10-Q 1 fis-10xq06x30x2016.htm 10-Q Document

 
 
 
 
 
 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-Q
_______________________________________________
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2016
Or
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to
Commission File No. 001-16427
_______________________________________________
Fidelity National Information Services, Inc.
(Exact name of registrant as specified in its charter)
Georgia
 
37-1490331
(State or other jurisdiction
 
(I.R.S. Employer Identification No.)
of incorporation or organization)
 
 
 
 
 
601 Riverside Avenue
 
 
Jacksonville, Florida
 
32204
(Address of principal executive offices)
 
(Zip Code)
(904) 438-6000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x
As of July 31, 2016, 327,825,462 shares of the Registrant’s Common Stock were outstanding.
 
 
 
 
 
 
 
 
 
 


FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 2016
INDEX
 
Page
 
 
 
 EX-31.1
 
 EX-31.2
 
 EX-32.1
 
 EX-32.2
 
 EX-101 INSTANCE DOCUMENT
 
 EX-101 SCHEMA DOCUMENT
 
 EX-101 CALCULATION LINKBASE DOCUMENT
 
 EX-101 DEFINITION LINKBASE DOCUMENT
 
 EX-101 LABELS LINKBASE DOCUMENT
 
 EX-101 PRESENTATION LINKBASE DOCUMENT
 


1



FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
 
June 30, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
765

 
$
682

Settlement deposits
437

 
371

Trade receivables, net of allowance for doubtful accounts of $28 and $16 as of
June 30, 2016 and December 31, 2015, respectively
1,646

 
1,731

Settlement receivables
224

 
162

Other receivables
156

 
197

Prepaid expenses and other current assets
298

 
266

Deferred income taxes
152

 
100

Total current assets
3,678

 
3,509

Property and equipment, net
595

 
611

Goodwill
14,565

 
14,745

Intangible assets, net
5,273

 
5,159

Computer software, net
1,625

 
1,584

Deferred contract costs, net
285

 
253

Other noncurrent assets
363

 
339

Total assets
$
26,384

 
$
26,200

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
1,157

 
$
1,196

Settlement payables
669

 
538

Deferred revenues
757

 
615

Current portion of long-term debt
913

 
15

Total current liabilities
3,496

 
2,364

Long-term debt, excluding current portion
10,208

 
11,429

Deferred income taxes
2,729

 
2,658

Deferred revenues
21

 
30

Other long-term liabilities
323

 
312

Total liabilities
16,777

 
16,793

Equity:
 
 
 
FIS stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value, 200 shares authorized, none issued and outstanding as of June 30, 2016 and December 31, 2015
—

 
—

Common stock, $0.01 par value, 600 shares authorized, 431 and 430 shares issued as of June 30, 2016 and December 31, 2015, respectively
4

 
4

Additional paid in capital
10,291

 
10,210

Retained earnings
3,078

 
3,073

Accumulated other comprehensive earnings (loss)
(246
)
 
(279
)
Treasury stock, 104 and 106 shares as of June 30, 2016 and December 31, 2015, respectively, at cost
(3,630
)
 
(3,687
)
Total FIS stockholders’ equity
9,497

 
9,321

Noncontrolling interest
110

 
86

Total equity
9,607

 
9,407

Total liabilities and equity
$
26,384

 
$
26,200

See accompanying notes to unaudited condensed consolidated financial statements.

2

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

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2016
 
2015
 
2016
 
2015
Processing and services revenues
$
2,305

 
$
1,587

 
$
4,486

 
$
3,142

Cost of revenues
1,600

 
1,070

 
3,153

 
2,140

Gross profit
705

 
517

 
1,333

 
1,002

Selling, general, and administrative expenses
422

 
230

 
866

 
500

Operating income
283

 
287

 
467

 
502

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(93
)
 
(36
)
 
(186
)
 
(73
)
Other income (expense), net
(1
)
 
152

 
(2
)
 
150

Total other income (expense), net
(94
)
 
116

 
(188
)
 
77

Earnings from continuing operations before income taxes
189

 
403

 
279

 
579

Provision for income taxes
66

 
156

 
97

 
214

Earnings from continuing operations, net of tax
123

 
247

 
182

 
365

Earnings (loss) from discontinued operations, net of tax
1

 
(2
)
 
1

 
(5
)
Net earnings
124

 
245

 
183

 
360

Net earnings attributable to noncontrolling interest
(3
)
 
(5
)
 
(7
)
 
(9
)
Net earnings attributable to FIS common stockholders
$
121

 
$
240

 
$
176

 
$
351

Net earnings per share — basic from continuing operations attributable to FIS common stockholders
$
0.37

 
$
0.86

 
$
0.54

 
$
1.26

Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
—

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — basic attributable to FIS common stockholders
$
0.37

 
$
0.85

 
$
0.54

 
$
1.25

Weighted average shares outstanding — basic
325

 
281

 
325

 
282

Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
$
0.36

 
$
0.85

 
$
0.53

 
$
1.25

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

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — diluted attributable to FIS common stockholders
$
0.37

 
$
0.84

 
$
0.54

 
$
1.23

Weighted average shares outstanding — diluted
329

 
284

 
328

 
286

Cash dividends paid per share
$
0.26

 
$
0.26

 
$
0.52

 
$
0.52

Amounts attributable to FIS common stockholders:
 
 
 
 
 
 
 
Earnings from continuing operations, net of tax
$
120

 
$
242

 
$
175

 
$
356

Earnings (loss) from discontinued operations, net of tax
1

 
(2
)
 
1

 
(5
)
Net earnings attributable to FIS common stockholders
$
121

 
$
240

 
$
176

 
$
351


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

3


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

 
Three months ended June 30,
 
Six months ended June 30,
 
2016
 
2015
 
2016
 
2015
Net earnings
 
 
$
124

 
 
 
$
245

 
 
 
$
183

 
 
 
$
360

Other comprehensive earnings, before tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on investments and derivatives
$
(3
)
 
 
 
$
—

 
 
 
$
(9
)
 
 
 
$
(2
)
 
 
Reclassification adjustment for (gains) losses included in net earnings
2

 
 
 
1

 
 
 
4

 
 
 
2

 
 
Unrealized gain (loss) on investments and derivatives, net
(1
)
 
 
 
1

 
 
 
(5
)
 
 
 
—

 
 
Foreign currency translation adjustments
(3
)
 
 
 
35

 
 
 
51

 
 
 
(104
)
 
 
Other comprehensive earnings (loss), before tax:
(4
)
 
 
 
36

 
 
 
46

 
 
 
(104
)
 
 
Provision for income tax expense (benefit) related to items of other comprehensive earnings
(2
)
 
 
 
3

 
 
 
(6
)
 
 
 
2

 
 
Other comprehensive earnings (loss), net of tax
$
(2
)
 
(2
)
 
$
33

 
33

 
$
52

 
52

 
(106
)
 
(106
)
Comprehensive (loss) earnings:
 
 
122

 
 
 
278

 
 
 
235

 
 
 
254

Net (earnings) loss attributable to noncontrolling interest
 
 
(3
)
 
 
 
(5
)
 
 
 
(7
)
 
 
 
(9
)
Other comprehensive (earnings) losses attributable to noncontrolling interest
 
 
(12
)
 
 
 
(3
)
 
 
 
(19
)
 
 
 
15

Comprehensive earnings (loss) attributable to FIS common stockholders
 
 
$
107

 
 
 
$
270

 
 
 
$
209

 
 
 
$
260


See accompanying notes to unaudited condensed consolidated financial statements.





