
|
|
|
$
|
138
|
|
|
Contract origination costs on completed implementations, net
|
470
|
|
|
352
|
|
|
Contract fulfillment costs on completed implementations, net
|
202
|
|
|
177
|
|
|
Total Deferred contract costs, net
|
$
|
917
|
|
|
$
|
667
|
|
For the years ended December 31, 2020, 2019 and 2018, amortization of deferred contract costs on completed implementations was $225 million, $184 million and $123 million.
(10)Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities as of December 31, 2020 and 2019, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Salaries and incentives
|
$
|
261
|
|
|
$
|
414
|
|
|
Accrued benefits and payroll taxes
|
155
|
|
|
116
|
|
|
Trade accounts payable and other accrued liabilities
|
1,576
|
|
|
1,386
|
|
|
Accrued interest payable
|
102
|
|
|
109
|
|
|
Taxes other than income tax
|
236
|
|
|
220
|
|
|
Operating lease liabilities
|
152
|
|
|
129
|
|
|
Total Accounts payable, accrued and other liabilities
|
$
|
2,482
|
|
|
$
|
2,374
|
|
(11)Other Noncurrent Assets and Liabilities
Other noncurrent assets as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Visa Europe and contingent value rights ("CVR") related assets
|
$
|
70
|
|
|
$
|
940
|
|
|
Operating lease ROU assets (1)
|
534
|
|
|
564
|
|
|
Other
|
970
|
|
|
799
|
|
|
Total Other noncurrent assets
|
$
|
1,574
|
|
|
$
|
2,303
|
|
Other noncurrent liabilities as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
CVR liability
|
$
|
401
|
|
|
$
|
838
|
|
|
Tax Receivable Agreement liability (2)
|
447
|
|
|
532
|
|
|
Operating lease liabilities (1)
|
453
|
|
|
466
|
|
|
Other
|
666
|
|
|
570
|
|
|
Total Other noncurrent liabilities
|
$
|
1,967
|
|
|
$
|
2,406
|
|
(1)See Note 14, Operating Leases
(2)See Note 16, Commitments and Contingencies
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Visa Europe and Contingent Value Rights
As part of the Worldpay acquisition, the Company acquired certain assets and liabilities related to the June 2016 Worldpay Group plc (Legacy Worldpay) disposal of its ownership interest in Visa Europe to Visa Inc. As part of the disposal, Legacy Worldpay received proceeds from Visa Inc. in the form of cash ("cash consideration") and convertible preferred stock ("preferred stock"), the value of which may be reduced by losses incurred relating to ongoing interchange-related litigation involving Visa Europe ("the litigation"). The preferred stock becomes convertible into Visa Inc. Class A common stock ("common stock") in stages as determined by Visa Inc. in accordance with the relevant transaction documents pertaining to the aforementioned disposal of the Visa Europe ownership interest. The preferred stock becomes fully convertible no later than 2028 (subject to a holdback to cover any pending claims). Also in connection with the disposal, Legacy Worldpay agreed to pay former Legacy Worldpay owners 90% of the net-of-tax proceeds from the disposal, known as contingent value rights, which is recorded as a liability ("CVR liability") on the consolidated balance sheets, and agreed to segregate the cash consideration to be paid as part of the CVR liability, which was recorded as restricted cash.
On September 17, 2020, the Company executed an amendment ("the amendment") with the former Legacy Worldpay owners to pay approximately one-third of the cash consideration component of the CVR liability, or $185 million, to the former Legacy Worldpay owners upon amendment execution and to pay the remaining approximately two-thirds of the cash consideration on October 12, 2027, subject to reduction due to losses incurred by Visa Inc. relating to the litigation. The partial payment of the cash consideration was recorded as a reduction of the CVR liability and reflected as Other financing activities, net, on the consolidated statement of cash flows for the year ended December 31, 2020. The amendment also removed the segregated cash requirement resulting in no restricted cash recorded at December 31, 2020, as compared to $540 million recorded at December 31, 2019, reflected in Other noncurrent assets on the consolidated balance sheet. Additionally, as Visa Inc. releases preferred stock for conversion into common stock, over time and subject to any losses incurred by Visa Inc. relating to the litigation, 90% of the net-of-tax proceeds from the sale of the common stock will be paid to the former Legacy Worldpay owners in accordance with the amendment.
In the fourth quarter of 2020, Visa Inc. released a portion of the aforementioned preferred stock that was converted into common stock. The Company sold the common stock for $552 million and paid 90% of the net-of-tax proceeds of $403 million to the former Legacy Worldpay owners. The sale of stock and related payment to the former Legacy Worldpay owners was recorded as a reduction of the CVR related assets and CVR liability, respectively, and is reflected as Other investing activities, net and Other financing activities, net, respectively on the consolidated statement of cash flows for the year ended December 31, 2020.
The Company has elected the fair value option under ASC 825, Financial Instruments ("ASC 825"), for measuring its preferred stock asset and CVR liability. The fair value of the preferred stock was $70 million and $400 million at December 31, 2020 and 2019, respectively, recorded in Other noncurrent assets on the consolidated balance sheets. The fair value of the CVR liability was $401 million and $838 million at December 31, 2020 and 2019, respectively, recorded in Other noncurrent liabilities on the consolidated balance sheets. Pursuant to ASC 825, the Company remeasures the fair value of the preferred stock and CVR liability each reporting period. The net change in fair value was $78 million and $5 million for the years ended December 31, 2020 and 2019, respectively, recorded in Other income (expense), net on the consolidated statements of earnings.
