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 September 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 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 ☐

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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 October 31, 2019, there were 679,895,001 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	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	53

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 6.	Exhibits	66

	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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue:
Processing and services	$	2,608		$	1,223		$	5,229		$	3,668
Product	520			189			913			604
Total revenue	3,128			1,412			6,142			4,272
Expenses:
Cost of processing and services	1,204			568			2,445			1,696
Cost of product	413			181			755			551
Selling, general and administrative	1,137			305			1,821			930
(Gain) loss on sale of businesses	—			2			(10		)	(227		)
Total expenses	2,754			1,056			5,011			2,950
Operating income	374			356			1,131			1,322
Interest expense, net	(164		)	(45		)	(279		)	(134		)
Debt financing activities	49			(8		)	(47		)	(8		)
Other (expense) income	(3		)	1			—			3
Income before income taxes and income from investments in unconsolidated affiliates	256			304			805			1,183
Income tax provision	(53		)	(78		)	(144		)	(290		)
Income from investments in unconsolidated affiliates	22			1			12			8
Net income	225			227			673			901
Less: Net income attributable to noncontrolling interests	27			—			27			—
Net income attributable to Fiserv, Inc.	$	198		$	227		$	646		$	901

Net income attributable to Fiserv, Inc. per share – basic	$	0.34		$	0.56		$	1.42		$	2.21
Net income attributable to Fiserv, Inc. per share – diluted	$	0.33		$	0.55		$	1.39		$	2.16

Shares used in computing net income per share:
Basic	584.8			403.8			456.3			408.4
Diluted	596.9			412.0			465.2			416.6

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Statements of Comprehensive Income

(In millions)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	225		$	227		$	673		$	901
Other comprehensive (loss) income:
Fair market value adjustment on cash flow hedges, net of income tax benefit of $1 million, $2 million, $46 million and $4 million	(4		)	(6		)	(134		)	(11		)
Reclassification adjustment for net realized gains on cash flow hedges included in cost of processing and services, net of income tax benefit of $1 million	—			—			—			(3		)
Reclassification adjustment for net realized losses on cash flow hedges included in net interest expense, net of income tax provision of $1 million, $0, $2 million and $1 million	4			1			6			3
Foreign currency translation	(186		)	(8		)	(184		)	(14		)
Total other comprehensive loss	(186		)	(13		)	(312		)	(25		)
Comprehensive income	$	39		$	214		$	361		$	876
Less: Comprehensive income attributable to noncontrolling interests	27			—			27			—
Comprehensive income attributable to Fiserv, Inc.	$	12		$	214		$	334		$	876

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Balance Sheets

(In millions)

(Unaudited)



	September 30, 2019			December 31, 2018
Assets
Cash and cash equivalents	$	1,028		$	415
Trade accounts receivable, net	2,653			1,049
Prepaid expenses and other current assets	1,330			274
Settlement assets	12,980			486
Total current assets	17,991			2,224
Property and equipment, net	1,639			398
Customer relationships, net	14,540			1,348
Other intangible assets, net	3,197			795
Goodwill	35,517			5,702
Contract costs, net	481			419
Investments in unconsolidated affiliates	2,618			65
Other long-term assets	1,881			311
Total assets	$	77,864		$	11,262
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	$	2,901		$	1,146
Short-term and current maturities of long-term debt	368			4
Contract liabilities	412			380
Settlement obligations	12,980			480
Total current liabilities	16,661			2,010
Long-term debt	22,123			5,955
Deferred income taxes	4,110			745
Long-term contract liabilities	129			89
Other long-term liabilities	989			170
Total liabilities	44,012			8,969
Commitments and contingencies (see Note 23)
Redeemable noncontrolling interest	92			—
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	23,668			1,057
Accumulated other comprehensive loss	(379		)	(67		)
Retained earnings	12,281			11,635
Treasury stock, at cost, 110.6 million and 398.9 million shares	(2,909		)	(10,340		)
Total Fiserv, Inc. shareholders’ equity	32,669			2,293
Noncontrolling interests	1,091			—
Total equity	33,760			2,293
Total liabilities and equity	$	77,864		$	11,262

See accompanying notes to consolidated financial statements.