4

FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statement of Equity
Six months ended June 30, 2016
(In millions, except per share amounts)
(Unaudited)

 
 
 
 
 
Amount
 
 
 
 
 
FIS Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Number of shares
 
 
 
Additional
 
 
 
other
 
 
 
 
 
 
 
Common
 
Treasury
 
Common
 
paid in
 
Retained
 
comprehensive
 
Treasury
 
Noncontrolling
 
Total
 
shares
 
shares
 
stock
 
capital
 
earnings
 
earnings
 
stock
 
interest
 
equity
Balances, December 31, 2015
430

 
(106
)
 
$
4

 
$
10,210

 
$
3,073

 
$
(279
)
 
$
(3,687
)
 
$
86

 
$
9,407

Issuance of restricted stock
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Exercise of stock options
—

 
2

 
—

 
9

 
—

 
—

 
58

 
—

 
67

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

 
—

 
—

 
(20
)
 
—

 
—

 
(6
)
 
—

 
(26
)
Excess income tax benefit from exercise of stock options
—

 
—

 
—

 
19

 
—

 
—

 
—

 
—

 
19

Stock-based compensation
—

 
—

 
—

 
68

 
—

 
—

 
—

 
—

 
68

Cash dividends paid ($0.26 per share per quarter) and other distributions
—

 
—

 
—

 
—

 
(171
)
 
—

 
—

 
(2
)
 
(173
)
Net earnings
—

 
—

 
—

 
—

 
176

 
—

 
—

 
7

 
183

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
33

 
—

 
19

 
52

Other
—

 
—

 
—

 
5

 
—

 
—

 
5

 
—

 
10

Balances, June 30, 2016
431

 
(104
)
 
$
4

 
$
10,291

 
$
3,078

 
$
(246
)
 
$
(3,630
)
 
$
110

 
$
9,607

See accompanying notes to unaudited condensed consolidated financial statements.


5

FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Six months ended
June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net earnings
$
183

 
$
360

Adjustment to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
584

 
308

Amortization of debt issue costs
9

 
4

Gain on Sale of Assets
—

 
(150
)
Stock-based compensation
68

 
36

Deferred income taxes
(82
)
 
(38
)
Excess income tax benefit from exercise of stock options
(19
)
 
(12
)
Other operating activities
(2
)
 
2

Net changes in assets and liabilities, net of effects from acquisitions and foreign currency:
 
 
 
Trade receivables
118

 
(26
)
Settlement activity
2

 
(30
)
Prepaid expenses and other assets
(54
)
 
(34
)
Deferred contract costs
(61
)
 
(55
)
Deferred revenue
132

 
40

Accounts payable, accrued liabilities, and other liabilities
(58
)
 
38

Net cash provided by operating activities
820

 
443

 
 
 
 
Cash flows from investing activities:
 
 
 
Additions to property and equipment
(70
)
 
(81
)
Additions to computer software
(223
)
 
(138
)
Proceeds from sale of assets
—

 
241

Other investing activities, net
(3
)
 
1

Net cash (used in) provided by investing activities
(296
)
 
23

 
 
 
 
Cash flows from financing activities:
 
 
 
Borrowings
2,727

 
3,493

Repayment of borrowings
(3,060
)
 
(3,520
)
Excess income tax benefit from exercise of stock options
19

 
12

Proceeds from exercise of stock options
68

 
27

Treasury stock activity
(26
)
 
(307
)
Dividends paid
(171
)
 
(147
)
Distribution to Brazilian Venture partner
—

 
(24
)
Other financing activities, net
(18
)
 
(19
)
Net cash used in financing activities
(461
)
 
(485
)
Effect of foreign currency exchange rate changes on cash
20

 
(28
)
Net increase (decrease) in cash and cash equivalents
83

 
(47
)
Cash and cash equivalents, beginning of period
682

 
493

Cash and cash equivalents, end of period
$
765

 
$
446

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for interest
$
183

 
$
50

Cash paid for income taxes
$
141

 
$
161

See accompanying notes to unaudited condensed consolidated financial statements.

6

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


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

(1) Basis of Presentation

The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as updated by the Current Report on Form 8-K dated June 2, 2016 for changes in our reporting segments. The preparation of these Condensed Consolidated Financial Statements (Unaudited) in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Condensed Consolidated Financial Statements (Unaudited) and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. Certain reclassifications have been made in the 2015 Condensed Consolidated Financial Statements (Unaudited) to conform to the classifications used in 2016.

On August 12, 2015, FIS and certain of its wholly owned subsidiaries entered into an Agreement and Plan of Merger with SunGard and SunGard Capital Corp. II (collectively “SunGard”) pursuant to which, through a series of mergers, FIS acquired SunGard (collectively the "SunGard acquisition" or the "Acquisition"). FIS completed the SunGard acquisition on November 30, 2015 (Note 4) and SunGard's results of operations and financial position are included in the consolidated financial statements from and after the date of acquisition.

We report the results of our operations in three reporting segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other (Note 9).
 
(2) Related Party Transactions

Brazilian Venture

The Company operates a joint venture ("Brazilian Venture") with Banco Bradesco S.A. ("Banco Bradesco"), in which we own a 51% controlling interest, to provide comprehensive, fully-outsourced transaction processing, call center, cardholder support and collection services to multiple card issuing clients in Brazil, including Banco Bradesco. The original accounting for this transaction resulted in the establishment of a contract intangible asset and a liability for amounts payable to the original partner banks upon final migration of their respective card portfolios and achieving targeted volumes (the “Brazilian Venture Notes”). The unamortized contract intangible asset balance as of June 30, 2016 was $97 million. The value of the noncontrolling interest as of June 30, 2016 was $105 million.

The Company recorded Brazilian Venture revenues of $57 million and $61 million during the three months and $108 million and $125 million during the six months ended June 30, 2016 and 2015, respectively, from Banco Bradesco relating to these services. Brazilian Venture revenues included $8 million and $27 million of unfavorable currency impact during the three and six months ended June 30, 2016, respectively, resulting from a stronger U.S. Dollar in 2016 as compared to 2015.

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


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


 
 
 
 
June 30,
 
December 31,
Related Party
 
Balance sheet location
 
2016
 
2015
Banco Bradesco
 
Trade receivables
 
$
42

 
$
31

Banco Bradesco
 
Accounts payable and accrued liabilities
 
10

 
9

Banco Bradesco
 
Other long-term liabilities
 
20

 
24


(3) Net Earnings per Share

The basic weighted average shares and common stock equivalents for the three and six months ended June 30, 2016 and 2015 are computed using the treasury stock method.

The following table summarizes the earnings per share attributable to FIS common stockholders for the three and six months ended June 30, 2016 and 2015 (in millions, except per share amounts):

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2016
 
2015
 
2016
 
2015
Earnings from continuing operations attributable to FIS common stockholders, net of tax
$
120

 
$
242

 
$
175

 
$
356

Earnings (loss) from discontinued operations attributable to FIS common stockholders, net of tax
1

 
(2
)
 
1

 
(5
)
Net earnings attributable to FIS common stockholders
$
121

 
$
240

 
$
176

 
$
351

Weighted average shares outstanding — basic
325

 
281

 
325

 
282

Plus: Common stock equivalent shares
4

 
3

 
3

 
4

Weighted average shares outstanding — diluted
329

 
284

 
328

 
286

Net earnings per share — basic from continuing operations attributable to FIS common stockholders
$
0.37

 
$
0.86

 
$
0.54

 
$
1.26

Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
—

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — basic attributable to FIS common stockholders
$
0.37

 
$
0.85

 
$
0.54

 
$
1.25

Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
$
0.36

 
$
0.85

 
$
0.53

 
$
1.25

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

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — diluted attributable to FIS common stockholders
$
0.37

 
$
0.84

 
$
0.54

 
$
1.23

 
 
 
 
 
 
 
 
Amounts in table may not sum due to rounding.
 
 
 
 
 
 
 
Options to purchase approximately 7 million and 5 million shares of our common stock for the three months and 7 million and 5 million for the six months ended June 30, 2016 and 2015, respectively, were not included in the computation of diluted earnings per share because they were anti-dilutive.

(4) Acquisitions

SunGard

FIS completed the SunGard acquisition on November 30, 2015, and SunGard's results of operations and financial position are included in the consolidated financial statements from and after the date of acquisition. The SunGard acquisition increased our existing portfolio of solutions to automate a wide range of complex business processes for financial services institutions and

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


corporate and government treasury departments, adding trading, securities operations, administering investment portfolios, accounting for investment assets, and managing risk and compliance requirements.

Through a series of mergers, FIS acquired 100 percent of the equity of SunGard, for a total purchase price as follows (in millions):
Cash consideration, including SunGard transaction fees paid at closing
$
2,335

Value of stock and vested equity awards exchanged for FIS shares
2,697

Value of vested portion of SunGard stock awards exchanged for FIS awards
47

 
$
5,079


We recorded a preliminary allocation of the purchase price to SunGard tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of November 30, 2015. The provisional amounts for intangible assets were based on independent third-party valuations performed. Land and building valuations were based on appraisals performed by certified property appraisers. Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired. Our evaluations of the facts and circumstances available as of November 30, 2015 to assign fair values to other assets acquired and liabilities assumed are ongoing, as are our assessments of the economic characteristics of the acquired software and other intangibles. These evaluations may result in changes to the provisional amounts recorded. In accordance with ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, the financial statements will not be retrospectively adjusted for any measurement-period adjustments that occur in subsequent periods. Rather, we will recognize any adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment is determined. During the six months ended June 30, 2016, adjustments were recorded to increase the fair values assigned to intangible assets, deferred taxes, other liabilities and property and equipment and to reduce the value assigned to goodwill. We are also required to record, in the same period’s financial statements in which adjustments are recorded, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting adjustment had been completed at the acquisition date. Additional depreciation and amortization of $6 million that would have been recognized in 2015 was recorded in the six months ended June 30, 2016 related to the changes in provisional values of intangible assets.

The preliminary purchase price allocation, as adjusted for measurement period adjustments recorded through June 30, 2016, is as follows (in millions):

Cash
$
631

Trade and other receivables
574

Property and equipment
145

Computer software
674

Intangible assets
4,550

Other assets
68

Goodwill
5,806

Liabilities assumed and noncontrolling interest
(7,369
)
 
$
5,079


The following table summarizes the liabilities assumed in the SunGard acquisition (in millions):
Long-term debt (subsequently retired)
$
4,738

Deferred income taxes
1,757

Deferred revenue
278

Other liabilities and noncontrolling interest
596

 
$
7,369



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


The gross contractual amount of trade and other receivables acquired was approximately $583 million. The difference between that total and the provisional amount reflected above represents our best estimate at the acquisition date of the contractual cash flows not expected to be collected. This difference was derived using SunGard's historical bad debts, sales allowances and collection trends.

(5) Discontinued Operations and Other Dispositions

During the second quarter of 2015, we sold certain assets associated with our gaming industry check warranty business, resulting in a pre-tax gain of $140 million, which is included in Other income (expense), net. The sale did not meet the standard necessary to be reported as discontinued operations; therefore, the gain and related prior period earnings remain reported within earnings from continuing operations.

Certain other operations are reported as discontinued in the Condensed Consolidated Statements of Earnings (Unaudited) as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.
  
(6) Condensed Consolidated Financial Statement Details

The following table shows the Company’s condensed consolidated financial statement details as of June 30, 2016 and December 31, 2015 (in millions):

 
June 30, 2016
 
December 31, 2015
 
Cost
 
Accumulated
depreciation and amortization
 
Net
 
Cost
 
Accumulated
depreciation and amortization
 
Net
Property and equipment
$
1,443

 
$
848

 
$
595

 
$
1,396

 
$
785

 
$
611

Intangible assets
$
6,934

 
$
1,661

 
$
5,273

 
$
6,963

 
$
1,804

 
$
5,159

Computer software
$
2,419

 
$
794

 
$
1,625

 
$
2,300

 
$
716

 
$
1,584

       
The Company entered into capital lease obligations of $1 million and $1 million during the three-months and $2 million and $2 million during the six months ended June 30, 2016 and 2015, respectively. The assets are included in property and equipment and the remaining capital lease obligations are classified as long-term debt on our Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2016. Periodic payments are included in repayment of borrowings on the Condensed Consolidated Statements of Cash Flows (Unaudited).

Changes in goodwill during the six months ended June 30, 2016 are summarized as follows (in millions):
 
Total
Balance, December 31, 2015
$
14,745

Adjustments to SunGard provisional purchase price allocation
(188
)
Foreign currency adjustments
8

Balance, June 30, 2016
$
14,565


As of June 30, 2016, intangible assets includes $5,128 million of customer relationships and $64 million of finite-lived trademarks, as well as $81 million of non-amortizable assets consisting mainly of infinite-lived trademarks.  Amortization expense for the quarter related to these intangible assets was $131 million.

Settlement Activity

We manage certain integrated electronic payment services and programs and wealth management processes for our clients that require us to hold and manage client cash balances used to fund their daily settlement activity. Settlement deposits represent funds we hold that were drawn from our clients to facilitate settlement activities. Settlement receivables represents amounts funded by us. Settlement payables consist of settlement deposits from clients, settlement payables to third parties, and outstanding checks related to our settlement activities for which the right of offset does not exist or we do not intend to exercise

10

our right of offset. Our accounting policy for such outstanding checks is to include them in settlement payables on the Condensed Consolidated Balance Sheets (Unaudited) and operating cash flows on the Condensed Consolidated Statements of Cash Flows (Unaudited).
        
(7) Long-Term Debt
Long-term debt as of June 30, 2016 and December 31, 2015, consisted of the following (in millions):
 
June 30, 2016
 
December 31, 2015
2017 Term Loans (1)
$
600

 
$
1,300

2018 Term Loans (2)
1,500

 
1,500

Senior Notes due June 2017, interest payable semi-annually at 1.450%
300

 
300

Senior Notes due April 2018, interest payable semi-annually at 2.000%
250

 
250

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

 
750

Senior Notes due October 2020, interest payable semi-annually at 3.625%
1,750

 
1,750

Senior Notes due March 2022, interest payable semi-annually at 5.000%
700

 
700

Senior Notes due October 2022, interest payable semi-annually at 4.500%
500

 
500

Senior Notes due April 2023, interest payable semi-annually at 3.500%
1,000

 
1,000

Senior Notes due June 2024, interest payable semi-annually at 3.875%
700

 
700

Senior Notes due October 2025, interest payable semi-annually at 5.000%
1,500

 
1,500

Revolving Loan (3)
1,625

 
1,250

Other
(54
)
 
(56
)
 
11,121

 
11,444

Current portion
(913
)
 
(15
)
Long-term debt, excluding current portion
$
10,208

 
$
11,429

__________________________________________
(1)
Interest on the 2017 Term Loans is generally payable at LIBOR plus an applicable margin of up to 1.75% based upon the Company's corporate credit ratings. As of June 30, 2016, the weighted average interest rate on the 2017 Term Loans was 1.71%.
(2)
Interest on the 2018 Term Loans is generally payable at LIBOR plus an applicable margin of up to 1.75% based upon the Company's corporate credit ratings. As of June 30, 2016, the weighted average interest rate on the 2018 Term Loans was 1.71%.
(3)
Interest on the Revolving Loan is generally payable at LIBOR plus an applicable margin of up to 1.75% plus an unused commitment fee of up to 0.25%, each based upon the Company's corporate credit ratings. As of June 30, 2016, the weighted average interest rate on the Revolving Loan, excluding fees, was 1.66%.

FIS is a party to a syndicated credit agreement (the "Credit Agreement"), which as of June 30, 2016, provided total committed capital of $3,600 million comprised of: (1) a revolving credit facility in an aggregate maximum principal amount of $3,000 million maturing on December 18, 2019 (the "Revolving Loan"); and (2) term loans of $600 million maturing on March 30, 2017 (the "2017 Term Loans"). FIS is also a party to a syndicated term loan agreement (the "Term Loan Agreement" and together with the Credit Agreement the "FIS Credit Agreements"), which as of June 30, 2016 provided term loans of $1,500 million maturing on November 30, 2018 (the "2018 Term Loans"). As of June 30, 2016, the outstanding principal balance of the Revolving Loan was $1,625 million, with $1,367 million of borrowing capacity remaining thereunder (net of $8 million in outstanding letters of credit issued under the Revolving Loan).

The obligations of FIS under the FIS Credit Agreements and under all of its outstanding senior notes rank equal in priority and are unsecured. The FIS Credit Agreements and the senior notes remain subject to customary covenants, including, among others, limitations on the payment of dividends by FIS, and events of default.
      
The following summarizes the aggregate maturities of our debt and capital leases on stated contractual maturities, excluding unamortized non-cash bond premiums and discounts of $14 million as of June 30, 2016 (in millions).


11
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
 
 
 
 
Total
2016
 
$
9

2017
 
911

2018
 
2,502

2019
 
1,625

2020
 
1,750

Thereafter
 
4,400

Total principal payments
 
11,197

Debt issuance costs, net of accumulated amortization
 
(62
)
Total long-term debt
 
$
11,135


Voluntary prepayment of the Term Loans is generally permitted at any time without fee. There are no mandatory principal payments on the Revolving Loan and any balance outstanding on the Revolving Loan will be due and payable at its scheduled maturity date, which occurs at December 18, 2019.

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

The fair value of the Company’s long-term debt is estimated to be approximately $499 million higher than the carrying value as of June 30, 2016. This estimate is based on quoted prices of our senior notes and trades of our other debt in close proximity to June 30, 2016, which are considered Level 2-type measurements. This estimate is subjective in nature and involves uncertainties and significant judgment in the interpretation of current market data. Therefore, the values presented are not necessarily indicative of amounts the Company could realize or settle currently.

As of June 30, 2016, we have entered into the following interest rate swap transactions converting a portion of the interest rate exposure on our Term and Revolving Loans from variable to fixed (in millions):

Effective date
 
Termination date
 
Notional amount
 
Bank pays
variable rate of
 
FIS pays
 fixed rate of
February 2014
 
February 2017
 
$
400

 
1 Month LIBOR (1)
 
0.89
%
(2)
January 2016
 
January 2017
 
400

 
1 Month LIBOR (1)
 
0.65
%
(2)
January 2016
 
January 2018
 
500

 
1 Month LIBOR (1)
 
0.92
%
(2)
January 2016
 
January 2019
 
250

 
1 Month LIBOR (1)
 
1.18
%
(2)
February 2016
 
February 2017
 
200

 
1 Month LIBOR (1)
 
0.71
%
(2)
 
 
 
 
$
1,750

 
 
 
 
 
___________________________________
(1)
0.47% in effect as of June 30, 2016.
(2)
Does not include the applicable margin and facility fees paid to lenders on term loans and revolving loans as described above.

We have designated these interest rate swaps as cash flow hedges and, as such, they are carried on the Condensed Consolidated Balance Sheets (Unaudited) at fair value with changes in fair value included in other comprehensive earnings, net of tax.

A summary of the fair value of the Company’s interest rate derivative instruments is as follows (in millions):


12
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
June 30, 2016
 
December 31, 2015
 
Balance sheet location
 
Fair
value
 
Balance sheet location
 
Fair
value
Interest rate swap contracts
Other noncurrent assets
 
$
—

 
Other noncurrent assets
 
$
1

Interest rate swap contracts
Accounts payable and accrued liabilities
 
2

 
Accounts payable and accrued liabilities
 
—

Interest rate swap contracts
Other long-term liabilities
 
7

 
Other long-term liabilities
 
1


In accordance with the authoritative guidance for fair value measurements, the inputs used to determine the estimated fair value of our interest rate swaps are Level 2-type measurements. We considered our own credit risk and the credit risk of the counterparties when determining the fair value of our interest rate swaps. Adjustments are made to these amounts and to accumulated other comprehensive earnings ("AOCE") within the Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) and Condensed Consolidated Statement of Equity (Unaudited) as the factors that impact fair value change, including current and projected interest rates, time to maturity and required cash transfers/settlements with our counterparties. Periodic actual and estimated settlements with counterparties are recorded to interest expense as a yield adjustment to effectively fix the otherwise variable rate interest expense associated with the Term and Revolving Loans for hedge notional amounts.

A summary of the effect of derivative instruments on the Company’s Condensed Consolidated Statements of Comprehensive Earnings (Unaudited) and recognized in AOCE for the three months ended June 30, 2016 and 2015 are as follows (in millions):

 
 
Amount of gain (loss)
recognized in AOCE on
derivatives
 
 
 
Amount of gain (loss) reclassified
from AOCE into
income
Derivatives in cash
 
Three months ended
 
Location of loss
 
Three months ended
flow hedging
 
June 30,
 
reclassified from
 
June 30,
relationships
 
2016
 
2015
 
AOCE into income
 
2016
 
2015
Interest rate derivative contracts
 
$
(3
)
 
$
(1
)
 
Interest expense
 
$
(2
)
 
$
(1
)

 
 
Amount of gain (loss)
recognized in AOCE on
derivatives
 
 
 
Amount of gain (loss) reclassified
from AOCE into
income
Derivatives in cash
 
Six months ended
 
Location of loss
 
Six months ended
flow hedging
 
June 30,
 
reclassified from
 
June 30,
relationships
 
2016
 
2015
 
AOCE into income
 
2016
 
2015
Interest rate derivative contracts
 
$
(12
)
 
$
(3
)
 
Interest expense
 
$
(4
)
 
$
(2
)

Approximately $2 million of the balance in AOCE as of June 30, 2016, is expected to be reclassified into income over the next twelve months.

Our existing cash flow hedges are highly effective and there was no impact on earnings due to hedge ineffectiveness. It is our practice to execute such instruments with credit-worthy banks at the time of execution and not to enter into derivative financial instruments for speculative purposes. As of June 30, 2016, we believe that our interest rate swap counterparties will be able to fulfill their obligations under our agreements, and we believe we will have debt outstanding through the various expiration dates of the swaps such that the forecasted transactions remain probable of occurring.

(8) Commitments and Contingencies
Litigation

13
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


In the ordinary course of business, the Company is involved in various pending and threatened litigation matters related to operations, some of which include claims for punitive or exemplary damages. The Company believes no actions, other than the matters listed below, depart from customary litigation incidental to its business. As background to the disclosure below, please note the following:

•
These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities.

•
The Company reviews all of its litigation on an on-going basis and follows the authoritative provisions for accounting for contingencies when making accrual and disclosure decisions. A liability must be accrued if (a) it is probable that a liability has been incurred and (b) the amount of loss can be reasonably estimated. If one of these criteria has not been met, disclosure is required when there is at least a reasonable possibility that a material loss may be incurred. When assessing reasonably possible and probable outcomes, the Company bases decisions on the assessment of the ultimate outcome following all appeals. Legal fees associated with defending litigation matters are expensed as incurred.

 DataTreasury Corporation v. Fidelity National Information Services, Inc. et. al.

On May 28, 2013, DataTreasury Corporation (the “Plaintiff”) filed a patent infringement lawsuit against the Company and multiple banks in the U.S. District Court for the Eastern District of Texas, Marshall Division.  Plaintiff alleges that the Company infringes the patents at issue by making, using, selling or offering to sell systems and methods for image-based check processing. The Plaintiff seeks damages, injunctive relief and attorneys' fees for the alleged infringement of two patents.  On October 25, 2013, the Company filed for covered business method ("CBM") post-grant reviews of the validity of the Plaintiff's asserted patents at the U.S. Patent and Trademark Office ("USPTO").  The Company filed a Motion to Stay the case pending the outcome of the CBM post-grant reviews. On April 29, 2014, the USPTO instituted the Company's two CBM petitions. On August 14, 2014, the Court granted the Company's Motion to Stay the litigation pending the outcome of the CBM review proceedings. On April 29, 2015, the Patent Trial and Appeal Board ("PTAB") issued final written decisions on the Company’s two CBM petitions holding that all claims of the Plaintiff’s two patents are unpatentable. The Plaintiff's request for rehearing of these decisions has been denied by PTAB. On August 27, 2015, the Plaintiff filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit of the USPTO’s Final Written Decisions. Briefing was completed on April 7, 2016 and the parties are awaiting a date for oral argument. An estimate of a possible loss or range of possible loss, if any, for this action cannot be made at this time.

Acquired Contingencies

The Company became responsible for certain contingencies which were assumed in the SunGard acquisition. These matters include unclaimed property examinations, tax compliance matters, and finalizing the sale prices for two previously divested businesses. The Condensed Consolidated Balance Sheet as of June 30, 2016 includes a provisional liability totaling $112 million related to these matters, including $75 million in unrecognized tax benefits assumed. This provisional liability is subject to further change as these contingencies are finalized. Changes in this provisional liability during the measurement period that result from new information about facts and circumstances that existed at the acquisition date are reflected in our purchase accounting for the SunGard acquisition, not through our income statement.

The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property) and nine other states are currently conducting a joint examination of the books and records of certain subsidiaries acquired in the SunGard acquisition to determine compliance with the unclaimed property laws. Additionally, prior to the SunGard acquisition, SunGard entered into voluntary disclosure agreements to address the potential unclaimed property exposure for certain entities not included in the scope of the ongoing unclaimed property examination.

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

14
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


brought claims against Prosegur and Servicos on the grounds that Prosegur and Servicos were successors in interest to Transpev. To date, the Brazilian tax authorities filed seven claims against Servicos asserting potential tax liabilities of approximately $8 million. There are potentially 29 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 $72 million making the total potential exposure for all 36 claims approximately $80 million. We do not believe a liability for these 36 total claims is probable or reasonably estimable and, therefore, have not recorded a liability for any of these claims.

Indemnifications and Warranties

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

(9) Segment Information

In 2015, FIS finalized a reorganization and began reporting its financial performance based on three segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other. We recast all previous periods to conform to the new segment presentation. Following the November 30, 2015 SunGard acquisition, SunGard was included within the GFS segment as its economic characteristics, international business model, and various other factors largely aligned with those of our GFS segment. As we have further integrated the businesses in 2016, we have reclassified certain SunGard solutions that are oriented more to the retail banking and payments activities of IFS into that segment (corporate liquidity and wealth management). Certain other non-strategic businesses from both SunGard (public sector and education) and legacy FIS (commercial services and check processing) have been reclassified to the Corporate and Other segment, as have SunGard administrative expenses. Prior periods have been reclassified to conform to the current segment presentation.
   
The segment profit measure primarily utilized by management is adjusted EBITDA, which is defined as EBITDA (defined as net income (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles), plus certain non-operating items. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments, acquisition, integration and severance costs, and restructuring expenses. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments.

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

As of and for the three months ended June 30, 2016 (in millions):


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


 
IFS
 
GFS
 
Corporate
and Other
 
Total
Processing and services revenues
$
1,162

 
$
1,048

 
$
95

 
$
2,305

Operating expenses
779

 
823

 
420

 
2,022

Depreciation and amortization from continuing operations
67

 
62

 
15

 
144

Purchase accounting amortization
—

 
—

 
147

 
147

EBITDA
450

 
287

 
(163
)
 
574

Acquisition deferred revenue adjustment
—

 
—

 
59

 
59

Acquisition, integration and severance costs
—

 
—

 
63

 
63

Adjusted EBITDA
$
450

 
$
287

 
$
(41
)
 
696

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
$
574

Interest expense
 
 
 
 
 
 
93

Depreciation and amortization from continuing operations
 
 
 
 
 
 
144

Purchase accounting amortization
 
 
 
 
 
 
147

Other income (expense) unallocated
 

 
 

 
 

 
(1
)
Provision for income taxes
 
 
 
 
 
 
66

Net earnings from discontinued operations
 
 
 
 
 
 
1

Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
3

Net earnings attributable to FIS common stockholders


 


 


 
$
121

Capital expenditures (1)
$
70

 
$
67

 
$
12

 
$
149

Total assets (2)
$
10,189

 
$
9,136

 
$
7,055

 
$
26,380

Goodwill
$
7,670

 
$
6,440

 
$
455

 
$
14,565


(1)
Capital expenditures for the three months ended June 30, 2016 include $1 million of capital leases.
(2)
Total assets as of June 30, 2016 exclude $4 million related to discontinued operations.

As of and for the three months ended June 30, 2015 (in millions):


16
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
IFS
 
GFS
 
Corporate
and Other
 
Total
Processing and services revenues
$
931

 
$
555

 
$
101

 
$
1,587

Operating expenses
618

 
473

 
209

 
1,300

Depreciation and amortization from continuing operations
56

 
35

 
14

 
105

Purchase accounting amortization
—

 
—

 
50

 
50

EBITDA
369

 
117

 
(44
)
 
442

Acquisition, integration and severance costs
—

 
—

 
11

 
11

Adjusted EBITDA
$
369

 
$
117

 
$
(33
)
 
$
453

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
$
442

Interest expense
 
 
 
 
 
 
36

Depreciation and amortization from continuing operations
 
 
 
 
 
 
105

Purchase accounting amortization
 
 
 
 
 
 
50

Other income (expense) unallocated
 
 
 
 
 
 
152

Provision for income taxes
 
 
 
 
 
 
156

Net loss from discontinued operations
 
 
 
 
 
 
(2
)
Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
5

Net earnings attributable to FIS common stockholders
 
 
 
 
 
 
$
240

Capital expenditures (1)
$
65

 
$
50

 
$
4

 
$
119

Total assets (2)
$
8,703

 
$
3,658

 
$
1,942

 
$
14,303

Goodwill
$
6,627

 
$
1,963

 
$
162

 
$
8,752

(1)
Capital expenditures for the three months ended June 30, 2015 include $1 million of capital leases.
(2)
Total assets as of June 30, 2015 exclude $1 million related to discontinued operations.

For the six months ended June 30, 2016 (in millions):

17
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


 
IFS
 
GFS
 
Corporate
and Other
 
Total
Processing and services revenues
$
2,283

 
$
2,038

 
$
165

 
$
4,486

Operating expenses
1,541

 
1,626

 
852

 
4,019

Depreciation and amortization from continuing operations
133

 
120

 
30

 
283

Purchase accounting amortization
1

 
6

 
294

 
301

EBITDA
876

 
538

 
(363
)
 
1,051

Acquisition deferred revenue adjustment
—

 
—

 
140

 
140

Acquisition, integration and severance costs
—

 
—

 
142

 
142

Adjusted EBITDA
876

 
538

 
(81
)
 
1,333

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
1,051

Interest expense
 
 
 
 
 
 
186

Depreciation and amortization from continuing operations
 
 
 
 
 
 
283

Purchase accounting amortization
 
 
 
 
 
 
301

Other income (expense) unallocated
 
 
 
 
 
 
(2
)
Provision for income taxes
 
 
 
 
 
 
97

Net earnings from discontinued operations
 
 
 
 
 
 
1

Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
7

Net earnings attributable to FIS common stockholders
 
 
 
 
 
 
$
176

Capital expenditures (1)
$
130

 
$
142

 
$
23

 
$
295

(1)
Capital expenditures for the six months ended June 30, 2016 include $2 million of capital leases.
          
For the six months ended June 30, 2015 (in millions):

 
IFS
 
GFS
 
Corporate
and Other
 
Total
Processing and services revenues
$
1,859

 
$
1,067

 
$
216

 
$
3,142

Operating expenses
1,227

 
939

 
474

 
2,640

Depreciation and amortization from continuing operations
108

 
70

 
30

 
208

Purchase accounting amortization
—

 
—

 
100

 
100

EBITDA
740

 
198

 
(128
)
 
810

Acquisition, integration and severance costs
—

 
—

 
23

 
23

Global restructure
—

 
—

 
45

 
45

Adjusted EBITDA
$
740

 
$
198

 
$
(60
)
 
$
878

 
 
 
 
 
 
 
 
EBITDA
 
 
 
 
 
 
$
810

Interest expense
 
 
 
 
 
 
73

Depreciation and amortization from continuing operations
 
 
 
 
 
 
208

Purchase accounting amortization
 
 
 
 
 
 
100

Other income (expense) unallocated
 
 
 
 
 
 
150

Provision for income taxes
 
 
 
 
 
 
214

Net loss from discontinued operations
 
 
 
 
 
 
(5
)
Net earnings attributable to noncontrolling interest
 
 
 
 
 
 
9

Net earnings attributable to FIS common stockholders
 
 
 
 
 
 
$
351

Capital expenditures (1)
$
127

 
$
85

 
$
9

 
$
221


18
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


(1)
Capital expenditures for the six months ended June 30, 2015 include $2 million of capital leases.

Clients in Brazil, the United Kingdom, France and Germany accounted for the majority of the revenues from clients based outside of North America for all periods presented. Long-term assets, excluding goodwill and other intangible assets, located outside of the United States total $515 million and $373 million as of June 30, 2016 and 2015, respectively. These assets are predominantly located in Brazil, India, Germany and the United Kingdom.

Integrated Financial Solutions ("IFS")

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

Global Financial Solutions ("GFS")

The GFS segment is focused on serving the largest financial institutions around the globe with banking and payments solutions, as well as consulting and transformation services. The GFS segment has extended its reach through the SunGard acquisition, and now also delivers a broader array of capital markets and asset management and insurance solutions and services.

GFS clients include the largest global financial institutions, including those headquartered in the United States, as well as all international financial institutions we serve as clients in more than 130 countries around the world. These institutions face unique business and regulatory challenges and account for the majority of financial institution information technology spend globally. The purchasing patterns of GFS clients vary from those of IFS clients who typically purchase solutions on an outsourced basis. GFS clients purchase our solutions and services in various ways including licensing and managing technology “in-house”, using consulting and third party service providers as well as fully outsourced end-to-end solutions. We have long-established relationships with many of these financial institutions that generate significant recurring revenue. GFS clients now also include asset managers, buy- and sell-side securities and trading firms, insurers and private equity firms due to the addition of SunGard. This segment also includes the Company's consolidated Brazilian Venture (Note 2).

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 as indicated above. The overhead and leveraged costs relate to marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs that are not considered when management evaluates revenue generating segment performance, such as acquisition integration and severance costs. The Corporate and Other segment also includes the purchase accounting impact on revenue for 2016 of adjusting SunGard's deferred revenue as of the acquisition date to fair value.


19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following discussion should be read in conjunction with Item 1: Condensed Consolidated Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The statements contained in this Form 10-Q or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements regarding our expectations, hopes, intentions, or strategies regarding the future, are forward-looking statements. These statements relate to, among other things, future events and our future results and involve a number of risks and uncertainties. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Any statements that refer to beliefs, expectations, projections or other characterizations of future events or circumstances and other statements that are not historical facts are forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms and other comparable terminology.

Actual results, performance or achievement could differ materially from those contained in these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to include, without limitation:
 
•
the risk that acquired businesses will not be integrated successfully, or that the integration will be more costly or more time-consuming and complex than anticipated;
•
the risk that cost savings and other synergies anticipated to be realized from acquisitions may not be fully realized or may take longer or be more costly to realize than expected;
•
the risks of doing business internationally;
•
changes in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, changes in either or both the United States and international lending, capital and financial markets and currency fluctuations;
•
the effect of legislative initiatives or proposals, statutory changes, governmental or other applicable regulations and/or changes in industry requirements, including privacy regulations;
•
the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in, or new laws or regulations affecting, the banking, retail and financial services industries or due to financial failures or other setbacks suffered by firms in those industries;
•
changes in the growth rates of the markets for our solutions;
•
failures to adapt solutions to changes in technology or in the marketplace;
•
internal or external security breaches of our systems, including those relating to unauthorized access, theft, corruption or loss of personal information and computer viruses and other malware affecting our software or platforms, and the reactions of customers, card associations, government regulators and others to any such events;
•
the risk that implementation of software (including software updates) for customers or at customer locations may result in the corruption or loss of data or customer information, interruption of business operations, exposure to liability claims or loss of customers;
•
the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters;
•
competitive pressures on pricing related to our solutions including the ability to attract new, or retain existing, customers;
•
an operational or natural disaster at one of our major operations centers; and
•
other risks detailed elsewhere in this document, and in our other filings with the Securities and Exchange Commission.

Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, results of operations and prospects. Accordingly, readers should not place undue reliance on these forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Except as required by applicable law or regulation, we do not undertake (and expressly disclaim) any obligation and do not intend to publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
    

20

 Overview

FIS is a global leader in financial services technology offering a broad range of solutions in retail and enterprise banking, payments, capital markets, asset and wealth management, risk and compliance, treasury and insurance, as well as providing financial consulting and outsourcing services. With a long history deeply rooted in serving the financial services sector, FIS serves more than 20,000 institutions in over 130 countries. Headquartered in Jacksonville, Florida, FIS employs approximately 55,000 people worldwide and holds leadership positions in payment processing, financial software, capital markets and banking solutions. Through our Capco brand, we deliver a wide range of information technology consulting, advisory and transformational services to financial institutions globally. Providing software, services and outsourcing of the technology that drives financial institutions, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500® Index.

We have grown organically as well as through acquisitions, which have contributed critical applications and services that complement or enhance our existing offerings, diversifying our revenues by customer, geography and service offering. The completion of the SunGard acquisition on November 30, 2015 increased our existing portfolio to include solutions that automate a wide range of complex business processes for financial services institutions and corporate and government treasury departments.

In 2015, FIS finalized a reorganization and began reporting its financial performance based on three segments: Integrated Financial Solutions (“IFS”), Global Financial Solutions (“GFS”) and Corporate and Other. We recast all previous periods to conform to the new segment presentation. Following the November 30, 2015 SunGard acquisition, SunGard was included within the GFS segment as its economic characteristics, international business model, and various other factors largely aligned with those of our GFS segment. As we have further integrated the businesses in 2016, we have reclassified certain SunGard businesses that are oriented more to the retail banking and payments activities of IFS into that segment (corporate liquidity and wealth management). Certain other non-strategic businesses from both SunGard (public sector and education) and legacy FIS (commercial services and check processing) have been reclassified to the Corporate and Other segment, as have SunGard administrative expenses. Prior periods also have been reclassified to conform to the current segment presentation. A description of these segments is included in Note 9 of the Notes to Condensed Consolidated Financial Statements (Unaudited). Revenues by segment and the adjusted EBITDA of our segments are discussed below in Segment Results of Operations.
Business Trends and Conditions

Our revenue is primarily derived from a combination of recurring technology and processing services, consulting and professional services and software license fees. The majority of our revenue has historically been recurring, and has been provided under multi-year contracts that contribute relative stability to our revenue stream. These services, in general, are considered critical to our clients' operations. A significant portion of these recurring revenues is derived from transaction processing fees that fluctuate with the level of deposit accounts and card transactions, among other variable measures, associated with consumer and commercial activity. Consulting and professional services revenues are typically non-recurring, and sales of software licenses are less predictable, a portion of which can be regarded as discretionary spending by our clients. In the second half of 2015 and first half of 2016, we experienced the macroeconomic challenges related to the slowdown of the global economy. That trend impacts us predominantly in the amount our clients spend with us for professional services. We expect this trend to continue through the second half of 2016.

The SunGard acquisition broadened our solution portfolio, enabling us to expand beyond our traditional banking and payments markets into the institutional and wholesale side of financial institutions as well as other buy-side organizations. It significantly expanded our existing solutions and client base in wealth management, treasury and corporate payments. These solutions are in demand among our regional and community financial institution clients as they look for ways to replace highly regulated fee revenues. The combination also favorably impacts our revenue mix, with a greater concentration of license revenues and higher margin services. Our revenues for the first half of 2016 included a $140 million reduction of revenue as a result of the purchase accounting adjustment to reduce SunGard's deferred revenue to fair value. Similar reductions will be experienced throughout 2016 as the acquired deferred revenue balance runs off. Amortization of intangible assets acquired in the SunGard acquisition increased our cost of revenues by $239 million for the first half of 2016. Amortization charges will continue to be recorded at varying rates through 2025. As we integrate SunGard into our existing operations, we anticipate significant cost savings in administration and technology expenses, with a goal of achieving annual synergy run-rate savings of $200 million by the end of 2017. Certain one-time severance and other costs have been and will be incurred related to delivering these run-rate savings.
 
We are actively migrating a number of our financial institution clients to outsourced integrated technology solutions to improve their profitability and rapidly address increasing regulatory requirements. As a provider of outsourcing solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of broader year-to-year economic and

21

market changes that otherwise might have a larger impact on our results of operations. We believe our integrated solutions and outsourced services are well-positioned to address this outsourcing trend across the markets we serve.

A realignment of resources in our GFS segment resulted in severance costs of $45 million in the first quarter of 2015. The realignment activities were a combination of optimizing on-shore and off-shore resources as well as the removal of overlapping management resources.

Consumer preference continues to shift from traditional branch banking services to digital banking solutions, and our clients seek to provide a single integrated banking experience through their branch, mobile, internet and voice-banking channels. We are focused on enabling our clients to deliver this experience to their customers through our integrated solutions and services. We continue to develop and invest in these integrated solutions and services to assist clients as they address this market demand.
We continue to see demand for innovative solutions in the payments market that will deliver faster, more convenient payment solutions in mobile channels, internet applications and cards. We believe mobile payments will grow and partially replace existing payment tender volumes over time as consumers and merchants embrace the convenience, incremental services and benefits. Mobile payment volume is growing significantly but does not yet represent a meaningful amount of the payments market. Additionally, new formidable non-traditional payments competitors and large merchants are investing in and innovating mobile payment technologies to address the emerging market opportunity, and it is unclear the extent to which particular technologies or services will succeed. We believe the growth of mobile payments continues to present both an opportunity and a risk to us as the market develops. Although we cannot predict which mobile payment technologies or solutions will be successful, we cautiously believe our client relationships, payments infrastructure and experience, adapted solutions and emerging solutions are well-positioned to maintain or grow our clients' existing payment volumes, which is our focus.
High profile North American merchant payment card information security breaches have pushed the payment card industry towards Europay, MasterCard and VISA ("EMV") integrated circuit cards as financial institutions, card networks and merchants seek to improve information security and reduce fraud costs. We have invested in our card management solutions and card manufacturing and processing capabilities to accommodate EMV integrated circuit cards so we can guide our clients through this technology transition and grow our card-driven businesses. We believe the trend to migrate to EMV cards will continue and we continue to invest to address market demand.

The use of checks continues to decline as a percentage of total payments, which negatively impacts our check warranty and item-processing businesses, and we expect this trend to continue. In 2015 and through the first half of 2016, we observed a modest slowdown in our check volume decline and to date have been able to successfully mitigate the majority of the impacts of this decline through cost and fraud efficiency actions and new market solutions, which remain our continued focus.
We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity, which we believe as a whole is detrimental to our business. However, consolidation resulting from specific merger and acquisition transactions may be beneficial or detrimental to our business. When consolidations of financial institutions occur, merger partners often operate systems licensed from competing service providers. The newly formed entity generally makes a determination to migrate its core and payments systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by their expanding the use of our services if such services are chosen to survive the consolidation and support the newly combined entity. Conversely, we may lose market share if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to survive the consolidation and support the newly combined entity. It is also possible that larger financial institutions resulting from consolidation may have greater leverage in negotiating terms or could decide to perform in-house some or all of the services that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company. In 2015, we experienced lower consolidation activity and resulting termination fees compared to 2014 and 2013, and this trend is continuing into 2016.

Notwithstanding challenging global economic conditions, our international business continued to experience growth across all major regions, including Europe and Asia, on a constant currency basis during the first half of 2016. By comparison with FIS, a greater percentage of SunGard's revenues have been concentrated historically in international markets, which has contributed to this growth trend. Demand for our solutions will also continue to be driven in developing countries by government-led financial inclusion policies aimed to reduce the unbanked population and by growth in the middle classes in these markets driving the need for more sophisticated banking solutions. The majority of our European revenue is generated by clients in the United Kingdom, France and Germany. In 2015, we experienced adverse currency impacts in our international

22

businesses as a consequence of a relative strengthening of the U.S. dollar. In 2016, we expect minimal net foreign currency impact on our operating income.

Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems.

FIS remains focused on making strategic investments in information security to protect our clients and our information systems. This includes both capital expenditures and operating expense on hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this growth opportunity in the financial services industry.
  
Critical Accounting Policies

There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Transactions with Related Parties

See Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) for a detailed description of transactions with related parties.
     

23

Comparisons of three-month and six-month periods ended June 30, 2016 and 2015

Consolidated Results of Operations (Unaudited)
(in millions, except per share amounts)

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2016
 
2015
 
2016
 
2015
Processing and services revenues
$
2,305

 
$
1,587

 
$
4,486

 
$
3,142

Cost of revenues
1,600

 
1,070

 
3,153

 
2,140

Gross profit
705

 
517

 
1,333

 
1,002

Selling, general, and administrative expenses
422

 
230

 
866

 
500

Operating income
283

 
287

 
467

 
502

Other income (expense):
 
 
 
 
 
 
 
Interest expense, net
(93
)
 
(36
)
 
(186
)
 
(73
)
Other income (expense), net
(1
)
 
152

 
(2
)
 
150

Total other income (expense), net
(94
)
 
116

 
(188
)
 
77

Earnings from continuing operations before income taxes
189

 
403

 
279

 
579

Provision for income taxes
66

 
156

 
97

 
214

Earnings from continuing operations, net of tax
123

 
247

 
182

 
365

Earnings (loss) from discontinued operations, net of tax
1

 
(2
)
 
1

 
(5
)
Net earnings
124

 
245

 
183

 
360

Net earnings attributable to noncontrolling interest
(3
)
 
(5
)
 
(7
)
 
(9
)
Net earnings attributable to FIS common stockholders
$
121

 
$
240

 
$
176

 
$
351

Net earnings per share — basic from continuing operations attributable to FIS common stockholders
$
0.37

 
$
0.86

 
$
0.54

 
$
1.26

Net earnings (loss) per share — basic from discontinued operations attributable to FIS common stockholders
—

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — basic attributable to FIS common stockholders
$
0.37

 
$
0.85

 
$
0.54

 
$
1.25

Weighted average shares outstanding — basic
325

 
281

 
325

 
282

Net earnings per share — diluted from continuing operations attributable to FIS common stockholders
$
0.36

 
$
0.85

 
$
0.53

 
$
1.25

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

 
(0.01
)
 
—

 
(0.02
)
Net earnings per share — diluted attributable to FIS common stockholders
$
0.37

 
$
0.84

 
$
0.54

 
$
1.23

Weighted average shares outstanding — diluted
329

 
284

 
328

 
286

Amounts attributable to FIS common stockholders:
 
 
 
 
 
 
 
Earnings from continuing operations, net of tax
$
120

 
$
242

 
$
175

 
$
356

Earnings (loss) from discontinued operations, net of tax
1

 
(2
)
 
1

 
(5
)
Net earnings attributable to FIS
$
121

 
$
240

 
$
176

 
$
351

Amounts in table may not sum due to rounding.
 
 
 
 
 
 
 

 Processing and Services Revenues

Processing and services revenues totaled $2,305 million and $1,587 million during the three-month periods and $4,486 million and $3,142 million during the six-month periods ended June 30, 2016 and 2015, respectively. Processing and services revenues for the three-month and six-month periods ended June 30, 2016 included approximately $23 million and $64 million, respectively of unfavorable foreign currency impact, primarily resulting from a stronger U.S. Dollar versus the Brazilian Real and the British Pound Sterling. Excluding the unfavorable foreign currency impact, revenue increases for the three and six months ended June 30, 2016 as compared to 2015 were primarily attributable to incremental revenues from the SunGard

24

acquisition, including growth driven by increased adoption of our global trading, capital markets and buy-side solutions, volume growth in debit payments and card production activities associated with the roll-out of EMV and tokenization across the industry and growth in digital solutions (internet banking and mobile). Our revenues included a $59 million and $140 million reduction of revenue during the three and six months ended June 30, 2016, respectively, as a result of the purchase accounting adjustment to reduce SunGard acquired deferred revenue to fair value.

Cost of Revenues and Gross Profit

Cost of revenues totaled $1,600 million and $1,070 million during the three-month periods and $3,153 million and $2,140 million during the six-month periods ended June 30, 2016 and 2015, respectively, resulting in gross profit of $705 million and $517 million during the respective three-month periods and $1,333 million and $1,002 million during the six-month periods. Gross profit as a percentage of revenues was 30.6% and 32.6% during the three-month periods and 29.7% and 31.9% during the six-month periods ended June 30, 2016 and 2015, respectively. The change in gross profit during the 2016 period as compared to 2015 primarily resulted from the revenue variances noted above. The gross profit percentages during the three-months and six-months ended June 30, 2016 as compared to the 2015 periods were negatively impacted by higher acquired intangible asset amortization expense resulting from the SunGard acquisition. This negative impact was partially offset by the addition of higher margin revenues from SunGard as well as on-going operating leverage in key markets outside of North America.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $422 million and $230 million during the three-month periods and $866 million and $500 million during the six-month peiods ended June 30, 2016 and 2015, respectively. The year-over-year increase primarily resulted from incremental expenses from SunGard, including integration and severance.

Operating Income

Operating income totaled $283 million and $287 million during the three-month periods and $467 million and $502 million during the six-month periods ended June 30, 2016 and 2015, respectively. Operating income as a percentage of revenue (“operating margin”) was 12.3% and 18.1% during the three-month periods and 10.4% and 16.0% during the six-month periods ended June 30, 2016 and 2015, respectively. The changes in operating income for the three and six-month periods of 2016 as compared to 2015 resulted from the variances addressed above. The decrease in operating margin resulted primarily from higher acquired intangible asset amortization expense and other incremental integration and severance costs.
 
Total Other Income (Expense), Net

Total other income (expense), net was $(94) million and $116 million during the three-month periods and $(188) million and $77 million during the six-month periods ended June 30, 2016 and 2015, respectively. Interest expense increased $57 million during the three-month period and $113 million during the six-month period ended June 30, 2016 as compared to 2015 primarily due to higher outstanding debt associated with financing the SunGard acquisition. During the second quarter of 2015, we sold certain assets associated with our gaming industry check warranty business, resulting in proceeds of $238 million and a pre-tax gain of $140 million, which is included in Other income (expense), net.

Provision for Income Taxes

Income tax expense from continuing operations totaled $66 million and $156 million during the three-month periods and $97 million and $214 million during the six-month periods ended June 30, 2016 and 2015, resulting in effective tax rates from continuing operations of 35% and 39% for the three month periods and 35% and 37% for the six month periods, respectively. The effective tax rate during the three months and six months ended June 30, 2015 included a $90.1 million write-off of goodwill with no tax basis in connection with the sale of our gaming industry check warranty business.

Earnings from Continuing Operations, Net of Tax, Attributable to FIS Common Stockholders

Earnings from continuing operations, net of tax, attributable to FIS common stockholders totaled $120 million and $242 million resulting in earnings per diluted share of $0.36 and $0.85 for the three-month periods and $175 million and $356 million resulting in earnings per diluted share of $0.53 and $1.25 for the six-month periods ended June 30, 2016 and 2015, respectively. These results reflect the variances described above as well as the increase in shares outstanding from the SunGard acquisition.


25

Segment Results of Operations (Unaudited)

Adjusted EBITDA for our segments is presented in conformity with Accounting Standards Codification Topic 280, Segment Reporting. 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. Adjusted EBITDA, which is defined as EBITDA (defined as net income (loss) before net interest expense, income tax provision (benefit) and depreciation and amortization, including amortization of purchased intangibles), plus certain non-operating items. The non-operating items affecting the segment profit measure generally include acquisition accounting adjustments, acquisition, integration and severance costs, and restructuring expenses. For consolidated reporting purposes, these costs and adjustments are recorded in the Corporate and Other segment for the periods discussed below. Adjusted EBITDA for the respective segments excludes the foregoing costs and adjustments. Financial information, including details of our adjustments to EBITDA, for each of our segments is set forth in Note 9 to the condensed consolidated financial statements (unaudited) included in Part I of this Quarterly Report.

Integrated Financial Solutions
(in millions)

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2016
 
2015
 
2016
 
2015
Processing and services revenues
$
1,162

 
$
931

 
$
2,283

 
$
1,859

Adjusted EBITDA
$
450

 
$
369

 
$
876

 
$
740


Processing and services revenues for IFS totaled $1,162 million and $931 million during the three-months and $2,283 million and $1,859 million during the six-months ended June 30, 2016 and 2015, respectively. The overall segment increases of $231 million or 24.8% for the three months and $424 million or 22.8% for the six months ended June 30, 2016 compared to the 2015 period were primarily attributable to incremental revenues from the SunGard acquisition, on-going demand for regulatory and compliance solutions, volume growth in debit payments and card production activities associated with the roll-out of EMV and tokenization across the industry and growth in digital solutions (internet banking and mobile).

Adjusted EBITDA for IFS totaled $450 million and $369 million during the three-month periods and $876 million and $740 million during the six-month periods ended June 30, 2016 and 2015, respectively. Adjusted EBITDA margin was 38.7% and 39.6% during the three-month periods and 38.4% and 39.8% during the six-month periods ended June 30, 2016 and 2015, respectively. The increase in adjusted EBITDA primarily resulted from the revenue variances noted above. The decreases in adjusted EBITDA margin during the three-month and six-month periods ended June 30, 2016 compared to the 2015 periods primarily resulted from revenue mix, higher incentives and other discrete accrual items.

Global Financial Solutions
(in millions)

 
Three months ended
June 30,
 
Six months ended
June 30,
 
2016