filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm
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, 2023, 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, 2023, 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, 2023 and 2022, the related consolidated statements of earnings (loss), comprehensive earnings (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 2024 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 26, 2024
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, 2023 and 2022, the related consolidated statements of earnings (loss), comprehensive earnings (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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, 2023, 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 26, 2024 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Sale of Worldpay Merchant Business
As discussed in Notes 1 and 3 to the consolidated financial statements, the Company completed the sale of a 55% equity interest in their Worldpay Merchant Solutions business to private equity funds managed by GTCR, LLC on January 31, 2024.
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.
Sufficiency of audit evidence over revenue
As disclosed in Note 5 to the consolidated financial statements, the Company's revenue consists of the following types of revenue streams: i) transaction processing and services, ii) software maintenance, iii) software license, iv) professional services, and v) other recurring and non-recurring fees.
We identified the sufficiency of audit evidence over revenue as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment because of the number of revenue streams, related revenue recognition
processes, and the number of information technology (IT) applications utilized in the revenue recognition process to capture and aggregate the data.
The following are the primary procedures we performed to address this critical audit matter. Based on our knowledge of the Company, we applied auditor judgment to determine the nature and extent of procedures to be performed over revenue. Specifically, we:
-
evaluated the design and tested the operating effectiveness of certain internal controls within relevant revenue recognition processes, including general IT controls and IT application controls
-
involved IT professionals, who assisted in the identification and testing of certain IT systems and related controls that are used by the Company in its revenue recognition process
-
selected certain individual contracts and read the underlying contract and other documents that were part of the contract for each selection and evaluated the consistency of the revenue recognition determinations with the Company's accounting policies and revenue recognition requirements
-
assessed the recorded revenue by selecting a sample of transactions and comparing the amounts recognized for consistency with the Company's accounting policies and underlying documentation, including contracts with customers and other relevant and reliable third-party data.
We evaluated the sufficiency of the audit evidence obtained by assessing the results of procedures performed over revenue.
Sufficiency of audit evidence over the reporting of discontinued operations
As discussed in Notes 1 and 3 to the consolidated financial statements, on January 31, 2024, the Company completed the previously announced sale of a 55% equity interest in its Worldpay Merchant Solutions business (the Disposal Group). During the third quarter of fiscal year 2023, management determined that the proposed sale met the criteria for the Disposal Group to be classified as held-for-sale and the associated results of operations were presented as discontinued operations for all periods presented in accordance with Accounting Standard Codification 205-20, Discontinued Operations (ASC 205-20). The Worldpay Merchant Solutions business includes the former Merchant Solutions segment in addition to an insignificant non-strategic business previously included in the Corporate and Other segment. The Company's presentation of discontinued operations excludes general corporate overhead costs which were historically allocated to the Worldpay Merchant Solutions business. The assets and liabilities of the Disposal Group were $27,220 million and $9,977 million as of December 31, 2023 and $34,754 million, and $8,737 million as of December 31, 2022, respectively. The Earnings (loss) from discontinued operations, net of tax, were $(7,157) million, $(17,328) million, and $97 million, respectively, for each of the years in the three-year period ended December 31, 2023.
We identified the evaluation of the sufficiency of audit evidence over the reporting of discontinued operations as a critical audit matter. Evaluating the sufficiency of audit evidence required subjective auditor judgment due to the manual process and volume of financial information used to determine the assets and liabilities of the Disposal Group, and the related results of operations, cash flows, and disclosures.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the reporting of discontinued operations. Specifically, we:
-
evaluated the design and tested the operating effectiveness of certain internal controls within the Company's discontinued operations process, including controls over the amounts recorded and disclosed
-
obtained and read the purchase and sale agreement for the proposed sale and compared the terms of that agreement to the identification of the assets and liabilities included in the Disposal Group
-
assessed the Company's identification of assets and liabilities and the related results of operations and cash flows of the Disposal Group by testing the completeness and accuracy of the Company's accounting data and schedules that segregate the Disposal Group from the continuing operations of the Company
-
assessed the completeness and accuracy of the presentation and disclosures related to the discontinued operations under ASC 205-20.
We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.
/s/ KPMG LLP
We have served as the Company's auditor since 2004.
Jacksonville, Florida
February 26, 2024
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2023 and 2022
(In millions, except per share amounts)
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 440 | $ | 456 | |||||||
| Settlement assets | 617 | 592 | |||||||||
| Trade receivables, net of allowance for credit losses of $31 and $31, respectively | 1,730 | 1,834 | |||||||||
| Other receivables | 287 | 437 | |||||||||
| Prepaid expenses and other current assets | 603 | 509 | |||||||||
| Current assets held for sale | 10,111 | 8,990 | |||||||||
| Total current assets | 13,788 | 12,818 | |||||||||
| Property and equipment, net | 695 | 709 | |||||||||
| Goodwill | 16,971 | 16,816 | |||||||||
| Intangible assets, net | 1,823 | 2,468 | |||||||||
| Software, net | 2,115 | 2,055 | |||||||||
| Other noncurrent assets | 1,528 | 1,675 | |||||||||
| Deferred contract costs, net | 1,076 | 973 | |||||||||
| Noncurrent assets held for sale | 17,109 | 25,764 | |||||||||
| Total assets | $ | 55,105 | $ | 63,278 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable, accrued and other liabilities | $ | 1,859 | $ | 1,583 | |||||||
| Settlement payables | 635 | 613 | |||||||||
| Deferred revenue | 832 | 777 | |||||||||
| Short-term borrowings | 4,760 | 3,755 | |||||||||
| Current portion of long-term debt | 1,348 | 2,130 | |||||||||
| Current liabilities held for sale | 8,884 | 7,366 | |||||||||
| Total current liabilities | 18,318 | 16,224 | |||||||||
| Long-term debt, excluding current portion | 12,970 | 14,206 | |||||||||
| Deferred income taxes | 2,179 | 2,689 | |||||||||
| Other noncurrent liabilities | 1,446 | 1,382 | |||||||||
| Noncurrent liabilities held for sale | 1,093 | 1,371 | |||||||||
| Total liabilities | 36,006 | 35,872 | |||||||||
| Redeemable noncontrolling interest | — | 180 | |||||||||
| Equity: | |||||||||||
| FIS stockholders’ equity: | |||||||||||
| Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of December 31, 2023 and 2022 | — | — | |||||||||
| Common stock, $0.01 par value, 750 shares authorized, 631 and 630 shares issued as of December 31, 2023 and 2022, respectively | 6 | 6 | |||||||||
| Additional paid in capital | 46,935 | 46,735 | |||||||||
| (Accumulated deficit) retained earnings | (22,864) | (14,971) | |||||||||
| Accumulated other comprehensive earnings (loss) | (260) | (360) | |||||||||
| Treasury stock, $0.01 par value, 48 and 39 common shares as of December 31, 2023 and 2022, respectively, at cost | (4,724) | (4,192) | |||||||||
| Total FIS stockholders’ equity | 19,093 | 27,218 | |||||||||
| Noncontrolling interest | 6 | 8 | |||||||||
| Total equity | 19,099 | 27,226 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 55,105 | $ | 63,278 |
See accompanying notes, which are an integral part of these consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Consolidated Statements of Earnings (Loss)
Years Ended December 31, 2023, 2022 and 2021
(In millions, except per share amounts)
| 2023 | 2022 | 2021 | |||||||||||||||
| Revenue | $ | 9,821 | $ | 9,719 | $ | 9,339 | |||||||||||
| Cost of revenue | 6,145 | 6,216 | 5,990 | ||||||||||||||
| Gross profit | 3,676 | 3,503 | 3,349 | ||||||||||||||
| Selling, general and administrative expenses | 2,096 | 2,182 | 2,115 | ||||||||||||||
| Asset impairments | 113 | 103 | 194 | ||||||||||||||
| Operating income | 1,467 | 1,218 | 1,040 | ||||||||||||||
| Other income (expense): | |||||||||||||||||
| Interest income | 92 | 17 | 2 | ||||||||||||||
| Interest expense | (713) | (298) | (214) | ||||||||||||||
| Other income (expense), net | (183) | 4 | (109) | ||||||||||||||
| Total other income (expense), net | (804) | (277) | (321) | ||||||||||||||
| Earnings (loss) before income taxes and equity method investment earnings (loss) | 663 | 941 | 719 | ||||||||||||||
| Provision (benefit) for income taxes | 157 | 325 | 403 | ||||||||||||||
| Equity method investment earnings (loss) | — | — | 6 | ||||||||||||||
| Net earnings (loss) from continuing operations | 506 | 616 | 322 | ||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | (7,153) | (17,324) | 102 | ||||||||||||||
| Net earnings (loss) | (6,647) | (16,708) | 424 | ||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from continuing operations | (3) | (8) | (2) | ||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from discontinued operations | (4) | (4) | (5) | ||||||||||||||
| Net earnings (loss) attributable to FIS | $ | (6,654) | $ | (16,720) | $ | 417 | |||||||||||
| Net earnings (loss) attributable to FIS: | |||||||||||||||||
| Continuing operations | $ | 503 | $ | 608 | $ | 320 | |||||||||||
| Discontinued operations | (7,157) | (17,328) | 97 | ||||||||||||||
| Total | $ | (6,654) | $ | (16,720) | $ | 417 | |||||||||||
| Basic earnings (loss) per common share attributable to FIS: | |||||||||||||||||
| Continuing operations | $ | 0.85 | $ | 1.01 | $ | 0.52 | |||||||||||
| Discontinued operations | (12.11) | (28.69) | 0.16 | ||||||||||||||
| Total | $ | (11.26) | $ | (27.68) | $ | 0.68 | |||||||||||
| Diluted earnings (loss) per common share attributable to FIS: | |||||||||||||||||
| Continuing operations | $ | 0.85 | $ | 1.01 | $ | 0.52 | |||||||||||
| Discontinued operations | (12.11) | (28.69) | 0.16 | ||||||||||||||
| Total | $ | (11.26) | $ | (27.68) | $ | 0.67 | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 591 | 604 | 616 | ||||||||||||||
| Diluted | 591 | 604 | 621 |
Amounts in table may not sum or calculate due to rounding.
