Document
Table of Contents

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-Q
_______________________________________________
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended March 31, 2018
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to
Commission File No. 001-16427
_______________________________________________
Fidelity National Information Services, Inc.
(Exact name of registrant as specified in its charter)
Georgia
 
37-1490331
(State or other jurisdiction
 
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
 
 
 
601 Riverside Avenue
 
 
Jacksonville, Florida
 
32204
(Address of principal executive offices)
 
(Zip Code)
(904) 438-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x
As of April 30, 2018, 331,014,452 shares of the Registrant’s Common Stock were outstanding.
 
 
 
 
 
 
 
 
 
 



FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2018
INDEX
 
Page
 
 
 
 EX-31.1
 
 EX-31.2
 
 EX-32.1
 
 EX-32.2
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 


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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
March 31, 2018
 
December 31, 2017
 
 
 
As Adjusted *
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
725

 
$
665

Settlement deposits
590

 
677

Trade receivables, net of allowance for doubtful accounts of $57 and $63 as of
March 31, 2018 and December 31, 2017, respectively
1,562

 
1,624

Contract assets
107

 
108

Settlement receivables
346

 
291

Other receivables
96

 
70

Prepaid expenses and other current assets
309

 
253

Total current assets
3,735

 
3,688

Property and equipment, net
581

 
610

Goodwill
13,747

 
13,730

Intangible assets, net
3,707

 
3,885

Computer software, net
1,739

 
1,728

Deferred contract costs, net
392

 
354

Other noncurrent assets
504

 
531

Total assets
$
24,405

 
$
24,526

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
1,018

 
$
1,241

Settlement payables
920

 
949

Deferred revenues
842

 
776

Current portion of long-term debt
1,036

 
1,045

Total current liabilities
3,816

 
4,011

Long-term debt, excluding current portion
8,040

 
7,718

Deferred income taxes
1,443

 
1,468

Deferred revenues
105

 
106

Other long-term liabilities
390

 
403

Total liabilities
13,794

 
13,706

Equity:
 
 
 
FIS stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of March 31, 2018 and December 31, 2017

 

Common stock, $0.01 par value, 600 shares authorized, 432 and 432 shares issued as of March 31, 2018 and December 31, 2017
4

 
4

Additional paid in capital
10,585

 
10,534

Retained earnings
4,186

 
4,109

Accumulated other comprehensive earnings (loss)
(318
)
 
(332
)
Treasury stock, 102 and 99 shares as of March 31, 2018 and December 31, 2017, respectively, at cost
(3,962
)
 
(3,604
)
Total FIS stockholders’ equity
10,495

 
10,711

Noncontrolling interest
116

 
109

Total equity
10,611

 
10,820

Total liabilities and equity
$
24,405

 
$
24,526


See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.

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

 
Three months ended
March 31,
 
2018
 
2017
 
 
 
As Adjusted *
Revenues
$
2,066

 
$
2,148

Cost of revenues
1,414

 
1,491

Gross profit
652

 
657

Selling, general, and administrative expenses
358

 
411

Operating income
294

 
246

Other income (expense):
 
 
 
Interest expense, net
(72
)
 
(93
)
Other income (expense), net
3

 
56

Total other income (expense), net
(69
)
 
(37
)
Earnings before income taxes and equity method investment earnings
225

 
209

Provision for income taxes
34

 
74

Equity method investment earnings
(1
)
 

Net earnings
190

 
135

Net (earnings) loss attributable to noncontrolling interest
(8
)
 
(6
)
Net earnings attributable to FIS common stockholders
$
182

 
$
129

 
 
 
 
Net earnings per share — basic attributable to FIS common stockholders
$
0.55

 
$
0.39

Weighted average shares outstanding — basic
330

 
328

Net earnings per share — diluted attributable to FIS common stockholders
$
0.54

 
$
0.39

Weighted average shares outstanding — diluted
334

 
333

Cash dividends paid per share
$
0.32

 
$
0.29

See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.


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

 
Three months ended March 31,
 
2018
 
2017
 
 
 
 
 
As Adjusted *
Net earnings
 
 
$
190

 
 
 
$
135

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

 
 
 
$

 
 
Reclassification adjustment for gains (losses) included in net earnings

 
 
 

 
 
Unrealized gain (loss) on investments and derivatives, net

 
 
 

 
 
Foreign currency translation adjustments
14

 
 
 
36

 
 
Minimum pension liability adjustment

 
 
 

 
 
Other comprehensive earnings (loss), before tax:
14

 
 
 
36

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

 
 
 

 
 
Other comprehensive earnings (loss), net of tax
$
14

 
14

 
$
36

 
36

Comprehensive earnings (loss):
 
 
204

 
 
 
171

Net (earnings) loss attributable to noncontrolling interest
 
 
(8
)
 
 
 
(6
)
Other comprehensive (earnings) losses attributable to noncontrolling interest
 
 

 
 
 
(3
)
Comprehensive earnings (loss) attributable to FIS common stockholders
 
 
$
196

 
 
 
$
162

See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.






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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
Three months ended March 31, 2018
(In millions, except per share amounts)
(Unaudited)

 
 
 
 
 
Amount
 
 
 
 
 
FIS Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Number of shares
 
 
 
Additional
 
 
 
other
 
 
 
 
 
 
 
Common
 
Treasury
 
Common
 
paid in
 
Retained
 
comprehensive
 
Treasury
 
Noncontrolling
 
Total
 
shares
 
shares
 
stock
 
capital
 
earnings
 
earnings
 
stock
 
interest
 
equity
Balances, December 31, 2017, as adjusted *
432

 
(99
)
 
$
4

 
$
10,534

 
$
4,109

 
$
(332
)
 
$
(3,604
)
 
$
109

 
$
10,820

Exercise of stock options

 
1

 

 
32

 

 

 
60

 

 
92

Treasury shares held for taxes due upon exercise of stock options

 

 

 
(1
)
 

 

 
(17
)
 

 
(18
)
Purchases of treasury stock

 
(4
)
 

 

 

 

 
(401
)
 

 
(401
)
Stock-based compensation

 

 

 
20

 

 

 

 

 
20

Cash dividends paid ($0.32 per share per quarter) and other distributions

 

 

 

 
(105
)
 

 

 
(1
)
 
(106
)
Net earnings

 

 

 

 
182

 

 

 
8

 
190

Other comprehensive earnings, net of tax

 

 

 

 

 
14

 

 

 
14

Balances, March 31, 2018
432

 
(102
)
 
$
4

 
$
10,585

 
$
4,186

 
$
(318
)
 
$
(3,962
)
 
$
116

 
$
10,611

See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.



