SEC CORRESPONDENCE LEETER
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Woody Woodall
SVP, Chief Accounting Officer and Controller
601 Riverside Avenue
Jacksonville, Florida 32204
Telephone: (904) 527-4093
e-mail: woody.woodall@fnis.com |
April 8, 2009
Via Edgar
Mr. H. Christopher Owings
Assistant Director
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: File No. 1-16427
Dear Mr. Owings:
We hereby submit the following responses to the comment letter dated March 27, 2009, from the Staff
(the Staff) of the Securities and Exchange Commission (the Commission) relating to the Forms
10-K and 10-K/A of Fidelity National Information Services, Inc. for the fiscal year ended December
31, 2008. To assist your review, we have retyped the text of those comments below.
Your letter instructed us to comply with the comments in all future filings, as applicable. We
hereby confirm that we intend to comply as indicated in our responses below:
Form 10-K/A for the Fiscal Year Ended December 31, 2008
Item 3. Legal Proceedings, page 15
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With respect to the case Searcy, Gladys v. eFunds Corporation, please identify the
court in which this case is pending. With respect to the cases discussed under the
sub-heading Drivers Privacy Protection Act, please disclose the date these cases were
instituted. Please refer to Item 103 of Regulation S-K. |
The Company notes the Staffs comment and has addressed the Staffs comment in the draft disclosure
provided below. The Company will provide similar disclosure in its future filings.
Drivers Privacy Protection Act
A putative class action lawsuit styled Richard Fresco, et al. v. Automotive Directions, Inc. et
al., was filed against eFunds and seven other non-related parties in the U.S. District Court for
the Southern District of Florida during the second quarter of 2003. The complaint alleged that
eFunds purchased motor vehicle records that were used for marketing and other purposes that are not
permitted under the Federal Drivers Privacy Protection Act (DPPA). The plaintiffs sought
statutory damages, plus costs, attorneys fees and injunctive relief. eFunds and five of the other
seven defendants settled the case with the plaintiffs. That settlement was approved by the court
over the objection of a group of Texas drivers and motor vehicle record holders. The plaintiffs
have since moved to amend the courts order approving the settlement in order to seek a greater
attorneys fee award and to recover supplemental costs. In the meantime, the objectors filed two
class action complaints styled Sharon Taylor, et al. v. Biometric Access Company et al and
Sharon Taylor, et al. v. Acxiom et al in the U.S. District Court for the Eastern District
of Texas during the first quarter of 2007 alleging similar violations of the DPPA. The Acxiom
action was filed against the Companys ChexSystems, Inc. subsidiary, while the Biometric suit was
filed against the Companys Certegy Check Services, Inc. subsidiary. The judge recused himself in
the action against Certegy because he was a potential member of the class. The lawsuit was then
assigned to a new judge and Certegy filed a motion to dismiss. The court granted Certegys motion
to dismiss with prejudice in the third quarter of 2008. ChexSystems filed a motion to dismiss or
stay its action based upon the earlier settlement and the Court granted the motion to stay pending
resolution of the Florida case. The court dismissed the ChexSystems lawsuit with prejudice against
the remaining defendants in the third quarter of 2008. The plaintiffs moved the court to amend the
dismissal to exclude defendants that were parties to the Florida settlement. That motion was
granted. The plaintiffs then appealed the dismissal. The plaintiffs appeals of the dismissals in
both lawsuits are pending.
Searcy, Gladys v. eFunds Corporation
This is a nationwide putative class action that was originally filed against eFunds Corporation and
its affiliate Deposit Payment Protection Services, Inc. in the U.S. District Court for the Northern
District of Illinois during the first quarter of 2008. The complaint alleges willful violation of
the Fair Credit Reporting Act (FCRA) in connection with the operation of the Shared Check
Authorization Network (SCAN). Plaintiffs principal allegation is that consumers did not receive
appropriate disclosures pursuant to §1681g of the FCRA because the disclosures did not include: (i)
all information in the consumers file at the time of the request; (ii) the source of the
information in the consumers file; and/or (iii) the names of any persons who requested information
related to the consumers check writing history during the prior year. The Company is vigorously
defending the matter.
Item 7. Managements Discussion and Analysis of Financial Condition and Results. .page 18
Business Trends and Conditions, page 19
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We noted your discussion of certain business trends and conditions that you are
currently facing. Please discuss in reasonable detail the actions you are taking to
address these business trends and economic conditions. Also, we note in the first risk
factor on page 10 that you are sensitive to the level of consumer transactions generated by
your customers, and that your revenues could be impacted negatively by the current
recession or any other event causing a material slowing of consumer spending. Please
discuss the actions you are taking to address these risks. |
The Company notes the Staffs comment and has addressed the Staffs comment in the draft disclosure
provided below. The Company will provide similar disclosure in its future filings.
