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Article by DailyStocks_admin    (08-08-08 09:08 AM)

The Daily Magic Formula Stock for 08/08/2008 is Fidelity National Information Services Inc. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 75-100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General Development of the Business

FIS is a leading provider of core processing services, card issuer and transaction processing and mortgage-related services to financial institutions, mortgage lenders and servicers. FIS has processing and technology relationships with 35 of the top 50 global banks, including nine of the top 10. Over 50 percent of all U.S. residential mortgages are processed using FIS’ mortgage servicing platform. FIS is a member of Standard and Poor’s (S&P) 500 ® Index.

Our business operations and organizational structure result from the February 1, 2006, business combination of FIS and Certegy (the “Certegy Merger”), pursuant to which FIS was merged into a wholly-owned subsidiary of Certegy. Immediately after the Certegy Merger, the stockholders of FIS, including its then-majority stockholder Old FNF, owned approximately 67.4% of our outstanding common stock. Accordingly, for accounting and financial reporting purposes, the Certegy Merger was treated as a reverse acquisition of Certegy by FIS using the purchase method of accounting pursuant to U.S. generally accepted accounting principles. Under this accounting treatment, although Certegy was the legal entity that survived the merger, FIS was viewed as the acquirer for accounting purposes, and our financial statements and other disclosures for periods prior to the Certegy Merger treat FIS as our predecessor company. Also, as a result of the Certegy Merger, the registrant’s name changed from “Certegy Inc.” to “Fidelity National Information Services, Inc.” and our New York Stock Exchange trading symbol from “CEY” to “FIS”. On November 9, 2006, Old FNF (after other transactions in which it distributed all of its assets other than its ownership in FIS) merged with and into FIS (the FNF Merger). Upon completion of the FNF Merger, FIS became an independent publicly traded company, and Old FNF ceased to exist as an independent publicly traded company. The assets distributed by Old FNF prior to the FNF Merger included its ownership in Fidelity National Title Group, Inc., which following the FNF Merger renamed itself Fidelity National Financial, Inc.

Prior to the Certegy Merger, FIS was incorporated under the laws of the State of Delaware on May 20, 2004, as a wholly-owned subsidiary of Old FNF, our former parent company. As a result of the Certegy Merger, we are now incorporated under the laws of the State of Georgia, where Certegy was initially incorporated on March 2, 2001. From November 2004 through March 2005, Old FNF contributed a number of business entities to FIS, including certain real estate-related information services and loan default management businesses developed by Old FNF in the 1990s, and a series of acquisitions completed by Old FNF between 2001 and 2005. Although many of these acquisitions added important applications and services to the offerings of FIS, our long-term growth has been driven primarily by internal growth of these businesses and acquisitions of companies that provide core processing services to financial institutions including:


• The financial services division of ALLTEL Information Services, Inc., a provider of core banking and mortgage processing services;

• Aurum Technology, a provider of software and outsourcing solutions to community banks and credit unions;

• Kordoba, a provider of information technology solutions for the financial services industry with a focus on services and solutions for the German banking market;

• Sanchez Computer Associates, Inc., or Sanchez, a provider of software and outsourcing solutions to banks and other financial institutions; and

• InterCept, Inc., or InterCept, a provider of outsourced and in-house core banking solutions, as well as item processing and check imaging services.

Additionally, since 2006 we have broadened our service offerings through our acquisitions of:


• Certegy, a provider of card issuer services to financial institutions and check risk management services in the U.S. and internationally, in February 2006; and

• eFunds Corporation, a provider of risk management services, EFT services, prepaid/gift card processing, and global outsourcing solutions to financial services companies in the U.S. and internationally, in September 2007.

Financial Information About Operating Segments and Geographic Areas

Our reportable segments are Transaction Processing Services, or TPS, and Lender Processing Services, or LPS. The primary components of the TPS segment are Integrated Financial Solutions, Enterprise Solutions, and International. The primary components of the Lender Processing, or LPS segment, are Mortgage Processing and Information Services, which includes loan facilitation services, default management, and other information and outsourcing based services.

Revenue from our TPS segment is generated from serving the processing needs of financial institutions. Our primary software applications function as the underlying infrastructure of a financial institution’s core processing environment which banks use to maintain the primary records of their customer accounts. We also provide a number of complementary applications, such as item processing and electronic funds transfer, and services that interact directly with the core processing applications, including applications that facilitate interactions between our financial institution customers and their clients such as online banking and bill payment services and fraud prevention and detection services. We offer our applications and services through a range of delivery and service models, including on-site outsourcing and remote processing arrangements, as well as on a licensed software basis for installation on customer-owned and operated systems. This segment also includes card issuer services, which enable banks, credit unions, and others to issue VISA and MasterCard credit and debit cards, private label cards, and other electronic payment cards for use by both consumer and business accounts. In addition, we provide point-of-sale check verification and guarantee services to retailers.

Revenue from our LPS segment is generated from outsourced business processes, core mortgage processing and information solutions primarily provided to national lenders and loan servicers. These processes include centralized title agency and closing services offered to first mortgage, refinance, home equity and sub-prime lenders. This segment’s information solutions include appraisal and valuation services, real estate tax services and flood zone information. In addition, this segment provides default management services to national lenders and loan servicers, allowing customers to outsource the business processes necessary to take a loan and the underlying real estate securing the loan through the default and foreclosure process.

Lender Processing Services Spin-off

On October 25, 2007, we announced that our Board of Directors had approved pursuing a plan to spin-off the businesses that currently make up our LPS segment into a stand alone publicly traded company which will be known as Lender Processing Services, Inc. (“LPS, Inc.”). As currently contemplated, we will contribute the majority of the assets and liabilities of this segment into LPS, Inc. in exchange for additional shares of the LPS, Inc. common stock and approximately $1.6 billion principal amount of LPS, Inc. debt securities. Following receipt of necessary approvals from the Securities and Exchange Commission (the “SEC”) and a ruling from the Internal Revenue Service (the “IRS”) and an opinion from our special tax advisor with respect to the tax-free nature of the spin-off, we will distribute 100% of the LPS, Inc. common stock to our shareholders in the spin-off and exchange the LPS, Inc. debt securities for a like amount of our existing debt. We expect that the spin-off will be tax-free to FIS and our shareholders, and that the debt-for-debt exchange will be tax-free to FIS. We will then retire the debt that is exchanged for the LPS, Inc. debt securities. Completion of the spin-off is expected to occur in mid-2008. FIS’s current Chief Financial Officer, Jeff Carbiener, is expected to be the Chief Executive Officer of LPS, Inc.

In January 2008, we filed a ruling request with the IRS regarding the tax-free nature of the LPS, Inc. spin-off and intend to file a preliminary Form 10 Registration Statement with the SEC in the first quarter of 2008. Completion of the spin-off is contingent upon the satisfaction or waiver of a variety of conditions, including final approval of the spin-off and all related arrangements by our Board of Directors. The completion of the proposed spin-off is also subject to risks and uncertainties including but not limited to those associated with our ability to contribute the LPS segment assets and liabilities to LPS, Inc., with the ability of LPS, Inc. to complete the debt exchange in the manner and on the terms currently contemplated, the possibility that necessary governmental approvals or actions (from the IRS, the SEC or other authorities) will not be obtained, and market conditions for the spin-off.

Narrative Description of the Business

Overview

FIS is a leading provider of core processing services, card issuer and transaction processing and mortgage-related services to financial institutions, mortgage lenders and servicers. FIS has processing and technology relationships with 35 of the top 50 global banks, including nine of the top 10. Approximately 50 percent of all U.S. residential mortgages are processed using FIS’ mortgage servicing platform. FIS is a member of Standard and Poor’s (S&P) 500 Index.

The customers cited in the following discussion provide a representative cross-section of our customers based on size, geographic location, type of institution and the services that they use.

Our Transaction Processing Services Operating Segment

The primary focus of our Integrated Financial Solutions business is to serve the processing needs of independent community banks, credit unions, and savings banks in the United States. Processing solutions include core processing, branch automation, back office support systems, compliance, credit and debit card issuing, item processing and imaging, print and mail, ATM/EFT, retail Internet banking and bill payment services, commercial cash management and voice response services. Over 12,000 commercial banks, savings institutions and credit unions utilize one or more of these solutions.

Of these 12,000 institutions, over 1,350 institutions utilize one of our core processing solutions. Customers of this segment typically seek a fully integrated and broad suite of applications. As a result, our core processing services sold in this market have various add-on modules or applications that integrate into our core processing applications, providing a broad processing solution. Examples of our customers in this sector include Hudson City Savings Bank, Sterling Bank, and VyStar Credit Union.

