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 March 31, 2020



☐	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 ☐

Table of Contents

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.

Table of Contents

INDEX



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive (Loss) 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	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 5.	Other Information	40
Item 6.	Exhibits	42

	Exhibit Index
	Signatures

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents

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.

Table of Contents

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.

Table of Contents

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.

Table of Contents

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

Table of Contents

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

Table of Contents


⁽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

Table of Contents

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

Table of Contents

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	Gross Carrying Amount		Accumulated Amortization		Net Book Value
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	Gross Carrying Amount		Accumulated Amortization		Net Book Value
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

Table of Contents

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

Table of Contents

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.

Table of Contents

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

Table of Contents

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	454			247
Total long-term debt	$	21,630		$	21,612

The Company was in compliance with all financial debt covenants during the first quarter of 2020. Annual maturities of the Company’s total debt were as follows at March 31, 2020:



(In millions)
Year ending December 31,
Remainder of 2020	$	302
2021	556
2022	1,324
2023	4,774
2024	3,838