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 (Loss)
Years Ended December 31, 2023, 2022 and 2021
(In millions)
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net earnings (loss) | $ | (6,647) | $ | (16,708) | $ | 424 | ||||||||||||||
| Other comprehensive earnings (loss), before tax: | ||||||||||||||||||||
| Foreign currency translation adjustments | $ | 586 | $ | (2,042) | $ | (730) | ||||||||||||||
| Change in fair value of net investment hedges | (677) | 1,395 | 1,195 | |||||||||||||||||
| Excluded components of fair value hedges | 74 | — | — | |||||||||||||||||
| Other adjustments | 1 | 39 | 14 | |||||||||||||||||
| Other comprehensive earnings (loss), before tax | (16) | (608) | 479 | |||||||||||||||||
| Provision for income tax (expense) benefit related to items of other comprehensive earnings (loss) | 116 | (4) | (284) | |||||||||||||||||
| Other comprehensive earnings (loss), net of tax | 100 | (612) | 195 | |||||||||||||||||
| Comprehensive earnings (loss) | (6,547) | (17,320) | 619 | |||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest | (7) | (12) | (7) | |||||||||||||||||
| Comprehensive earnings (loss) attributable to FIS common stockholders | $ | (6,554) | $ | (17,332) | $ | 612 |
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, 2023, 2022 and 2021
(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, 2020 | 621 | (1) | $ | 6 | $ | 45,947 | $ | 3,440 | $ | 57 | $ | (150) | $ | 13 | $ | 49,313 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 4 | — | — | 2 | — | — | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 128 | — | — | — | — | 128 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | (15) | — | — | — | — | (1,996) | — | (1,996) | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock awards | — | — | — | — | — | — | (120) | — | (120) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 383 | — | — | — | — | 383 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($1.56 per share) and other distributions | — | — | — | — | (968) | — | — | (9) | (977) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | 6 | — | — | — | — | 6 | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 417 | — | — | 7 | 424 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | 195 | — | — | 195 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | 625 | (16) | $ | 6 | $ | 46,466 | $ | 2,889 | $ | 252 | $ | (2,266) | $ | 11 | $ | 47,358 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 5 | — | — | (7) | — | — | 12 | — | 5 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 61 | — | — | — | — | 61 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | (21) | — | — | — | — | (1,829) | — | (1,829) | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock awards | — | (2) | — | — | — | — | (109) | — | (109) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 215 | — | — | — | — | 215 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($1.88 per share) and other distributions | — | — | — | — | (1,140) | — | — | (10) | (1,150) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | (16,720) | — | — | 7 | (16,713) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | (612) | — | — | (612) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2022 | 630 | (39) | $ | 6 | $ | 46,735 | $ | (14,971) | $ | (360) | $ | (4,192) | $ | 8 | $ | 27,226 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 1 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 40 | — | — | — | — | 40 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | (9) | — | — | — | — | (510) | — | (510) | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock awards | — | — | — | — | — | — | (22) | — | (22) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 153 | — | — | — | — | 153 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($2.08 per share) and other distributions | — | — | — | — | (1,239) | — | — | (9) | (1,248) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | 7 | — | — | — | — | 7 | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | (6,654) | — | — | 7 | (6,647) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | 100 | — | — | 100 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2023 | 631 | (48) | 6 | 46,935 | (22,864) | (260) | (4,724) | 6 | 19,099 |
(1) Excludes redeemable noncontrolling interest that is not considered equity. See Note 4, 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, 2023, 2022 and 2021
(In millions)
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net earnings (loss) | $ | (6,647) | $ | (16,708) | $ | 424 | |||||||||||
| Adjustment to reconcile net earnings (loss) to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 2,675 | 3,846 | 4,015 | ||||||||||||||
| Amortization of debt issuance costs | 29 | 31 | 30 | ||||||||||||||
| Asset impairments | 6,957 | 17,709 | 202 | ||||||||||||||
| Loss on assets held for sale | 1,909 | — | — | ||||||||||||||
| Loss (gain) on sale of businesses, investments and other | 97 | (53) | (227) | ||||||||||||||
| Loss on extinguishment of debt | — | — | 528 | ||||||||||||||
| Stock-based compensation | 154 | 215 | 383 | ||||||||||||||
| Deferred income taxes | (705) | (544) | (81) | ||||||||||||||
| Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | |||||||||||||||||
| Trade and other receivables | 124 | (155) | (552) | ||||||||||||||
| Settlement activity | 151 | 287 | 653 | ||||||||||||||
| Prepaid expenses and other assets | (198) | (319) | (526) | ||||||||||||||
| Deferred contract costs | (480) | (479) | (453) | ||||||||||||||
| Deferred revenue | 32 | 21 | 23 | ||||||||||||||
| Accounts payable, accrued liabilities, and other liabilities | 237 | 88 | 391 | ||||||||||||||
| Net cash provided by operating activities | 4,335 | 3,939 | 4,810 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Additions to property and equipment | (142) | (268) | (320) | ||||||||||||||
| Additions to software | (980) | (1,122) | (931) | ||||||||||||||
| Acquisitions, net of cash acquired | (202) | — | (767) | ||||||||||||||
| Net proceeds from sale of businesses and investments | 45 | 50 | 370 | ||||||||||||||
| Settlement of net investment hedge cross-currency interest rate swaps | (20) | 726 | (24) | ||||||||||||||
| Proceeds from sale of Visa preferred stock | — | 269 | — | ||||||||||||||
| Other investing activities, net | (53) | (28) | (99) | ||||||||||||||
| Net cash provided by (used in) investing activities | (1,352) | (373) | (1,771) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Borrowings | 93,119 | 75,335 | 54,073 | ||||||||||||||
| Repayment of borrowings and other financing obligations | (94,513) | (74,410) | (53,440) | ||||||||||||||
| Debt issuance costs | (3) | (23) | (74) | ||||||||||||||
| Net proceeds from stock issued under stock-based compensation plans | 41 | 57 | 121 | ||||||||||||||
| Treasury stock activity | (522) | (1,938) | (2,114) | ||||||||||||||
| Dividends paid | (1,231) | (1,138) | (961) | ||||||||||||||
| Payments on contingent value rights | — | (245) | — | ||||||||||||||
| Payments on tax receivable agreement | (197) | (185) | (85) | ||||||||||||||
| Purchase of noncontrolling interest | (173) | — | — | ||||||||||||||
| Other financing activities, net | (14) | (26) | (58) | ||||||||||||||
| Net cash provided by (used in) financing activities | (3,493) | (2,573) | (2,538) | ||||||||||||||
| Effect of foreign currency exchange rate changes on cash | 111 | (463) | (248) | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (399) | 530 | 253 | ||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | 4,813 | 4,283 | 4,030 | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | 4,414 | $ | 4,813 | $ | 4,283 | |||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Cash paid for interest | $ | 696 | $ | 417 | $ | 491 | |||||||||||
| Cash paid for income taxes | $ | 402 | $ | 963 | $ | 440 |
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," "our," "us," the "Company" or the "registrant" are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
(1) Organization
FIS is a leading global provider of financial services technology solutions for financial institutions, businesses and developers. We improve the digital transformation of our financial economy, advancing the way the world pays, banks and invests.
On January 31, 2024, the Company completed the previously announced sale ("the Worldpay Sale") of a 55% equity interest in its Worldpay Merchant Solutions business to private equity funds managed by GTCR (such funds, the "Buyer"). As of closing, FIS retained a non-controlling 45% ownership interest in a new standalone joint venture ("the Joint Venture" or "Worldpay"). Following the closing of the Worldpay Sale, FIS' share of the net income of the Joint Venture is going to be reported as equity method investment earnings (loss).
During the third quarter of fiscal year 2023, the Company analyzed quantitative and qualitative factors relevant to the Worldpay Merchant Solutions disposal group in accordance with ASC 205-20 and determined that the accounting criteria to be classified as held for sale were met, when a definitive purchase agreement was signed. Accordingly, the assets and liabilities of the disposal group are presented separately on the consolidated balance sheets for all periods presented. In addition, the disposition represents a strategic shift that will have a major impact on the Company's operations and financial results. As a result, the operating results of the Worldpay Merchant Solutions business have been reflected as discontinued operations for all periods presented and as such, have been excluded from continuing operations and segment results. The Company's cash flows are presented inclusive of discontinued operations on the consolidated statement of cash flows for all periods presented. Total cash flows from operating, investing and financing activities for discontinued operations are presented in Note 3.
The Worldpay Merchant Solutions business included the former Merchant Solutions segment in addition to a business previously included in the Corporate and Other segment, which have been recast as discontinued operations for all periods presented. Accordingly, the Company no longer reports the Merchant Solutions segment; it now reports its financial performance based on the following segments: Banking Solutions ("Banking"), Capital Market Solutions ("Capital Markets") and Corporate and Other. As a result of our ongoing portfolio assessments, the Company reclassified certain businesses from Capital Markets to Banking and to Corporate and Other during the quarter ended March 31, 2023, and reclassified certain non-strategic operations from Banking to Corporate and Other during the quarter ended December 31, 2023. The Company recast all prior-period segment information presented to reflect these reclassifications. See Note 22 for more information regarding our segments.
Amounts in tables in the financial statements and accompanying footnotes may not sum or calculate due to rounding.
**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 and Management Estimates
The consolidated financial statements include the accounts of FIS, its wholly-owned subsidiaries and subsidiaries that are majority-owned. Noncontrolling interests represent the minority shareholders’ share of the net earnings or loss and equity in consolidated subsidiaries. The Company’s noncontrolling interests presented in the consolidated statements of earnings (loss) include net earnings (loss) attributable to noncontrolling interests and redeemable noncontrolling interests. Noncontrolling interests are presented as a component of equity in the consolidated balance sheets. Noncontrolling interests that are redeemable upon the occurrence of an event that is not solely within the Company’s control are presented outside of equity. All intercompany profits, transactions and balances have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with United States ("U.S") generally accepted accounting principles ("GAAP") and related rules and regulations of the U.S. Securities and Exchange Commission requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. These estimates may change as new events occur and
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
additional information is obtained. Future actual results could differ materially from these estimates. To the extent that there are differences between these estimates, judgments and assumptions and actual results, our consolidated financial statements will be affected.
**(b)**Cash and Cash Equivalents
The Company considers 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 electronic funds transfer and network business, the Company provides cash settlement services to financial institutions and state and local governments. These services involve the movement of funds among the various parties associated with automated teller machines ("ATM") and point-of-sale or electronic benefit transactions ("EBT"). 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 net 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 Cash, cash equivalents and restricted cash per the consolidated statements of cash flows is as follows (in millions):
| December 31. | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash and cash equivalents on the consolidated balance sheets | $ | 440 | $ | 456 | |||||||
| Merchant float from discontinued operations included in current assets held for sale (1) | 2,594 | 2,625 | |||||||||
| Cash from discontinued operations included in current assets held for sale | 1,380 | 1,732 | |||||||||
| Total Cash, cash equivalents and restricted cash per the consolidated statements of cash flows | $ | 4,414 | $ | 4,813 |
(1)Merchant float funds are considered restricted cash.
**(c)**Fair Value Measurements
Fair Value Hierarchy
The authoritative accounting literature defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy based on the quality of inputs used to measure fair value.
The fair value hierarchy includes three levels that are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). If the inputs used to measure the fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the asset or liability. The three levels of the fair value hierarchy are described below.
Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2. Inputs to the valuation methodology include 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 above under Fair Value Hierarchy and the methodologies addressed in the individual subheadings. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we 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 assets and payables as well as 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, cross-currency 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.
**(d)**Derivative Financial Instruments
The Company enters into derivatives to manage foreign currency and interest rate risk; the Company does not use derivatives for trading purposes, to generate income or to engage in speculative activity.
During all periods presented, the Company used cross-currency interest rate swaps to engage in hedging activities relating to changes in foreign currency exchange rates impacting its investment in certain foreign-currency-denominated operations. The Company designated these cross-currency interest rate swaps as net investment hedges. The Company also utilized foreign-currency-denominated debt as non-derivative net investment hedges. During 2023, the Company also utilized cross-currency interest rate swaps to engage in hedging activities relating to its exposure to foreign currency risk associated with its foreign currency-denominated debt. The Company designated these cross-currency interest rate swaps as fair value hedges.
During all periods presented, the Company used fixed-to-variable interest rate swaps to engage in hedging activities relating to changes in interest rates impacting the fair value of its fixed-rate long-term debt. The Company designated these interest rate swaps as fair value hedges. During the quarter ended September 30, 2023, the Company de-designated these interest rate swaps as fair value hedges and entered into offsetting variable-to-fixed interest rate swaps. The de-designated and new interest rate swaps are accounted for as economic hedges.
During 2023, the Company used foreign currency forward contracts as economic hedges to reduce the foreign currency risk associated with foreign currency-denominated debt expected to be paid off with U.S. dollar proceeds received from the Worldpay Sale during the first quarter of 2024 (see Note 1). During 2022, the Company used foreign currency forward contracts as economic hedges to reduce the foreign currency risk associated with payments due at maturity of the Company's foreign currency-denominated debt and cross-currency interest rate swaps.
The Company records all derivatives, whether designated in accounting hedging relationships or not, on the consolidated balance sheets at fair value. The Company's derivative contracts are generally subject to master netting arrangements, which contain various netting and setoff provisions; however, the Company has elected to record derivative assets and liabilities on a
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AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
gross basis 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. See Notes 14 and 20 for additional details, including accounting policies.
**(e)**Allowance for Credit Losses
The Company monitors trade receivable balances and 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, changes in client creditworthiness, client payment terms and collection trends. The allowance for credit losses is separate from the chargeback liability described in Note 3.
**(f)**Settlement Assets and Payables
The principal components of the Company's settlement assets and payables on the consolidated balance sheets are as follows (in millions):
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Settlement assets | ||||||||||||||
| Settlement deposits | $ | 463 | $ | 439 | ||||||||||
| Settlement receivables | 154 | 153 | ||||||||||||
| Total Settlement assets | $ | 617 | $ | 592 | ||||||||||
| Settlement payables | $ | 635 | $ | 613 |
The payment solutions 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 solutions we provide primarily facilitate the movement of funds.
We manage certain payment solutions 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.
**(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. Trade 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 trade 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. At December 31, 2023 and 2022, contract assets of $227 million and $207 million, respectively, are included in Prepaid expenses and other current assets and $240 million and $122 million, respectively are included in Other noncurrent assets on the consolidated balance sheets. Noncurrent deferred revenue is included in Other noncurrent liabilities as detailed in
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 12. Changes in the contract assets and deferred revenue balances for the years ended December 31, 2023 and 2022, were not materially impacted by any factors other than those described above. 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 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 estimated 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 estimated 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 perform a 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 valuation techniques, 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.
Both qualitative and quantitative assessments require a significant amount of management judgment involving the use of forecasts, estimates, and assumptions.
**(i)**Impairment of Long-Lived Assets and Intangible Assets with Finite Useful Lives
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. There were no significant impairments of long-lived assets or intangible assets with finite useful lives during the years ended December 31, 2023 and 2021. During the year ended December 31, 2022, the Company recognized impairment losses totaling $71 million on certain long-lived assets, primarily related to reducing office space, including $43 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 with finite lives are amortized
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AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
over periods ranging up to five years. Intangible assets with finite lives are reviewed for impairment following the same approach as long-lived assets.
**(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, typically 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 typically ranges from three to 10 years, or (2) the ratio of current revenue to total anticipated revenue over its useful life.
The Company reviews software assets for impairment at each reporting date. For software to be marketed, an impairment charge is recorded to the extent the carrying amount exceeds the net realizable value. Internal-use software is reviewed for impairment following the same approach as long-lived assets. Determining net realizable values and future cash flows involves judgments and the use of estimates and assumptions regarding future economic and market conditions. Adverse changes in these conditions could result in an impairment charge which could be material to our consolidated financial statements.
See Note 9 for software asset impairment losses and incremental software amortization expense recognized during the years ended December 31, 2023, 2022 and 2021.
**(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 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.
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.
See Note 10 for deferred contract cost asset impairment losses during 2021 and incremental amortization expense recognized during the years ended December 31, 2023, 2022 and 2021. There were no significant deferred contract cost asset impairment losses recognized during the years ended December 31, 2023 and 2022.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
**(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 typically 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)**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 and implementation either individually or as part of an integrated offering. 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.
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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 third-party 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.
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 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 the standalone selling price for that particular solution or service is estimated using all information that is reasonably available and maximizing observable inputs using approaches including historical pricing, cost plus a margin, adjusted market assessment, and a 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
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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.
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.
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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.
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., the customer can 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., the services are 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).
