Document

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 June 30, 2019



☐	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)			(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 ☐

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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 July 22, 2019, there were 392,972,846 shares of common stock, $.01 par value, of the registrant outstanding.

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INDEX



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	31

	Exhibit Index
	Signatures

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Fiserv, Inc.

Consolidated Statements of Income

(In millions, except per share data)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue:
Processing and services	$	1,328		$	1,207		$	2,621		$	2,445
Product	184			213			393			415
Total revenue	1,512			1,420			3,014			2,860
Expenses:
Cost of processing and services	617			560			1,241			1,128
Cost of product	168			179			342			370
Selling, general and administrative	343			320			684			625
(Gain) loss on sale of business	—			3			(10		)	(229		)
Total expenses	1,128			1,062			2,257			1,894
Operating income	384			358			757			966
Interest expense	(64		)	(45		)	(123		)	(90		)
Debt financing activities	(37		)	—			(96		)	—
Non-operating income	8			3			11			3
Income before income taxes and (loss) income from investments in unconsolidated affiliates	291			316			549			879
Income tax provision	(60		)	(72		)	(91		)	(212		)
(Loss) income from investments in unconsolidated affiliates	(8		)	7			(10		)	7
Net income	$	223		$	251		$	448		$	674

Net income per share – basic	$	0.57		$	0.61		$	1.14		$	1.64
Net income per share – diluted	$	0.56		$	0.60		$	1.12		$	1.61

Shares used in computing net income per share:
Basic	392.5			408.4			392.1			410.7
Diluted	399.6			416.4			399.4			419.0

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	223		$	251		$	448		$	674
Other comprehensive (loss) income:
Fair market value adjustment on cash flow hedges, net of income tax benefit of $36 million, $2 million, $45 million and $2 million	(107		)	(4		)	(130		)	(5		)
Reclassification adjustment for net realized gains on cash flow hedges included in cost of processing and services, net of income tax benefit of $0 and $1 million	—			(1		)	—			(3		)
Reclassification adjustment for net realized losses on cash flow hedges included in interest expense, net of income tax provision of $0, $0, $1 million and $1 million	1			1			2			2
Foreign currency translation	(2		)	(6		)	2			(6		)
Total other comprehensive loss	(108		)	(10		)	(126		)	(12		)
Comprehensive income	$	115		$	241		$	322		$	662

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Balance Sheets

(In millions)

(Unaudited)



	June 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	8,441		$	415
Trade accounts receivable, net	989			1,049
Prepaid expenses and other current assets	779			760
Total current assets	10,209			2,224
Property and equipment, net	418			398
Intangible assets, net	2,102			2,143
Goodwill	5,702			5,702
Contract costs, net	445			419
Other long-term assets	764			376
Total assets	$	19,640		$	11,262
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	$	1,685		$	1,626
Current maturities of long-term debt	9			4
Contract liabilities	360			380
Total current liabilities	2,054			2,010
Long-term debt	13,747			5,955
Deferred income taxes	713			745
Long-term contract liabilities	106			89
Other long-term liabilities	474			170
Total liabilities	17,094			8,969
Commitments and contingencies
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	1,056			1,057
Accumulated other comprehensive loss	(193		)	(67		)
Retained earnings	12,083			11,635
Treasury stock, at cost, 398.5 million and 398.9 million shares	(10,408		)	(10,340		)
Total shareholders’ equity	2,546			2,293
Total liabilities and shareholders’ equity	$	19,640		$	11,262

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)



	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	448		$	674
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Depreciation and other amortization	202			184
Amortization of acquisition-related intangible assets	89			80
Amortization of financing costs, debt discounts and other	105			6
Share-based compensation	34			36
Deferred income taxes	12			80
Gain on sale of business	(10		)	(229		)
Loss (income) from investments in unconsolidated affiliates	10			(7		)
Settlement of interest rate hedge contracts	(183		)	—
Other operating activities	(3		)	2
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Trade accounts receivable	60			(11		)
Prepaid expenses and other assets	(62		)	(64		)
Contract costs	(93		)	(76		)
Accounts payable and other liabilities	(28		)	17
Contract liabilities	(2		)	(79		)
Net cash provided by operating activities from continuing operations	579			613
Cash flows from investing activities:
Capital expenditures, including capitalization of software costs	(210		)	(169		)
Proceeds from sale of business	10			419
Payments for acquisition of business, including working capital adjustments	54			—
Distributions from unconsolidated affiliates	7			—
Purchases of investments	(3		)	(2		)
Other investing activities	6			(12		)
Net cash (used in) provided by investing activities from continuing operations	(136		)	236
Cash flows from financing activities:
Debt proceeds	9,894			1,161
Debt repayments	(2,018		)	(1,257		)
Payments of debt financing, redemption and other costs	(164		)	—
Proceeds from issuance of treasury stock	56			44
Purchases of treasury stock, including employee shares withheld for tax obligations	(185		)	(824		)
Other financing activities	—			7
Net cash provided by (used in) financing activities from continuing operations	7,583			(869		)
Net change in cash and cash equivalents from continuing operations	8,026			(20		)
Net cash flows from discontinued operations	—			43
Cash and cash equivalents, beginning balance	415			325
Cash and cash equivalents, ending balance	$	8,441		$	348
Discontinued operations cash flow information:
Net cash used in operating activities	$	—		$	(7	)
Net cash provided by investing activities	—			50
Net change in cash and cash equivalents from discontinued operations	$	—		$	43

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation

The consolidated financial statements for the three and six months ended June 30, 2019 and 2018 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, 2018. Certain prior period amounts have been reclassified to conform to current period presentation.

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and its related amendments using the optional transition method applied to all leases. Prior period amounts have not been restated. Additional information about the Company’s lease policies and the related impact of the adoption is included in Notes 2 and 14 to the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of Fiserv, Inc. and all 100% owned subsidiaries. Investments in less than 50% owned affiliates in which the Company has significant influence but not control are accounted for using the equity method of accounting. All intercompany transactions and balances have been eliminated in consolidation.

2. Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which simplifies the accounting for share-based payments granted to nonemployees by largely aligning it with the accounting for share-based payments to employees. For public entities, ASU 2018-07 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Entities must apply the standard, using a modified retrospective transition approach, with a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption for all liability-classified nonemployee awards that have not been settled as of the adoption date and equity-classified nonemployee awards for which a measurement date has not been established. The Company adopted ASU 2018-07 on January 1, 2019, and the adoption did not have any impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize a lease liability and a right-of-use asset for each lease with a term longer than twelve months. The recognized liability is measured at the present value of lease payments not yet paid, and the corresponding asset represents the lessee’s right to use the underlying asset over the lease term and is based on the liability, subject to certain adjustments. For income statement and statement of cash flow purposes, the standard retains the dual model with leases classified as either operating or finance. Operating leases result in straight-line expense while finance leases result in a front-loaded expense pattern. The standard prescribes a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. ASU 2016-02 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842; ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements; ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU No. 2019-01, Leases (Topic 842) - Codification Improvements. ASU No. 2018-11 provides an additional transition method allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. For public entities, ASU 2016-02 is effective for annual and interim periods beginning after December 15, 2018.

The Company adopted the new standard effective January 1, 2019 using the optional transition method in ASU No. 2018-11. Under this method, the Company has not adjusted its comparative period financial statements for the effects of the new standard or made the new, expanded required disclosures for periods prior to the effective date. The Company elected the package of practical expedients permitted under the transition guidance in ASU 2016-02 to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedient not to separate the non-lease components of a contract from the lease component to which they relate.

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The adoption of the new lease standard resulted in the recognition of lease liabilities of $383 million and right-of-use assets of $343 million, which include the impact of existing deferred rents and tenant improvement allowances on the consolidated balance sheet as of January 1, 2019 for real and personal property operating leases. The adoption of ASU 2016-02 did not have a material impact on the Company’s consolidated statements of income or consolidated statements of cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued 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 with 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, with early adoption permitted. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The Company plans to adopt ASU 2018-15 on January 1, 2020 and does not expect the adoption to have a material impact on its consolidated financial statements.

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. Entities are permitted to early adopt the removed or modified disclosures and delay the adoption of the additional disclosures until the effective date. The Company is currently assessing the impact that the adoption of ASU 2018-13 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) (“ASU 2016-13”), 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. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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 is currently assessing the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

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.

Disaggregation of Revenue

The tables below present the Company’s revenue disaggregated by major business, including a reconciliation with its reportable segments. Most of the Company’s revenue is earned domestically within these major businesses, with revenue from clients outside the United States comprising approximately 6% and 5% of total revenue for the six months ended June 30, 2019 and 2018, respectively.

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(In millions)	Reportable Segments
Three Months Ended June 30, 2019	Payments		Financial		Corporate and Other			Total

Major Business
Digital Money Movement	$	362	$	—	$	—		$	362
Card and Related Services	469		—		—			469
Other	86		—		—			86
Total Payments	917		—		—			917
Account and Item Processing	—		526		—			526
Other	—		78		—			78
Total Financial	—		604		—			604
Corporate and Other	—		—		(9		)	(9		)
Total Revenue	$	917	$	604	$	(9	)	$	1,512



(In millions)	Reportable Segments
Three Months Ended June 30, 2018	Payments		Financial		Corporate and Other			Total

Major Business
Digital Money Movement	$	356	$	—	$	—		$	356
Card and Related Services	400		—		—			400
Other	81		—		—			81
Total Payments	837		—		—			837
Account and Item Processing	—		530		—			530
Other	—		60		—			60
Total Financial	—		590		—			590
Corporate and Other	—		—		(7		)	(7		)
Total Revenue	$	837	$	590	$	(7	)	$	1,420



(In millions)	Reportable Segments
Six Months Ended June 30, 2019	Payments		Financial		Corporate and Other			Total

Major Business
Digital Money Movement	$	729	$	—	$	—		$	729
Card and Related Services	938		—		—			938
Other	164		—		—			164
Total Payments	1,831		—		—			1,831
Account and Item Processing	—		1,059		—			1,059
Other	—		143		—			143
Total Financial	—		1,202		—			1,202
Corporate and Other	—		—		(19		)	(19		)
Total Revenue	$	1,831	$	1,202	$	(19	)	$	3,014

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(In millions)	Reportable Segments
Six Months Ended June 30, 2018	Payments		Financial		Corporate and Other			Total

Major Business
Digital Money Movement	$	708	$	—	$	—		$	708
Card and Related Services	814		—		—			814
Other	157		—		—			157
Total Payments	1,679		—		—			1,679
Account and Item Processing	—		1,036		—			1,036
Lending Solutions	—		56		—			56
Other	—		114		—			114
Total Financial	—		1,206		—			1,206
Corporate and Other	—		—		(25		)	(25		)
Total Revenue	$	1,679	$	1,206	$	(25	)	$	2,860

Contract Balances

The following table provides information about contract assets and contract liabilities from contracts with customers.



(In millions)	June 30, 2019		December 31, 2018
Contract assets	$	204	$	171
Contract liabilities	466		469

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 $248 million of revenue during the six months ended June 30, 2019 that was included in the contract liability balance at the beginning of the period, which exceeded advance cash receipts for services yet to be provided.

Transaction Price Allocated to Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.



(In millions)	Remainder of:
June 30, 2019	2019		2020		2021		2022		Thereafter
Processing and services	$	549	$	943	$	772	$	560	$	746
Product	16		31		22		12		11

The Company applies the optional exemption in paragraph 606-10-50-14(b) and does not disclose information about remaining performance obligations for account- and transaction-based processing fees that qualify for recognition in accordance with paragraph 606-10-55-18. These contracts generally have terms of three to five years, and 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 in paragraph 606-10-50-14A and does not disclose information for variable consideration, including additional seat licenses, 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.

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4. Acquisitions

On October 31, 2018, the Company acquired the debit card processing, ATM Managed Services, and MoneyPass® surcharge-free network of Elan Financial Services, a unit of U.S. Bancorp (“Elan”), for approximately $659 million. Such purchase price includes an initial cash payment of $691 million, less the receipt of post-closing working capital adjustments of $57 million in 2019, plus contingent consideration related to earn-out provisions estimated at a fair value of $12 million and future payments under a transition services agreement estimated to be in excess of fair value of $13 million. This acquisition, included within the Payments segment, deepens the Company’s presence in debit card processing, broadens its client reach and scale, and provides new solutions to enhance the value proposition for its existing debit solution clients.

The preliminary allocation of purchase price recorded for Elan as of June 30, 2019 was as follows:



(In millions)
Trade accounts receivable	$	20
Prepaid expenses and other current assets	94
Property and equipment	9
Intangible assets	353
Goodwill	238
Accounts payable and other current liabilities	(55		)
Total purchase price	$	659

The amounts allocated to goodwill and intangible assets were based on preliminary valuations and are subject to final adjustment. Goodwill, expected to be deductible for tax purposes, is primarily attributed to synergies, including the migration of Elan’s clients to the Company’s debit platform, and the anticipated value created by selling the Company’s products and services outside of card payments to Elan’s existing client base. The values allocated to intangible assets are as follows:



(In millions)	Gross Carrying Amount		Weighted-Average Useful Life
Customer related intangible assets	$	350	15 years
Trade name	3		8 years
	$	353	15 years

In conjunction with the acquisition, the Company entered into a transition services agreement for the provision of certain processing, network, administrative and managed services for a period of two years. The results of operations for Elan consisting of $45 million and $91 million of revenue and $5 million and $14 million of operating income, including $6 million and $12 million of acquired intangible asset amortization, for the three and six months ended June 30, 2019, respectively, have been included within the accompanying consolidated statements of income.

On January 16, 2019, the Company announced that it had entered into a definitive merger agreement to acquire First Data Corporation (“First Data”) in an all-stock transaction for an equity value of approximately $22 billion as of the announcement. Fiserv and First Data have received the final required regulatory approvals and non-objections needed to complete the proposed acquisition. Subject to the satisfaction or waiver of the remaining customary contractual conditions set forth in the merger agreement, the parties expect to close the transaction on or about July 29, 2019. See Note 13 for a description of related debt financing activities.

5. Discontinued Operations

On January 10, 2018, the Company completed the sale of the retail voucher business, MyVoucherCodes, acquired as part of its acquisition of Monitise plc in September 2017 for proceeds of £37 million ($50 million). The corresponding proceeds received during the six months ended June 30, 2018 are presented within discontinued operations since the business was never considered part of the Company’s ongoing operations. There was no impact to operating income or gain/loss recognized on the sale during the six months ended June 30, 2018.

Cash flows from discontinued operations during the six months ended June 30, 2018 also included tax payments of $7 million related to income recognized in 2017 from a prior disposition.

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6. Investments in Unconsolidated Affiliates

On March 29, 2018, the Company completed the sale of a 55% controlling interest of each of Fiserv Automotive Solutions, LLC and Fiserv LS LLC, which were subsidiaries of the Company that owned its Lending Solutions business (collectively, the “Lending Joint Ventures”), to funds affiliated with Warburg Pincus LLC. The Lending Joint Ventures, which were reported within the Financial segment, included all of the Company’s automotive loan origination and servicing products, as well as its LoanServ^TM mortgage and consumer loan servicing platform. The Company received gross sale proceeds of $419 million from the transactions. During the six months ended June 30, 2018, the Company recognized a pre-tax gain on the sale of $229 million, with the related tax expense of $77 million recorded through the income tax provision, in the consolidated statements of income. The pre-tax gain included $124 million related to the remeasurement of the Company’s 45% retained interests based upon the estimated enterprise value of the Lending Joint Ventures. During the six months ended June 30, 2019, the Company recognized a pre-tax gain on the sale of $10 million, with the related tax expense of $2 million recorded through the income tax provision, as contingent special distribution provisions within the transaction agreement were resolved and thereby realized. The Company’s remaining 45% ownership interests in the Lending Joint Ventures are accounted for as equity method investments, with the Company’s share of net (loss) income reported as (loss) income from investments in unconsolidated affiliates and the related tax (benefit) expense reported within the income tax provision in the consolidated statements of income. During the three months ended June 30, 2019, the Company received a cash distribution of $7 million from the Lending Joint Ventures, which was recorded as a reduction in the Company’s investment in the Lending Joint Ventures. The entire distribution represented a return of the Company’s investment and is reported in cash flows from investing activities. The Company’s investment in the Lending Joint Ventures was $48 million and $65 million at June 30, 2019 and December 31, 2018, respectively, and is reported within other long-term assets in the consolidated balance sheets. The revenues, expenses and cash flows of the Lending Joint Ventures after the sale transactions are not included in the Company’s consolidated financial statements.

Prior to the sale transactions described above, the Lending Joint Ventures entered into variable-rate term loan facilities for an aggregate amount of $350 million in senior unsecured debt and variable-rate revolving credit facilities for an aggregate amount of $35 million with a syndicate of banks, which transferred to the Lending Joint Ventures as part of the sale. 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. These debt facilities mature in March 2023, and there are no outstanding borrowings on the revolving credit facilities as of June 30, 2019. The Company recorded an initial $34 million liability as a reduction to the gain on sale transactions for the estimated fair value of its obligations to stand ready to perform over the term of the guarantees, which is reported primarily within other long-term liabilities in the consolidated balance sheets. Such guarantees will be amortized in future periods over the contractual term. The Company recognized $2 million during both the three months ended June 30, 2019 and 2018, and $3 million and $2 million during the six months ended June 30, 2019 and 2018, respectively, within non-operating income in its consolidated statements of income related to its release from risk under the guarantees. The Company has not made any payments under the guarantees, nor has it been called upon to do so. In conjunction with the sale transactions described above, the Company also entered into certain transition services agreements to provide, at fair value, various administration, business process outsourcing, technical and data center related services for defined periods to the Lending Joint Ventures. Amounts transacted through these agreements approximated $9 million and $18 million during the three and six months ended June 30, 2019, respectively, and $10 million during the three and six months ended June 30, 2018, and were primarily recognized as processing and services revenue in the consolidated statements of income.

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7. Share-Based Compensation

The Company recognized $15 million and $34 million of share-based compensation expense during the three and six months ended June 30, 2019, respectively, and $17 million and $36 million of share-based compensation expense during the three and six months ended June 30, 2018, respectively. The Company’s annual grant of share-based awards generally occurs in the first quarter. During the six months ended June 30, 2019 and 2018, stock options to purchase 1.7 million and 1.9 million shares, respectively, were exercised.

A summary of stock option, restricted stock unit and performance share unit grant activity is as follows:



	Six Months Ended June 30,
	2019			2018
	Shares Granted (In thousands)	Weighted-Average Grant Date Fair Value		Shares Granted (In thousands)	Weighted-Average Grant Date Fair Value
Stock options	1,171	$	28.43	1,265	$	22.43
Restricted stock units	371	84.84		501	70.14
Performance share units	—	—		165	75.39

8. Income Taxes

Income tax provision as a percentage of income before (loss) income from investments in unconsolidated affiliates was 20.9% and 23.0% in the three months ended June 30, 2019 and 2018, respectively, and was 16.6% and 24.2% in the six months ended June 30, 2019 and 2018, respectively. The rate in the six months ended June 30, 2019 includes discrete benefits due to a loss from subsidiary restructuring. The rate in the six months ended June 30, 2018 includes $77 million of income tax expense associated with the $229 million gain on the sale of a 55% interest of the Company’s Lending Solutions business (see Note 6).

9. Shares Used in Computing Net Income Per Share

The computation of shares used in calculating basic and diluted net income per common share is as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
(In millions)	2019	2018	2019	2018
Weighted-average common shares outstanding used for the calculation of net income per share – basic	392.5	408.4	392.1	410.7
Common stock equivalents	7.1	8.0	7.3	8.3
Weighted-average common shares outstanding used for the calculation of net income per share – diluted	399.6	416.4	399.4	419.0

For the three months ended June 30, 2019 and 2018, stock options for 1.2 million and 1.3 million shares, respectively, were excluded from the calculation of diluted weighted-average outstanding shares because their impact was anti-dilutive. For both the six months ended June 30, 2019 and 2018, stock options for 1.0 million shares were excluded from the calculation of diluted weighted-average outstanding shares because their impact was anti-dilutive.

10. Fair Value Measurements

The Company applies fair value accounting for all assets and liabilities that are recognized or disclosed at fair value in its consolidated financial statements on a recurring basis. Fair value represents the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability.

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 estimated fair value of total debt was based on quoted prices in active markets for the Company’s senior notes (level 1 of the fair value hierarchy). The fair value of the Company’s revolving credit facility borrowings approximates carrying value as the underlying interest rate is

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variable based on LIBOR. The estimated fair value of total debt was $14.0 billion and $6.0 billion at June 30, 2019 and December 31, 2018, respectively. See Note 13 for a description of debt financing activities in connection with the Company’s proposed acquisition of First Data.

The estimated fair value of the contingent consideration liability of $12 million at June 30, 2019 related to the acquisition of Elan (see Note 4) was based on the present value of a probability-weighted assessment approach derived from the likelihood of achieving the earn-out criteria (level 3 of the fair value hierarchy). This estimated fair value has not changed since the acquisition date. The aggregate fair values of the Company’s debt guarantee arrangements (see Note 6) with the Lending Joint Ventures approximate the $26 million carrying values at June 30, 2019 (level 3 of the fair value hierarchy). The contingent consideration and debt guarantee liabilities are reported primarily in other long-term liabilities in the consolidated balance sheets.

11. Intangible Assets

Intangible assets consisted of the following:



(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
June 30, 2019	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer related intangible assets	$	2,642	$	1,365	$	1,277
Acquired software and technology	591		505		86
Trade names	120		74		46
Capitalized software development costs	893		353		540
Purchased software	273		120		153
Total	$	4,519	$	2,417	$	2,102



(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
December 31, 2018	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer related intangible assets	$	2,642	$	1,294	$	1,348
Acquired software and technology	591		490		101
Trade names	120		71		49
Capitalized software development costs	810		314		496
Purchased software	261		112		149
Total	$	4,424	$	2,281	$	2,143

The Company estimates that annual amortization expense with respect to acquired intangible assets recorded at June 30, 2019, which include customer related intangible assets, acquired software and technology, and trade names, will be approximately $180 million in 2019, $160 million in 2020, $150 million in each of 2021 and 2022, and $140 million in 2023. Amortization expense with respect to capitalized and purchased software recorded at June 30, 2019 is estimated to approximate $210 million in 2019.

12. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:



(In millions)	June 30, 2019		December 31, 2018
Trade accounts payable	$	107	$	127
Client deposits	597		564
Settlement obligations	491		480
Accrued compensation and benefits	133		199
Current operating lease liabilities	74		—
Other accrued expenses	283		256
Total	$	1,685	$	1,626

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13. Long-Term Debt

On January 16, 2019, in connection with the definitive merger agreement to acquire First Data (see Note 4), the Company entered into a bridge facility commitment letter pursuant to which a group of financial institutions committed to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of $17.0 billion for the purpose of refinancing certain indebtedness of First Data and its subsidiaries on the closing date of the merger, making cash payments in lieu of fractional shares as part of the merger consideration, and paying fees and expenses related to the merger, the refinancing and the related transactions. The Company recorded $37 million and $96 million of expenses, reported within debt financing activities in the consolidated statements of income, related to the bridge term loan facility during the three and six months ended June 30, 2019, respectively. There were no outstanding borrowings under the bridge term loan facility at June 30, 2019. The aggregate commitments of $17.0 billion under the bridge facility commitment letter have been replaced with a corresponding amount of permanent financing through the term loan credit agreement and issuance of senior notes, as described below, resulting in the termination of the bridge term loan facility effective July 1, 2019.

On February 6, 2019, the Company entered into an amendment to its amended and restated revolving credit facility to (i) amend the maximum leverage ratio covenant to permit it to elect to increase the permitted maximum leverage ratio from three and one-half times the Company’s consolidated net earnings before interest, taxes, depreciation, amortization, non-cash charges and expenses and certain other adjustments (“EBITDA”) to either four times or four and one-half times the Company’s EBITDA for a specified period following certain acquisitions and (ii) permit it to make drawings under the revolving credit facility on the closing date of its acquisition of First Data subject to only limited conditions. In addition, on February 15, 2019, the Company entered into a second amendment to its existing revolving credit agreement in order to increase the aggregate commitments available thereunder by $1.5 billion and to make certain additional amendments to facilitate the operation of the combined business following