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SEC Filings

10-Q
WORLDPAY, INC. filed this Form 10-Q on 05/03/2019
Entire Document
 
Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
Commission File Number: 001-35462 
 
 
 
Worldpay, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
26-4532998
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
8500 Governor’s Hill Drive
Symmes Township, OH 45249
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(513) 900-5250
 
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x
As of March 31, 2019, there were 311,218,093 shares of the registrant’s Class A common stock outstanding.

 
 
 
 
 
 
 
 
 
 



WORLDPAY, INC.
FORM 10-Q
 
For the Quarterly Period Ended March 31, 2019
 
TABLE OF CONTENTS
 
 
Page
 
 

2
 
 
 


NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and any statements of a general economic or industry specific nature, are forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “continue,” “could,” “should,” “can have,” “likely,” or the negative or plural of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe, based on information currently available to our management, may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the “Risk Factors” section of this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to publicly update any forward-looking statement after the date of this report, whether as a result of new information, future developments or otherwise, or to conform these statements to actual results or revised expectations, except as may be required by law.


3
 
 
 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Worldpay, Inc.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Unaudited
(In millions, except share data)
 


 
Three Months Ended March 31,
 
 
2019
 
2018
Revenue
 
$
970.0

 
$
850.7

Sales and marketing
 
290.9

 
266.0

Other operating costs
 
181.0

 
155.1

General and administrative
 
127.4

 
250.1

Depreciation and amortization
 
264.4

 
207.2

Income (loss) from operations
 
106.3

 
(27.7
)
Interest expense—net
 
(72.1
)
 
(75.2
)
Non-operating income (expense)
 
3.5

 
(8.6
)
Income (loss) before applicable income taxes
 
37.7

 
(111.5
)
Income tax (benefit)
 
(0.4
)
 
(13.2
)
Net income (loss)
 
38.1

 
(98.3
)
Less: Net (income) loss attributable to non-controlling interests
 
(1.7
)
 
0.7

Net income (loss) attributable to Worldpay, Inc.
 
$
36.4

 
$
(97.6
)
Net income (loss) per share attributable to Worldpay, Inc. Class A common stock:
 
 
 
 
Basic
 
$
0.12

 
$
(0.36
)
Diluted
 
$
0.12

 
$
(0.36
)
Shares used in computing net income (loss) per share of Class A common stock:
 
 
 
 

Basic
 
302,046,241

 
274,098,480

Diluted
 
303,876,967

 
274,098,480



See Notes to Unaudited Consolidated Financial Statements.


4
 
 
 


Worldpay, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited
(In millions)
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net income (loss)
 
$
38.1

 
$
(98.3
)
Other comprehensive income (loss), net of tax:
 
 

 
 

Gain on hedging activities and foreign currency translation
 
170.3

 
22.0

Comprehensive income (loss)
 
208.4

 
(76.3
)
Less: Comprehensive (income) attributable to non-controlling interests
 
(9.7
)
 
(0.4
)
Comprehensive income (loss) attributable to Worldpay, Inc.
 
$
198.7

 
$
(76.7
)
 
See Notes to Unaudited Consolidated Financial Statements.


5
 
 
 


Worldpay, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(In millions, except share data) 
 
March 31,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
107.9

 
$
196.5

Accounts receivable—net
1,710.2

 
1,694.8

Settlement assets and merchant float
4,964.0

 
3,132.3

Prepaid expenses
83.1

 
80.0

Other
538.9

 
526.1

Total current assets
7,404.1

 
5,629.7

  Property, equipment and software—net
1,093.3

 
1,074.1

  Intangible assets—net
2,983.5

 
3,127.8

  Goodwill
14,302.0

 
14,137.9

  Deferred taxes
1,283.7

 
789.9

  Other assets
220.6

 
129.1

Total assets
$
27,287.2

 
$
24,888.5

Liabilities and equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
1,147.1


$
1,188.7

Settlement obligations
5,680.2

 
3,723.6

Current portion of notes payable
219.3


225.7

Current portion of tax receivable agreement obligations
71.4


73.1

Deferred income
29.5

 
25.1

Current maturities of finance lease obligations
23.2

 
22.7

Other
647.4

 
630.3

Total current liabilities
7,818.1

 
5,889.2

Long-term liabilities:
 

 
 

Notes payable
7,269.3

 
7,622.1

Tax receivable agreement obligations
890.2

 
590.8

Finance lease obligations
28.4

 
34.3

Deferred taxes
469.9

 
473.7

Other
199.4

 
74.4

Total long-term liabilities
8,857.2

 
8,795.3

Total liabilities
16,675.3

 
14,684.5

Commitments and contingencies (See Note 9 - Commitments, Contingencies and Guarantees)
 
 
 
Equity:
 

 
 

Class A common stock, $0.00001 par value; 890,000,000 shares authorized; 311,218,093 shares outstanding at March 31, 2019 and 300,454,590 shares outstanding at December 31, 2018

 

Class B common stock, no par value; 100,000,000 shares authorized; no shares issued and outstanding at March 31, 2019 and 10,252,826 shares issued and outstanding at December 31, 2018

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding

 

Paid-in capital
10,679.6

 
10,135.3

Retained earnings
629.5

 
593.1

Accumulated other comprehensive (loss) income
(568.9
)
 
(731.2
)
Treasury stock, at cost; 3,573,308 shares at March 31, 2019 and 3,574,553 shares at December 31, 2018
(138.7
)
 
(142.8
)
Total Worldpay, Inc. equity
10,601.5

 
9,854.4

Non-controlling interests
10.4

 
349.6

Total equity
10,611.9

 
10,204.0

Total liabilities and equity
$
27,287.2

 
$
24,888.5


See Notes to Unaudited Consolidated Financial Statements.

6
 
 
 


Worldpay, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In millions)
 
Three Months Ended March 31,
 
2019
 
2018
Operating Activities:
 

 
 

Net income (loss)
$
38.1

 
$
(98.3
)
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization expense
264.4

 
207.2

Amortization of customer incentives
7.9

 
6.2

Amortization and write-off of debt issuance costs
2.1

 
59.9

Gain on foreign currency forward

 
(35.9
)
Share-based compensation expense
33.0

 
17.2

Deferred tax benefit
(2.5
)
 
(25.3
)
Tax receivable agreements non-cash items
(2.0
)
 
(3.6
)
Other
23.8

 
30.4

Change in operating assets and liabilities:
 
 
 
Accounts receivable
(7.4
)
 
14.0

Net settlement assets and obligations
(136.6
)
 
(12.2
)
Prepaid and other assets
4.9

 
(30.2
)
Accounts payable and accrued expenses
(42.0
)
 
(17.1
)
Other liabilities
(17.5
)
 
(28.2
)
Net cash provided by operating activities
166.2

 
84.1

Investing Activities:
 

 
 

Purchases of property and equipment
(83.2
)
 
(34.1
)
Acquisition of customer portfolios and related assets and other
(4.8
)
 
(37.1
)
Proceeds from foreign currency forward

 
71.5

Cash acquired in acquisitions, net of cash used

 
1,405.8

Net cash (used in) provided by investing activities
(88.0
)
 
1,406.1

Financing Activities:
 

 
 

Proceeds from issuance of long-term debt

 
2,140.0

Borrowings on revolving credit facility
2,127.0

 
1,476.0

Repayment of revolving credit facility
(1,931.0
)
 
(1,701.0
)
Repayment of debt and finance lease obligations
(582.3
)
 
(1,662.2
)
Payment of debt issuance costs

 
(86.8
)
Proceeds from issuance of Class A common stock under employee stock plans
7.0

 
7.6

Repurchase of Class A common stock (to satisfy tax withholding obligations)
(12.8
)
 
(11.2
)
Settlement and payments under certain tax receivable agreements
(28.2
)
 
(80.9
)
Distributions to non-controlling interests
(2.3
)
 
(5.6
)
Net cash (used in) provided by financing activities
(422.6
)
 
75.9

Net (decrease) increase in cash and cash equivalents
(344.4
)
 
1,566.1

Cash and cash equivalents—Beginning of period
2,581.3

 
1,272.2

Effect of exchange rate changes on cash
10.1

 
31.1

Cash and cash equivalents—End of period
$
2,247.0

 
$
2,869.4

Cash Payments:
 

 
 

Interest
$
59.3

 
$
58.2

Income taxes
13.6

 
0.6

Non-cash Items:
 
 
 
Issuance of tax receivable agreements
$
327.9

 
$


See Notes to Unaudited Consolidated Financial Statements.


7
 
 
 


Worldpay, Inc.
CONSOLIDATED STATEMENT OF EQUITY
Unaudited
(In millions)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Other
 
Non-
 
Total
 
Class A
 
Class B
 
Treasury Stock
 
Paid-in
 
Retained
 
Comprehensive
 
Controlling
 
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Interests
Beginning Balance, January 1, 2019
$
10,204.0

 
300.5

 
$

 
10.3

 
$

 
3.6

 
$
(142.8
)
 
$
10,135.3

 
$
593.1

 
$
(731.2
)
 
$
349.6

Net income
38.1

 

 

 

 

 

 

 

 
36.4

 

 
1.7

Issuance of Class A common stock under employee benefit trust and employee benefit plans, net of forfeitures
7.0

 
0.6

 

 

 

 
(0.2
)
 
16.9

 
(9.9
)
 

 

 

Repurchase of Class A common stock (including to satisfy tax withheld obligation)
(12.8
)
 
(0.2
)
 

 

 

 
0.2

 
(12.8
)
 

 

 

 

Issuance of Class A common stock and cancellation of Class B common stock in connection with Fifth Third Stock sale

 
10.3

 

 
(10.3
)
 

 

 

 

 

 

 

Issuance of tax receivable agreements
174.9

 

 

 

 

 

 

 
174.9

 

 

 

Unrealized gain on hedging activities and foreign currency translation, net of tax
170.3

 

 

 

 

 

 

 

 

 
162.3

 
8.0

Distribution to non-controlling interests
(2.3
)
 

 

 

 

 

 

 

 

 

 
(2.3
)
Share-based compensation
32.7

 

 

 

 

 

 

 
31.9

 

 

 
0.8

Reallocation of non-controlling interests of Worldpay Holding due to change in ownership

 

 

 

 

 

 

 
347.4

 

 

 
(347.4
)
Ending Balance, March 31, 2019
$
10,611.9

 
311.2

 
$

 

 
$

 
3.6

 
$
(138.7
)
 
$
10,679.6

 
$
629.5

 
$
(568.9
)
 
$
10.4


See Notes to Unaudited Consolidated Financial Statements.


8
 
 
 


Worldpay, Inc.
CONSOLIDATED STATEMENT OF EQUITY
Unaudited
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Other
 
Non-
 
Total
 
Class A
 
Class B
 
Treasury Stock
 
Paid-in
 
Retained
 
Comprehensive
 
Controlling
 
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Interests
Beginning Balance, January 1, 2018
$
600.6

 
162.6

 
$

 
15.3

 
$

 
2.9

 
$
(83.8
)
 
$
55.4

 
$
558.0

 
$
2.9

 
$
68.1

Cumulative effect of accounting change
22.3

 

 

 

 

 

 

 

 
22.3

 

 

Net loss
(98.3
)
 

 

 

 

 

 

 

 
(97.6
)
 

 
(0.7
)
Issuance of Class A common stock for acquisition
10,429.4

 
134.4

 

 

 

 

 

 
10,429.4

 

 

 

Issuance of Class A common stock under employee stock plans, net of forfeitures
7.6

 
0.5

 

 

 

 

 

 
7.6

 

 

 

Repurchase of Class A common stock including (including to satisfy tax withholding obligation)
(11.2
)
 
(0.1
)
 

 

 

 
0.1

 
(11.2
)
 

 

 

 

Settlement of certain tax receivable agreements
8.2

 

 

 

 

 

 

 
8.2

 

 

 

Unrealized gain on hedging activities, and foreign currency translation, net of tax
22.0

 

 

 

 

 

 

 

 

 
20.9

 
1.1

Distribution to non-controlling interests
(5.6
)
 

 

 

 

 

 

 

 

 

 
(5.6
)
Share-based compensation
17.2

 

 

 

 

 

 

 
16.3

 

 

 
0.9

Reallocation of non-controlling interests of Worldpay Holding due to change in ownership

 

 

 

 

 

 

 
(486.1
)
 

 

 
486.1

Ending Balance, March 31, 2018
$
10,992.2

 
297.4

 
$

 
15.3

 
$

 
3.0

 
$
(95.0
)
 
$
10,030.8

 
$
482.7

 
$
23.8

 
$
549.9

 
See Notes to Unaudited Consolidated Financial Statements.


9
 
 
 


Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Worldpay, Inc., a Delaware corporation, is a holding company that conducts its operations through its majority-owned subsidiary, Worldpay Holding, LLC (“Worldpay Holding”). Worldpay, Inc. and Worldpay Holding are referred to collectively as the “Company,” “Worldpay,” “we,” “us” or “our,” unless the context requires otherwise.

On January 16, 2018, the Company completed the acquisition of all of the outstanding shares of Worldpay Group Limited, formerly Worldpay Group plc, a public limited company (“Legacy Worldpay”). Following the acquisition, the Vantiv, Inc. (“Legacy Vantiv”) name was changed to Worldpay, Inc. by amending our Second Amended and Restated Certificate of Incorporation. The effective date of the name change was January 16, 2018.

Worldpay is a leader in global payments providing a broad range of technology-led solutions to its clients to allow them to accept payments of almost any type, across multiple payment channels nearly anywhere in the world. The Company serves a diverse set of merchants including mobile, online and in-store, offering over 300 payment methods in 126 transaction currencies across 146 countries, while supporting various clients including large enterprises, corporates, small and medium sized businesses and eCommerce businesses. The Company operates in three reportable segments: Technology Solutions, Merchant Solutions and Issuer Solutions. For more information about the Company’s segments, refer to Note 13 - Segment Information. The Company markets its services through diverse distribution channels, including multiple referral partners.

Merger with Fidelity National Information Services (“FIS”)

On March 18, 2019, Worldpay and Fidelity National Information Services, Inc. (“FIS”) issued a joint press release announcing that Worldpay, FIS and Wrangler Merger Sub, Inc., a wholly-owned subsidiary of FIS (“Merger Sub”), entered into an agreement and plan of merger, dated March 17, 2019 (the “Merger Agreement”), pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Worldpay (the “Merger”), with Worldpay being the surviving corporation in the Merger and continuing as a wholly-owned subsidiary of FIS.

At the effective time of the Merger (“Effective Time”), which is expected to occur in the third quarter of 2019, each share of the Class A common stock of Worldpay, par value $0.00001 per share (“Worldpay Class A Common Stock”), issued and outstanding immediately prior to the Effective Time, except for certain shares of Worldpay Class A Common Stock identified in the Merger Agreement, will be converted into the right to receive 0.9287 shares (the “Exchange Ratio”) of common stock, par value $0.01 per share, of FIS (“FIS Common Stock” and, such shares, the “Share Consideration”) and $11.00 in cash (the “Cash Consideration” and, together with the Share Consideration, the “Merger Consideration”). The shares of FIS Common Stock to be issued in the Merger will be listed on The New York Stock Exchange (“NYSE”). Following the consummation of the Merger, FIS shareholders will own approximately 53 percent and Worldpay shareholders will own approximately 47 percent of the combined company. The Merger Consideration (as of the date the Merger Agreement was executed) valued Worldpay at an enterprise value of approximately $43 billion, including the assumption of Worldpay debt, which FIS expects to refinance.

Completion of the Merger is subject to the satisfaction or waiver of customary closing conditions for both parties, including receipt of required regulatory and shareholder approvals and other customary closing conditions.

In connection with the proposed Merger, on April 12, 2019, FIS filed a preliminary registration statement on Form S-4 with the SEC that became available on the SEC’s Edgar system on April 15, 2019.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include those of Worldpay, Inc. and all subsidiaries thereof, including its majority-owned subsidiary, Worldpay Holding, LLC. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated.


10
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2019, Worldpay, Inc. owned 100% interest in Worldpay Holding (see Note 8 - Controlling and Non-Controlling Interests for changes in non-controlling interests) as a result of Fifth Third Bank’s (“Fifth Third”) sale of its remaining interest in Worldpay Holding discussed below.

Fifth Third Stock Sale

In March 2019, Fifth Third exchanged its remaining 10.3 million Class B units in Worldpay Holding for 10.3 million shares of the Company’s Class A common stock and subsequently sold those 10.3 million shares of Worldpay, Inc. Class A common stock pursuant to Rule 144 promulgated under the Securities Act of 1933 as amended (“Fifth Third Stock Sale”). The Company did not receive any proceeds from the sale.

As a result of the March 2019 Fifth Third exchange of units of Worldpay Holding, the Company recorded an estimated additional liability under the Fifth Third Tax Receivable Agreement (“TRA”) of $327.9 million and an estimated additional deferred tax asset of $502.8 million associated with the increase in the tax basis. The Company recorded an estimated corresponding increase to paid-in-capital of $174.9 million for the difference in the TRA liability and the related deferred tax asset.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Expenses

Set forth below is a brief description of the components of the Company’s expenses:

Sales and marketing expense primarily consists of compensation, commissions and benefits paid to sales personnel, sales management and other sales and marketing personnel, amortization of capitalized commission fees, payments made to multiple referral partners, and advertising and promotional costs.

Other operating costs primarily consist of compensation and benefits paid to operational and IT personnel, costs associated with operating the Company’s technology platform and data centers, information technology costs for processing transactions, product development costs, software fees, maintenance costs, occupancy costs and consulting costs.

General and administrative expenses primarily consist of compensation and benefits paid to executive management and administrative employees, including finance, human resources, product, legal and risk management, share-based compensation costs, office equipment, occupancy costs and consulting costs.

Non-operating income (expense) primarily consists of other income and expense items outside of the Company’s operating activities.

Share-Based Compensation

The Company expenses employee share-based payments under ASC 718, Compensation—Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model. The fair value of shares issued as restricted stock, performance awards and under the Employee Stock Purchase Plan (“ESPP”) is measured based on the market price of the Company’s stock on the grant date.


11
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the three months ended March 31, 2019 and 2018 total share-based compensation expense was $33.0 million and $17.2 million, respectively.

Earnings per Share

Basic earnings per share is computed by dividing net income attributable to Worldpay, Inc. by the weighted average shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Worldpay, Inc., adjusted as necessary for the impact of potentially dilutive securities, by the weighted-average shares outstanding during the period and the impact of securities that would have a dilutive effect on earnings per share. See Note 11 - Net Income Per Share for further discussion.

Dividend Restrictions

The Company does not intend to pay cash dividends on its Class A common stock in the foreseeable future. Worldpay, Inc. is a holding company that does not conduct any business operations of its own. As a result, Worldpay, Inc.’s ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends and distributions and other transfers from Worldpay Holding. The amounts available to Worldpay, Inc. to pay cash dividends are subject to the covenants and distribution restrictions in its subsidiaries’ loan agreements. As a result of the restrictions on distributions from Worldpay Holding and its subsidiaries, essentially all of the Company’s consolidated net assets are held at the subsidiary level and are restricted as of March 31, 2019.

Income Taxes

Income taxes are computed in accordance with ASC 740, Income Taxes, and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made. As of March 31, 2019 and December 31, 2018, the Company recorded valuation allowances against deferred tax assets of $12.6 million related to net operating losses.

The Company’s consolidated interim effective tax rate is based upon expected annual income before applicable taxes, statutory tax rates and tax laws in the various jurisdictions in which the Company operates. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs.

The Company’s global effective tax rates were (1.1)% and 11.8% respectively, for the three months ended March 31, 2019 and 2018 and include the impact of the excess tax benefit relating to share-based compensation being recorded in income tax expense. The global effective tax rate for each period reflects the impact of the Company’s non-controlling interests not being taxed at the statutory U.S. corporate tax rates.

Cash and Cash Equivalents

Cash on hand and investments with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents. The Company has restricted cash held in money market accounts, which approximate fair value and are a level 1 input in the fair value hierarchy.


12
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company includes restricted cash in the cash and cash equivalents balance reported in the Consolidated Statements of Cash Flows. The reconciliation between cash and cash equivalents in the Consolidated Statements of Financial Position and the Consolidated Statements of Cash Flows is as follows (in millions):


March 31,
2019
 
March 31,
2018
Cash and cash equivalents on Consolidated Statements of Financial Position

$
107.9

 
$
459.4

Other restricted cash (other current assets)

474.9

 
515.7

Merchant float (in settlement assets and merchant float)

1,664.2

 
1,894.3

Total cash and cash equivalents per the Consolidated Statements of Cash Flows

$
2,247.0

 
$
2,869.4



Property, Equipment and Software—net

Property, equipment and software consists of the Company’s facilities, furniture and equipment, software, land and leasehold improvements. Facilities, furniture and equipment and software are depreciated on a straight-line basis over their respective useful lives, which are 15 to 40 years for the Company’s facilities and related improvements, 2 to 10 years for furniture and equipment and 3 to 8 years for software. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvement which is 3 to 10 years or the term of the lease. Also included in property, equipment and software is work in progress consisting of costs associated with software developed for internal use which has not yet been placed in service. Accumulated depreciation as of March 31, 2019 and December 31, 2018 was $585.7 million and $540.9 million, respectively.

The Company capitalizes certain costs related to computer software developed for internal use and amortizes such costs on a straight-line basis over an estimated useful life of 5 to 8 years. Research and development costs incurred prior to establishing technological feasibility are charged to operations as such costs are incurred. Once technological feasibility has been established, costs are capitalized until the software is placed in service.

Goodwill and Intangible Assets

In accordance with ASC 350, Intangibles—Goodwill and Other, the Company tests goodwill for impairment for each reporting unit on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value. The Company performed its most recent annual goodwill impairment test for all reporting units as of July 31, 2018 using market data and discounted cash flow analyses. Based on this analysis, it was determined that the fair value of all reporting units was substantially in excess of the carrying value. There have been no other events or changes in circumstances subsequent to the testing date that would indicate impairment of these reporting units as of March 31, 2019.

Intangible assets consist of acquired customer relationships, trade names, customer portfolios and related assets that are amortized over their estimated useful lives. The Company reviews finite lived intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. As of March 31, 2019, there have been no such events or circumstances that would indicate potential impairment of finite lived intangible assets.

Settlement Processing Assets and Obligations and Merchant Float

Settlement assets and obligations and merchant float represent intermediary balances arising from the settlement process which involves the transferring of funds between card issuers, merchants and Sponsoring Members. Funds are processed under two models, a sponsorship model and a direct member model. In the United States, the Company operates under the sponsorship model and outside the United States the Company operates under the direct membership model.


13
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Under the sponsorship model, in order for the Company to provide electronic payment processing services, Visa, MasterCard and other payment networks require sponsorship by a member clearing bank. The Company has an agreement with various banks and financial institutions, (the “Sponsoring Member”) to provide sponsorship services to the Company. Under the sponsorship agreements, the Company is registered as a Visa Third-Party Agent and a MasterCard Service Provider. The sponsorship services allow us to route transactions under the Sponsoring Members' membership to clear card transactions through MasterCard, Visa and other networks. Under this model, the standards of the payment networks restrict us from performing funds settlement and as such require that these funds be in the possession of the Sponsoring Member until the merchant is funded. Accordingly, settlement assets and obligations resulting from the submission of settlement files to the network or cash received from the network in advance of funding the network are the responsibility of the Sponsoring Member and are not recorded on the Company’s Consolidated Statements of Financial Position.

In the United States, settlement assets and obligations are recorded by the Company related to the Issuer Solutions business when funds are transferred from the Company to the Sponsoring Member for settlement prior to receiving funds from the financial institution customer or funds are received from the financial institution customer prior to transferring funds to the Sponsoring Member for settlement. These timing differences result in a settlement asset or obligation. The amounts are generally collected or paid the following business day.

Settlement assets and obligations are also recorded in the United States as result of intermediary balances due to/from the Sponsoring Member. The Company receives funds from certain networks which are owed to the Sponsoring Member for settlement. In other cases the Company transfers funds to the Sponsoring Member for settlement in advance of receiving funds from the network. These timing differences result in a settlement asset or obligation. The amounts are generally collected or paid the following business day. Additionally, U.S. settlement assets and obligations arise related to interchange expenses, merchant reserves and exception items.

Under the direct membership model, the Company is a direct member in Visa, MasterCard and other various payment networks as third party sponsorship to the networks is not required. This results in the Company performing settlement between the networks and the merchant and requiring adherence to the standards of the payment networks in which the Company is a direct member. Settlement assets and obligations result when the Company submits the merchant file to the network or when funds are received by the Company in advance of paying the funds to a different entity or merchant. The amounts are generally collected or paid the following business day.

Merchant float represents surplus cash balances the Company holds on behalf of its merchant customers when the incoming amount from the card networks precedes when the funding to customers falls due. Such funds are held in a fiduciary capacity, and are not available for the Company to use to fund its cash requirements.

Derivatives

The Company accounts for derivatives in accordance with ASC 815, Derivatives and Hedging. This guidance establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the Consolidated Statements of Financial Position at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, the change in the fair value of the derivative will be recorded in accumulated other comprehensive income (loss) (“AOCI”) and will be recognized in the statement of income when the hedged item affects earnings. Additionally, the Company’s net investment hedges, which act as economic hedges of the Company’s net investments in its foreign subsidiaries, are recorded in AOCI. The Company does not enter into derivative financial instruments for speculative purposes. See Note 7 - Derivatives and Hedging Activities for further discussion.

Visa Europe and Contingent Value Rights

During June 2016, Legacy Worldpay disposed of its ownership interest in Visa Europe to Visa, Inc. In connection with the disposal, the Company agreed to pay the Legacy Worldpay owners 90% of the net-of-tax proceeds from the disposal, pending the resolution of certain historical claims and the finalization of the proceeds from disposal. The proceeds from the disposal (primarily restricted cash) and the related liability to former owners are recorded in other current assets and other current liabilities, respectively, in the Company’s Consolidated Statements of Financial Position.


14
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Foreign Currencies

For operations outside the United States that prepare financial statements in currencies other than the U.S. dollar, results of operations and cash flows are translated at average exchange rates during the period and assets and liabilities are translated at spot exchange rates at the end of the period. Foreign currency translation adjustments are included as a separate component of accumulated other comprehensive income (loss) in total equity. The effects of changes in exchange rates between the designated functional currency and the currency in which a transaction is denominated are recorded as foreign currency transaction gains (losses) in the Consolidated Statements of Income and Comprehensive Income and were immaterial for the three months ended March 31, 2019 and 2018.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). This ASU amends the existing guidance by requiring the recognition of all leases, including operating leases, on the balance sheet as right of use asset and lease liability and disclosing key information about the lease arrangements. The Company adopted this ASU on January 1, 2019 using the modified retrospective approach with no cumulative effect on retained earnings. See Note 3 - Leases for more information.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this ASU as of January 1, 2019 with an immaterial impact on the Company’s Consolidated Financial Statements. See Note 7 - Derivatives and Hedging Activities for more information.

In August 2018, the SEC issued a final rule amending certain of its disclosure requirements. This rule eliminates or simplifies redundant or outdated disclosure requirements. The rule also requires companies to present changes in shareholders’ equity on a quarterly basis for both current and prior year periods.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This ASU is effective for the annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
    
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU presents new methodology for calculating credit losses on financial instruments (e.g. trade receivables) based on expected credit losses and expands the types of information companies must use when calculating expected losses. This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

2. REVENUE RECOGNITION

In May 2014, the FASB issued ASU 2014-09, Revenue From Contracts With Customers (Topic 606) (“ASC 606”). ASC 606 supersedes the revenue recognition requirements in Accounting Standard Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.


15
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company adopted ASC 606 on January 1, 2018, using the modified retrospective method. The new standard requires the Company to disclose the accounting policies in effect prior to January 1, 2018, as well as the policies it has applied starting January 1, 2018. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a service or goods to a customer.

Periods commencing January 1, 2018

The Company has contractual agreements with its customers that set forth the general terms and conditions of the relationship including line item pricing, payment terms and contract duration. Revenue is recognized when the performance obligation under the terms of the Company’s contract with its customer is satisfied. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generates revenue primarily by processing electronic payment transactions. Set forth below is a description of the Company’s revenue by segment.

Technology Solutions

Technology Solutions provides merchant acquiring, payment processing and related services to a diverse set of merchants that primarily accept payments through eCommerce and integrated payment solutions.

Merchant Solutions

Merchant Solutions provides merchant acquiring, payment processing and related services to a diverse set of merchants that primarily accept payments through an omni-channel solution including terminal based.

Issuer Solutions

Issuer Solutions provides card issuer processing, payment network processing, fraud protection and card production to a diverse set of financial institutions, including regional banks, community banks, credit unions and regional personal identification number (“PIN”) networks.

Performance Obligations

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies performance obligations for each promise to transfer to the customer a good or service that is distinct. The Company’s performance obligation relating to its payment processing services revenue is to provide continuous access to the Company’s system to process as much as its customers require. Since the number or volume of transactions to be processed is not determinable at contract inception, the Company’s payment processing services consist of variable consideration under a stand ready service of distinct days of service that are substantially the same with the same pattern of transfer to the customer. As such, the stand-ready obligation is accounted for as a single-series performance obligation whereby the variability of the transaction value is satisfied daily as the performance obligation is performed.

The Company’s payment processing services include all aspects of payment processing, including authorization and settlement, customer service, chargeback and retrieval processing, reporting for electronic payment transactions and network fee and interchange management.

The Company’s products and services consists of, but are not limited to, foreign currency management, payment card industry regulatory compliance services, payment security (e.g. tokenization, encryption and fraud services), chargeback resolution, billing statement production (e.g. reporting and analytics), card production, and card-processing equipment sales. An evaluation is performed to determine whether or not these are separate performance obligations from payment processing. Once the performance obligations are identified, the total estimated transaction value is allocated based on a stand-alone selling price. Revenue from products and services is recognized at a point in time or over time depending on the products or services. Chargeback resolution services, card production and equipment sales are generally recognized at a point in time while most other performance obligations are billed and recognized over the contract period as the services are performed.


16
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As a result of adopting ASC 606, the Company records certain fees paid to third parties, including network fees and other costs, as a reduction of revenue. The adoption of ASC 606 did not have a material impact on any other line items of the Company’s Consolidated Statements of Income, Statements of Comprehensive (Loss) Income, Statements of Financial Position, Statements of Equity and Statements of Cash Flows.

Disaggregation of Revenue

In the following table, revenue is disaggregated by source of revenue (in millions):

 
 
Three Months Ended March 31, 2019
 
 
Technology Solutions
 
Merchant Solutions
 
Issuer Solutions
 
Total
Major Products and Services (1)
 
 
 
 
 
 
 
 
Processing services
 
$
284.0

 
$
361.3

 
$
46.2

 
$
691.5

Products and services
 
143.3

 
98.1

 
37.1

 
278.5

Total
 
$
427.3

 
$
459.4

 
$
83.3

 
$
970.0


 
 
Three Months Ended March 31, 2018
 
 
Technology Solutions
 
Merchant Solutions
 
Issuer Solutions
 
Total
Major Products and Services (1)
 
 
 
 
 
 
 
 
Processing services
 
$
230.1

 
$
340.0

 
$
46.8

 
$
616.9

Products and services
 
106.3

 
92.2

 
35.3

 
233.8

Total
 
$
336.4

 
$
432.2

 
$
82.1

 
$
850.7


(1) 
Revenue breakdown is based on management’s view and certain products and services revenue may be based on the number or volume of transactions.

Processing Services

Processing services revenue is primarily derived from processing credit and debit card transactions comprised of fees charged to businesses for payment processing services. The fees charged consist of a percentage of the transaction value, a specified fee per transaction, a fixed fee, or a combination.

Products and Services

Products and services revenue is primarily derived from ancillary services such as treasury management and foreign exchange, regulatory compliance, chargebacks and fraud services for which the fees charged may or may not be related to the volume or number of transactions.

Costs to Obtain and Fulfill a Contract

ASC 606 requires capitalizing costs of obtaining a contract when those costs are incremental and expected to be recovered. Since incremental commission fees paid to sales teams as a result of obtaining contracts are recoverable, the Company recorded a $28.8 million ($22.3 million net of deferred taxes) cumulative catch-up capitalized asset on January 1, 2018. As of March 31, 2019 and December 31, 2018, the amount capitalized as contract costs is $42.4 million and $39.3 million, respectively, which is included in other non-current assets.

In order to determine the amortization period for sales commission contract costs, the Company applied the portfolio approach for “like-kind contracts” to which sales compensation earnings can be applied and allocated incentive payments to each portfolio accordingly. The Company evaluated each individual portfolio to determine the proper length of time over which the capitalized incentive should be amortized by analyzing customer attrition rates using historical data and other metrics.


17
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The Company determined that straight-line amortization would best correspond to the transfer of services to customers since services are transferred equally over time and have limited predictable volatility. The amortization periods range from 3 to 10 years and are based on the expected life of a customer. During the three months ended March 31, 2019 and 2018, the amount of amortization was $2.6 million and $2.5 million, respectively, which is recorded in sales and marketing expense. There was no impairment loss in relation to the costs capitalized.

The Company recognizes incremental sales commission costs of obtaining a contract as expense when the amortization period for those assets is one year or less per the practical expedient in ASC 606. These costs are included in sales and marketing expense.

Customer incentives represent signing bonuses paid to customers. Customer incentives are paid in connection with the acquisition or renewal of customer contracts, and are therefore deferred and amortized using the straight-line method based on the expected life of the customer. As of March 31, 2019 and December 31, 2018, the Company had $75.8 million and $71.5 million, respectively, of customer incentives included in other assets in the Company’s Consolidated Statements of Financial Position. For the three months ended March 31, 2019, and 2018, the Company had $7.9 million and $6.2 million, respectively, of amortization expense related to these costs recorded as contra-revenue in the Company’s Consolidated Statements of Income.

The Company capitalizes conversion costs associated with enabling customers to receive its processing services. As of March 31, 2019 and December 31, 2018, the Company had $56.5 million and $51.7 million, respectively, of capitalized conversion costs included in Intangible assets - net in the Company’s Consolidated Statements of Financial Position. For the three months ended March 31, 2019, and 2018, the Company had, $3.2 million and $0.9 million, respectively, of amortization expense related to these costs, which is recorded in depreciation and amortization expense in the Company’s Consolidated Statements of Income. These costs are amortized over the average life of the customer.

Contract Balances

Accounts Receivable-net

Accounts receivable primarily represent processing revenues earned but not collected. For a majority of its customers, the Company has the authority to debit the client’s bank accounts; as such, collectibility is reasonably assured. Aside from debiting a client’s bank account, the Company collects a majority of its revenue via net settlement with the remaining portion collected via billing the customer. The Company records a reserve for doubtful accounts when it is probable that the accounts receivable will not be collected. The Company reviews historical loss experience and the financial position of its customers when estimating the allowance. As of March 31, 2019 and December 31, 2018, the allowance for doubtful accounts was not material to the Company’s Consolidated Statements of Financial Position.

Contract Liabilities

Contract liabilities, which relate to advance consideration received from customers (deferred income) before transfer of control occurs and therefore revenue is recognized, is not material to the Company’s Consolidated Financial Statements.

Remaining Performance Obligations

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as permitted by ASC 606, the Company has elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As discussed above, the Company’s core performance obligation consists of variable consideration under a stand-ready series of distinct days of service and revenue from the Company’s products and service arrangements are generally billed and recognized as the services are performed. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

18
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


3. LEASES

The Company adopted ASU 2016-02, Leases, on January 1, 2019. Accounting Standards Codification Topic 842, Leases (“ASC 842”) amends previous lease guidance under ASC 840 by requiring the recognition of all leases, including operating leases, on the balance sheet as right of use asset (“ROU”) and the present value (“PV”) lease liability, as well as disclosing key information about the lease arrangements. The Company elected to adopt ASC 842 using the modified retrospective transition approach using the effective date method, which results in the recognition of lease assets and liabilities as of the beginning of the period of adoption without requiring restatement of the prior period financials presented, so comparable periods presented in the Consolidated Financial Statements prior to January 1, 2019 continue to be presented under ASC 840.

At adoption, the Company elected the package of practical expedients in the guidance which consists of not reassessing whether any expired or existing contracts contain leases, not reassessing the lease classification for any expired or existing leases and not reassessing initial direct costs for any existing leases. The Company, however, did not elect the separate hindsight practical expedient.
    
Since most of the Company’s operating lease contracts do not provide an implicit rate, the Company made a policy election to use an incremental borrowing rate applicable to the geographic location of the leased asset and based on the remaining lease term in determining the present value of future minimum lease payments for purposes of recognizing a lease liability and corresponding ROU asset. Additionally, the Company made an accounting policy election to not recognize an ROU asset and lease liability for short-term leases with an initial term of 12 months or less.

The Company has various lease agreements for office space and land which are classified as operating leases and for equipment which is classified as finance leases. The operating lease agreements typically contain lease and non-lease components, which are accounted for separately since the Company is able to easily identify the applicable lease components. Lease terms may include options to extend or terminate the lease, which are factored into the recognition of ROU assets and lease liabilities when it is reasonably certain that the Company will exercise that option. The Company does not have any lease agreements whose payments are variable in nature (i.e. leases based on an index). Lease costs for operating leases, including short-term leases, are recognized over the lease term on a straight-line basis.

On January 1, 2019, the Company recorded both operating lease ROU assets of $93.2 million and lease liabilities of $139.2 million. The difference between the asset and liability primarily relates to previously recorded deferred rent, unfavorable acquired lease obligations and lease exit costs. The adoption of ASC 842 had an immaterial impact on the Company’s Consolidated Statements of Income (Loss) and Consolidated Statements of Cash Flows for the three months ended March 31, 2019.

The table below presents the Company’s leased assets and related lease liabilities (in millions):
Leases
 
Classification
 
March 31, 2019
Assets
 
 
 
 
  Operating lease assets
 
Other long-term assets
 
$
92.1

  Finance lease assets
 
Property, equipment and software-net
 
32.9

  Finance lease assets
 
Intangible assets
 
9.8

 
 
 
 
 
Liabilities
 
 
 
 
Current:
 
 
 
 
  Operating
 
Other current liabilities
 
$
19.9

  Finance
 
Current maturities of finance lease obligations
 
23.2

Non-current:
 
 
 
 
  Operating
 
Other non-current liabilities
 
117.0

  Finance
 
Finance lease obligations
 
28.4




19
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The table below presents the costs associated with the leased assets (in millions):
Leases
 
Classification
 
Three Months Ended March 31, 2019
Operating lease cost:
 
General and administrative and Other operating costs
 
 
  Short-term
 
 
 
$
0.8

  Long-term
 
 
 
9.3

Finance lease cost:
 
 
 
 
  Amortization of leased assets
 
Depreciation and amortization
 
3.6

  Interest on lease liabilities
 
Interest expense-net
 
0.6

Total lease cost
 
 
 
$
14.3


    
The future minimum lease payments required under all leases and the present value of net minimum lease payments as of March 31, 2019 are as follows (in millions):
Maturity of Lease Liabilities
 
Operating
 
Finance
Nine months ended December 31, 2019
 
$
18.3

 
$
20.0

2020
 
23.2

 
17.3

2021
 
19.7

 
12.7

2022
 
17.4

 
5.3

2023
 
15.0

 

Thereafter
 
69.8

 

Total
 
$
163.4

 
$
55.3

Less: Interest
 
26.5

 
3.7

Present value of lease liabilities
 
$
136.9

 
$
51.6



The future minimum lease payments required under operating leases as of December 31, 2018 are as follows (in millions):
Year Ended December 31,
 
2019
$
27.8

2020
23.2

2021
21.7

2022
19.0

2023
15.6

Thereafter
71.2

Total
$
178.5



The table below summarizes the weighted average remaining lease term and weighted average discount rate used by lease type:
Lease Term and Discount Rate
 
March 31, 2019
Weighted-average remaining lease term (years):
 
 
  Operating leases
 
9.0

  Finance leases
 
2.6

Weighted-average discount rate:
 
 
  Operating leases
 
3.9
%
  Finance leases
 
4.9
%



20
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The table below summarizes the impact to cash flows related to leases (in millions):
 
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
  Operating cash flows used for operating leases
 
$
6.0

  Operating cash flows used for finance leases
 
0.5

  Financing cash flows used for finance leases
 
6.5

Leased assets obtained in exchange for new finance lease liabilities
 

Leased assets obtained in exchange for new operating lease liabilities
 
0.7



4. BUSINESS COMBINATIONS

Acquisition of Legacy Worldpay

On January 16, 2018, the Company completed the acquisition of Legacy Worldpay by acquiring 100% of the issued and outstanding shares (the “acquisition”). The approximately $11.9 billion purchase price consisted of Legacy Worldpay shareholders receiving a $1.5 billion cash payment and 133.6 million shares of the Company’s Class A common stock. The acquisition-date fair value of the shares of the Company’s Class A common stock issued was $10.4 billion and was determined based on the share price of $77.60 per share, the opening price of the Company’s Class A common stock on the New York Stock Exchange on January 16, 2018 since the acquisition closed before the market opened on January 16, 2018.

The acquisition creates a leading global payments technology company that is uniquely positioned to address clients’ needs with innovative and strategic capabilities.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, none of which is deductible for tax purposes. Goodwill, assigned to Technology Solutions, Merchant and Issuer Solutions, consists primarily of the acquired workforce and growth opportunities, none of which qualify as an intangible asset.

The final purchase price allocation is as follows (in millions):
Cash acquired
$
569.9

Current assets (1)
4,113.8

Property, equipment and software
561.1

Intangible assets
3,380.1

Goodwill
10,571.9

Other non-current assets
109.3

Current liabilities (2)
(4,524.8
)
Long-term debt (3)
(2,304.7
)
Deferred tax liability
(532.8
)
Non-current liabilities
(68.3
)
Total purchase price
$
11,875.5


(1)  
Includes $1,944.9 million of merchant float and $511.1 million of other restricted cash.
(2)  
Includes $118.6 million of dividend payable to reflect the special dividend granted to the shareholders of Legacy Worldpay.
(3) 
Includes $1,631.0 million of debt which was paid off subsequent to the completion of acquisition.

Intangible assets primarily consist of customer relationship assets, internal-use software and a trade name with weighted average estimated useful lives of 6.7 years, 6.5 years and 10 years, respectively.


21
 
 
 

Worldpay, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the three months ended March 31, 2018, the Company incurred transaction expenses of approximately $120.8 million in conjunction with the acquisition of Legacy Worldpay. All transaction costs incurred for the three months ended March 31, 2018 are included in general and administrative expenses on the accompanying Consolidated Statements of Income.

Under the terms of the Legacy Worldpay transaction agreement, the Company replaced equity awards held by certain employees of Legacy Worldpay. The fair value of the replacement awards was approximately $82.4 million. The portion of the fair value of the replacement awards related to the services provided prior to the acquisition of approximately $44.2 million was part of the consideration transferred to acquire Legacy Worldpay. The remaining portion of the fair value is associated with future service and will be recognized as expense over the future service period.

Pro Forma Results Giving Effect to the Legacy Worldpay Acquisition
The following pro forma combined financial information presents the Company’s results of operations for the three months ended March 31, 2018, as if the acquisition had occurred on January 1, 2017 (in millions, except share amounts).
 
 
Three Months Ended March 31, 2018
 
 
(Pro forma)
Total revenue
 
$
914.5

Net income attributable to Worldpay, Inc.
 
33.6

Net income per share attributable to Worldpay, Inc. Class A common stock:
 
 
Basic
 
$
0.11

Diluted
 
$
0.11

Shares used in computing net income per share of Class A common stock:
 
 
Basic
 
296,498,480

Diluted
 
298,027,972


The pro forma results include certain pro forma adjustments that were directly attributable to the acquisition as follows:
additional amortization expense that would have been recognized relating to the acquired intangible assets; and
adjustment to interest expense to reflect the additional borrowings of the Company in conjunction with the acquisition and removal of Legacy Worldpay debt.
a reduction in expenses for the three months ended March 31, 2018 relating to acquisition-related transaction costs and debt refinancing costs incurred by the Company, which were applied to the three months ended March 31, 2017.

5. GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the three months ended March 31, 2019 are as follows (in millions):
 
 
Technology Solutions
 
Merchant Solutions
 
Issuer Solutions
 
Total
Balance as of December 31, 2018
 
$
9,608.4

 
$
3,934.3

 
$
595.2

 
$
14,137.9

Effect of foreign currency translation
 
127.3

 
36.8

 

 
164.1

Balance as of March 31, 2019
 
$
9,735.7

 
$
3,971.1

 
$
595.2

 
$
14,302.0



Intangible assets consist of acquired customer relationships, trade name and customer portfolios and related assets. The useful lives of customer relationships are determined based on forecasted cash flows, which include estimates for customer attrition associated with the underlying portfolio of customers acquired. The customer relationships acquired in conjunction with acquisitions are amortized based on the pattern of cash flows expected to be realized taking into consideration expected revenues and customer attrition, which are based on historical data and the Company's estimates of future performance. These estimates result in accelerated amortization on certain acquired intangible assets.