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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, or renew existing, solutions or services in the future. 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 if 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 consists of costs directly associated with providing solutions or services to clients and includes payroll, employee benefits and other costs associated with personnel employed in customer service and service delivery roles as well as third-party costs involved in fulfillment of performance obligations for which the Company is acting as a principal. Cost of 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 and other costs associated with personnel employed in sales, marketing, human resources, finance, risk management and other administrative roles, as well as acquisition, integration and certain other costs that are not considered when management evaluates revenue-generating segment performance. Selling, general and administrative expenses also include depreciation on non-operating corporate assets as well as advertising and other marketing-related program costs.
**(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. For our service-based stock awards, we recognize the compensation cost on a straight-line basis over the award's service period, which is generally three years. For our performance-based stock awards with market conditions which typically cliff vest on the third anniversary date of the grant, we recognize the compensation cost on a straight-line basis over the service period when it is probable the outcome of that performance condition will be achieved. The Company adjusts the compensation expense over the service period based upon the expected achievement level of the applicable performance condition. Certain of our stock awards contain only 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 in the event the market condition is not achieved. 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.
**(s)**Foreign Currency Translation
Our functional currency is the U.S. dollar. The functional currency of each of our operating subsidiaries is generally the currency of the economic environment in which the subsidiary primarily does business. Our foreign subsidiaries with non-U.S. dollar functional currencies are translated into U.S. dollars for consolidation purposes using the foreign exchange rates applicable to the dates of the financial statements. Generally, these consist of the exchange rates in effect at the balance sheet
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date for balance sheet accounts and the average exchange rates in effect during the relevant period for revenue and expense accounts. 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)**Net Earnings (Loss) per Share
The basic weighted average shares and common stock equivalents for the years ended December 31, 2023, 2022 and 2021, are computed using the treasury stock method.
Net earnings (loss) and earnings (loss) per share for the years ended December 31, 2023, 2022 and 2021, are as follows (in millions, except per share data):
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net earnings (loss) from continuing operations attributable to FIS common stockholders | $ | 503 | $ | 608 | $ | 320 | |||||||||||
| Net earnings (loss) from discontinued operations attributable to FIS common stockholders | (7,157) | (17,328) | 97 | ||||||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | (6,654) | $ | (16,720) | $ | 417 | |||||||||||
| Weighted average shares outstanding-basic | 591 | 604 | 616 | ||||||||||||||
| Plus: Common stock equivalent shares | — | — | 5 | ||||||||||||||
| Weighted average shares outstanding-diluted | 591 | 604 | 621 | ||||||||||||||
| Net earnings (loss) per share-basic from continuing operations attributable to FIS common stockholders | $ | 0.85 | $ | 1.01 | $ | 0.52 | |||||||||||
| Net earnings (loss) per share-basic from discontinued operations attributable to FIS common stockholders | (12.11) | (28.69) | 0.16 | ||||||||||||||
| Net earnings (loss) per share-basic attributable to FIS common stockholders | $ | (11.26) | $ | (27.68) | $ | 0.68 | |||||||||||
| Net earnings (loss) per share-diluted from continuing operations attributable to FIS common stockholders | $ | 0.85 | $ | 1.01 | $ | 0.52 | |||||||||||
| Net earnings (loss) per share-diluted from discontinued operations attributable to FIS common stockholders | (12.11) | (28.69) | 0.16 | ||||||||||||||
| Net earnings (loss) per share-diluted attributable to FIS common stockholders | $ | (11.26) | $ | (27.68) | $ | 0.67 |
The diluted net loss per share for the year ended December 31, 2023 and 2022, did not include the effect of common stock equivalent shares of 2 million and 3 million, respectively.
Options to purchase approximately 8 million, 5 million and 2 million shares of our common stock for the years ended December 31, 2023, 2022 and 2021, respectively, were not included in the computation of diluted earnings (loss) per share because they were anti-dilutive.
**(u)**Recent Accounting Guidance Not Yet Adopted
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The ASU requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, the ASU requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in this ASU are required to be adopted for fiscal years beginning after December 31, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently evaluating the impact of adoption on our financial disclosures.
In November 2023, the FASB used ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires that an entity disclose significant segment expenses impacting profit and loss that are regularly
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provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of adoption of our financial disclosures
**(v)**Certain Reclassifications
Certain reclassifications have been made in the 2022 and 2021 consolidated financial statements to conform to the classifications used in 2023. As a result of our ongoing portfolio assessments, the Company reclassified certain businesses from Capital Markets to Banking and to Corporate and Other during the quarter ended March 31, 2023, and reclassified certain non-strategic operations from Banking to Corporate and Other during the quarter ended December 31, 2023. The Company recast all prior-period segment information presented to reflect these reclassifications. See Note 22 for more information regarding our segments. December 31, 2023, was the final deadline for states to complete all benefit issuance under federally funded pandemic relief programs. Accordingly, revenue associated with services the Company provided related to these programs has been classified within the Banking segment as Other non-recurring commencing during the quarter ended December 31, 2023, and related prior-period amounts have been reclassified from Transaction processing and services to Other non-recurring for comparability. See Note 5 for further information.
During January 2024, the Company agreed to include in the Worldpay Sale an equity security investment with a book value of $30 million. As of September 30, 2023, the value of this investment had been properly recorded as Other noncurrent assets within continuing operations on the consolidated balance sheets at September 30, 2023, and December 31, 2022. As a result of the subsequent decision to convey this asset in the Worldpay Sale, the amount of this asset has been reclassified and is now presented within these financial statements as Noncurrent assets held for sale at December 31, 2023 and 2022, and is reported within Other noncurrent assets within discontinued operations (see Note 3).
**3.**Discontinued Operations
Sale of Worldpay Merchant Solutions Business
The following table represents a reconciliation of the major components of discontinued operations, net of tax, presented in the consolidated statements of earnings (loss) (in millions). The Company's presentation of discontinued operations excludes general corporate overhead costs which were historically allocated to the Worldpay Merchant Solutions business.
| 2023 | 2022 | 2021 | |||||||||||||||
| Major components of discontinued operations before income taxes: | |||||||||||||||||
| Revenue | $ | 4,859 | $ | 4,809 | $ | 4,538 | |||||||||||
| Cost of revenue | (1,662) | (2,604) | (2,640) | ||||||||||||||
| Selling, general, and administrative expenses | (1,992) | (1,936) | (1,876) | ||||||||||||||
| Asset impairments | (6,844) | (17,606) | (8) | ||||||||||||||
| Interest income (expense), net | 27 | 6 | (2) | ||||||||||||||
| Other, net | 63 | 55 | 53 | ||||||||||||||
| Earnings (loss) from discontinued operations related to major classes of pre-tax earnings(loss) | (5,549) | (17,276) | 65 | ||||||||||||||
| Loss on assets held for sale | (1,909) | — | — | ||||||||||||||
| Earnings (loss) from discontinued operations | (7,458) | (17,276) | 65 | ||||||||||||||
| Provision (benefit) for income taxes | (301) | 52 | (32) | ||||||||||||||
| Earnings (loss) from discontinued operations, net of tax attributable to FIS | $ | (7,157) | $ | (17,328) | $ | 97 |
The following table represents the major classes of assets and liabilities of the disposal group classified as held for sale presented in the consolidated balance sheets as of December 31, 2023, and December 31, 2022 (in millions). Assets held for sale are reported at the lower of their carrying value or fair value less cost to sell and are not depreciated or amortized.
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| December 31, 2023 | December 31, 2022 | ||||||||||
| Major classes of assets included in discontinued operations: | |||||||||||
| Cash and cash equivalents | $ | 1,380 | $ | 1,732 | |||||||
| Settlement assets | 6,727 | 5,264 | |||||||||
| Trade receivables, net of allowance for credit losses of $52 and $44, respectively | 1,843 | 1,864 | |||||||||
| Prepaid expenses and other current assets | 161 | 130 | |||||||||
| Total current assets | 10,111 | 8,990 | |||||||||
| Property and equipment, net | 207 | 153 | |||||||||
| Goodwill | 10,906 | 17,460 | |||||||||
| Intangible assets, net | 5,971 | 6,488 | |||||||||
| Software, net | 1,321 | 1,183 | |||||||||
| Other noncurrent assets (1) | 613 | 480 | |||||||||
| Total noncurrent assets | 19,018 | 25,764 | |||||||||
| Less valuation allowance | (1,909) | — | |||||||||
| Total assets of the disposal group classified as held for sale | $ | 27,220 | $ | 34,754 | |||||||
| Major classes of liabilities included in discontinued operations: | |||||||||||
| Accounts payable, accrued and other liabilities | $ | 998 | $ | 1,171 | |||||||
| Settlement payables | 7,821 | 6,140 | |||||||||
| Other current liabilities | 65 | 55 | |||||||||
| Total current liabilities | 8,884 | 7,366 | |||||||||
| Deferred income taxes | 599 | 861 | |||||||||
| Other noncurrent liabilities | 494 | 510 | |||||||||
| Total noncurrent liabilities | 1,093 | 1,371 | |||||||||
| Total liabilities of the disposal group classified as held for sale | $ | 9,977 | $ | 8,737 |
(1)During January 2024, the Company agreed to include in the Worldpay Sale an equity security investment with a book value of $30 million. As of September 30, 2023, the value of this investment had been properly recorded as Other noncurrent assets within continuing operations on the consolidated balance sheets at September 30, 2023, and December 31, 2022. As a result of the subsequent decision to convey this asset in the Worldpay Sale, the amount of this asset has been reclassified and is now presented within these financial statements as Noncurrent assets held for sale at December 31, 2023 and 2022, and is shown in the table above within Other noncurrent assets within discontinued operations.
The following table presents cash flows from operating and investing activities for discontinued operations (in millions).
| December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash provided by (used in) operating activities - discontinued operations | $ | 2,257 | $ | 2,317 | $ | 2,539 | ||||||||||||||
| Cash provided by (used in) investing activities - discontinued operations (1) | $ | (342) | $ | (147) | $ | (1,081) | ||||||||||||||
| Cash provided by (used in) financing activities - discontinued operations (2) | $ | (240) | $ | (500) | $ | (144) |
(1)Our capital expenditures from discontinued operations for the years ended December 31, 2023, 2022 and 2021, were $342 million, $395 million and $334 million, respectively. The year ended December 31, 2022, includes $269 million net proceeds from the sale of Visa preferred stock.
(2) Excludes the impact of intercompany cash transactions between the disposal group and other FIS entities, which are eliminated in consolidation.
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Settlement Assets
The principal components of the Company's settlement assets of the disposal group are as follows (in millions):
| December 31, 2023 | December 31, 2022 | ||||||||||
| Settlement assets | |||||||||||
| Settlement deposits | $ | 56 | $ | 55 | |||||||
| Merchant float | 2,594 | 2,625 | |||||||||
| Settlement receivables | 4,077 | 2,584 | |||||||||
| Total Settlement assets | $ | 6,727 | $ | 5,264 |
Held-for-sale Disposal Group Measurement
In accordance with ASC 360, a held-for-sale disposal group is measured at the lower of its carrying value or fair value less cost to sell. Measuring the disposal group is a two-step process requiring the carrying amount of the disposal group's assets outside the scope of ASC 360, such as goodwill, which is tested for impairment under ASC 350, to be first adjusted by applying other relevant guidance before adjusting the carrying value of the overall disposal group.
The Company evaluated the goodwill of the disposal group for impairment as of September 30, 2023, by performing a quantitative assessment that estimated the fair value of the disposal group using a market approach based on the price at which the Company agreed to sell a majority interest in the Worldpay Merchant Solutions business. As of September 30, 2023, the estimated fair value of the disposal group approximated its carrying value, inclusive of related deferred tax liabilities assigned to the reporting unit for purposes of the goodwill impairment assessment in accordance with ASC 350 but not classified as liabilities held for sale in accordance with ASC 360 because these deferred tax liabilities would not be transferred in the Worldpay Sale. Based on the assessment, no goodwill impairment was recorded.
The carrying value of the overall disposal group was then assessed by comparing its value, inclusive of cumulative translation adjustment losses and exclusive of deferred tax liabilities not classified as part of the disposal group's assets held for sale, to the estimated fair value less estimated cost to sell. Based on this assessment, the carrying value of the disposal group was reduced by $1.9 billion as of December 31, 2023, primarily as a result of the exclusion of certain deferred tax liabilities that were not transferred in the Worldpay Sale. The reduction was recorded as a valuation allowance against the Company's assets held for sale. As of the closing date of the Worldpay Sale, the assets held for sale, net of the valuation allowance, and the liabilities held for sale will be derecognized and any additional gain or loss on sale will be recorded.
Asset Impairments
During the second quarter of 2023, the Company recorded a $6.8 billion goodwill impairment because the estimated fair value of the Worldpay Merchant Solutions reporting unit, now reported as assets held for sale, was less than its carrying value. To estimate the fair value of such reporting unit, we used a market approach based on the price, inclusive of estimated selling price adjustments and fair value of contingent consideration, at which the Company had subsequently agreed to sell a majority interest in the Worldpay Merchant Solutions business to Buyer, as discussed in Note 1.
During the fourth quarter of 2022, the Company recorded a $17.6 billion goodwill impairment of the Worldpay Merchant Solutions reporting unit, reflecting the projected impact of worsening macroeconomic conditions, including rising interest rates, inflation, and slowing growth in the U.S. and Europe, as well as a sustained decline in our market capitalization and the effects of changing market dynamics affecting the unit's growth.
Commitments and Contingencies of the Disposal Group
Chargeback Liability
Through services offered in the Worldpay Merchant Solutions disposal group, 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
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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.
**(4)**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. The acquisition was accounted for as a business combination. FIS acquired a 70% voting and financial interest in Virtus with 30% interest retained by the founders of Virtus ("Founders"). The agreement between FIS and the Founders provided FIS with a call option to purchase, 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, exercisable at any time after two years and three years, respectively, following the acquisition date. In January 2023, the Founders exercised their put option, and as a result, FIS paid the $173 million redemption value, recorded as a financing activity in the consolidated statement of cash flows, and now owns 100% of Virtus.
**(5)**Revenue
As a result of our ongoing portfolio assessments, the Company reclassified certain businesses from Capital Markets to Banking and to Corporate and Other during the quarter ended March 31, 2023, and reclassified certain non-strategic operations from Banking to Corporate and Other during the quarter ended December 31, 2023. The Company recast all prior-period segment information presented to reflect these reclassifications.
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.
For the year ended December 31, 2023 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | |||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||
| North America | $ | 5,802 | $ | 1,712 | $ | 167 | $ | 7,681 | ||||||||||||||||||
| All others | 931 | 1,054 | 155 | 2,140 | ||||||||||||||||||||||
| Total | $ | 6,733 | $ | 2,766 | $ | 322 | $ | 9,821 | ||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||
| Transaction processing and services (1) | $ | 4,960 | $ | 1,381 | $ | 239 | $ | 6,580 | ||||||||||||||||||
| Software maintenance | 364 | 531 | 2 | 897 | ||||||||||||||||||||||
| Other recurring | 248 | 81 | 41 | 370 | ||||||||||||||||||||||
| Total recurring | 5,572 | 1,993 | 282 | 7,847 | ||||||||||||||||||||||
| Software license | 131 | 369 | 8 | 508 | ||||||||||||||||||||||
| Professional services | 562 | 391 | 9 | 962 | ||||||||||||||||||||||
| Other non-recurring (1) | 468 | 13 | 23 | 504 | ||||||||||||||||||||||
| Total | $ | 6,733 | $ | 2,766 | $ | 322 | $ | 9,821 |
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For the year ended December 31, 2022 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | |||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||
| North America | $ | 5,709 | $ | 1,566 | $ | 284 | $ | 7,559 | ||||||||||||||||||
| All others | 915 | 1,065 | 180 | 2,160 | ||||||||||||||||||||||
| Total | $ | 6,624 | $ | 2,631 | $ | 464 | $ | 9,719 | ||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||
| Transaction processing and services (1) | $ | 4,785 | $ | 1,274 | $ | 384 | $ | 6,443 | ||||||||||||||||||
| Software maintenance | 358 | 498 | 2 | 858 | ||||||||||||||||||||||
| Other recurring | 210 | 58 | 38 | 306 | ||||||||||||||||||||||
| Total recurring | 5,353 | 1,830 | 424 | 7,607 | ||||||||||||||||||||||
| Software license | 160 | 377 | — | 537 | ||||||||||||||||||||||
| Professional services | 632 | 419 | 8 | 1,059 | ||||||||||||||||||||||
| Other non-recurring (1) | 479 | 5 | 32 | 516 | ||||||||||||||||||||||
| Total | $ | 6,624 | $ | 2,631 | $ | 464 | $ | 9,719 |
For the year ended December 31, 2021 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | |||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||
| North America | $ | 5,480 | $ | 1,445 | $ | 247 | $ | 7,172 | ||||||||||||||||||
| All others | 881 | 1,050 | 236 | 2,167 | ||||||||||||||||||||||
| Total | $ | 6,361 | $ | 2,495 | $ | 483 | $ | 9,339 | ||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||
| Transaction processing and services (1) | $ | 4,545 | $ | 1,136 | $ | 389 | $ | 6,070 | ||||||||||||||||||
| Software maintenance | 376 | 489 | 4 | 869 | ||||||||||||||||||||||
| Other recurring | 172 | 52 | 53 | 277 | ||||||||||||||||||||||
| Total recurring | 5,093 | 1,677 | 446 | 7,216 | ||||||||||||||||||||||
| Software license | 131 | 371 | — | 502 | ||||||||||||||||||||||
| Professional services | 600 | 437 | 10 | 1,047 | ||||||||||||||||||||||
| Other non-recurring (1) | 537 | 10 | 27 | 574 | ||||||||||||||||||||||
| Total | $ | 6,361 | $ | 2,495 | $ | 483 | $ | 9,339 |
(1) December 31, 2023, was the final deadline for states to complete all benefit issuance under federally funded pandemic relief programs. Accordingly, revenue associated with services the Company provided related to these programs has been classified as Other non-recurring commencing in the fourth quarter of 2023, and related prior-period amounts have been reclassified from Transaction processing and services to Other non-recurring for comparability. Revenue associated with services the Company provided related to these programs was $151 million, $112 million and $168 million for the years ended December 31, 2023, 2022 and 2021, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Contract Balances
The Company recognized revenue of approximately $677 million, $696 million and $668 million, during the years ended December 31, 2023, 2022 and 2021, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2023, approximately $23.5 billion of revenue is estimated to be recognized in the future primarily from the Banking Solutions and Capital Market Solutions segments' remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 30% of the Banking Solutions and Capital Market Solutions segments' remaining performance obligations over the next 12 months, approximately another 23% over the next 13 to 24 months, and the balance thereafter.
**(6)**Property and Equipment
Property and equipment as of December 31, 2023 and 2022, consist of the following (in millions):
| 2023 | 2022 | ||||||||||
| Land | $ | 33 | $ | 33 | |||||||
| Buildings | 435 | 422 | |||||||||
| Leasehold improvements | 105 | 113 | |||||||||
| Computer equipment | 1,387 | 1,298 | |||||||||
| Furniture, fixtures, and other equipment | 114 | 107 | |||||||||
| 2,074 | 1,973 | ||||||||||
| Accumulated depreciation and amortization | (1,379) | (1,264) | |||||||||
| Total Property and equipment, net | $ | 695 | $ | 709 |
During the years ended December 31, 2023 and 2022, the Company entered into other financing obligations of $53 million and $63 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 $165 million, $186 million and $178 million for the years ended December 31, 2023, 2022 and 2021, respectively.
**(7)**Goodwill
Changes in goodwill during the years ended December 31, 2023 and 2022, are summarized below (in millions).
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | ||||||||||||||||||||
| Balance, December 31, 2021 | $ | 12,566 | $ | 4,341 | $ | 20 | $ | 16,927 | |||||||||||||||
| Foreign currency adjustments | (30) | (81) | — | (111) | |||||||||||||||||||
| Balance, December 31, 2022 | 12,536 | 4,260 | 20 | 16,816 | |||||||||||||||||||
| Goodwill attributable to acquisitions | 37 | 64 | — | 101 | |||||||||||||||||||
| Foreign currency adjustments | 15 | 39 | — | 54 | |||||||||||||||||||
| Balance, December 31, 2023 | $ | 12,588 | $ | 4,363 | $ | 20 | $ | 16,971 |
For our Banking and Capital Markets reporting units, for which previous third-party valuations have historically indicated substantial excess of fair value over carrying amounts, our 2021 qualitative annual assessment 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 2022, we performed a quantitative annual assessment which again concluded that the fair values of these reporting units substantially
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
exceeded their respective carrying amounts. For 2023, we performed a qualitative annual assessment of these reporting units and concluded that it remained more likely than not that the fair values of these reporting units continued to exceed their respective carrying amounts. Given the substantial excess of fair value over carrying amounts, we believe the likelihood of obtaining materially different results based on a change of assumptions to be low.
The total carrying amount of goodwill as of December 31, 2023, 2022 and 2021, is net of accumulated impairment charges of $94 million which relates to non-strategic businesses within Corporate and Other.
**(8)**Intangible Assets
Intangible assets as of December 31, 2023, consist of the following (in millions):
| Cost | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 6,326 | $ | (4,583) | $ | 1,743 | |||||||||||
| Trademarks and other | 142 | (62) | 80 | ||||||||||||||
| Total Intangible assets, net | $ | 6,468 | $ | (4,645) | $ | 1,823 |
Intangible assets as of December 31, 2022, consist of the following (in millions):
| Cost | Accumulated Amortization | Net | |||||||||||||||
| Customer relationships | $ | 6,281 | $ | (3,953) | $ | 2,328 | |||||||||||
| Trademarks and other | 193 | (53) | 140 | ||||||||||||||
| Total Intangible assets, net | $ | 6,474 | $ | (4,006) | $ | 2,468 |
Amortization expense for intangible assets with finite lives was $467 million, $486 million and $484 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Estimated amortization of intangible assets for the next five years is as follows (in millions):
| 2024 | $ | 634 | |||
| 2025 | 560 | ||||
| 2026 | 192 | ||||
| 2027 | 161 | ||||
| 2028 | 143 |
**(9)**Software
Software as of December 31, 2023 and 2022, consists of the following (in millions):
| 2023 | 2022 | ||||||||||
| Software from acquisitions | $ | 754 | $ | 702 | |||||||
| Capitalized software development costs | 2,775 | 2,946 | |||||||||
| Purchased software | 633 | 693 | |||||||||
| 4,162 | 4,341 | ||||||||||
| Accumulated amortization | (2,047) | (2,286) | |||||||||
| Total Software, net | $ | 2,115 | $ | 2,055 |
During the years ended December 31, 2023, 2022 and 2021, the Company recorded $81 million, $31 million and $136 million, respectively, of software asset impairments and $18 million, $75 million and $76 million, respectively, of incremental software amortization expense driven by the Company's platform modernization. Platform modernization includes sunsetting certain technology platforms, which resulted in shortened estimated useful lives and accelerated amortization methods primarily impacting the associated assets over an approximate three-year period, beginning in the third quarter of 2021.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Amortization expense for software was $588 million, $640 million and $637 million for the years ended December 31, 2023, 2022 and 2021, respectively.
**(10)**Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of December 31, 2023 and 2022, consist of the following (in millions):
| 2023 | 2022 | ||||||||||
| Contract costs on implementations in progress | $ | 291 | $ | 240 | |||||||
| Contract origination costs on completed implementations, net | 542 | 516 | |||||||||
| Contract fulfillment costs on completed implementations, net | 243 | 217 | |||||||||
| Total Deferred contract costs, net | $ | 1,076 | $ | 973 |
For the years ended December 31, 2023, 2022 and 2021, amortization of deferred contract costs on completed implementations was $310 million, $324 million and $312 million, respectively.
During the years ended December 31, 2023, 2022 and 2021, the Company recorded $6 million, $34 million, and $33 million respectively, of incremental amortization expense related to deferred contract costs driven by the Company's platform modernization. During the year ended December 31, 2021, the Company also recorded $58 million of impairments related to the platform modernization. The Company's platform modernization is also discussed in Note 9.
**(11)**Accounts Payable, Accrued and Other Liabilities
Accounts payable, accrued and other liabilities as of December 31, 2023 and 2022, consists of the following (in millions):
| 2023 | 2022 | ||||||||||
| Trade accounts payable and other accrued liabilities | $ | 733 | $ | 623 | |||||||
| Salaries and incentives | 472 | 361 | |||||||||
| Taxes other than income tax | 301 | 299 | |||||||||
| Accrued benefits and payroll taxes | 106 | 88 | |||||||||
| Operating lease liabilities | 85 | 99 | |||||||||
| Accrued interest payable | 162 | 113 | |||||||||
| Total Accounts payable, accrued and other liabilities | $ | 1,859 | $ | 1,583 |
**(12)**Other Noncurrent Assets and Liabilities
Other noncurrent assets as of December 31, 2023 and 2022, consist of the following (in millions):
| 2023 | 2022 | ||||||||||
| Operating lease ROU assets (1) | $ | 214 | $ | 251 | |||||||
| Equity security investments | 195 | 281 | |||||||||
| Derivatives | 172 | 330 | |||||||||
| Other | 947 | 813 | |||||||||
| Total Other noncurrent assets | $ | 1,528 | $ | 1,675 |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Other noncurrent liabilities as of December 31, 2023 and 2022, consist of the following (in millions):
| 2023 | 2022 | ||||||||||
| Operating lease liabilities (1) | $ | 178 | $ | 219 | |||||||
| Deferred revenue | 149 | 165 | |||||||||
| Derivatives | 789 | 641 | |||||||||
| Other | 330 | 357 | |||||||||
| Total Other noncurrent liabilities | $ | 1,446 | $ | 1,382 |
(1)See Note 15, Operating Leases
Equity Security Investments
The Company holds various equity securities without readily determinable fair values that primarily represent strategic investments made by the Company as well as investments obtained through acquisitions. Such investments totaled $195 million and $281 million at December 31, 2023 and 2022, respectively, and are included within Other noncurrent assets on the consolidated balance sheets. The Company accounts for these investments at cost, less impairment, and adjusts the carrying values for observable price changes from orderly transactions for identical or similar investments of the same issuer. These adjustments are generally considered Level 2-type fair value measurements. The Company records realized and unrealized gains and losses on these investments as well as impairment losses, as Other income (expense), net on the consolidated statements of earnings (loss) and recorded net (losses) gains of $(48) million, $(31) million and $161 million for the years ended December 31, 2023, 2022 and 2021, respectively, related to these investments. The net loss recorded for the 2023 period primarily relates to impairments. The net loss recorded during 2022 included a $78 million impairment loss.