The estimated fair value of the preferred stock and related component of the CVR liability are determined using Level 3-type measurements. Significant inputs into the valuation of the preferred stock include the Visa Inc. Class A common stock price per share and the conversion ratio, which are observable, as well as the expected timing of future preferred stock releases for conversion into common stock and an estimate of the potential losses that will result from the ongoing litigation involving Visa Europe, which are unobservable. As a result of the amendment, the estimated fair value of the cash consideration component of the CVR liability is determined using Level 3-type measurements, utilizing a discount rate based on the bond yield for the Company's credit rating and remaining payment term as the significant unobservable input.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12)Debt
Long-term debt as of December 31, 2020 and 2019, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Interest
|
|
Interest
|
|
|
|
December 31,
|
|
|
|
Rates
|
|
Rate
|
|
Maturities
|
|
2020
|
|
2019
|
|
Fixed Rate Notes
|
|
|
|
|
|
|
|
|
|
|
|
Senior USD Notes
|
|
3.0% - 5.0%
|
|
3.7%
|
|
2023 - 2048
|
|
$
|
4,938
|
|
|
$
|
4,938
|
|
|
Senior Euro Notes
|
|
0.1% - 3.0%
|
|
1.1%
|
|
2021 - 2039
|
|
8,891
|
|
|
8,694
|
|
|
Senior GBP Notes
|
|
1.7% - 3.4%
|
|
2.7%
|
|
2022 - 2031
|
|
2,526
|
|
|
2,440
|
|
|
Senior Euro Floating Rate Notes
|
|
|
|
—%
|
|
2021
|
|
613
|
|
|
561
|
|
|
Revolving Credit Facility (1)
|
|
|
|
1.3%
|
|
2023
|
|
251
|
|
|
600
|
|
|
Other
|
|
|
|
|
|
|
|
46
|
|
|
136
|
|
|
Total long-term debt, including current portion
|
|
|
|
|
|
17,265
|
|
|
17,369
|
|
|
Current portion of long-term debt
|
|
|
|
|
|
|
|
(1,314)
|
|
|
(140)
|
|
|
Long-term debt, excluding current portion
|
|
|
|
|
|
$
|
15,951
|
|
|
$
|
17,229
|
|
(1)Interest on the Revolving Credit Facility is generally payable at LIBOR plus an applicable margin of up to 1.625% plus an unused commitment fee of up to 0.225%, each based upon the Company's corporate credit ratings. The weighted average interest rate on the Revolving Credit Facility excludes fees.
Short-term borrowings as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
December 31,
|
|
|
Rate
|
|
Maturities
|
|
2020
|
|
2019
|
|
Euro-commercial paper notes ("ECP Notes")
|
(0.3)
|
%
|
|
Up to 183 days
|
|
$
|
861
|
|
|
$
|
2,523
|
|
|
U.S. commercial paper notes ("USCP Notes")
|
0.4
|
%
|
|
Up to 397 days
|
|
1,745
|
|
|
200
|
|
|
Other
|
|
|
|
|
144
|
|
|
100
|
|
|
Total Short-term borrowings
|
|
|
|
|
$
|
2,750
|
|
|
$
|
2,823
|
|
As of December 31, 2020, the weighted average interest rate of the Company's outstanding debt was 1.7%, including the impact of interest rate swaps (see Note 13).
The obligations of FIS under the Revolving Credit Facility, ECP Notes and USCP Notes, and all of its outstanding senior notes rank equal in priority and are unsecured.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following summarizes the aggregate maturities of our long-term debt, including other financing obligations for certain hardware and software, based on stated contractual maturities, excluding the fair value of the interest rate swaps discussed below and net unamortized non-cash bond premiums and discounts of $29 million as of December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
Total
|
|
2021
|
$
|
1,314
|
|
|
2022
|
1,669
|
|
|
2023
|
2,508
|
|
|
2024
|
1,020
|
|
|
2025
|
2,238
|
|
|
Thereafter
|
8,634
|
|
|
Total principal payments
|
17,383
|
|
|
Debt issuance costs, net of accumulated amortization
|
(89)
|
|
|
Total long-term debt
|
$
|
17,294
|
|
There are no mandatory principal payments on the Revolving Credit Facility, and any balance outstanding on the Revolving Credit Facility will be due and payable at its scheduled maturity date, which occurs at September 21, 2023.
Senior Notes
FIS may redeem the Senior USD Notes, Senior Euro Notes and Senior GBP Notes (collectively, the "Senior 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 Senior Notes during the period described in the related indenture (ranging from one to six months) prior to their maturity.
On December 15, 2020, FIS redeemed an aggregate principal amount of €500 million in Senior Euro Notes, which were due in 2021, one month prior to maturity. The notes were redeemed pursuant to the related indenture allowing redemption without a make-whole payment.
In December 2019, pursuant to cash tender offers, FIS purchased and redeemed an aggregate principal amount of $3.0 billion in Senior USD Notes, resulting in a pre-tax charge of approximately $217 million relating to tender premiums and fees as well as the write-off of previously capitalized debt issuance costs.
The Senior Notes are subject to customary covenants, including, among others, customary events of default.
Commercial Paper
FIS has a Euro-commercial paper ("ECP") program for the issuance and sale of senior, unsecured commercial paper notes, up to a maximum aggregate amount outstanding at any time of $4.7 billion (or its equivalent in other currencies), which was established on May 29, 2019. The ECP program will generally be used for general corporate purposes.
FIS has a U.S. commercial paper ("USCP") program for the issuance and sale of senior, unsecured commercial paper notes, up to a maximum aggregate amount outstanding at any time of $4.0 billion, as established on September 21, 2018. FIS increased the capacity on the USCP program to $5.5 billion on May 29, 2019. The USCP program will generally be used for general corporate purposes.
Revolving Credit Facility
On September 21, 2018, FIS entered into a Seventh Amendment and Restatement Agreement ("Credit Facility Agreement"), which amended and restated FIS' existing credit agreement (as amended, the "Restated Credit Agreement"). The Credit Facility Agreement increased the revolving credit commitments outstanding under the Revolving Credit Facility ("Revolving Credit Facility") existing under the Restated Credit Agreement from $3.0 billion to $4.0 billion and extended the term of the Restated Credit Agreement to September 21, 2023. On May 29, 2019, FIS entered into an amendment to the Restated Credit Agreement to increase the revolving credit commitments outstanding under the Revolving Credit Facility from
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$4.0 billion to $5.5 billion. Borrowing under the Revolving Credit Facility will generally be used for general corporate purposes, including backstopping any notes that FIS may issue under the USCP and ECP programs described above. As of December 31, 2020, the borrowing capacity under the Revolving Credit Facility was $2,641 million (net of $2,606 million of capacity backstopping our commercial paper notes and $2 million in outstanding letters of credit issued under the Revolving Credit Facility).
The Revolving Credit Facility is subject to customary covenants, including, among others, customary events of default, a provision allowing for financing related to the acquisition of Worldpay and limitations on the payment of dividends by FIS.
We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Credit Facility 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 Credit Facility would not adversely impact our ability to fund operations.
Fair Value of Debt
The fair value of the Company's long-term debt is estimated to be approximately $1,640 million and $900 million higher than the carrying value, excluding the fair value of the interest rate swaps and unamortized discounts, as of December 31, 2020 and 2019, respectively.
(13)Financial Instruments
Fair Value Hedges
The Company holds interest rate swaps with €500 million and $1,000 million notional values, converting the interest rate exposure on the Company's Senior Euro Notes due 2024 and Senior USD Notes due 2029, respectively, from fixed to variable. The $1,000 million notional interest rate swap was entered into during December 2020. These swaps are designated as fair value hedges for accounting purposes with a net asset fair value of $10 million and $10 million at December 31, 2020 and 2019, respectively, reflected as an increase in the long-term debt balance (see Note 12).