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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three months ended
March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
As Adjusted *
Net earnings
$
190

 
$
135

Adjustment to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
352

 
332

Amortization of debt issue costs
5

 
12

Gain on sale of businesses
(7
)
 
(85
)
Stock-based compensation
20

 
26

Deferred income taxes
(14
)
 
(152
)
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
 
 
 
Trade receivables
44

 
11

Contract assets
2

 
57

Settlement activity
2

 
(36
)
Prepaid expenses and other assets
(43
)
 
(50
)
Deferred contract costs
(65
)
 
(36
)
Deferred revenue
69

 
96

Accounts payable, accrued liabilities, and other liabilities
(201
)
 
144

Net cash provided by operating activities
354

 
454

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property and equipment
(54
)
 
(44
)
Additions to computer software
(118
)
 
(111
)
Proceeds from sale of business
49

 
827

Other investing activities, net
(4
)
 
(1
)
Net cash provided by (used in) investing activities
(127
)
 
671

 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings
1,971

 
1,381

Repayment of borrowings
(1,711
)
 
(2,443
)
Proceeds from exercise of stock options
98

 
64

Treasury stock activity
(424
)
 
(17
)
Dividends paid
(106
)
 
(95
)
Other financing activities, net
(1
)
 
(4
)
Net cash used in financing activities
(173
)
 
(1,114
)
Effect of foreign currency exchange rate changes on cash
6

 
11

Net increase in cash and cash equivalents
60

 
22

Cash and cash equivalents, beginning of period
665

 
683

Cash and cash equivalents, end of period
$
725

 
$
705

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
46

 
$
59

Cash paid for income taxes
$
138

 
$
55

See accompanying notes to unaudited condensed consolidated financial statements.
* See Note 3.


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


Unless stated otherwise or the context otherwise requires, all references to “FIS,” “we,” the “Company” or the “registrant” are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.

(1) Basis of Presentation

The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited) and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Certain reclassifications have been made in the 2017 Condensed Consolidated Financial Statements (Unaudited) to conform to the classifications used in 2018. Amounts in tables in the financial statements and accompanying footnotes may not sum due to rounding.

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, all 2017 financial information has been adjusted for the implementation of Topic 606.

We report the results of our operations in three reporting segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other (Note 13).
 
(2) Summary of Significant Accounting Policies

(a) Revenue Recognition

The Company generates revenues in a number of ways, including from the delivery of account or transaction based processing, professional services, software licensing, software as a service ("SaaS"), business process as a service ("BPaaS"), cloud revenue and software related services.

The Company enters into arrangements with customers to provide services, software and software-related services such as maintenance and 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

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


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 revenues.

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 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.

Once the Company has determined the transaction price, the total transaction price 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 allocations are made. Otherwise, the Company allocates 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 or a discount 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. The Company does not typically meet the requirements to allocate discounts to one or more, but not all, performance obligations in a contract.

In order 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 revenues and the revenue recognition policies and significant payment terms as they pertain to the types of transactions the Company enters into with its customers.

Processing Services Revenues

Processing services are primarily comprised of data processing and application management, including our SaaS, BPaaS, and cloud offerings. Revenues from processing services are typically volume- or activity-based depending on factors such as the number of accounts processed, transactions or trades processed, users, number of hours of services or computer resources used. The payment terms 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 multiple years. 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 revenues, 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

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


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 revenues 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.

Professional Services Revenues

Professional services revenues are comprised of implementation, conversion, and programming services associated with the Company’s data processing and application management agreements, implementation or installation services related to licensed software, and other consulting services. A significant portion of our professional services revenues are derived from contracts for dedicated personnel resources who are often working full-time at a client site and under the client's direction. These revenues generally re-occur as contracts are renewed. 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).

License and Software Related Revenues

The Company’s software licenses generally have significant stand-alone functionality to the customer upon delivery and are considered to be functional intellectual property (“IP”). 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, and revenue allocated to the software license is typically recognized at a point in time upon delivery of the license.

In conjunction with software licenses, the Company commonly provides the customer with additional services such as maintenance as well as associated implementation and other professional services related to the software license. Payments for maintenance are typically due annually, quarterly, or monthly in advance. Maintenance is typically comprised of technical support and unspecified updates and upgrades. The Company generally satisfies these performance obligations evenly using a time-elapsed output method over the contract term given there is no discernible pattern of performance. 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 above for professional services revenues.


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


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 revenues are recognized when the hosting services commence and it is within the customer's control to obtain a copy of the software, and hosting revenues are recognized using the time-elapsed output method as the service is provided. If the software license is not separately identifiable from the hosting service, then the related revenues for the combined performance obligation are recognized ratably over the hosting period.

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 for customers who would prefer a periodic fee instead of a larger up-front payment. Revenue recognition under these arrangements follow the same recognition pattern as the arrangements outlined above; however, the customer generally pays for the software license and maintenance in monthly or quarterly installments as opposed to an upfront software license fee. 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, and the overall impact of the time value of money on the transaction. Rental software license arrangements that include a significant financing component are 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 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.

Hardware and Other Revenues

Hardware and other miscellaneous revenues are generally recognized at a point in time upon delivery. 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.

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.

(b) 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 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 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.

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 and amortized using an appropriate single measure of performance considering all of the performance obligations in the contract. The Company amortizes origination costs over the expected benefit period to which the deferred contract cost relates. Origination costs related

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


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.

(3) Changes in Accounting Policies

The Company adopted Topic 606, Revenue from Contracts with Customers, with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition. The details of the significant changes and quantitative impact of the changes are disclosed below.

The Company applied Topic 606 retrospectively using certain practical expedients in paragraph 606-10-65-1(f). For completed contracts that have variable consideration, the Company uses the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods. Further, the Company does not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for the 2016 and 2015 reporting periods presented before the date of the initial application. Lastly, the Company did not retrospectively restate contracts modified before the beginning of the earliest reporting period presented but reflects the aggregate effect of all modifications that occurred before the beginning of the earliest period presented.