**(13)**Debt
Long-term debt as of December 31, 2023 and 2022, consisted of the following (in millions):
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||||||||
| Stated | Average | |||||||||||||||||||||||||||||||
| Interest | Interest | December 31, | ||||||||||||||||||||||||||||||
| Rates | Rate (1) | Maturities | 2023 | 2022 | ||||||||||||||||||||||||||||
| Fixed Rate Notes | ||||||||||||||||||||||||||||||||
| Senior USD Notes | 0.6% - 5.6% | 3.6% | 2024 - 2052 | $ | 8,659 | $ | 9,409 | |||||||||||||||||||||||||
| Senior Euro Notes | 0.6% - 3.0% | 2.9% | 2024 - 2039 | 4,968 | 6,154 | |||||||||||||||||||||||||||
| Senior GBP Notes | 2.3% - 3.4% | 7.0% | 2029 - 2031 | 1,178 | 1,119 | |||||||||||||||||||||||||||
| Revolving Credit Facility (2) | 6.6% | 2026 | 127 | 280 | ||||||||||||||||||||||||||||
| Incremental Revolving Credit Facility (3) | 2024 | — | — | |||||||||||||||||||||||||||||
| Other (4) | (614) | (626) | ||||||||||||||||||||||||||||||
| Total long-term debt, including current portion | 14,318 | 16,336 | ||||||||||||||||||||||||||||||
| Current portion of long-term debt | (1,348) | (2,130) | ||||||||||||||||||||||||||||||
| Long-term debt, excluding current portion | $ | 12,970 | $ | 14,206 |
(1)The weighted average interest rate includes the impact of the fair value basis adjustments due to interest rate swaps and the impact of cross-currency interest rate swaps designated as fair value hedges and excludes the impact of cross-currency interest rate swaps designated as net investment hedges (see Note 14). The impact of the included fair value basis adjustments and cross-currency interest rate swaps in certain cases results in an effective weighted average interest rate being outside the stated interest rate range on the fixed rate notes.
(2)Interest on the Revolving Credit Facility is generally payable at Secured Overnight Financing Rate ("SOFR") plus a margin of up to 0.428% dependent on tenor, plus an applicable margin of up to 1.625% and 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.
(3)Interest on the Incremental Revolving Credit Facility is generally payable at a rate, at the option of the Company, equal to the Term SOFR Rate plus 0.10% plus a margin of up to 1.625% or equal to the Base Rate plus a margin of up to 0.625%, in either case plus an unused commitment fee of up to 0.225%.
(4)Other includes the amount of fair value basis adjustments due to interest rate swaps (see further discussion below and in Note 14), unamortized debt issuance costs, unamortized non-cash bond discounts, and other financing obligations for certain hardware and software.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Short-term borrowings as of December 31, 2023 and 2022, consisted of the following (in millions):
| December 31, 2023 | |||||||||||||||||||||||
| Weighted | |||||||||||||||||||||||
| Average | |||||||||||||||||||||||
| Interest | December 31, | ||||||||||||||||||||||
| Rate | Maturities | 2023 | 2022 | ||||||||||||||||||||
| Euro-commercial paper notes ("ECP Notes") | 4.1 | % | Up to 183 days | $ | 2,118 | $ | 2,054 | ||||||||||||||||
| U.S. commercial paper notes ("USCP Notes") | 5.7 | % | Up to 397 days | 2,642 | 1,701 | ||||||||||||||||||
| Total Short-term borrowings | $ | 4,760 | $ | 3,755 |
The Company is a party to interest rate swaps that, prior to de-designation as fair value hedges, converted a portion of its fixed-rate debt to variable-rate debt. These interest rate swaps were de-designated as fair value hedges of its fixed-rate debt during the quarter ended September 30, 2023. As a result of the de-designations, the final fair value basis adjustments recorded through the dates of de-designation as a decrease of the long-term debt are now amortized as interest expense using the effective interest method over the remaining periods to maturity of the respective long-term debt. The fair value basis adjustments reflected in Other in the long-term debt table above totaled $(594) million and $(578) million as of December 31, 2023 and 2022, respectively.
The Company is also party to fixed-for-fixed cross-currency interest rate swaps under which it agrees to receive interest in foreign currency in exchange for paying interest in U.S. dollars. These are designated as fair value hedges.
The Company has also entered into cross-currency interest rate swaps under which it agrees to receive interest in U.S. dollars in exchange for paying interest in a foreign currency. These are designated as net investment hedges. Although these cross-currency interest rate swaps are entered into as net investment hedges of its investments in certain of its non-U.S. subsidiaries, and not for the purpose of hedging interest rates, the benefit or cost of such hedges is reflected in interest expense in the consolidated statement of earnings. As of December 31, 2023, the weighted average interest rate of the Company's outstanding debt was 4.2%, including the impact of fair value basis adjustments due to interest rate swaps and cross-currency interest rate swaps designated as fair value hedges but excluding the impact of cross-currency interest rate swaps designated as net investment hedges. Including the impact of the net investment hedge cross-currency interest rate swaps on interest expense, the weighted average interest rate of the Company's outstanding debt was 3.5%.
See Note 14 for further discussion of the Company's interest rate swaps and cross-currency interest rate swaps and related hedge designations.
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.
The following table summarizes the amount of our long-term debt based on maturity date.
| Total | |||||
| 2024 | $ | 1,359 | |||
| 2025 | 1,463 | ||||
| 2026 | 1,393 | ||||
| 2027 | 1,880 | ||||
| 2028 | 1,669 | ||||
| Thereafter | 7,264 | ||||
| Total principal payments | 15,028 | ||||
| Other debt per the long-term debt table | (614) | ||||
| Financing obligations for certain hardware and software (1) | (96) | ||||
| Total long-term debt, including current portion | $ | 14,318 |
(1)Financing obligations for certain hardware and software included in the Other debt per the long-term debt table are also included in the total principal amounts summarized by maturity date above.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
There are no mandatory principal payments on the Revolving Credit Facility or the Incremental Revolving Credit Facility, and any balance outstanding on the Revolving Credit Facility or the Incremental Revolving Credit facility will be due and payable at each such facility's scheduled maturity date, which occur on March 2, 2026, and June 15, 2024, respectively.
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 May 21, 2023, FIS repaid an aggregate principal amount of €1.3 billion in Senior Euro Notes, on their due date, pursuant to the related indenture. On March 1, 2023, FIS repaid an aggregate principal amount of $750 million in Senior USD Notes, on their due date, pursuant to the related indenture. On December 3, 2022, FIS repaid an aggregate principal amount of €1.0 billion in Senior Euro Notes, on their due date, pursuant to the related indenture.
On July 13, 2022, FIS completed the issuance and sale of Senior USD Notes with an aggregate principal amount of $2.5 billion with interest rates ranging from 4.5% to 5.6% and maturities ranging from 2025 to 2052. The proceeds from the debt issuance were used for the repayment of debt under our commercial paper programs in the third quarter of 2022.
In March 2021, pursuant to cash tender offers and make-whole redemptions, FIS purchased and redeemed an aggregate principal amount of $5.1 billion in Senior Notes, comprised of $3,529 million in Senior USD Notes, $600 million in Senior Euro Notes, $871 million in Senior GBP Notes, and $66 million in Senior Euro Floating Rate Notes, with interest rates ranging from 0.0% to 5.0% and maturities ranging from 2021 to 2029, resulting in a loss on extinguishment of debt of approximately $528 million, recorded in Other income (expense), net on the consolidated statement of earnings (loss), relating to tender premiums, make-whole amounts, and fees; the write-off of unamortized bond discounts and debt issuance costs; and losses on related derivative instruments. The Company funded the purchase and redemption of the Senior Notes with proceeds on borrowings from the issuance and sale of Senior USD Notes on March 2, 2021.
On March 2, 2021, FIS completed the issuance and sale of Senior USD Notes with an aggregate principal amount of $5.5 billion with interest rates ranging from 0.4% to 3.1% and maturities ranging from 2023 to 2041. A portion of the proceeds from the debt issuance was used to purchase and redeem certain Senior Notes as discussed above, with the remaining proceeds used to repay a portion of our commercial paper notes.
The Senior Notes are subject to customary covenants, including, among others, customary events of default.
Commercial Paper
The Company 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). The ECP program is generally used for general corporate purposes.
The Company 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 $5.5 billion. The USCP program is generally used for general corporate purposes.
Revolving Credit Facilities
On March 2, 2021, FIS entered into an amendment to the Revolving Credit Facility agreement to amend certain covenant provisions, revise lender commitments for certain counterparties, and extend the scheduled maturity date to March 2, 2026. Borrowings 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.
On February 28, 2023, FIS entered into an Incremental Revolving Credit Facility which provides credit commitments outstanding of $2.0 billion, with a scheduled maturity date of December 15, 2023. In November 2023, the Company amended the Incremental Revolving Credit Facility to extend the maturity date to the earlier of (i) June 15, 2024, and (ii) ten business
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
days after the consummation of the Worldpay Sale, which closed on January 31, 2024. On February 14, 2024, following the closing of the Worldpay Sale, the Incremental Revolving Credit Facility expired in accordance with its terms.
As of December 31, 2023, the borrowing capacity under the Revolving Credit Facility and Incremental Revolving Credit Facility was $2,613 million (net of $4,760 million of capacity backstopping our commercial paper notes).
The revolving credit facilities are subject to customary covenants restricting, among other things, the incurrence of indebtedness, certain restricted payments and use of proceeds as well as requiring us to maintain certain financial ratios.
We monitor the financial stability of our counterparties on an ongoing basis. The lender commitments under the undrawn portions of the Revolving Credit Facility and Incremental 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 and Incremental Revolving Credit Facility would not adversely impact our ability to fund our operations.
Fair Value of Debt
The fair value of the Company's long-term debt is estimated to be approximately $1,086 million and $1,873 million lower than the carrying value, excluding the fair value basis adjustment of the interest rate swaps and unamortized discounts, as of December 31, 2023 and 2022, respectively.
**(14)**Financial Instruments
Fair Value Hedges
The Company held fixed-to-variable interest rate swaps with aggregate notional amounts of $1,854 million, £925 million and €500 million at December 31, 2023 and 2022, respectively. Prior to the quarter ended September 30, 2023, these swaps were designated as fair value hedges for accounting purposes, converting the interest rate exposure on certain of the Company's Senior USD Notes, Senior GBP Notes and Senior Euro Notes, as applicable, from fixed to variable. While designated as fair value hedges, changes in fair value of these interest rate swaps were recorded as an adjustment to long-term debt. During the quarter ended September 30, 2023, the Company de-designated these swaps as fair value hedges. As a result of the de-designations, the final fair value basis adjustments recorded through the dates of de-designation as a decrease of the long-term debt are now amortized as interest expense using the effective interest method over the remaining periods to maturity of the respective long-term debt. The fair value basis adjustments recorded as a decrease of the long-term debt totaled $594 million, net of amortization, as of December 31, 2023, with $41 million amortized as Interest expense for the year ending December 31, 2023 (see Note 13). At December 31, 2022, the fair value basis adjustments recorded as a decrease of the long-term debt totaled $578 million with a corresponding liability of $578 million recorded for the fair value of the interest rate swaps.
Concurrently with the de-designations described above, the Company entered into new offsetting variable-to-fixed interest rate swaps with aggregate notional amounts of $1,854 million, £925 million and €500 million. The Company accounts for the de-designated fixed-to-variable and offsetting variable-to-fixed interest rate swaps as economic hedges; as such, effective as of the de-designation dates, changes in interest rates associated with the variable leg of the interest rate swaps do not affect the interest expense recognized, eliminating variable-rate risk on the fixed-to-variable interest rate swaps. The terms of the new interest rate swaps when matched against the terms of the existing fixed-to-variable interest rate swaps result in a net fixed coupon spread payable by the Company. The impact of the go-forward changes in fair values of the new and existing interest rate swaps, including the impact of the coupons, is recorded as Other income (expense), net pursuant to accounting for economic hedges and totaled $(52) million for the year ended December 31, 2023. The coupon payments are recorded within Other investing activities, net on the consolidated statements of cash flows and totaled $28 million cash outflows for the year ended December 31, 2023. The new and existing interest rate swaps are recorded at fair value, totaling $12 million assets and $675 million liabilities at December 31, 2023.
During the quarter ended September 30, 2023, the Company entered into an aggregate notional amount of €3,375 million fixed-for-fixed cross-currency interest rate swaps to hedge its exposure to foreign currency risk associated with its Senior Euro Notes. During the quarter ended June 30, 2023, the Company entered into an aggregate notional amount of £925 million fixed-for-fixed cross-currency interest rate swaps to hedge its exposure to foreign currency risk associated with its Senior GBP Notes. These swaps are designated as fair value hedges for accounting purposes with an asset fair value of $134 million recorded at December 31, 2023. Changes in the swap fair values attributable to changes in spot foreign currency exchange rates are
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
recorded in Other income (expense), net and totaled $61 million for the year ended December 31, 2023. This amount offset the impact of changes in spot foreign currency exchange rates on the Senior GBP Notes and Senior Euro Notes also recorded to Other income (expense), net during the hedge period. Changes in swap fair values attributable to excluded components, such as changes in fair value due to forward foreign currency exchange rates and cross-currency basis spreads, are recorded in Accumulated other comprehensive earnings (loss) and totaled $74 million for the year ended December 31, 2023. The amounts recorded in Accumulated other comprehensive earnings (loss) impact net earnings (loss) through Interest expense using the amortization approach. For the year ended December 31, 2023, $20 million was recognized as Interest expense using the amortization approach.