Over 4,550 institutions utilize our card issuer services which enable banks, credit unions, and others to issue VISA and MasterCard credit and debit cards, and other electronic payment cards for use by both consumer and business accounts. The majority of our card issuer programs are full service, including most of the operations and support necessary for an issuer to operate a credit and debit card program. We do not make credit decisions for our card issuing customers, nor do we fund their card receivables. We provide our card issuer services primarily through our longstanding contractual alliances with two associations representing independent community banks and credit unions in the U.S., the Independent Community Bankers of America, or ICBA, and Card Services for Credit Unions, or CSCU. These organizations offer our services to their respective members with our company as the provider. Our alliances with the ICBA and CSCU provide us with an efficient and effective means of marketing our services to individual credit unions and community banks.

Our item processing and imaging services are utilized by more than 1,450 institutions. The services provide our customers with a wide range of outsourcing services relating to the imaging and processing of checks, statements, remittances, and other transaction records, which are performed at one of our 40 item processing centers located throughout the U.S. or on-site at a customer location.

We provide a full range of ePayment capabilities, including electronic funds transfer, or EFT, processing solutions, ranging from automated teller machine, or ATM, and debit card services to card production and distribution to stored-value prepaid/gift cards and payroll cards. Our eBanking services are utilized by more than 1,660 financial institutions and enable them to offer Internet banking and bill payment services to consumers and businesses.

Enterprise Solutions

Our Enterprise Solutions division focuses on serving the processing needs of large U.S. financial institutions, automotive financing companies, and commercial lenders. We also provide check risk management and related processing services to businesses accepting or cashing checks at the point-of-sale, risk management services to financial institutions and comprehensive cash access services in the gaming industry. Primary service offerings include:


• Core Processing Applications for Financial Institutions. Our core processing software applications are designed to run critical banking processes for our financial institution customers. These critical banking processes include deposit and lending systems, customer systems, and most other core banking systems that a bank must utilize to manage the products it provides to its customers.

• Retail Delivery Applications for Financial Institutions. Our retail delivery applications facilitate direct interactions between a bank and its customers through applications that allow for the delivery of services to these customers. Our retail delivery applications include TouchPoint, an application suite that supports call centers, branch and teller environments, and retail and commercial Internet channels.

• Integration Applications for Financial Institutions. Our integration applications access data across both our internal and third-party core processing systems and transport information to our customers’ retail delivery channels. Our integration applications also provide transaction routing and settlement. These applications facilitate tightly integrated systems and efficient software delivery that reduces technology costs for our customers.

• Syndicated Loan Applications. Our syndicated loan applications are designed to support wholesale and commercial banking requirements necessary for all aspects of syndicated commercial loan origination and management.

• Automotive Finance Applications. Our primary applications include an application suite that assists automotive finance institutions in evaluating loan applications and credit risk, and allows automotive finance institutions to manage their loan and lease portfolios.

• Risk Management Services for Financial Institutions and Retailers. Our risk management services utilize our proprietary risk management services and data sources to assist in detecting fraud and assessing the risk of opening a new account or accepting a check at either the point-of-sale, a physical branch location, or through the Internet.

• Cash Access Services to Casinos. Our comprehensive service suite, which includes quasi-cash credit card advance services, ATM cash disbursements, and check cashing services, can be fully integrated into our customers’ cage operations or operated by us on an outsourced basis.

The processing needs of our customers vary significantly across the sizes and types of entities we serve. These entities include:


• Large Financial Institutions. We define the large financial institution market as banks and other financial institutions in North America with assets in excess of $5 billion. Of the 100 largest U.S. banks as of December 31, 2007, our customers included 8 banks that use our real-time, integrated loan and deposit applications, 21 banks that use our deposit-related core processing applications, 40 banks that use our lending-related core processing applications and 17 banks that use our various retail delivery applications. Our customers in this market include JP Morgan Chase, Bank of America, ING/Direct and Charles Schwab Bank.

• Automotive Finance Institutions. Our automotive finance processing services include integrated loan and lease servicing solutions for the global automotive finance industry. As of December 31, 2007, over 18 million automotive loans and leases in North America and Europe were processed on our automotive finance applications. We also offer dealer wholesale finance and other ancillary services to the automotive finance industry. Three of the top five captive automotive finance companies in the U.S., as ranked at the end of 2006, utilize our applications and services.

• Commercial Lenders. We also provide business solutions that allow clients to automate and manage their entire commercial lending and loan trading businesses. Our customers include more than 100 financial institutions, including 8 of the top 10 and 34 of the top 50 as ranked by Tier 1 capital as rated by “The Banker” as of December 31, 2007. Our customers include Bank of America, JP Morgan Chase, General Electric, Merrill Lynch, Credit Suisse, Barclays Capital, Bank of Scotland, and Rabobank.

• Retailers. A significant portion of our revenues from check risk management services is generated from large national retail chains including Sears, Best Buy, Marmaxx and Albertson’s. Other customers of our check risk management services include regional merchants such as hotels, automotive dealers, telecommunication companies, supermarkets, gaming establishments, mail order houses and other businesses.

We have developed several models of providing our customers with applications and services. We typically deliver the highest value to our customers when we combine our software applications and deliver them in one of several types of outsourcing arrangements, such as an application service provider, facilities management processing or application management arrangement. We are also able to deliver individual applications through a software licensing arrangement. Finally, using our expertise gained in the foregoing types of arrangements, we also have clients for whom we manage their IT operations, without providing any of our proprietary software.

International

We provide core banking applications, item processing, card services, and check risk management solutions to financial institutions, card issuers, and retailers in approximately 80 countries outside the United States. Our international operation leverages existing domestic applications and provides services for the specific business needs of our customers in targeted international markets. Our service offering includes a comprehensive range of payment processing services and core banking solutions. Our payment processing services, which comprise approximately 56% of our international revenues, include fully outsourced card issuer services and customer support, item processing and retail point-of-sale check authorization services. Our core banking solutions include fully outsourced processing arrangements, application management, software licensing and maintenance, facilities management and consulting services. Our international customers include CitiBank, Bradesco, ABN AMRO/Banco Real, ING Group, Krung Thai Bank, China Construction Bank, National Australia Bank, and a number of other mid-tier and regional financial institutions, card issuers, and retailers.

Mortgage Processing

We offer the most widely used mortgage loan servicing system (known as MSP) in the U.S. As of December 31, 2007, our mortgage loan servicing platform, or MSP, was used to process over 50% of all residential mortgages, based on number of loans, in the U.S. Our mortgage loan processing customers include Bank of America, Wells Fargo, National City Mortgage, and U.S. Bank Home Mortgage. Our customer relationships are typically long-term relationships that provide consistent annual revenues based on the number of mortgages processed on our platform.

While our mortgage servicing applications can be purchased on a stand-alone, licensed basis, the substantial majority of our MSP customers by both number of customers and number of loans choose to use us as their processing partner and engage us to perform all data processing functions in our technology center located in Jacksonville, Florida. Customers determine whether to process their loan portfolio data under an application service provider arrangement in which multiple clients share the same computing and personnel resources or to have their own dedicated resources within our facility.

The primary applications and services of this business include:


• MSP. Our Mortgage Servicing Platform, or MSP , is an application that automates loan servicing, including loan setup and ongoing processing, customer service, accounting and reporting to the secondary mortgage market, and federal regulatory reporting. MSP serves as the core application through which our bank customers keep the primary records of their mortgage loans, and as a result is an important part of the bank’s underlying processing infrastructure. MSP processes a wide range of loan products, including fixed-rate mortgages, adjustable-rate mortgages, construction loans, equity lines of credit and daily simple interest loans.

• Empower. Empower is a mortgage loan origination software system used by banks, savings & loans, mortgage bankers and sub-prime lenders. This application automates making loans, providing seamless credit bureau access and interfacing with MSP, automated underwriting systems used by Freddie Mac and Fannie Mae and with vendors providing servicing, flood certifications, appraisals and title insurance.

Information Outsourcing

We offer a suite of services spanning the entire mortgage loan life cycle, from loan origination through closing, refinancing, foreclosure and resale. A significant number of our customers use a combination of our mortgage servicing, mortgage information, mortgage origination and default management services. Our client base includes mortgage lenders such as U.S. Bancorp, Bank of America, Freddie Mac and Washington Mutual, as well as investors and real estate professionals. Our primary service lines are described below:


• Valuation and Appraisal Services. We provide a broad suite of valuation applications, which include automated valuation models, traditional appraisals, broker price opinions, collateral scores and appraisal reviews.

• Mortgage Origination Services. We provide centralized title and closing services to financial institutions in the first mortgage, refinance, home equity and sub-prime lending markets. Our client base includes Wells Fargo, Washington Mutual, and Bank of America. Our centralized financial institution title agency services include arranging for the issuance of a title insurance policy by a title insurer. We offer these services on a national basis, both in the traditional manner and through our centralized production facilities that incorporate automated processes, which can help expedite the delivery of services. Our closing management services cover a variety of types of closings, including purchases and refinancings, and provide a variety of types of services. We maintain a network of independent closing agents who are trained to close loans in accordance with the lender’s instructions.


• Default Management Services. We primarily provide our default management services to national mortgage lenders and loan servicers, many of which previously performed this function in-house. We currently provide default management services to 19 of the top 25 residential mortgage servicers, 14 of the top 25 sub-prime servicers, and 6 of the top 25 subservicers. Our default management services enable mortgage lenders and loan servicers to outsource the business processes necessary to take a loan and the underlying real estate securing the loan through the default and foreclosure process. We work with customers to identify specific parameters regarding the type and quality of services they require and provide a single point of contact for these services. As a result, our customers are able to use our outsourcing services in a manner that we believe provides a greater level of consistency in services, pricing, and quality than if these customers were to obtain these services from separate providers. We use our own resources and networks that we have established with independent contractors to provide these default management outsourcing solutions. Within our default management services we are now utilizing our proprietary Desktop System, a workflow information system that can be used for managing a range of different workflow processes. The Desktop System improves efficiency by streamlining complex work processes and reducing manual effort required to process files. It can be used to organize images of paper documents within a particular file, to capture information from imaged documents, to manage invoices and to provide multiple constituencies with access to key data needed for process management. The Desktop System serves as a core application for tracking all stages of the default management process.

• 1031 Exchange Intermediary Services. We act as a qualified exchange intermediary for those customers who seek to engage in qualified exchanges under Section 1031 of the Internal Revenue Code, which allows capital gains tax deferral on the sale of certain investment assets.

• Real Estate Tax Services. We offer lenders a monitoring service that will notify them of any change in tax status during the life of a loan. We also provide complete outsourcing of tax escrow services, including the establishment of a tax escrow account that is integrated with the lender’s mortgage servicing system and the processing of tax payments to taxing authorities.

• Flood Zone Certifications. We offer flood zone certifications through a proprietary automated system that accesses and interprets Federal Emergency Management Agency, or FEMA , flood maps and certifies whether a property is in a federally designated flood zone. Additionally, we offer lenders a life-of-loan flood zone determination service that monitors previously issued certificates for any changes, such as FEMA flood map revisions, for as long as that loan is outstanding.

• Data and Analytics. We offer data and analytics services including enhanced property records information and alternative valuation services.

Sales and Marketing

Sales Force

We have teams of experienced sales personnel with subject matter expertise in particular services or in the needs of particular types of customers. A significant portion of our potential customers in each of our business lines is targeted via direct and/or indirect field sales, as well as inbound and outbound telemarketing efforts. Marketing activities include direct marketing, print advertising, media relations, public relations, tradeshow and convention activities, seminars, and other targeted activities. Because many of our customers use a single service, or a combination of services, our direct sales force also targets existing customers to promote cross-selling opportunities. Our strategy is to use the most efficient delivery system available to successfully acquire customers and build awareness of our services.

In our Lender Processing Segment, in addition to our traditional sales force, we have established a core team of senior managers to lead strategic account management for the full range of our services to existing and potential top tier financial institution customers. The individuals who participate in this effort, which we coordinate through our Office of the Enterprise, spend a significant amount of their time on sales and marketing efforts as well as working with our business units to develop solutions based upon strategic issues impacting customers’ businesses.

Patents, Trademarks and Other Intellectual Property

We rely on a combination of contractual restrictions, internal security practices, and copyright and trade secret law to establish and protect our software, technology, and expertise. Further, we have developed a number of brands that have accumulated substantial goodwill in the marketplace, and we rely on trademark law to protect our rights in that area. We intend to continue our policy of taking all measures we deem necessary to protect our copyright, trade secret, and trademark rights. These legal protections and arrangements afford only limited protection of our proprietary rights, and there is no assurance that our competitors will not independently develop or license products, services, or capabilities that are substantially equivalent or superior to ours. In general, we believe that we own most proprietary rights necessary for the conduct of our business, although we do license certain items, none of which is material, under arms-length agreements for varying terms.

Competition

Our primary competitors include internal technology departments within banks, data processing or software development departments of large companies or large computer manufacturers, third-party payment processors, independent computer services firms, companies that develop and deploy software applications, companies that provide customized development, implementation and support services, and companies that market software for the electronic payment industry. Some of these competitors possess substantially greater financial, sales and marketing resources than we do. Competitive factors for applications and services include the quality of the technology-based application or service, application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance, and support the applications or services, and price. We believe that we compete favorably in each of these categories. In addition, we believe that our financial institution industry expertise, combined with our ability to offer multiple applications, services and integrated solutions to individual customers, enhances our competitiveness against competitors with more limited application offerings.

We compete with vendors that offer similar core processing applications and services to financial institutions, including Fiserv, Inc., Jack Henry and Associates, Inc., Metavante Corporation, Open Solutions, IBM and Accenture. In certain non-U.S. markets, we compete with regional providers including Alnova, I-Flex, and Temenos.

Our competitors in the card issuer services market include third-party credit and debit card processors such as First Data Corporation, Total System Services, Electronic Data Systems Corporation, and Payment Systems for Credit Unions, and third-party software providers, which license their card processing systems to financial institutions and third-party processors. Competitors in the check risk management services market include First Data’s TeleCheck Services division, CrossCheck, and Global Payments.

The markets for our Information Outsourcing business lines are also highly competitive. Key competitive factors include quality of the service, convenience, speed of delivery, customer service, and price. We do not believe that there is a competitor currently offering the scope of services and market coverage that we provide in our Information Outsourcing business. However, there are a number of competitors in specific lines, some of which have substantial resources. First American and Land America are significant competitors in a majority of our Information Outsourcing business lines, including tax, flood, appraisal and default.

CEO BACKGROUND

Marshall Haines. Marshall Haines has served as a director of FIS since February 2006. Since March 2004, Mr. Haines has been a principal of Tarrant Partners, L.P., an affiliate of Texas Pacific Group. Prior to joining Tarrant Partners, Mr. Haines worked with Bain Capital for ten years, specializing in leveraged buyout transactions in a variety of industries.

David K. Hunt. David K. Hunt has served as a director of FIS since June 2001. Mr. Hunt is a private investor. He previously served as the non-executive Chairman of the Board of OnVantage, Inc. from October 2004 until December 2005. Prior to that, he served as the Chairman and Chief Executive Officer of PlanSoft Corporation, an internet-based business-to-business solutions provider in the meeting and convention industry, a position he held from May 1999 to October 2004. From January 1997 to April 1999, he served as President, Chief Executive Officer, and a director of Global Payment Systems, a transaction processing service provider.

Cary H. Thompson. Cary H. Thompson has served as a director of FIS since February 2006. Mr. Thompson served as a director of old FNF from 1992 until the FNF Merger in November 2006. Mr. Thompson currently is a Senior Managing Director with Bear Stearns & Co. Inc. and has been since 1999. From 1996 to 1999, Mr. Thompson was a director and Chief Executive Officer of Aames Financial Corporation. Mr. Thompson also serves as a director of FNF and SonicWall Corporation.

William P. Foley, II. William P. Foley, II has served as a director of FIS since February 2006 and is the Executive Chairman of the Board. Mr. Foley has also served as the executive Chairman of the Board of FNF since October 2005. Mr. Foley served as Chief Executive Officer of FNF from October 2006 until May 2007. Mr. Foley served as Chairman of the Board and Chief Executive Officer of old FNF from that company’s formation in 1984 until the FNF Merger.

Robert M. Clements. Robert M. Clements was elected to the Board on July 1, 2006. Mr. Clements is the Chairman and CEO of EverBank Financial Corporation, the holding company for EverBank. Mr. Clements joined EverBank in 1994 and has served as President and CEO of EverBank Financial Corporation since its formation in 1997.

Thomas M. Hagerty. Thomas M. Hagerty has served as a director of FIS since February 2006. Mr. Hagerty served as a director of old FNF from January 2005 until the FNF Merger in November 2006. Mr. Hagerty is a Managing Director of Thomas H. Lee Partners, L.P. Mr. Hagerty has been employed by Thomas H. Lee Partners, L.P. and its predecessor, Thomas H. Lee Company, since 1988. Mr. Hagerty also serves as a director of FNF and MGIC Investment Corporation.

Daniel D. (Ron) Lane. Daniel D. (Ron) Lane has served as a director of FIS since February 2006. Mr. Lane served as a director of old FNF from 1989 until the FNF Merger in November 2006. Since February 1983, Mr. Lane has been a principal, Chairman and Chief Executive Officer of Lane/Kuhn Pacific, Inc., a corporation that comprises several community development and home building partnerships, all of which are headquartered in Newport Beach, California. He also serves as a director of FNF and CKE Restaurants, Inc.

Lee A. Kennedy. Lee A. Kennedy has served as a director and as President and Chief Executive Officer of FIS since March 5, 2001. Prior to the Certegy Merger, he also served as the Chairman of Certegy from February 2002 until February 2006, and as the President of Certegy from March 2001 until May 2004. Prior to that, he served as President, Chief Operating Officer and director of Equifax Inc., a leading provider of consumer credit and other business information, from June 1999 until June 29, 2001. Mr. Kennedy also serves as a director of Equifax.

Keith W. Hughes. Keith W. Hughes has served as a director of FIS since August 2002. Mr. Hughes is currently a self-employed consultant to domestic and international financial services institutions. From November 2000 to April 2001, he served as Vice Chairman of Citigroup Inc. Mr. Hughes was named to that position in 2000 when Citigroup acquired Associates First Capital Corporation, a leading finance company, where he had served as Chairman and Chief Executive Officer since February 1995. Mr. Hughes also serves as a director of Texas Industries Inc. and Pilgrim’s Pride.

James K. Hunt. James K. Hunt has served as a director of FIS since April 2006. Since May 2007, Mr. Hunt has served as Chief Executive Officer and Chief Investment Officer of THL Credit Group, L.P., a credit affiliate of Thomas H. Lee Partners, L.P. providing capital to public and private companies for growth, recapitalizations, leveraged buyouts and acquisitions. Previously, Mr. Hunt founded and was CEO and Managing Partner of Bison Capital Asset Management, LLC, a private equity firm, since 2001. Prior to founding Bison Capital, Mr. Hunt was the President of SunAmerica Corporate Finance and Executive Vice President of SunAmerica Investments (subsequently, AIG SunAmerica). Mr. Hunt also serves as a director of Primus Guaranty, Ltd.

Richard N. Massey. Richard N. Massey has served as a director of FIS since November 2006. Mr. Massey also served as a director of old FNF from January 2006 until the FNF Merger in November 2006. Mr. Massey is currently Executive Vice President and General Counsel of Alltel Corporation and has been since January 2006. From 2000 until 2006, Mr. Massey served as Managing Director of Stephens Inc., a private investment bank, during which time his financial advisory practice focused on software and information technology companies. Mr. Massey also serves as a director of FNF.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are one of the largest global providers of processing services to financial institutions, serving customers in over 80 countries throughout the world. We are among the market leaders in core processing, card issuing services, check point-of-sale verification and guarantee, mortgage processing, and certain other lender processing services in the U.S. We offer a diversified service mix, and benefit from the opportunity to cross-sell multiple services across our broad customer base. We have two reporting segments, TPS and LPS, which produced approximately 63% and 37%, respectively, of our revenues for the year ended December 31, 2007.


• TPS. This segment focuses on serving the processing needs of financial institutions. Our primary software applications function as the underlying infrastructure of a financial institution’s core processing environment which banks use to maintain the primary records of their customer accounts. We also provide a number of complementary applications and services, such as item processing and electronic funds transfer, that interact directly with the core processing applications, including applications that facilitate interactions between our financial institution customers and their clients such as online banking and bill payment services and fraud prevention and detection services. We offer our applications and services through a range of delivery and service models, including on-site outsourcing and remote processing arrangements, as well as on a licensed software basis for installation on customer-owned and operated systems. This segment also includes card issuer services, which enable banks, credit unions, and others to issue VISA and MasterCard credit and debit cards, private label cards, and other electronic payment cards for use by both consumer and business accounts. In addition, we provide point-of-sale check verification and guarantee services to retailers.


• LPS. This segment provides outsourced business processes, core mortgage processing and information solutions primarily to national lenders and loan servicers. These processes include centralized title agency and closing services offered to first mortgage, refinance, home equity and sub-prime lenders. This segment’s information solutions include appraisal and valuation services, real estate tax services and flood zone information. In addition, this segment provides default management services to national lenders and loan servicers, allowing customers to outsource the business processes necessary to take a loan and the underlying real estate securing the loan through the default and foreclosure process. On October 25, 2007, we announced that our Board of Directors had approved a plan to pursue a spin-off of the majority of our LPS division into a separate publicly traded company, which we refer to as LPS, Inc.

The Corporate and Other segment consists of the corporate overhead costs and other operations that are not included in the other segments.

On September 12, 2007, we completed the eFunds acquisition. The eFunds businesses have been integrated into our operations within our TPS segment.

Business Trends and Conditions

Transaction Processing Services

In the TPS business, increases in deposit and card transactions can positively affect our business and thus the condition of the overall economy can have an effect on growth.

In this segment, we compete for both licensing and outsourcing business, and thus are affected by the decisions of financial institutions to utilize our services under an outsourced arrangement or to process in-house under a software license and maintenance agreement. As a provider of outsourcing solutions, we benefit from multi-year recurring revenue streams. Generally, demand for outsourcing solutions has increased over time as providers such as us realize economies of scale and improve their ability to provide services that improve customer efficiencies and reduce costs.

Card transactions continue to increase as a percentage of total point-of-sale payments, which fuels continuing demand for card-related services. We continue to launch new services aimed at accommodating this demand. In recent years, we have introduced a variety of stored-value card types, Internet banking, and electronic bill presentment/payment services, as well as a number of card enhancement and loyalty/reward programs. The common theme among these offerings continues to be convenience and security for the consumer coupled with value to the financial institution.

Consolidation within the banking industry may be beneficial or detrimental to the TPS businesses. When consolidations occur, merger partners often operate disparate systems licensed from competing service providers. The newly formed entity generally makes a determination to migrate its core systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by 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 a customer of ours is involved in a consolidation and our services are not chosen to survive the consolidation and support the newly combined entity.

Lender Processing Services

Our mortgage processing services business, driven by MSP, is largely subject to the number of residential mortgage loans outstanding which is influenced by overall home ownership. The level of residential real estate activity, which depends in part on the level of interest rates, affects the level of revenues from many of the other businesses in the LPS segment.

The slow down of real estate activity and the tightening of available credit in 2007 has resulted in a reduction in new loan origination and refinancing activity. The current MBA forecast is for $2.0 trillion of mortgage originations in 2008 as compared to $2.3 trillion in 2007. These factors are also likely to result in seasonal effects having more influence on real estate activity. Traditionally, the greatest volume of real estate activity, particularly residential resale transactions, has occurred in the spring and summer months.

In contrast, current market conditions have increased the volume of residential mortgage defaults and thus favorably affected our default management services, which provide services relating to residential mortgage loans in default. The overall strength of the economy also affects default revenues.

Critical Accounting Policies

The accounting policies described below are those we consider critical in preparing our Consolidated and Combined Financial Statements. These policies require management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures with respect to contingent liabilities and assets at the date of the Consolidated and Combined Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual amounts could differ from those estimates. See Note 3 of Notes to the Consolidated and Combined Financial Statements for a more detailed description of the significant accounting policies that have been followed in preparing our Consolidated and Combined Financial Statements.

Revenue Recognition

We recognize revenues in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104 (“SAB No. 104”), Revenue Recognition and related interpretations, Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force No. 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables , American Institute of Certified Public Accountant’s SOP No. 97-2 “Software Revenue Recognition” (“SOP 97-2”), SOP No. 98-9 Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions (“SOP 98-9”), and SOP No. 81-1, Accounting for Performance of Construction Type and Certain Production-Type Contracts (“SOP 81-1”). Recording revenues under the provisions of these pronouncements requires judgment, including determining whether or not an arrangement includes multiple elements, whether any of the elements are essential to the functionality of any other elements, and whether evidence of fair value exists for those elements. Customers receive certain contract elements over time and changes to the elements in an arrangement, or in our ability to identify fair value for these elements, could materially impact the amount of earned and unearned revenue reflected in our financial statements.

The primary judgments relating to our revenue recognition are determining when all of the following criteria are met under SAB 104: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. Under EITF 00-21, judgment is also required to determine whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.

If the deliverables under a contract are software related as determined under SOP 97-2 or SOP 98-9, we apply these pronouncements and related interpretations to determine the appropriate units of accounting and how the arrangement consideration should be measured and allocated to the separate units. This determination, as well as management’s ability to establish vendor specific objective evidence (“VSOE”) for the individual deliverables, can impact both the amount and timing of revenue recognition under these agreements. The inability to establish VSOE for each contract deliverable results in having to record deferred revenues and/or applying the residual method as defined in SOP 98-9. For arrangements where we determine VSOE for software maintenance using a stated renewal rate within the contract, we use judgment to determine whether the renewal rate represents fair value for that element as if it had been sold on a stand-alone basis. For a small percentage of revenues, we use contract accounting, as required by SOP No. 97-2, when the arrangement with the customer includes significant customization, modification, or production of software. For elements accounted for under contract accounting, revenue is recognized in accordance with SOP 81-1, Accounting for Performance of Construction Type and Certain Production-Type Contracts , using the percentage-of-completion method since reasonably dependable estimates of revenues and contract hours applicable to various elements of a contract can be made.

Occasionally, we are party to multiple concurrent contracts with the same customer. These situations require judgment to determine whether the individual contracts should be aggregated or evaluated separately for purposes of revenue recognition. In making this determination we consider the timing of negotiating and executing the contracts, whether the different elements of the contracts are interdependent and whether any of the payment terms of the contracts are interrelated.

Due to the large number, broad nature and average size of individual contracts we are a party to, the impact of judgments and assumptions that we apply in recognizing revenue for any single contract is not likely to have a material effect on our consolidated operations. However the broader accounting policy assumptions that we apply across similar arrangements or classes of customers could significantly influence the timing and amount of revenue recognized in our historical and future results of operations or financial position.

Reserves for Check Guarantee Losses

In our check guarantee business, if a guaranteed check presented to a merchant customer is dishonored by the check writer’s bank, we reimburse our merchant customer for the check’s face value and pursue collection of the amount from the delinquent check writer. Loss reserves and anticipated recoveries are primarily determined by performing a historical analysis of our check loss and recovery experience and considering other factors that could affect that experience in the future. Such factors include the general economy, the overall industry mix of our customer volumes, statistical analysis of check fraud trends within our customer volumes, and the quality of returned checks. Once these factors are considered, we establish a rate for check losses that is calculated by dividing the expected check losses by dollar volume processed and a rate for anticipated recoveries that is calculated by dividing the anticipated recoveries by the total amount of related check losses. These rates are then applied against the dollar volume processed and check losses, respectively, each month and charged to costs of revenues. The estimated check returns and recovery amounts are subject to risk that actual amounts returned and recovered may be different than our estimates. We had accrued claims payable and accrued claims recoverable balances of $27.4 million and $39.4 million at December 31, 2007 and $30.0 million and $39.4 million at December 31, 2006, respectively.

Historically, such estimation processes have proven to be materially accurate; however, our projections of probable check guarantee losses and anticipated recoveries are inherently uncertain, and as a result, we cannot predict with certainty the amount of such items. Changes in economic conditions, the risk characteristics and composition of our customers, and other factors could impact our actual and projected amounts. We recorded check guarantee losses, net of anticipated recoveries excluding service fees, of $113.8 million and $102.9 million, respectively, for the years ended December 31, 2007 and 2006. A ten percent difference in our estimated gross check guarantee losses and our estimated recoveries as of December 31, 2007 could impact 2007 net earnings by approximately $4.5 million after-tax.

Computer Software

Computer software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. As of December 31, 2007 and 2006, computer software, net of accumulated amortization was $780.7 million and $640.8 million, respectively. 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 and accelerated methods over their estimated useful lives, ranging from 3 to 10 years. In determining useful lives, management considers historical results and technological trends which may influence the estimate. Amortization expense for computer software was $177.8 million, $130.2 million and $91.7 million in 2007, 2006 and 2005, respectively. We also assess the recorded value of computer software for impairment on a regular basis by comparing the carrying value to the estimated future cash flows to be generated by the underlying software asset. There are inherent uncertainties in determining the expected useful life or cash flows to be generated from computer software; however, we have not historically experienced significant changes in these estimates but could be subject such changes in the future.

Goodwill and Other Intangible Assets

We have significant intangible assets that were acquired through business acquisitions. These assets consist of purchased customer relationships, contracts, and the excess of purchase price over the fair value of identifiable net assets acquired (goodwill).

As of December 31, 2007 and 2006, goodwill was $5.3 billion and $3.7 billion, respectively. The process of determining whether or not an asset, such as goodwill, is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Such projections are inherently uncertain and, accordingly, actual future cash flows may differ materially from projected cash flows. In evaluating the recoverability of goodwill, we perform an annual goodwill impairment test on our reporting units based on an analysis of the discounted future net cash flows generated by the reporting units’ underlying assets. Such analyses are particularly sensitive to changes in future business trends and economic conditions which can significantly influence our estimates of future net cash flows and discount rates. Changes to these estimates might result in material changes in the fair value of the reporting units and determination of the recoverability of goodwill potentially leading to charges against earnings and a reduction in the carrying value of our goodwill.

As of December 31, 2007 and 2006, intangible assets, net of accumulated amortization, were $1.0 billion, and consisted primarily of purchased customer relationships and trademarks. The valuation of these assets involves significant estimates and assumptions concerning matters such as customer retention, future cash flows and discount rates. If any of these assumptions change, it could affect the recoverability of the carrying value of these assets. Purchased customer relationships are amortized over their estimated useful lives using an accelerated method which takes into consideration expected customer attrition rates over a ten-year period. All intangible assets that have been determined to have indefinite lives are not amortized, but are reviewed for impairment at least annually in accordance with SFAS No. 142. During 2005, we recorded a pre-tax impairment charge of $9.3 million to write-off the carrying value of customer relationships which were terminated at one subsidiary in the LPS segment. The determination of estimated useful lives and the allocation of the purchase price to the fair values of the intangible assets require significant judgment and may affect the amount of future amortization on the intangible assets other than goodwill. Amortization expense for intangible assets other than goodwill was $168.7 million, $175.6 million and $125.4 million in 2007, 2006 and 2005, respectively. There is an inherent uncertainty in determining the expected useful life or cash flows to be generated from intangible assets. We have not historically experienced significant changes in these estimates but could be subject to them in the future.

Accounting for Income Taxes

As part of the process of preparing the consolidated financial statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included within the consolidated balance sheets. We must then assess the likelihood that deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as an expense within income tax expense in the statement of earnings. Determination of the income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, changes in the geographic mix of revenues or in the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from period to period. We believe that our tax positions comply with applicable tax law and that we adequately provide for any known tax contingencies. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are reasonable. However, final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Comparisons of three month periods ended March 31, 2008 and 2007

Processing and services revenues totaled $1,291.0 million and $1,071.4 million for three month periods ended March 31, 2008 and 2007, respectively, representing an increase of 20.5% in the three month period ended March 31, 2008. The increase in revenue of $219.6 million is primarily due to the inclusion of eFunds in 2008, as well as organic growth. The eFunds Acquisition contributed approximately $141.3 million to the overall increase in revenues. Excluding the impact of the eFunds Acquisition, consolidated revenue growth was $78.2 million, or 7.3%, with the Transaction Processing Services segment experiencing growth in the International revenue channel of $23.6 million, or 17.0%, and the Integrated Financial Solutions revenue channel of $13.8 million, or 4.9%, partially offset by a reduction in the Enterprise Solutions revenue channel of $8.0 million, or 3.4%. Growth in the Lender Processing Services segment of $51.8 million, or 12.6%, was driven primarily by increased demand and market share gains in our Information Services revenue channel, partially offset by a decrease of $6.7 million, or 7.4%, in our Mortgage Information revenue channel. Cost of Revenues
Cost of revenues totaled $928.6 million and $772.4 million for the three months ended March 31, 2008 and 2007, respectively. Consistent with the change in revenues, the increase in cost of revenues of $156.2 million was driven primarily by the eFunds Acquisition, as well as by organic growth in both segments.
Gross Profit
Gross profit as a percentage of revenues (“gross profit margin”) was approximately 28.1% and 27.9% for the three months ended March 31, 2008 and 2007, respectively. The increase in gross profit margin is primarily attributable to revenue growth in the Lender Processing Services segment, which historically has higher margin operations.
Selling , General and Administrative Expenses
Selling, general and administrative expenses totaled $163.6 million and $113.1 million for the three months ended March 31, 2008 and 2007, respectively. The increase of $50.5 million primarily relates to the incremental costs from eFunds, as well as an increase in stock compensation expense to $26.4 million in the three months ended March 31, 2008 compared to $8.5 million in the three months ended March 31, 2007. The $17.9 million increase in stock compensation was driven largely by the accelerated vesting of options held by eFunds employees totaling $14.1 million.
Research and Development Costs
Research and development costs totaled $27.1 million for the three months ended March 31, 2008 and 2007.
Operating Income
Operating income totaled $171.8 million and $158.9 million for the three months ended March 31, 2008 and 2007, respectively. Operating income as a percentage of revenue (“operating margin”) was approximately 13.3% and 14.8% respectively, reflecting the increase in selling, general and administrative expenses and the stock compensation charges noted previously.
Interest Expense
Interest expense totaled $62.4 million and $72.1 million for the three months ended March 31, 2008 and 2007, respectively. The three months ended March 31, 2007 included a $27.2 million charge to record the write-off of capitalized debt issuance costs due to the refinancing of our prior credit facility. Excluding this charge, interest expense increased $17.5 million during the three months ended March 31, 2008 compared to the prior year quarter. The increase is due to the higher average outstanding long-term debt balance, primarily relating to borrowings to fund the eFunds Acquisition, partially offset by a decrease in key interest rates.
Income Tax Expense
Income tax expense totaled $41.0 million and $32.7 million for the three months ended March 31, 2008 and 2007, respectively. This resulted in an effective tax rate of 36.6% and 37.2%, respectively. The decrease in the effective tax rate is primarily due to a higher proportion of foreign source income in the current year.
Net Earnings
Net earnings from continuing operations totaled $68.9 million and $56.4 million for the three month periods ended March 31, 2008 and 2007, respectively, or $0.35 and $0.29 per diluted share, respectively. Net earnings from discontinued operations were $1.6 million (including an after-tax gain on the sale of Credit of $2.5 million) and $3.1 million for the three month periods ended March 31, 2008 and 2007, respectively, or $0.01 per diluted share in each period.

Revenues for the Transaction Processing Services segment are derived from three main revenue channels: Enterprise Solutions, Integrated Financial Solutions and International. Revenues from Transaction Processing Services totaled $826.8 million and $656.0 million for the three months ended March 31, 2008 and 2007, respectively. The overall segment increase of $170.8 million, or 26.0%, for the period was partially attributable to the three months of incremental revenues from eFunds, which contributed approximately $141.3 million to the increase. Excluding the impact of eFunds, the segment growth is a result of organic growth in International and Integrated Financial Solutions, driven primarily by our payment services businesses, including our card operation in Brazil. The decline in Enterprise Solutions revenues results from lower software license sales coupled with lower check volumes in the check risk management business.
Cost of revenues totaled $634.3 million and $507.5 million for the three months ended March 31, 2008 and 2007, respectively. The overall segment increase of $126.8 million, or 25.0%, is primarily the result of incremental costs from eFunds, as well as cost associated with organic growth in International and Integrated Financial Solutions.
Selling, general and administrative expenses totaled $65.2 million and $40.9 million for the three months ended March 31, 2008 and 2007, respectively. The increase in the 2008 period is primarily the result of incremental costs from eFunds, including some duplicative costs as we continue to work towards achieving synergies related to the eFunds Acquisition.
Research and development costs totaled $19.5 million and $17.5 million for the three months ended March 31, 2008 and 2007, respectively.
Operating income totaled $107.9 million and $90.1 million for the three months ended March 31, 2008 and 2007, respectively. Operating margin was approximately 13.0% and 13.7% for the three month periods ended March 31, 2008 and 2007, respectively, reflecting the impact of increased selling, general and administrative expenses driven by the eFunds Acquisition.

Revenues for the Lender Processing Services segment totaled $464.1 million and $412.4 million for the three months ended March 31, 2008 and 2007, respectively. Growth in Lender Processing Services of $51.8 million, or 12.6%, was driven primarily by market share gains and increased levels of mortgage defaults resulting in growth in appraisal and default services, which more than offset declines in our tax and tax deferred property exchange businesses.

Cost of revenues totaled $294.3 million and $264.9 million for the three months ended March 31, 2008 and 2007, respectively. The overall segment increase of $29.4 million, or 11.1%, is primarily due to increasing revenues.
Selling, general and administrative expenses totaled $45.9 million and $42.7 million for the three months ended March 31, 2008 and 2007, respectively. The increase in the 2008 period is primarily attributable to increased labor costs, including sales and customer service.
Research and development costs totaled $7.6 million and $9.6 million for the three months ended March 31, 2008 and 2007, respectively.
Operating income totaled $116.4 million and $95.2 million for the three months ended March 31, 2008 and 2007, respectively. Operating margin was approximately 25.1% and 23.1% for the three months ended March 31, 2008 and 2007, respectively, reflecting expansion of margins in default services, in particular our title, escrow and foreclosure operations.
Corporate and Other
Corporate overhead costs and other operations that are not included in our operating segments are included in Corporate and Other. Selling, general and administrative expenses were $52.5 million and $29.5 million for the three months ended March 31, 2008 and 2007, respectively. The increase is primarily due to an increase in stock compensation of $17.9 million, including $14.1 million related to the acceleration of vesting for stock awards assumed in the eFunds Acquisition, as well as incremental selling, general and administrative costs from eFunds. Corporate expenses also increased due to the inclusion of approximately $2.9 million of costs associated with the planned spin-off of Lender Processing Services, Inc.
Liquidity and Capital Resources
Cash Requirements
Our cash requirements include cost of revenues, selling, general and administrative expenses, income taxes, debt service payments, capital expenditures, systems development expenditures, stockholder dividends, and business acquisitions. Our principal sources of funds are cash generated by operations and borrowings.
At March 31, 2008, we had cash on hand of $328.0 million and debt of approximately $4,179.3 million, including the current portion. We expect cash flows from operations over the next twelve months will be sufficient to fund our operating cash requirements and pay principal and interest on our outstanding debt absent any unusual circumstances such as acquisitions or adverse changes in the business environment.
We currently pay a $0.05 dividend on a quarterly basis, and expect to continue to do so in the future. The declaration and payment of future dividends is at the discretion of the Board of Directors, and depends on, among other things, our investment policy and opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A regular quarterly dividend of $.05 per common share was paid March 27, 2008 to shareholders of record as of the close of business on March 13, 2008.
We intend to limit dilution caused by option exercises, including anticipated exercises, by repurchasing shares on the open market or in privately negotiated transactions. On October 25, 2006, our Board of Directors approved a plan authorizing repurchases of up to an additional $200 million worth of our common stock (the “Old Plan”). During the three months ended March 31, 2008, under the Old Plan we repurchased 245,000 shares of our stock for $9.9 million, at an average price of $40.56. On April 17, 2008, our Board of Directors approved a plan authorizing repurchases of up to $250.0 million worth of our common stock (the “New Plan”). Under the New Plan we repurchased 1,150,000 shares of our stock for $42.7 million, at an average price of $37.12, through May 8, 2008.

CONF CALL

Mary K. Waggoner - Senior Vice President, Investor Relations

Thank you and good afternoon. Joining me today are Executive Chairman, Bill Foley; and Executive from the FIS and LPS management teams.

To facilitate our discussion of second quarter results, and the outlook for the remainder of the year, today's call will be divided into three components; consolidated FIS, FIS on a standalone or post-spin basis, and LPS on a standalone or post-spin basis. Bill Foley will begin with an overview of FIS' consolidated second quarter results on a historical basis. Lee Kennedy, President and CEO of FIS and George Scanlon, Chief Financial Officer will follow with the discussion of FIS on a segment and standalone basis. Then we will open up the lines for approximately 15 minutes to address your questions related to FIS.

Next, we will shift to Lender Processing Services. Jeff Carbiener, CEO and Francis Chan, Chief Financial Officer, will then discuss LPS' second quarter results and full year outlook. We will conclude with a Q&A session to cover LPS.

Our comments today will contain references to non-GAAP and pro forma results, in order to better... in order to provide more meaningful comparisons between the periods presented. Reconciliations between GAAP and non-GAAP results and schedules showing historical detail are provided in the FIS and LPS press releases, and are posted on the respective website. Both companies have included PowerPoint presentations to supplement today's discussion. The presentations are also available on the website.

To facilitate your understanding of the FIS financial report, I'll provide a quick overview of the information provided in the consolidated release. Similar to last quarter, we're providing supplemental information to provide additional clarity. The historical or pre-spin FIS consolidated income statement, balance sheet and cash flow statements are presented on Exhibit A, B and C. Exhibit D includes additional detail on year-over-year comparisons for the quarter, for revenues, depreciation and amortization, and stock compensation expense. Exhibit E provides non-GAAP information along with the financial bridges to GAAP results, for EBITDA, EBIT, net earnings and cash flow. Exhibit F reports results for FIS, assuming that LPS had been discontinued in the second quarter of 2008 in the same format, we used for the 8-K filed last Friday, covering the prior five quarters.

While we continue, I would like to remind you that some of the comments made on today's call will contain forward-looking statements. These statements are subject to the risk and uncertainties described in our earnings release and other filings with the SEC. The company expressly disclaims any duty to update or revise such forward-looking statements, including annual and quarterly guidance.

In addition to being recorded, this call is being webcast live over the internet. Telephone replay information is included in today's press release, and a replay will also be available on the FIS and the LPS website.

Now, I will turn the call over to our Executive Chairman, Bill Foley.

William P. Foley, II - Chairman of Fidelity National Information Services, Inc.

Thanks, Mary. Good afternoon, everyone and thank you for joining us today. I'll keep my remarks brief as we have lot of information to cover, and want to leave adequate time for questions and answers.

FIS delivered another solid revenue and earnings growth quarter, despite continued economic volatility. Consolidated revenue increased 19% to $1.3 billion. Organic revenue, which excludes e-Funds, increased 6.8% driven by 8.2% growth in the Lender Processing Services segment, and 6.6% growth in Transaction Processing Services.

Adjusted EBITDA increased 13%, and the EBITDA margin was 24.8%. Adjusted net earnings from continuing operations was $0.66 per diluted share, an increase of 15.89%. The strong performance of both businesses demonstrates the strength of our operating models, and that the advantage that come from having diverse revenue streams, and a broadly distributed customer base. We're particularly pleased with revenue growth in the quarter and remain encouraged with new sales and renewals, and a healthy sales pipeline.

While the margin was negatively impacted by the revenue mix, declines in certain mortgage origination services, and higher corporate expense, we expect profitability to improve as we continue to build scale and focus on reducing our cost structure. Lee and Jeff will provide more specific details regarding the second quarter performance and the outlook for each of the businesses later in the call.

In the quarter, we repurchased 5.8 million shares for a total cost of $226 million. The remaining authority under the current authorization is $24 million.

Before I turn the call over to Lee, I'll provide a review of our strategic initiatives. As FIS completed the sale of Game Cash on April 1, on July 14, we announced the sale of the Australian Check business, which we expect to complete in the fourth quarter. Lee will provide an update regarding the domestic retail from risk management business, later in the call.

Recently, we successfully launched the Lender Processing Services as a new public company, and we're off to a great start. LPS recently announced the acquisition of the McDash Analytics, which complements our existing portfolio of data and analytic services. Both FIS and LPS are performing well in this very challenging environment. And we expect that trend to continue, having reaffirmed guidance for the remainder of the year.

Now, I'll turn the call over to Lee for a review of FIS' second quarter results. Lee?

Lee A. Kennedy - President and Chief Executive Officer of Fidelity National Information Services, Inc.

Thanks, Bill. Good afternoon, everyone and thanks for joining us today. I'll begin today's FIS business review with a summary of second quarter results, continue with an update on key business initiatives, and finish with comments on our outlook for the reminder of 2008. George Scanlon will follow me, with the second quarter FIS financial report. Jeff Carbiener and Francis Chan will conclude today's prepared remarks, with a review of LPS operating results, and the outlook for the remainder of 2008.

TPS second quarter revenue increased 26.6% over prior year. Excluding e-Funds, organic revenue increased 6.6%. EBITDA increased 26%, and the EBITDA margin was 24.9%. Second quarter term fees were $9 million below prior year. Excluding term fees, organic revenue grew 8% and the EBITDA margin increased 90 basis points over prior year.

Term fees for the first and second quarters were $2.2 million, compared to $14.8 million for the same period last year, demonstrating excellent retention of our customer base. FIS adjusted net earnings came in at $0.36 per diluted share. The strong organic revenue growth was driven by 34.2% increase in international and a 4.5% increase in IFS, our community institutions business, partially offset by a 7.3% decline in EBS. The strong increase in international revenue was skewed by excellent new sales in Europe, with Middle East and Asia-Pacific.

Our Brazilian card processing operation also generated excellent growth. This was the first full quarter of processing for ABN which converted to our base 2000 platform in late March. The organic growth rate of the Brazilian card market remains very strong. Bradesco and ABN added over 2 million new cards during the quarter. This record increase was in part driven by a significant increase in new account issuance by ABN following its successful conversion to our new Brazilian card platform.

As of the end of the quarter, we were processing for 27 million cards, about 50% of which are active, which is well ahead of plan.

Enterprise banking solutions revenue declined 7.3%, compared to prior year, which was in line with our expectations. The decrease was driven primarily by an $11 million year-over-year decline in software and professional services related to the completion of the first phase of the BoA touch point project and lowered check risk management volumes. Net of these two items, EBS core bank processing revenue was neutral to prior year. We expect year-over-year EBS growth rates to improve as comps moderate in the second half of the year. Overall, FIS achieved solid organic growth across all major core and payment processing channels.

Our community in international business continued to generate solid new sales with long-term contracts. The vast majority of our core processing and payment services contracts are multi-year resulting in over 86% of our total revenue being repetitive and reoccurring. Our outlook for bank technology spending has not changed from the first quarter. Our sales pipelines are still strong and with the exception of longer sale cycles for some of our U.S. software products; all product lines are generating excellent solid new sales.

We are encouraged with the strength of our overseas businesses. During the quarter, we signed significant core processing deals with three leading global banks including Government Savings Bank in Thailand, National Bank of Pakistan, which is Pakistan's largest Bank, and Augsburger Bank, which is one of Germany oldest and largest direct banks.

Second quarter U.S. sales were also strong. During the quarter, we signed comprehensive core processing agreements with Commerzbank, which has an asset base of $50 billion, a New York Community Bank which has assets of $30 billion and is the nation's fourth largest thrift institution. New York Community Bank, which will convert its three holding company banks to a single FIS core processing solution, is currently operating on three different competitive core processing platforms. All the five core processing fields covered today with significant competitive wins for our company.

The integration of e-Funds remains on schedule, and we're making good progress in achieving $35 million in cost savings for 2008. We're also on track to achieve $65 million in cost synergies by the end of 2009. Our e-Funds prepaid card business is performing well, and is now profitable. We've make good progress in boarding new customers and we are in the process of converting American Express' prepaid card portfolio to our operating platform. Overall, e-Funds is meeting our expectations, and we are confident that the acquired new product capability and increased scale has strengthened our competitive position.

We continue to focus on improving overall operating efficiencies and reducing capital usage. The new organization structure implemented earlier this year has enabled us to better leverage sales, support, and development resources, across business unit lines and geographies. It has helped us close sales that we might not have closed in the past. Commerzbank and New York Community Bank are good examples of this. It has also enabled us to reduce and better leverage capital spending.

Second quarter capital expenditures totaled $52 million, compared to $75 million in the first quarter. Year-to-date capital expenditures are tracking in line with our full year guidance, which was a 10% improvement over prior year.

Before I turn the call over to George, I'll provide an update on the strategic review of our retail check business. The sale of our gaming business was completed on April 1st, and as Bill mentioned, we expect to complete the sale of our Australian check risk management business in the fourth quarter. We have completed the marketing process for our remaining check risk management business. This business generated approximately $275 million of revenue in 2007, and is expected to generate $260 million in 2008.

Although, it reduces our overall growth rate, it generates smarter margins, good EBITDA and requires low capital investment. While we were encouraged with the strong interest in this business, the offers received were substantially less than what we believe the business is worth. As a result, we've decided that the sales at this time would generate more earnings dilution than we are willing to accept. Therefore, we will continue to operate the business for the foreseeable future and we will revaluate our options when market conditions improved.

We are pleased with the progress that we're making in our domestic and international businesses, and especially with the success that we're having in increasing the organic growth rate and cash flow of our company. Although it is clearly a difficult market, the significant new sales wins covered today provide additional visibility into 2009 and demonstrate that our sales, product, and development teams are performing well and that there is continuing solid demand for our product and services. Based on what we know today, we remain confident that the revenue and pre-tax earnings guidance communicated at our May investor day.

Although we are pleased with the strength of the second quarter results, the market remain challenging and we are not prepared at this time to increase our revenue and pre-tax earnings guidance for the remainder of the year.

I will now turn the call over to George for the second quarter financial results. George?

George Scanlon - Executive Vice President and Chief Financial Officer of Fidelity National Information Services, Inc.

Thank you, Lee and good afternoon everybody. As you know, we successfully completed the spin-off of LPS on July 2. We are acquired under accounting and disclosure rules to report LPS in our continuing operations at June 30th, which as the numbers reflected in the press release. As both companies are now operating independently, we also wanted to provide additional information to set the new foundation for understanding FIS operating results on a post-spin basis.

Last Friday, we filed an 8-K to provide investors with a pro forma look as FIS assuming LPS was treated as a discontinued operation to the prior five quarters. Because the rules for discontinued accounting in the assumptions used in the carve out of LPS in our investor day presentations, we also provided a reconciliation back to the information we shared with you that day. The principal differences relate to the treatment of interest and corporate expenses, which are not fully allocable to discontinued operations and remain with FIS through June 30th.

The slides I will use today to discuss our quarterly performance will be based on the assumption that LPS is treated as a discontinued operation for the quarter ended June 30th. We recognize the complexity of our reporting this quarter. We are hopeful that the information we provide will improve you understanding of FIS on a post-spin basis and unable you to improve your analysis. As Mary mentioned, similar to last quarter, we're also providing slides to better enable you to follow my commentary. These slides are available on our website for easy reference.

I'll start with a couple of housekeeping items on page four. Consistent with our first quarter earnings report, Property Insight, which was sold in the third quarter of 2007 and three businesses sold or discontinued during the first half of 2008; FIS credit services, Certegy Game Cash and Home Financial Network are in all and will continue to be reported as discontinued operations by FIS. Beginning in the third quarter, both LPS and Certegy Australia will be reported as discontinued operations in accordance with GAAP.

Financial results of Certegy Australia, the sale of which is expected to close in the fourth quarter of this year, are included in continuing operations for purposes of today's discussion, while LPS results are excluded to improve comparability for the separate companies.

If you not turn the page five, we will discuss the second quarter financial results for post-spin FIS, which follow the format introduced on investor day. Second quarter revenue totaled $867.2 million, which is a 26.6% increase compared to the prior year quarter. e-Funds revenue of $137.2 million was in line with our expectations. Excluding e-Funds FIS revenue increased by 6.6% over the prior year and improved sequentially from the 4.5% growth rate we experienced in Q1 of '08. For comparative purposes, my comments pertaining to segment growth will exclude revenue from e-Funds.

International revenue increased 34.2% to $192.3 million, fueled by strong growth in our core banking operations and our card business. The increase in card revenue in our Brazilian joint venture was driven by conversion of ABN AMRO in late March and augmented by strong new card issuances during the quarter. Higher account volumes in our European processing operation together with increased license and services revenue in key markets contributed to the increase in core banking.

IFS revenue totaled $310.6 million, an increase of 4.5% compared to the second quarter of 2007, driven by growth across all major product lines. As Lee indicated, termination fees declined by $9 million compared to the 2007 quarter, the result of decreased consolidation activity, and strong customer retention. We have been asked by some of you to discuss the magnitude of termination fees to our quarterly results, and I added footnote one to the page to illustrate the impact.

During the second quarter, we only had $1.6 million in term fees, in comparison to $10.6 million last year. So, if you normalize results, and exclude the impact of these term fees, IFS actually grew an exceptionally strong 7.9% this quarter. On average for FIS termination fees, account for less than 1% of consolidated revenue in any given year, and totaled $18.9 million in all of 2007. To date through June 30, we have realized only $2.2 million year-to-date this year.

Enterprise revenue declined 7.3%, to $227.4 million in the second quarter. It's important to note that aside from the $11.2 million in revenue associated with last year's Banc of America touch point implementation, EBS core bank processing and services revenue is actually comparable to the first quarter of 2008 and the prior year quarter. Year-over-year comparisons were also negatively affected, as revenue from our check risk management business declined by approximately $6 million, compared to the prior year.

The corporate other revenue line is new this quarter, and is comprised primarily of the managed operations or outsourced data processing services that we are providing to Fidelity National Financial. As discussed at our investor day, this revenue stream which was included with Lender Processing Services under the previous reporting structure is now part of FIS.

Moving on to EBITDA, on page six, TPS EBITDA increased 25.9% to $216.1 million. The margin was 24.9%, compared to 25.1% in the prior year quarter, and 23.6% in Q1 of this year. Progress we made in reducing our cost structure is somewhat overshadowed by the lower termination fees, which carry a 100% margin. Growth in lower margin businesses including international, which is currently running in the low teens and to a lesser degree, pricing. Excluding the impact of term fees, margins would have been 24.8% in Q2 '08, compared to 23.9% in Q2 '07.

Corporate other includes corporate overhead and our IT infrastructure, which supports our operations, and those of Fidelity National Financial. Corporate overhead included in this line was $33.4 million in the Q2 '08, compared with $23.8 million in Q2 '07. The increase is principally associated with higher stock option expense, and incentive accruals as well as the impact of the Leasing Group, whose assets were sold in the third quarter of last year. For the balance of the year, we expect corporate overhead to average $25 million for Q3 and Q4.

Total depreciation and amortization was $97.9 million, versus $87 million in the second quarter of 2007, and was down slightly from the first quarter of 2008. We are expecting D&A to trend modestly higher in the third and fourth quarters, above the Q1 rate, as fully depreciated yet functional equipment remains in service for a longer period of time. Our strategy of more fully utilizing existing equipment is enabling us to reduce incremental capital spending.

EBIT grow 29.6% over the prior quarter, and improved from the 19.8% growth in Q1 '08.

Now, on to adjusted net earnings on page seven. Second quarter adjusted net earnings for standalone FIS totaled $70.8 million, or $0.36 per diluted share, compared to $0.29 in the 2007 quarter, and $0.28 in the first quarter of 2008. As indicated, adjusted net earnings exclude after tax integration, restructuring and spin related costs totaling $24.1 million, which were relatively higher this quarter, due to the restructuring and spin-off. Adjusted net earnings also exclude after tax purchase amortization of $23.1 million.

Finally, we made adjustments for interest and corporate expenses, which were allocated to LPS in their carve out financials, but under GAAP had to remain with the parent under accounting for discontinued operations. I will reconcile this for you in a few minutes when we discuss guidance for the balance of the year.

Effective tax rate in Q2 and year-to-date was 32.5%. And average outstanding shares were 194.4 million. The tax rate reflects the benefit of lower international tax rates, and certain other adjustments. Tax rate for the second half of the year for FIS is expected to approximate 35%, and we're working on strategies to lower that.

Moving on to the balance sheet and free cash flow; as shown on page eight; free cash flows which is defined as operating cash flow minus capital expenditures, the $102 million year-to-date 2008.

Capital expenditures in the second quarter totaled $52 million. The $27 million decline compared to the first quarter of 2008, is attributable to a reduction in international, principally associated with the ABN implementation in Brazil, and a continued focus on reducing non-strategic capital investments. We anticipate CapEx to increase in Q3, associated with e-Funds integration investment, and then decline in Q4, to below Q2 levels, and expect to meet our guidance for CapEx of between $240 million and $250 million for the year.

During the quarter, we paid $9.5 million in shareholder dividends, and repurchased $5.8 million shares for a total investment of $226 million. No debt repayments were made this quarter.

As indicated on page nine, FIS had approximately $4.3 billion in outstanding debt at June 30, at a weighted average effective rate at quarter-end including swaps of 5.9%. Also included is the amortization of upfront debt costs.

In conjunction with the July 2nd spin-off of LPS, we retired the remaining $1.585 billion in term B debt, resulting in a current outstanding balance of $2.7 billion for FIS on a standalone basis. In connection with the retirement of this debt, we will write-off approximately $8.2 million after tax in debt origination costs in the third quarter. Our weighted average interest rate after the retirement of the Series B debt will approximate 6.3%. In the third quarter, we will make scheduled debt repayments of $13 million and at September we'll also draw against the revolver to repay $200 million in notes from the Certegy merger that are maturing and carrying a fixed rate of 4.75%.

Turning to page 10, before we discuss guidance for the balance of the year, I wanted to make sure we were at the same starting point. At our investor day presentation, as some of the parts analysis, demonstrated how the guidance for the separated LPS and FIS entities equaled the consolidated earnings guidance we had established earlier this year. You may recall that for FIS, we showed adjusted earnings per share of $1.23 for 2007, with an expected range of $1.48 to $1.54 for 2008.

The accounting rules for discontinued operations do not permit the full allocation of interest or corporate expenses to LPS. So, FIS will reflect those expenses in its continuing operations through June 30. These expenses have been allocated to FIS in their pro forma statements that Jeff and Francis will discuss later. We need to adjust our GAAP reported numbers for these amounts. As you can see, we have reconciled back to the $1.23 for 2007 and have provided the adjustments for the first and second quarters of 2008.

For comparative purposes, the correct amounts to use for 2008 are earnings per diluted share of $0.28 and $0.36 for the second quarters respectively. As illustrated on page 11, the adjusted the corporate expense, also impacted the EBITDA margin in 2007. Accordingly, the relevant starting point is 24.6%.

Now, I'll discuss our outlook for the remainder of the year as presented on page 12. As stated in today's press release, due solely to a lower than anticipated tax rate, we are revising our previously reported adjusted net earnings guidance of $1.48 to $1.54 per diluted share for full year 2008, to $1.51 to $1.57 per diluted share.

Our assumptions include full year organic revenue growth of 4% to 6%, to imply that year-to-date average growth continues throughout the second half of 2008. We are projecting free cash flow of $315 million to $345 million, based on the current earnings guidance, and reiterate that capital expenditures will be within the $240 million to $250 million level. This guidance excludes after-tax adjustments of approximately $30 million in M&A, restructuring and integration costs, $18 million associated with the spin-off of OPS including retaining, corporate cost of $12.6 million and the $8.2 million write-down of debt insurance cost we will record in Q3.

That concludes our prepared remarks for FIS. Now, we will open the line for questions on FIS standalone results before continuing with the LPS portion of the call.

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