Business Context and Reporting Period
This Form 8-K, dated January 31, 2006 (filed February 6, 2006), reports the consummation of a business combination between Certegy Inc. (the registrant) and Fidelity National Information Services, Inc. ("Former FIS"). The merger closed on February 1, 2006. For accounting purposes, the transaction is treated as a reverse acquisition of Certegy by Former FIS. Consequently, the registrant changed its name to "Fidelity National Information Services, Inc." and its NYSE trading symbol from "CEY" to "FIS."
Key Financial Metrics and Capital Structure
The filing details significant changes to the company's capital structure and debt obligations resulting from the merger:
- Debt Obligations: The registrant joined Former FIS's senior credit facilities, which include an $800 million Term Loan A, a $2.0 billion Term Loan B, and a $400 million revolving credit facility. The aggregate principal balance of the Term Loan Facilities is approximately $2.55 billion as of the report date.
- Interim Financing: A $250 million unsecured interim term loan was secured from SunTrust Bank on January 31, 2006, to fund a special dividend and transaction expenses. This loan was repaid on February 1, 2006, using proceeds from the senior credit facility and cash on hand.
- Dividend: A special cash dividend of $3.75 per share, totaling approximately $236.4 million, was declared and paid to shareholders of record prior to the merger closing.
- Equity Issuance: The registrant issued 127,919,995 shares of common stock to Former FIS stockholders in exchange for their Former FIS shares (conversion rate: 0.6396 shares of registrant stock for each Former FIS share).
- Financial Covenants: The credit facilities impose a maximum senior secured leverage ratio starting at 5.35:1 (Q3 2005) and reducing to 2.75:1 by Q4 2012. Interest coverage ratios must be at least 2.75:1, rising to 4.25:1 by Q4 2012.
Note: This filing does not provide specific revenue, net income, or operating cash flow figures for the combined entity; these are referenced in attached exhibits (99.33, 99.34, 99.35) but not detailed in the text of the 8-K.
Material Changes Versus Prior Period
The primary material change is the completion of the merger, resulting in a change of control. Former FIS stockholders, including Fidelity National Financial, Inc. ("FNF"), now own approximately 67.4% of the registrant's outstanding common stock, with FNF owning approximately 50.7%. The registrant terminated its previous revolving credit facility with SunTrust Bank and its Annual Incentive Plan. Additionally, the board of directors was reconstituted, increasing from 8 to 10 members, with a majority designated by Former FIS stockholders.
Guidance, Outlook, and Risks
Management Commentary and Outlook: The filing focuses on the structural integration of the two companies rather than forward-looking financial guidance. Management has entered into extensive intercompany agreements with FNF and its subsidiary, Fidelity National Title Group, Inc. ("FNT"), covering corporate services, IT services, software licensing, and real estate leases. These agreements are designed to allocate costs and services on an arms-length basis.
Risks and Contingencies:
- Debt Covenants: The company is subject to strict financial covenants regarding leverage and interest coverage. Failure to meet these could result in accelerated payments or termination of lender commitments.
- Related Party Transactions: The company relies on FNF and FNT for various services (IT, corporate support, title plant access) and software licenses. While terms are negotiated at arms-length, the company's operations are interdependent with these affiliates.
- Tax Liability: Under the Tax Matters Agreement, the registrant could be liable for federal income taxes allocated to FNF if FNF fails to pay, though FNF has agreed to indemnify the registrant.
- Capital Expenditures: The credit facilities restrict capital expenditures to $200 million for the fiscal year ending in 2005, rising to $250 million by 2010.
Important Facts for Investor Verification
- Verify the pro forma financial data (Exhibit 99.35) to understand the combined entity's revenue and earnings power, as the 8-K text does not contain these figures.
- Confirm the specific terms of the $2.8 billion credit facility, particularly the amortization schedule and the impact of the 5.35:1 leverage ratio on future borrowing capacity.
- Review the intercompany agreements (Exhibits 99.12 through 99.32) to assess the cost structure and dependency on FNF/FNT for critical IT and corporate services.
- Monitor the repayment of the $250 million interim loan, which was satisfied immediately upon closing, and the subsequent drawdown of the senior credit facilities.
- Check the stock incentive plans (Amended and Restated Certegy Plan and assumed FIS Plan) for potential dilution, noting the total authorized shares under the Certegy plan are 14,598,182.