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. Changes in fair value due to remeasurement of the effective portion are recorded as a component of Accumulated other comprehensive earnings (loss) ("AOCI"), net of tax, for net investment hedges. The amounts included in AOCI for the net investment hedges will remain in AOCI until the complete or substantially complete liquidation of our investment in the underlying foreign operations. Any ineffective portion of these hedging instruments impacts net earnings when the ineffectiveness occurs. The Company assesses effectiveness of cross-currency interest rate swap hedging instruments using the spot method. Under this method, the periodic interest settlements are recorded directly in earnings through Interest expense (see Note 13).
The Company recorded net investment hedge aggregate gain (loss) for the change in fair value and related income tax (expense) benefit within Other comprehensive earnings (loss), net of tax, on the consolidated statements of comprehensive earnings (loss) for its designated net investments hedges as follows (in millions). No ineffectiveness has been recorded on the net investment hedges.
| Years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Foreign currency-denominated debt designations | $ | (138) | $ | 534 | $ | 486 | ||||||||||||||
| Cross-currency interest rate swap designations | (363) | 500 | 392 | |||||||||||||||||
| Total | $ | (501) | $ | 1,034 | $ | 878 |
Foreign Currency-Denominated Debt Designations
The Company has designated certain foreign currency-denominated debt as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations. As of December 31, 2023 and 2022, an aggregate €1,534 million and €7,646 million, respectively was designated as a net investment hedge of the Company's investment in Euro-denominated operations related to Senior Euro Notes with maturities ranging from 2024 to 2025 and ECP Notes. As of December 31, 2023, no GBP-denominated debt was designated as a net investment hedge. As of December 31, 2022, an aggregate £726 million was designated as a net investment hedge of the Company's Pound Sterling-denominated operations related to the Senior GBP Notes.
During the quarters ended September 30, 2023, and June 30, 2023, the Company de-designated certain Senior Euro Notes and Senior GBP Notes as net investment hedges due to the new fair value hedges noted above. During the quarter ended September 30, 2023, the Company also de-designated €1,500 million of ECP Notes as a net investment hedge and entered into foreign currency forward contracts with a corresponding €1,500 million aggregate notional amount to hedge its exposure to foreign currency risk associated with ECP Notes that are expected to be paid off with U.S. dollar proceeds received from the Worldpay Sale during the first quarter of 2024 (see Note 1). The change in fair value of the foreign currency forward contracts is recorded as Other income (expense), net pursuant to accounting for economic hedges and offsets the impact of the change in spot foreign currency exchange rates on the de-designated ECP Notes, which is also recorded as Other income (expense), net. The foreign currency forward contract fair values totaled a net asset of $41 million at December 31, 2023.
Cross-Currency Interest Rate Swap Designations
The Company holds cross-currency interest rate swaps designated as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
As of December 31, 2023 and 2022, aggregate notional amounts of €6,143 million and €6,343 million, respectively, were designated as net investment hedges of the Company's investment in Euro-denominated operations, and aggregate notional amounts of £2,180 million and £2,580 million, respectively, were designated as net investment hedges of the Company's Pound Sterling-denominated operations. The cross-currency interest rate swap fair values totaled assets of $38 million and $336 million and liabilities of $240 million and $72 million at December 31, 2023 and 2022, respectively.
During the years ended December 31, 2023 and 2022, the Company (paid) received net proceeds of approximately $(20) million and $726 million, respectively, for the fair values of the cross-currency interest rate swaps as of the settlement dates. The proceeds were recorded within investing activities on the consolidated statements of cash flows. Following the settlement of the existing cross-currency interest rate swaps during 2022, the Company entered into new cross-currency interest rate swaps at current market terms with similar notional amounts and maturity dates as the settled cross-currency interest rate swaps.
**(15)**Operating Leases
The classification of the Company's operating lease ROU assets and liabilities in the consolidated balance sheets as of December 31, 2023 and 2022, is as follows (in millions):
| December 31, | ||||||||||||||||||||
| Classification | 2023 | 2022 | ||||||||||||||||||
| Operating lease ROU assets | Other noncurrent assets | $ | 214 | $ | 251 | |||||||||||||||
| Operating lease liabilities | Accounts payable, accrued and other liabilities | $ | 85 | $ | 99 | |||||||||||||||
| Other noncurrent liabilities | 178 | 219 | ||||||||||||||||||
| Total operating lease liabilities | $ | 263 | $ | 318 |
Operating lease cost was $90 million, $157 million and $137 million, and variable lease cost was $27 million, $29 million and $33 million for the years ended December 31, 2023, 2022 and 2021, respectively. Operating lease cost for the year ended December 31, 2022, included $43 million, in ROU asset impairment charges. There were no significant ROU asset impairment losses recognized during the years ended December 31, 2023 and 2021. Cash paid for amounts included in the measurement of operating lease liabilities included in operating cash flows was $106 million, $124 million and $135 million for the years ended December 31, 2023, 2022 and 2021, respectively. Operating lease ROU assets obtained in exchange for operating lease liabilities was $47 million and $36 million for the years ended December 31, 2023 and 2022, respectively. The weighted average remaining operating lease term was 4.4 years and 4.7 years and the weighted average operating lease discount rate was 2.8% and 2.6% as of December 31, 2023 and 2022, respectively.
Maturities of operating lease liabilities, as of December 31, 2023, are as follows (in millions):
| 2024 | $ | 92 | ||||||
| 2025 | 63 | |||||||
| 2026 | 49 | |||||||
| 2027 | 30 | |||||||
| 2028 | 23 | |||||||
| Thereafter | 25 | |||||||
| Total lease payments | 282 | |||||||
| Less: Imputed interest | (19) | |||||||
| Total operating lease liabilities | $ | 263 |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
**(16)**Income Taxes
Income tax expense (benefit) attributable to continuing operations for the years ended December 31, 2023, 2022 and 2021, consists of the following (in millions):
| 2023 | 2022 | 2021 | |||||||||||||||
| Current provision (benefit): | |||||||||||||||||
| Federal | $ | 235 | $ | 467 | $ | 196 | |||||||||||
| State | 96 | 132 | 54 | ||||||||||||||
| Foreign | 96 | 84 | 87 | ||||||||||||||
| Total current provision | $ | 427 | $ | 683 | $ | 337 | |||||||||||
| Deferred provision (benefit): | |||||||||||||||||
| Federal | $ | (193) | $ | (319) | $ | (113) | |||||||||||
| State | (73) | (54) | (12) | ||||||||||||||
| Foreign | (4) | 15 | 191 | ||||||||||||||
| Total deferred provision | (270) | (358) | 66 | ||||||||||||||
| Total provision for income taxes | $ | 157 | $ | 325 | $ | 403 |
The provision for income taxes is based on pre-tax income from continuing operations, which is as follows for the years ended December 31, 2023, 2022 and 2021 (in millions):
| 2023 | 2022 | 2021 | |||||||||||||||
| United States | $ | 331 | $ | 761 | $ | 537 | |||||||||||
| Foreign | 332 | 180 | 182 | ||||||||||||||
| Total | $ | 663 | $ | 941 | $ | 719 |
Total income tax expense (benefit) attributable to continuing and discontinued operations for the years ended December 31, 2023, 2022 and 2021, is allocated as follows (in millions):
| 2023 | 2022 | 2021 | |||||||||||||||
| Tax expense (benefit) per statements of earnings (loss) | $ | 157 | $ | 325 | $ | 403 | |||||||||||
| Tax expense (benefit) on income from discontinued operations | (301) | 52 | (32) | ||||||||||||||
| Change in fair value of net investment hedges | (176) | 361 | 317 | ||||||||||||||
| Foreign currency translation adjustments | 40 | (360) | (33) | ||||||||||||||
| Other components of other comprehensive earnings (loss) | 20 | 3 | — | ||||||||||||||
| Total income tax expense (benefit) allocated to other comprehensive earnings | (116) | 4 | 284 | ||||||||||||||
| Total income tax expense (benefit) | $ | (260) | $ | 381 | $ | 655 |
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, 2023, 2022 and 2021, is as follows:
| 2023 | 2022 | 2021 | |||||||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| State income taxes | 5.7 | 6.0 | 5.4 | ||||||||||||||
| Federal benefit of state taxes | (1.0) | (1.3) | (1.1) | ||||||||||||||
| Foreign rate differential | 0.8 | 2.0 | 1.2 | ||||||||||||||
| Withholding on actual and estimated remittances | 2.4 | 1.2 | 3.2 | ||||||||||||||
| Tax loss (benefit) from stock-based compensation | 2.3 | 4.0 | (2.4) | ||||||||||||||
| U.K. tax rate adjustment | (0.1) | 0.3 | 25.8 | ||||||||||||||
| Non-deductible executive compensation | 0.6 | 0.3 | 3.7 | ||||||||||||||
| Foreign-derived intangible income deduction | (3.4) | (1.1) | 0.4 | ||||||||||||||
| Research and development credit | (1.8) | — | (1.2) | ||||||||||||||
| Unrecognized tax benefits | (0.4) | (0.4) | 1.1 | ||||||||||||||
| Return to provision | (1.7) | — | (0.3) | ||||||||||||||
| Other | (0.6) | 2.5 | (0.8) | ||||||||||||||
| Effective income tax rate | 23.8 | % | 34.5 | % | 56.0 | % |
The significant components of deferred income tax assets and liabilities as of December 31, 2023 and 2022, consist of the following (in millions):
| 2023 | 2022 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 219 | $ | 196 | |||||||
| Employee benefit accruals | 105 | 103 | |||||||||
| Outside basis difference | 919 | 38 | |||||||||
| Other deferred tax assets | 95 | 105 | |||||||||
| Total gross deferred income tax assets | 1,338 | 442 | |||||||||
| Less valuation allowance | (1,055) | (218) | |||||||||
| Total deferred income tax assets | 283 | 224 | |||||||||
| Deferred income tax liabilities: | |||||||||||
| Amortization of goodwill and intangible assets | (2,066) | (2,363) | |||||||||
| Deferred contract costs | (245) | (209) | |||||||||
| Other deferred tax liabilities | (121) | (308) | |||||||||
| Total deferred income tax liabilities | (2,432) | (2,880) | |||||||||
| Net deferred income tax liability | $ | (2,149) | $ | (2,656) |
Deferred income taxes are classified in the consolidated balance sheets as of December 31, 2023 and 2022, as follows (in millions):
| 2023 | 2022 | ||||||||||
| Noncurrent deferred income tax assets (included in Other noncurrent assets) | $ | 30 | $ | 33 | |||||||
| Noncurrent deferred income tax liabilities | (2,179) | (2,689) | |||||||||
| Net deferred income tax liability | $ | (2,149) | $ | (2,656) |
We believe that based on our historical pattern of taxable income, projections of future income, tax planning strategies as necessary 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
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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, 2023 and 2022, the Company had, respectively, net income taxes payable of $17 million included in Accounts payable, accrued and other liabilities in the consolidated balance sheet and net income taxes receivable of $169 million included in Other receivables in the consolidated balance sheet.
As of December 31, 2023 and 2022, the Company had federal, state and foreign net operating loss carryforwards resulting in deferred tax assets of $219 million and $196 million, respectively. The federal and state net operating losses result in deferred tax assets as of December 31, 2023 and 2022, of $72 million and $67 million, respectively, which expire between 2024 and 2042. The Company has a valuation allowance related to these deferred tax assets for net operating loss carryforwards in the amounts of $46 million and $41 million as of December 31, 2023 and 2022. The Company has foreign net operating loss carryforwards resulting in deferred tax assets as of December 31, 2023 and 2022, of $147 million and $129 million, respectively. The Company has a full valuation allowance against the foreign net operating losses as of December 31, 2023 and 2022.
As a result of classifying the Worldpay Merchant Solutions disposal group as held for sale in the third quarter of 2023, in accordance with ASC 740, the Company recognized in Deferred income taxes on the consolidated balance sheet as of December 31, 2023, a deferred tax asset of $919 million related to the excess tax-over-book outside basis difference for Worldpay Merchant Solutions' investment in foreign subsidiaries, net of a valuation allowance of $829 million for the portion of the outside basis difference for which it is not more likely than not to recognize a tax benefit. The net deferred tax asset of $90 million represents the portion of future capital loss for which we have an available capital gain against which the loss can be utilized. The corresponding net tax benefit was recorded in discontinued operations. In accordance with the provisions of ASC 740, the net deferred tax asset at December 31, 2023, does not include the final estimated tax expense related to the closing of the Worldpay Sale, which will be computed by comparing the proceeds allocated to our investments in both U.S. and foreign subsidiaries against their respective tax bases.
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 2021. 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. Tax years that remain subject to examination by major foreign and state tax jurisdictions are 2017 and forward.
As of December 31, 2023 and 2022, the Company had gross unrecognized tax benefits of $41 million and $48 million of which $38 million and $42 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, 2021 | $ | 54 | |||
| Amount of decreases due to lapse of the applicable statute of limitations | (1) | ||||
| Amount of decreases due to settlements | (13) | ||||
| Increases as a result of tax positions taken in the prior period | 5 | ||||
| Increases as a result of tax positions taken in the current period | 4 | ||||
| Foreign currency translation | (1) | ||||
| Amount of unrecognized tax benefit as of December 31, 2022 | 48 | ||||
| Amount of decreases due to lapse of the applicable statute of limitations | (5) | ||||
| Amount of decreases due to settlements | (8) | ||||
| Increases as a result of tax positions taken in prior period | 4 | ||||
| Increases as a result of tax positions taken in the current period | 2 | ||||
| Amount of unrecognized tax benefit as of December 31, 2023 | $ | 41 |
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 (loss) for unpaid taxes is $2 million, $3 million and $3 million for the years ended December 31, 2023, 2022 and 2021, respectively. The total amount of interest and penalties included in the consolidated balance sheets is $11 million and $14 million as of December 31, 2023 and 2022, respectively. Interest and penalties are recorded as a component of income tax expense in the consolidated statements of earnings (loss).
**(17)**Commitments and Contingencies
Securities and Shareholder Matters
On March 6, 2023, a putative class action was filed in the United States District Court for the Middle District of Florida by a shareholder of the Company. The action was consolidated with another action and the consolidated case is now captioned In re Fidelity National Information Services, Inc. Securities Litigation. A lead plaintiff has been appointed, and a consolidated amended complaint was filed on August 2, 2023. The consolidated amended complaint names the Company and certain of its current and former officers as defendants and seeks damages for alleged violations of federal securities laws in connection with our disclosures relating to our former Merchant Solutions segment, including with respect to its valuation, integration, and synergies. Defendants filed a motion to dismiss the consolidated amended complaint with prejudice on September 22, 2023. We intend to vigorously defend this case, but no assurance can be given as to the ultimate outcome.
On April 27, 2023, a shareholder derivative action captioned Portia McCollum, derivatively on behalf of Fidelity National Information Services, Inc. v. Gary Norcross et al., was filed in the same court by a stockholder of the Company. Plaintiff dismissed the suit without prejudice and sent a demand pursuant to Georgia Code § 14-2-742. Another stockholder, City of Hialeah Employees' Retirement System, sent a similar demand. The demands claim that FIS officers and directors violated federal securities laws and breached fiduciary duties, including with respect to the valuation, integration, and synergies of our former Merchant Solutions segment, and they demand that the Board investigate and commence legal proceedings against officers and directors in connection with the purported wrongdoing. On August 25, 2023, the Board established a Demand Review Committee to consider the demands and make recommendations to the Board with respect to the demands, and the Demand Review Committee has hired independent counsel. The Board has made no final decision with respect to the demands and has not rejected the demands.
On October 18, 2023, a shareholder derivative action captioned City of Hialeah Employees' Retirement System v. Stephanie L. Ferris et al. was filed in the same court by one of the stockholders that previously had sent a demand. The complaint, which names certain of the Company's current and former officers and directors as defendants, seeks to assert claims on behalf of the Company for violations of federal securities laws, breach of fiduciary duty, unjust enrichment, and contribution and indemnification, including with respect to the valuation, integration, and synergies of our former Merchant Solutions segment. The Board has instructed the Company to move to stay or dismiss the action without prejudice pending the completion of the Board's consideration of the demands.
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 have filed 18 claims against Servicos, of which 16 are still active, asserting potential tax liabilities of approximately $13 million. There are potentially 20 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 36 claims approximately $45 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.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 solutions. 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, and consulting and outsourced services, including cloud hosting and data centers. The Company's estimated aggregate contractual obligation remaining under these agreements is approximately $868 million as of December 31, 2023. 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.
**(18)**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 20% of the employee's contribution. The Company recorded expense in continuing operations of $11 million, $17 million, and $18 million, respectively, for the years ended December 31, 2023, 2022 and 2021, relating to the participation of FIS employees in the ESPP. The Company recorded expense in discontinued operations of $1 million, $2 million and $2 million, respectively, for the years ended December 31, 2023, 2022 and 2021, relating to the participation of FIS employees in the ESPP.
401(k) Profit Sharing Plan and Non-U.S. Defined Contribution 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's non-U.S. employees are also covered by various defined contribution plans. The Company recorded expense in continuing operations of $106 million, $109 million and $97 million, respectively, for the years ended December 31, 2023, 2022 and 2021, relating to the participation of FIS employees in the 401(k) plan and the Company's contributions to non-U.S. defined contribution plans. The Company recorded expense in discontinued operations of $29 million, $25 million and $21 million, respectively, for the years ended December 31, 2023, 2022 and 2021, relating to the participation of FIS employees in the 401(k) plan and the Company’s contributions to non-U.S. defined contribution plans.
Stock Compensation Plans
The Company grants to certain employees equity awards pursuant to shares authorized under the FIS 2022 Omnibus Incentive Plan established in 2022 ("FIS Plan"). The number of shares available for future grants under the FIS Plan is 24 million as of December 31, 2023.
On January 1, 2021, the Company established a Qualified Retirement Equity Program that modified our existing stock compensation plans. The modification implemented a new retirement policy that permits retirees that meet certain eligibility criteria to continue vesting in unvested equity awards in accordance with the terms of the respective grant agreements, resulting in accelerated stock compensation expense for those employees meeting the definition of retirement eligible. The Company recorded in continuing operations $69 million in accelerated stock compensation expense included in Selling, general, and administrative expenses and recorded in discontinued operations $35 million in accelerated stock compensation expense
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
included in earnings (loss) from discontinued operations in the consolidated statement of earnings (loss) to reflect the impact of the modification on unvested equity awards outstanding at January 1, 2021.
Stock Options
The Company grants stock options 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 Company's 2019 acquisition of Worldpay expire on the tenth anniversary of the grant date.
The following table summarizes stock option activity for the year ended December 31, 2023, which includes both continuing and discontinued operations (in millions except for per share amounts):
| Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Balance, December 31, 2022 | 8 | $ | 101.60 | 3.1 | $ | 6 | |||||||||||||||||
| Granted | 2 | 78.42 | |||||||||||||||||||||
| Exercised | (1) | 61.70 | $ | 8 | |||||||||||||||||||
| Cancelled | (1) | 92.78 | |||||||||||||||||||||
| Balance, December 31, 2023 | 8 | $ | 100.19 | 3.3 | $ | — | |||||||||||||||||
| Options exercisable at December 31, 2023 | 6 | $ | 105.64 | 2.1 | $ | — |
The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021, was $8 million, $20 million and $107 million, respectively. The intrinsic value of the outstanding options and options exercisable is based on a closing stock price as of December 31, 2023, of $60.07. 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, 2023, 2022 and 2021, was 2 million, 1 million and 2 million, respectively. The weighted average exercise price was $78.42, $95.06 and $142.92 for the years ended December 31, 2023, 2022 and 2021, respectively.
The weighted average fair value of options granted during the years ended December 31, 2023, 2022 and 2021, was $12.91, $20.89 and $29.01, respectively, using the Black-Scholes option pricing model with the assumptions below:
| 2023 | 2022 | 2021 | |||||||||||||||
| Risk free interest rate | 4.2 | % | 1.7 | % | 0.6 | % | |||||||||||
| Volatility | 37.6 | % | 30.5 | % | 27.6 | % | |||||||||||
| Dividend yield | 3.3 | % | 2.0 | % | 1.1 | % | |||||||||||
| Weighted average expected life (years) | 4.1 | 4.1 | 4.1 |
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.
Restricted Stock Units and Performance 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, 2023, 2022 and 2021, was 3 million, 1 million and 1 million, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The weighted average grant date fair value of these awards granted during the years ended December 31, 2023, 2022 and 2021, was $61.34, $92.07 and $138.76, respectively. The total fair value of restricted stock units that vested was $40 million, $261 million and $241 million in 2023, 2022 and 2021, respectively.
The Company grants performance-based stock units that typically cliff vest on the third anniversary date of the grant. The ultimate number of units to be earned depends on the achievement of performance conditions. Some performance-based stock units also include market conditions. The performance conditions are typically based on a measure of the Company’s annual revenue growth and Adjusted EBITDA margin expansion (see Note 22 for a definition of Adjusted EBITDA). The market conditions are based on the Company’s total shareholder return ranked against that of other companies that are included in the Standard & Poor’s 500 Index. The fair value of each performance-based stock unit with only performance conditions is based on the fair value of our common stock on the grant date. The fair value of each performance-based stock unit with a market condition is estimated on the date of grant using a Monte Carlo simulation model with the following weighted-average assumptions:
| 2023 | 2022 | 2021 | |||||||||||||||
| Risk free interest rate | 4.6 | % | 1.6 | % | 0.3 | % | |||||||||||
| Volatility | 37.2 | % | 34.2 | % | 32.1 | % | |||||||||||
| Dividend yield | 3.3 | % | 2.0 | % | 1.1 | % |
The number of performance-based stock units granted during the years ended December 31, 2023, 2022 and 2021, was less than 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, 2023, 2022 and 2021, was $65.43, $99.27 and $130.04, respectively. The total fair value of the performance-based stock units that vested was $10 million, $35 million and $57 million in 2023, 2022 and 2021, respectively.
The following table summarizes the restricted stock units and performance stock units activity for the year ended December 31, 2023, which includes both continuing and discontinued operations (in millions except for per share amounts):
| Restricted Stock Units | Performance Stock Units | ||||||||||||||||||||||
| (In millions) | (In millions) | ||||||||||||||||||||||
| Shares | Weighted Average Fair Value | Shares | Weighted Average Fair Value | ||||||||||||||||||||
| Balance December 31, 2022 | 2 | $ | 103.63 | 2 | $ | 104.52 | |||||||||||||||||
| Granted | 3 | $ | 61.34 | — | $ | 65.43 | |||||||||||||||||
| Vested | (1) | $ | 107.05 | — | $ | 110.02 | |||||||||||||||||
| Forfeited | — | $ | 81.39 | — | $ | 112.38 | |||||||||||||||||
| Balance December 31, 2023 | 4 | $ | 70.24 | 2 | $ | 96.33 |
Stock Compensation Cost
The Company recorded total stock compensation expense in continuing operations of $120 million, $189 million and $283 million for the years ended December 31, 2023, 2022 and 2021, respectively, included in Selling, general, and administrative expenses in the consolidated statements of earnings (loss). The Company recorded total stock compensation expense in discontinued operations of $34 million, $26 million and $100 million for the years ended December 31, 2023, 2022 and 2021, respectively. Stock compensation expense related to grants with performance conditions is recorded 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. The 2021 stock compensation expense includes $69 million in continuing operations and $35 million in discontinued operations in accelerated stock compensation expense resulting from the Qualified Retirement Equity Program modification, described further above.
As of December 31, 2023 and 2022, the total unrecognized compensation cost including continuing and discontinued operations related to non-vested stock awards is $219 million and $179 million, respectively. The total unrecognized compensation cost as of December 31, 2023 and 2022, includes $166 million and $136 million, respectively, related to continuing operations, which is expected to be recognized in pre-tax income over a weighted average period of 1.4 years and 1.5 years, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
**(19)**Related-Party Transactions
The Company held a noncontrolling ownership stake in Cardinal Holdings ("Cardinal"), which operated the Capco consulting business, through April 29, 2021, when we sold our ownership stake due to an acquisition transaction of the Capco consulting business by Wipro Ltd. As a result of the transaction, we received net cash proceeds of approximately $367 million and recorded an approximate $225 million gain in Other income (expense), net on the consolidated statement of earnings (loss).
The Company also purchases services and software licenses from Cardinal from time to time. Cardinal was a related party through April 29, 2021. Amounts transacted through these agreements were not significant to the 2021 period presented when Cardinal was a related party.
In connection with the closing of the Worldpay Sale, we entered into several agreements with certain Worldpay entities, as further described in Note 24.
**(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, 2023, 2022 and 2021 (in millions):
| Change in Fair Value of Net Investment Hedges | Foreign Currency Translation Adjustments | Other | Total | |||||||||||||||||||||||
| Balances, December 31, 2020 | $ | (1,183) | $ | 1,326 | $ | (86) | $ | 57 | ||||||||||||||||||
| Other comprehensive earnings (loss) before reclassifications | 878 | (697) | 4 | 185 | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive earnings | — | — | 10 | 10 | ||||||||||||||||||||||
| Balances, December 31, 2021 | (305) | 629 | (72) | 252 | ||||||||||||||||||||||
| Other comprehensive earnings (loss) before reclassifications | 1,034 | (1,682) | 36 | (612) | ||||||||||||||||||||||
| Balances, December 31, 2022 | 729 | (1,053) | (36) | (360) | ||||||||||||||||||||||
| Other comprehensive earnings (loss) before reclassifications | (501) | 548 | 53 | 100 | ||||||||||||||||||||||
| Balances, December 31, 2023 | $ | 228 | $ | (505) | $ | 17 | $ | (260) |
See Note 16 for the tax provision associated with each component of other comprehensive earning (loss).
**(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, 2023, 2022 and 2021.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents and trade receivables, as well as derivatives in a net asset position. 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 seeks to minimize credit risk for derivatives by selecting counterparties with investment grade credit ratings. The Company also manages credit risk exposure through monitoring procedures.
**(22)**Segment Information
As described in Note 1, effective as of the third quarter of 2023, the Company no longer reports the Merchant Solutions segment; it now reports its financial performance based on the following segments: Banking Solutions, Capital Market Solutions and Corporate and Other. Below is a summary of each segment.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Banking Solutions ("Banking")
The Banking segment is focused on serving financial institutions of all sizes with core processing software, transaction processing software and complementary applications and services, many of which interact directly with core processing software. We sell these solutions 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. We provide our clients integrated solutions characterized by multi-year processing contracts that generate 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.
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 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 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, open APIs, machine learning and artificial intelligence, and regulatory technology to support our Capital Markets clients.
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, finance, accounting, human resources, legal, compliance and internal audit functions as well as other costs, such as acquisition, integration and transformation-related expenses and amortization of acquisition-related intangibles, that are not considered when management evaluates revenue-generating segment performance.