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Fiserv, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)



	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	673		$	901
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
Depreciation and other amortization	386			278
Amortization of acquisition-related intangible assets	476			120
Amortization of financing costs, debt discounts and other	116			8
Net foreign currency gain on financing activities	(50		)	—
Share-based compensation	121			54
Deferred income taxes	26			105
Gain on sale of business	(10		)	(227		)
Income from investments in unconsolidated affiliates	(12		)	(8		)
Distributions from unconsolidated affiliates	6			1
Settlement of interest rate hedge contracts	(183		)	—
Other operating activities	(3		)	11
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Trade accounts receivable	151			(29		)
Prepaid expenses and other assets	(41		)	(63		)
Contract costs	(141		)	(107		)
Accounts payable and other liabilities	117			48
Contract liabilities	(15		)	(111		)
Net cash provided by operating activities from continuing operations	1,617			981
Cash flows from investing activities:
Capital expenditures, including capitalization of software costs	(431		)	(263		)
Proceeds from sale of businesses	39			419
Payments for acquisition of business, net of cash acquired	(16,004		)	—
Distributions from unconsolidated affiliates	85			—
Purchases of investments	(4		)	—
Other investing activities	6			(13		)
Net cash (used in) provided by investing activities from continuing operations	(16,309		)	143
Cash flows from financing activities:
Debt proceeds	18,855			3,627
Debt repayments	(3,051		)	(3,256		)
Payments of debt financing, redemption and other costs	(247		)	—
Proceeds from issuance of treasury stock	116			60
Purchases of treasury stock, including employee shares withheld for tax obligations	(271		)	(1,254		)
Distributions paid to noncontrolling interest and redeemable noncontrolling interest	(46		)	—
Other financing activities	(5		)	4
Net cash provided by (used in) financing activities from continuing operations	15,351			(819		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(4		)	—
Net change in cash, cash equivalents, and restricted cash from continuing operations	655			305
Net cash flows from discontinued operations	—			43
Cash, cash equivalents, and restricted cash beginning balance	415			325
Cash, cash equivalents, and restricted cash ending balance	$	1,070		$	673
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 and Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements for the three and nine months ended September 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.

On January 16, 2019, the Company entered into a definitive merger agreement to acquire First Data Corporation (“First Data”). The Company completed the acquisition on July 29, 2019 by acquiring 100% of the First Data stock that was issued and outstanding as of the date of acquisition. The consolidated financial statements as of and during the three and nine months ended September 30, 2019 include the financial results of First Data from the date of acquisition. The combined company provides technology capabilities that enable a range of payments and financial services, including account processing and digital banking solutions; card issuer processing and network services; payments; e-commerce; merchant acquiring and processing; and the Clover™ cloud-based point-of-sale solution.

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 15 to the consolidated financial statements.

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 is 50% or greater. 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. 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.

In connection with the acquisition of First Data, the Company acquired 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 statements of income include net income attributable to noncontrolling interests and redeemable noncontrolling interest. Noncontrolling interests are presented as a component of equity in the consolidated balance sheet 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 at the option of the holder are presented outside of equity and are carried at their estimated redemption value (see Note 22).

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 sheet and totaled $42 million as of September 30, 2019.

Reserve for Merchant Credit Losses

With respect to the merchant acquiring business obtained through the acquisition of First Data (see Note 4), 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

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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 sheet. 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 incurred by the Company was $17 million for the three and nine months ended September 30, 2019, and is included within cost of processing and services in the consolidated statements of income. The amount of collateral held by the Company was $510 million as of September 30, 2019. The Company’s reserve relates to imprecision in its estimates of required collateral, which is recorded based primarily on historical experience of credit losses and other relevant factors such as economic downturns or increases in merchant fraud. The aggregate merchant credit loss reserve recorded was $35 million as of September 30, 2019.

Derivatives

Derivatives are entered into for periods consistent with related underlying exposures and are recorded in the consolidated balance sheets as either an asset or liability measured at fair value. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive loss and recognized in the consolidated statements of income when the hedged item affects earnings. The Company’s policy is to enter into derivatives with creditworthy institutions and not to enter into such derivatives for speculative purposes.

Leasing Receivables

In connection with the acquisition of First Data, the Company acquired certain leasing receivables associated with the point-of-sale (“POS”) terminal leasing businesses of First Data. Leasing receivables are included in prepaid expenses and other current assets and other long-term assets in the consolidated balance sheet. The Company recognizes interest income on its leasing receivables using the effective interest method. Interest income from leasing receivables is included in product revenue in the consolidated statements of income. Initial direct costs are expensed as incurred if the fair value of the underlying asset is different from its carrying amount at the commencement date of the lease. See Note 15 for additional information.

Pension Plans

In connection with the acquisition of First Data, the Company acquired frozen defined benefit pension plans covering certain employees in Europe and the United States. The funded status of the defined benefit plans is recognized as an asset or a liability within other long-term assets or other long-term liabilities in the consolidated balance sheet. The plan assets are recognized at fair value. The Company recognizes actuarial gains/losses and prior service cost in the consolidated balance sheet and recognizes changes in these amounts during the year in which changes occur through other comprehensive income. The Company uses various assumptions when computing amounts relating to its defined benefit pension plan obligations and their associated expenses (including the discount rate and the expected rate of return on plan assets). See Note 20 for additional information.

Settlement Assets and Obligations

Settlement assets and obligations result from timing differences between collection and fulfillment of payment transactions primarily associated with the Company’s merchant services transactions. Settlement assets represent cash received or amounts receivable from agents, payment networks or directly from consumers. Settlement obligations represent amounts payable to clients and payees. Certain merchant settlement assets that relate to settlement obligations are held by partner banks to which the Company does not have legal ownership but has the right to use the assets to satisfy the related settlement obligations. The Company records corresponding settlement obligations for amounts payable to merchants and for payment instruments not yet presented for settlement.

Net Income Per Share

Net income per share in each period is calculated using actual, unrounded amounts. Basic net income per share is computed by dividing net income attributable to Fiserv, Inc. by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income attributable to Fiserv, Inc. by the weighted-average number of common shares and common stock equivalents outstanding during the period. Common stock equivalents consist of outstanding stock options, unvested restricted stock units, and unvested restricted stock awards and are computed using the treasury stock method.

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Foreign Currency

The U.S. dollar is the functional currency of the Company’s U.S.-based businesses and certain foreign-based businesses. Where the functional currency is the local currency, assets and liabilities are translated into U.S. dollars at the exchange rates in effect at the balance sheet date. Revenue and expenses are translated at the average exchange rates during the period. Gains and losses from foreign currency translation are recorded as a separate component of accumulated other comprehensive loss. Gains and losses from foreign currency transactions are included in other (expense) income in the consolidated statements of income. The Company has designated its Euro- and British Pound-denominated senior notes as net investment hedges to hedge a portion of its net investment in certain subsidiaries whose functional currencies are the Euro and the British Pound (see Note 17). Accordingly, foreign currency transaction gains or losses on the qualifying net investment hedge instruments are recorded as foreign currency translation within other comprehensive loss in the consolidated statements of comprehensive income and will remain in accumulated other comprehensive loss on the consolidated balance sheet until the sale or complete liquidation of the underlying foreign subsidiaries.

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 $187 million and $309 million of interest expense and $23 million and $30 million of interest income during the three and nine months ended September 30, 2019, respectively. The Company recognized $47 million and $137 million of interest expense and $2 million and $3 million of interest income during the three and nine months ended September 30, 2018, respectively.

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 and adds new presentation and disclosure requirements for both lessees and lessors. The accounting guidance for lessors remains largely unchanged. 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 2018-11”); ASU No. 2018-20, Narrow-Scope Improvements for Lessors; and ASU No. 2019-01, Leases (Topic 842) - Codification Improvements. ASU 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 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 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 plans to adopt ASU 2016-13 on its effective date, January 1, 2020.

The Company is currently in the process of evaluating the impacts of adopting this standard, including the development of accounting policies and the assessment of existing credit loss methodologies for necessary enhancements. Additionally, the Company continues to evaluate current processes, systems, data, and controls that will be necessary to estimate credit reserves for impacted areas in accordance with CECL. 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. While the Company continues to evaluate the expected impact on its consolidated financial statements and related disclosures, it currently expects the adoption of this guidance will result in an acceleration in the timing for recognition of credit losses, and may also result in an increase in the reserve for these credit losses due to the requirement to record expected losses over the remaining contractual lives of its financial instruments.

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 14% and 6% of total revenue for the three months ended September 30, 2019 and 2018, respectively, and approximately 10% and 5% of total revenue for the nine months ended September 30, 2019 and 2018, respectively.

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

Major Business
Global Business Solutions	$	992	$	—	$	—	$	—		$	992
Global Financial Solutions	375		—		—		—			375
Network & Security Solutions	247		—		—		—			247
Total First Data	1,614		—		—		—			1,614
Digital Money Movement	—		376		—		—			376
Card and Related Services	—		470		—		—			470
Other	—		80		—		—			80
Total Payments	—		926		—		—			926
Account and Item Processing	—		—		533		—			533
Other	—		—		63		—			63
Total Financial	—		—		596		—			596
Corporate and Other	—		—		—		(8		)	(8		)
Total Revenue	$	1,614	$	926	$	596	$	(8	)	$	3,128



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

Major Business
Digital Money Movement	$	363	$	—	$	—		$	363
Card and Related Services	401		—		—			401
Other	80		—		—			80
Total Payments	844		—		—			844
Account and Item Processing	—		516		—			516
Other	—		58		—			58
Total Financial	—		574		—			574
Corporate and Other	—		—		(6		)	(6		)
Total Revenue	$	844	$	574	$	(6	)	$	1,412

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(In millions)	Reportable Segments
Nine Months Ended September 30, 2019	First Data		Payments		Financial		Corporate and Other			Total

Major Business
Global Business Solutions	$	992	$	—	$	—	$	—		$	992
Global Financial Solutions	375		—		—		—			375
Network & Security Solutions	247		—		—		—			247
Total First Data	1,614		—		—		—			1,614
Digital Money Movement	—		1,105		—		—			1,105
Card and Related Services	—		1,408		—		—			1,408
Other	—		244		—		—			244
Total Payments	—		2,757		—		—			2,757
Account and Item Processing	—		—		1,592		—			1,592
Other	—		—		206		—			206
Total Financial	—		—		1,798		—			1,798
Corporate and Other	—		—		—		(27		)	(27		)
Total Revenue	$	1,614	$	2,757	$	1,798	$	(27	)	$	6,142



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

Major Business
Digital Money Movement	$	1,071	$	—	$	—		$	1,071
Card and Related Services	1,215		—		—			1,215
Other	237		—		—			237
Total Payments	2,523		—		—			2,523
Account and Item Processing	—		1,552		—			1,552
Lending Solutions	—		56		—			56
Other	—		172		—			172
Total Financial	—		1,780		—			1,780
Corporate and Other	—		—		(31		)	(31		)
Total Revenue	$	2,523	$	1,780	$	(31	)	$	4,272

Contract Balances

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



(In millions)	September 30, 2019		December 31, 2018
Contract assets	$	361	$	171
Contract liabilities	541		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 $327 million of revenue during the nine months ended September 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. See Note 4 for contract liabilities assumed in connection with the acquisition of First Data.

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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:
September 30, 2019	2019		2020		2021		2022		Thereafter
Processing and services	$	618	$	2,211	$	1,787	$	1,332	$	2,478
Product	9		38		24		14		13

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 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 in paragraph 606-10-50-14A 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

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 Fiserv, Inc.’s common stock, at an exchange ratio of 0.303 Fiserv, Inc. shares for each share of First Data common stock, with cash paid in lieu of fractional shares. The Company also converted approximately 15 million outstanding First Data equity awards into corresponding equity awards relating to Fiserv, Inc. common stock pursuant to an exchange ratio in the merger agreement as described in further detail within Note 7. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of approximately $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 as discussed in Note 14.

The total purchase price paid for First Data is as follows:



(In millions)
Fair value of stock exchanged for Fiserv, Inc. shares ⁽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. See Note 7 for additional information.

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 assets acquired was allocated to goodwill, none of which is expected to be deductible for tax purposes. Goodwill is primarily

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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 September 30, 2019 consolidated balance sheet includes the assets and liabilities of First Data, which have been measured at fair value as of the acquisition date. The preliminary allocation of purchase price recorded for First Data was as follows:



(In millions)
Assets acquired ⁽¹⁾
Cash and cash equivalents	$	311
Trade accounts receivable	1,754
Prepaid expenses and other current assets	1,072
Settlement assets	10,397
Property and equipment	1,233
Customer relationships	13,637
Other intangible assets	2,391
Goodwill	29,955
Investments in unconsolidated affiliates	2,637
Other long-term assets	1,154
Total assets acquired	$	64,541

Liabilities assumed ⁽¹⁾
Accounts payable and accrued expenses	$	1,515
Short-term and current maturities of long-term debt ⁽²⁾	237
Contract liabilities	74
Settlement obligations	10,397
Deferred income taxes	3,388
Long-term contract liabilities	16
Long-term debt and other long-term liabilities ⁽³⁾	1,232
Total liabilities assumed	$	16,859
Net assets acquired	$	47,682
Redeemable noncontrolling interest	88
Noncontrolling interests	1,119
Total purchase price	$	46,475


⁽¹⁾	In connection with the acquisition of First Data, the Company acquired two businesses which it intended to sell. 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 (see Note 5).


⁽²⁾	Includes foreign lines of credit, current portion of finance lease obligations and other financing obligations (see Note 14).


⁽³⁾	Includes the receivable securitized loan and the long-term portion of finance lease obligations (see Note 14).

The above fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income and cost approaches. In many cases, the determination of the fair values required estimates about discount 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 (“ASC 820”). 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,

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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 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: