10-QPeriod: Q2 FY2006

Fidelity National Information Services, Inc. Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 9, 2006For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported strong revenue growth in the second quarter of 2006, driven significantly by the February 1, 2006 merger with Certegy Inc. Total revenues for the three months ended June 30, 2006, reached $1.02 billion, a 44.2% increase year-over-year, largely due to the inclusion of Certegy's $287.6 million in revenue. For the six-month period, revenues grew to $1.92 billion, up from $1.36 billion in the prior year, with Certegy contributing $471.4 million. Despite revenue growth, gross profit margins saw a decrease, falling to 29.6% in the quarter and 30.2% year-to-date, down from 36.0% and 35.0% respectively in the prior year. This margin compression is attributed to the lower-margin profile of the acquired Certegy businesses and increased amortization expenses related to purchase accounting. Net earnings for the quarter were $66.0 million ($0.34 per diluted share), an increase from $48.6 million ($0.38 per diluted share) in the prior year, reflecting the impact of the Certegy acquisition on the share count and business mix. Significant activities during the period include the ongoing integration of Certegy and preparations for a merger with FNF, expected to close in late Q3 or Q4 2006.

Key Highlights

  • 1Total revenues for the three months ended June 30, 2006, increased by 44.2% to $1.02 billion, primarily due to the inclusion of Certegy's results post-merger.
  • 2For the six months ended June 30, 2006, revenues grew to $1.92 billion, with $471.4 million attributable to the Certegy acquisition.
  • 3Gross profit margin decreased in both the three-month and six-month periods compared to the prior year, attributed to the lower margins of acquired businesses and increased amortization.
  • 4Net earnings for the quarter were $66.0 million ($0.34 per diluted share), an increase from $48.6 million ($0.38 per diluted share) in the prior year's quarter.
  • 5The company is actively pursuing a merger with FNF, expected to close in late Q3 or Q4 2006, which will further restructure the company.
  • 6Goodwill and Intangible Assets saw a substantial increase, reaching $3.7 billion and $1.09 billion respectively, largely due to business acquisitions, including Certegy.
  • 7Long-term debt increased to approximately $2.86 billion, reflecting the financing associated with recent acquisitions and recapitalizations.

Frequently Asked Questions

The merger with Certegy, completed on February 1, 2006, significantly boosted FIS's revenues, contributing $287.6 million in the three-month period and $471.4 million in the six-month period ended June 30, 2006. However, it also led to lower gross profit margins due to Certegy's typically lower margin business and increased amortization expenses from purchase accounting.

FIS has a substantial amount of long-term debt, totaling approximately $2.86 billion as of June 30, 2006. This debt is largely a result of the March 2005 recapitalization, which involved $2.8 billion in borrowings under new senior credit facilities.

FIS has entered into an agreement to merge with FNF, with the transaction expected to close in late the third or early fourth quarter of 2006. This merger is part of a plan to eliminate FNF's holding company structure and will result in FIS continuing as the surviving corporation. The accounting for this merger will be based on carrying amounts of FIS's assets and liabilities.

Goodwill increased substantially from $1.79 billion at the end of 2005 to $3.70 billion as of June 30, 2006, primarily due to the Certegy acquisition. Similarly, intangible assets grew from $508.8 million to $1.09 billion over the same period, reflecting purchase accounting adjustments for acquired assets.