Principal vs. Agent Considerations

In customer transactions that also involve third parties, the Company determines whether it is responsible for providing the ultimate solution or service as a principal, or whether it is merely arranging for the solution or service to be provided by the third party as an agent. When the Company is acting as a principal in a transaction, the Company recognizes the gross amounts billed as revenue. When the Company is acting as an agent in a transaction, the Company recognizes the net amount retained as revenue. Previously, the Company followed the guidance of Topic 605, which lists eight specific indicators that are determinative in evaluating whether a contract is recorded on a gross or a net basis. Under Topic 606, the determination is based on whether an entity obtains control of goods or services prior to transfer to a customer. The Company determined interchange and third-party network fees associated with certain parts of the payment processing business were significantly impacted by the adoption of Topic 606. Previously, gross accounting applied to certain types of these transactions, depending on the specific facts and circumstances. However, under Topic 606 revenues from these arrangements will be presented on a net basis because the Company has concluded that it is acting as an agent in the transaction.

Software License Rentals

The Company previously recognized revenue for initial license fees only when a contract existed, the fee was fixed or determinable, software delivery had occurred, collection was deemed probable, and vendor specific objective evidence of fair value had been established for any undelivered elements in the arrangement. If those criteria were not met, the initial license revenue was either deferred or recognized over time depending on the specific facts and circumstances. Software license rentals typically include payments that are delayed for a period of time, causing the Company to conclude that some portion of the license fee was not fixed or determinable. In these arrangements, license revenue would be deferred until payments become due and payable. Under Topic 606, the Company’s software licenses are generally considered distinct performance obligations, and revenue allocated to the software license is typically recognized at a point in time upon delivery of the license. Software license revenue is also typically recognized at a point in time upon delivery of the license under Topic 606 even if it is sold in a rental model or with extended payment terms, provided collectability is probable. Accordingly, a larger portion of software license revenue is recognized upfront for such transactions under Topic 606 than under Topic 605.

Term License Early Renewals

The Company previously recognized revenue for term software license renewals upon execution of a license renewal contract, provided all other revenue recognition requirements were met. Under Topic 606, revenue attributable to software term license renewals is now recognized at a later date than it would have been recognized under the previous accounting policy.


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


Impacts on Financial Statements

The following tables summarize the impacts of Topic 606 adoption on the Company’s Condensed Consolidated Financial Statements (Unaudited).

Condensed Consolidated Balance Sheet (Unaudited) as of December 31, 2017:

 
As Previously
 
 
 
 
 
Reported
 
Adjustments
 
As Adjusted
ASSETS
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
665

 
$

 
$
665

Settlement deposits
677

 

 
677

Trade receivables, net
1,650

 
(26
)
 
1,624

Contract assets

 
108

 
108

Settlement receivables
291

 

 
291

Other receivables
70

 

 
70

Prepaid expenses and other current assets
253

 

 
253

Total current assets
3,606

 
82

 
3,688

Property and equipment, net
610

 

 
610

Goodwill
13,730

 

 
13,730

Intangible assets, net
3,950

 
(65
)
 
3,885

Computer software, net
1,728

 

 
1,728

Deferred contract costs, net
362

 
(8
)
 
354

Other noncurrent assets
531

 

 
531

Total assets
$
24,517

 
$
9

 
$
24,526

LIABILITIES AND EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable and accrued liabilities
$
1,241

 
$

 
$
1,241

Settlement payables
949

 

 
949

Deferred revenues
688

 
88

 
776

Current portion of long-term debt
1,045

 

 
1,045

Total current liabilities
3,923

 
88

 
4,011

Long-term debt, excluding current portion
7,718

 

 
7,718

Deferred income taxes
1,508

 
(40
)
 
1,468

Deferred revenues
21

 
85

 
106

Other long-term liabilities
403

 

 
403

Total liabilities
13,573

 
133

 
13,706

Equity:
 
 
 
 
 
FIS stockholders’ equity:
 
 
 
 
 
Preferred stock

 

 

Common stock
4

 

 
4

Additional paid in capital
10,534

 

 
10,534

Retained earnings
4,233

 
(124
)
 
4,109

Accumulated other comprehensive earnings
(332
)
 

 
(332
)
Treasury stock, at cost
(3,604
)
 

 
(3,604
)
Total FIS stockholders’ equity
10,835

 
(124
)
 
10,711

Noncontrolling interest
109

 

 
109

Total equity
10,944

 
(124
)
 
10,820

Total liabilities and equity
$
24,517

 
$
9

 
$
24,526



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


Condensed Consolidated Statement of Earnings (Unaudited) for the three months ended March 31, 2017:
 
As previously
 
 
 
 
 
Reported
 
Adjustments
 
As Adjusted
Revenues
$
2,255

 
$
(107
)
 
$
2,148

Cost of revenues
1,582

 
(91
)
 
1,491

Gross profit
673

 
(16
)
 
657

Selling, general, and administrative expenses
413

 
(2
)
 
411

Operating income
260

 
(14
)
 
246

Other income (expense):
 
 
 
 
 
Interest income (expense), net
(93
)
 

 
(93
)
Other income (expense), net
56

 

 
56

Total other income (expense)
(37
)
 

 
(37
)
Earnings before income taxes and equity method investment earnings
223

 
(14
)
 
209

Provision (benefit) for income taxes
79

 
(5
)
 
74

Equity method investment earnings

 

 

Net earnings
144

 
(9
)
 
135

Net earnings attributable to noncontrolling interest
(6
)
 

 
(6
)
Net earnings attributable to FIS common stockholders
$
138

 
$
(9
)
 
$
129

 
 
 
 
 
 
Net earnings per share — basic attributable to FIS common stockholders *
$
0.42

 
$
(0.03
)
 
$
0.39

Weighted average shares outstanding — basic
328

 
328

 
328

Net earnings per share — diluted attributable to FIS common stockholders *
$
0.41

 
$
(0.03
)
 
$
0.39

Weighted average shares outstanding — diluted
333

 
333

 
333



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


Condensed Consolidated Statement of Comprehensive Earnings (Unaudited) for the three months ended March 31, 2017:
 
As Previously
 
 
 
 
 
Reported
 
Adjustments
 
As Adjusted
Net earnings
 
 
$
144

 
 
 
$
(9
)
 
 
 
$
135

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

 
 
 
$

 
 
 
$

 
 
Reclassification adjustment for gains (losses) included in net earnings

 
 
 

 
 
 

 
 
Unrealized gain (loss) on investments and derivatives, net

 
 
 

 
 
 

 
 
Foreign currency translation adjustments
36

 
 
 

 
 
 
36

 
 
Minimum pension liability adjustments

 
 
 

 
 
 

 
 
Other comprehensive earnings (loss), before tax
36

 
 
 

 
 
 
36

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

 
 
 

 
 
 

 
 
Other comprehensive earnings (loss), net of tax
$
36

 
36

 
$

 

 
$
36

 
36

Comprehensive earnings
 
 
180

 
 
 
(9
)
 
 
 
171

Net (earnings) loss attributable to noncontrolling interest
 
 
(6
)
 
 
 

 
 
 
(6
)
Other comprehensive (earnings) losses attributable to noncontrolling interest
 
 
(3
)
 
 
 

 
 
 
(3
)
Comprehensive earnings attributable to FIS common stockholders
 
 
$
171

 
 
 
$
(9
)
 
 
 
$
162



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


Condensed Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 2017:
 
As Previously
 
 
 
 
 
Reported
 
Adjustments
 
As Adjusted
Cash flows from operating activities:
 
 
 
 
 
Net earnings
$
144

 
$
(9
)
 
$
135

Adjustment to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization
339

 
(7
)
 
332

Amortization of debt issue costs
12

 

 
12

Gain on sale of assets
(85
)
 

 
(85
)
Stock-based compensation
26

 

 
26

Deferred income taxes
(150
)
 
(2
)
 
(152
)
Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
 
 
 
 
 
Trade receivables
67

 
(56
)
 
11

Contract assets

 
57

 
57

Settlement activity
(36
)
 

 
(36
)
Prepaid expenses and other assets
(50
)
 

 
(50
)
Deferred contract costs
(37
)
 
1

 
(36
)
Deferred revenue
77

 
19

 
96

Accounts payable, accrued liabilities, and other liabilities
147

 
(3
)
 
144

Net cash provided by operating activities
454

 

 
454

 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
Additions to property and equipment
(44
)
 

 
(44
)
Additions to computer software
(111
)
 

 
(111
)
Net proceeds from sale of assets
827

 

 
827

Other investing activities, net
(1
)
 

 
(1
)
Net cash provided by (used in) investing activities
671

 

 
671

 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
Borrowings
1,381

 

 
1,381

Repayment of borrowings and capital lease obligations
(2,443
)
 

 
(2,443
)
Proceeds from exercise of stock options
64

 

 
64

Treasury stock activity
(17
)
 

 
(17
)
Dividends paid
(95
)
 

 
(95
)
Other financing activities, net
(4
)
 

 
(4
)
Net cash (used in) provided by financing activities
(1,114
)
 

 
(1,114
)
Effect of foreign currency exchange rate changes on cash
11

 

 
11

Net increase (decrease) in cash and cash equivalents
22

 

 
22

Cash and cash equivalents, beginning of year
683

 

 
683

Cash and cash equivalents, end of year
$
705

 
$

 
$
705

 
 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
 
Cash paid for interest
$
59

 
$

 
$
59

Cash paid for income taxes
$
55

 
$

 
$
55



15

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


(4) Revenue

Disaggregation of Revenue
    
In the following tables, revenue is disaggregated by primary geographical market, type of revenue, and recurring nature of revenue recognized. The tables also include a reconciliation of the disaggregated revenue with the Company’s reportable segments.

For the three months ended March 31, 2018 (in millions):

 
 
Reportable Segments
 
 
 
 
 
 
Corporate
 
 
 
 
IFS
 
GFS
 
and Other
 
Total
Primary Geographical Markets:
 
 
 
 
 
 
 
 
North America
 
$
1,017

 
$
453

 
$
64

 
$
1,534

All others
 
44

 
474

 
14

 
532

Total
 
$
1,061

 
$
927

 
$
78

 
$
2,066

 
 
 
 
 
 
 
 
 
Type of Revenue:
 
 
 
 
 
 
 
 
Processing and services
 
$
896

 
$
542

 
$
75

 
$
1,513

License and software related
 
86

 
247

 

 
333

Professional services
 
37

 
138

 
2

 
177

Hardware and other
 
42

 

 
1

 
43

Total
 
$
1,061

 
$
927

 
$
78

 
$
2,066

 
 
 
 
 
 
 
 
 
Recurring Nature of Revenue Recognition:
 
 
 
 
 
 
 
 
Recurring fees
 
$
951

 
$
699

 
$
75

 
$
1,725

Non-recurring fees
 
110

 
228

 
3

 
341

Total
 
$
1,061

 
$
927

 
$
78

 
$
2,066



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


For the three months ended March 31, 2017 (in millions):

 
 
Reportable Segments
 
 
As Adjusted
 
 
 
 
 
 
Corporate
 
 
 
 
IFS
 
GFS
 
and Other
 
Total
Primary Geographical Markets:
 
 
 
 
 
 
 
 
North America
 
$
999

 
$
490

 
$
95

 
$
1,584

All others
 
38

 
513

 
13

 
564

Total
 
$
1,037

 
$
1,003

 
$
108

 
$
2,148

 
 
 
 
 
 
 
 
 
Type of Revenue:
 
 
 
 
 
 
 
 
Processing and services
 
$
850

 
$
550

 
$
87

 
$
1,487

License and software related
 
94

 
201

 
12

 
307

Professional services
 
48

 
252

 
6

 
306

Hardware and other
 
45

 

 
3

 
48

Total
 
$
1,037

 
$
1,003

 
$
108

 
$
2,148

 
 
 
 
 
 
 
 
 
Recurring Nature of Revenue Recognition:
 
 
 
 
 
 
 
 
Recurring fees
 
$
913

 
$
699

 
$
96

 
$
1,708

Non-recurring fees
 
124

 
304

 
12

 
440

Total
 
$
1,037

 
$
1,003

 
$
108

 
$
2,148


Contract Balances

The following table provides information about trade receivables, contract assets, and deferred revenues from contracts with customers (in millions).

 
 
As of
 
 
March 31,
 
December 31,
 
 
2018
 
2017
 
 
 
 
As adjusted
 
 
 
 
 
Trade receivables
 
$
1,562

 
$
1,624

Contract assets (current)
 
107

 
108

Contract assets (non-current), included in other noncurrent assets
 
111

 
118

Deferred revenue (current)
 
842

 
776

Deferred revenue (non-current)
 
105

 
106


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 Condensed Consolidated Balance Sheet. 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

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


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 revenues are relieved as revenue is recognized. Contract assets and deferred revenues are reported on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and deferred revenue balances during the three months ended March 31, 2018 were not materially impacted by any factors other than those described above.

During the three months ended March 31, 2018 and 2017, the Company recognized revenue of $282 million and $244 million, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.

During the three months ended March 31, 2018 and 2017, amounts recognized from performance obligations satisfied (or partially satisfied) in prior periods were insignificant.

Transaction Price Allocated to the Remaining Performance Obligations

As of March 31, 2018, approximately $19.5 billion of revenue is estimated to be recognized in the future from the Company’s remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 35% of our remaining performance obligations over the next 12 months, approximately another 25% over the next 13 to 24 months, and the balance thereafter.

(5) Condensed Consolidated Financial Statement Details

The following table shows the Company’s Condensed Consolidated Financial Statement details as of March 31, 2018 and December 31, 2017 (in millions):

 
March 31, 2018
 
December 31, 2017, As adjusted
 
Cost
 
Accumulated
depreciation and amortization
 
Net
 
Cost
 
Accumulated
depreciation and amortization
 
Net
Property and equipment
$
1,672

 
$
1,091

 
$
581

 
$
1,657

 
$
1,047

 
$
610

Intangible assets
$
6,356

 
$
2,649

 
$
3,707

 
$
6,369

 
$
2,484

 
$
3,885

Computer software
$
2,929

 
$
1,190

 
$
1,739

 
$
2,862

 
$
1,134

 
$
1,728

       
The Company entered into capital lease obligations of $0 million and $74 million during the three months ended March 31, 2018 and 2017, respectively. The assets are included in property and equipment and computer software and the remaining capital lease obligations are classified as long-term debt on our Condensed Consolidated Balance Sheets (Unaudited) as of March 31, 2018 and December 31, 2017. Periodic payments are included in repayment of borrowings on the Condensed Consolidated Statements of Cash Flows (Unaudited).

Changes in goodwill during the three months ended March 31, 2018 are summarized as follows (in millions):
 
Total
Balance, December 31, 2017
$
13,730

Goodwill distributed through sale of assets
(24
)
Foreign currency adjustments
41

Balance, March 31, 2018
$
13,747


As of March 31, 2018, intangible assets, net of amortization, includes $3,618 million of customer relationships and $40 million of finite-lived trademarks, as well as $49 million of non-amortizable assets consisting mainly of indefinite-lived trademarks.  Amortization expense for the quarter with respect to these intangible assets was $167 million.


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


Settlement Activity

We manage certain integrated electronic payment services and programs and wealth management processes for our clients that require us to hold and manage client cash balances used to fund their daily settlement activity. Settlement deposits represent funds we hold that were drawn from our clients to facilitate settlement activities. Settlement receivables represent amounts funded by us. Settlement payables consist of settlement deposits from clients, settlement payables to third parties, and outstanding checks related to our settlement activities for which the right of offset does not exist or we do not intend to exercise our right of offset. Our accounting policy for such outstanding checks is to include them in settlement payables on the Condensed Consolidated Balance Sheets (Unaudited) and operating cash flows on the Condensed Consolidated Statements of Cash Flows (Unaudited).
        
(6) Deferred Contract Costs

Origination and fulfillment costs from contracts with customers capitalized as of March 31, 2018 and December 31, 2017 consisted of the following (in millions):
 
March 31, 2018
 
December 31, 2017
Installations and conversions in progress
115

 
104

Incremental contract origination costs completed, net
150

 
127

Costs to fulfill a contract, net
127

 
123

Total deferred contract costs, net
$
392

 
$
354


For the three months ended March 31, 2018 and 2017, amortization of deferred contract costs was $29 million and $21 million, respectively, and there were no impairment losses in relation to the costs capitalized for periods presented.

(7) Long-Term Debt
Long-term debt as of March 31, 2018 and December 31, 2017, consisted of the following (in millions):
 
March 31, 2018
 
December 31, 2017
Senior Notes due April 2018, interest payable semi-annually at 2.000% (1)
250

 
250

Senior Notes due October 2018, interest payable semi-annually at 2.850%
750

 
750

Senior Notes due October 2020, interest payable semi-annually at 3.625%
1,150

 
1,150

Senior Euro Notes due January 2021, interest payable annually at 0.400%
616

 
599

Senior Notes due August 2021, interest payable semi-annually at 2.250%
750

 
750

Senior GBP Notes due June 2022, interest payable annually at 1.700%
420

 
405

Senior Notes due October 2022, interest payable semi-annually at 4.500%
300

 
300

Senior Notes due April 2023, interest payable semi-annually at 3.500%
700

 
700

Senior Notes due June 2024, interest payable semi-annually at 3.875%
400

 
400

Senior Euro Notes due July 2024, interest payable annually at 1.100%
616

 
599

Senior Notes due October 2025, interest payable semi-annually at 5.000%
900

 
900

Senior Notes due August 2026, interest payable semi-annually at 3.000%
1,250

 
1,250

Senior Notes due August 2046, interest payable semi-annually at 4.500%
500

 
500

Revolving Loan (2)
475

 
195

Other
(1
)
 
15

 
9,076

 
8,763

Current portion
(1,036
)
 
(1,045
)
Long-term debt, excluding current portion
$
8,040

 
$
7,718


(1)
These Senior Notes were paid off on April 13, 2018 with borrowings on the Revolving Loan.
(2)
Interest on the Revolving Loan is generally payable at LIBOR plus an applicable margin of up to 1.75% plus an unused commitment fee of up to 0.25%, each based upon the Company's corporate credit ratings. As of March 31, 2018, the weighted average interest rate on the Revolving Loan, excluding fees, was 2.73%.

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



FIS has a syndicated credit agreement (the "FIS Credit Agreement") that provides total committed capital of $3,000 million in the form of a revolving credit facility (the "Revolving Loan") maturing on August 10, 2021. As of March 31, 2018, the outstanding principal balance of the Revolving Loan was $475 million, with $2,519 million of borrowing capacity remaining thereunder (net of $6 million in outstanding letters of credit issued under the Revolving Loan).

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

On March 15, 2017, FIS redeemed 100% of the outstanding aggregate principal amount of its $700 million 5.000% Senior Notes due March 2022 (the "Notes"). On February 1, 2017, the Company also paid down the outstanding balance on the syndicated term loan agreement ("2018 Term Loans"). The Notes and 2018 Term Loans were funded by borrowings under the Company’s Revolving Loan and cash proceeds from the sale of the Public Sector and Education ("PS&E") business. As a result of the redemption of the Notes and the pay down of the 2018 Term Loans, FIS incurred a pre-tax charge of approximately $25 million consisting of the call premium on the Notes and the write-off of previously capitalized debt issuance costs.

On July 10, 2017, FIS issued €1,000 million and £300 million principal amount of new senior notes in an inaugural European bond offering. The new senior notes include €500 million of Senior Notes due in 2021 (the “2021 Euro Notes”) that bear interest at 0.400%, £300 million of Senior Notes due in 2022 (the “2022 GBP Notes”) that bear interest at 1.700% and €500 million of Senior Notes due in 2024 (the “2024 Euro Notes”) that bear interest at 1.100%. Net proceeds from the offering, after deducting discounts and underwriting fees, were $1,491 million using a conversion rate of 1.12 EUR/USD and 1.27 GBP/USD. The new senior notes include covenants and events of default customary for similar debt obligations.

On July 25, 2017, pursuant to cash tender offers ("Tender Offers"), FIS repurchased approximately $2,000 million in aggregate principal of debt securities with a weighted average coupon of approximately 4%. The following approximate amounts of FIS's debt securities were repurchased: $600 million of its 3.625% notes due 2020, $600 million of its 5.000% notes due 2025, $200 million of its 4.500% notes due 2022, $300 million of its 3.875% due 2024 and $300 million of its 3.500% notes due 2023. The Company funded the Tender Offers with proceeds from the European bond offering and borrowings on its Revolving Loan, approximately $469 million of which were almost immediately repaid with proceeds from the sale of a majority ownership stake in the Capco consulting business and risk and compliance consulting business, which was completed on July 31, 2017 (see Note 12).

The following summarizes the aggregate maturities of our debt and capital leases on stated contractual maturities, excluding unamortized non-cash bond premiums and discounts, net of $29 million, as of March 31, 2018 (in millions).

 
 
Total
2018
 
$
1,031

2019
 
39

2020
 
1,157

2021
 
1,842

2022
 
720

Thereafter
 
4,366

Total principal payments
 
9,155

Debt issuance costs, net of accumulated amortization
 
(50
)
Total long-term debt
 
$
9,105


There are no mandatory principal payments on the Revolving Loan and any balance outstanding on the Revolving Loan will be due and payable at its scheduled maturity date, which occurs at August 10, 2021.

FIS may redeem the 2018 Notes, 2020 Notes, 2021 Notes, 2021 Euro Notes, 2022 Notes, 2022 GBP Notes, 2023 Notes, 2024 Notes, 2024 Euro Notes, 2025 Notes, 2026 Notes, and 2046 Notes at its option in whole or in part, at any time and from

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


time to time, at a redemption price equal to the greater of 100% of the principal amount to be redeemed and a make-whole amount calculated as described in the related indenture in each case plus accrued and unpaid interest to, but excluding, the date of redemption, provided no make-whole amount will be paid for redemptions of the 2020 Notes, the 2021 Notes, the 2021 Euro Notes and the 2022 GBP Notes during the one month prior to their maturity, the 2022 Notes during the two months prior to their maturity, the 2023 Notes, the 2024 Notes, the 2024 Euro Notes, the 2025 Notes, and the 2026 Notes during the three months prior to their maturity, and the 2046 Notes during the six months prior to their maturity.

Debt issuance costs of $50 million, net of accumulated amortization, remain capitalized as of March 31, 2018, related to all of the above outstanding debt.

We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Loan are comprised of a diversified set of financial institutions, both domestic and international. The failure of any single lender to perform its obligations under the Revolving Loan would not adversely impact our ability to fund operations.

The fair value of the Company’s long-term debt is estimated to be approximately $14 million lower than the carrying value as of March 31, 2018. This estimate is based on quoted prices of our senior notes and trades of our other debt in close proximity to March 31, 2018, which are considered Level 2-type measurements. This estimate is subjective in nature and involves uncertainties and significant judgment in the interpretation of current market data. Therefore, the values presented are not necessarily indicative of amounts the Company could realize or settle currently.

(8) Financial Instruments

As of March 31, 2018, we had no outstanding interest rate swap transactions and no significant forward contracts.
Net Investment Hedges
In June 2017, the Company entered into two Euro-denominated foreign currency exchange forward contracts totaling €999 million and a GBP-denominated foreign currency exchange forward contract of £298 million, which were designated as a net investment hedge of its investment in Euro and GBP denominated operations, respectively, in order to reduce the volatility in the income statement caused by the changes in foreign currency exchange rates of the Euro and GBP with respect to the U.S. dollar.
In July 2017, the forward contracts above were terminated and the Company designated its Euro-denominated Senior Notes due 2021 (€500 million) and Senior Notes due 2024 (€500 million) and GBP-denominated Senior Notes due 2022 (£300 million) as a net investment hedge of its investment in Euro and GBP denominated operations, respectively, in order to reduce the volatility in the income statement caused by the changes in foreign currency exchange rates of the Euro and GBP with respect to the U.S. dollar.
The change in fair value of the net investment hedges due to remeasurement of the effective portion is recorded in other comprehensive income (loss). The ineffective portion of the hedging instruments impacts net income when the ineffectiveness occurs. During the first quarter of 2018, net investment hedge combined losses of $38 million, net of tax, respectively, were recognized in other comprehensive income as a component of foreign currency translation adjustments. No ineffectiveness was recorded on the net investment hedges above.
(9) Commitments and Contingencies

Reliance Trust Claims

Reliance Trust Company, the Company’s subsidiary, is named as a defendant in a class action arising out of its provision of services as the discretionary trustee for a 401(k) Plan for one of its customers. Plaintiffs in the action seek damages and attorneys’ fees, as well as equitable relief, for alleged breaches of fiduciary duty and prohibited transactions under the Employee Retirement Income Security Act of 1974. The action also makes claims against the Plan's sponsor and record-keeper. Reliance Trust Company is vigorously defending the action and believes that it has meritorious defenses. While we believe that the ultimate resolution of the matter will not have a material impact on our financial condition, we are unable at

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


this time to make an estimate of potential losses arising from the action because the matter is still in pre-trial proceedings and involves unresolved questions of fact and law.

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 11 claims against Servicos asserting potential tax liabilities of approximately $15 million. There are potentially 25 additional claims against Transpev/Prosegur for which Servicos is named as a co-defendant or may be named, but for which Servicos has not yet been served. These additional claims amount to approximately $56 million making the total potential exposure for all 36 claims approximately $71 million. We do not believe a liability for these 36 total claims is probable and, therefore, have not recorded a liability for any of these claims.

Acquired Contingencies (SunGard)

The Company became responsible for certain contingencies which were assumed in the SunGard acquisition. The Condensed Consolidated Balance Sheet (Unaudited) as of March 31, 2018 includes a liability of $77 million mostly related to unclaimed property examinations and tax compliance matters.

Indemnifications and Warranties

The Company generally indemnifies its clients, subject to certain limitations and exceptions, against damages and costs resulting from claims of patent, copyright, or trademark infringement associated solely with its customers' use of the Company's software applications or services. Historically, the Company has not made any material payments under such indemnifications, but continues to monitor the conditions that are subject to the indemnifications to identify whether it is probable that a loss has occurred, and would recognize any such losses when they are estimable. In addition, the Company warrants to customers that its software operates substantially in accordance with the software specifications. Historically, no material costs have been incurred related to software warranties and no accruals for warranty costs have been made.

(10) Related Party Transactions

Cardinal Holdings

On July 31, 2017, FIS closed on the sale of a majority ownership stake in the Capco consulting business and risk and compliance consulting business to Clayton, Dubilier & Rice L.P., by and through certain funds that it manages ("CD&R"). CD&R acquired a 60% interest in the entity (Cardinal Holdings, L.P. ("Cardinal")) and FIS obtained the remaining 40% interest, in each case before equity issued to management (Note 12). Cardinal became a related party effective July 31, 2017.

Upon closing on the sale of the Capco consulting business and risk and compliance consulting business, FIS and Cardinal entered into a short-term Transition Services Agreement ("TSA"), whereby FIS provides various agreed upon services to Cardinal. FIS also provides ongoing management consulting services and other services to Cardinal. Amounts transacted through these agreements were not significant to the 2018 and 2017 periods presented.

Capco continues to provide Banco Bradesco S.A. ("Banco Bradesco") with consulting services. Capco revenue and related party receivables from Banco Bradesco through the July 31, 2017 closing is included below under Brazilian Venture revenue from Banco Bradesco.

Brazilian Venture

The Company operates a joint venture ("Brazilian Venture") with Banco Bradesco, in which we own a 51% controlling interest, to provide comprehensive, fully-outsourced transaction processing, call center, cardholder support and collection

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AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


services to multiple card issuing clients in Brazil, including Banco Bradesco. The original accounting for this transaction resulted in the establishment of a contract intangible asset and a liability for amounts payable to the original partner banks upon final migration of their respective card portfolios and achieving targeted volumes. The unamortized contract intangible asset balance as of March 31, 2018 was $61 million. The carrying value of the noncontrolling interest as of March 31, 2018 was $109 million.

The Company recorded revenues of $87 million and $80 million during the three months ended March 31, 2018 and 2017, respectively, from Banco Bradesco. Revenues from Banco Bradesco included $3 million of unfavorable currency impact during the three months ended March 31, 2018, resulting from foreign currency exchange rate fluctuations between the U.S. Dollar and Brazilian Real.

A summary of the Company’s related party receivables and payables is as follows (in millions):

 
 
 
 
March 31,
 
December 31,
Related Party
 
Balance sheet location
 
2018
 
2017
Banco Bradesco
 
Trade receivables
 
$
45

 
$
47

Banco Bradesco
 
Contract assets
 
6

 
5

Banco Bradesco
 
Accounts payable and accrued liabilities
 
10

 
10

Banco Bradesco
 
Other long-term liabilities
 
18

 
17


(11) Net Earnings per Share

The basic weighted average shares and common stock equivalents for the three months ended March 31, 2018 and 2017 are computed using the treasury stock method.

The following table summarizes the earnings per share attributable to FIS common stockholders for the three months ended March 31, 2018 and 2017 (in millions, except per share amounts):

 
Three months ended
March 31,
 
2018
 
2017
Net earnings attributable to FIS common stockholders
$
182

 
$
129

Weighted average shares outstanding — basic
330

 
328

Plus: Common stock equivalent shares
4

 
5

Weighted average shares outstanding — diluted
334

 
333

Net earnings per share — basic attributable to FIS common stockholders
$
0.55

 
$
0.39

Net earnings per share — diluted attributable to FIS common stockholders
$
0.54

 
$
0.39

Options to purchase less than 1 million and 1 million shares of our common stock for the three months ended March 31, 2018 and 2017, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.

On July 20, 2017 our Board of Directors approved a plan authorizing repurchases of up to $4.0 billion of our outstanding common stock in the open market at prevailing market prices or in privately negotiated transactions through December 31, 2020.  This share repurchase authorization replaced any existing share repurchase authorization.

(12) Divestitures

On July 31, 2017, FIS closed on the sale of a majority ownership stake in its Capco consulting business and risk and compliance consulting business to CD&R for cash proceeds of approximately $469 million, resulting in a pre-tax loss of approximately $41 million. The divestiture is consistent with our strategy to focus on our IP-led businesses. CD&R acquired preferred units convertible into 60% of the common units of Cardinal and FIS obtained common units representing the

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AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


remaining 40%, in each case before equity is issued to management. The preferred units are entitled to a quarterly dividend at an annual rate of 12%, payable in cash (if available) or additional preferred units at FIS' option. The businesses sold were included within the GFS and IFS segments. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the pre-tax loss and related prior period earnings remain reported within earnings. Prior to the sale, the Capco consulting business and risk and compliance consulting business' pre-tax earnings, excluding certain unallocated corporate costs, for the period ended March 31, 2017 was $4 million.

FIS' 40% ownership in Cardinal was initially valued at $172 million and was recorded as an equity method investment included within other noncurrent assets on the Condensed Consolidated Balance Sheet (Unaudited). After the sale on July 31, 2017, FIS began to recognize after-tax equity method investment earnings outside of operating income and segment Adjusted EBITDA. For periods prior to July 31, 2017, the Capco consulting business and risk and compliance consulting business were included within operating income and segment Adjusted EBITDA.

On February 1, 2017, the Company closed on the sale of the SunGard Public Sector and Education ("PS&E") business for $850 million, resulting in a pre-tax gain of $85 million. The transaction included all PS&E solutions, which provided a comprehensive set of technology solutions to address public safety and public administration needs of government entities as well as the needs of K-12 school districts. The divestiture is consistent with our strategy to serve the financial services markets. Cash proceeds were used to reduce outstanding debt (see Note 7). Net cash proceeds, after payment of taxes and transaction-related expenses, were approximately $500 million. The PS&E business was included in the Corporate and Other segment. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the gain and related prior period earnings remain reported within earnings. Prior to the sale, PS&E's pre-tax earnings, excluding certain unallocated corporate costs, for the period ended March 31, 2017 was $3 million.
  
(13) Segment Information

Integrated Financial Solutions ("IFS")

The IFS segment is focused primarily on serving North American clients for transaction and account processing, payment solutions, channel solutions, lending and wealth and retirement solutions, corporate liquidity, digital channels, risk and compliance solutions, and services, capitalizing on the continuing trend to outsource these solutions. Clients in this segment include regional and community banks, credit unions and commercial lenders, as well as government institutions, merchants and other commercial organizations. IFS’ primary software applications function as the underlying infrastructure of a financial institution's processing environment. These applications include core bank processing software, which banks use to maintain the primary records of their customer accounts, and complementary applications and services that interact directly with the core processing applications. This market is primarily served through integrated solutions and characterized by multi-year processing contracts that generate highly recurring revenues. The predictable nature of cash flows generated from this segment provides opportunities for further investments in innovation, integration, information and security, and compliance in a cost effective manner. The business solutions in this segment included the risk and compliance consulting business through its divestiture on July 31, 2017 (Note 12).

Global Financial Solutions ("GFS")

The GFS segment is focused on serving the largest global financial institutions and/or international financial institutions with a broad array of capital markets and asset management and insurance solutions, as well as banking and payments solutions.

GFS clients include the largest global financial institutions, including those headquartered in the United States, as well as all international financial institutions we serve as clients in more than 130 countries. These institutions face unique business and regulatory challenges and account for the majority of financial institution information technology spend globally. The purchasing patterns of GFS clients vary from those of IFS clients who typically purchase solutions on an outsourced basis. GFS clients purchase our solutions and services in various ways including licensing and managing technology “in-house”, fully outsourced end-to-end solutions, and using consulting and third-party service providers. We have long-established relationships with many of these financial institutions that generate significant recurring revenue. GFS clients also include asset managers, buy- and sell-side securities and trading firms, insurers and private equity firms. This segment also includes the Company's consolidated Brazilian Venture (Note 10). The business solutions in this segment included the Capco consulting business through its divestiture on July 31, 2017 (Note 12).

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AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Corporate and Other

The Corporate and Other segment consists of corporate overhead expense, certain leveraged functions and miscellaneous expenses that are not included in the operating segments as well as certain non-strategic businesses. The business solutions in this segment included the PS&E business through its divestiture on February 1, 2017 (Note 12), commercial services and retail check processing. The overhead and leveraged costs relate to marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs that are not considered when management evaluates revenue-generating segment performance, such as acquisition integration and severance costs. The Corporate and Other segment also includes the impact on revenue for 2018 and 2017 of adjusting SunGard's deferred revenue to fair value.

During the three months ended March 31, 2018 and 2017, the Company recorded certain costs relating to integration and severance activity primarily from the SunGard acquisition of $57 million and $80 million, respectively.

Adjusted EBITDA

This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, Adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards Codification Topic 280, "Segment Reporting". Adjusted EBITDA is defined as EBITDA (defined as net income (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles), plus certain non-operating items. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments, acquisition, integration and severance costs, and restructuring expenses. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments.

Summarized financial information for the Company’s segments is shown in the following tables.

As of and for the three months ended March 31, 2018 (in millions):
 
IFS
 
GFS
 
Corporate
and Other
 
Total
Revenues
$
1,061

 
$
927

 
$
78

 
$
2,066

Operating expenses
695

 
689

 
388

 
1,772

Depreciation and amortization
85

 
67

 
17

 
169

Purchase accounting amortization

 

 
183

 
183

EBITDA
451

 
305

 
(110
)
 
646

Acquisition deferred revenue adjustment

 

 
2

 
2

Acquisition, integration and severance costs

 

 
57

 
57

Adjusted EBITDA
$
451

 
$
305

 
$
(51
)
 
705

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
$
646

Interest expense, net
 
 
 
 
 
 
72

Depreciation and amortization
 
 
 
 
 
 
169

Purchase accounting amortization
 
 
 
 
 
 
183

Other income (expense) unallocated
 

 
 

 
 

 
2

Provision for income taxes
 
 
 
 
 
 
34

Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
8

Net earnings attributable to FIS common stockholders
 
 
 
 
 
 
$
182

Capital expenditures
$
99

 
$
71

 
$
2

 
$
172

Total assets (1)
$
10,667

 
$
8,449

 
$
5,288

 
$
24,404

Goodwill
$
7,662

 
$
5,915

 
$
170

 
$
13,747


(1)
Total assets as of March 31, 2018 exclude $1 million related to discontinued operations.


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AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


As of and for the three months ended March 31, 2017 (in millions):

 
IFS
 
GFS
 
Corporate
and Other
 
Total
Revenues
$
1,037

 
$
1,003

 
$
108

 
$
2,148

Operating expenses
671

 
801

 
430

 
1,902

Depreciation and amortization
73

 
63

 
16

 
152

Purchase accounting amortization

 

 
180

 
180

EBITDA
439

 
265

 
(126
)
 
578

Acquisition deferred revenue adjustment

 

 
3

 
3

Acquisition, integration and severance costs

 

 
80

 
80

Adjusted EBITDA
$
439

 
$
265

 
$
(43
)
 
$
661

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
$
578

Interest expense, net
 
 
 
 
 
 
93

Depreciation and amortization
 
 
 
 
 
 
152

Purchase accounting amortization
 
 
 
 
 
 
180

Other income (expense) unallocated
 
 
 
 
 
 
56

Provision for income taxes
 
 
 
 
 
 
74

Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
6

Net earnings attributable to FIS common stockholders
 
 
 
 
 
 
$
129

Capital expenditures (1)
$
126

 
$
94

 
$
9

 
$
229

Total assets (2)
$
10,300

 
$
9,187

 
$
5,597

 
$
25,084