A significant portion of our revenue is derived from transaction processing fees. As a result, the
level of deposit and card transactions can affect our business and thus the condition of the
overall
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economy can have an effect on our growth. In light of current economic conditions, we are seeking
to manage our costs and capital expenditures prudently. We reduced both domestic headcount and
capital expenditures in 2008 from 2007 levels.
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 goal of these offerings continues to be
convenience and security for the consumer coupled with value to the financial institution. At the
same time, the use of checks continues to decline as a percentage of total point-of-sale payments.
We have announced that we are considering strategic alternatives for our remaining check
businesses, although no assurance can be given as to whether or when any disposal transaction or
other change with respect to those businesses will be accomplished.
In many of the businesses of our Financial Solutions 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, which help moderate the effects of year to year economic changes on our results of
operations. Generally, demand for outsourcing solutions has increased over time as service
providers such as us realize economies of scale and improve their ability to provide services that
improve customer efficiencies and reduce costs.
Consolidation within the banking industry may be beneficial or detrimental to our 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. While it is difficult to mitigate
the risks of consolidations, we seek to do so through offering competitive services and trying to
take advantage of situations on a case by case basis depending on the specific opportunities at the
combined company.
We believe that we are facing one of the most difficult times that has ever existed for financial
institutions, retailers and other businesses in the United States and internationally. We expect
there to be a significant number of bank failures in the next few years, which may be offset to a
degree by somewhat decreased bank acquisition activity. However, we believe that our potential
exposure to bank failures and forced government actions that have occurred to date is less than one
half of one percent of our revenues. Additionally, this exposure does not consider any incremental
revenues we may generate from potential license fees or service associated with assisting surviving
institutions with integrating acquired assets resulting from financial failures. In the current
economy, we believe customers may turn more to outsourcing as a means to reduce fixed costs and
gain a competitive edge. However, although we have lately seen an increase in requests for
outsourcing proposals, it is not yet certain how many of these requesting
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financial institutions will move forward with their potential projects given current economic
conditions. Financial institutions may defer upgrades or other outsourcing projects until
conditions improve. We believe that software sales will be the most at risk as far as purchases
that financial institutions may defer, because in general they tend to be more discretionary than
outsourcing projects. However, software sales represent approximately 5% of our revenues and thus
any decrease should not have a significant impact on our results of operations. We are addressing
the foregoing trends and business conditions in part by managing our costs and capital
expenditures, as described above, and by ensuring that the pricing and quality of our services
continue to deliver value for our existing and potential customers.
While we believe that we are well positioned to withstand the current financial crisis, there are
factors outside our control that might impact our operating results that we may not be able to
fully anticipate as to timing and severity, including but not limited to adverse effects if banks
are nationalized, continued global economic conditions worsen, causing further slowdowns in
consumer spending and lending, and the impact on our ability to access capital should any of our
lenders fail.
Liquidity and Capital Resources, page 25
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We note your statement in the first risk factor on page 14 that some of the lenders
that are parties to your credit agreement and interest rate swap agreements have failed.
Please discuss the effect, if any, that these failures have had on your credit agreements,
your liquidity, operations, and your ability to access your credit line. Also, please
discuss the actions, if any, you are taking to minimize the risk of future defaults by
parties to your credit and interest rate swap agreements. |
The Company notes the Staffs comment and has addressed the Staffs comment in the draft disclosure
provided below. The Company will provide similar disclosure in its future filings.
As of December 31, 2008, one financial institution that was a party to our credit facility failed,
thereby reducing the amount available to us under our credit facility by an immaterial amount. No
other financial institutions that were a party to our credit facility or our interest rate swap
agreements have failed to date. The Company continues to monitor the financial stability of its
counterparties on an ongoing basis. The lenders under our credit facility are a diversified set of
financial institutions both domestic and international. Concentration has increased due to recent
consolidation with the top 10 lenders thereunder having about 60% of the overall facility. The
loss of any single participant would not adversely impact the Companys ability to fund operations.
The revolving facility is bifurcated into two tranches each with a distinct group of lenders and
the Company retains capacity under both tranches. If the single largest lender were to default
under the terms of the credit agreement, the maximum loss of liquidity on the undrawn portion of
the revolver would be about $66 million.
Off-Balance Sheet Arrangements, page 27
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We note your statement that you do not have any material off-balance sheet arrangements
other than operating leases. Please disclose if these operating leases have had or are
reasonably likely to have a current or future effect that is material |
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to investors on your financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources and if so, please provide the
disclosures required under Item 303(a)(4) of Regulation S-K. |
The Company notes the Staffs comment and notes that the operating leases mentioned here are the
obligations already included in the disclosure in both our contractual obligations table and
Footnote 17 to our Consolidated Financial Statements. These obligations are ordinary operating
leases of buildings and equipment and not the type of off-balance sheet arrangement that is
required to be disclosed under Item 303(a)(4). As a result, the Company will remove the reference
to them in this disclosure in future filings.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks, page 29
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Please present summarized market risk information for the preceding fiscal year.
Please discuss any material quantitative changes in market risk exposures between the
current and preceding fiscal years and the reasons for any material changes. Please see
Item 305(a)(3) of Regulation S-K. |
As discussed with the Staff, the Company has recently entered into a merger agreement with
Metavante Technologies, Inc. (MV). This large transaction will undoubtedly have a significant
impact on the Companys market risks. As a result, as discussed with the Staff, the Company is not
providing sample revised disclosure for comments 5 and 6.
However, the Company confirms that in its future Form 10-K disclosure it will present summarized
market risk information for the previous year, as well as the required disclosure for the current
year, and further will discuss material quantitative changes in market risk exposures and the
reasons for any material changes.
If the Company had included such disclosure in its 2008 Form 10-K, the principal changes in market
risk exposures would have been in its outstanding debt, which was reduced by approximately $1.6
billion as a result of the Companys spin-off of its subsidiary LPS in July 2008, and in related
interest rate swaps. Also, the Companys foreign currency exposures increased due to growth in its
non-U.S. operations.
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Please provide a description of the model, assumptions and parameters you used when you
assessed your exposure to hypothetical changes in interest rates and foreign currency
exchange rates. Please refer to Item 305(a)(1)(ii)(B) of Regulation S-K and Instruction
3(F) to Paragraph 305(a). |
The Companys only material market risk sensitive instruments at the present time with respect to
interest rate risk are its debt and related interest rate swaps, all of which are denominated in
U.S. dollars. The carrying amounts of the Companys trade receivables and trade payables
approximate their fair value. The Company will disclose that it has performed a sensitivity
analysis to show the effects on its pre-tax earnings of a reasonably possible near term change in
applicable interest rates, but not less than a 10% change. The Company will clarify that it is
performing the sensitivity analysis based on the principal amount of its floating rate debt as of
year end, less the principal amount of any such debt that is then subject to an interest rate swap
converting such debt into fixed rate debt. This disclosure will make clear that the Company has
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not taken into account any mid-year changes that occurred in the current year in the amount of
outstanding debt or in the notional amount of outstanding interest rate swaps in respect of its
debt. The Company further will make clear that in its sensitivity analysis, the change in interest
rates is assumed to be applicable for an entire year. For comparative purposes the same analysis
will be presented for the prior year as well.
The Company has no material market risk sensitive instruments that are exposed to foreign currency
exchange risks. The Companys exposure to foreign currency exchange risks arises instead from its
non-U.S. operations generally, to the extent they are conducted in local currency. The Company
will disclose the foregoing, and further to the extent material will conduct and describe the
results of a sensitivity analysis with respect to its revenues and pre-tax earnings in foreign
currency. The Company will disclose that it has performed this analysis by applying a reasonably
possible near term change in its applicable exchange rates (but at least equal to a 10% change in
all rates), to its current year revenues and earnings (and prior year revenues and earnings, for
comparative purposes) denominated in currencies other than U.S dollars. The Company will explain
that it has assumed a simultaneous and immediate change in rates to the assumed extent (e.g. a 10%
decline) and that such change is applicable for the entire period presented. If the Company has
then entered into any derivative financial instrument to hedge its foreign currency exposure, the
Company will explain how it has treated the hedge in its analysis.
Interest Rate Risk, page 29
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We note your statement that [a] one percent increase in the LIBOR rate would increase
our annual debt service on the Credit Agreement by $3.9 million (based on principal amounts
outstanding at December 31, 2008, net of interest rate swaps). Please clarify if this is
the effect on your annual debt service after you calculate your interest swap transactions.
If it does not include your interest swap transactions, please disclose quantitative
market risk disclosure with respect to your interest rate swaps. |
The Company notes the Staffs comment and confirms that this is the effect on our annual debt
service after we calculate the impact of our interest rate swap transactions. The Company will
clarify the disclosure as described above in the response to comment 6.
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Please discuss your policies, if any, to manage your foreign exchange rate risk such as
under what circumstances you would consider entering into transactions to hedge your risk,
and the type of instruments you would use. If you have no policies to manage your foreign
exchange rate risk, please so state. Please refer to Item 305(b) of Regulation S-K. |
The Company does not have an established policy or procedure to manage foreign exchange rate risk
at this time and will state that fact in future filings. As our international operations grow, we
will evaluate the need to implement foreign exchange rate risk management policies, and we are
currently analyzing our operations and related foreign currency risk. If we implement a policy,
the policy will be disclosed in future filings with the Commission. If a policy were established
to manage foreign exchange rate risk, the Company would consider hedging both fair value and
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cash flow exposures using derivatives such as foreign currency forward contracts, collars and other
types of option contracts to minimize foreign exchange rate risk.
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We note that you used a 5% change in average exchange rates to calculate the
sensitivity of your revenues to a change in exchange rates. Instruction 3A to Item 305(a)
of Regulation S-K indicates registrants should use changes that are not less than 10% of
end of period market rates or prices in their sensitivity analysis. Please provide the
effect that a 10% change in exchange rates would have on your revenues or advise why you
are not required to do so. Please see Instruction 3A to Item 305(a) of Regulation S-K. |
A 10% change in average exchange rates for these currencies would have had the following effect on
2008 reported revenues:
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Impact on |
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Revenues in U.S. |
Currency |
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Dollars |
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(Millions) |
Real |
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26.0 |
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Euro |
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20.0 |
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Pound Sterling |
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8.0 |
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Total Impact |
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54.0 |
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To the extent that the Company is subject to foreign exchange risk for foreign currency-denominated
transactions in the future, it will select hypothetical changes in market rates or prices that are
not less than 10% of end of period market rates or prices to disclose as set forth above the
reasonably possible near-term changes in those rates and prices.
Item 9A. Controls and Procedures, page 68
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We note your conclusion of management regarding the effectiveness of your disclosure
controls and procedures summarized the definition of disclosure controls and procedures.
Please simply state, if true, that the officers concluded that your disclosure controls and
procedures are effective. Alternatively, please revise your conclusion to include the full
definition of disclosure controls and procedures as outlined in Exchange Act Rule 13a-15(e)
rather than the summarized definition you include now. In this regard, please state, if
true, whether the same officers concluded the controls and procedures were effective to
ensure that information required to be disclosed by [you] in the reports that [you] file
or submit under the Act is recorded, processed, summarized and reported, within the time
periods specified in the Commissions rules and forms and to ensure that information
required to be disclosed by [you] in the reports that [you] file or submit under the Act is
accumulated and communicated to [your] management, including [your] principal executive and
principal financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure. Additionally, please confirm to us
that your conclusion regarding effectiveness would not change had these statements been
included in the filing. |
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The Company notes the Staffs comment and has addressed the Staffs comment in the conclusion of
management provided below. The Company will provide this disclosure in its future filings.
As of the end of the year covered by this report, the Company carried out an evaluation, under the
supervision and with the participation of its principal executive officer and principal financial
officer, of the effectiveness of the design and operation of its disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. Based on this
evaluation, the Companys principal executive officer and principal financial officer concluded
that the disclosure controls and procedures were effective to ensure that information required to
be disclosed by the Company in the reports that we file or submit under the Act is: (a) recorded,
processed, summarized and reported, within the time periods specified in the Commissions rules and
forms; and (b) accumulated and communicated to management, including our principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required
disclosure.
We confirm that our conclusions regarding effectiveness of disclosure controls and procedures as
of the end of the year covered by our report would not have changed had the above statements been
included in the filing.
Further, we acknowledge that:
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the Company is responsible for the adequacy and accuracy of the disclosure in
the filings; |
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Staff comments or changes to disclosure in response to Staff comments do not
foreclose the Commission from taking any action with respect to the filings; and |
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the Company may not assert Staff comments as a defense in any proceedings
initiated by the Commission or any person under the federal securities laws of the
United States. |
We would appreciate receiving any further comments at the Staffs earliest possible convenience.
If you should have any questions or comments regarding this letter, please contact Woody Woodall at
(904) 527-4093.
Very truly yours,
/s/ James W. Woodall
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