In the Corporate and Other segment, the Company recorded acquisition, integration and other costs for the years ended December 31, 2023, 2022 and 2021, comprised of the following (in millions):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Acquisition and integration | $ | 48 | $ | 50 | $ | 79 | ||||||||||||||
| Enterprise transformation, including Future Forward and platform modernization | 312 | 279 | 107 | |||||||||||||||||
| Severance and other termination expenses, including those associated with enterprise cost control initiatives and changes in senior management | 70 | 89 | 10 | |||||||||||||||||
| Pending separation of the Worldpay Merchant Solutions business | 17 | — | — | |||||||||||||||||
| Stock-based compensation, primarily from certain performance-based awards | 15 | 83 | — | |||||||||||||||||
| Accelerated stock compensation expense - qualified equity retirement program | — | — | 155 | |||||||||||||||||
| Other, including divestiture-related expenses and enterprise cost control and other initiatives | 20 | 80 | 160 | |||||||||||||||||
| Total acquisition, integration and other costs | $ | 482 | $ | 581 | $ | 511 |
Amounts in table may not sum due to rounding.
Other costs in Corporate and Other also include incremental amortization expense associated with shortened estimated useful lives and accelerated amortization methods for certain software and deferred contract cost assets resulting from the Company's platform modernization, as described in Notes 9 and 10, impairment charges described in Notes 9 and 10 and costs that were previously incurred in support of the Worldpay Merchant Solutions business but are not directly attributable to it and thus were not recorded in discontinued operations.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 or that otherwise improve the comparability of operating results across reporting periods by their exclusion. 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. The items affecting the segment profit measure generally include the purchase price amortization of acquired intangible assets as well as acquisition, integration and certain other costs and asset impairments. 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, 2023 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | ||||||||||||||||||||
| Revenue | $ | 6,733 | $ | 2,766 | $ | 322 | $ | 9,821 | |||||||||||||||
| Operating expenses | (4,403) | (1,730) | (2,221) | (8,354) | |||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 598 | 354 | 791 | 1,743 | |||||||||||||||||||
| Acquisition, integration and other costs | — | — | 482 | 482 | |||||||||||||||||||
| Asset impairments | — | — | 113 | 113 | |||||||||||||||||||
| Indirect Worldpay business support costs | — | — | 167 | 167 | |||||||||||||||||||
| Adjusted EBITDA | $ | 2,928 | $ | 1,390 | $ | (346) | $ | 3,972 | |||||||||||||||
| Adjusted EBITDA | $ | 3,972 | |||||||||||||||||||||
| Depreciation and amortization | (1,047) | ||||||||||||||||||||||
| Purchase accounting amortization | (696) | ||||||||||||||||||||||
| Acquisition, integration and other costs | (482) | ||||||||||||||||||||||
| Asset impairments | (113) | ||||||||||||||||||||||
| Indirect Worldpay business support costs | (167) | ||||||||||||||||||||||
| Interest expense, net | (621) | ||||||||||||||||||||||
| Other income (expense), net | (183) | ||||||||||||||||||||||
| (Provision) benefit for income taxes | (157) | ||||||||||||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | (7,153) | ||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (7) | ||||||||||||||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | (6,654) | |||||||||||||||||||||
| Capital expenditures (1) | $ | 433 | $ | 269 | $ | 131 | $ | 833 |
(1) Capital expenditures include $53 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, 2022 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | ||||||||||||||||||||
| Revenue | $ | 6,624 | $ | 2,631 | $ | 464 | $ | 9,719 | |||||||||||||||
| Operating expenses | (4,339) | (1,624) | (2,538) | (8,501) | |||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 597 | 331 | 951 | 1,879 | |||||||||||||||||||
| Acquisition, integration and other costs | — | — | 581 | 581 | |||||||||||||||||||
| Asset impairments | — | — | 103 | 103 | |||||||||||||||||||
| Indirect Worldpay business support costs | — | — | 180 | 180 | |||||||||||||||||||
| Adjusted EBITDA | $ | 2,882 | $ | 1,338 | $ | (259) | $ | 3,961 | |||||||||||||||
| Adjusted EBITDA | $ | 3,961 | |||||||||||||||||||||
| Depreciation and amortization | (1,101) | ||||||||||||||||||||||
| Purchase accounting amortization | (778) | ||||||||||||||||||||||
| Acquisition, integration and other costs | (581) | ||||||||||||||||||||||
| Asset impairments | (103) | ||||||||||||||||||||||
| Indirect Worldpay business support costs | (180) | ||||||||||||||||||||||
| Interest expense, net | (281) | ||||||||||||||||||||||
| Other income (expense), net | 4 | ||||||||||||||||||||||
| (Provision) benefit for income taxes | (325) | ||||||||||||||||||||||
| Net earnings (loss) from discontinued operations, net of tax | (17,324) | ||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (12) | ||||||||||||||||||||||
| Net earnings attributable to FIS common stockholders | $ | (16,720) | |||||||||||||||||||||
| Capital expenditures (1) | $ | 502 | $ | 271 | $ | 286 | $ | 1,059 |
(1) Capital expenditures include $63 million in other financing obligations for certain hardware and software.
As of and for the year ended December 31, 2021 (in millions):
| Banking Solutions | Capital Market Solutions | Corporate and Other | Total | ||||||||||||||||||||
| Revenue | $ | 6,361 | $ | 2,495 | $ | 483 | $ | 9,339 | |||||||||||||||
| Operating expenses | (4,051) | (1,577) | (2,671) | (8,299) | |||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 584 | 317 | 970 | 1,871 | |||||||||||||||||||
| Acquisition, integration and other costs | — | — | 511 | 511 | |||||||||||||||||||
| Asset impairments | — | — | 194 | 194 | |||||||||||||||||||
| Indirect Worldpay business support costs | — | — | 153 | 153 | |||||||||||||||||||
| Adjusted EBITDA | $ | 2,894 | $ | 1,235 | $ | (360) | 3,769 | ||||||||||||||||
| Adjusted EBITDA | $ | 3,769 | |||||||||||||||||||||
| Depreciation and amortization | (1,035) | ||||||||||||||||||||||
| Purchase accounting amortization | (836) | ||||||||||||||||||||||
| Acquisition, integration and other costs | (511) | ||||||||||||||||||||||
| Asset impairments | (194) | ||||||||||||||||||||||
| Indirect Worldpay business support costs | (153) | ||||||||||||||||||||||
| Interest expense, net | (212) | ||||||||||||||||||||||
| Other income (expense), net | (109) | ||||||||||||||||||||||
| (Provision) benefit for income taxes | (403) | ||||||||||||||||||||||
| Net earnings (loss) from discontinued operations | 102 | ||||||||||||||||||||||
| Equity method investment earnings (loss) | 6 | ||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (7) | ||||||||||||||||||||||
| Net earnings attributable to FIS common stockholders | $ | 417 | |||||||||||||||||||||
| Capital expenditures (1) | $ | 446 | $ | 221 | $ | 286 | $ | 953 |
(1) Capital expenditures include $35 million in other financing obligations for certain hardware and software.
Clients in the U.K., Germany, Brazil, Australia and Switzerland accounted for the majority of the revenue from clients based outside of North America for all periods presented. No individual country outside of North America accounted for more than 10% of total revenue for the years ended December 31, 2023, 2022 and 2021.
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 $651 million and $632 million as of December 31, 2023 and 2022, respectively. These assets are predominantly located in the United Kingdom, Germany, India, France, Australia, and Switzerland..
(23) Quarterly Financial Data (unaudited)
| 2023 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||
| Revenue | $ | 2,397 | $ | 2,424 | $ | 2,489 | $ | 2,510 | |||||||||||||||
| Gross profit | 828 | 906 | 966 | 975 | |||||||||||||||||||
| Operating income | 311 | 351 | 475 | 331 | |||||||||||||||||||
| Net earnings (loss) from continuing operations | 96 | 85 | 261 | 65 | |||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | 45 | (6,679) | (708) | 188 | |||||||||||||||||||
| Net earnings (loss) | 141 | (6,594) | (447) | 253 | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from continuing operations | — | (1) | (1) | (1) | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from discontinued operations | (1) | (1) | (1) | (1) | |||||||||||||||||||
| Net earnings (loss) attributable to FIS | 140 | (6,596) | (449) | 251 | |||||||||||||||||||
| Net earnings (loss) attributable to FIS: | |||||||||||||||||||||||
| Continuing operations | $ | 96 | $ | 84 | $ | 260 | $ | 64 | |||||||||||||||
| Discontinued operations | 44 | (6,680) | (709) | 187 | |||||||||||||||||||
| Total | $ | 140 | $ | (6,596) | $ | (449) | $ | 251 | |||||||||||||||
| Net earnings (loss) per common share attributable to FIS from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 0.16 | $ | 0.14 | $ | 0.44 | $ | 0.11 | |||||||||||||||
| Diluted | $ | 0.16 | $ | 0.14 | $ | 0.44 | $ | 0.11 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 592 | 592 | 592 | 589 | |||||||||||||||||||
| Diluted | 593 | 592 | 592 | 591 |
Amounts in tables in the financial statements and accompanying footnotes may not sum or calculate due to rounding.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
| 2022 | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||
| Revenue | $ | 2,370 | $ | 2,408 | $ | 2,415 | $ | 2,526 | |||||||||||||||
| Gross profit | 799 | 867 | 881 | 956 | |||||||||||||||||||
| Operating income | 202 | 254 | 384 | 379 | |||||||||||||||||||
| Net earnings (loss) from continuing operations | 121 | 161 | 222 | 111 | |||||||||||||||||||
| Earnings (loss) from discontinued operations, net of tax | — | 119 | 32 | (17,473) | |||||||||||||||||||
| Net earnings (loss) | 121 | 280 | 254 | (17,362) | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from continuing operations | — | (2) | (4) | (2) | |||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest from discontinued operations | (1) | (1) | (1) | (1) | |||||||||||||||||||
| Net earnings (loss) attributable to FIS | 120 | 277 | 249 | (17,365) | |||||||||||||||||||
| Net earnings (loss) attributable to FIS: | |||||||||||||||||||||||
| Continuing operations | $ | 121 | $ | 159 | $ | 218 | $ | 109 | |||||||||||||||
| Discontinued operations | (1) | 118 | 31 | (17,474) | |||||||||||||||||||
| Total | $ | 120 | $ | 277 | $ | 249 | $ | (17,365) | |||||||||||||||
| Net earnings (loss) per common share attributable to FIS from continuing operations: | |||||||||||||||||||||||
| Basic | $ | 0.20 | $ | 0.26 | $ | 0.36 | $ | 0.18 | |||||||||||||||
| Diluted | $ | 0.20 | $ | 0.26 | $ | 0.36 | $ | 0.18 | |||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | 610 | 608 | 605 | 593 | |||||||||||||||||||
| Diluted | 614 | 611 | 607 | 593 |
Amounts in tables in the financial statements and accompanying footnotes may not sum or calculate due to rounding.
**(24)**Subsequent Event
As discussed in Note 1, on January 31, 2024, FIS completed the previously announced Worldpay Sale in a transaction valuing the Worldpay Merchant Solutions business at an enterprise value of $18.5 billion, including $1.0 billion of consideration contingent on the returns realized by Buyer exceeding certain thresholds. The net cash proceeds received by FIS at the closing were greater than $12 billion, net of estimated closing adjustments, debt restructuring fees, taxes and transaction costs. The closing adjustments relate to estimated closing levels of the Worldpay Merchant Solutions business' debt, working capital relative to an agreed target and available cash relative to an agreed minimum of not less than $1.5 billion and will be trued-up post-closing. We intend to use proceeds from the sale to retire debt and return additional capital to shareholders through our existing share repurchase authorization, as well as for general corporate purposes, while maintaining an investment grade credit rating. As of the closing, we retained a non-controlling 45% ownership interest in a new standalone Joint Venture with GTCR. In future reports, FIS' share of the net income of the Joint Venture will be reported as equity method investment earnings (loss).
In connection with the closing of the Worldpay Sale, the Company entered into a limited liability company operating agreement (the "LLCA") with respect to the Joint Venture, and a registration rights agreement with respect to the Company’s retained equity interest in the Joint Venture. The LLCA provides that FIS has the right to appoint a minority of the board of managers of the Joint Venture and that FIS has customary consent and consultation rights with respect to certain material actions of the Joint Venture, in each case, subject to ownership stepdown thresholds. The LLCA contains, among other things, covenants and restrictions relating to other governance, liquidity and tax matters, including non-solicitation and non-competition covenants, distribution mechanics, preemptive rights and follow-on equity funding commitments of GTCR, and restrictions on transfer and associated tag-along and drag-along rights. Each of FIS and GTCR will have the right to require the
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Joint Venture to consummate an initial public offering ("IPO") or sale transaction after the fourth anniversary of the closing, subject to certain return hurdle and (in the case of an IPO) public float requirements, which requirements will fall away following the sixth anniversary of the closing.
Also in connection with the closing of the Worldpay Sale, the Company entered into additional agreements with certain Worldpay entities, including:
-
commercial arrangements whereby each party would provide (i) referrals in connection with certain products and services provided by the other party, which are generally structured as revenue shares, and (ii) certain commercial services to the other party;
-
a transition services agreement whereby the Company will continue to provide services in support of Worldpay and provide support for migration of the services for up to 24 months (subject to a six-month extension). In addition, the Joint Venture will provide reverse services so that the Company may maintain access to certain resources and services transferred to the Joint Venture in the Worldpay Sale;
-
an employee leasing agreement pursuant to which FIS will lease certain employees to Worldpay in the United States, China, Colombia and South Korea for up to five months after the closing and in the Netherlands for up to two months after closing; and
-
a data sharing agreement governing the sharing of data, including across the post-closing services agreements.
Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure