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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                      to                     
Commission File Number 1-38962
 
FISERV, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
 
 
Wisconsin
 
39-1506125
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I. R. S. Employer
Identification No.)
255 Fiserv Drive
Brookfield,
WI
53045
(Address of Principal Executive Offices and zip code)
(262) 879-5000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
FISV
 
The NASDAQ Stock Market LLC
0.375% Senior Notes due 2023
 
FISV23
 
The NASDAQ Stock Market LLC
1.125% Senior Notes due 2027
 
FISV27
 
The NASDAQ Stock Market LLC
1.625% Senior Notes due 2030
 
FISV30
 
The NASDAQ Stock Market LLC
2.250% Senior Notes due 2025
 
FISV25
 
The NASDAQ Stock Market LLC
3.000% Senior Notes due 2031
 
FISV31
 
The NASDAQ Stock Market LLC
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      No  
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

 


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
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.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of April 30, 2020, there were 669,484,281 shares of common stock, $.01 par value, of the registrant outstanding.

 


INDEX



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Fiserv, Inc.
Consolidated Statements of Income
(In millions, except per share data)
(Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Revenue:
 
 
 
Processing and services (1)
$
3,075

 
$
1,293

Product
694

 
209

Total revenue
3,769

 
1,502

Expenses:
 
 
 
Cost of processing and services
1,635

 
624

Cost of product
532

 
174

Selling, general and administrative
1,404

 
341

Gain on sale of businesses
(431
)
 
(10
)
Total expenses
3,140

 
1,129

Operating income
629

 
373

Interest expense, net
(187
)
 
(57
)
Debt financing activities

 
(59
)
Other income
20

 
1

Income before income taxes and loss from investments in unconsolidated affiliates
462

 
258

Income tax provision
(79
)
 
(31
)
Loss from investments in unconsolidated affiliates
(6
)
 
(2
)
Net income
377

 
225

Plus: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
15

 

Net income attributable to Fiserv, Inc.
$
392

 
$
225

 
 
 
 
Net income attributable to Fiserv, Inc. per share – basic
$
0.58

 
$
0.58

Net income attributable to Fiserv, Inc. per share – diluted
$
0.57

 
$
0.56

 
 
 
 
Shares used in computing net income attributable to Fiserv, Inc. per share:
 
 
 
Basic
678.1

 
391.7

Diluted
691.2

 
399.1

(1) 
Includes processing and other fees charged to related party investments accounted for under the equity method of $57 million and $9 million for the three months ended March 31, 2020 and 2019, respectively (see Note 21).
See accompanying notes to consolidated financial statements.

1


Fiserv, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(In millions)
(Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Net income
$
377

 
$
225

Other comprehensive (loss) income:
 
 
 
Fair market value adjustment on cash flow hedges, net of income tax benefit of $3 million and $8 million
(8
)
 
(23
)
Reclassification adjustment for net realized gains on cash flow hedges included in cost of processing and services, net of income tax benefit of $0 million
(1
)
 

Reclassification adjustment for net realized losses on cash flow hedges included in net interest expense, net of income tax provision of $1 million and $0 million
4

 
1

Foreign currency translation
(638
)
 
4

Total other comprehensive loss
(643
)
 
(18
)
Comprehensive (loss) income
$
(266
)
 
$
207

Plus: Net loss attributable to noncontrolling interests and redeemable noncontrolling interests
15

 

Plus: Other comprehensive loss attributable to noncontrolling interests
12

 

Comprehensive (loss) income attributable to Fiserv, Inc.
$
(239
)
 
$
207

See accompanying notes to consolidated financial statements.

2


Fiserv, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)
 
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Cash and cash equivalents
$
896

 
$
893

Trade accounts receivable, less allowance for doubtful accounts
2,582

 
2,782

Prepaid expenses and other current assets
1,055

 
1,503

Settlement assets
8,400

 
11,868

Total current assets
12,933

 
17,046

Property and equipment, net
1,708

 
1,606

Customer relationships, net
13,327

 
14,042

Other intangible assets, net
3,677

 
3,600

Goodwill
35,695

 
36,038

Contract costs, net
566

 
533

Investments in unconsolidated affiliates
2,814

 
2,720

Other long-term assets
1,878

 
1,954

Total assets
$
72,598

 
$
77,539

Liabilities and Equity
 
 
 
Accounts payable and accrued expenses
$
2,875

 
$
3,080

Short-term and current maturities of long-term debt
338

 
287

Contract liabilities
506

 
492

Settlement obligations
8,400

 
11,868

Total current liabilities
12,119

 
15,727

Long-term debt
21,630

 
21,612

Deferred income taxes
4,227

 
4,247

Long-term contract liabilities
154

 
155

Other long-term liabilities
922

 
941

Total liabilities
39,052

 
42,682

Commitments and Contingencies (see Note 20)

 

Redeemable Noncontrolling Interests
259

 
262

Fiserv, Inc. Shareholders’ Equity:
 
 
 
Preferred stock, no par value: 25.0 million shares authorized; none issued

 

Common stock, $0.01 par value: 1,800.0 million shares authorized; 791.4 million shares issued
8

 
8

Additional paid-in capital
23,693

 
23,741

Accumulated other comprehensive loss
(811
)
 
(180
)
Retained earnings
12,875

 
12,528

Treasury stock, at cost, 117.4 million and 111.5 million shares
(3,922
)
 
(3,118
)
Total Fiserv, Inc. shareholders’ equity
31,843

 
32,979

Noncontrolling interests
1,444

 
1,616

Total equity
33,287

 
34,595

Total liabilities and equity
$
72,598

 
$
77,539

See accompanying notes to consolidated financial statements.

3


Fiserv, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
377

 
$
225

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and other amortization
279

 
100

Amortization of acquisition-related intangible assets
553

 
45

Amortization of financing costs, debt discounts and other
12

 
60

Share-based compensation
108

 
19

Deferred income taxes
(57
)
 
8

Gain on sale of businesses
(431
)
 
(10
)
Loss from investments in unconsolidated affiliates
6

 
2

Distributions from unconsolidated affiliates
11

 

Other operating activities

 
(2
)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
 
 
 
Trade accounts receivable
200

 
6

Prepaid expenses and other assets
6

 
(26
)
Contract costs
(96
)
 
(58
)
Accounts payable and other liabilities
(88
)
 
(26
)
Contract liabilities
8

 
30

Net cash provided by operating activities
888

 
373

Cash flows from investing activities:
 
 
 
Capital expenditures, including capitalization of software costs
(246
)
 
(98
)
Proceeds from sale of business
584

 

Payments for acquisition of businesses, net of cash acquired and including working capital adjustments
(110
)
 
56

Distributions from unconsolidated affiliates
36

 

Other investing activities

 
6

Net cash provided by (used in) investing activities
264

 
(36
)
Cash flows from financing activities:
 
 
 
Debt proceeds
1,832

 
587

Debt repayments
(2,040
)
 
(680
)
Short-term borrowings, net
7

 

Payments of debt financing, redemption and other costs

 
(56
)
Proceeds from issuance of treasury stock
48

 
32

Purchases of treasury stock, including employee shares withheld for tax obligations
(970
)
 
(183
)
Distributions paid to noncontrolling interests and redeemable noncontrolling interests
(26
)
 

Other financing activities
15

 

Net cash used in financing activities
(1,134
)
 
(300
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(17
)
 

Net change in cash, cash equivalents and restricted cash
1

 
37

Cash, cash equivalents and restricted cash, beginning balance
933

 
415

Cash, cash equivalents and restricted cash, ending balance
$
934

 
$
452

See accompanying notes to consolidated financial statements.

4


Fiserv, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements for the three months ended March 31, 2020 and 2019 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and accompanying notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of Fiserv, Inc. (the “Company”). These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
On July 29, 2019, the Company acquired First Data Corporation (“First Data”) by acquiring 100% of the First Data stock that was issued and outstanding as of the date of acquisition for a total purchase price of $46.5 billion (see Note 4). First Data provides a wide-range of solutions to merchants, including retail point-of sale (“POS”) merchant transaction processing and acquiring, e-commerce services, mobile payment services and the cloud-based Clover® point-of-sale operating system, as well as technology solutions for bank and non-bank issuers. The consolidated financial statements include the financial results of First Data from the date of acquisition.
Segment Realignment
Effective for the three months ended March 31, 2020, the Company realigned its reportable segments to correspond with changes to its operating model to reflect its new management structure and organizational responsibilities (“Segment Realignment”) following the acquisition of First Data. The Company’s new reportable segments are: Merchant Acceptance (“Acceptance”), Financial Technology (“Fintech”) and Payments and Network (“Payments”). Segment results for the three months ended March 31, 2019 have been restated to reflect the Segment Realignment. See Note 22 for additional information.
Principles of Consolidation
The consolidated financial statements include the accounts of Fiserv, Inc. and its subsidiaries in which the Company holds a controlling financial interest. Control is normally established when ownership and voting interests in an entity are greater than 50%. Investments in which the Company has significant influence but not control are accounted for using the equity method of accounting, for which the Company’s share of net income (loss) is reported as income (loss) from investments in unconsolidated affiliates and the related tax expense (benefit) is reported within the income tax provision in the consolidated statements of income. Significant influence over an affiliate’s operations generally coincides with an ownership interest in an entity of between 20% and 50%. All intercompany transactions and balances have been eliminated in consolidation.
The Company maintains majority controlling interests in certain entities, mostly related to consolidated merchant alliances (see Note 21). Noncontrolling interests represent the minority shareholders’ share of the net income or loss and equity in consolidated subsidiaries. The Company’s noncontrolling interests presented in the consolidated statement of income include net loss attributable to noncontrolling interests and redeemable noncontrolling interests. Noncontrolling interests are presented as a component of equity in the consolidated balance sheets and reflect the minority shareholders’ share of acquired fair value in the consolidated subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries, net of dividends or distributions. Noncontrolling interests that are redeemable upon the occurrence of an event that is not solely within the Company’s control are presented outside of equity and are carried at their estimated redemption value if it exceeds the initial carrying value of the redeemable interest (see Note 12).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

5


Risks and Uncertainties
In December 2019, a novel strain of coronavirus (“COVID-19”) was identified and has since continued to spread and negatively impact the economy of the United States and other countries around the world. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic. In response to the COVID-19 pandemic, the governments of many countries, states, cities and other geographic regions have taken preventive or protective actions, such as travel restrictions and bans, quarantines, social distancing guidelines, shelter-in-place or lock-down orders and other similar limitations. Accordingly, the COVID-19 pandemic has adversely impacted global economic activity and has contributed to significant volatility in financial markets.
The Company’s operating performance is subject to global economic and market conditions, as well as their impacts on levels of consumer spending. As a result of the COVID-19 pandemic and the related decline in global economic activity, the Company experienced a significant decrease in payments volume and transactions during the last two weeks of March 2020 that negatively impacted its merchant acquiring and payment-related businesses, which earn transaction-based fees, as well as modest declines in other businesses. Ultimately the extent of the impact of the COVID-19 pandemic on the Company’s future operational and financial performance will depend on, among other matters, the duration and intensity of the COVID-19 pandemic; governmental and private sector responses and the impact of such responses on the Company; and the impact of the pandemic on the Company’s employees, clients, vendors, operations and sales, all of which are uncertain and cannot be predicted. These changing market conditions may also affect the estimates and assumptions made by management. Such estimates and assumptions affect, among other things, the valuations of the Company’s long-lived assets, definite-lived intangible assets and equity method investments; the Company’s deferred tax assets and related valuation allowances; the estimate of current expected credit losses; and certain pension plan assumptions. To the extent economic and market conditions do not improve or further deteriorate, the COVID-19 pandemic and the related economic and market decline may also require an interim impairment assessment of the Company’s goodwill during 2020. Changes in any assumptions used may result in future goodwill impairment charges that, if incurred, could have a material adverse impact on the Company’s results of operations, total assets and shareholders’ equity in the period recognized. Events and changes in circumstances arising subsequent to March 31, 2020, including those resulting from the impacts of the COVID-19 pandemic, will be reflected in management’s estimates for future periods.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less. Cash and cash equivalents are stated at cost in the consolidated balance sheets, which approximates market value. Cash and cash equivalents that were restricted from use due to regulatory or other requirements are included in other long-term assets in the consolidated balance sheets and totaled $38 million and $40 million at March 31, 2020 and December 31, 2019, respectively.
Allowance for Doubtful Accounts
The Company analyzes the collectability of trade accounts receivable by considering historical bad debts, client creditworthiness, current economic conditions, expectations of near term economic trends, changes in client payment terms and collection trends when evaluating the adequacy of the allowance for doubtful accounts for expected credit losses. Any change in the assumptions used in analyzing a specific account receivable may result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs. The allowance for doubtful accounts was $51 million and $39 million at March 31, 2020 and December 31, 2019, respectively.
Reserve for Merchant Credit Losses
With respect to the Company’s merchant acquiring business, the Company’s merchant customers have the legal obligation to refund any charges properly reversed by the cardholder. However, in the event the Company is not able to collect the refunded amounts from the merchants, the Company may be liable for the reversed charges. The Company’s risk in this area primarily relates to situations where the cardholder has purchased goods or services to be delivered in the future. The Company requires cash deposits, guarantees, letters of credit or other types of collateral from certain merchants to minimize this obligation. Collateral held by the Company is classified within settlement assets and the obligation to repay the collateral is classified within settlement obligations on the Company’s consolidated balance sheets. The Company also utilizes a number of systems and procedures to manage merchant risk. Despite these efforts, the Company experiences some level of losses due to merchant defaults. The aggregate merchant credit losses recorded by the Company was $30 million for the three months ended March 31, 2020 and is included within cost of processing and services in the consolidated statement of income. The amount of collateral held by the Company was $650 million and $510 million at March 31, 2020 and December 31, 2019, respectively. The Company maintains reserves for merchant credit losses that are expected to exceed the amount of collateral held. The reserves include an estimated amount for anticipated chargebacks and fraud events that have been incurred on merchants’ payment transactions that have been processed but not yet reported to the Company (“IBNR Reserve”), as well as an allowance on

6


refunded amounts to cardholders that have not yet been collected from the merchants. The IBNR Reserve, which is recorded within accounts payable and accrued expenses in the consolidated balance sheets, is based primarily on the Company’s historical experience of credit losses and other relevant factors such as economic downturns or increases in merchant fraud. The aggregate merchant credit loss reserves were $40 million and $34 million at March 31, 2020 and December 31, 2019, respectively.
Goodwill
Goodwill represents the excess of purchase price over the fair value of identifiable assets acquired and liabilities assumed in a business combination. The Company evaluates goodwill for impairment on an annual basis, or more frequently if circumstances indicate possible impairment. Goodwill is tested for impairment at a reporting unit level, determined to be at an operating segment level or one level below. When assessing goodwill for impairment, the Company considers (i) the amount of excess fair value over the carrying value of each reporting unit, (ii) the period of time since a reporting unit’s last quantitative test, (iii) the extent a reorganization or disposition changes the composition of one or more of the reporting units and (iv) other factors to determine whether or not to first perform a qualitative test. When performing a qualitative test, the Company assesses numerous factors to determine whether it is more likely than not that the fair value of its reporting units are less than their respective carrying values. Examples of qualitative factors that the Company assesses include its share price, its financial performance, market and competitive factors in its industry and other events specific to its reporting units. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative impairment test by comparing reporting unit carrying values to estimated fair values.
The Company performed an annual assessment of its reporting units’ goodwill in the fourth quarter of 2019 and no impairment was identified. In connection with the Segment Realignment described above, certain of the Company’s reporting units have changed in composition in which goodwill was allocated to such reporting units using a relative fair value approach. Accordingly, the Company performed an interim goodwill impairment assessment in the first quarter of 2020 for those reporting units impacted by the segment realignment, and determined that its goodwill was not impaired based on an assessment of various qualitative factors as described above. There is no accumulated goodwill impairment for the Company through March 31, 2020. See Note 7 for additional information.
Other Investments
The Company holds equity securities without a readily determinable fair value, which are only adjusted for observable price changes in orderly transactions for the same or similar equity securities or any impairment, totaling $167 million at both March 31, 2020 and December 31, 2019, and are included within other long-term assets in the Company’s consolidated balance sheets. No adjustments were made to the values recorded for these equity securities during the three months ended March 31, 2020.
Interest Expense, Net
Interest expense, net consists of interest expense primarily associated with the Company’s outstanding borrowings and finance lease obligations, as well as interest income primarily associated with the Company’s investment securities. The Company recognized $189 million of interest expense and $2 million of interest income during the three months ended March 31, 2020. The Company recognized $59 million of interest expense and $2 million of interest income during the three months ended March 31, 2019.
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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 (“ASU 2018-15”), which aligns the requirements for capitalizing implementation costs incurred in a cloud computing hosting arrangement that is a service contract within the requirements under Accounting Standards Codification (“ASC”) 350 for capitalizing implementation costs incurred to develop or obtain internal-use software. For public entities, ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The Company adopted ASU 2018-15 effective January 1, 2020 using a prospective approach, and the adoption did not have a material impact on its consolidated financial statements.


7


In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes, modifies, and adds certain disclosure requirements of ASC Topic 820, Fair Value Measurement. ASU 2018-13 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019 with the additional disclosures required to be applied prospectively and the modified and removed disclosures required to be applied retrospectively to all periods presented. The Company adopted ASU 2018-13 effective January 1, 2020, and the adoption did not have a material impact on its disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13” or “CECL”), which prescribes an impairment model for most financial instruments based on expected losses rather than incurred losses. Under this model, an estimate of expected credit losses over the contractual life of the instrument is to be recorded as of the end of a reporting period as an allowance to offset the amortized cost basis, resulting in a net presentation of the amount expected to be collected on the financial instrument. For public entities, ASU 2016-13 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. For most instruments, entities must apply the standard using a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year of adoption.
The Company adopted ASU 2016-13 effective January 1, 2020 using the required modified retrospective approach, which resulted in a cumulative-effect decrease to beginning retained earnings of $45 million. Financial assets and liabilities held by the Company subject to the “expected credit loss” model prescribed by CECL include trade and other receivables, net investments in leases, settlement assets and other credit exposures such as financial guarantees not accounted for as insurance.
Recently Issued Accounting Pronouncements
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”), which clarifies certain interactions between the guidance to account for certain equity securities, investments under the equity method of accounting, and forward contracts or purchased options to purchase securities under Topic 321, Topic 323 and Topic 815. For public entities, ASU 2020-01 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently assessing the impact that the adoption of ASU 2020-01 will have on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which introduces a number of amendments that are designed to simplify the application of accounting for income taxes. Such amendments include removing certain exceptions for intraperiod tax allocation, interim reporting when a year-to-date loss exceeds the anticipated loss, reflecting the effect of an enacted change in tax laws or rates in the annual effective tax rate and recognition of deferred taxes related to outside basis differences for ownership changes in investments. ASU 2019-12 also provides clarification related to when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction. In addition, ASU 2019-12 provides guidance on the recognition of a franchise tax (or similar tax) that is partially based on income as an income-based tax and accounting for any incremental amount incurred as a non-income-based tax. For public entities, ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”), which removes, clarifies and adds certain disclosure requirements of ASC Topic 715, Compensation - Retirement Benefits. ASU 2018-14 is effective for fiscal years ending after December 15, 2020, with early adoption permitted. Entities must apply the disclosure updates retrospectively. The Company is currently assessing the impact that the adoption of ASU 2018-14 will have on its disclosures.
3. Revenue Recognition
The Company generates revenue from the delivery of processing, service and product solutions. Revenue is measured based on consideration specified in a contract with a customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time.

8


Disaggregation of Revenue
The Company’s operations are comprised of the Acceptance segment, the Fintech segment and the Payments segment. Additional information regarding the Company’s business segments is included in Note 22. The tables below present the Company’s revenue disaggregated by type of revenue, including a reconciliation with its reportable segments. The Company’s disaggregation of revenue for the three months ended March 31, 2019 has been restated to reflect the Segment Realignment. The majority of the Company’s revenue is earned domestically, with revenue generated outside the United States comprising approximately 13% and 6% of total revenue for the three months ended March 31, 2020 and 2019, respectively.
(In millions)
Reportable Segments
Three Months Ended March 31, 2020
 Acceptance
 
Fintech
 
Payments
 
Corporate
and Other
 
Total
 
 
 
 
 
 
 
 
 
 
Type of Revenue
 
 
 
 
 
 
 
 
 
Processing
$
1,183

 
$
351

 
$
1,090

 
$
25

 
$
2,649

Hardware, print and card production
193

 
12

 
192

 

 
397

Professional services
3

 
112

 
57

 
1

 
173

Software maintenance

 
141

 
1

 
2

 
144

License and termination fees
6

 
46

 
22

 

 
74

Output solutions postage

 

 

 
236

 
236

Other
16

 
56

 
24

 

 
96

Total Revenue
$
1,401

 
$
718

 
$
1,386

 
$
264

 
$
3,769

(In millions)
Reportable Segments
Three Months Ended March 31, 2019
Fintech
 
Payments
 
Corporate
and Other
 
Total
 
 
 
 
 
 
 
 
Type of Revenue
 
 
 
 
 
 
 
Processing
$
342

 
$
511

 
$
43

 
$
896

Hardware, print and card production
12

 
75

 

 
87

Professional services
113

 
23

 
2

 
138

Software maintenance
143

 
1

 
4

 
148

License and termination fees
60

 
13

 

 
73

Output solutions postage

 

 
77

 
77

Other
55

 
28

 

 
83

Total Revenue
$
725

 
$
651

 
$
126

 
$
1,502


Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers.
(In millions)
March 31, 2020
 
December 31, 2019
Contract assets
$
385

 
$
382

Contract liabilities
660

 
647


Contract assets, reported within other long-term assets in the consolidated balance sheets, primarily result from revenue being recognized where payment is contingent upon the transfer of services to a customer over the contractual period. Contract liabilities primarily relate to advance consideration received from customers (deferred revenue) for which transfer of control occurs, and therefore revenue is recognized, as services are provided. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company recognized $168 million of revenue during the three months ended March 31, 2020 that was included in the contract liability balance at the beginning of the period.

9


Transaction Price Allocated to Remaining Performance Obligations
The following table includes estimated processing, services and product revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at March 31, 2020:
(In millions)
 
Year ending December 31,
 
Remainder of 2020
$
1,451

2021
1,641

2022
1,262

2023
954

Thereafter
1,830


The Company applies the optional exemption under ASC Topic 606 (“ASC 606”) and does not disclose information about remaining performance obligations for account- and transaction-based processing fees that qualify for recognition under the as-invoiced practical expedient. These multi-year contracts contain variable consideration for stand-ready performance obligations for which the exact quantity and mix of transactions to be processed are contingent upon the customer’s request. The Company also applies the optional exemptions under ASC 606 and does not disclose information for variable consideration that is a sales-based or usage-based royalty promised in exchange for a license of intellectual property or that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service in a series. The amounts disclosed above as remaining performance obligations consist primarily of fixed or monthly minimum processing fees and maintenance fees under contracts with an original expected duration of greater than one year.
4. Acquisitions and Dispositions
Acquisition of First Data
On July 29, 2019, the Company completed the acquisition of First Data, a global leader in commerce-enabling technology and solutions for merchants, financial institutions and card issuers, by acquiring 100% of the First Data stock that was issued and outstanding as of the date of acquisition. The acquisition increases the Company’s footprint as a global payments and financial technology provider by expanding the portfolio of services provided to financial institutions, corporate and merchant clients, and consumers.
As a result of the acquisition, First Data stockholders received 286 million shares of common stock of Fiserv, Inc., at an exchange ratio of 0.303 shares of Fiserv, Inc. for each share of First Data common stock, with cash paid in lieu of fractional shares. The Company also converted 15 million outstanding First Data equity awards into corresponding equity awards relating to common stock of Fiserv, Inc. in accordance with the exchange ratio. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of $16.4 billion to repay existing First Data debt. The Company funded the transaction-related expenses and the repayment of First Data debt through a combination of available cash on-hand and proceeds from debt issuances.
The total purchase price paid for First Data is as follows:
(In millions)
 
Fair value of stock exchanged for shares of Fiserv, Inc. (1)
$
29,293

Repayment of First Data debt
16,414

Fair value of vested portion of First Data stock awards exchanged for Fiserv, Inc. awards (2)
768

     Total purchase price
$
46,475

(1) 
The fair value of the 286 million shares of the Company’s common stock issued as of the acquisition date was determined based on a per share price of $102.30, which was the closing price of the Company’s common stock on July 26, 2019, the last trading day before the acquisition closed the morning of July 29, 2019. This includes a nominal amount of cash paid in lieu of fractional shares.
(2) 
Represents the portion of the fair value of the replacement awards related to services provided prior to the acquisition. The remaining portion of the fair value is associated with future service and will be recognized as expense over the future service period.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”). The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net

10


assets acquired was allocated to goodwill, none of which is expected to be deductible for tax purposes. Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth from expanded capabilities and geographic presence as well as substantial cost savings from duplicative overhead, streamlined operations and enhanced operational efficiency.
The assets and liabilities of First Data have been measured at estimated fair value as of the acquisition date. During the first quarter of 2020, the Company identified and recorded measurement period adjustments to the preliminary purchase price allocation, which were the result of additional analysis performed and information identified based on facts and circumstances that existed as of the acquisition date. These measurement period adjustments resulted in an increase to goodwill of $21 million. The offsetting amounts to the change in goodwill were primarily related to customer relationship intangible assets, noncontrolling interests and deferred income taxes. The Company recorded a measurement period adjustment of $155 million to reduce the fair value of customer relationship intangible assets as a result of refinements to attrition rates. A measurement period adjustment of $122 million was recorded to reduce the fair value of noncontrolling interests based on changes to the fair value of the underlying customer relationship intangible assets and the incorporation of additional facts and circumstances that existed as of the acquisition date. In addition, the Company recorded a measurement period adjustment of $36 million to reduce the fair value of recognized deferred tax liabilities related to changes in the fair value of assets acquired. Such measurement period adjustments did not have a material impact on the consolidated statement of income. The allocation of the purchase price shown below remains preliminary and subject to further adjustment, pending additional refinement and final completion of valuations, including but not limited to valuations of property and equipment, intangible assets, noncontrolling interests, deferred tax liabilities and other contingencies assumed as part of the acquisition. Adjustments to the valuation of assets acquired and liabilities assumed will result in a corresponding adjustment to goodwill. The updated preliminary allocation of purchase price recorded for First Data was as follows:
(In millions)
 
Assets acquired (1)
 
     Cash and cash equivalents
$
310

     Trade accounts receivable
1,748

     Prepaid expenses and other current assets
1,055

     Settlement assets
10,398

     Property and equipment
1,175

     Customer relationships
13,458

     Other intangible assets
2,812

     Goodwill
30,528

     Investments in unconsolidated affiliates
2,696

     Other long-term assets
1,219

Total assets acquired
$
65,399

 
 
Liabilities assumed (1)
 
     Accounts payable and accrued expenses
$
1,591

     Short-term and current maturities of long-term debt (2)
243

     Contract liabilities
74

     Settlement obligations
10,398

     Deferred income taxes
3,499

     Long-term contract liabilities
16

     Long-term debt and other long-term liabilities (3)
1,239

Total liabilities assumed
$
17,060

 
 
Net assets acquired
$
48,339

Redeemable noncontrolling interests
252

Noncontrolling interests
1,612

     Total purchase price
$
46,475



11


(1) 
In connection with the acquisition of First Data, the Company acquired two businesses which it intended to sell and subsequently sold in October 2019. Therefore, such businesses were classified as held for sale and were included within prepaid expenses and other current assets and accounts payable and accrued expenses in the above preliminary allocation of purchase price.
(2) 
Includes foreign lines of credit, current portion of finance lease obligations and other financing obligations.
(3) 
Includes the receivable securitized loan and the long-term portion of finance lease obligations.
The preliminary estimated fair values of the assets acquired and liabilities assumed were determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount rates, growth and attrition rates, future expected cash flows and other future events that are judgmental and subject to change. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement of the fair value hierarchy as defined in ASC 820, Fair Value Measurements. Intangible assets consisting of customer relationships, technology and trade names were valued using the multi-period excess earnings method (“MEEM”), or the relief from royalty (“RFR”) method, both are forms of the income approach. A cost and market approach was applied, as appropriate, for property and equipment, including land.
Customer relationship intangible assets were valued using the MEEM method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue and profit attributable to the asset, retention rate, applicable tax rate, and contributory asset charges, among other factors), the discount rate, reflecting the risks inherent in the future cash flow stream, an assessment of the asset’s life cycle, and the tax amortization benefit, among other factors.
Technology and trade name intangible assets were valued using the RFR method. The significant assumptions used include the estimated annual net cash flows (including appropriate revenue attributable to the asset, applicable tax rate, royalty rate, and other factors such as technology related obsolescence rates), the discount rate, reflecting the risks inherent in the future cash flow stream, and the tax amortization benefit, among other factors.
The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.
The market approach, which estimates value by leveraging comparable land sale data/listings and qualitatively comparing them to the in-scope properties, was used to value the land.
An income approach was applied to derive fair value for both consolidated investments with a noncontrolling interest and equity method investments accounted for under the equity method of accounting. The significant assumptions used include the estimated annual cash flows, the discount rate, the long-term growth rate and operating margin, among other factors.
The Company believes that the information provides a reasonable basis for estimating the fair values of the acquired assets and assumed liabilities, but the potential for additional measurement period adjustments exists based on the Company’s continuing review of matters related to the acquisition. The Company expects to complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.
The amounts, based on preliminary valuations and subject to final adjustment, allocated to intangible assets are as follows:
(In millions)
Gross Carrying Amount
 
Weighted-Average Useful Life
Customer relationships
$
13,458

 
15 years
Acquired software and technology
2,322

 
7 years
Trade names
490

 
9 years
     Total
$
16,270

 
14 years

The Company incurred transaction expenses of approximately $82 million for the three months ended March 31, 2019. Approximately $23 million of these expenses were included in selling, general and administrative expenses and $59 million in debt financing activities within the Company’s consolidated statement of income for the three months ended March 31, 2019.
The following unaudited supplemental pro forma combined financial information presents the Company’s results of operations for the three months ended March 31, 2019 as if the acquisition of First Data had occurred on January 1, 2019. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the Company’s operating results that may have actually occurred had the acquisition of First Data been completed on January 1, 2019. In addition, the unaudited pro forma financial information does not give effect to any anticipated cost savings, operating efficiencies or other

12


synergies that may be associated with the acquisition, or any estimated costs that have been or will be incurred by the Company to integrate the assets and operations of First Data.
(In millions, except for per share data)
 
Total revenue
$
3,809

Net loss
(18
)
Net loss attributable to Fiserv, Inc.
(42
)
Net loss per share attributable to Fiserv, Inc.:
 
      Basic
$
(0.06
)
      Diluted
$
(0.06
)

The unaudited pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisition had occurred on January 1, 2019 to give effect to certain events the Company believes to be directly attributable to the acquisition. These pro forma adjustments primarily include:
a net increase in amortization expense that would have been recognized due to acquired intangible assets;
an adjustment to interest expense to reflect (i) the additional borrowings of the Company in conjunction with the acquisition and (ii) the repayment of First Data’s historical debt in conjunction with the acquisition;
an increase in the three months ended March 31, 2019 for one-time costs directly attributable to the acquisition, including an adjustment to recognize a loss in connection with the extinguishment of First Data debt;
a reduction in operating revenues due to the elimination of deferred revenues assigned no value at the acquisition date;
an adjustment to stock compensation expense to reflect the cost of the replacement awards as if they had been issued on January 1, 2019; and
the related income tax effects of the adjustments noted above.
Other Acquisitions
On March 2, 2020, the Company acquired MerchantPro Express (“MerchantPro”), an independent sales organization that provides processing services, point-of-sale equipment and merchant cash advances to businesses across the United States. MerchantPro is included within the Acceptance segment and further expands the Company’s merchant services business. On March 18, 2020, the Company acquired Bypass Mobile (“Bypass”), an independent software vendor and innovator in enterprise point-of-sale systems for sports and entertainment venues, food service management providers and national restaurant chains. Bypass is included within the Acceptance segment and further enhances the Company’s omni-commerce capabilities, enabling enterprise businesses to deliver a seamless customer experience that spans physical and digital channels.
The Company acquired these businesses for an aggregate purchase price of $132 million, net of $2 million of acquired cash, and including earn-out provisions estimated at a fair value of $37 million (see Note 8). At March 31, 2020, the preliminary purchase price allocations for these acquisitions primarily resulted in software and customer intangible assets totaling approximately $24 million and goodwill of approximately $105 million. The purchase price allocations for these acquisitions are based on preliminary valuations and are subject to final adjustment. The goodwill recognized from these transactions is primarily attributed to synergies and the anticipated value created by selling the Company’s products and services to the acquired businesses’ existing client base. Approximately $70 million of the goodwill is expected to be deductible for tax purposes.
The results of operations for these acquired businesses have been included in the accompanying consolidated statement of income from the dates of acquisition. Pro forma information for these acquisitions is not provided because they did not have a material effect on the Company’s consolidated results of operations.
Dispositions
On February 18, 2020, the Company completed the sale of a 60% controlling interest of its Investment Services business, which is reported within Corporate and Other following the Segment Realignment. The Company received pre-tax proceeds of $584 million, net of related expenses, resulting in a pre-tax gain on the sale of $431 million, with the related tax expense of $113 million recorded through the income tax provision, in the consolidated statement of income. The pre-tax gain included $177 million related to the remeasurement of the Company’s 40% retained interest based upon the enterprise value of the business. The Company’s remaining 40% ownership interest of the Investment Services business is accounted for as an equity method investment, with the Company’s share of net loss reported as loss from investments in unconsolidated affiliates and the related tax benefit reported within the income tax provision in the consolidated statement of income. The Company’s investment in the Investment Services business was $185 million at March 31, 2020 and is reported within other long-term assets in the consolidated balance sheet. The revenues, expenses and cash flows of the Investment Services business after the

13


sale transaction are not included in the Company’s consolidated financial statements. In conjunction with the sale transaction, the Company also entered into transition services agreements to provide, at fair value, various administration, business process outsourcing, technical and data center related services for defined periods to the Investment Services business (see Note 21).
5. Settlement Assets and Obligations
Settlement assets and obligations represent intermediary balances arising from the settlement process which involves the transferring of funds between card issuers, payment networks, merchants and consumers. The Company records settlement assets and obligations upon processing a payment transaction. Settlement assets represent amounts receivable from agents and from payment networks for submitted merchant transactions, and funds received by the Company in advance of paying to the merchant or payee. Settlement obligations represent the unpaid amounts that are due to merchants or payees for their payment transactions.
The principal components of the Company’s settlement assets and obligations were as follows:
(In millions)
March 31, 2020
 
December 31, 2019
Settlement assets
 
 
 
Cash and cash equivalents
$
1,300

 
$
1,656

Receivables
7,100

 
10,212

Total settlement assets
$
8,400

 
$
11,868

Settlement obligations
 
 
 
Payment instruments outstanding
$
395

 
$
345

Card settlements due to merchants
8,005

 
11,523

Total settlement obligations
$
8,400

 
$
11,868


The changes in settlement assets and obligations are presented on a net basis within operating activities in the consolidated statements of cash flows. However, because the changes in the settlement assets balance exactly offset changes in settlement obligations, the activity nets to zero.
6. Intangible Assets
Identifiable intangible assets consisted of the following:
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
March 31, 2020
 
 
Customer relationships
$
15,788

 
$
2,461

 
$
13,327

Acquired software and technology
2,534

 
651

 
1,883

Trade names
609

 
118

 
491

Capitalized software development costs
995

 
323

 
672

Purchased software
820

 
189

 
631

Total
$
20,746

 
$
3,742

 
$
17,004

(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
December 31, 2019
 
 
Customer relationships
$
16,187

 
$
2,145

 
$
14,042

Acquired software and technology
2,607

 
639

 
1,968

Trade names
620

 
105

 
515

Capitalized software development costs
942

 
332

 
610

Purchased software
680

 
173

 
507

Total
$
21,036

 
$
3,394

 
$
17,642



14


Amortization expense associated with the above identifiable intangible assets was as follows:
 
 
Three Months Ended
March 31,
(In millions)
 
2020
 
2019
Amortization expense
 
$
647

 
$
95

 

7. Goodwill
The changes in goodwill during the three months ended March 31, 2020 were as follows:
 
Reportable Segments
(In millions)
Acceptance
 
Fintech
 
Payments
 
Total
Goodwill - December 31, 2019 (1)
$
20,593

 
$
2,104

 
$
13,341

 
$
36,038

Acquisitions and valuation adjustments
149

 

 
(23
)
 
126

Foreign currency translation
(360
)
 
(3
)
 
(106
)
 
(469
)
Goodwill - March 31, 2020
$
20,382

 
$
2,101

 
$
13,212

 
$
35,695

(1) 
Amounts have been restated to reflect the Segment Realignment effective in the first quarter of 2020 (see Note 22).
8. Fair Value Measurements
The fair values of cash equivalents, trade accounts receivable, settlement assets and obligations, accounts payable, and client deposits approximate their respective carrying values due to the short period of time to maturity. The Company’s derivative instruments are measured on a recurring basis based on foreign currency spot rates and forwards quoted by banks and foreign currency dealers and are marked-to-market each period (see Note 14). The Company’s net contingent consideration liability, primarily related to the March 2020 acquisitions of MerchantPro and Bypass (see Note 4), was estimated at a fair value of $38 million and $1 million at March 31, 2020 and December 31, 2019, respectively, based on the present value of a probability-weighted assessment approach derived from the likelihood of achieving the earn-out criteria.
Assets and liabilities measured at fair value on a recurring basis consisted of the following:
 
 
 
 
Fair Value
(In millions)
Classification
Fair Value Hierarchy
 
March 31, 2020
 
December 31, 2019
Assets
 
 
 
 
 
 
   Cash flow hedges
Prepaid expenses and other current assets
Level 2
 
$

 
$
4

Liabilities
 
 
 
 
 
 
   Cash flow hedges
Accounts payable and accrued expenses
Level 2
 
$
8

 
$

   Contingent consideration
Other long-term liabilities
Level 3
 
38

 
1


The Company’s senior notes are recorded at amortized cost but measured at fair value for disclosure purposes. The estimated fair value of senior notes was based on matrix pricing which considers readily observable inputs of comparable securities (Level 2 of the fair value hierarchy). The carrying value of the Company’s term loan credit agreement, revolving credit facility borrowings and debt associated with the receivables securitization agreement approximates fair value as these instruments have variable interest rates and the Company has not experienced any change to its credit ratings (Level 2 of the fair value hierarchy). The estimated fair value of total debt, excluding finance leases and other financing obligations, was $22.0 billion and $22.6 billion at March 31, 2020 and December 31, 2019, respectively, and the carrying value was $21.3 billion and $21.5 billion at March 31, 2020 and December 31, 2019, respectively.
The Company maintains an ownership interest in defi SOLUTIONS Group, LLC and Sagent M&C, LLC, respectively, which were subsidiaries of the Company that owned its Lending Solutions business (collectively, the “Lending Joint Ventures”). The Lending Joint Ventures maintain variable-rate term loan facilities for an aggregate amount of $400 million in senior unsecured debt and variable-rate revolving credit facilities for an aggregate amount of $45 million with a syndicate of banks, which mature in March 2023. The Company has guaranteed this debt of the Lending Joint Ventures and does not anticipate that the Lending Joint Ventures will fail to fulfill their debt obligations. Outstanding borrowings on the revolving credit facilities at March 31, 2020 were $25 million. The Company maintains a liability for its non-contingent obligations to perform over the term of the guarantees, which is reported primarily within other long-term liabilities in the consolidated

15


balance sheet. The non-contingent component of the Company’s debt guarantee arrangements is recorded at amortized cost but measured at fair value for disclosure purposes. The carrying value of the Company’s non-contingent liability of $24 million and $26 million approximates the fair value at March 31, 2020 and December 31, 2019, respectively (Level 3 of the fair value hierarchy). Such guarantees will be amortized in future periods over the contractual term. In addition, the Company has recorded, in conjunction with the adoption of CECL, a contingent liability of $13 million, reported within other long-term liabilities in the consolidated balance sheet, representing the current expected credit losses to which the Company is exposed (Level 3 of the fair value hierarchy). This contingent liability is estimated based on certain financial metrics of the Lending Joint Ventures and historical industry data, which is used to develop assumptions of the likelihood the guaranteed parties will default and the level of credit losses in the event a default occurs. The Company recognized $2 million and $1 million during the three months ended March 31, 2020 and 2019, respectively, within other income in its consolidated statements of income related to its release from risk under the non-contingent guarantees. The Company has not made any payments under the guarantees, nor has it been called upon to do so.
9. Leases
Company as Lessee
The Company primarily leases office space, land, data centers and equipment from third parties. The Company’s leases have remaining lease terms ranging from one to 18 years.
Components of Lease Cost
 
Three Months Ended
March 31,
(In millions)
2020
 
2019
Operating lease cost (1)
$
62

 
$
39

Finance lease cost (2)
 
 
 
     Amortization of right-of-use assets
59

 
1

     Interest on lease liabilities
3

 

Total lease cost
$
124

 
$
40

(1) 
Operating lease expense is included within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the right-of-use (“ROU”) asset, in the consolidated statements of income. Operating lease cost includes approximately $11 million and $13 million of variable lease costs for the three months ended March 31, 2020 and 2019, respectively.
(2) 
Finance lease expense is recorded as depreciation and amortization expense within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, and interest expense, net in the consolidated statements of income. Finance lease expense during the three months ended March 31, 2020 includes $38 million of accelerated amortization associated with the termination of certain vendor contracts.
Supplemental Cash Flow Information
 
Three Months Ended
March 31,
(In millions)
2020
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
     Operating cash flows from operating leases
$
39

 
$
28

     Operating cash flows from finance leases
3

 

     Financing cash flows from finance leases
59

 
5

 
 
 
 
Right-of-use assets obtained in exchange for lease liabilities:
 
 
 
     Operating leases
$

 
$
24

     Finance leases
293

 
9


Company as Lessor
The Company owns certain POS terminal equipment which it leases to merchants. The terms of the leases typically range from two to five years.

16


Components of Lease Income
(In millions)
Three Months Ended March 31, 2020
Sales-type leases:
 
   Selling profit (1)
$
14

   Interest income (1)
19

Operating lease income (2)
24

(1) 
Selling profit includes $28 million recorded within product revenue with a corresponding charge of $14 million recorded in cost of product in the consolidated statement of income for the three months ended March 31, 2020. Interest income is included within product revenue in the consolidated statement of income.
(2) 
Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the consolidated statement of income for the three months ended March 31, 2020.
Lease Payment Receivables Portfolio
The Company accounts for lease payment receivables in connection with POS terminal equipment as a single portfolio. The Company recognizes an allowance for expected credit losses on lease payment receivables at the commencement date of the lease by considering the vintage, geography and internal credit risk ratings of such lease. The internal credit risk ratings are established based on lessee specific risk factors, such as FICO score, number of years the lessee has been in business and the nature of the lessee’s industry, which are considered indicators of the likelihood a lessee may default in the future. The established reserve for estimated credit losses on lease payment receivables upon adoption of ASU 2016-13 on January 1, 2020 was $56 million. Such reserve for estimated credit losses at March 31, 2020 was $57 million.
The Company determines delinquency status on lease payment receivables based on the number of calendar days past due. The Company considers lease payments that are 90 days or less past due as performing. Lease payments that are greater than 90 days past due are placed on non-accrual status in which interest income is no longer recognized. Lease payment receivables are fully written off in the period they become delinquent greater than 180 days past due. The amortized cost balance of net investment leases at March 31, 2020 was $249 million. Lease payment receivables that were determined to be on non-accrual status were nominal at each of March 31, 2020 and December 31, 2019.
10. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
(In millions)
 
March 31, 2020
 
December 31, 2019
Trade accounts payable
 
$
370

 
$
392

Client deposits
 
664

 
650

Accrued compensation and benefits
 
254

 
378

Accrued taxes
 
115

 
137

Accrued interest
 
196

 
224

Other accrued expenses
 
1,276

 
1,299

Total
 
$
2,875

 
$
3,080



17


11. Debt
The Company’s debt consisted of the following:
(In millions)
 
March 31, 2020
 
December 31, 2019
Short-term and current maturities of long-term debt:
 
 
 
 
Lines of credit
 
$
157

 
$
150

Finance lease and other financing obligations
 
181

 
137

Total short-term and current maturities of long-term debt
 
$
338

 
$
287

 
 
 
 
 
Long-term debt:
 
 
 
 
2.7% senior notes due 2020
 
$
850

 
$
850

4.75% senior notes due 2021
 
400

 
400

3.5% senior notes due 2022
 
700

 
700

3.8% senior notes due 2023
 
1,000

 
1,000

0.375% senior notes due 2023
 
557

 
559

2.75% senior notes due 2024
 
2,000

 
2,000

3.85% senior notes due 2025
 
900

 
900

2.25% senior notes due 2025
 
654

 
687

3.2% senior notes due 2026
 
2,000

 
2,000

1.125% senior notes due 2027
 
557

 
559

4.2% senior notes due 2028
 
1,000

 
1,000

3.5% senior notes due 2029
 
3,000

 
3,000

1.625% senior notes due 2030
 
557

 
559

3.0% senior notes due 2031
 
654

 
687

4.4% senior notes due 2049
 
2,000

 
2,000

Receivable securitized loan
 
500

 
500

Term loan facility
 
1,750

 
3,950

Unamortized discount and deferred financing costs
 
(154
)
 
(160
)
Revolving credit facility
 
2,251

 
174

Finance lease and other financing obligations