Net Investment Hedges
The purpose of the Company's net investment hedges, as discussed below, is to reduce the volatility of FIS' net investment value in its Euro- and Pound Sterling-denominated operations due to changes in foreign currency exchange rates.
The Company recorded net investment hedge aggregate gain (loss) for the change in fair value as Foreign currency translation adjustments and related income tax (expense) benefit within Other comprehensive earnings (loss), net of tax, on the consolidated statements of comprehensive earnings of $(951) million, $(229) million and $59 million, during the years ended December 31, 2020, 2019 and 2018, respectively. No ineffectiveness has been recorded on the net investment hedges.
Foreign Currency-Denominated Debt Designations
The Company designates certain foreign currency-denominated debt as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations. As of December 31, 2020, an aggregate €8,466 million was designated as a net investment hedge of the Company's investment in Euro-denominated operations related to the Senior Euro Floating Rate Notes, Senior Euro Notes with maturities ranging from 2022 to 2039 and ECP Notes, and an aggregate £1,850 million was designated as a net investment hedge of the Company's Pound Sterling-denominated operations related to the Senior GBP Notes with maturities ranging from 2022 to 2031.
Cross-Currency Interest Rate Swap Designations
The Company holds cross-currency interest rate swaps and designates them as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations.
As of December 31, 2020, an aggregate notional amount of €4,508 million was designated as a net investment hedge of the Company's investment in Euro-denominated operations and an aggregate notional amount of £565 million was designated as a
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
net investment hedge of the Company's Pound Sterling-denominated operations. The fair value of the cross-currency interest rate swaps was a net $(306) million and $(167) million liability at December 31, 2020 and 2019, respectively.
(14)Operating Leases
The classification of the Company's operating lease ROU assets and liabilities in the consolidated balance sheets as of December 31, 2020 and 2019, is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Classification
|
|
2020
|
|
2019
|
|
Operating lease ROU assets
|
|
Other noncurrent assets
|
|
$
|
534
|
|
|
$
|
564
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Accounts payable, accrued and other liabilities
|
|
$
|
152
|
|
|
$
|
129
|
|
|
|
|
Other noncurrent liabilities
|
|
453
|
|
|
466
|
|
|
Total operating lease liabilities
|
|
|
|
$
|
605
|
|
|
$
|
595
|
|
Operating lease cost was $210 million (including $30 million ROU assets impairment charges) and $145 million, and variable lease cost was $39 million and $34 million, for the years ended December 31, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of operating lease liabilities included in operating cash flows was $165 million and $139 million for the years ended December 31, 2020 and 2019, respectively. Operating lease ROU assets obtained in exchange for operating lease liabilities was $138 million and $112 million for the years ended December 31, 2020 and 2019, respectively. The weighted average remaining operating lease term was 5.8 years and 5.9 years and the weighted average operating lease discount rate was 3.2% and 3.7% as of December 31, 2020 and 2019, respectively.
Maturities of operating lease liabilities, as of December 31, 2020, are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
$
|
159
|
|
|
2022
|
|
129
|
|
|
2023
|
|
103
|
|
|
2024
|
|
78
|
|
|
2025
|
|
58
|
|
|
Thereafter
|
|
138
|
|
|
Total lease payments
|
|
665
|
|
|
Less: Imputed interest
|
|
(60)
|
|
|
Total operating lease liabilities
|
|
$
|
605
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(15)Income Taxes
Income tax expense (benefit) attributable to continuing operations for the years ended December 31, 2020, 2019 and 2018, consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Current provision:
|
|
|
|
|
|
|
Federal
|
$
|
81
|
|
|
$
|
53
|
|
|
$
|
169
|
|
|
State
|
50
|
|
|
46
|
|
|
50
|
|
|
Foreign
|
176
|
|
|
116
|
|
|
105
|
|
|
Total current provision
|
$
|
307
|
|
|
$
|
215
|
|
|
$
|
324
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
Federal
|
$
|
(53)
|
|
|
$
|
(47)
|
|
|
$
|
(95)
|
|
|
State
|
(28)
|
|
|
7
|
|
|
(11)
|
|
|
Foreign
|
(130)
|
|
|
(75)
|
|
|
(10)
|
|
|
Total deferred provision (benefit)
|
(211)
|
|
|
(115)
|
|
|
(116)
|
|
|
Total Provision (benefit) for income taxes
|
$
|
96
|
|
|
$
|
100
|
|
|
$
|
208
|
|
The provision for income taxes is based on pre-tax income from continuing operations, which is as follows for the years ended December 31, 2020, 2019 and 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
United States
|
$
|
441
|
|
|
$
|
220
|
|
|
$
|
744
|
|
|
Foreign
|
(175)
|
|
|
193
|
|
|
360
|
|
|
Total
|
$
|
266
|
|
|
$
|
413
|
|
|
$
|
1,104
|
|
Total income tax expense for the years ended December 31, 2020, 2019 and 2018, is allocated as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Tax expense (benefit) per statement of earnings
|
$
|
96
|
|
|
$
|
100
|
|
|
$
|
208
|
|
|
Tax expense (benefit) attributable to discontinued operations
|
—
|
|
|
—
|
|
|
(1)
|
|
|
Unrealized (loss) gain on foreign currency translation
|
(154)
|
|
|
240
|
|
|
—
|
|
|
Unrealized gain (loss) on interest rate swaps
|
(7)
|
|
|
(41)
|
|
|
—
|
|
|
Other components of other comprehensive earnings (loss)
|
—
|
|
|
(3)
|
|
|
1
|
|
|
Total income tax expense (benefit) allocated to other comprehensive income
|
(161)
|
|
|
196
|
|
|
1
|
|
|
Total income tax expense (benefit)
|
$
|
(65)
|
|
|
$
|
296
|
|
|
$
|
208
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A reconciliation of the federal statutory income tax rate to the Company's effective income tax rate for the years ended December 31, 2020, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Federal statutory income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
State income taxes
|
14.6
|
|
|
2.5
|
|
|
2.9
|
|
|
Federal benefit of state taxes
|
(3.1)
|
|
|
(0.5)
|
|
|
(0.6)
|
|
|
Foreign rate differential
|
(10.1)
|
|
|
(1.7)
|
|
|
—
|
|
|
U.K. tax rate adjustment
|
38.2
|
|
|
—
|
|
|
—
|
|
|
Tax benefit from stock-based compensation
|
(18.1)
|
|
|
(8.1)
|
|
|
(5.2)
|
|
|
Acquisition-related items
|
(15.9)
|
|
|
1.8
|
|
|
—
|
|
|
Book basis in excess of tax basis for goodwill impairment and disposition
|
9.2
|
|
|
—
|
|
|
3.0
|
|
|
Non-deductible executive compensation
|
9.0
|
|
|
10.6
|
|
|
0.4
|
|
|
CVR liability fair value and foreign currency adjustment
|
8.2
|
|
|
0.7
|
|
|
—
|
|
|
Foreign-derived intangible income deduction
|
(7.2)
|
|
|
(3.3)
|
|
|
(1.8)
|
|
|
Return to provision adjustments
|
(4.9)
|
|
|
(0.4)
|
|
|
(0.3)
|
|
|
Research and development credit
|
(4.1)
|
|
|
(2.4)
|
|
|
(0.9)
|
|
|
State tax rate adjustment
|
(2.8)
|
|
|
5.1
|
|
|
—
|
|
|
Cares Act net operating loss adjustment
|
(2.3)
|
|
|
—
|
|
|
—
|
|
|
Withholding tax on distribution
|
2.1
|
|
|
—
|
|
|
(0.4)
|
|
|
Deferred tax and other rate adjustments
|
1.1
|
|
|
0.2
|
|
|
—
|
|
|
Unrecognized tax benefits
|
0.3
|
|
|
(1.4)
|
|
|
(0.3)
|
|
|
Global intangible low-tax income
|
—
|
|
|
—
|
|
|
1.1
|
|
|
Other
|
0.8
|
|
|
0.1
|
|
|
(0.1)
|
|
|
Effective income tax rate
|
36.0
|
%
|
|
24.2
|
%
|
|
18.8
|
%
|
The significant components of deferred income tax assets and liabilities as of December 31, 2020 and 2019, consist of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Deferred income tax assets:
|
|
|
|
|
Net operating loss carryforwards
|
$
|
221
|
|
|
$
|
177
|
|
|
Employee benefit accruals
|
155
|
|
|
177
|
|
|
Other deferred tax assets
|
204
|
|
|
142
|
|
|
Total gross deferred income tax assets
|
580
|
|
|
496
|
|
|
Less valuation allowance
|
(204)
|
|
|
(178)
|
|
|
Total deferred income tax assets
|
376
|
|
|
318
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Amortization of goodwill and intangible assets
|
(3,945)
|
|
|
(4,123)
|
|
|
Foreign currency translation adjustment
|
(95)
|
|
|
(208)
|
|
|
Deferred contract costs
|
(173)
|
|
|
(125)
|
|
|
Other deferred tax liabilities
|
(140)
|
|
|
(105)
|
|
|
Total deferred income tax liabilities
|
(4,353)
|
|
|
(4,561)
|
|
|
Net deferred income tax liability
|
$
|
(3,977)
|
|
|
$
|
(4,243)
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Deferred income taxes are classified in the consolidated balance sheets as of December 31, 2020 and 2019, as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Noncurrent assets (included in Other noncurrent assets)
|
$
|
40
|
|
|
$
|
38
|
|
|
Total deferred income tax assets
|
40
|
|
|
38
|
|
|
Noncurrent liabilities
|
(4,017)
|
|
|
(4,281)
|
|
|
Total deferred income tax liabilities
|
(4,017)
|
|
|
(4,281)
|
|
|
Net deferred income tax liability
|
$
|
(3,977)
|
|
|
$
|
(4,243)
|
|
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 (net of valuation allowance). 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; these assessments 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.
As of December 31, 2020 and 2019, the Company had net income taxes receivable of $147 million and $174 million, respectively. These amounts are included in Other receivables in the consolidated balance sheets.
As of December 31, 2020 and 2019, the Company has federal, state and foreign net operating loss carryforwards resulting in deferred tax assets of $221 million and $177 million, respectively. The federal and state net operating losses result in deferred tax assets as of December 31, 2020 and 2019, of $90 million and $68 million, respectively, which expire between 2022 and 2040. The Company has a valuation allowance related to these deferred tax assets for net operating loss carryforwards in the amounts of $48 million and $48 million as of December 31, 2020 and 2019. The Company has foreign net operating loss carryforwards resulting in deferred tax assets as of December 31, 2020 and 2019, of $131 million and $110 million, respectively. The Company has a full valuation allowance against the foreign net operating losses as of December 31, 2020 and 2019.
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 2017. 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 2013. Substantially all state income tax returns have been concluded through 2013.
As of December 31, 2020 and 2019, the Company had gross unrecognized tax benefits of $44 million and $45 million of which $38 million and $38 million, respectively, 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 December 31, 2018
|
$
|
61
|
|
|
Amount of decreases due to lapse of the applicable statute of limitations
|
(5)
|
|
|
Amount of decreases due to settlements
|
(17)
|
|
|
Increases as a result of tax positions taken in the current period
|
1
|
|
|
Assumed in Worldpay acquisition
|
5
|
|
|
Amount of unrecognized tax benefit as of December 31, 2019
|
45
|
|
|
Amount of decreases due to lapse of the applicable statute of limitations
|
(1)
|
|
|
Amount of decreases due to settlements
|
(9)
|
|
|
Increases as a result of tax positions taken in the current period
|
9
|
|
|
Amount of unrecognized tax benefit as of December 31, 2020
|
$
|
44
|
|
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The total amount of interest expense recognized in the consolidated statements of earnings for unpaid taxes is $3 million, $3 million and $4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total amount of interest and penalties included in the consolidated balance sheets is $15 million and $19 million as of December 31, 2020 and 2019, respectively. Interest and penalties are recorded as a component of income tax expense in the consolidated statements of earnings.
Due to the expiration of various statutes of limitation in the next 12 months, an estimated $1 million of gross unrecognized tax benefits may be recognized during that 12-month period.
(16)Commitments and Contingencies
Reliance Trust Claims
Reliance Trust Company ("Reliance"), the Company's subsidiary, is a defendant in a class action arising out of its provision of services as the discretionary trustee for a 401(k) Plan (the "Plan") for one of its customers. On behalf of the Plan participants, plaintiffs in the action, which was filed in December 2015, sought damages and attorneys' fees, as well as equitable relief, against Reliance and the Plan's sponsor and record-keeper for alleged breaches of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"). At a non-jury trial conducted in March 2020, Reliance vigorously defended the action and contended that no breaches of fiduciary duty or prohibited transactions occurred and that Plan participants suffered no damages. At trial, Plaintiffs claimed damages of approximately $127 million against all defendants. On October 12, 2020, Reliance and plaintiffs entered into a settlement agreement, which is subject to final court approval, to settle all allegations and claims asserted in the action for $39.8 million without equitable relief. On October 14, 2020, the Court preliminarily approved the settlement agreement. In the settlement agreement, Reliance admitted no wrongdoing or liability with respect to any of the allegations or claims and maintains that the Plan was managed, operated, and administered during its tenure as the Plan's discretionary trustee in full compliance with ERISA and applicable regulations. Upon final court approval, all allegations and claims will be settled and released with prejudice. The Company recorded a liability for the agreed settlement amount of $39.8 million and a corresponding loss in Other income (expense), net on the consolidated statement of earnings for the year ended December 31, 2020.
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 14 claims against Servicos asserting potential tax liabilities of approximately $11 million. There are potentially 24 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 $32 million, making the total potential exposure for all 38 claims approximately $43 million. We do not believe a liability for these 38 total claims is probable and, therefore, have not recorded a liability for any of these claims.
Acquired Contingencies - Worldpay
The Company assumed in the Worldpay acquisition a Tax Receivable Agreement ("TRA") under which the Company agreed to make payments to Fifth Third Bank ("Fifth Third") of 85% of the federal, state, local and foreign income tax benefits realized by the Company as a result of certain tax deductions. In December 2019, the Company entered into a Tax Receivable Purchase Addendum (the "Amendment") that provides written call and put options (collectively "the options") to terminate certain estimated obligations under the TRA in exchange for fixed cash payments.
The remaining TRA obligations not subject to the Amendment are based on the cash savings realized by the Company by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been no deductions related to the tax attributes. Under the TRA, in certain specified circumstances, such as certain changes of control, the Company may be required to make payments in excess of such cash savings.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Obligations recorded in our consolidated financial statements pursuant to the TRA are based on estimates of future deductions and future tax rates and in the case of the obligations subject to the Amendment, reflect management's expectation that the options will be exercised. In January 2020, the Company exercised its first call option pursuant to the Amendment, which results in fixed cash payments to Fifth Third of $42 million. The timing and/or amount of aggregate payments due under the TRA may vary based on a number of factors, including the exercise of options, the amount and timing of taxable income the Company generates in the future and the tax rate then applicable, the use of loss carryforwards and amortizable basis. Each reporting period, the Company evaluates the assumptions underlying the TRA obligations.
The consolidated balance sheet as of December 31, 2020, includes a total liability of $532 million relating to the TRA. The following table summarizes our estimated payment obligation timing under the TRA as of December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in
|
|
Type of Obligation
|
|
Total
|
|
Less than 1 year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
|
Obligations under TRA
|
|
$
|
532
|
|
|
$
|
85
|
|
|
$
|
379
|
|
|
$
|
68
|
|
|
$
|
—
|
|
Chargeback Liability
Through services offered in our Merchant Solutions segment, the Company is exposed to potential losses from merchant-related chargebacks. A chargeback occurs when a dispute between a cardholder and a merchant, including a claim for non-delivery of the product or service by the merchant, is not resolved in favor of the merchant and the transaction is charged back to the merchant resulting in a refund of the purchase price to the cardholder. If the Company is unable to collect this chargeback amount from the merchant due to closure, bankruptcy or other reasons, the Company bears the loss for the refund paid to the cardholder. The risk of chargebacks is typically greater for those merchants that promise future delivery of goods and services rather than delivering goods or rendering services at the time of payment. The economic impact of the COVID-19 pandemic has not resulted in material chargeback losses as of December 31, 2020; however, it is reasonably possible that the Company has incurred or may incur significant losses related to future chargebacks. Due to the unprecedented nature of the pandemic and the numerous current and future uncertainties that may impact any potential chargeback losses, and considering that the Company has no historical experience with similar uncertainties, a reasonable estimate of the possible accrual for future chargeback losses or range of losses cannot be made.
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, in which case it 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.
Purchase Commitments
The Company has agreements with various vendors, generally with one- to five-year terms, principally for software, maintenance support, telecommunication and network services. Additionally, we have agreements with third-party processors to provide gateway authorization and other processing services. The Company's estimated aggregate contractual obligation remaining under these agreements is approximately $791 million as of December 31, 2020, which is inclusive of the capital obligation related to the construction of our new headquarters. 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 processing needs. The foregoing amounts do not include obligations of the Company under operating leases.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(17)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 a matching amount as specified in the ESPP of 25% of the employee's contribution. The Company recorded expense of $20 million, $15 million, and $14 million, respectively, for the years ended December 31, 2020, 2019 and 2018, 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 eligible compensation, up to the annual 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 $107 million, $91 million and $82 million, respectively, for the years ended December 31, 2020, 2019 and 2018, relating to the participation of FIS employees in the 401(k) plan.
Stock Compensation Plans
In 2008, the Company adopted the FIS 2008 Omnibus Incentive Plan ("FIS Plan"). In May 2013, the FIS Plan was 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 ("the SG Plan"), as amended immediately prior to the consummation of the SunGard acquisition. These shares are available for grant under the FIS Restated Plan for legacy SunGard employees and FIS employees hired after the SunGard acquisition.
On July 31, 2019, in conjunction with the Worldpay acquisition, the Company registered an additional 24 million shares, representing the remaining shares available for issuance under the Worldpay Inc. 2012 Equity Incentive Plan ("Worldpay Plan"), as amended immediately prior to the consummation of the Worldpay acquisition. These shares are available for grant under the FIS Restated Plan for legacy Worldpay employees and FIS employees hired after the Worldpay acquisition.
Also on July 31, 2019, in conjunction with the Worldpay acquisition, the Company registered up to 7 million shares of FIS common stock on a Post-Effective Amendment on Form S-8, reserved for issuance with respect to converted outstanding awards issued under the Worldpay Plan to individuals employed by Worldpay at the effective time of the merger.
During 2019, in conjunction with the Worldpay acquisition, the Company converted outstanding Worldpay equity awards into corresponding FIS equity awards, pursuant to the terms of the merger agreement. The converted equity awards are subject to time-based vesting criteria and include change in control provisions allowing for acceleration of unvested awards in the event of termination of employment without cause or for good reason.
Stock options granted under the FIS Restated Plan for the years ended December 31, 2020, 2019 and 2018 are subject to time-based vesting criteria. Restricted stock units granted under the FIS Restated Plan for the years ended December 31, 2020 and 2019, are subject to time-based vesting criteria as well as performance and/or market conditions for certain grants. The grants with performance and market conditions are subject to the achievement of certain financial performance measures. Participants have the right to earn 0% to 300% of the target number of shares of the Company's common stock, determined by the level of the financial performance measures achieved during the performance period. The restricted stock units granted under the FIS Restated Plan for the year ended December 31, 2018, are subject to time-based vesting criteria as well as market conditions for certain grants.
The number of shares available for future grants under the FIS Restated Plan is 32 million as of December 31, 2020.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Stock Options
The Company grants stock options to certain key employees, which typically vest annually over three years. All stock options are non-qualified stock options, the stock options granted by the Company expire on the seventh anniversary of the grant date, and the stock options converted through the Worldpay acquisition expire on the tenth anniversary of the grant date.
The following table summarizes stock option activity for the year ended December 31, 2020 (in millions except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value
|
|
Balance, December 31, 2019
|
11
|
|
|
$
|
76.01
|
|
|
4.4
|
|
$
|
745
|
|
|
Granted
|
2
|
|
|
120.47
|
|
|
|
|
|
|
Exercised
|
(5)
|
|
|
68.14
|
|
|
|
|
$
|
348
|
|
|
Cancelled
|
—
|
|
|
115.47
|
|
|
|
|
|
|
Balance, December 31, 2020
|
8
|
|
|
$
|
88.01
|
|
|
3.8
|
|
$
|
464
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2020
|
6
|
|
|
$
|
75.35
|
|
|
2.8
|
|
$
|
381
|
|
The intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $348 million, $189 million and $257 million, respectively. The intrinsic value of the outstanding options and options exercisable is based on a closing stock price as of December 31, 2020 of $141.46. The Company issues authorized but unissued shares or shares from treasury stock to settle stock options exercised.
The number of options granted for the years ended December 31, 2020, 2019 and 2018 was 2 million, 1 million and 1 million, respectively. The weighted average exercise price was $120.47, $113.48 and $96.49 for the years ended December 31, 2020, 2019 and 2018, respectively.
The weighted average fair value of options granted during the years ended December 31, 2020, 2019 and 2018, was $21.17, $19.25 and $16.07, respectively, using the Black-Scholes option pricing model with the assumptions below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Risk free interest rate
|
0.4
|
%
|
|
2.2
|
%
|
|
2.5
|
%
|
|
Volatility
|
24.7
|
%
|
|
20.1
|
%
|
|
19.2
|
%
|
|
Dividend yield
|
1.2
|
%
|
|
1.2
|
%
|
|
1.3
|
%
|
|
Weighted average expected life (years)
|
4.1
|
|
4.1
|
|
4.2
|
The options converted through the Worldpay acquisition on July 31, 2019, had a weighted average fair value of $71.05, a weighted average risk free interest rate of 1.9%, a weighted volatility of 18.6%, a weighted average dividend yield of 1.0% and a weighted average expected life of 3.9 years.
The Company estimates future forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ significantly from those estimates. The Company bases the risk-free interest rate that is used in the Black-Scholes 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 of the common stock 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 future trends.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Restricted Stock Units
The Company issues restricted stock units, which typically vest annually over three years. The grant date fair value of the restricted stock units is based on the fair market value of our common stock on the grant date. The number of restricted stock units granted during the years ended December 31, 2020, 2019 and 2018 was 1 million, 2 million and 1 million, respectively. The weighted average grant date fair value of these awards granted during the years ended December 31, 2020, 2019 and 2018, was $127.14, $124.72 and $96.50, respectively. Certain restricted stock units granted in 2020 and 2019 are also subject to performance-based vesting criteria. Certain of the restricted stock units granted in 2020, 2019 and 2018 are also subject to market conditions. The total fair value of restricted stock units that vested was $293 million, $169 million and $97 million in 2020, 2019 and 2018, respectively.
The following table summarizes the restricted stock units activity for the year ended December 31, 2020 (in millions except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
Weighted Average Fair Value
|
|
Balance, December 31, 2019
|
|
6
|
|
|
$
|
127.23
|
|
|
Granted
|
|
1
|
|
|
$
|
127.14
|
|
|
Vested
|
|
(2)
|
|
|
$
|
124.21
|
|
|
Forfeited
|
|
—
|
|
|
$
|
129.72
|
|
|
Balance, December 31, 2020
|
|
5
|
|
|
$
|
127.63
|
|
Stock Compensation Cost
The Company recorded total stock compensation expense of $283 million, $402 million and $84 million for the years ended December 31, 2020, 2019 and 2018, respectively, included in Selling, general, and administrative expenses in the consolidated statements of earnings. Stock compensation expense recorded related to the grants with performance conditions is based on management's expected level of achievement of the financial performance measures during the performance period and is adjusted as appropriate throughout the performance period based on the shares expected to be earned at that time.
As of December 31, 2020 and 2019, the total unrecognized compensation cost related to non-vested stock awards is $304 million and $343 million, respectively, which is expected to be recognized in pre-tax income over a weighted average period of 1.2 years and 1.9 years, respectively.
(18)Related-Party Transactions
Cardinal Holdings
The Company holds a noncontrolling ownership stake in Cardinal Holdings ("Cardinal"), which operates the Capco consulting business. FIS' ownership stake in Cardinal was 36% and 37% at December 31, 2020 and 2019, respectively. The ownership stake in Cardinal is recorded as an equity method investment included within Other noncurrent assets on the consolidated balance sheets. The carrying value of this equity method investment was $137 million and $142 million at December 31, 2020 and 2019, respectively. FIS provides ongoing management consulting services and other services to Cardinal. FIS also purchases services and software licenses from Cardinal from time to time. Amounts transacted through these agreements were not significant to the 2020, 2019 and 2018 periods presented.
Brazilian Venture
The Company operated the Brazilian Venture with Banco Bradesco in which FIS owned a 51% controlling interest through December 31, 2018. FIS closed a transaction with Banco Bradesco on December 31, 2018, to unwind the Brazilian Venture (see Note 19). The board of directors for the Brazilian Venture declared dividends during the years ended December 31, 2018, resulting in a payment to Banco Bradesco of $26 million. The Company recorded revenue of $332 million during the year ended December 31, 2018, from Banco Bradesco. Banco Bradesco was a related party through December 31, 2018.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(19)Divestitures
On September 28, 2018, FIS entered into an agreement with Banco Bradesco to unwind the Brazilian Venture. The transaction closed on December 31, 2018. As a result of the transaction, the Brazilian Venture spun-off certain assets of the business that also provide services to non-Bradesco clients to a new wholly-owned FIS subsidiary. The subsidiary entered into a long-term commercial agreement to provide current and new services to Banco Bradesco effective January 1, 2019, that included software licensing, maintenance, application management, card portfolio migration, business process outsourcing, fraud management and professional services. As a result of the transaction, Banco Bradesco owned 100% of the entity that previously held the Brazilian Venture and its remaining assets that relate to card processing for Banco Bradesco, which Banco Bradesco would perform internally. During the third quarter of 2018, FIS incurred impairment charges of $95 million related to the expected disposal, including $42 million for the Brazilian Venture contract intangible asset, $25 million for goodwill, and $28 million for assets held for sale. Upon closing of the transaction, FIS recorded an additional pre-tax loss of $12 million related to the business divested, removed FIS' noncontrolling interest balance of $90 million, and recorded a $57 million increase to additional paid in capital for the business spun-off into the new wholly-owned FIS subsidiary. The impairment loss and pre-tax loss on disposal were recorded in the Corporate and Other segment. The Brazilian Venture business divested was included within the Capital Market Solutions segment as part of the consolidated Brazilian Venture results recorded by FIS through the transaction date. The transaction did not meet the standard necessary to be reported as discontinued operations; therefore, the impairment loss, pre-tax loss and related prior period earnings remain reported within earnings from continuing operations.
Effective August 31, 2018, FIS sold substantially all the assets of the Certegy Check Services business unit in North America, resulting in a pre-tax loss of $54 million, including goodwill distributed through the sale of business of $43 million.
(20)Components of Other Comprehensive Earnings (Loss)
The following table shows Accumulated other comprehensive earnings (loss) attributable to FIS by component, net of tax, for the years ended December 31, 2020, 2019 and 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
|
Interest Rate
|
|
Currency
|
|
|
|
|
|
|
|
Swap
|
|
Translation
|
|
|
|
|
|
|
|
Contracts
|
|
Adjustments
|
|
Other (1)
|
|
Total
|
|
Balances, December 31, 2017
|
|
$
|
—
|
|
|
$
|
(289)
|
|
|
$
|
(43)
|
|
|
$
|
(332)
|
|
|
Other comprehensive gain (loss) before reclassifications
|
|
—
|
|
|
(102)
|
|
|
4
|
|
|
(98)
|
|
|
Balances, December 31, 2018
|
|
—
|
|
|
(391)
|
|
|
(39)
|
|
|
(430)
|
|
|
Other comprehensive gain (loss) before reclassifications
|
|
(127)
|
|
|
578
|
|
|
(56)
|
|
|
395
|
|
|
Amounts reclassified from accumulated other comprehensive earnings
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
Balances, December 31, 2019
|
|
(127)
|
|
|
187
|
|
|
(93)
|
|
|
(33)
|
|
|
Other comprehensive gain (loss) before reclassifications
|
|
(21)
|
|
|
106
|
|
|
3
|
|
|
88
|
|
|
Amounts reclassified from accumulated other comprehensive earnings
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
|
Balances, December 31, 2020
|
|
$
|
(148)
|
|
|
$
|
293
|
|
|
$
|
(88)
|
|
|
$
|
57
|
|
(1)Includes the minimum pension liability adjustment and the cash settlement payment on treasury lock and forward-starting interest rate swap contracts associated with financing activities from 2019 and prior. Treasury lock and forward-starting interest rate swap related amounts are amortized as an adjustment to interest expense over the periods in which the related interest payments that were hedged are recognized in income.
See Note 15 for the tax provision associated with each component of other comprehensive income.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(21)Concentration of Risk
The Company generates a significant amount of revenue from large clients; however, no individual client accounted for 10% or more of total revenue in the years ended December 31, 2020, 2019 and 2018.
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.
(22)Segment Information
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions and Corporate and Other. The Company regularly assesses its portfolio of assets and reclassified certain non-strategic businesses from the Merchant Solutions, Banking Solutions, and Capital Market Solutions segments into the Corporate and Other segment during the year ended December 31, 2020, and recast all prior-period segment information presented. Below is a summary of each segment.
Merchant Solutions ("Merchant")
The Merchant segment is focused on serving merchants of all sizes globally, enabling them to accept electronic payments, including card-based payments, contactless card and mobile wallet, originated at a physical point of sale, as well as card-not-present payments in eCommerce and mobile environments. Merchant services include all aspects of payment processing, including authorization and settlement, customer service, chargeback and retrieval processing, electronic payment transaction reporting and network fee and interchange management. Merchant also includes value-added services, such as security and fraud prevention solutions, advanced data analytics and information management solutions, foreign currency management and numerous funding options. Merchant serves clients in over 140 countries. Our Merchant clients are highly-diversified, including global enterprises, national retailers, and small- to medium-sized businesses. The Merchant segment utilizes broad and varied distribution channels, including direct sales forces and multiple referral partner relationships that provide us with a growing and diverse client base.
Banking Solutions ("Banking")
The Banking segment is focused on serving all sizes of financial institutions with core processing software, transaction processing software and complementary applications and services, many of which interact directly with the core processing applications. We sell these solutions and services on either a bundled or stand-alone basis. Clients in this segment include global financial institutions, U.S. regional and community banks, credit unions and commercial lenders, as well as government institutions and other commercial organizations. Banking serves clients in more than 100 countries. We provide our clients integrated solutions characterized by multi-year processing contracts that generate highly recurring revenue. The predictable nature of cash flows generated from the Banking segment provides opportunities for further investments in innovation, integration, information and security, and compliance in a cost-effective manner. The results in this segment included the Reliance Trust Company of Delaware business through its divestiture on December 31, 2018 and the Company's Brazilian Venture business through its divestiture as part of the joint venture unwinding transaction on December 31, 2018 (see Note 19).
Capital Market Solutions ("Capital Markets")
The Capital Markets segment is focused on serving global financial services clients with a broad array of buy- and sell-side solutions. Clients in this segment operate in more than 100 countries and include asset managers, buy- and sell-side securities brokerage and trading firms, insurers, private equity firms, and other commercial organizations. Our buy- and sell-side solutions include a variety of mission-critical applications for recordkeeping, data and analytics, trading, financing and risk management. Capital Markets 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 procuring fully outsourced end-to-end solutions. Our long-established relationships with many of these financial and commercial institutions generate significant recurring revenue. We have made, and continue to make, investments in modern platforms; advanced technologies, such as cloud delivery, open APIs, machine learning and artificial intelligence; and regulatory technology to support our Capital Markets clients.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 that we plan to wind down or sell. The overhead and leveraged costs relate to corporate marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs, such as acquisition and integration expenses, that are not considered when management evaluates revenue-generating segment performance. The Corporate and Other segment also includes the impact on revenue for 2018 of adjusting deferred revenue to fair value from the SunGard acquisition. Additionally, the Corporate and Other segment included the Certegy Check Services business unit in North America through its divestiture on August 31, 2018.
During 2020 and 2019, the Company recorded acquisition and integration costs primarily related to the Worldpay acquisition, as well as certain other costs associated with data center consolidation activities totaling $88 million and $70 million, respectively. During 2020, the Company also recorded incremental costs directly related to COVID-19 of $71 million. During 2018, the Company recorded acquisition and integration costs primarily related to the SunGard acquisition, as well as certain other costs associated with data center consolidation activities totaling $26 million.
Adjusted EBITDA
Adjusted EBITDA is a measure of segment profit or loss that 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 FASB ASC Topic 280, Segment Reporting. Adjusted EBITDA is defined as net earnings (loss) before net interest expense, net other income (expense), income tax provision (benefit), equity method investment earnings (loss), and depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature. The non-operational items affecting the segment profit measure generally include purchase accounting adjustments as well as acquisition, integration and certain other costs and asset impairments. Adjusted EBITDA also excludes incremental and direct costs resulting from the COVID-19 pandemic. 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.
Summarized financial information for the Company's segments is shown in the following tables. The Company does not evaluate performance or allocate resources based on segment asset data; therefore, such information is not presented.
As of and for the year ended December 31, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate
and Other
|
|
Total
|
|
Revenue
|
$
|
3,767
|
|
|
$
|
5,944
|
|
|
$
|
2,440
|
|
|
$
|
401
|
|
|
$
|
12,552
|
|
|
Operating expenses
|
(2,320)
|
|
|
(3,901)
|
|
|
(1,566)
|
|
|
(4,213)
|
|
|
(12,000)
|
|
|
Depreciation and amortization (including purchase accounting amortization)
|
305
|
|
|
513
|
|
|
273
|
|
|
2,623
|
|
|
3,714
|
|
|
Acquisition, integration and other costs
|
—
|
|
|
—
|
|
|
—
|
|
|
858
|
|
|
858
|
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
136
|
|
|
136
|
|
|
Adjusted EBITDA
|
$
|
1,752
|
|
|
$
|
2,556
|
|
|
$
|
1,147
|
|
|
$
|
(195)
|
|
|
$
|
5,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
$
|
5,260
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(964)
|
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
|
|
(2,750)
|
|
|
Acquisition, integration and other costs
|
|
|
|
|
|
|
|
|
(858)
|
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
(136)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(334)
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
48
|
|
|
(Provision) benefit for income taxes
|
|
|
|
|
|
|
|
|
(96)
|
|
|
Equity method investment earnings (loss)
|
|
|
|
|
|
|
|
|
(6)
|
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
(6)
|
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
|
|
$
|
158
|
|
|
Capital expenditures (1)
|
$
|
365
|
|
|
$
|
498
|
|
|
$
|
223
|
|
|
$
|
64
|
|
|
$
|
1,150
|
|
(1) Capital expenditures include $21 million in other financing obligations for certain hardware and software.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of and for the year ended December 31, 2019 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate
and Other
|
|
Total
|
|
Revenue
|
$
|
1,942
|
|
|
$
|
5,592
|
|
|
$
|
2,318
|
|
|
$
|
481
|
|
|
$
|
10,333
|
|
|
Operating expenses
|
(1,090)
|
|
|
(3,679)
|
|
|
(1,458)
|
|
|
(3,137)
|
|
|
(9,364)
|
|
|
Depreciation and amortization (including purchase accounting amortization)
|
115
|
|
|
489
|
|
|
213
|
|
|
1,627
|
|
|
2,444
|
|
|
Acquisition, integration and other costs
|
—
|
|
|
—
|
|
|
—
|
|
|
704
|
|
|
704
|
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
87
|
|
|
Adjusted EBITDA
|
$
|
967
|
|
|
$
|
2,402
|
|
|
$
|
1,073
|
|
|
$
|
(238)
|
|
|
$
|
4,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
$
|
4,204
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(809)
|
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
|
|
(1,635)
|
|
|
Acquisition, integration and other costs
|
|
|
|
|
|
|
|
|
(704)
|
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
(87)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(337)
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
(219)
|
|
|
(Provision) benefit for income taxes
|
|
|
|
|
|
|
|
|
(100)
|
|
|
Equity method investment earnings (loss)
|
|
|
|
|
|
|
|
|
(10)
|
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
(5)
|
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
|
|
$
|
298
|
|
|
Capital expenditures (1)
|
$
|
141
|
|
|
$
|
612
|
|
|
$
|
266
|
|
|
$
|
24
|
|
|
$
|
1,043
|
|
(1) Capital expenditures include $215 million in other financing obligations for certain hardware and software.
As of and for the year ended December 31, 2018 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchant
Solutions
|
|
Banking
Solutions
|
|
Capital
Market
Solutions
|
|
Corporate
and Other
|
|
Total
|
|
Revenue
|
$
|
208
|
|
|
$
|
5,416
|
|
|
$
|
2,258
|
|
|
$
|
541
|
|
|
$
|
8,423
|
|
|
Operating expenses
|
(170)
|
|
|
(3,679)
|
|
|
(1,388)
|
|
|
(1,728)
|
|
|
(6,965)
|
|
|
Depreciation and amortization (including purchase accounting amortization)
|
7
|
|
|
455
|
|
|
154
|
|
|
804
|
|
|
1,420
|
|
|
Acquisition deferred revenue adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
|
Acquisition, integration and other costs
|
—
|
|
|
—
|
|
|
—
|
|
|
156
|
|
|
156
|
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
95
|
|
|
Adjusted EBITDA
|
$
|
45
|
|
|
$
|
2,192
|
|
|
$
|
1,024
|
|
|
$
|
(128)
|
|
|
3,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
$
|
3,133
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
(688)
|
|
|
Purchase accounting amortization
|
|
|
|
|
|
|
|
|
(732)
|
|
|
Acquisition deferred revenue adjustment
|
|
|
|
|
|
|
|
|
(4)
|
|
|
Acquisition, integration and other costs
|
|
|
|
|
|
|
|
|
(156)
|
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
(95)
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
(297)
|
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
(57)
|
|
|
(Provision) benefit for income taxes
|
|
|
|
|
|
|
|
|
(208)
|
|
|
Equity method investment earnings (loss)
|
|
|
|
|
|
|
|
|
(15)
|
|
|
Net earnings attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
(35)
|
|
|
Net earnings attributable to FIS common stockholders
|
|
|
|
|
|
|
|
|
$
|
846
|
|
|
Capital expenditures (1)
|
$
|
10
|
|
|
$
|
471
|
|
|
$
|
202
|
|
|
$
|
30
|
|
|
$
|
713
|
|
(1) Capital expenditures include $91 million in other financing obligations for certain hardware and software.
Clients in the United Kingdom, Germany, Australia, Brazil and India accounted for the majority of the revenue from clients based outside of North America for all periods presented. FIS conducts business in over 140 countries, with no individual country outside of North America accounting for more than 10% of total revenue for the years ended December 31, 2020, 2019 and 2018.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Long-term assets, excluding goodwill and other intangible assets, located outside of the United States totaled $1,772 million and $1,646 million as of December 31, 2020 and 2019, respectively. These assets are predominantly located in the United Kingdom, India, France, Netherlands, Germany and Belgium.