FISERV : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

Management's discussion and analysis of financial condition and results of
operations is provided as a supplement to our consolidated financial statements
and accompanying notes to help provide an understanding of our financial
condition, the changes in our financial condition and our results of operations.
Our discussion is organized as follows:
•Overview. This section contains background information on our company and the
services and products that we provide, acquisitions and dispositions, our
enterprise priorities, and the trends affecting our industry in order to provide
context for management's discussion and analysis of our financial condition and
results of operations.
•Critical accounting policies and estimates. This section contains a discussion
of the accounting policies that we believe are important to our financial
condition and results of operations and that require judgment and estimates on
the part of management in their application. In addition, all of our significant
accounting policies, including critical accounting policies, are summarized in
Note 1 to the accompanying consolidated financial statements.
•Results of operations. This section contains an analysis of our results of
operations presented in the accompanying consolidated statements of income by
comparing the results for the year ended December 31, 2020 to the results for
the year ended December 31, 2019 and by comparing the results for the year ended
December 31, 2019 to the results for the year ended December 31, 2018.
•Liquidity and capital resources. This section provides an analysis of our cash
flows and a discussion of our outstanding debt and commitments at December 31,
2020.
Overview
Company Background
We are a leading global provider of payments and financial services technology
solutions. We provide 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 ("POS") solution. We
serve clients around the globe, including banks, credit unions, other financial
institutions, corporate clients and merchants.
On July 29, 2019, we acquired First Data Corporation ("First Data"), a global
leader in commerce-enabling technology and solutions for merchants, financial
institutions and card issuers. Effective in the first quarter of 2020, we
realigned our reportable segments to reflect our new management structure and
organizational responsibilities ("Segment Realignment") following the
acquisition of First Data.
Our operations are comprised of the Merchant Acceptance ("Acceptance") segment,
the Financial Technology ("Fintech") segment and the Payments and Network
("Payments") segment. The consolidated financial statements include the
financial results of First Data from the date of acquisition. Segment results
for the years ended December 31, 2019 and 2018 have been restated to reflect the
Segment Realignment.
The Acceptance segment provides a wide range of commerce-enabling solutions to
merchants of all sizes and types around the world. These solutions include POS
merchant acquiring and digital commerce services; mobile payment services;
security and fraud protection products and services; CaratSM, our omnichannel
commerce solution; and our cloud-based Clover POS platform, which includes a
marketplace for proprietary and third-party business applications. The
businesses in the Acceptance segment are subject to a modest level of
seasonality, with the first quarter generally experiencing the lowest level of
revenue and the fourth quarter experiencing the highest level of revenue.
The Fintech segment provides financial institutions around the world with
technology solutions that enable them to process customer deposit and loan
accounts and manage general ledger and central information files, as well as
other products and services that support numerous types of financial
transactions such as digital banking, financial and risk management, cash
management, professional services and consulting, and item processing and source
capture services. Our businesses in this segment also provide products and
services to corporate clients to facilitate the management of financial
processes and transactions.
The Payments segment primarily provides financial institutions and corporate
clients with the products and services required to process digital payment
transactions, including card transactions such as debit, credit and prepaid card
processing and services, a range of network services, security and fraud
protection products, card production and print services. In addition, our
businesses in this segment offer non-card digital payment software and services,
including bill payment, account-to-account transfers, person-to-person payments,
electronic billing, and security and fraud protection products.
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The majority of our revenue is generated from recurring account- and
transaction-based fees under multi-year contracts with high renewal rates. Most
of the services we provide within our segments are necessary for our clients to
operate their businesses and are, therefore, non-discretionary in nature.
Corporate and Other supports the reportable segments described above, and
consists of amortization of acquisition-related intangible assets, unallocated
corporate expenses and other activities that are not considered when we evaluate
segment performance, such as gains or losses on sales of businesses, costs
associated with acquisition and divestiture activity, and our Output Solutions
postage reimbursements. Corporate and Other also includes the historical results
of our Investment Services business, of which we sold a 60% controlling interest
in February 2020, as well as certain transition services revenue associated with
various dispositions.
Acquisitions and Dispositions
We frequently review our portfolio to ensure we have the right set of businesses
to execute on our strategy. We expect to acquire businesses when we identify: a
compelling strategic need, such as a product, service or technology that helps
meet client demand; an opportunity to change industry dynamics; a way to achieve
business scale; or similar considerations. We expect to divest businesses that
are not in line with our market, product or financial strategies.
Acquisitions
On March 2, 2020, we acquired MerchantPro Express LLC ("MerchantPro"), an
independent sales organization ("ISO") that provides processing services, POS
equipment and merchant cash advances to businesses across the United States.
MerchantPro is included within the Acceptance segment and further expands our
merchant services business. On March 18, 2020, we acquired Bypass Mobile, LLC
("Bypass"), an independent software vendor and innovator in enterprise POS
systems for sports and entertainment venues, food service management providers
and national restaurant chains. Bypass is included within the Acceptance segment
and further enhances our omni-commerce capabilities, enabling enterprise
businesses to deliver a seamless customer experience that spans physical and
digital channels. On May 11, 2020, we acquired Inlet, LLC ("Inlet"), a provider
of secure digital delivery solutions for enterprise and middle-market billers'
invoices and statements. Inlet is included within the Payments segment and
further enhances our digital bill payment strategy. We acquired these businesses
for an aggregate purchase price of $167 million, net of $2 million of acquired
cash, and including earn-out provisions estimated at a fair value of $45
million.
On July 29, 2019, we acquired First Data for a total purchase price of $46.5
billion by acquiring 100% of the First Data stock that was issued and
outstanding as of the date of acquisition. 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. We 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, we
made a cash payment of $16.4 billion to repay existing First Data debt. We
funded the transaction-related expenses and the repayment of First Data debt
through a combination of available cash on-hand, proceeds from the issuance of
senior notes, and term loan and revolving credit facility borrowings. The
acquisition of First Data, included within the Acceptance and Payments segments,
increases our 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.
On October 31, 2018, we acquired the debit card processing, ATM Managed
Services, and MoneyPass® surcharge-free network of Elan Financial Services, a
unit of U.S. Bancorp, for approximately $659 million including post-closing
working capital adjustments, estimated contingent consideration related to
earn-out provisions and future payments under a transition services agreement in
excess of estimated fair value. This acquisition, included within the Payments
segment, deepens our presence in debit card processing, broadens our client
reach and scale and provides new solutions to enhance the value proposition for
our existing debit solution clients.
On January 22, 2021, we acquired Ondot Systems, Inc., a digital experience
platform provider for financial institutions. This acquisition, to be included
within the Payments segment, will further expand our digital capabilities,
enhancing our suite of integrated solutions spanning card-based payments,
digital banking platforms, core banking, and merchant solutions to enable
clients of all sizes to deliver frictionless, digital-first and personalized
experiences to their customers.
Dispositions
Effective July 1, 2020, we and Bank of America ("BANA") dissolved the Banc of
America Merchant Services joint venture ("BAMS" or the "joint venture"), of
which we maintained a 51% controlling ownership interest. Upon dissolution of
the joint venture's operations, the joint venture transferred a proportionate
share of value, primarily the client contracts, to each party via
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an agreed upon contractual separation. The remaining activities of the joint
venture will consist of supporting the transition of the business to each party
and an orderly wind down of remaining BAMS assets and liabilities. The revenues
and expenses of the BAMS joint venture were consolidated into our financial
results though the date of dissolution. The business transferred to us will
continue to be operated and managed within our Acceptance segment.
We will continue to provide merchant processing and related services to former
BAMS clients allocated to BANA, at BAMS pricing, through June 2023. We will also
provide processing and other support services to new BANA merchant clients
pursuant to a five-year non-exclusive agreement which, after June 2023, will
also apply to the former BAMS clients allocated to BANA. In addition, both
companies are entitled to certain transition services, at fair value, from each
other through June 2023.
On February 18, 2020, we sold a 60% controlling interest of our Investment
Services business, subsequently renamed as Tegra118, LLC ("Tegra118"), which is
reported within Corporate and Other following the Segment Realignment. We
received pre-tax proceeds of $578 million, net of related expenses, resulting in
a pre-tax gain on the sale of $428 million, with a related tax expense of $112
million. Our retained interest is accounted for as an equity method investment.
On February 2, 2021, Tegra118 completed a merger with a third party, resulting
in a dilution of our ownership interest in the combined new entity, Wealthtech
Holdings, LLC.
In connection with the acquisition of First Data, we acquired two businesses
which we intended to sell. In October 2019, we completed the sales, at acquired
fair value, of these two businesses for aggregate proceeds of $133 million.
On March 29, 2018, we sold a 55% controlling interest of our Lending Solutions
business, which was reported within the Fintech segment, retaining 45% ownership
interests in two joint ventures (the "Lending Joint Ventures"). In conjunction
with this transaction, we entered into transition services agreements to
provide, at fair value, various administration, business process outsourcing and
data center related services for defined periods to the Lending Joint Ventures.
We received gross sale proceeds of $419 million from the transactions. In August
2019, the Sagent Auto, LLC joint venture, formerly known as Fiserv Automotive
Solutions, LLC, completed a merger with a third party, resulting in the dilution
of our ownership interest to 31% in the combined entity, defi SOLUTIONS Group,
LLC. Our remaining ownership interest in the Lending Joint Ventures are
accounted for as equity method investments. In addition, in January 2018, we
completed the sale of the retail voucher business acquired in our 2017
acquisition of Monitise for proceeds of £37 million ($50 million).
Enterprise Priorities
We aspire to move money and information in a way that moves the world by
delivering superior value for our clients through leading technology, targeted
innovation and excellence in everything we do. We achieve this through active
portfolio management of our business, enhancing the overall value of our
existing client relationships, improving operational effectiveness, being
disciplined in our allocation of capital, and differentiating our products and
services through innovation. Our long-term priorities are to (i) deliver
integration value from the First Data acquisition; (ii) continue to build
high-quality revenue while meeting our earnings goals; (iii) enhance client
relationships with an emphasis on digital and payment solutions; and
(iv) deliver innovation and integration which enables differentiated value for
our clients.
Industry Trends
The global payments landscape continues to evolve, with rapidly advancing
technologies and a steady expansion of digital payments, e-commerce and
innovation in real-time payments infrastructure. Because of this growth,
competition also continues to evolve. Business and consumer expectations
continue to rise, with a focus on convenience and security. To meet these
expectations, payments companies are focused on modernizing their technology,
expanding the use of data and enhancing the customer experience.
Financial Institutions
The market for products and services offered by financial institutions continues
to evolve rapidly. The traditional financial industry and other market entrants
regularly introduce and implement new payment, deposit, risk management, lending
and investment products, and the distinctions among the products and services
traditionally offered by different types of financial institutions continue to
narrow as they seek to serve the same customers. At the same time, the evolving
global regulatory and cybersecurity landscape has continued to create a
challenging operating environment for financial institutions. These conditions
are driving heightened interest in solutions that help financial institutions
win and retain customers, generate incremental revenue, comply with regulations
and enhance operating efficiency. Examples of these solutions include electronic
payments and delivery methods such as internet, mobile and tablet banking,
sometimes referred to as "digital channels."
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The focus on digital channels by both financial institutions and their
customers, as well as the growing volume and types of payment transactions in
the marketplace, continues to elevate the data and transaction processing needs
of financial institutions. We expect that financial institutions will continue
to invest significant capital and human resources to process transactions,
manage information, maintain regulatory compliance and offer innovative new
services to their customers in this rapidly evolving and competitive
environment. We anticipate that we will benefit over the long term from the
trend of financial institutions moving from in-house technology to outsourced
solutions as they seek to remain current on technology changes in an evolving
marketplace. We believe that economies of scale in developing and maintaining
the infrastructure, technology, products, services and networks necessary to be
competitive in such an environment are essential to justify these investments,
and we anticipate that demand for products that facilitate customer interaction
with financial institutions, including electronic transactions through digital
channels, will continue to increase, which we expect to create revenue
opportunities for us.

In addition to the trends described above, the financial institutions
marketplace has experienced change in composition as well. During the past 25
years, the number of financial institutions in the United States has declined at
a relatively steady rate of approximately 3% per year, primarily as a result of
voluntary mergers and acquisitions. Rather than reducing the overall market,
these consolidations have transferred accounts among financial institutions. If
a client loss occurs due to merger or acquisition, we receive a contract
termination fee based on the size of the client and how early in the contract
term the contract is terminated. These fees can vary from period to period with
the variance depending on the quantum of financial institution merger activity
in a given period and whether or not our clients are involved in the activity.
Our focus on long-term client relationships and recurring, transaction-oriented
products and services has also reduced the impact that consolidation in the
financial services industry has had on us. We believe that the integration of
our products and services creates a compelling value proposition for our clients
by providing, among other things, new sources of revenue and opportunities to
reduce their costs. Furthermore, we believe that our sizable and diverse client
base, combined with our position as a leading provider of non-discretionary,
recurring revenue-based products and services, gives us a solid foundation for
growth.
Merchants
The rapid growth in and globalization of mobile and e-commerce, driven by
consumers' desire for simpler, more efficient shopping experiences, has created
an opportunity for merchants to reach consumers in high-growth online and mobile
settings, which often requires a merchant acquiring provider to enable and
optimize the acceptance of payments. Merchants are demanding simpler, integrated
and modern POS systems to help manage their everyday business operations. When
combined with the ever-increasing ways a consumer can pay for goods and
services, merchants have sought modern POS systems to streamline this
complexity. Furthermore, merchants can now search, discover, compare, purchase
and even install a new POS system through direct, digital-only experiences. This
direct, digital-only channel is quickly becoming a source of new merchant
acquisition opportunities, especially with respect to smaller merchants.
In addition, there are numerous software-as-a-service ("SaaS") solutions in the
industry, many of which have chosen to integrate merchant acquiring within their
software as a way to further monetize their client relationships. SaaS solutions
that integrate payments are often referred to as Independent Software Vendors
(or "ISVs"), and we believe there are thousands of these potential distribution
partnership opportunities available to us.
We believe that our merchant acquiring products and solutions create compelling
value propositions for merchant clients of all sizes, from small and mid-sized
businesses (or "SMBs") to medium-sized regional businesses to global enterprise
merchants, and across all verticals. Furthermore, we believe that our sizable
and diverse client base, combined with valued partnerships with merchant
acquiring businesses of small, medium and large financial institutions, and
non-financial institutions, gives us a solid foundation for growth.
Recent Market Conditions
In 2019, a novel strain of coronavirus ("COVID-19") was identified and has since
continued to spread. 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 actions to prevent the spread of COVID-19, such as imposing travel
restrictions and bans, quarantines, social distancing guidelines,
shelter-in-place or lock-down orders and other similar limitations, adversely
impacting global economic activity and contributing to significant volatility in
financial markets. From time to time during the second half of 2020 and into
2021, some jurisdictions have eased restrictions in an effort to reopen their
economies. While this has been successful in some places, others have had to
reinstate restrictions to curb the spread of the virus.
We have taken several actions since the onset of the pandemic to protect the
health, safety and well-being of our employees while maintaining business
continuity. These actions include, among others, requiring a majority of our
employees to work remotely, eliminating non-essential travel, suspending all
non-essential visitors to our facilities, disinfecting facilities and workspaces
extensively and frequently, providing personal protective equipment to
associates and requiring employees who
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must be present at our facilities to adhere to a variety of safety protocols. In
addition, we have expanded paid time-off for employees impacted by COVID-19,
provided increased pay for certain employees involved in critical infrastructure
who could not work remotely, and expanded our Fiserv Cares program to benefit
employees in need around the world. We expect to continue such safety measures
for the foreseeable future and may take further actions, or adapt these existing
policies, as government authorities may require or recommend or as we may
determine to be in the best interest of our employees, clients and vendors.
Our operating performance is subject to global economic and market conditions,
as well as their impacts on levels of consumer and business spending. As a
result of the COVID-19 pandemic and the related decline in global economic
activity, we experienced a significant decrease in payments volume and
transactions beginning in late March 2020 that negatively impacted our merchant
acquiring and payment-related businesses, which earn transaction-based fees, as
well as modest declines in other businesses. Merchant acquiring transaction and
payment volumes began to partially recover in May 2020 and continued to improve
into July 2020; thereafter, the monthly volume growth rate as compared to the
prior year stabilized for the balance of the year. While recent business trends
demonstrate positive momentum, the uncertainty caused by the pandemic creates an
economic environment where our future financial results remain difficult to
anticipate. We currently expect payments volume and transactions to continue to
improve throughout 2021.
Throughout 2020, we also took several actions to manage discretionary costs
including, among others, limiting the hiring of new employees, limiting
third-party spending and the temporary suspension of certain employee-related
benefits, including company matching contributions to the Fiserv 401(k) Savings
Plan as well as the discount on shares purchased under the Fiserv, Inc. Amended
and Restated Employee Stock Purchase Plan. Effective January 1, 2021, company
matching contributions were re-established to equal 100% on the first 1%
contributed and 25% on the next 4% contributed for eligible participants. In
addition, we reassessed and deferred certain capital expenditures that were
originally planned for 2020. We will continue to monitor and assess developments
related to COVID-19 and implement appropriate actions to minimize the risk to
our operations of any material adverse developments. Ultimately, the extent of
the impact of the COVID-19 pandemic on our 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 to the pandemic
and the impact of such responses on us; the level of success of global
vaccination efforts; and the impact of the pandemic on our employees, clients,
vendors, operations and sales, all of which are uncertain and cannot be
predicted.
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes have been prepared
in accordance with accounting principles generally accepted in the United
States, which require management to make estimates, judgments and assumptions
that affect the reported amount of assets, liabilities, revenue and expenses. We
continually evaluate the accounting policies and estimates that we use to
prepare our consolidated financial statements, including for recently adopted
accounting pronouncements, and base our estimates on historical experience and
assumptions that we believe are reasonable in light of current circumstances.
Actual amounts and results could differ materially from these estimates.
Acquisitions
From time to time, we make strategic acquisitions that may have a material
impact on our consolidated results of operations or financial position. We
allocate the purchase price of acquired businesses to the assets acquired and
liabilities assumed in the transaction at their estimated fair values. The
estimates used to determine the fair value of long-lived assets, such as
intangible assets, can be complex and require significant judgments. We use
information available to us to make fair value determinations and engage
independent valuation specialists, when necessary, to assist in the fair value
determination of significant acquired long-lived assets. The determination of
fair value requires estimates about discount rates, growth and retention rates,
royalty rates, expected future cash flows and other future events that are
judgmental in nature. While we use our best estimates and assumptions as a part
of the purchase price allocation process, our estimates are inherently uncertain
and subject to refinement. As a result, during the measurement period, which may
be up to one year from the acquisition date, we record adjustments to the assets
acquired and liabilities assumed, with the corresponding offset to goodwill.
Upon the conclusion of the measurement period or final determination of the
values of assets acquired or liabilities assumed, whichever comes first, any
subsequent adjustments are recorded to our consolidated statements of income. We
are also required to estimate the useful lives of intangible assets to determine
the amount of acquisition-related intangible asset amortization expense to
record in future periods. We periodically review the estimated useful lives
assigned to our intangible assets to determine whether such estimated useful
lives continue to be appropriate. Additional information regarding our
acquisitions is included in Note 4 to the consolidated financial statements.
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Goodwill and Intangible Assets
We review the carrying value of goodwill for impairment annually, or more
frequently if events or circumstances indicate the carrying value may not be
recoverable. Goodwill is tested for impairment at a reporting unit level, which
is one level below our reportable segments. When reviewing goodwill for
impairment, we consider the prior test's amount of excess fair value over the
carrying value of each reporting unit, the period of time since a reporting
unit's last quantitative test, the extent a reorganization or disposition
changes the composition of one or more of our reporting units, and other factors
to determine whether or not to first perform a qualitative test. When performing
a qualitative test, we assess numerous factors to determine whether it is more
likely than not that the fair value of our reporting units are less than their
respective carrying values. Examples of qualitative factors that we assess
include our share price, our financial performance, market and competitive
factors in our industry and other events specific to our reporting units. If we
conclude that it is more likely than not that the fair value of a reporting unit
is less than its carrying value, we perform a quantitative impairment test.
The quantitative impairment test compares the estimated fair value of the
reporting unit to its carrying value, and recognizes an impairment loss for the
amount by which a reporting unit's carrying amount exceeds its fair value,
without exceeding the total amount of goodwill allocated to that reporting unit.
We determine the fair value of a reporting unit using both a discounted cash
flow analysis and a market approach. Determining the fair value of a reporting
unit involves judgment and the use of significant estimates and assumptions,
which include assumptions regarding the revenue growth rates and operating
margins used to calculate estimated future cash flows, risk-adjusted discount
rates and future economic and market conditions.
In connection with the Segment Realignment, certain of our reporting units
changed in composition in which goodwill was allocated to such reporting units
using a relative fair value approach. Accordingly, we performed an interim
goodwill impairment assessment in the first quarter of 2020 for those reporting
units impacted by the Segment Realignment and determined that our goodwill was
not impaired based on an assessment of various qualitative factors, as described
above. Our most recent annual impairment assessment of our reporting units in
the fourth quarter of 2020 determined that our goodwill of $36 billion was not
impaired as the estimated fair values of the respective reporting units exceeded
the carrying values. However, for four of our reporting units that were acquired
as part of the First Data acquisition, with aggregate goodwill of $12 billion,
the excess of the respective reporting unit's fair value over carrying value
ranged from 14 to 21 percent. If future operating performance is below our
expectations or there are changes to forecasted revenue growth rates,
risk-adjusted discount rates, effective income tax rates, or some combination
thereof, a decline in the fair value of the reporting units could result in, and
we may be required to record, a goodwill impairment charge. It is also
reasonably possible that future developments related to the economic impact of
the COVID-19 pandemic on certain of our recently acquired (recorded at fair
value) First Data businesses, such as an increased duration and intensity of the
pandemic and/or government-imposed shutdowns, prolonged economic downturn or
recession, or lack of governmental support for recovery, could have a future
material impact on one or more of the estimates and assumptions used to evaluate
goodwill impairment. We have no accumulated goodwill impairment through December
31, 2020. Additional information regarding our goodwill is included in Note 8 to
the consolidated financial statements.
We review intangible assets for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may not be recoverable.
We review capitalized software development costs for impairment at each
reporting date. Recoverability of intangible assets is assessed by comparing the
carrying amount of the asset to either the undiscounted future cash flows
expected to be generated by the asset or the net realizable value of the asset,
depending on the type of asset. Determining future cash flows and net realizable
values involves judgment and the use of significant estimates and assumptions
regarding future economic and market conditions. Measurement of any impairment
loss is based on estimated fair value. Given the significance of our goodwill
and intangible asset balances, an adverse change in fair value could result in
an impairment charge, which could be material to our consolidated financial
statements.
Revenue Recognition
Revenue is measured based on consideration specified in a contract with a
customer, and excludes any amounts collected on behalf of third parties. As a
practical expedient, we do not adjust the transaction price for the effects of a
significant financing component if, at contract inception, the period between
customer payment and the transfer of goods or services is expected to be one
year or less. Contracts with customers are evaluated on a contract-by-contract
basis as contracts may include multiple types of goods and services as described
below.
Processing and Services
Processing and services revenue is generated from account- and transaction-based
fees for data processing, merchant transaction processing and acquiring,
electronic billing and payment services, electronic funds transfer and
debit/credit processing services; consulting and professional services; and
software maintenance for ongoing client support.
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We recognize processing and services revenues in the period in which the
specific service is performed unless they are not deemed distinct from other
goods or services, in which case revenue would then be recognized as control is
transferred of the combined goods and services. Our arrangements for processing
and services typically consist of an obligation to provide specific services to
our customers on a when- and if-needed basis (a stand-ready obligation) and
revenue is recognized from the satisfaction of the performance obligations in
the amount billable to the customer. These services are typically provided under
a fixed or declining (tier-based) price per unit based on volume of service;
however, pricing for services may also be based on minimum monthly usage fees.
Fees for our processing and services arrangements are typically billed and paid
on a monthly basis.
Product
Product revenue is generated from print and card production sales, as well as
software license sales. For software license agreements that are distinct, we
recognize software license revenue upon delivery, assuming a contract is deemed
to exist. Revenue for arrangements with customers that include significant
customization, modification or production of software such that the software is
not distinct is typically recognized over time based upon efforts expended, such
as labor hours, to measure progress towards completion. For arrangements
involving hosted licensed software for the customer, a software element is
considered present to the extent the customer has the contractual right to take
possession of the software at any time during the hosting period without
significant penalty and it is feasible for the customer to either operate the
software on their own hardware or contract with another vendor to host the
software.
We also sell or lease hardware (POS devices) and other peripherals as part of
our contracts with customers. Hardware typically consists of terminals
or Clover devices. We do not manufacture hardware, rather we purchase hardware
from third-party vendors and hold such hardware in inventory until purchased by
a customer. We account for sales of hardware as a separate performance
obligation and recognize the revenue at its standalone selling price when the
customer obtains control of the hardware.
Significant Judgments
We use the following methods, inputs and assumptions in determining amounts of
revenue to recognize. For multi-element arrangements, we account for individual
goods or services as a separate performance obligation if they are distinct, the
good or service is separately identifiable from other items in the arrangement,
and if a customer can benefit from the good or service on its own or with other
resources that are readily available to the customer. If these criteria are not
met, the promised goods or services are accounted for as a combined performance
obligation. Determining whether goods or services are distinct performance
obligations that should be accounted for separately may require significant
judgment.
Technology or service components from third parties are frequently embedded in
or combined with our applications or service offerings. Whether we recognize
revenue based on the gross amount billed to a customer or the net amount
retained involves judgment that depends on the relevant facts and circumstances
including the level of contractual responsibilities and obligations for
delivering solutions to end customers.
The transaction price is determined based on the consideration to which we will
be entitled in exchange for transferring products or services to the customer.
We include any fixed charges within our contracts as part of the total
transaction price. To the extent that variable consideration is not constrained,
we include an estimate of the variable amount, as appropriate, within the total
transaction price and update our assumptions over the duration of the contract.
We may constrain the estimated transaction price in the event of a high degree
of uncertainty as to the final consideration amount owed because of an extended
length of time over which the fees may be adjusted. The transaction price
(including any discounts or rebates) is allocated between distinct goods and
services in a multi-element arrangement based on their relative standalone
selling prices. For items that are not sold separately, we estimate the
standalone selling prices using available information such as market conditions
and internally approved pricing guidelines. Significant judgment may be required
to determine standalone selling prices for each performance obligation and
whether it depicts the amount we expect to receive in exchange for the related
good or service.
Contract modifications occur when we and our customers agree to modify existing
customer contracts to change the scope or price (or both) of the contract or
when a customer terminates some, or all, of the existing services provided by
us. When a contract modification occurs, it requires us to exercise judgment to
determine if the modification should be accounted for as (i) a separate
contract, (ii) the termination of the original contract and creation of a new
contract, or (iii) a cumulative catch up adjustment to the original contract.
Further, contract modifications require the identification and evaluation of the
performance obligations of the modified contract, including the allocation of
revenue to the remaining performance obligations and the period of recognition
for each identified performance obligation.
Additional information regarding our revenue recognition policies is included in
Note 3 to the consolidated financial statements.
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Income Taxes
The determination of our provision for income taxes requires management's
judgment in the use of estimates and the interpretation and application of
complex tax laws, sometimes made more complex by our global footprint. Judgment
is also required in assessing the timing and amounts of deductible and taxable
items. We establish a liability for known tax exposures relating to deductions,
transactions and other matters involving some uncertainty as to the proper tax
treatment of the item. In establishing a liability for known tax exposures,
assumptions are made in determining whether, and the extent to which, a tax
position will be sustained. A tax benefit with respect to a tax position is
recognized only when it is more likely than not to be sustained upon examination
by the relevant taxing authority, based on its technical merits, considering the
facts and circumstances available as of the reporting date. The amount of tax
benefit recognized reflects the largest benefit that we believe is more likely
than not to be realized on settlement with the relevant taxing authority. As new
information becomes available, we evaluate our tax positions and adjust our
liability for known tax exposures as appropriate.
We maintain net operating loss carryforwards in various taxing jurisdictions,
resulting in the establishment of deferred tax assets. We establish a valuation
allowance against our deferred tax assets when, based upon the weight of all
available evidence, we believe it is more likely than not that some portion or
all of the deferred tax assets will not be realized. In making this
determination, we have considered the relative impact of all of the available
positive and negative evidence regarding future sources of taxable income and
available tax planning strategies. However, there could be a material impact to
our effective tax rate if there is a significant change in our judgment. To the
extent our judgment changes, the valuation allowances are then adjusted,
generally through the provision for income taxes, in the period in which the
change in facts and circumstances occurs. Additional information regarding our
income taxes is included in Note 18 to the consolidated financial statements.
Results of Operations
Components of Revenue and Expenses
The following summary describes the components of revenue and expenses as
presented in our consolidated statements of income.
Processing and Services
Processing and services revenue, which in 2020 represented 82% of our total
revenue, is primarily generated from account- and transaction-based fees under
multi-year contracts. Processing and services revenue is most reflective of our
business performance as a significant amount of our total operating profit is
generated by these services. Cost of processing and services includes costs
directly associated with providing services to clients and includes the
following: personnel; equipment and data communication; infrastructure costs,
including costs to maintain software applications; client support; certain
depreciation and amortization; and other operating expenses.
Product
Product revenue, which in 2020 represented 18% of our total revenue, is
primarily derived from print and card production sales, as well as software
license sales and hardware (POS devices) sales. Cost of product includes costs
directly associated with the products sold and includes the following: costs of
materials and software development; hardware; personnel; infrastructure costs;
certain depreciation and amortization; and other costs directly associated with
product revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of: salaries,
wages, commissions and related expenses paid to sales personnel, administrative
employees and management; advertising and promotional costs; certain
depreciation and amortization; and other selling and administrative expenses.
Synergies from the First Data Acquisition
Following the acquisition of First Data, we continue to implement our
post-merger integration plans to achieve 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. At
December 31, 2020, we have achieved a significant portion of revenue and cost
synergies and expect to meet or exceed our previously announced targets.
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Financial Results
The following table presents certain amounts included in our consolidated
statements of income, the relative percentage that those amounts represent to
revenue and the change in those amounts from year-to-year. This information
should be read together with the consolidated financial statements and
accompanying notes. The financial results presented below have been affected by
the acquisition of First Data and other acquisitions, dispositions, debt
financing activities, and foreign currency fluctuations. The amounts from the
acquired First Data businesses were included in our results for the full year in
2020 and for the five months, since the July 29,2019 acquisition date, in 2019.
(In millions)                                                                                Percentage of Revenue (1)                                               Increase (Decrease)
Year Ended December 31,      2020              2019             2018               2020                 2019                2018                     2020 vs. 2019                         2019 vs. 2018

Revenue:

Processing and services $ 12,215 $ 8,573 $ 4,975

          82.2  %             84.2  %             85.4  %       $       3,642              42  %       $      3,598             72  %
Product                      2,637            1,614              848                  17.8  %             15.8  %             14.6  %               1,023              63  %                766             90  %
Total revenue               14,852           10,187            5,823                 100.0  %            100.0  %            100.0  %               4,665              46  %              4,364             75  %

Expenses:

Cost of processing and
services                     5,841            4,016            2,324                  47.8  %             46.8  %             46.7  %               1,825              45  %              1,692             73  %
Cost of product              1,971            1,293              745                  74.7  %             80.1  %             87.9  %                 678              52  %                548             74  %
Sub-total                    7,812            5,309            3,069                  52.6  %             52.1  %             52.7  %               2,503              47  %              2,240             73  %
Selling, general and
administrative               5,652            3,284            1,228                  38.1  %             32.2  %             21.1  %               2,368              72  %              2,056            167  %
Gain on sale of
businesses                    (464)             (15)            (227)                 (3.1) %             (0.1) %             (3.9) %                 449                n/m               (212)              n/m
Total expenses              13,000            8,578            4,070                  87.5  %             84.2  %             69.9  %               4,422              52  %              4,508            111  %
Operating income             1,852            1,609            1,753                  12.5  %             15.8  %             30.1  %                 243              15  %               (144)            (8) %
Interest expense, net         (709)            (473)            (189)                 (4.8) %             (4.6) %             (3.2) %                 236              50  %                284            150  %
Debt financing activities        -              (47)             (14)                    -  %             (0.5) %             (0.2) %                 (47)           (100) %                 33            236  %
Other income (expense)          28               (6)               5                   0.2  %             (0.1) %              0.1  %                  34                n/m                (11)              n/m
Income before income
taxes and income from
investments in
unconsolidated affiliates    1,171            1,083            1,555                   7.9  %             10.6  %             26.7  %                  88               8  %               (472)           (30) %
Income tax provision          (196)            (198)            (378)                 (1.3) %             (1.9) %             (6.5) %                  (2)             (1) %               (180)           (48) %
Income from investments
in unconsolidated
affiliates                       -               29               10                     -  %              0.3  %              0.2  %                 (29)           (100) %                 19            190  %

Net income                     975              914            1,187                   6.6  %              9.0  %             20.4  %                  61               7  %               (273)           (23) %
Less: net income
attributable to
noncontrolling interests
and redeemable
noncontrolling interests        17               21                -                   0.1  %              0.2  %                -  %                  (4)            (19) %                 21               n/m
Net income attributable
to Fiserv, Inc.           $    958          $   893          $ 1,187                   6.5  %              8.8  %             20.4  %       $          65               7  %       $       (294)           (25) %


(1)Percentage of revenue is calculated as the relevant revenue, expense, income
or loss amount divided by total revenue, except for cost of processing and
services and cost of product amounts, which are divided by the related component
of revenue.
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(In millions)
                                                                                                                 Corporate
Year Ended December 31,               Acceptance                 Fintech                Payments                 and Other                  Total
Total revenue:
2020                             $    5,522                 $ 2,901                 $ 5,504                 $     925                 $ 14,852
2019                                  2,571                   2,942                   3,909                       765                   10,187
2018                                      -                   2,917                   2,408                       498                    5,823

Revenue growth:
2020                             $    2,951                 $   (41)                $ 1,595                 $     160                 $  4,665
2020 percentage                         115  %                   (1) %                   41  %                                              46  %
2019                             $    2,571                 $    25                 $ 1,501                 $     267                 $  4,364
2019 percentage                                                   1  %                   62  %                                              75  %

Operating income:
2020                             $    1,427                 $   992                 $ 2,361                 $  (2,928)                $  1,852
2019                                    764                     885                   1,658                    (1,698)                   1,609
2018                                      -                     851                   1,081                      (179)                   1,753

Operating income growth:
2020                             $      663                 $   107                 $   703                 $  (1,230)                $    243
2020 percentage                          87  %                   12  %                   42  %                                              15  %
2019                             $      764                 $    34                 $   577                 $  (1,519)                $   (144)
2019 percentage                                                   4  %                   53  %                                              (8) %

Operating margin:
2020                                   25.9  %                 34.2  %                 42.9  %                                            12.5  %
2019                                   29.7  %                 30.1  %                 42.4  %                                            15.8  %
2018                                      -  %                 29.2  %                 44.9  %                                            30.1  %

Operating margin growth: (1)
2020                                   (380)   bps              410    bps               50    bps                                        (330)   bps
2019                                                             90    bps             (250)   bps                                      (1,430)   bps


(1)Represents the basis point growth or decline in operating margin.
Operating margin percentages are calculated using actual, unrounded amounts.
Total Revenue
Total revenue increased $4,665 million, or 46%, in 2020 and increased $4,364
million, or 75%, in 2019 compared to the prior years, primarily driven by the
incremental revenue from the First Data acquisition. The First Data acquisition,
which was completed on July 29, 2019, contributed $5,067 million and $4,078
million of incremental revenue during 2020 and 2019, respectively, with $3,114
million and $2,571 million to the Acceptance segment, $1,616 million and
$1,230 million to the Payments segment, and $337 million and $277 million to
Corporate and Other, during 2020 and 2019, respectively. Conversely,
dispositions reduced revenue by $348 million and $54 million in 2020 and 2019,
respectively, compared to the prior years.
Revenue in our Acceptance segment increased $2,951 million, or 115%, in 2020,
driven by the acquisition of First Data on July 29, 2019, which contributed
incremental revenue of $3,114 million during the first seven months of 2020 and
the entire $2,571 million of Acceptance segment revenue in 2019. The dissolution
of the BAMS joint venture on July 1, 2020 reduced Acceptance segment revenue
growth in 2020 by 6% compared to 2019. In addition, revenue in our Acceptance
segment, which earns transaction-based fees, was adversely affected by the
economic impact of the COVID-19 pandemic in the last two weeks of March 2020 and
throughout the remainder of the year. Merchant acquiring transaction and payment
volumes began to partially recover in May 2020 and continued to improve into
July 2020; thereafter, the monthly volume growth rate as compared to the prior
year stabilized for the balance of the year.
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Revenue in our Fintech segment decreased $41 million, or 1%, in 2020 and
increased $25 million, or 1%, in 2019 compared to the prior years. Dispositions,
including our remittance solutions business in December 2019 and Lending
Solutions business in March 2018, reduced Fintech segment revenue growth by 1%
and 2% in 2020 and 2019, respectively, compared to the prior years. Recurring
revenue growth from higher processing volumes in 2020 was offset by a reduction
of 2% from a decline in termination fee revenue. Fintech segment revenue growth
in 2019 was driven by growth in our bank solutions business from new business,
customer migrations from in-house technology to outsourced solutions and growth
with existing customers across a range of products.

Revenue in our Payments segment increased $1,595 million, or 41%, in 2020 and
increased $1,501 million, or 62%, in 2019 compared to the prior years. Revenue
from acquired businesses, including First Data, contributed 41% and 57% to
Payments segment revenue growth in 2020 and 2019, respectively. Payments segment
revenue in 2020 was adversely affected by the COVID-19 pandemic while the
remaining growth in 2019 was driven by expansion in our recurring revenue
businesses, with our card services and electronic payments businesses
contributing 4% and 1%, respectively.
Revenue at Corporate and Other increased $160 million, or 21%, in 2020 and
increased $267 million, or 54%, in 2019 compared to the prior years. Postage
revenue from the First Data acquisition contributed 44% and 56% to the Corporate
and Other growth in 2020 and 2019, respectively, while the disposition of a 60%
controlling interest of our Investment Services business reduced revenue growth
by 19% in 2020.
Total Expenses
Total expenses increased $4,422 million, or 52%, in 2020 and increased $4,508
million, or 111%, in 2019 compared to the prior years. Total expenses as a
percentage of total revenue was 87.5%, 84.2% and 69.9% in 2020, 2019 and 2018,
respectively. Total expenses in 2020 and 2019 contain the incremental expenses,
including acquired intangible asset amortization, of First Data from the date of
acquisition, resulting in the overall significant increase in expenses compared
to the prior years. The incremental expenses during 2020 from the First Data
acquisition were primarily due to 2020 containing seven more months of expenses
from First Data as compared to 2019. Total expenses were reduced by a
$428 million gain on sale of a 60% interest of our Investment Services business
and a $36 million gain on the dissolution of the BAMS joint venture in 2020, and
a $227 million gain on sale of a 55% interest of our Lending Solutions business
in 2018.
Cost of processing and services as a percentage of processing and services
revenue was 47.8%, 46.8% and 46.7% in 2020, 2019 and 2018, respectively. Expense
management in our recurring revenue businesses favorably impacted cost of
processing and services as a percentage of processing and services revenue in
both 2020 and 2019 compared to the prior years. Conversely, cost of processing
and services as a percentage of processing and services revenue increased in
2020 by approximately 200 basis points, from integration-related expenses
associated with the First Data acquisition, including $118 million of
accelerated depreciation and amortization associated with the termination of
certain vendor contracts, and by approximately 100 basis points from incremental
First Data acquisition intangible amortization. Cost of processing and services
as a percentage of processing and services revenue increased in 2019 by
approximately 70 basis points from expenses shifting from cost of product to
cost of processing as financial institutions continue to move from in-house
technology to outsourced solutions, and by approximately 60 basis points from a
non-cash impairment charge related to an international core processing platform.
Client-focused incremental investments increased cost of processing and services
as a percentage of processing and services revenue in 2018 by approximately 50
basis points.
Cost of product as a percentage of product revenue was 74.7%, 80.1% and 87.9% in
2020, 2019 and 2018, respectively. The reduction in cost of product as a
percentage of product revenue in 2020 and 2019 was driven by the First Data
acquisition. In addition, cost of product as a percentage of product revenue in
2019 decreased by approximately 400 basis points due to expenses shifting from
cost of product to cost of processing and services as financial institutions
continue to move from in-house technology to outsourced solutions, and increased
by approximately 300 basis points from a decrease in higher-margin software
license revenue as compared to 2018.

Selling, general and administrative expenses as a percentage of total revenue
was 38.1%, 32.2% and 21.1% in 2020, 2019 and 2018, respectively. Incremental
acquired intangible asset amortization from the First Data acquisition increased
selling, general and administrative expenses as a percentage of total revenue by
approximately 600 basis points in each of 2020 and 2019. Selling, general and
administrative expenses as a percentage of total revenue in 2020 increased by
approximately 120 basis points from higher integration-related expenses, which
was largely offset by synergy related cost reductions. The remaining increase in
2019 was due to increased costs associated with the First Data acquisition,
including integration-related expenses.
The gains on sale of businesses of $464 million, $15 million and $227 million in
2020, 2019 and 2018, respectively, primarily resulted from the sale of a 60%
interest of our Investment Services business in February 2020, the dissolution
of the BAMS joint venture in July 2020, and the sale of a 55% interest of our
Lending Solutions business in March 2018, including contingent consideration
received in 2019.
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Operating Income and Operating Margin
Total operating income increased $243 million, or 15%, in 2020 and decreased
$144 million, or 8%, in 2019 compared to the prior years. Total operating margin
decreased to 12.5% in 2020 from 15.8% in 2019 and 30.1% in 2018.

Operating income in our Acceptance segment was $764 million in 2019 and
increased $663 million, or 87%, in 2020, driven by the acquisition of First
Data. Operating margin was 25.9% and 29.7% in 2020 and 2019, respectively,
decreasing 380 basis points in 2020 compared to the prior year. Operating income
and margin in our Acceptance segment, which earns transaction-based fees, was
adversely affected in the last two weeks of March and throughout the remainder
of 2020 due to the economic impact of the COVID-19 pandemic. Merchant acquiring
transaction and payment volumes and related operating income began to partially
recover in May 2020 and continued to improve into July 2020; thereafter, the
monthly volume growth rate as compared to the prior year stabilized for the
balance of the year.

Operating income in our Fintech segment increased $107 million, or 12%, in 2020
and increased $34 million, or 4%, in 2019 compared to the prior years. Operating
margin was 34.2%, 30.1% and 29.2% in 2020, 2019 and 2018, respectively,
increasing 410 basis points in 2020 and increasing 90 basis points in 2019
compared to the prior years. Fintech segment operating margin improvement in
2020 compared to 2019 was driven by expense management across the segment,
including technology and vendor synergy savings of approximately 330 basis
points and additional expense reductions attributable to the COVID-19 pandemic
of approximately 120 basis points, partially offset by approximately 100 basis
points from a reduction in contract termination fee revenue. Fintech segment
operating margin improvement in 2019 compared to 2018 was driven by expense
management efforts in our Fintech international businesses of approximately 100
basis points, partially offset by approximately 70 basis points from a reduction
in higher-margin software license revenue. Client-focused incremental
investments reduced Fintech segment operating margin in 2018 by approximately 40
basis points.

Operating income in our Payments segment increased $703 million, or 42%, in 2020
and increased $577 million, or 53%, in 2019 compared to the prior years.
Operating margin was 42.9%, 42.4% and 44.9% in 2020, 2019 and 2018,
respectively, increasing 50 basis points in 2020 and decreasing 250 basis points
in 2019 compared to the prior years. The reduction in Payments segment operating
margin in 2019 was primarily attributable to the acquisition of First Data,
while the impact of cost synergies drove the margin expansion in 2020.
The operating loss in Corporate and Other increased $1,230 million in 2020 and
increased $1,519 million in 2019 compared to the prior years. The increase in
Corporate and Other operating loss was primarily due to the acquisition of First
Data, including incremental amortization of acquired intangible assets of
$1,035 million and $799 million in 2020 and 2019, respectively, incremental
acquisition and integration-related costs of $441 million and $275 million in
2020 and 2019, respectively, and other First Data related corporate expenses
since the date of acquisition. Corporate and Other was favorably impacted by
gains from sales of businesses of $464 million, $15 million and $227 million in
2020, 2019 and 2018, respectively, and negatively impacted in 2019 by a
$48 million non-cash impairment charge related to an international core
processing platform.
Interest Expense, Net
Interest expense, net increased $236 million, or 50%, in 2020 and increased $284
million, or 150%, in 2019 compared to prior years, primarily due to the June
2019 issuance of $9.0 billion of fixed-rate senior notes, the July 2019 issuance
of €1.5 billion and £1.05 billion of fixed-rate senior notes and the term loan
borrowings that were incurred for the purpose of funding the repayment of
certain indebtedness of First Data and its subsidiaries on the closing date of
the acquisition, as well as the September 2018 issuance of $2.0 billion of
fixed-rate notes.
Debt Financing Activities
In connection with the merger agreement entered into on January 16, 2019 to
acquire First Data, we entered into a bridge facility commitment letter
providing for a 364-day senior unsecured bridge term loan facility in an
aggregate principal amount of $17.0 billion for the purpose of refinancing
certain indebtedness of First Data on the closing date of the acquisition. We
recorded $98 million of expense in 2019 associated with the bridge term loan
facility and other refinancing and related activities in connection with the
acquisition of First Data. In addition, in 2019 we recorded $50 million of net
foreign currency transaction gains related to our foreign currency-denominated
debt. In 2018, we completed a cash tender offer for and redemption of our
then-outstanding $450 million aggregate principal amount of 4.625% senior notes
due 2020, which resulted in a pre-tax loss on early debt extinguishment of
$14 million.
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Other Income (Expense)
Other income (expense) increased $34 million in 2020 and decreased $11 million
in 2019 compared to prior years. Other income (expense) includes net foreign
currency transaction gains and losses, gains or losses from a change in fair
value of investments in certain equity securities, and amounts related to the
release of risk under our non-contingent guarantee arrangements and changes in
the provision of estimated credit losses associated with certain indebtedness of
the Lending Joint Ventures. In addition, other income includes $19 million in
2020 related to a pre-tax gain on the sale of certain lease receivables.
Income Tax Provision
Income tax provision as a percentage of income before income from investments in
unconsolidated affiliates was 16.7%, 18.3% and 24.3% in 2020, 2019 and 2018,
respectively. The decrease in the effective tax rate in 2020 compared to 2019
was primarily the result of foreign income tax benefits from a subsidiary
restructuring, partially offset by the impact of an increase in the United
Kingdom corporate income tax rate from 17% to 19% in 2020. The decrease in the
effective tax rate in 2019 compared to the prior year is primarily related to
equity compensation-related tax benefits, as well as discrete benefits due to a
loss from subsidiary restructuring.
Income from Investments in Unconsolidated Affiliates
Our share of net income or loss from affiliates accounted for using the equity
method of accounting, including merchant bank alliance affiliates from the
acquisition of First Data, is reported as income from investments in
unconsolidated affiliates and the related tax expense or benefit is reported
within the income tax provision in the consolidated statements of income. Income
from investments in unconsolidated affiliates, including acquired intangible
asset amortization from valuations in purchase accounting, was $0 million, $29
million and $10 million in 2020, 2019 and 2018, respectively.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests and redeemable
noncontrolling interests relates to the ownership interest of our alliance
partners in our consolidated results, obtained through the acquisition of First
Data. Net income attributable to noncontrolling interests, including acquired
intangible asset amortization from valuations in purchase accounting, was $17
million and $21 million in 2020 and 2019, respectively.
Net Income Per Share - Diluted
Net income attributable to Fiserv, Inc. per share-diluted was $1.40, $1.71 and
$2.87 in 2020, 2019 and 2018, respectively. Net income attributable to Fiserv,
Inc. per share-diluted in 2020 included integration costs and acquired
intangible asset amortization from the application of purchase accounting
associated with the acquisition of First Data, as well as gains from the sale of
a 60% interest of our Investment Services business in February 2020 and the
dissolution of the BAMS joint venture in July 2020. Net income attributable to
Fiserv, Inc. per share-diluted in 2019 included transaction costs and financing
activities associated with the acquisition of First Data, as well as integration
costs and acquired asset amortization after the date of acquisition. Net income
attributable to Fiserv, Inc. per share-diluted was favorably impacted in 2018 by
a gain on the sale of a 55% interest of our Lending Solutions business.
Liquidity and Capital Resources
General
Our primary liquidity needs in the ordinary course of business are to: (i) fund
normal operating expenses; (ii) meet the interest and principal requirements of
our outstanding indebtedness, including finance leases; and (iii) fund capital
expenditures and operating lease payments. We believe these needs will be
satisfied using cash flow generated by our operations, along with our cash and
cash equivalents of $906 million and available borrowings under our revolving
credit facility of $3.4 billion at December 31, 2020. The following table
summarizes our operating cash flow and capital expenditure amounts for the years
ended December 31, 2020 and 2019, respectively.
                                                              Year Ended
                                                             December 31,                       Increase (Decrease)
(In millions)                                           2020              2019                 $                   %
Net income                                           $    975          $    914          $        61
Depreciation and amortization                           3,257             1,778                1,479
Net foreign currency gain on financing activities           -               (50)                  50
Share-based compensation                                  369               229                  140

Deferred income taxes                                      71                47                   24
Gain on sale of businesses                               (464)              (15)                (449)
Income from investments in unconsolidated affiliates        -               (29)                  29
Distributions from unconsolidated affiliates               42                23                   19
Settlement of interest rate hedge contracts                 -              (183)                 183
Non-cash impairment charges                               124                48                   76
Net changes in working capital and other                 (227)               33                 (260)
Operating cash flow                                  $  4,147          $  2,795          $     1,352                 48  %

Capital expenditures, including capitalized software and other intangibles

$    900          $    721          $       179                 25  %


Our net cash provided by operating activities, or operating cash flow, was $4.1
billion in 2020, an increase of 48% compared with $2.8 billion in 2019. This
increase was primarily attributable to the acquisition of First Data. Net cash
provided by operating activities in 2019 included a payment of $183 million
associated with the settlement of treasury lock agreements related to
refinancing certain indebtedness assumed as part of the First Data acquisition.
Our current policy is to use our operating cash flow primarily to fund capital
expenditures, share repurchases and acquisitions and to repay debt rather than
to pay dividends. Our capital expenditures were approximately 6% and 7% of our
total revenue in 2020 and 2019, respectively.
Share Repurchases
In December 2020, New Omaha Holdings L.P. ("New Omaha"), a shareholder of ours,
completed an underwritten secondary public offering of 20.1 million shares of
our common stock (the "offering"). We repurchased from the underwriters 1.8
million shares of our common stock that were subject to the offering. The share
repurchase totaled $200 million and was funded with cash on hand. The
repurchased shares were cancelled and no longer outstanding following the
completion of the share repurchase. In 2019, we deferred share repurchases as of
January 16, 2019 until the close of the First Data acquisition. We purchased a
total of $1.6 billion and $394 million of our common stock in 2020 and 2019,
respectively.
On November 19, 2020, our board of directors authorized the purchase of up to
60.0 million shares of our common stock. At December 31, 2020, we had
approximately 65.7 million shares remaining under our current repurchase
authorizations. Shares repurchased are generally held for issuance in connection
with our equity plans.
Acquisitions and Dispositions
Acquisitions
On March 2, 2020, we acquired MerchantPro, an ISO that provides processing
services, POS equipment and merchant cash advances to businesses across the
United States. MerchantPro is included within the Acceptance segment and further
expands our merchant services business. On March 18, 2020, we acquired Bypass,
an ISO and innovator in enterprise POS systems for sports and entertainment
venues, food service management providers and national restaurant chains. Bypass
is included within the Acceptance segment and further enhances our omni-commerce
capabilities, enabling enterprise businesses to deliver a seamless customer
experience that spans physical and digital channels. On May 11, 2020, we
acquired Inlet, a provider of secure digital delivery solutions for enterprise
and middle-market billers' invoices and statements. Inlet is included within the
Payments segment and further enhances our digital bill payment strategy. We
acquired these businesses for an aggregate purchase price of $167 million, net
of $2 million of acquired cash, and including earn-out provisions estimated at a
fair value of $45 million. We funded these acquisitions by utilizing a
combination of available cash and existing availability under our revolving
credit facility.
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On July 29, 2019, we acquired First Data for a total purchase price of $46.5
billion by acquiring 100% of the First Data stock that was issued and
outstanding as of the date of acquisition. 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. We 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, we
made a cash payment of $16.4 billion to repay existing First Data debt. We
funded the transaction-related expenses and the repayment of First Data debt
through a combination of available cash on-hand, proceeds from the issuance of
senior notes, and term loan and revolving credit facility borrowings. The
acquisition of First Data, included within the Acceptance and Payments segments,
increases our 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.
On October 31, 2018, we acquired the debit card processing, ATM Managed
Services, and MoneyPass® surcharge-free network of Elan Financial Services, a
unit of U.S. Bancorp, for approximately $659 million including post-closing
working capital adjustments, estimated contingent consideration related to
earn-out provisions and future payments under a transition services agreement in
excess of estimated fair value. This acquisition, included within the Payments
segment, deepens our presence in debit card processing, broadens our client
reach and scale and provides new solutions to enhance the value proposition for
our existing debit solution clients.
On January 22, 2021, we acquired Ondot Systems, Inc., a digital experience
platform provider for financial institutions. This acquisition, to be included
within the Payments segment, will further expand our digital capabilities,
enhancing our suite of integrated solutions spanning card-based payments,
digital banking platforms, core banking, and merchant solutions to enable
clients of all sizes to deliver frictionless, digital-first and personalized
experiences to their customers.

Dispositions

Effective July 1, 2020, we and BANA dissolved the BAMS joint venture, of which
we maintained a 51% controlling ownership interest. Upon dissolution of the
joint venture's operations, the joint venture transferred a proportionate share
of value, primarily the client contracts, to each party via an agreed upon
contractual separation. The remaining activities of the joint venture will
consist of supporting the transition of the business to each party and an
orderly wind down of remaining BAMS assets and liabilities. The revenues and
expenses of the BAMS joint venture were consolidated into our financial results
through the date of dissolution. The business transferred to us will continue to
be operated and managed within our Acceptance segment.

We will continue to provide merchant processing and related services to former
BAMS clients allocated to BANA, at BAMS pricing, through June 2023. We will also
provide processing and other support services to new BANA merchant clients
pursuant to a five-year non-exclusive agreement which, after June 2023, will
also apply to the former BAMS clients allocated to BANA. In addition, both
companies are entitled to certain transition services, at fair value, from each
other through June 2023.
On February 18, 2020, we sold a 60% controlling interest of our Investment
Services business, subsequently renamed as Tegra118, LLC. We received pre-tax
proceeds of $578 million, net of related expenses, resulting in a pre-tax gain
on the sale of $428 million, with a related tax expense of $112 million. The net
proceeds from the sale were primarily used to repurchase shares of our common
stock. On February 2, 2021, Tegra118 completed a merger with a third party,
resulting in a dilution of our ownership interest in the combined new entity,
Wealthtech Holdings, LLC.
In connection with the acquisition of First Data, we acquired two businesses
which we intended to sell. In October 2019, we completed the sales, at acquired
fair value, of these two businesses for aggregate proceeds of $133 million.
On March 29, 2018, we sold a 55% controlling interest of our Lending Solutions
business, retaining 45% ownership interests in two joint ventures. We received
gross sale proceeds of $419 million from the transactions. In August 2019, the
Sagent Auto, LLC joint venture, formerly known as Fiserv Automotive Solutions,
LLC, completed a merger with a third party, resulting in the dilution of our
ownership interest to 31% in the combined entity, defi SOLUTIONS Group, LLC. The
Lending Joint Ventures maintain variable-rate term loan facilities with
aggregate outstanding borrowings of $385 million in senior unsecured debt and
variable-rate revolving credit facilities with an aggregate borrowing capacity
of $45 million with a syndicate of banks, which mature in March 2023.
Outstanding borrowings on the revolving credit facilities at December 31, 2020
were $13 million. We have guaranteed this debt of the Lending Joint Ventures and
do not anticipate that the Lending Joint Ventures will fail to fulfill their
debt obligations. We maintain a liability for the estimated fair value of our
non-contingent obligations to stand ready to perform over the term of the
guarantee arrangements with the Lending Joint Ventures. Such guarantees will be
amortized in future periods over the contractual term, based upon amounts to be
received by us for the respective guarantees. In addition, we
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maintain a contingent liability representing the current expected credit losses
to which we are exposed. 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. We
have not made any payments under the guarantees, nor have we been called upon to
do so. In addition, in January 2018, we completed the sale of the retail voucher
business acquired in our 2017 acquisition of Monitise for proceeds of £37
million ($50 million).
Indebtedness
Our debt consisted of the following at December 31:
(In millions)                                                         2020  

2019

Short-term and current maturities of long-term debt: Lines of credit

$    144      $    150
Finance lease and other financing obligations                           240 

137

Total short-term and current maturities of long-term debt $ 384

$ 287

Long-term debt:
2.700% senior notes due June 2020                                  $      -      $    850
4.750% senior notes due June 2021                                       400 

400

3.500% senior notes due October 2022                                    700 

700

3.800% senior notes due October 2023                                  1,000 

1,000

0.375% senior notes due July 2023 (Euro-denominated)                    612 

559

2.750% senior notes due July 2024                                     2,000 

2,000

3.850% senior notes due June 2025                                       900 

900

2.250% senior notes due July 2025 (British Pound-denominated)           709 

687

3.200% senior notes due July 2026                                     2,000 

2,000

2.250% senior notes due June 2027                                     1,000             -
1.125% senior notes due July 2027 (Euro-denominated)                    612 

559

4.200% senior notes due October 2028                                  1,000 

1,000

3.500% senior notes due July 2029                                     3,000 

3,000

2.650% senior notes due June 2030                                     1,000             -
1.625% senior notes due July 2030 (Euro-denominated)                    612 

559

3.000% senior notes due July 2031 (British Pound-denominated)           709 

687

4.400% senior notes due July 2049                                     2,000         2,000
Receivable securitized loan                                             425           500
Term loan facility                                                    1,250         3,950
Unamortized discount and deferred financing costs                      (155)         (160)
Revolving credit facility                                                22 

174

Finance lease and other financing obligations                           504           247
Total long-term debt                                               $ 20,300      $ 21,612


At December 31, 2020, our debt consisted primarily of $18.3 billion of fixed
rate senior notes and $1.3 billion of variable rate term loan. Interest on our
U.S. dollar-denominated senior notes is paid semi-annually, while interest on
our Euro- and British Pound-denominated senior notes is paid annually. Interest
on our revolving credit facility is paid weekly, or more frequently on occasion,
and interest on our term loans is paid monthly. Our 4.75% senior notes due in
June 2021 were classified in the consolidated balance sheet as long-term, as we
have the intent to refinance this debt on a long-term basis and the ability to
do so under our revolving credit facility, which expires in September 2023.
We were in compliance with all financial debt covenants during 2020. Our ability
to meet future debt covenant requirements will depend on our continued ability
to generate earnings and cash flows. As described below, the COVID-19 pandemic
has created significant uncertainty as to general economic and market
conditions. We expect to remain in compliance with all terms and conditions
associated with our outstanding debt, including financial debt covenants.
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Senior Notes
We have outstanding $18.3 billion of various fixed-rate senior notes, as
described above. The indentures governing our senior notes contain covenants
that, among other matters, limit (i) our ability to consolidate or merge with or
into, or convey, transfer or lease all or substantially all of our properties
and assets to, another person, (ii) our and certain of our subsidiaries' ability
to create or assume liens, and (iii) our and certain of our subsidiaries'
ability to engage in sale and leaseback transactions. We may, at our option,
redeem the senior notes, in whole or from time to time in part, at any time
prior to the applicable maturity date. The interest rate applicable to certain
of the senior notes is subject to an increase of up to two percent in the event
that the credit rating assigned to such notes is downgraded below investment
grade.
On May 13, 2020, we completed an offering of $2.0 billion of senior notes
comprised of $1.0 billion aggregate principal amount of 2.25% senior notes due
in June 2027 and $1.0 billion aggregate principal amount of 2.65% senior notes
due in June 2030. The indentures governing the senior notes contain covenants
that are substantially the same as those set forth in our senior notes described
above. We used the net proceeds from these senior notes offerings to repay the
outstanding principal balance of $850 million under our 2.7% senior notes due in
June 2020 and outstanding borrowings under our amended and restated revolving
credit facility totaling $1.1 billion.
On June 24, 2019 and July 1, 2019, we completed various offerings of senior
notes for the purpose of funding the repayment of certain indebtedness of First
Data and its subsidiaries on the closing date of the acquisition. Such offerings
consisted of the following:
                                                                                                      Aggregate Principal
(In millions)                              Interest Rates                    Maturities                      Amount
U.S. dollar denominated senior notes       2.750% - 4.400%                July 2024 - 2049            $           9,000
Euro denominated senior notes              0.375% - 1.625%                July 2023 - 2030            €           1,500
British Pound denominated senior           2.250% - 3.000%                July 2025 - 2031
notes                                                                                                 £           1,050


We used a portion of the net proceeds from the senior note offerings described
above in June 2019 to repay outstanding borrowings totaling $790 million under
our amended and restated revolving credit facility. On July 29, 2019, concurrent
with the acquisition of First Data, we used the remaining net proceeds from the
2019 senior notes offerings described above, as well as the net proceeds of the
term loan facility and a drawing on our revolving credit facility described
below, to repay $16.4 billion of existing First Data debt and to pay fees and
our expenses related to such repayment, the First Data acquisition and related
transactions.
In March 2019, we entered into treasury lock agreements ("Treasury Locks"),
designated as cash flow hedges, in the aggregate notional amount of $5.0 billion
to manage exposure to fluctuations in benchmark interest rates. On June 24,
2019, concurrent with the issuance of the U.S. dollar-denominated senior notes
described above, the Treasury Locks were settled resulting in a payment of $183
million that will be amortized to earnings over the terms of the originally
forecasted interest payments.
In June 2019, we entered into foreign exchange forward contracts to minimize
foreign currency exposure to the Euro and British Pound upon settlement of the
proceeds from the foreign currency-denominated senior notes, as described above.
The foreign exchange forward contracts matured on July 1, 2019, concurrent with
the closing of the offering of the foreign currency-denominated senior notes. We
realized foreign currency transaction gains of $3 million from these foreign
exchange forward contracts. In addition, we held a portion of the proceeds from
the issuance of these foreign currency-denominated senior notes in Euro- and
British Pound-denominated cash and cash equivalents. We realized foreign
currency transaction losses of $19 million as a result of changes in the U.S.
dollar equivalent of the Euro- and British Pound-denominated cash due to
fluctuations in foreign currency exchange rates.
In September 2018, we completed an offering of $2.0 billion of senior notes
comprised of $1.0 billion aggregate principal amount of 3.8% senior notes due in
October 2023 and $1.0 billion aggregate principal amount of 4.2% senior notes
due in October 2028. We used the net proceeds from such offering to repay the
outstanding principal balance of $540 million under our then-existing term loan
and the then-outstanding borrowings under our amended and restated revolving
credit facility totaling $1.1 billion. In addition, we commenced a cash tender
offer in September 2018 for any and all of our then-outstanding $450 million
aggregate principal amount of 4.625% senior notes due October 2020. Upon
expiration of the tender offer on September 26, 2018, $246 million was tendered.
In October 2018, we retired the remaining outstanding $204 million aggregate
principal amount of 4.625% senior notes. We recorded a pre-tax loss on early
debt extinguishment of $14 million during the year ended December 31, 2018
related to these activities.
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Term Loan Facility
On February 15, 2019, we entered into a term loan credit agreement with a
syndicate of financial institutions pursuant to which such financial
institutions committed to provide us with a senior unsecured term loan facility
in an aggregate amount of $5.0 billion, consisting of $1.5 billion in
commitments to provide loans with a term of three years and $3.5 billion in
commitments to provide loans with a term of five years. On July 29, 2019,
concurrent with the closing of the acquisition of First Data, the term loan
credit agreement was funded. Loans drawn under the term loan facility are
subject to amortization at a quarterly rate of 1.25% for the first eight
quarters and 1.875% each quarter thereafter (with loans outstanding under the
five-year tranche subject to amortization at a quarterly rate of 2.5% after the
fourth anniversary of the commencement of amortization), with accrued and unpaid
amortization amounts required to be paid on the last business day in December of
each year. Borrowings under the term loan facility bear interest at variable
rates based on LIBOR or on a base rate, plus in each case, a specified margin
based on our long-term debt rating in effect from time to time. The variable
interest rate on the term loan facility borrowings was 1.41% at December 31,
2020. The term loan credit facility contains affirmative, negative and financial
covenants, and events of default, that are substantially the same as those set
forth in our existing amended revolving credit facility, as described below.
Revolving Credit Facility
We maintain an amended and restated revolving credit facility, which matures in
September 2023, with aggregate commitments available for $3.5 billion of total
capacity. Borrowings under the amended and restated revolving credit facility
bear interest at a variable rate based on LIBOR or a base rate, plus in each
case a specified margin based on our long-term debt rating in effect from time
to time. The variable interest rate on the revolving credit facility borrowings
was 1.18% at December 31, 2020. There are no significant commitment fees and no
compensating balance requirements. The amended and restated revolving credit
facility contains various restrictions and covenants that require us, among
other things, to (i) limit our consolidated indebtedness as of the end of each
fiscal quarter to no more than three and one-half times our consolidated net
earnings before interest, taxes, depreciation, amortization, non-cash charges
and expenses and certain other adjustments ("EBITDA") during the period of four
fiscal quarters then ended, subject to certain exceptions, and (ii) maintain
EBITDA of at least three times our consolidated interest expense as of the end
of each fiscal quarter for the period of four fiscal quarters then ended.

On February 6, 2019, we entered into an amendment to our amended and restated
revolving credit facility to (i) amend the maximum leverage ratio covenant to
permit us to elect to increase the permitted maximum leverage ratio from three
and one-half times our consolidated EBITDA to either four times or four and
one-half times our consolidated EBITDA for a specified period following certain
acquisitions and (ii) permit us to make drawings under the revolving credit
facility on the closing date of our acquisition of First Data subject to only
limited conditions. In November 2019, we elected to increase the permitted
maximum leverage ratio to four times our consolidated EBITDA pursuant to the
terms of the amendment described above.
Foreign Lines of Credit and Other Arrangements
We maintain certain short-term lines of credit with foreign banks and alliance
partners primarily to fund settlement activity. These arrangements are primarily
associated with international operations and are in various functional
currencies, the most significant of which are the Australian dollar, Polish
zloty, Euro and Argentine peso. We had amounts outstanding on these lines of
credit totaling $144 million and $150 million at a weighted-average interest
rate of 21.98% and 13.42% at December 31, 2020 and 2019, respectively.
Receivable Securitized Loan
We maintain a consolidated wholly-owned subsidiary, First Data Receivables, LLC
("FDR"). FDR is a party to certain receivables financing arrangements, including
an agreement ("Receivables Financing Agreement") with certain financial
institutions and other persons from time to time party thereto as lenders and
group agents, pursuant to which certain of our wholly-owned subsidiaries have
agreed to transfer and contribute receivables to FDR, and FDR in turn may obtain
borrowings from the financial institutions and other lender parties to the
Receivables Financing Agreement secured by liens on those receivables. FDR's
assets are not available to satisfy the obligations of any other of our entities
or affiliates, and FDR's creditors would be entitled, upon its liquidation, to
be satisfied out of FDR's assets prior to any assets or value in FDR becoming
available to us. FDR held $811 million and $773 million in receivables as part
of the securitization program at December 31, 2020 and 2019, respectively. FDR
utilized the receivables as collateral in borrowings of $425 million and $500
million as of December 31, 2020 and 2019, at an average interest rate of 1.00%
and 2.61%, respectively. At December 31, 2020, the collateral capacity under the
Receivables Financing Agreement was $625 million, and the maximum borrowing
capacity was $500 million. The term of the Receivables Financing Agreement is
through July 2022.
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Other
Access to capital markets impacts our cost of capital, our ability to refinance
maturing debt and our ability to fund future acquisitions. Our ability to access
capital on favorable terms depends on a number of factors, including general
market conditions, interest rates, credit ratings on our debt securities,
perception of our potential future earnings and the market price of our common
stock. As of December 31, 2020, we had a corporate credit rating of Baa2 with a
stable outlook from Moody's Investors Service, Inc. ("Moody's") and BBB with a
stable outlook from Standard & Poor's Ratings Services ("S&P") on our senior
unsecured debt securities.
The interest rates payable on certain of our senior notes, our term loans and
our revolving credit facility are subject to adjustment from time to time if
Moody's or S&P changes the debt rating applicable to the notes. If the ratings
from Moody's or S&P decrease below investment grade, the per annum interest
rates on the senior notes are subject to increase by up to two percent. In no
event will the total increase in the per annum interest rates exceed two percent
above the original interest rates, nor will the per annum interest rate be
reduced below the original interest rate applicable to the senior notes.
Cash and Cash Equivalents
Investments (other than those included in settlement assets) with original
maturities of three months or less that are readily convertible to cash are
considered to be cash equivalents. At December 31, 2020 and 2019, we held $906
million and $893 million in cash and cash equivalents, respectively.
The table below details the cash and cash equivalents at December 31:
                                     2020                                          2019
(In millions)      Domestic       International       Total      Domestic       International       Total
Available         $     337      $          177      $ 514      $     383      $          208      $ 591
Unavailable (1)          57                 335        392            130                 172        302
Total             $     394      $          512      $ 906      $     513      $          380      $ 893


(1)Represents cash held primarily by our joint ventures that is not available to
fund operations outside of those entities unless the board of directors for said
entities declares a dividend, as well as cash held by certain other entities
that are subject to foreign exchange controls in certain countries or regulatory
capital requirements.
Employee Termination Costs
In connection with the acquisition of First Data, we continue to implement
integration plans focused on reducing our overall cost structure, including
eliminating duplicate costs. We recorded $131 million and $32 million of
employee termination costs related to severance and other separation costs for
terminated employees in connection with the acquisition of First Data during the
years ended December 31, 2020 and 2019, respectively. Accrued employee severance
and other separation costs of $27 million at December 31, 2020 are expected to
be paid within the next twelve months. We continue to evaluate operating
efficiencies and anticipate incurring additional costs in connection with these
activities, but are unable to estimate those amounts at this time as such plans
are not yet finalized.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has created significant uncertainty as to general global
economic and market conditions. We believe we have adequate capital resources
and sufficient access to external financing sources to satisfy our current and
reasonably anticipated requirements for funds to conduct our operations and meet
other needs in the ordinary course of our business. However, as the impact of
the COVID-19 pandemic on the economy and our operations evolves, we will
continue to assess our liquidity needs. The ability to continue to service debt
and meet lease and other obligations as they come due is dependent on our
continued ability to generate earnings and cash flows. A lack of continued
recovery or further deterioration in economic and market conditions could
materially affect our future access to our sources of liquidity, particularly
our cash flows from operations.
We engage in regular communication with the banks that participate in our
revolving credit facility. During these communications, none of the banks have
indicated that they may be unable to perform on their commitments. We
periodically review our banking and financing relationships, considering the
stability of the institutions, pricing we receive on services and other aspects
of the relationships. Based on these communications and our monitoring
activities, we believe the likelihood of one of our banks not performing on its
commitment is remote. As evidenced by our May 2020 senior notes offering
described above, the long-term debt markets have historically provided us with a
source of liquidity. Although we do not currently
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anticipate an inability to obtain financing from long-term debt markets in the
future, effects of the COVID-19 pandemic could make financing more difficult
and/or expensive to obtain. Our ability to access the long-term debt markets on
favorable interest rate and other terms also depends on the ratings assigned by
the credit rating agencies to our indebtedness. As of December 31, 2020, we had
a corporate credit rating of Baa2 with a stable outlook from Moody's Investors
Service, Inc. and BBB with a stable outlook from Standard & Poor's Rating
Services. In the event that the ratings of our outstanding long-term debt
securities were substantially lowered or withdrawn for any reason, or if the
ratings assigned to any new issue of long-term debt securities were
significantly lower than those noted above, particularly if we no longer had
investment grade ratings, our ability to access the debt markets could be
adversely affected and our interest expense could increase under the terms of
certain of our long-term debt securities.
Off-Balance Sheet Arrangements and Contractual Obligations
We do not participate in, nor have we created, any off-balance sheet variable
interest entities or other off-balance sheet financing. The following table
details our contractual obligations at December 31, 2020:
                                                        Less than                                                  More than
(In millions)                          Total             1 year             1-3 years           3-5 years           5 years
Long-term debt including
interest (1) (2)                    $ 25,957          $      899          $    4,470          $    5,770          $  14,818
Minimum finance lease
payments (1)                             410                 107                 201                  99                  3
Minimum operating lease
payments (1) (3)                         657                 136                 223                 152                146
Purchase obligations (1)               1,889                 608                 787                 328                166
Income tax obligations                   171                  61                  46                  29                 35
Total                               $ 29,084          $    1,811          $    5,727          $    6,378          $  15,168


(1)Interest, finance lease, operating lease and purchase obligations are
reported on a pre-tax basis.
(2)The calculations assume that only mandatory debt repayments are made, no
additional refinancing or lending occurs, except for our 4.75% notes due in June
2021 as we have the intent to refinance this debt on a long-term basis and the
ability to do so under our revolving credit facility maturing in September 2023,
and the variable rate on the revolving credit facility and term loans are priced
at the rate in effect at December 31, 2020.
(3)Excludes $30 million of legally binding minimum lease payments for finance
leases that have been signed but not yet commenced.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk refers to the risk that a change in the level of one or more market
prices, interest rates, currency exchange rates, indices, correlations or other
market factors, such as liquidity, will result in losses for a certain financial
instrument or group of financial instruments. We are exposed to certain market
risks, primarily from fluctuations in interest rates and foreign currency
exchange rates. Our senior management actively monitors these risks.
Interest Rate Risk
In addition to existing cash balances and cash provided by operating activities,
we use a combination of fixed- and variable-rate debt instruments to finance our
operations. We are exposed to interest rate risk on certain of these debt
obligations. We had fixed- and variable-rate debt, excluding finance leases and
other financing obligations, with varying maturities for an aggregate carrying
amount of $18.3 billion and $1.8 billion, respectively, at December 31, 2020.
Our fixed-rate debt at December 31, 2020 primarily consisted of fixed-rate
senior notes with a fair value of $20.7 million, based on matrix pricing which
considers readily observable inputs of comparable securities. The potential
change in fair value of our fixed-rate senior notes from a hypothetical 1%
change in market interest rates would not alone impact any decisions to
repurchase our outstanding fixed-rate debt instruments before their maturity.
Our variable-rate debt at December 31, 2020 primarily consisted of outstanding
borrowings on our revolving credit facility, variable rate term loan, foreign
lines of credit and debt associated with the receivables securitization
agreement. Based on our outstanding debt balances and interest rates at
December 31, 2020, a hypothetical 1% increase in market interest rates related
to our variable-rate debt would increase annual interest expense by
approximately $18 million. This sensitivity analysis assumes the outstanding
debt balances at December 31, 2020 and the change in market interest rates is
applicable for an entire year.
In connection with processing electronic payments transactions, the funds we
receive from subscribers are invested into short-term, highly liquid investments
from the time we collect the funds until payments are made to the applicable
recipients. Fluctuations in market interest rates affect the interest-related
income that we earn on these investments. A hypothetical 1% decrease in market
interest rates would decrease annual interest-related income related to
settlement assets by approximately
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$30 million over the next twelve months. This sensitivity analysis assumes the
subscriber fund balances at December 31, 2020 and the change in market interest
rates is applicable for an entire year.
Foreign Currency Risk
We conduct business globally and are exposed to foreign currency risk from
changes in the value of underlying assets and liabilities of our non-U.S.
dollar-denominated foreign investments and foreign currency transactions. We
manage the exposure to these risks through the use of foreign currency forward
exchange contracts and non-derivative net investment hedges.
Our exposure to foreign currency exchange risks generally arise from our
non-U.S. operations to the extent they are conducted in local currency.
Approximately 13% and 12% of our total revenue was generated outside the U.S in
2020 and 2019, respectively. The major currencies to which our revenues are
exposed are the Euro, the British Pound, the Indian Rupee and the Argentine
Peso. A strengthening or weakening of the U.S. dollar relative to the currencies
in which our revenue and profits are denominated by 10% would have resulted in a
decrease or increase , respectively, in our reported pre-tax income as follows
at December 31:
(In millions)                           2020      2019
Euro                                   $  7      $  7
British Pound                             3         4
Indian Rupee                              2         3
Argentine Peso                            3         2
Other                                     5         9
   Total increase or decrease          $ 20      $ 25


We have entered into foreign currency forward exchange contracts, which have
been designated as cash flow hedges, to hedge foreign currency exposure to our
operating costs in India. At December 31, 2020, the notional amount of these
derivatives was approximately $259 million, with a positive fair value of $9
million. In addition, we designated our foreign currency-denominated senior
notes as net investment hedges to reduce exposure to changes in the value of our
net investments in certain foreign subsidiaries due to changes in foreign
currency exchange rates.
Refer to Item 1A in Part I of this Annual Report on Form 10-K for an additional
discussion of risks and potential risks of the COVID-19 pandemic on our
business.
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Item 8. Financial Statements and Supplementary Data
                   Index to Consolidated Financial Statements
                                                                Page
  Consolidated Statements of Income                                53
  Consolidated Statements of Comprehensive Income                  54
  Consolidated Balance Sheets                                      55
  Consolidated Statements of Equity                                56
  Consolidated Statements of Cash Flows                            57
  Notes to Consolidated Financial Statements                       58
  Schedule II - Valuation and Qualifying Accounts                 104
  Report of Independent Registered Public Accounting Firm         105



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                                  Fiserv, Inc.
                       Consolidated Statements of Income

In millions, except per share data
Year Ended December 31,                                            2020              2019             2018

Revenue:

Processing and services (1)                                     $ 12,215          $ 8,573          $ 4,975
Product                                                            2,637            1,614              848
Total revenue                                                     14,852           10,187            5,823
Expenses:
Cost of processing and services                                    5,841            4,016            2,324
Cost of product                                                    1,971            1,293              745
Selling, general and administrative                                5,652            3,284            1,228
Gain on sale of businesses                                          (464)             (15)            (227)
Total expenses                                                    13,000            8,578            4,070
Operating income                                                   1,852            1,609            1,753
Interest expense, net                                               (709)            (473)            (189)
Debt financing activities                                              -              (47)             (14)
Other income (expense)                                                28               (6)               5

Income before income taxes and income from investments in unconsolidated affiliates

                                          1,171            1,083            1,555
Income tax provision                                                (196)            (198)            (378)
Income from investments in unconsolidated affiliates                   -               29               10

Net income                                                           975              914            1,187

Less: net income attributable to noncontrolling interests and redeemable noncontrolling interests

                               17               21                -
Net income attributable to Fiserv, Inc.                         $    958

$ 893 $ 1,187

Net income attributable to Fiserv, Inc. per share - basic $ 1.42

$ 1.74 $ 2.93

Net income attributable to Fiserv, Inc. per share - diluted

$   1.40

$ 1.71 $ 2.87

Shares used in computing net income attributable to
Fiserv, Inc. per share:
Basic                                                              672.1            512.3            405.5
Diluted                                                            683.4            522.6            413.7

(1)Includes processing and other fees charged to related party investments accounted for under the equity method of $236 million, $112 million and $28 million for the years ended December 31, 2020, 2019 and 2018, respectively (see Notes 9 and 20).

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                                  Fiserv, Inc.
                Consolidated Statements of Comprehensive Income

In millions
Year Ended December 31,                                              2020             2019             2018

Net income                                                        $   975          $   914          $ 1,187
Other comprehensive (loss) income:
Fair market value adjustment on cash flow hedges, net of
income tax (provision) benefit of ($2 million), $46 million
and $2 million                                                          5             (134)              (5)

Reclassification adjustment for net realized gains on cash flow hedges included in cost of processing and services, net of income tax benefit of $0 million, $0 million and $0 million

                                                                (1)              (1)              (1)

Reclassification adjustment for net realized losses on cash flow hedges included in net interest expense, net of income tax provision of $5 million, $3 million and $2 million

                 16               10                4

Unrealized losses on defined benefit pension plans, net of income tax benefit of $2 million and $1 million

                        (6)              (4)               -
Foreign currency translation                                         (186)               8              (11)
Total other comprehensive loss                                       (172)            (121)             (13)
Comprehensive income                                              $   803

$ 793 $ 1,174 Less: net income attributable to noncontrolling interests and redeemable noncontrolling interests

                                17               21                -

Less: other comprehensive income (loss) attributable to noncontrolling interests

                                               35               (8)               -
Comprehensive income attributable to Fiserv, Inc.                 $   751          $   780          $ 1,174



          See accompanying notes to consolidated financial statements.

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                                  Fiserv, Inc.
                          Consolidated Balance Sheets

In millions
December 31,                                                                   2020              2019

Assets
Cash and cash equivalents                                                   $    906          $    893
Trade accounts receivable, less allowance for doubtful accounts                2,482             2,782
Prepaid expenses and other current assets                                      1,310             1,503
Settlement assets                                                             11,521            11,868
Total current assets                                                          16,219            17,046
Property and equipment, net                                                    1,628             1,606
Customer relationships, net                                                   11,603            14,042
Other intangible assets, net                                                   3,755             3,600
Goodwill                                                                      36,322            36,038
Contract costs, net                                                              692               533
Investments in unconsolidated affiliates                                       2,756             2,720
Other long-term assets                                                         1,644             1,954
Total assets                                                                $ 74,619          $ 77,539
Liabilities and Equity
Accounts payable and accrued expenses                                       $  3,186          $  3,080
Short-term and current maturities of long-term debt                              384               287
Contract liabilities                                                             546               492
Settlement obligations                                                        11,521            11,868
Total current liabilities                                                     15,637            15,727
Long-term debt                                                                20,300            21,612
Deferred income taxes                                                          4,389             4,247
Long-term contract liabilities                                                   187               155
Other long-term liabilities                                                      777               941
Total liabilities                                                             41,290            42,682
Commitments and Contingencies (see Note 19)
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; 789.6 million shares issued

                                                        8                 8
Additional paid-in capital                                                    23,643            23,741
Accumulated other comprehensive loss                                            (387)             (180)
Retained earnings                                                             13,441            12,528
Treasury stock, at cost, 120.5 million and 111.5 million shares               (4,375)           (3,118)
Total Fiserv, Inc. shareholders' equity                                       32,330            32,979
Noncontrolling interests                                                         740             1,616
Total equity                                                                  33,070            34,595
Total liabilities and equity                                                $ 74,619          $ 77,539

          See accompanying notes to consolidated financial statements.

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                                  Fiserv, Inc.
                       Consolidated Statements of Equity

                                                                                Fiserv, Inc. Shareholders' Equity

                                                Number of Shares                                                                     Amount
                                                                                                                   Accumulated
                                                                                                   Additional         Other
                                                                                                    Paid-In       Comprehensive    Retained     Treasury      Noncontrolling
In millions                             Common Shares    Treasury Shares          Common Stock      Capital           Loss         Earnings      Stock 

Interests Total Equity

Balance at January 1, 2018                     791              376              $          8    $     1,031    $          (54)   $ 10,240    $  (8,494)   $               -    $       2,731
Net income                                                                                                                           1,187                                              1,187
Other comprehensive loss                                                                                                   (13)                                                           (13)
Share-based compensation                                                                                  73                                                                               73
Shares issued under stock plans                                  (3)                                     (47)                                        69                                    22
Purchases of treasury stock                                      26                                                                              (1,915)                               (1,915)
Cumulative-effect adjustment of ASU                                                                                                    208                                                208
2014-09 adoption
Cumulative-effect adjustment of ASU                                                                                          3          (3)                                                 -
2017-12 adoption
Cumulative-effect adjustment of ASU                                                                                         (3)          3                                                  -
2018-02 adoption
Balance at December 31, 2018                   791              399                         8          1,057               (67)     11,635      (10,340)                   -            2,293
Net income (1)                                                                                                                         893                                 4              897
Shares issued to acquire First Data                            (286)                                  22,582                                      7,478                1,731           31,791
(see Note 4)
Distributions paid to noncontrolling                                                                                                                                    (111)            (111)
interests (2)
Other comprehensive loss                                                                                                  (113)                                           (8)            (121)
Share-based compensation                                                                                 229                                                                              229
Shares issued under stock plans                                  (5)                                    (127)                                       137                                    10
Purchases of treasury stock                                       4                                                                                (393)                                 (393)

Balance at December 31, 2019                   791              112                         8         23,741              (180)     12,528       (3,118)               1,616           34,595
Net income (loss) (1)                                                                                                                  958                               (22)             936
Measurement period adjustments related                                                                                                                                  (126)            (126)
to First Data acquisition (see Note 4)
Distributions paid to noncontrolling                                                                                                                                     (37)             (37)
interests (2)
Net adjustment to noncontrolling
interests from dissolution (see Note                                                                     (36)                                                           (726)            (762)

4)

Other comprehensive (loss) income                                                                                         (207)                                           35             (172)
Share-based compensation                                                                                 369                                                                              369
Shares issued under stock plans                                  (5)                                    (231)                                       178                                   (53)
Purchases of treasury stock                                      16                                                                              (1,635)                               (1,635)
Retirement of treasury stock (see Note          (2)              (2)                                    (200)                                       200                                     -

20)

Cumulative-effect adjustment of ASU                                                                                                    (45)                                               (45)
2016-13 adoption
Balance at December 31, 2020                   789              121         

$ 8 $ 23,643 $ (387) $ 13,441 $ (4,375) $

             740    $      33,070


(1)The total net income presented in the consolidated statements of equity for
the years ended December 31, 2020 and 2019 is different than the amount
presented in the consolidated statements of income due to the net income
attributable to redeemable noncontrolling interests of $39 million and
$17 million, respectively, not included in equity.
(2)The total distributions presented in the consolidated statements of equity
for the years ended December 31, 2020 and 2019 exclude $42 million and
$7 million, respectively, in distributions paid to redeemable noncontrolling
interests not included in equity. In addition, the total distributions presented
in the consolidated statements of equity for the year ended December 31, 2020
exclude $25 million in distributions to Bank of America related to the Banc of
America Merchant Services Joint Venture (see Note 4) not included in equity.
          See accompanying notes to consolidated financial statements.

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                                  Fiserv, Inc.
                     Consolidated Statements of Cash Flows
In millions
Year Ended December 31,                                                  2020               2019              2018

Cash flows from operating activities:
Net income                                                           $     

975 $ 914 $ 1,187

Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: Depreciation and other amortization

                                      1,077                615              382
Amortization of acquisition-related intangible assets                    2,133              1,036              163
Amortization of financing costs, debt discounts and other                   47                127               11
Net foreign currency gain on financing activities                            -                (50)               -
Share-based compensation                                                   369                229               73

Deferred income taxes                                                       71                 47              133
Gain on sale of businesses                                                (464)               (15)            (227)
Income from investments in unconsolidated affiliates                         -                (29)             (10)
Distributions from unconsolidated affiliates                                42                 23                2
Settlement of interest rate hedge contracts                                  -               (183)               -
Non-cash impairment charges                                                124                 48                3

Other operating activities                                                 (16)                (3)               4

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

                                                  320                 (7)            (108)
Prepaid expenses and other assets                                         (167)               (82)              (6)
Contract costs                                                            (289)              (212)            (137)
Accounts payable and other liabilities                                    (146)               238              116
Contract liabilities                                                        71                 99              (34)

Net cash provided by operating activities from continuing operations

                                                               4,147              2,795            1,552

Cash flows from investing activities: Capital expenditures, including capitalized software and other intangibles

                                                               (900)              (721)            (360)
Proceeds from sale of businesses                                           579                 51              419

Payments for acquisitions of businesses, net of cash acquired and including working capital adjustments

                                 (139)           (16,005)            (712)
Distributions from unconsolidated affiliates                               109                113                -
Purchases of investments                                                    (1)               (45)              (3)
Other investing activities                                                  11                  5               (7)

Net cash used in investing activities from continuing operations

                                                                (341)           (16,602)            (663)
Cash flows from financing activities:
Debt proceeds                                                            8,897             20,030            5,039
Debt repayments                                                        (10,918)            (5,043)          (4,005)
Short-term borrowings, net                                                  (6)                 -                -
Payments of debt financing, redemption and other costs                     (16)              (247)               -
Proceeds from issuance of treasury stock                                   133                156               75

Purchases of treasury stock, including employee shares withheld for tax obligations

                                            (1,826)              (561)          (1,946)

Distributions paid to noncontrolling interests and redeemable noncontrolling interests

                                                  (104)              (118)               -
Other financing activities                                                   4                (26)              (5)

Net cash (used in) provided by financing activities from continuing operations

                                                   (3,836)            14,191             (842)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

                                                             16                  1                -

Net change in cash, cash equivalents and restricted cash from continuing operations

                                                      (14)               385               47
Net cash flows from discontinued operations                                  -                133               43
Cash, cash equivalents and restricted cash, beginning balance              933                415              325
Cash, cash equivalents and restricted cash, ending balance           $     919          $     933          $   415
Discontinued operations cash flow information:
Net cash used in operating activities                                $       -          $       -          $    (7)
Net cash provided by investing activities                                    -                133               50

Net change in cash, cash equivalents and restricted cash from discontinued operations

                                              $       -          $     133          $    43


          See accompanying notes to consolidated financial statements.

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                                  Fiserv, Inc.
                   Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies
Description of the Business
Fiserv, Inc. and its subsidiaries (collectively, the "Company") provide payments
and financial services technology solutions to clients worldwide. The Company
provides 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. The Company
serves clients around the globe, including banks, credit unions, other financial
institutions and merchants.
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 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.
Effective in the first quarter of 2020, the Company realigned its reportable
segments to reflect its new management structure and organizational
responsibilities ("Segment Realignment") following the acquisition of First
Data. The Company's reportable segments are Merchant Acceptance ("Acceptance"),
Financial Technology ("Fintech") and Payments and Network ("Payments"). Segment
results for the years ended December 31, 2019 and 2018 have been restated to
reflect the Segment Realignment. Additional information regarding the Company's
business segments is included in Note 21 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
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 or loss is reported within income from
investments in unconsolidated affiliates and the related tax expense or 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 20). 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
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
13).
Stock Split
On February 21, 2018, the Company's board of directors declared a two-for-one
stock split of the Company's common stock and a proportionate increase in the
number of its authorized shares of common stock. The additional shares were
distributed on March 19, 2018 to shareholders of record at the close of business
on March 5, 2018. The Company's common stock began trading at the split-adjusted
price on March 20, 2018. The impact on the consolidated balance sheet of the
stock split was an increase of $4 million to common stock and an offsetting
reduction in additional paid-in capital.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
          See accompanying notes to consolidated financial statements.

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Risks and Uncertainties
In 2019, a novel strain of coronavirus ("COVID-19") was identified and has since
continued to spread. 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 actions to prevent the spread of COVID-19, such as imposing travel
restrictions and bans, quarantines, social distancing guidelines,
shelter-in-place or lock-down orders and other similar limitations, adversely
impacting global economic activity and contributing to significant volatility in
financial markets.
Global economic and market conditions impact levels of consumer and business
spending, which have been negatively impacted as a result of the COVID-19
pandemic. Consequently, the Company's operating performance, primarily within
its merchant acquiring and payment-related businesses, which earn
transaction-based fees, has been adversely affected, and may continue to be
adversely affected, by the economic impact of the COVID-19 pandemic. 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 pandemic; the level of success of global vaccination efforts;
governmental and private sector responses to the pandemic 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 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 impairment assessment of
goodwill; the Company's deferred tax assets and related valuation allowances;
the estimate of current expected credit losses; and certain pension plan
assumptions. Changes in any assumptions used may result in an impairment or
other charge that, if incurred, could have a material adverse impact on the
Company's results of operations, total assets and total equity in the period
recognized. Events and changes in circumstances arising subsequent to December
31, 2020, including those resulting from the impacts of the COVID-19 pandemic,
will be reflected in management's estimates for future periods.
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. Additional information regarding the
Company's revenue recognition policies is included in Note 3 to the consolidated
financial statements.
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 $13 million and $40 million at December 31, 2020 and 2019,
respectively.
Allowance for Doubtful Accounts
The Company analyzes the collectability of trade accounts receivable by
considering historical bad debts, client creditworthiness, current economic
trends, changes in client payment terms and collection trends when evaluating
the adequacy of the allowance for doubtful accounts. 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 $48 million and
$39 million at December 31, 2020 and 2019, respectively.
Leases
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 11 to the consolidated financial statements.
The Company maintains certain leasing receivables associated with its
point-of-sale terminal leasing businesses. Leasing receivables are included in
prepaid expenses and other current assets and other long-term assets in the
consolidated balance sheets. Interest income on the Company's leasing
receivables is recognized using the effective interest method, and is included
within 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.
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Prepaid Expenses
Prepaid expenses represent advance payments for goods and services to be
consumed in the future, such as maintenance, postage and insurance and totaled
$348 million at both December 31, 2020 and 2019.
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 acquiring services. Settlement assets represent cash received
or amounts receivable from agents, payment networks, bank partners or directly
from consumers. Settlement obligations represent amounts payable to merchants
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. Additional information regarding the Company's settlement assets and
obligations is included in Note 6 to the consolidated financial statements.
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 incurred by the Company was $113 million
and $40 million for the years ended December 31, 2020 and 2019, respectively,
included within cost of processing and services in the consolidated statements
of income. The amount of collateral held by the Company was $1.2 billion and
$510 million at December 31, 2020 and 2019, respectively. The Company maintains
a reserve for merchant credit losses that are expected to exceed the amount of
collateral held. The reserve includes 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 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 reserve was $59 million and $34
million at December 31, 2020 and 2019, respectively.
Property and Equipment
Property and equipment is reported at cost. Depreciation of property and
equipment is computed primarily using the straight-line method over the shorter
of the estimated useful life of the asset or the leasehold period, if
applicable. Property and equipment consisted of the following at December 31:
                                          Estimated
(In millions)                           Useful Lives        2020         2019
Land                                          -           $    54      $    61
Data processing equipment               3 to 5 years        1,666        1,483
Buildings and leasehold improvements    5 to 40 years         555          540
Furniture and equipment                 5 to 8 years          636          576
                                                            2,911        2,660
Less: Accumulated depreciation                             (1,283)      (1,054)
Total                                                     $ 1,628      $ 1,606


Depreciation expense for all property and equipment totaled $523 million, $247
million and $92 million in 2020, 2019 and 2018, respectively (see Note 17 for a
description of accelerated depreciation under certain finance lease agreements).
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Intangible Assets
Customer related intangible assets represent customer contracts and
relationships obtained as part of acquired businesses and are amortized using an
accelerated amortization method which corresponds with the customer attrition
rates used in the initial valuation of the intangibles over their estimated
useful lives, generally ten to twenty years. Acquired software and technology
represents software and technology intangible assets obtained as part of
acquired businesses and is amortized using the straight-line method over their
estimated useful lives, generally four to ten years. Trade names are amortized
using the straight-line method over their estimated useful lives, generally
eight to twenty years.
The Company continually develops, maintains and enhances its products and
systems. Product development expenditures represented approximately 6% of the
Company's total revenue in 2020 and 8% in both 2019 and 2018. Research and
development costs incurred prior to the establishment of technological
feasibility are expensed as incurred. Routine maintenance of software products,
design costs and other development costs incurred prior to the establishment of
a product's technological feasibility are also expensed as incurred. Costs are
capitalized commencing when the technological feasibility of the software has
been established.
Purchased software represents software licenses purchased from third parties and
is amortized using the straight-line method over their estimated useful lives,
generally three to five years. Additional information regarding the Company's
identifiable intangible assets is included in Note 7 to the consolidated
financial statements.
Capitalized software development costs represent the capitalization of certain
costs incurred to develop new software or to enhance existing software which is
marketed externally or utilized by the Company to process client transactions.
Capitalized software development costs are amortized using the straight-line
method over their estimated useful lives, generally five years.
The Company may, at its discretion, negotiate to pay an independent sales
organization ("ISO") an agreed-upon up-front amount in exchange for the ISO's
surrender of its right to receive commission payments from the Company related
to future transactions of the ISO's referred merchants ("residual buyout"). The
amount that the Company pays for these residual buyouts is capitalized and
subsequently amortized using the straight-line method over the expected life of
the merchant portfolios, generally six years to nine years.
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, which is one level below our reportable
segments. When assessing goodwill for impairment, the Company considers (i) the
prior year's 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.
In connection with the Segment Realignment described above, certain of the
Company's reporting units changed in composition as a result of 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. The Company's
most recent annual impairment assessment of its reporting units in the fourth
quarter of 2020 determined that its goodwill was not impaired as the estimated
fair values exceeded the carrying values. However, it is reasonably possible
that future developments related to the economic impact of the COVID-19 pandemic
on certain of the Company's recently acquired (recorded at fair value) First
Data businesses, such as an increased duration and intensity of the pandemic
and/or government-imposed shutdowns, prolonged economic downturn or recession,
or lack of governmental support for recovery, could have a future material
impact on one or more of the estimates and assumptions used to evaluate goodwill
impairment. There is no accumulated goodwill impairment for the Company through
December 31, 2020. Additional information regarding the Company's goodwill is
included in Note 8 to the consolidated financial statements.
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Asset Impairment
The Company reviews property and equipment, lease right-of-use ("ROU") assets,
intangible assets and its investments in unconsolidated affiliates for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. The Company reviews
capitalized software development costs for impairment at each reporting date.
Recoverability of property and equipment, ROU assets, capitalized software
development costs and other intangible assets is assessed by comparing the
carrying amount of the asset to either the undiscounted future cash flows
expected to be generated by the asset or the net realizable value of the asset,
depending on the type of asset. The Company assesses lease ROU assets that are
exited in advance of the non-cancellable lease terms by comparing the carrying
values of the ROU assets to the discounted cash flows from estimated sublease
payments. The Company's investments in unconsolidated affiliates are assessed by
comparing the carrying amount of the investments to their estimated fair values
and are impaired if any decline in fair value is determined to be other than
temporary. Measurement of any impairment loss is based on estimated fair value.
Fair Value Measurements
The Company applies fair value accounting for all assets and liabilities that
are recognized or disclosed at fair value in its consolidated financial
statements on a recurring basis. Fair value represents the amount that would be
received from selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. When
determining the fair value measurements for assets and liabilities, the Company
uses the hierarchy prescribed in Accounting Standards Codification ("ASC") 820,
Fair Value Measurements, and considers the principal or most advantageous market
and the market-based risk measurements or assumptions that market participants
would use in pricing the asset or liability. The three levels in the hierarchy
are as follows:

•Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in
active markets that are accessible as of the
measurement date.
•Level 2 - Inputs other than quoted prices within Level 1 that are observable
either directly or indirectly, including but
not limited to quoted prices in markets that are not active, quoted prices in
active markets for similar assets or
liabilities and observable inputs other than quoted prices such as interest
rates or yield curves.
•Level 3 - Unobservable inputs reflecting management's judgments about the
assumptions that market
participants would use in pricing the asset or liability, including assumptions
about risk.

Additional information regarding the Company's fair value measurements is
included in Note 10 to the consolidated financial statements.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following at December 31:
(In millions)                            2020         2019
Trade accounts payable                 $   437      $   392
Client deposits                            702          650
Accrued compensation and benefits          419          378
Accrued taxes                              130          137
Accrued interest                           220          224
Other accrued expenses                   1,278        1,299
Total                                  $ 3,186      $ 3,080


Foreign Currency
The United States ("U.S.") dollar is the functional currency of the Company's
U.S.-based businesses and certain foreign-based businesses. Where the functional
currency differs from the U.S. dollar, 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
reporting 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 determining net
income for the reporting period.
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
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14). Accordingly, foreign currency transaction gains or losses on the qualifying
net investment hedge instruments are recorded as foreign currency translation
within other comprehensive (loss) income 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.
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.
Employee Benefit Plans
The Company maintains frozen defined benefit pension plans covering certain
employees in Europe and the U.S. The Company recognizes actuarial gains/losses
and prior service cost in the consolidated balance sheets and recognizes changes
in these amounts during the year in which changes occur through other
comprehensive (loss) 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). Additional information regarding the Company's employee benefit
plans is included in Note 15 to the consolidated financial statements.
Cost of Processing, Services and Product
Cost of processing and services consists of costs directly associated with
providing services to clients and includes the following: personnel; equipment
and data communication; infrastructure costs, including costs to maintain
software applications; client support; certain depreciation and amortization;
and other operating expenses.
Cost of product consists of costs directly associated with the products sold and
includes the following: costs of materials and software development; personnel;
infrastructure costs; certain depreciation and amortization; and other costs
directly associated with product revenue.
Selling, General and Administrative Expenses
Selling, general and administrative expenses primarily consist of: salaries,
wages, commissions and related expenses paid to sales personnel, administrative
employees and management; advertising and promotional costs; certain
depreciation and amortization; and other selling and administrative expenses.

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 $716 million, $507 million and $193 million of interest
expense and $7 million, $34 million and $4 million of interest income during the
years ended December 31, 2020, 2019 and 2018, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis, and
net operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. A valuation allowance is recorded against deferred tax
assets if it is more likely than not that some portion or all of the deferred
tax assets will not be realized.
Liabilities are established for unrecognized tax benefits, attributable to
differences between a tax position taken or expected to be taken in a tax return
and the benefit recognized in the financial statements. In establishing a
liability for an unrecognized tax benefit, assumptions are made in determining
whether, and the extent to which, a tax position will be sustained. A tax
position is recognized only when it is more likely than not to be sustained upon
examination by the relevant taxing authority, based on its technical merits. The
amount of tax benefit recognized reflects the largest benefit the Company
believes is more likely than not to be realized upon ultimate settlement. As
additional information becomes available, the liability for unrecognized tax
benefits is reevaluated and adjusted, as appropriate. Tax benefits ultimately
realized can differ from amounts previously recognized due to uncertainties,
with any such differences generally impacting the provision for income tax.
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Net Income Per Share
Net income per share attributable to Fiserv, Inc. 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. The Company excluded
1.3 million weighted-average shares in 2020 and 1.1 million in both 2019 and
2018 from the calculations of common stock equivalents for anti-dilutive stock
options. The computation of shares used in calculating basic and diluted net
income per share is as follows at December 31:
(In millions)                                                        2020                  2019                  2018

Weighted-average common shares outstanding used for the calculation of net income attributable to Fiserv, Inc. per share - basic

                                                      672.1                 512.3                 405.5
Common stock equivalents                                                11.3                  10.3                   8.2

Weighted-average common shares outstanding used for the calculation of net income attributable to Fiserv, Inc. per share - diluted

                                                    683.4                 522.6                 413.7


Supplemental Cash Flow Information
(In millions)
Year Ended December 31,                                               2020       2019       2018
Interest paid                                                        $ 673      $ 291      $ 165
Income taxes paid                                                      156        197        259
Treasury stock purchases settled after the balance sheet date            -          6         26
Distribution of nonmonetary assets (see Note 4)                        726          -          -
Financed software arrangements                                         308  

- -

2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In 2018, the Financial Accounting Standards Board ("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 within the requirements
under 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.
In 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 adopted
ASU 2018-14 for the year ended December 31, 2020, and the adoption did not have
a material impact on its disclosures.
In 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.
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In 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.
In 2016, the FASB issued ASU No. 2016-02, which requires lessees to recognize a
lease liability and a ROU 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 will result in straight-line expense while finance
leases will 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 No. 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 No. 2018-11 provides an additional transition method allowing
entities to initially apply the new lease standard at the adoption date and
recognize a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. For public entities, ASU 2016-02 is
effective for annual and interim periods beginning after December 15, 2018.
The Company adopted ASU No. 2016-02 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.
The adoption of the new lease standard resulted in the recognition of lease
liabilities of $383 million and ROU 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.
In 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers
("ASU 2014-09"), to clarify the principles of recognizing revenue and to create
common revenue recognition guidance between U.S. generally accepted accounting
principles and International Financial Reporting Standards. ASU 2014-09 outlines
a single comprehensive model for entities to use in accounting for revenue
arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific requirements. It also includes
guidance on accounting for the incremental costs of obtaining and costs incurred
to fulfill a contract with a customer. The core principle of the revenue model
is that an entity recognizes revenue to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. This
model involves a five-step process for achieving that core principle, along with
comprehensive disclosures about the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers. For public
entities, the new revenue standard is effective for annual and interim periods
beginning after December 15, 2017. Entities have the option of adopting this new
guidance using either a full retrospective or a modified approach with the
cumulative effect of applying the guidance recognized at the date of initial
application.
The Company adopted ASU 2014-09 effective January 1, 2018 using the modified
retrospective transition approach applied to all contracts, which resulted in a
cumulative-effect increase in the opening balance of retained earnings of $208
million, primarily related to the deferral of incremental sales commissions
incurred in obtaining contracts in prior periods.
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Recently Issued Accounting Pronouncements
In 2020, the FASB issued ASU No. 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 adoption of ASU 2020-01 will not have a material impact on the Company's
consolidated financial statements or disclosures.
In 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 adoption of ASU 2019-12 will not
have a material impact on the Company's consolidated financial statements.
3. Revenue Recognition
Significant Accounting Policy
ASU 2014-09 and its related amendments (collectively known as "ASC 606")
outlines a single comprehensive model to use in accounting for revenue arising
from contracts with customers. The core principle, involving a five-step
process, of the revenue model is that an entity recognizes revenue to depict the
transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for
those goods or services.
Revenue is measured based on consideration specified in a contract with a
customer, and excludes any amounts collected on behalf of third parties. Taxes
assessed by a governmental authority that are both imposed on and concurrent
with a specific revenue-producing transaction, that are collected by the Company
from a customer, are excluded from revenue. Shipping and handling activities
associated with outbound freight after control over a product has transferred to
a customer are accounted for as a fulfillment activity and recognized as revenue
at the point in time at which control of the goods transfers to the customer. As
a practical expedient, the Company does not adjust the transaction price for the
effects of a significant financing component if, at contract inception, the
period between customer payment and the transfer of goods or services is
expected to be one year or less.
Nature of Goods and Services
The Company's operations are comprised of the Acceptance segment, the Fintech
segment and the Payments segment. Additional information regarding the Company's
reportable segments is included in Note 21. The following is a description of
principal activities from which the Company generates its revenue. Contracts
with customers are evaluated on a contract-by-contract basis as contracts may
include multiple types of goods and services as described below.
Processing and Services
Processing and services revenue is generated from account- and transaction-based
fees for data processing, merchant transaction processing and acquiring,
electronic billing and payment services, electronic funds transfer and
debit/credit processing services; consulting and professional services; and
software maintenance for ongoing client support.
The Company recognizes processing and services revenues in the period in which
the specific service is performed unless they are not deemed distinct from other
goods or services in which revenue would then be recognized as control is
transferred of the combined goods and services. The Company's arrangements for
processing and services typically consist of an obligation to provide specific
services to its customers on a when and if needed basis (a stand-ready
obligation) and revenue is recognized from the satisfaction of the performance
obligations in the amount billable to the customer. These services are typically
provided under a fixed or declining (tier-based) price per unit based on volume
of service; however, pricing for services may
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also be based on minimum monthly usage fees. Fees for the Company's processing
and services arrangements are typically billed and paid on a monthly basis.
Product
Product revenue is generated from print and card production sales, as well as
software license sales. For software license agreements that are distinct, the
Company recognizes software license revenue upon delivery, assuming a contract
is deemed to exist. Revenue for arrangements with customers that include
significant customization, modification or production of software such that the
software is not distinct is typically recognized over time based upon efforts
expended, such as labor hours, to measure progress towards completion. For
arrangements involving hosted licensed software for the customer, a software
element is considered present to the extent the customer has the contractual
right to take possession of the software at any time during the hosting period
without significant penalty and it is feasible for the customer to either
operate the software on their own hardware or contract with another vendor to
host the software. In certain instances, the Company may offer extended payment
terms beyond one year. To the extent a significant financing component exists,
it is calculated as the difference between the promised consideration and the
present value of the software license fees utilizing a discount rate reflective
of a separate financing transaction, and is recognized as interest income over
the extended payment period. The cash selling price of the software license fee
is recognized as revenue at the point in time when the software is transferred
to the customer.
The Company also sells or leases hardware (POS devices) and other peripherals as
part of its contracts with customers. Hardware typically consists of terminals
or Clover devices. The Company does not manufacture hardware, rather it
purchases hardware from third-party vendors and holds such hardware in inventory
until purchased by a customer. The Company accounts for sales of hardware as a
separate performance obligation and recognizes the revenue at its standalone
selling price when the customer obtains control of the hardware.
Significant Judgments in Application of the Guidance
The Company uses the following methods, inputs and assumptions in determining
amounts of revenue to recognize:
Identification of Performance Obligations
To identify its performance obligations, the Company considers all of the goods
or services promised in the contract regardless of whether they are explicitly
stated or are implied by customary business practices. For multi-element
arrangements, the Company accounts for individual goods or services as a
separate performance obligation if they are distinct, the good or service is
separately identifiable from other items in the arrangement and if a customer
can benefit from it on its own or with other resources that are readily
available to the customer. If these criteria are not met, the promised goods or
services are accounted for as a combined performance obligation. Determining
whether goods or services are distinct performance obligations that should be
accounted for separately may require significant judgment.
Technology or service components from third parties are frequently embedded in
or combined with the Company's applications or service offerings. Whether the
Company recognizes revenue based on the gross amount billed to a customer or the
net amount retained involves judgment that depends on the relevant facts and
circumstances including the level of contractual responsibilities and
obligations for delivering solutions to end customers.
Determination of Transaction Price
The transaction price is determined based on the consideration to which the
Company will be entitled in exchange for transferring products or services to
the customer. The Company includes any fixed charges within its contracts as
part of the total transaction price. To the extent that variable consideration
is not constrained, the Company includes an estimate of the variable amount, as
appropriate, within the total transaction price and updates its assumptions over
the duration of the contract.
Assessment of Estimates of Variable Consideration
Many of the Company's contracts with customers contain some component of
variable consideration; however, the constraint will generally not result in a
reduction in the estimated transaction price for most forms of variable
consideration. The Company may constrain the estimated transaction price in the
event of a high degree of uncertainty as to the final consideration amount owed
because of an extended length of time over which the fees may be adjusted.
Allocation of Transaction Price
The transaction price (including any discounts or rebates) is allocated between
separate goods and services in a multi-element arrangement based on their
relative standalone selling prices. The standalone selling prices are determined
based on the prices at which the Company separately sells each good or service.
For items that are not sold separately, the Company estimates the
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standalone selling prices using available information such as market conditions
and internally approved pricing guidelines. In instances where there are
observable selling prices for professional services and support and maintenance,
the Company may apply the residual approach to estimate the standalone selling
price of software licenses. Significant judgment may be required to determine
standalone selling prices for each performance obligation and whether it depicts
the amount the Company expects to receive in exchange for the related good or
service.
Contract Modifications
Contract modifications occur when the Company and its customers agree to modify
existing customer contracts to change the scope or price (or both) of the
contract or when a customer terminates some, or all, of the existing services
provided by the Company. When a contract modification occurs, it requires the
Company to exercise judgment to determine if the modification should be
accounted for as (i) a separate contract, (ii) the termination of the original
contract and creation of a new contract, or (iii) a cumulative catch up
adjustment to the original contract. Further, contract modifications require the
identification and evaluation of the performance obligations of the modified
contract, including the allocation of revenue to the remaining performance
obligations and the period of recognition for each identified performance
obligation.
Disaggregation of Revenue
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 years ended December 31, 2019 and 2018 have
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%, 12% and 6% of total revenue in 2020, 2019 and
2018, respectively.
(In millions)                                                          

Reportable Segments

                                                                                                Corporate
Year Ended December 31, 2020          Acceptance           Fintech           Payments           and Other            Total

Type of Revenue
Processing                          $     4,696          $  1,426          $   4,348          $       58          $ 10,528
Hardware, print and card production         714                51                771                   -             1,536
Professional services                        29               465                233                   1               728
Software maintenance                          -               563                  3                   2               568
License and termination fees                 28               189                 68                   -               285
Output solutions postage                      -                 -                  -                 864               864
Other                                        55               207                 81                   -               343
Total Revenue                       $     5,522          $  2,901          $   5,504          $      925          $ 14,852


(In millions)                                                          Reportable Segments
                                                                                                Corporate
Year Ended December 31, 2019          Acceptance           Fintech           Payments           and Other            Total

Type of Revenue

Processing                          $     2,205          $  1,382          $   3,110          $      166          $  6,863
Hardware, print and card production         323                51                458                   -               832
Professional services                         4               483                172                  10               669
Software maintenance                          -               570                  3                  15               588
License and termination fees                  9               255                 59                   2               325
Output solutions postage                      -                 -                  -                 572               572
Other                                        30               201                107                   -               338
Total Revenue                       $     2,571          $  2,942          $   3,909          $      765          $ 10,187


      (In millions)                                                Reportable Segments
                                                                               Corporate
      Year Ended December 31, 2018                  Fintech      Payments      and Other        Total

      Type of Revenue

      Processing                                   $ 1,345      $  1,900      $      163      $ 3,408
      Hardware, print and card production               41           304               -          345
      Professional services                            483            86               8          577
      Software maintenance                             577             3              15          595
      License and termination fees                     277            32               4          313
      Output solutions postage                           -             -             308          308
      Other                                            194            83               -          277
      Total Revenue                                $ 2,917      $  2,408      $      498      $ 5,823

Contract Balances The following table provides information about contract assets and contract liabilities from contracts with customers at December 31: (In millions)

            2020       2019       2018
Contract assets         $ 433      $ 382      $ 171
Contract liabilities      733        647        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.
During the year ended December 31, 2020, contract assets and contract
liabilities increased primarily due to customer discounts and deferred
conversion revenue associated with long-term contracts obtained during the year.
The Company recognized $492 million of revenue during the year ended
December 31, 2020 that was included in the contract liabilities balance at the
beginning of the period.
During the year ended December 31, 2019, contract assets and contract
liabilities increased $153 million and $117 million, respectively, due to the
acquisition of First Data. The Company recognized $380 million of revenue during
the year ended December 31, 2019 that was included in the contract liabilities
balance at the beginning of the period.
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 December 31, 2020:
(In millions)
Year Ending December 31,
2021                       $ 2,000
2022                         1,658
2023                         1,355
2024                           982
Thereafter                   1,825


The Company applies the optional exemption under 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
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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.
Contract Costs
The Company incurs incremental costs to obtain a contract as well as costs to
fulfill contracts with customers that are expected to be recovered. These costs
consist primarily of sales commissions incurred only if a contract is obtained,
and customer conversion or implementation related costs. Capitalized sales
commissions and conversion or implementation costs were as follows at December
31:
(In millions)                                          2020       2019
Capitalized sales commissions                         $ 402      $ 357

Capitalized conversion or implementation costs 290 176

Capitalized contract costs are amortized based on the transfer of goods or
services to which the asset relates. The amortization period also considers
expected customer lives and whether the asset relates to goods or services
transferred under a specific anticipated contract. These costs are primarily
included in selling, general and administrative expenses and totaled $124
million, $105 million and $106 million during the years ended December 31, 2020,
2019 and 2018, respectively. Impairment losses recognized during the years ended
December 31, 2020, 2019 and 2018 related to capitalized contract costs were not
significant.
4. Acquisitions and Dispositions
Acquisition of First Data
On July 29, 2019, the Company acquired 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, included within the
Acceptance and Payments segments, 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 as described in further
detail within Note 16. 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 as discussed in Note 12.
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. See Note 16 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
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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 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 current year through the
measurement period ended July 29, 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 $304 million. The offsetting amounts to the change in goodwill were primarily
related to customer relationship intangible assets, noncontrolling interests,
property and equipment, payables and accrued expenses including legal
contingency reserves, 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 $126 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. A
measurement period adjustment of $25 million was recorded to reduce the fair
value of property and equipment to the estimated fair value of certain real
property acquired. Measurement period adjustments were recorded to increase
payables and accrued expenses by $37 million, reduce investments in
unconsolidated affiliates by $23 million, and increase other long-term
liabilities by $21 million. The remaining $169 million of adjustments were
primarily comprised of deferred tax adjustments related to the measurement
period adjustments. Such measurement period adjustments did not have a material
impact on the consolidated statements of income. The allocation of purchase
price recorded for First Data was finalized in the third quarter of 2020 as
follows:
(In millions)
Assets acquired (1)
   Cash and cash equivalents                                   $    310
   Trade accounts receivable                                      1,747
   Prepaid expenses and other current assets                      1,047
   Settlement assets                                             10,398
   Property and equipment                                         1,156
   Customer relationships                                        13,458
   Other intangible assets                                        2,814
   Goodwill                                                      30,811
   Investments in unconsolidated affiliates                       2,676
   Other long-term assets                                         1,191
Total assets acquired                                          $ 65,608

Liabilities assumed (1)

   Accounts payable and accrued expenses                       $  1,613
   Short-term and current maturities of long-term debt (2)          243
   Contract liabilities                                              71
   Settlement obligations                                        10,398
   Deferred income taxes                                          3,671
   Long-term contract liabilities                                    16
   Long-term debt and other long-term liabilities (3)             1,261
Total liabilities assumed                                      $ 17,273

Net assets acquired                                            $ 48,335
Redeemable noncontrolling interests                                 252
Noncontrolling interests                                          1,608
   Total purchase price                                        $ 46,475


(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 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 12).
(3)Includes the receivable securitized loan and the long-term portion of finance
lease obligations (see Note 12).
The 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. 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,
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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 provided a reasonable basis for
estimating the fair values of the acquired assets and assumed liabilities.
The amounts allocated to intangible assets are as follows:
                                                            Gross Carrying
(In millions)                                                   Amount                Weighted-Average Useful Life
Customer relationships                                    $        13,458                       15 years
Acquired software and technology                                    2,324                       7 years
Trade names                                                           490                       9 years
   Total                                                  $        16,272                       14 years


The financial results of First Data are included in the consolidated results of
the Company from July 29, 2019, the date of acquisition. For the year ended
December 31, 2019, the results of operations for First Data, included within the
accompanying consolidated statement of income, consisted of $4.1 billion of
revenue and $1.0 billion of operating income.
The Company incurred transaction expenses of approximately $175 million for the
year ended December 31, 2019. Approximately $77 million of these expenses were
included in selling, general and administrative expenses and $98 million were
included in debt financing activities within the Company's consolidated
statement of income for the year ended December 31, 2019.
The following unaudited supplemental pro forma combined financial information
presents the Company's results of operations for the years ended December 31,
2019 and 2018 as if the acquisition of First Data had occurred on January 1,
2018. 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, 2018. In addition, the unaudited pro forma financial information does
not give effect to any anticipated cost savings, operating efficiencies or other
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)                 2019          2018
Total revenue                                         $ 15,775      $ 

15,284

Net income                                               1,520         

1,125

Net income attributable to Fiserv, Inc.                  1,457         

1,040

Net income per share attributable to Fiserv, Inc.:

   Basic                                              $   2.14      $   1.50
   Diluted                                            $   2.10      $   1.47


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, 2018 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;
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•a reduction in expenses for the year ended December 31, 2019 and a
corresponding increase in the year ended December 31, 2018 for
acquisition-related transaction costs and other one-time costs directly
attributable to the acquisition;
•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, 2018; and
•the related income tax effects of the adjustments noted above.
Acquisition of Elan Assets
On October 31, 2018, the Company acquired the debit card processing, ATM Managed
Services, and MoneyPass® surcharge-free network of Elan Financial Services, a
unit of U.S. Bancorp ("Elan"), for approximately $659 million. Such purchase
price includes an initial cash payment of $691 million, less post-closing
working capital adjustments of $57 million, plus contingent consideration
related to earn-out provisions estimated at a fair value of $12 million (see
Note 10) and future payments under a transition services agreement estimated to
be in excess of fair value of $13 million. This acquisition, included within the
Payments segment, deepens the Company's presence in debit card processing,
broadens its client reach and scale and provides new solutions to enhance the
value proposition for its existing debit solution clients.
During 2019, 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. The measurement period
adjustments resulted in a decrease in goodwill of $24 million with an offset to
intangible assets and prepaid expenses and other current assets. The following
allocation of purchase price for Elan was finalized in 2019:
(In millions)
Trade accounts receivable                        $  20
Prepaid expenses and other current assets           98
Property and equipment                               9
Intangible assets                                  373
Goodwill                                           214

Accounts payable and other current liabilities (55) Total purchase price

$ 659


Goodwill, deductible for tax purposes, is primarily attributed to synergies,
including the migration of Elan's clients to the Company's debit platform, and
the anticipated value created by selling the Company's products and services
outside of card payments to Elan's existing client base. The amounts allocated
to intangible assets are as follows:
(In millions)               Gross Carrying Amount        Weighted-Average Useful Life
Customer relationships     $                  370                  15 years
Trade name                                      3                  8 years
Total                      $                  373                  15 years


In conjunction with the acquisition, the Company entered into a transition
services agreement for the provision of certain processing, network,
administrative and managed services for a period of two years. The financial
results of Elan are included in the consolidated results of the Company from
October 31, 2018, the date of acquisition. For the year ended December 31, 2018,
the results of operations for Elan, included within the accompanying
consolidated statement of income, consisted of $29 million of revenue and $6
million of operating income. Pro forma information for this acquisition is not
provided because it did not have a material effect on the Company's consolidated
results of operations.
Other Acquisitions
On March 2, 2020, the Company acquired MerchantPro Express LLC ("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, LLC ("Bypass"), an independent software vendor and
innovator in enterprise point-of-sale systems for sports and entertainment
venues, food service management providers and national
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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. On May 11, 2020, the Company acquired Inlet, LLC ("Inlet"), a
provider of secure digital delivery solutions for enterprise and middle-market
billers' invoices and statements. Inlet is included within the Payments segment
and further enhances the Company's digital bill payment strategy.
The Company acquired these businesses for an aggregate purchase price of $167
million, net of $2 million of acquired cash, and including earn-out provisions
estimated at a fair value of $45 million (see Note 10). The purchase price
allocations for these acquisitions resulted in software and customer intangible
assets totaling approximately $46 million, residual buyout intangible assets of
approximately $35 million, goodwill of approximately $90 million, and net
assumed liabilities of approximately $4 million. The purchase price allocation
for the MerchantPro acquisition was finalized in the third quarter of 2020, and
for the Bypass and Inlet acquisitions in the fourth quarter of 2020. Measurement
period adjustments did not have a material impact on the consolidated statements
of income. 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 $36 million of goodwill is expected to be deductible for tax
purposes.
The amounts allocated to intangible assets are as follows:
(In millions)                                               Gross Carrying Amount            Weighted-Average Useful Life
Customer relationships                                    $                   32                       14 years
Residual buyouts                                                              35                       9 years
Acquired software and technology                                              14                       8 years
Total                                                     $                   81                       11 years


The results of operations for these acquired businesses have been included in
the accompanying consolidated statements 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.
On January 22, 2021, the Company acquired Ondot Systems, Inc., a digital
experience platform provider for financial institutions. This acquisition, to be
included within the Payments segment, will further expand the Company's digital
capabilities, enhancing its suite of integrated solutions spanning card-based
payments, digital banking platforms, core banking, and merchant solutions to
enable clients of all sizes to deliver frictionless, digital-first and
personalized experiences to their customers.
Dispositions
Effective July 1, 2020, the Company and Bank of America ("BANA") dissolved the
Banc of America Merchant Services joint venture ("BAMS" or the "joint venture"),
of which the Company maintained a 51% controlling ownership interest. Upon
dissolution of the joint venture's operations, the joint venture transferred a
proportionate share of value, primarily the client contracts, to each party via
an agreed upon contractual separation. The remaining activities of the joint
venture will consist of supporting the transition of the business to each party
and an orderly wind down of remaining BAMS assets and liabilities. Pursuant to
the separation agreement, the joint venture retains the responsibility for
certain contingencies that may arise from pre-dissolution activities, including
potential credit losses for specified merchants in excess of established
reserves and certain legal claims and contingencies. The Company may be
obligated to fund a proportionate share of any such losses as incurred.

The transfer of value to BANA was accounted for at fair value as a non pro rata
distribution of nonmonetary assets, resulting in the recognition of a pre-tax
gain of $36 million, with a related tax expense of $13 million. The pre-tax gain
included the revaluation of client contracts allocated to BANA to a fair value
of $700 million, as well as an estimated $24 million for certain additional
consideration due from the Company to BANA in connection with the dissolution.
The pre-tax net gain is recorded within gain on sale of businesses and the tax
expense is recorded within the income tax provision in the consolidated
statement of income for the year ended December 31, 2020. Noncontrolling
interests of the Company have been reduced by $726 million and the Company's
additional paid-in capital was reduced by $36 million to account for the wind
down of the joint venture and the transfer of a proportionate share of the joint
venture's fair value to BANA. The transfer of value to the Company was accounted
for at carryover basis as the Company maintains control of such assets. The
business transferred to the Company will continue to be operated and managed
within the Company's Acceptance segment.

The fair value of the client contracts upon dissolution of the joint venture was
determined using the MEEM method, a form of the income approach. The
determination of the fair values required estimates about discount rates, growth
and attrition rates,
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future expected cash flows and other future events that are judgmental in
nature. 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. 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.

The Company will continue to provide merchant processing and related services to
former BAMS clients allocated to BANA, at BAMS pricing, through June 2023. The
Company will also provide processing and other support services to new BANA
merchant clients pursuant to a five-year non-exclusive agreement which, after
June 2023, will also apply to the former BAMS clients allocated to BANA. In
addition, both the Company and BANA are entitled to certain transition services,
at fair value, from each other through June 2023.
On February 18, 2020, the Company sold a 60% controlling interest of its
Investment Services business, subsequently renamed as Tegra118, LLC
("Tegra118"), which is reported within Corporate and Other following the Segment
Realignment. The Company received pre-tax proceeds of $578 million, net of
related expenses, resulting in a pre-tax gain on the sale of $428 million, with
the related tax expense of $112 million recorded through the income tax
provision, in the consolidated statement of income for the year ended December
31, 2020. The pre-tax gain included $176 million related to the remeasurement of
the Company's 40% retained interest based upon the enterprise value of the
business. The revenues, expenses and cash flows of the Investment Services
business were consolidated into the Company's financial results through the date
of the sale transaction. 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 Tegra118 (see Note 20). The Company's
remaining ownership interest in Tegra118 is accounted for as an equity method
investment (see Note 9). On February 2, 2021, Tegra118 completed a merger with a
third party, resulting in a dilution of the Company's ownership interest in the
combined new entity, Wealthtech Holdings, LLC.
On March 29, 2018, the Company sold a 55% controlling interest of each of Fiserv
Automotive Solutions, LLC and Fiserv LS LLC, which were subsidiaries of the
Company that owned its Lending Solutions business (collectively, the "Lending
Joint Ventures"). The Lending Joint Ventures, which were reported within the
Fintech segment, included all of the Company's automotive loan origination and
servicing products, as well as its LoanServ™ mortgage and consumer loan
servicing platform. The Company received gross sale proceeds of $419 million
from the transactions. In 2018, the Company recognized a pre-tax gain on the
sale of $227 million, with the related tax expense of $77 million recorded
through the income tax provision, in the consolidated statement of income. The
pre-tax gain included $124 million related to the remeasurement of the Company's
45% retained interests based upon the estimated enterprise value of the Lending
Joint Ventures. In 2019, the Company recognized a pre-tax gain on the sale of
$10 million, with the related tax expense of $2 million recorded through the
income tax provision, as contingent special distribution provisions within the
transaction agreement were resolved and thereby realized. In August 2019, the
Sagent Auto, LLC joint venture, formerly known as Fiserv Automotive Solutions,
LLC, completed a merger with a third party, resulting in a dilution of the
Company's ownership interest in the combined entity, defi SOLUTIONS Group, LLC
("defi SOLUTIONS"). The Company recognized a pre-tax gain of $14 million within
income from investments in unconsolidated affiliates in the consolidated
statement of income, with related tax expense of $3 million, in 2019, reflecting
the Company's 31% ownership interest in defi SOLUTIONS. The Company's remaining
ownership interests in the Lending Joint Ventures are accounted for as equity
method investments (see Note 9). See Note 20 for information regarding
transition service agreements with the Lending Joint Ventures.
5. Discontinued Operations
In connection with the acquisition of First Data, the Company acquired two
businesses, which it intended to sell. In October 2019, the Company completed
the sales, at acquired fair value, of these two businesses for aggregate
proceeds of $133 million. The sale proceeds are presented within discontinued
operations in the consolidated statement of cash flows since the businesses were
never considered part of the Company's ongoing operations. The financial results
of these businesses from the date of acquisition were not significant.
In January 2018, the Company completed the sale of the retail voucher business,
MyVoucherCodes, acquired as part of its acquisition of Monitise plc in September
2017 for proceeds of £37 million ($50 million). The corresponding proceeds
received in 2018 are presented within discontinued operations since the business
was never considered part of the Company's ongoing operations. There was no
impact to operating income or gain/loss recognized on the sale in 2018. Cash
flows from discontinued operations in 2018 also included tax payments of $7
million related to income recognized in 2017 from a litigation settlement
related to a prior disposition.
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6. 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 at December 31:
(In millions)                          2020          2019
Settlement assets
Cash and cash equivalents           $  1,825      $  1,656
Receivables                            9,696        10,212
Total settlement assets             $ 11,521      $ 11,868

Settlement obligations Payment instruments outstanding $ 483 $ 345 Card settlements due to merchants 11,038 11,523 Total settlement obligations $ 11,521 $ 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.
7. Intangible Assets
Identifiable intangible assets consisted of the following at December 31:

(In millions)                                     Gross
                                                 Carrying       Accumulated       Net Book
2020                                              Amount       Amortization        Value
Customer relationships                          $ 15,271      $       3,668      $ 11,603
Acquired software and technology                   2,562                879         1,683
Trade names                                          618                172           446
Purchased software                                   913                207           706
Capitalized software and other intangibles         1,332                412           920
Total                                           $ 20,696      $       5,338      $ 15,358


(In millions)                                     Gross
                                                 Carrying       Accumulated       Net Book
2019                                              Amount       Amortization        Value
Customer relationships                          $ 16,187      $       2,145      $ 14,042
Acquired software and technology                   2,607                639         1,968
Trade names                                          620                105           515
Purchased software                                   680                173           507
Capitalized software and other intangibles           942                332           610
Total                                           $ 21,036      $       3,394      $ 17,642

Gross software development costs capitalized for new products and enhancements to existing products totaled $462 million, $339 million and $193 million in 2020, 2019 and 2018, respectively.

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Amortization expense associated with the above identifiable intangible assets
was as follows for the years ended December 31:
(In millions)                2020         2019        2018

Amortization expense $ 2,563 $ 1,299 $ 347

Amortization expense during the year ended December 31, 2020 includes $56
million of accelerated amortization associated with the termination of certain
vendor contracts (see Note 17).
The Company estimates that annual amortization expense with respect to
intangible assets recorded at December 31, 2020 will be as follows:
(In millions)
Year Ending December 31,
2021                          $  2,451
2022                             2,262
2023                             2,010
2024                             1,616
2025                             1,342
Thereafter                       5,677
Total                         $ 15,358


8. Goodwill

The following table presents changes in goodwill during 2020 and 2019. Prior period amounts have been restated to reflect the Segment Realignment.

                                                                           Reportable Segments
                                                                                                    Corporate
(In millions)                              Acceptance           Fintech          Payments           and Other            Total
Goodwill - December 31, 2018             $         -          $  2,102          $  3,380          $      220          $  5,702
Acquisitions and valuation
adjustments                                   21,178                 2             9,302                   -            30,482
Dispositions                                       -                (2)                -                   -                (2)
Goodwill reclassified to assets
held for sale                                      -                 -                 -                (220)             (220)
Foreign currency translation                      11                 2                63                   -                76
Goodwill - December 31, 2019                  21,189             2,104            12,745                   -            36,038
Acquisitions and valuation
adjustments                                      332                 -                62                   -               394

Foreign currency translation                    (113)                4                (1)                  -              (110)
Goodwill - December 31, 2020             $    21,408          $  2,108

$ 12,806 $ - $ 36,322

In December 2019, the Company entered into a definitive agreement to sell a 60%
controlling interest of its Investment Services business, and subsequently
completed the sale on February 18, 2020, which is reported within Corporate and
Other following the Segment Realignment (see Note 4). As a result, the
corresponding assets of the Investment Services business, including $220 million
of goodwill, were classified as held for sale within prepaid expenses and other
current assets in the Company's consolidated balance sheet at December 31, 2019.
9. Investments in Unconsolidated Affiliates
The Company maintains investments in various affiliates that are accounted for
as equity method investments at both December 31, 2020 and 2019, the most
significant of which are related to the Company's merchant bank alliance
affiliates. The Company's share of net income or loss from these investments is
reported within income from investments in unconsolidated affiliates and the
related tax expense or benefit is reported within the income tax provision in
the consolidated statements of income.
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Merchant Alliances
The Company maintains ownership interests of significant influence in various
merchant alliances and strategic investments in companies in related markets. A
merchant alliance, as it pertains to investments accounted for under the equity
method, is an agreement between the Company and a financial institution that
combines the processing capabilities and management expertise of the Company
with the visibility and distribution channel of the bank. A merchant alliance
acquires credit and debit card transactions from merchants. The Company provides
processing and other services to the alliance and charges fees to the alliance
primarily based on contractual pricing (see Note 20). The Company's investment
in its merchant alliances was $2.4 billion and $2.5 billion at December 31, 2020
and 2019, respectively, and is reported within investments in unconsolidated
affiliates in the consolidated balance sheets.

Other Equity Method Investments
Following the sale of a controlling financial interest of the Investment
Services business (see Note 4), as of December 31, 2020, the Company maintained
a 40% ownership interest in Tegra 118 which is accounted for as an equity method
investment. The Company also maintains a 45% ownership interest in Sagent M&C,
LLC (formerly known as Fiserv LS, LLC) and a 31% ownership interest in defi
SOLUTIONS, which are accounted for as equity method investments (see Note 4).
The Company's aggregate investment in these entities was $212 million and
$56 million at December 31, 2020 and 2019, respectively, and is reported within
investments in unconsolidated affiliates in the consolidated balance sheets.

The Lending Joint Ventures maintain variable-rate term loan facilities with
aggregate outstanding borrowings of $385 million in senior unsecured debt and
variable-rate revolving credit facilities with an aggregate borrowing capacity
of $45 million with a syndicate of banks, which mature in March 2023.
Outstanding borrowings on the revolving credit facilities at December 31, 2020
were $13 million. 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. See Note 10 for additional information regarding
the Company's debt guarantee arrangements with the Lending Joint Ventures.
Summary of Financial Information
The following tables present a summary of financial information for the
Company's unconsolidated affiliates accounted for under the equity method of
accounting:
(In millions)
December 31,                    2020         2019
Total current assets          $ 5,534      $ 4,288
Total long-term assets            769            1
Total assets                  $ 6,303      $ 4,289

Total current liabilities     $ 5,478      $ 4,243
Total long-term liabilities       336            -
Total liabilities             $ 5,814      $ 4,243


The primary components of assets and liabilities are settlement asset and
obligation related accounts similar to those described in Note 6 to the
consolidated financial statements.
(In millions)
Year Ended December 31,     2020       2019
Total revenue              $ 963      $ 467
Total expenses               597        249
Operating income           $ 366      $ 218
Net income                 $ 351      $ 215


The Company's share of investee's net income or loss includes the amortization
basis difference between the estimated fair value and the underlying book value
of equity method intangible assets.
The Company classifies distributions from its investments accounted for using
the equity method in the consolidated statements of cash flows using the
cumulative earnings approach. Under this approach, distributions received from
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unconsolidated affiliates are classified as cash flows from operating activities
to the extent that the cumulative distributions do not exceed the cumulative
earnings on the investment. To the extent the current period distribution
exceeds the cumulative earnings on the investment, the distribution is
considered a return of investment and is classified as cash flows from investing
activities. The Company received cash distributions from unconsolidated
affiliates of $151 million, $136 million and $2 million, of which $109 million,
$113 million and $0 million were recorded as cash flows from investing
activities in the Company's consolidated statements of cash flows during 2020,
2019 and 2018, respectively.
The Company also maintains investments in various equity securities without a
readily determinable fair value. Such investments totaled $160 million and $167
million at December 31, 2020 and 2019, respectively, and are included within
other long-term assets in the Company's consolidated balance sheets. The Company
reviews these investments each reporting period to determine whether an
impairment or observable price change for the investment has occurred. When such
events or changes occur, the Company evaluates the fair value compared to its
cost basis in the investment. Gains or losses from a change in fair value are
included within other income (expense) in the consolidated statement of income
for the period. Adjustments made to the values recorded for these equity
securities during 2020, 2019 and 2018 were not significant.
10. 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). Contingent
consideration related to the 2020 acquisitions of MerchantPro and Bypass and
2018 acquisition of Elan (see Note 4) is estimated based on the present value of
a probability-weighted assessment approach derived from the likelihood of
achieving the earn-out criteria. The fair value of the Company's contingent
liability for current expected credit losses associated with its debt
guarantees, as further described below, is estimated based on assumptions of
future risk of default and the corresponding level of credit losses at the time
of default.
Assets and liabilities measured at fair value on a recurring basis consisted of
the following at December 31:
                                                                                                                Fair Value
(In millions)                                Classification             Fair Value Hierarchy             2020                2019
Assets
                                  Prepaid expenses and other current
  Cash flow hedges                assets                                       Level 2               $        9          $        4

Liabilities
                                  Accounts payable and accrued
  Contingent consideration        expenses                                     Level 3               $       46          $        -
  Contingent consideration        Other long-term liabilities                  Level 3                        -                   1
  Contingent debt guarantee       Other long-term liabilities                  Level 3                        8                   -


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,
foreign lines of credit 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 $22.5 billion and
$22.6 billion at December 31, 2020 and 2019, respectively, and the carrying
value was $19.9 billion and $21.5 billion at December 31, 2020 and 2019,
respectively.
The Company maintains a liability for its non-contingent obligations to perform
over the term of its debt guarantee arrangements with the Lending Joint Ventures
(see Note 9), which is reported primarily within other long-term liabilities in
the consolidated balance sheets. 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 $18 million and $26 million approximates the fair
value at December 31, 2020 and 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 ($8 million at December 31, 2020, as
reported within other long-term liabilities in the consolidated balance sheet),
representing the current expected credit losses to which the Company is exposed.
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 (Level 3 of the fair value
hierarchy). The Company recognized $13 million,
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$7 million and $5 million during the years ended December 31, 2020, 2019 and
2018, respectively, within other income (expense) in its consolidated statements
of income related to its release from risk under the non-contingent guarantees
as well as a change in the provision of estimated credit losses associated with
the indebtedness of the Lending Joint Ventures. The Company has not made any
payments under the guarantees, nor has it been called upon to do so.
In addition, certain of the Company's non-financial assets are measured at fair
value on a non-recurring basis, including property and equipment, lease ROU
assets, equity securities without a readily determinable fair value, goodwill
and other intangible assets, and are subject to fair value adjustment in certain
circumstances. Additional information about fair value adjustments recorded on a
non-recurring basis during the years ended December 31, 2020 and 2019 is
included in Note 17 to the consolidated financial statements.

11. Leases
The Company adopted ASU 2016-02 and its related amendments (collectively known
as "ASC 842") effective January 1, 2019 using the optional transition method in
ASU 2018-11. Therefore, the reported results and financial position as of and
for the years ended December 31, 2020 and 2019 reflect the application of ASC
842, while the reported results for the year ended December 31, 2018 were not
adjusted and continue to be reported under the accounting guidance, ASC 840,
Leases, in effect for this prior period.
Company as Lessee
The Company primarily leases office space, data centers and equipment from third
parties. The Company determines if a contract is a lease at inception. A
contract contains a lease if the contract conveys the right to control the use
of an identified asset for a period of time in exchange for consideration. The
lease term begins on the commencement date, which is the date the Company takes
possession of the asset, and may include options to extend or terminate the
lease when it is reasonably certain that the option will be exercised. Many of
the Company's leases contain renewal options for varying periods, which can be
exercised at the Company's sole discretion. Leases are classified as operating
or finance leases based on factors such as the lease term, lease payments, and
the economic life, fair value and estimated residual value of the asset. Certain
leases include options to purchase the leased asset at the end of the lease
term, which is assessed as a part of the Company's lease classification
determination. The Company elected the package of practical expedients permitted
under the transition guidance within ASU 2016-02 to not reassess prior
conclusions related to contracts containing leases, lease classification and
initial direct costs. The Company's leases have remaining lease terms ranging
from one month to 17 years.
The Company uses the right-of-use model to account for its leases. ROU assets
represent the Company's right to use an underlying asset for the lease term and
lease liabilities represent the Company's obligation to make lease payments
arising from the lease. ROU assets and lease liabilities are recognized on the
commencement date based on the present value of lease payments over the lease
term. ROU assets are based on the lease liability and are increased by prepaid
lease payments and decreased by lease incentives received. For leases where the
Company is reasonably certain to exercise a renewal option, such option periods
have been included in the determination of the Company's ROU assets and lease
liabilities. Certain leases require the Company to pay taxes, insurance,
maintenance and other operating expenses associated with the leased asset. Such
amounts are not included in the measurement of the ROU assets and lease
liabilities to the extent they are variable in nature. These variable lease
costs are recognized as variable lease expenses when incurred. As a practical
expedient, lease agreements with lease and non-lease components are accounted
for as a single lease component for all asset classes. The Company estimates
contingent lease incentives when it is probable that the Company is entitled to
the incentive at lease commencement. The Company elected the short-term lease
recognition exemption for all leases that qualify. Therefore, leases with an
initial term of 12 months or less are not recorded on the balance sheet;
instead, lease payments are recognized as lease expense on a straight-line basis
over the lease term. The depreciable life of the ROU assets and leasehold
improvements are limited by the expected lease term unless the Company is
reasonably certain of a transfer of title or purchase option. The Company uses
its incremental borrowing rate to discount future lease payments in the
calculation of the lease liability and ROU asset based on the information
available on the commencement date for each lease. The Company's leases
typically do not provide an implicit rate. The determination of the incremental
borrowing rate requires judgment and is determined using the Company's current
unsecured borrowing rate, adjusted for various factors such as
collateralization, currency and term to align with the terms of the lease.
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Lease Balances
(In millions)
December 31,                       2020       2019
Assets
Operating lease assets (1)        $ 504      $ 684
Finance lease assets (2)            267        235
Total lease assets                $ 771      $ 919

Liabilities
Current

Operating lease liabilities (1) $ 125 $ 140 Finance lease liabilities (2) 104 78 Noncurrent Operating lease liabilities (1) 471 603 Finance lease liabilities (2) 271 144

Total lease liabilities $ 971 $ 965

(1)Operating lease assets are included within other long-term assets, and
operating lease liabilities are included within accounts payable and accrued
expenses (current portion) and other long-term liabilities (noncurrent portion)
in the consolidated balance sheets.
(2)Finance lease assets are included within property and equipment, net and
finance lease liabilities are included within short-term and current maturities
of long-term debt (current portion) and long-term debt (noncurrent portion) in
the consolidated balance sheets.
Components of Lease Cost
(In millions)
Year Ended December 31,                    2020       2019
Operating lease cost (1)                  $ 198      $ 207
Finance lease cost (2)

Amortization of right-of-use assets 150 40

   Interest on lease liabilities             21          8
Total lease cost                          $ 369      $ 255


(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 ROU asset, in the consolidated statements of income.
Operating lease expense includes approximately $50 million and $56 million of
variable lease costs for the years ended December 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 includes $62 million of accelerated amortization associated with the
termination of certain vendor contracts during the year ended December 31, 2020
(see Note 17).
Rent expense for all operating leases was $118 million during the year ended
December 31, 2018.
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Supplemental Cash Flow Information
(In millions)
Year Ended December 31,                                      2020           

2019

Cash paid for amounts included in the measurement of lease liabilities:

   Operating cash flows from operating leases         $           155          $           139
   Operating cash flows from finance leases                        21                        8
   Financing cash flows from finance leases                       187                       37

Right-of-use assets obtained in exchange for lease
liabilities: (1)
   Operating leases                                   $            46          $           441
   Finance leases                                                 399                      288


(1)Amounts in 2019 include the right-of-use assets and lease liabilities
obtained through the acquisition of First Data.
Lease Term and Discount Rate
December 31,                                2020         2019

Weighted-average remaining lease term:

   Operating leases                         6 years      7 years
   Finance leases                           4 years      3 years

Weighted-average discount rate:

   Operating leases                          2.9  %       3.0  %
   Finance leases                            3.5  %       3.5  %


Maturity of Lease Liabilities
Future minimum rental payments on leases with initial non-cancellable lease
terms in excess of one year were due as follows at December 31, 2020:
(In millions)
Year Ending December 31,                   Operating Leases (1)      Finance Leases (2)
2021                                      $                136      $               107
2022                                                       120                      103
2023                                                       103                       98
2024                                                        86                       71
2025                                                        66                       28
Thereafter                                                 146                        3
   Total lease payments                                    657                      410
Less: Interest                                             (61)                     (35)
   Present value of lease liabilities     $                596      $               375


(1)Operating lease payments include $6 million related to options to extend
lease terms that are reasonably certain of being exercised.
(2)Finance lease payments exclude $30 million of legally binding minimum lease
payments for leases signed but not yet commenced. Finance leases that have been
signed but not yet commenced are for equipment and will commence in 2021 with
lease terms of up to 6 years.
Company as Lessor
The Company owns certain point-of-sale ("POS") terminal equipment which it
leases to merchants. Leases are classified as operating or sales-type leases
based on factors such as the lease term, lease payments, and the economic life,
fair value and estimated residual value of the asset. The terms of the leases
typically range from one month to five years. For operating leases,
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the minimum lease payments received are recognized as lease income on a
straight-line basis over the lease term and the leased asset is included in
property and equipment, net in the consolidated balance sheets and depreciated
over its estimated useful life. For sales-type leases, selling profit is
recognized at the commencement date of the lease to the extent the fair value of
the underlying asset is different from its carrying amount. Selling profit is
directly impacted by the Company's estimate of the amount to be derived from the
residual value of the asset at the end of the lease term. The residual value of
the asset is computed using various assumptions, including the expected fair
value of the underlying asset at the end of the lease term. Unearned income is
recognized as interest income over the lease term. For sales-type leases, the
Company derecognizes the carrying amount of the underlying leased asset and
recognizes a net investment in the leased asset in the consolidated balance
sheets. The net investment in a leased asset is computed based on the present
value of the minimum lease payments not yet received and the present value of
the residual value of the asset.
Components of Lease Income
(In millions)
Year Ended December 31,       2020      2019
Sales-type leases:
  Selling profit (1)         $ 48      $ 20
  Interest income (1)          76        33
Operating lease income (2)    257        36


(1)Selling profit includes $106 million and $48 million recorded within product
revenue with a corresponding charge of $58 million and $28 million recorded in
cost of product in the consolidated statements of income for the years ended
December 31, 2020 and 2019, respectively. Interest income is included within
product revenue in the consolidated statements of income.
(2)Operating lease income includes a nominal amount of variable lease income and
is included within product revenue in the consolidated statements of income for
each of the years ended December 31, 2020 and 2019.
Components of Net Investment in Sales-Type Leases
(In millions)
December 31,                      2020       2019
Minimum lease payments           $ 355      $ 376
Residual values                     23         34

Less: Unearned interest income (141) (160) Net investment in leases (1) $ 237 $ 250

(1)Net investments in leased assets are included within prepaid expenses and
other current assets (current portion) and other long-term assets (noncurrent
portion) in the consolidated balance sheets.
Maturities of Future Minimum Lease Payment Receivables
Future minimum lease payments receivable on sales-type leases were as follows at
December 31, 2020:
(In millions)
Year Ending December 31,                   Sales-Type Leases
2021                                      $              153
2022                                                     114
2023                                                      63
2024                                                      22
2025                                                       3
Thereafter                                                 -
   Total minimum lease payments           $              355


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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 term, 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 December 31, 2020 was $64 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 December 31, 2020 and 2019 was $237 million
and $250 million, respectively. Lease payment receivables that were determined
to be on non-accrual status were nominal at each of December 31, 2020 and 2019.
12. Debt
The Company's debt consisted of the following at December 31:
(In millions)                                                         2020  

2019

Short-term and current maturities of long-term debt: Lines of credit

                                                    $    144      $    150
Finance lease and other financing obligations                           240 

137

Total short-term and current maturities of long-term debt $ 384

$ 287

Long-term debt:
2.700% senior notes due June 2020                                  $      -      $    850
4.750% senior notes due June 2021                                       400 

400

3.500% senior notes due October 2022                                    700 

700

3.800% senior notes due October 2023                                  1,000 

1,000

0.375% senior notes due July 2023 (Euro-denominated)                    612 

559

2.750% senior notes due July 2024                                     2,000 

2,000

3.850% senior notes due June 2025                                       900 

900

2.250% senior notes due July 2025 (British Pound-denominated)           709 

687

3.200% senior notes due July 2026                                     2,000 

2,000

2.250% senior notes due June 2027                                     1,000             -
1.125% senior notes due July 2027 (Euro-denominated)                    612 

559

4.200% senior notes due October 2028                                  1,000 

1,000

3.500% senior notes due July 2029                                     3,000 

3,000

2.650% senior notes due June 2030                                     1,000             -
1.625% senior notes due July 2030 (Euro-denominated)                    612 

559

3.000% senior notes due July 2031 (British Pound-denominated)           709 

687

4.400% senior notes due July 2049                                     2,000         2,000
Receivable securitized loan                                             425           500
Term loan facility                                                    1,250         3,950
Unamortized discount and deferred financing costs                      (155)         (160)
Revolving credit facility                                                22 

174

Finance lease and other financing obligations                           504           247
Total long-term debt                                               $ 20,300      $ 21,612


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Annual maturities of the Company's total debt were as follows at December 31,
2020:
(In millions)
Year Ending December 31,
2021                                                  $    384
2022                                                     1,323
2023                                                     2,222
2024                                                     3,329
2025                                                     1,643
Thereafter                                              11,938
Total principal payments                                20,839

Unamortized discount and deferred financing costs (155) Total debt

                                            $ 20,684


Senior Notes
The Company has outstanding $18.3 billion of various fixed-rate senior notes, as
described above. The indentures governing the Company's senior notes contain
covenants that, among other matters, limit (i) the Company's ability to
consolidate or merge with or into, or convey, transfer or lease all or
substantially all of its properties and assets to, another person, (ii) the
Company's and certain of its subsidiaries' ability to create or assume liens,
and (iii) the Company's and certain of its subsidiaries' ability to engage in
sale and leaseback transactions. The Company may, at its option, redeem the
senior notes, in whole or, from time to time, in part, at any time prior to the
applicable maturity date. Interest on the Company's U.S. dollar-denominated
senior notes is paid semi-annually, while interest on its Euro- and British
Pound-denominated senior notes is paid annually. The interest rate applicable to
certain of the senior notes is subject to an increase of up to two percent in
the event that the credit rating assigned to such notes is downgraded below
investment grade.
On May 13, 2020, the Company completed an offering of $2.0 billion of senior
notes comprised of $1.0 billion aggregate principal amount of 2.25% senior notes
due in June 2027 and $1.0 billion aggregate principal amount of 2.65% senior
notes due in June 2030. The senior notes pay interest semi-annually on June 1
and December 1, commencing on December 1, 2020. The indentures governing these
senior notes contain covenants that are substantially the same as those set
forth in the Company's senior notes described above. The Company used the net
proceeds from these senior notes offerings to repay the outstanding principal
balance of $850 million under its 2.7% senior notes due in June 2020 and
outstanding borrowings under its amended and restated revolving credit facility
totaling $1.1 billion.
On June 24, 2019 and July 1, 2019, the Company completed various offerings of
senior notes for the purpose of funding the repayment of certain indebtedness of
First Data and its subsidiaries on the closing date of the acquisition (see Note
4). Such offerings consisted of the following:


                                                                                                      Aggregate Principal
(In millions)                              Interest Rates                    Maturities                      Amount
U.S. dollar denominated senior notes       2.750% - 4.400%                July 2024 - 2049            $           9,000
Euro denominated senior notes              0.375% - 1.625%                July 2023 - 2030            €           1,500
British Pound denominated senior           2.250% - 3.000%                July 2025 - 2031
notes                                                                                                 £           1,050


The Company used a portion of the net proceeds from the 2019 senior note
offerings described above in June 2019 to repay outstanding borrowings totaling
$790 million under the Company's amended and restated revolving credit facility.
On July 29, 2019, concurrent with the acquisition of First Data, the Company
used the remaining net proceeds from the 2019 senior notes offerings described
above, as well as the net proceeds of the term loan facility and a drawing on
its revolving credit facility described below, to repay $16.4 billion of
existing First Data debt and to pay fees and expenses related to such repayment,
the First Data acquisition and related transactions.

At December 31, 2020, the 4.75% senior notes due in June 2021 were classified in
the consolidated balance sheet as long-term and within the debt maturity
schedule above as maturing in September 2023, the date that the Company's
revolving credit facility expires, as the Company has the intent to refinance
this debt on a long-term basis and the ability to do so under its revolving
credit facility.
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Term Loan Facility
On February 15, 2019, the Company entered into a term loan credit agreement with
a syndicate of financial institutions pursuant to which such financial
institutions committed to provide the Company with a senior unsecured term loan
facility in an aggregate amount of $5.0 billion, consisting of $1.5 billion in
commitments to provide loans with a term of three years and $3.5 billion in
commitments to provide loans with a term of five years. On July 29, 2019,
concurrent with the closing of the acquisition of First Data, the term loan
credit agreement was funded. Loans drawn under the term loan facility are
subject to amortization at a quarterly rate of 1.25% for the first eight
quarters and 1.875% each quarter thereafter (with loans outstanding under the
five-year tranche subject to amortization at a quarterly rate of 2.5% after the
fourth anniversary of the commencement of amortization), with accrued and unpaid
amortization amounts required to be paid on the last business day in December of
each year. Borrowings under the term loan facility bear interest at variable
rates based on LIBOR or on a base rate, plus in each case, a specified margin
based on the Company's long-term debt rating in effect from time to time. The
variable interest rate on the term loan facility borrowings was 1.41% at
December 31, 2020. The term loan credit facility contains affirmative, negative
and financial covenants, and events of default, that are substantially the same
as those set forth in the Company's existing amended revolving credit facility,
as described below.
Revolving Credit Facility
The Company maintains an amended and restated revolving credit facility, which
matures in September 2023, with aggregate commitments available for $3.5 billion
of total capacity. Borrowings under the amended and restated revolving credit
facility bear interest at a variable rate based on LIBOR or a base rate, plus in
each case a specified margin based on the Company's long-term debt rating in
effect from time to time. The variable interest rate on the revolving credit
facility borrowings was 1.18% at December 31, 2020. There are no significant
commitment fees and no compensating balance requirements. The amended and
restated revolving credit facility contains various restrictions and covenants
that require the Company, among other things, to (i) limit its consolidated
indebtedness as of the end of each fiscal quarter to no more than three and
one-half times the Company's consolidated net earnings before interest, taxes,
depreciation, amortization, non-cash charges and expenses and certain other
adjustments ("EBITDA") during the period of four fiscal quarters then ended,
subject to certain exceptions, and (ii) maintain EBITDA of at least three times
its consolidated interest expense as of the end of each fiscal quarter for the
period of four fiscal quarters then ended.

On February 6, 2019, the Company entered into an amendment to its amended and
restated revolving credit facility to (i) amend the maximum leverage ratio
covenant to permit it to elect to increase the permitted maximum leverage ratio
from three and one-half times the consolidated EBITDA to either four times or
four and one-half times the Company's consolidated EBITDA for a specified period
following certain acquisitions and (ii) permit it to make drawings under the
revolving credit facility on the closing date of its acquisition of First Data
subject to only limited conditions. In November 2019, the Company elected to
increase the permitted maximum leverage ratio to four times the Company's
consolidated EBITDA pursuant to the terms of the amendment described above. The
Company was in compliance with all financial debt covenants during 2020.
Foreign Lines of Credit and Other Arrangements
The Company maintains certain short-term lines of credit with foreign banks and
alliance partners primarily to fund settlement activity. These arrangements are
primarily associated with international operations and are in various functional
currencies, the most significant of which are the Australian dollar, Polish
zloty, Euro and Argentine peso. The Company had amounts outstanding on these
lines of credit totaling $144 million and $150 million at a weighted-average
interest rate of 21.98% and 13.42% at December 31, 2020 and 2019, respectively.
Receivable Securitized Loan
The Company maintains a consolidated wholly-owned subsidiary, First Data
Receivables, LLC ("FDR"). FDR is a party to certain receivables financing
arrangements, including an agreement ("Receivables Financing Agreement") with
certain financial institutions and other persons from time to time party thereto
as lenders and group agents, pursuant to which certain wholly-owned subsidiaries
of the Company have agreed to transfer and contribute receivables to FDR, and
FDR in turn may obtain borrowings from the financial institutions and other
lender parties to the Receivables Financing Agreement secured by liens on those
receivables. FDR's assets are not available to satisfy the obligations of any
other entities or affiliates of the Company, and FDR's creditors would be
entitled, upon its liquidation, to be satisfied out of FDR's assets prior to any
assets or value in FDR becoming available to the Company. The receivables held
by FDR are recorded within trade accounts receivable, net in the Company's
consolidated balance sheets. FDR held $811 million and $773 million in
receivables as part of the securitization program at December 31, 2020 and 2019,
respectively. FDR utilized the receivables as collateral in borrowings of $425
million and $500 million as of December 31, 2020 and 2019, respectively, at an
average interest rate of 1.00% and 2.61%, respectively.
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At December 31, 2020, the collateral capacity under the Receivables Financing
Agreement was $625 million, and the maximum borrowing capacity was $500 million.
The term of the Receivables Financing Agreement is through July 2022.
Deferred Financing Costs
Deferred financing costs are amortized as a component of interest expense, net
over the term of the underlying debt using the effective interest method.
Deferred financing costs related to the Company's senior notes, term loan and
receivable securitized loan totaled $117 million and $120 million at December
31, 2020 and 2019, respectively, and are reported as a direct reduction of the
related debt instrument in the consolidated balance sheets. Deferred financing
costs related to the Company's revolving credit facility are reported in other
long-term assets in the consolidated balance sheets and totaled $5 million and
$7 million at December 31, 2020 and 2019, respectively.
Debt Financing Activities
On January 16, 2019, in connection with the definitive merger agreement to
acquire First Data (see Note 4), the Company entered into a bridge facility
commitment letter pursuant to which a group of financial institutions committed
to provide a 364-day senior unsecured bridge term loan facility in an aggregate
principal amount of $17.0 billion for the purpose of funding the repayment of
certain indebtedness of First Data and its subsidiaries on the closing date of
the acquisition of First Data, making cash payments in lieu of fractional shares
as part of the acquisition consideration and paying fees and expenses related to
the acquisition, the refinancing and the related transactions. The Company
recorded $98 million of expenses, reported within debt financing activities in
the consolidated statements of income, related to the bridge term loan facility
during the year ended December 31, 2019. The aggregate commitments of $17.0
billion under the bridge facility commitment letter were replaced with a
corresponding amount of permanent financing through the term loan credit
agreement and issuance of senior notes, as described above, resulting in the
termination of the bridge term loan facility effective July 1, 2019.
In June 2019, the Company entered into foreign exchange forward contracts to
minimize foreign currency exposure to the Euro and British Pound upon settlement
of the proceeds from the foreign currency-denominated senior notes, as described
above. The foreign exchange forward contracts matured on July 1, 2019,
concurrent with the closing of the offering of the foreign currency-denominated
senior notes. The Company realized foreign currency transaction gains of $3
million, reported within debt financing activities in the consolidated statement
of income during the year ended December 31, 2019, from these foreign exchange
forward contracts. Further, upon completion of the acquisition of First Data,
the Company designated its Euro- and British Pound-denominated senior notes as
net investment hedges to hedge a portion of its net investment in certain Euro-
and British Pound-denominated subsidiaries (see Note 14). Prior to designating
the foreign currency-denominated senior notes as net investment hedges, the
Company realized foreign currency transaction gains of $69 million, reported
within debt financing activities in the consolidated statement of income during
the year ended December 31, 2019, as a result of changes in the U.S. dollar
equivalent of the Euro- and British Pound-denominated senior notes due to
fluctuations in foreign currency exchange rates. In addition, the Company held a
portion of the proceeds from the issuance of these foreign currency-denominated
senior notes in Euro- and British Pound-denominated cash and cash equivalents.
The Company realized foreign currency transaction losses of $19 million,
reported within debt financing activities in the consolidated statement of
income during the year ended December 31, 2019, as a result of changes in the
U.S. dollar equivalent of the Euro- and British Pound-denominated cash due to
fluctuations in foreign currency exchange rates.
In September 2018, the Company completed an offering of $2.0 billion of senior
notes comprised of $1.0 billion aggregate principal amount of 3.8% senior notes
due in October 2023 and $1.0 billion aggregate principal amount of 4.2% senior
notes due in October 2028. The Company used the net proceeds from such offering
to repay the outstanding principal balance of $540 million under its
then-existing term loan and the then-outstanding borrowings under its amended
and restated revolving credit facility totaling $1.1 billion. In addition, the
Company commenced a cash tender offer in September 2018 for any and all of its
then-outstanding $450 million aggregate principal amount of 4.625% senior notes
due October 2020. Upon expiration of the tender offer on September 26, 2018,
$246 million was tendered. In October 2018, the Company retired the remaining
outstanding $204 million aggregate principal amount of 4.625% senior notes. The
Company recorded a pre-tax loss, reported within debt financing activities in
the consolidated statements of income, on early debt extinguishment of
$14 million during the year ended December 31, 2018 related to these activities.
13. Redeemable Noncontrolling Interests
The Company maintains two redeemable noncontrolling interests which are
presented outside of equity and carried at their estimated redemption values.
Each minority partner owns 1% of the equity in the joint venture; in addition,
each minority partner is entitled to a contractually determined share of the
entity's income. The agreements contain redemption features whereby interests
held by the minority partner are redeemable either (i) at the option of the
holder or (ii) upon the occurrence of an event that is not solely within the
Company's control. The minority interests have a total estimated redemption
value of $259 million at December 31, 2020, which may be terminated by either
party for convenience any time after September 1, 2021 and
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December 31, 2024, respectively. In the event of termination for cause, as a
result of a change in control, or for convenience after the predetermined date,
the Company may be required to purchase the minority partner membership
interests at a price equal to the fair market value of the minority interest.
The following table presents a summary of the redeemable noncontrolling
interests activity during the years ended December 31:
(In millions)                                                2020       

2019

Balance at beginning of year                                $ 262      $   -
Acquired First Data interests (see Note 4)                      -        

252

Distributions paid to redeemable noncontrolling interests     (42)        (7)
Share of income                                                39         17
Balance at end of year                                      $ 259      $ 262

14. Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss by component, net of income taxes, consisted of the following:

Year Ended December 31, 2020

                                                                             Foreign
                                                    Cash Flow               Currency
(In millions)                                         Hedges               Translation           Pension Plans             Total
Balance at December 31, 2019                    $      (141)             $        (33)         $           (6)         $     (180)
Other comprehensive (loss) income before
reclassifications                                         5                      (221)                     (6)               (222)
Amounts reclassified from accumulated
other comprehensive loss                                 15                         -                       -                  15
Net current-period other comprehensive
(loss) income                                            20                      (221)                     (6)               (207)
Balance at December 31, 2020                    $      (121)             $  

(254) $ (12) $ (387)

Year Ended December 31, 2019

                                                                         Foreign
                                                  Cash Flow             Currency
(In millions)                                       Hedges             Translation           Pension Plans             Total
Balance at December 31, 2018                    $       (16)         $        (49)         $           (2)         $      (67)
Other comprehensive (loss) income before
reclassifications                                      (134)                   16                      (4)               (122)
Amounts reclassified from accumulated
other comprehensive loss                                  9                     -                       -                   9
Net current-period other comprehensive
(loss) income                                          (125)                   16                      (4)               (113)

Balance at December 31, 2019                    $      (141)         $        (33)         $           (6)         $     (180)


The Company has entered into forward exchange contracts, which have been
designated as cash flow hedges, to hedge foreign currency exposure to the Indian
Rupee. The notional amount of these derivatives was $259 million and $178
million, and the fair value totaling $9 million and $4 million is reported
primarily in prepaid expenses and other current assets in the consolidated
balance sheets at December 31, 2020 and 2019, respectively. Based on the amounts
recorded in accumulated other comprehensive loss at December 31, 2020, the
Company estimates that it will recognize gains of approximately $8 million in
cost of processing and services during the next twelve months as foreign
exchange forward contracts settle.
In March 2019, the Company entered into treasury lock agreements ("Treasury
Locks"), designated as cash flow hedges, in the aggregate notional amount of
$5.0 billion to manage exposure to fluctuations in benchmark interest rates in
anticipation of the issuance of fixed rate debt in connection with the
refinancing of certain indebtedness of First Data and its subsidiaries. In June
2019, concurrent with the issuance of U.S dollar-denominated senior notes (see
Note 12), the Treasury Locks were settled
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resulting in a payment, included in cash flows from operating activities, of
$183 million recorded in accumulated other comprehensive loss, net of income
taxes, that will be amortized to earnings over the terms of the originally
forecasted interest payments. Based on the amounts recorded in accumulated other
comprehensive loss at December 31, 2020, the Company estimates that it will
recognize approximately $20 million in interest expense, net during the next
twelve months related to settled interest rate hedge contracts.
To reduce exposure to changes in the value of the Company's net investments in
certain of its foreign currency-denominated subsidiaries due to changes in
foreign currency exchange rates, the Company uses its foreign
currency-denominated debt as an economic hedge of its net investments in such
foreign currency-denominated subsidiaries. In conjunction with the acquisition
of First Data (see Note 4), the Company designated its Euro- and British
Pound-denominated senior notes (see Note 12) 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. Accordingly, foreign currency
transaction gains or losses on the qualifying net investment hedge instruments
are recorded as foreign currency translation within other comprehensive (loss)
income in the consolidated statements of comprehensive income and will remain in
accumulated other comprehensive loss in the consolidated balance sheets until
the sale or complete liquidation of the underlying foreign subsidiaries. The
Company recorded a foreign currency translation loss, net of tax, of $151
million and $62 million in other comprehensive (loss) income from the Euro- and
British Pound-denominated senior notes during the years ended December 31, 2020
and 2019, respectively.
15. Employee Benefit Plans
Defined Contribution Plans
The Company and its subsidiaries maintain defined contribution savings plans
covering the majority of their employees. Under the plans, eligible participants
may elect to contribute a specified percentage of their salaries and the Company
makes matching contributions, each subject to certain limitations. The plans
provide tax-deferred amounts for each participant, consisting of employee
elective contributions, company matching and discretionary company
contributions. In response to the COVID-19 pandemic, the Company has taken
several actions since the onset of the pandemic to manage discretionary costs,
including the temporary suspension of certain employee-related benefits such as
company matching contributions to the plans during most of 2020. Expenses for
company contributions under these plans totaled $38 million, $65 million and $44
million in 2020, 2019 and 2018, respectively. Effective January 1, 2021, company
matching contributions were re-established to equal 100% on the first 1%
contributed and 25% on the next 4% contributed for eligible participants.
In connection with the acquisition of First Data (see Note 4), the Company
assumed defined contribution savings plans and defined contribution pension
plans covering substantially all employees of the former First Data. Effective
January 1, 2020, the 401(k) Savings Plan of Fiserv, Inc. (the "Plan") was
amended to freeze the Plan to new participants and contributions and to allow
for the merger of the Plan into the surviving Fiserv 401(k) Savings Plan (f/k/a
the First Data Corporation Incentive Savings Plan) ("New Fiserv Plan") for the
purpose of providing a single plan covering current and former employees of both
companies and their affiliates. Participants in the Plan became eligible to make
salary reduction contributions in the New Fiserv Plan effective January 1, 2020.
The merger of the Plan into the New Fiserv Plan was completed in the third
quarter of 2020.
Defined Benefit Plans
The Company maintains noncontributory defined benefit pension plans covering a
portion of the employees in the United Kingdom ("U.K."), the U.S., Germany and
Austria. The majority of these plans are frozen and provide benefits to eligible
employees based on an employee's average final compensation and years of
service.
The following table provides a reconciliation of benefit obligations, plan
assets and the funded status of these defined benefit plans as of and for the
years ended December 31:
                                                     U.K. plan                U.S. and other plans
(In millions)                                     2020        2019              2020               2019
Change in projected benefit obligations:
Balance at beginning of year                    $ (672)     $    -      $      (225)             $    -
Acquired First Data plans (see Note 4)               -        (687)               -                (219)

Interest cost                                      (14)         (6)              (6)                 (3)
Actuarial gain (loss)                              (93)           28            (18)                (15)
Benefits paid                                       30            12             13                  12
Foreign currency translation                       (28)        (19)              (2)                  -
Balance at end of year                          $ (777)     $ (672)     $      (238)             $ (225)

Change in fair value of plan assets:
Balance at beginning of year                    $  860      $    -      $       167              $    -
Acquired First Data plans (see Note 4)               -           866              -                 160
Actual return on plan assets                       110         (19)              22                  19
Company contribution                                 -           -                5                   -
Benefits paid                                      (30)        (12)             (13)                (12)
Foreign currency translation                        34            25              -                   -
Balance at end of year                          $  974      $  860      $       181              $  167

Funded status of the plans                      $  197      $  188      $       (57)             $  (58)


The funded status of the defined benefit plans is recognized as an asset or a
liability within other long-term assets or within other long-term liabilities in
the consolidated balance sheets.
Projected Benefit Obligations
The Company records amounts relating to its defined benefit pension plan
obligations and their associated expenses based on calculations which include
actuarial assumptions, including the discount rate and the expected rate of
return on plan assets. Changes in any of the assumptions and the amortization of
differences between the assumptions and actual experience will affect the amount
of pension expense in future periods. The Company reviews its actuarial
assumptions at least annually and modifies the assumptions based on current
rates and trends, as appropriate. The effects of modifications are recognized
immediately within the consolidated balance sheets, and are generally amortized
to operating income over future periods, with the deferred amount recorded in
accumulated other comprehensive loss within the consolidated balance sheets. The
Company's funding policy is to contribute quarterly an amount as recommended by
the plans' independent actuaries. Company contributions under these plans
totaled $5 million in 2020 and are expected to be nominal in 2021. The Company
employs a building block approach in determining the expected long-term rate of
return for plan assets with proper consideration of diversification and
re-balancing. Historical markets are studied and long-term historical
relationships between equities and fixed-income securities are preserved
consistent with the widely accepted capital market principle that assets with
higher volatility generate a greater return over the long run. Current market
factors such as inflation and interest rates are evaluated before long-term
capital market assumptions are determined. Peer data and historical returns are
reviewed to check for reasonableness and appropriateness.
The weighted-average rate assumptions used in the measurement of the Company's
projected benefit obligations and net periodic benefit expense as of and for the
years ended December 31 were as follows:
                                                  Projected Benefit Obligations                      Net Periodic Benefit Expense
                                                  2020                      2019                     2020                    2019
Discount rate                                           1.56  %                 2.28  %                  1.95  %                 2.16  %
Expected long-term return on plan
assets                                                      n/a                     n/a                  2.84  %                 2.83  %


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The estimated future benefit payments are expected to be as follows:
(In millions)
Year Ending December 31,
2021                          $ 32
2022                            33
2023                            36
2024                            36
2025                            37
2026-2030                      200


Plan Assets
The Company's investment strategy for the U.K. plan is to allocate the assets
into two pools: (i) off-risk assets whereby the focus is risk management,
protection and insurance relative to the liability target invested in, but not
limited to, debt, U.K. government bonds and U.K. government index-linked bonds;
and (ii) on-risk assets whereby the focus is on return generation and taking
risk in a controlled manner. Such assets could include equities, government
bonds, high-yield bonds, property, commodities or hedge funds. The Company's
target allocation for the U.K. plan is 50% on-risk assets and 50% off-risk
assets. Investment risk is measured and monitored on an ongoing basis through
quarterly investment portfolio reviews, annual liability measurements, and
periodic asset and liability studies. The Company's investment strategy for the
U.S. plan employs a total return investment approach whereby a mix of equities
and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The investment portfolio contains a
diversified blend of equity and fixed-income investments. The Company sets an
allocation mix necessary to support the underlying plan liabilities as
influenced significantly by the demographics of the participants and the frozen
nature of the plan. The Company's target allocation for the U.S. plan based on
the investment policy at December 31, 2020 was 50% on-risk assets and 50%
off-risk assets.
The following table sets forth the Company's plan assets carried and measured at
fair value on a recurring basis at December 31:
(In millions)
2020                                 Level 1       Level 2       Level 3
Cash and cash equivalents           $     24      $      -      $      -
Equity securities (1)                     20           175             -
Fixed income securities (2)              213           165             -
Other investments (3)                    326            (4)            9

  Total investments at fair value   $    583      $    336      $      9


           (In millions)
           2019                                 Level 1       Level 2      

Level 3

           Cash and cash equivalents           $     17      $      -      $      -
           Equity securities (1)                    134           123             -
           Fixed income securities (2)              188           214             -
           Other investments (3)                    315           (22)           10
             Total investments at fair value   $    654      $    315      $     10


(1)Equity securities primarily consist of domestic, international and global
equity pooled funds.
(2)Fixed income securities primarily consist of debt securities issued by U.S.
and foreign government agencies and debt obligations issued by a variety of
private and public corporations.
(3)Other investments primarily consist of index linked government bonds,
derivatives and other investments.
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In addition to the investments presented within the fair value hierarchy table
above, the Company's plan assets include investments in various hedge funds that
are measured at fair value using the net asset value per share (or its
equivalent) practical expedient. Such investments totaled $227 million and
$48 million at December 31, 2020 and 2019, respectively.
Net Periodic Benefit Cost
The components of net periodic benefit expense were as follows for the years
ended December 31:
(In millions)                        2020      2019

Interest cost                       $ 20      $  9

Expected return on plan assets (24) (10)

Net periodic benefit income $ (4) $ (1)

16. Share-Based Compensation
The Company recognizes the fair value of share-based compensation awards granted
to employees in cost of processing and services, cost of product, and selling,
general and administrative expense in its consolidated statements of income.
The Company's share-based compensation awards are typically granted in the first
quarter of the year and primarily consist of the following:
Stock Options - The Company grants stock options to employees and non-employee
directors at exercise prices equal to the fair market value of the Company's
stock on the dates of grant. Stock option grants generally vest over a three- or
four-year period. All stock options expire ten years from the date of the award.
The Company recognizes compensation expense for the fair value of the stock
options over the requisite service period of the stock option award.
Restricted Stock Units and Awards - The Company grants restricted stock units
and awards to employees and non-employee directors. Restricted stock unit and
award grants generally vest over a three- or four-year period. The Company
recognizes compensation expense for restricted stock units and awards based on
the market price of the common stock on the grant date over the period during
which the units and awards vest.
Performance Share Units and Awards - The Company grants performance share units
and awards to employees. The number of shares issued at the end of the
performance period is determined by the level of achievement of pre-determined
performance and market goals, including earnings, revenue growth, synergy
attainment and shareholder return. The Company recognizes compensation expense
on performance share units and awards ratably over the requisite three-year
performance period of the award to the extent management views the performance
goals as probable of attainment. The Company recognizes compensation expense for
the fair value of the shareholder return component over the requisite service
period of the award.
Employee Stock Purchase Plan - The Company maintains an employee stock purchase
plan that allows eligible employees to purchase a limited number of shares of
common stock each quarter through payroll deductions at a discount of the
closing price of the Company's common stock on the last business day of each
calendar quarter. Effective January 1, 2020, the employee discount under the
employee stock purchase plan was modified from 15% to 10%. In addition, the
Company temporarily suspended the employee discount, effective April 9, 2020, to
help manage discretionary costs in response to the COVID-19 pandemic. Effective
January 1, 2021, the discount under the employee stock purchase plan was
re-established at 5%, which is considered noncompensatory and therefore does not
give rise to recognizable compensation cost.
The Company recognized $369 million, $229 million and $73 million of share-based
compensation expense during the years ended December 31, 2020, 2019 and 2018,
respectively. At December 31, 2020, the total remaining unrecognized
compensation cost for unvested stock options, restricted stock units and awards
and performance share units and awards, net of estimated forfeitures, of $276
million is expected to be recognized over a weighted-average period of 2.1
years. During the years ended December 31, 2020, 2019 and 2018, stock options to
purchase 2.6 million, 4.7 million and 2.7 million shares, respectively, were
exercised.
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Acquisition of First Data
Upon the completion of the First Data acquisition on July 29, 2019 (see Note 4),
First Data's equity awards, whether vested or unvested, were either settled in
shares of the Company's common stock or converted into equity awards denominated
in shares of the Company's common stock based on a defined exchange ratio of
0.303, as described below.
First Data time-vesting awards that were granted at or prior to the initial
public offering of First Data (the "First Data IPO") were accelerated in full in
accordance with their terms, except for certain executive officer awards and
certain awards held by retirement-eligible employees, which were not accelerated
and instead converted into equity awards denominated in shares of the Company's
common stock. Each such time-vesting, pre-IPO restricted stock and restricted
stock unit award was settled in shares of the Company's common stock based on
the exchange ratio. Each time-vesting, pre-IPO stock option award was converted
into an option to purchase a number of shares of the Company's common stock
based on the exchange ratio with an exercise price per share equal to the
exercise price per share of such stock option award immediately prior to the
completion of the acquisition divided by the exchange ratio.
First Data equity awards granted at the time of the First Data IPO that were
subject to vesting solely upon achievement of a $32 price per share of First
Data common stock were converted into equity awards denominated in shares of the
Company's common stock and remained eligible to vest upon satisfaction of an
adjusted target price per share of the Company's common stock equal to the
existing First Data target price divided by the exchange ratio. Such awards
vested during the third quarter of 2019. Each restricted stock and restricted
stock unit award that was a performance-vesting IPO award was converted into an
award denominated in shares of the Company's common stock based on the exchange
ratio, and each stock option award that was a performance-vesting award was
converted into an option to purchase a number of shares of the Company's common
stock based on the exchange ratio with an exercise price per share equal to the
exercise price per share of such stock option award immediately prior to the
completion of the acquisition divided by the exchange ratio. As converted, the
performance-vesting awards continued to be governed by the same terms and
conditions as were applicable prior to the acquisition and vested during the
year ended December 31, 2019 upon satisfaction of the adjusted performance
condition.
The remaining existing First Data equity awards, whether vested or unvested,
were converted into equity awards denominated in shares of the Company's common
stock based on the exchange ratio, with an exercise price per share for option
awards equal to the exercise price per share of such stock option award
immediately prior to the completion of the acquisition divided by the exchange
ratio, and will continue to be governed by generally the same terms and
conditions as were applicable prior to the acquisition; provided that, subject
to compliance with Section 409A of the Internal Revenue Code, such awards will
accelerate upon a covered termination as defined in the merger agreement.
The portion of the fair value of the replacement awards related to services
provided prior to the acquisition was $768 million and was accounted for as
consideration transferred. The remaining portion of the fair value of $467
million is associated with future service and was recognized as compensation
expense, net of estimated forfeitures, over the weighted-average remaining
vesting period of 1.2 years. The fair value of options that the Company assumed
in connection with the acquisition of First Data were estimated using the
Black-Scholes model with the following assumptions:
Expected life (in years)                 2.5
Average risk-free interest rate       1.9  %
Expected volatility                  27.4  %
Expected dividend yield                 0  %


The Company determined the expected life of stock options using a midpoint
approach considering the vesting schedule, contractual terms and current option
life-to-date. The risk-free interest rate was based on the U.S. treasury yield
curve in effect as of the acquisition date. Expected volatility was determined
using a weighted-average of the implied volatility and the mean reversion
volatility of the Company's stock at the time of conversion.
Share-Based Compensation Activity
The weighted-average estimated fair value of stock options granted during 2020,
2019 and 2018 was $35.02, $28.52 and $22.48 per share, respectively. The fair
values of stock options granted were estimated on the date of grant using a
binomial option-pricing model with the following assumptions:
                                      2020        2019        2018
Expected life (in years)                 6.4         6.4         6.3

Average risk-free interest rate 1.8 % 2.7 % 2.2 % Expected volatility

                  28.3  %     28.5  %     28.3  %
Expected dividend yield                 0  %        0  %        0  %


The Company determined the expected life of stock options using historical data.
The risk-free interest rate was based on the U.S. treasury yield curve in effect
as of the grant date. Expected volatility was determined using weighted-average
implied market volatility combined with historical volatility. The Company
believes that a blend of historical volatility and implied volatility better
reflects future market conditions and better indicates expected volatility than
purely historical volatility.
A summary of stock option activity is as follows:
                                                                                             Weighted-
                                                                      Weighted-               Average                 Aggregate
                                                                       Average               Remaining                Intrinsic
                                               Shares                 Exercise              Contractual                 Value
                                           (In thousands)               Price              Term (Years)             (In millions)
Stock options outstanding - December
31, 2019                                        15,989              $    42.83

Granted                                          1,522                  112.65
Forfeited                                         (186)                  93.66
Exercised                                       (2,636)                  35.07
Stock options outstanding - December
31, 2020                                        14,689              $    50.82                         4.60       $          926
Stock options exercisable - December
31, 2020                                        12,222              $    41.14                         3.79       $          889


A summary of restricted stock unit and performance share unit activity is as
follows:
                                                       Restricted Stock Units                                 Performance Share Units
                                                                              Weighted-                                               Weighted-
                                                                               Average                                                 Average
                                                    Shares                    Grant Date                    Shares                    Grant Date
                                                (In thousands)                Fair Value                (In thousands)                Fair Value
Units - December 31, 2019                                    6,869          $     93.80                              2,328          $     94.61

Granted                                                      1,671               111.27                                  -                    -
Forfeited                                                     (293)               94.33                                (28)               90.41
Vested                                                      (3,450)               95.86                               (479)               92.62
Units - December 31, 2020                                    4,797          $     98.29                              1,821          $     95.20

A summary of restricted stock award activity is as follows:

Restricted Stock Awards

                                                                        Shares                  Weighted-Average Grant
                                                                    (In thousands)                 Date Fair Value
Awards - December 31, 2019                                                          48          $            102.30

Granted                                                                              -                            -
Forfeited                                                                            -                            -
Vested                                                                             (48)                      102.30
Awards - December 31, 2020                                                           -          $                 -


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The table below presents additional information related to stock option and
restricted stock unit activity:
(In millions)                                             2020                2019                2018
Total intrinsic value of stock options
exercised                                             $      194          $      331          $      147
Fair value of restricted stock units vested                  454                 198                  37
Income tax benefit from stock options exercised
and restricted stock units vested                            156                 126                  43
Cash received from stock options exercised                    83                 104                  29


At December 31, 2020, 30.5 million share-based awards were available for grant
under the Amended and Restated Fiserv, Inc. 2007 Omnibus Incentive Plan. Under
its employee stock purchase plan, the Company issued 0.5 million shares in 2020,
0.6 million shares in 2019 and 0.7 million shares in 2018. At December 31, 2020,
there were 24.2 million shares available for issuance under the employee stock
purchase plan.
17. Restructuring and Other Charges
In connection with the acquisition of First Data, the Company continues to
implement integration plans focused on reducing the Company's overall cost
structure, including reducing vendor spend and eliminating duplicate costs. The
Company recorded restructuring charges related to certain of these integration
activities of $303 million and $56 million, primarily reported in cost of
processing and service and selling, general and administrative expenses within
the consolidated statements of income, based upon committed actions during the
years ended December 31, 2020 and 2019, respectively. The Company continues to
evaluate operating efficiencies and anticipates incurring additional costs in
connection with these activities, but is unable to estimate those amounts at
this time as such plans are not yet finalized.
Employee Termination Costs
The Company recorded $131 million and $32 million of employee termination costs
related to severance and other separation costs for terminated employees in
connection with the acquisition of First Data during the years ended
December 31, 2020 and 2019, respectively. The following table summarizes the
changes in the reserve related to the Company's employee severance and other
separation costs during the years ended December 31:
(In millions)                           2020       2019
Balance at beginning of year           $  14      $  -

Severance and other separation costs 131 32

Cash payments                           (118)      (18)
Balance at end of year                 $  27      $ 14


The employee severance and other separation costs accrual balance of $27 million
at December 31, 2020 is expected to be paid within the next twelve months. In
addition, the Company recorded $48 million and $23 million of share-based
compensation costs during the years ended December 31, 2020 and 2019,
respectively, related to the accelerated vesting of equity awards for terminated
employees.
Facility Exit Costs
The Company has identified certain leased facilities that have been or will be
exited in the future as part of the Company's efforts to reduce facility costs.
During 2020, the Company permanently vacated certain of these leased facilities
in advance of the non-cancellable lease terms. In conjunction with the exit of
these leased facilities, the Company assessed the respective operating lease ROU
assets for impairment by comparing the carrying values of the ROU assets to the
discounted cash flows from estimated sublease payments (Level 3 of the fair
value hierarchy). In addition, the Company assessed certain property and
equipment associated with the leased facilities for impairment. As a result, the
Company recorded non-cash impairment charges of $124 million, reported in
selling, general and administrative expense within the consolidated statement of
income during the year ended December 31, 2020, associated with the early exit
of these leased facilities. In addition, the Company recorded facility exit and
related costs during the year ended December 31, 2019, primarily related to
relocation costs and lease exit or termination fees, as well as ongoing
operating expenses of certain vacated facilities; however, such costs were not
significant.
Other Costs
During 2020, in connection with initiatives to reduce the Company's overall cost
structure following the acquisition of First Data, the Company terminated
certain of its existing lease agreements to upgrade and consolidate its
computing infrastructure.
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The Company upgraded or replaced certain leased hardware under separate, new
lease agreements, resulting in the early termination and disposal of existing
hardware under the current lease agreements. As such, the Company has adjusted
the amortization period for these existing lease agreements to coincide with the
modified remaining term. Finance lease expense during the year ended
December 31, 2020 includes $62 million of accelerated amortization associated
with the termination of these vendor contracts. In addition, the Company
executed similar terminations to certain of its existing software financing
agreements. Amortization expense during the year ended December 31, 2020
includes $56 million of accelerated amortization associated with the termination
of these vendor contracts.

During 2019, the Company recorded a $48 million non-cash impairment charge,
reported primarily in cost of processing and services within the consolidated
statements of income, associated with an international core account processing
platform. Such impairment charge primarily related to the write-off of certain
of the Fintech segment's purchased and capitalized software development costs;
however, are presented within Corporate and Other as such charge was excluded
from the Company's measure of the Fintech segment's operating performance.
18. Income Taxes
Substantially all of the Company's pre-tax earnings are derived from domestic
operations in all periods presented. The income tax provision was as follows for
the years ended December 31:
(In millions)                                    2020       2019       2018
Components of income tax provision (benefit):
Current:
Federal                                         $ (25)     $  25      $ 189
State                                              71         69         39
Foreign                                            79         57         17
                                                  125        151        245
Deferred:
Federal                                           189        118        110
State                                             (34)       (18)        24
Foreign                                           (84)       (53)        (1)
                                                   71         47        133
Income tax provision                            $ 196      $ 198      $ 378

A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows for the years ended December 31:

                                                     2020        2019       

2018

Statutory federal income tax rate                   21.0  %     21.0  %     21.0  %
State income taxes, net of federal effect            2.0  %      3.7  %     

3.2 %

Tax expense due to federal tax reform                  -  %        -  %     

1.2 %

Enacted United Kingdom tax rate change               2.8  %        -  %        -  %
Foreign derived intangibles income deduction        (3.2) %     (0.2) %     (0.2) %
Excess tax benefit from share-based awards          (3.9) %     (5.1) %     (2.2) %
Sale of businesses and subsidiary restructuring      0.7  %     (2.6) %     

1.3 %

Unrecognized tax benefits                           (1.0) %     (0.1) %        -  %
Nondeductible executive compensation                 2.0  %      1.0  %      0.2  %
Valuation Allowance                                 (1.7) %      0.3  %        -  %
Other, net                                          (2.0) %      0.3  %     (0.2) %
Effective income tax rate                           16.7  %     18.3  %     24.3  %



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Significant components of deferred tax assets and liabilities consisted of the
following at December 31:
(In millions)                                       2020          2019
Accrued expenses                                 $    189      $    303

Share-based compensation                              185           216

Net operating loss and credit carry-forwards 1,158 1,444 Foreign tax credits on undistributed earnings

           -           289
Leasing liabilities                                   171           219
Other                                                  76            65
Subtotal                                            1,779         2,536
Valuation allowance                                  (888)       (1,145)
Total deferred tax assets                             891         1,391

Capitalized software development costs               (614)         (622)
Intangible assets                                  (2,993)       (3,297)
Property and equipment                               (198)         (143)
Capitalized commissions                               (87)          (86)
Investments in joint ventures                        (908)         (841)
Leasing right-of-use assets                          (141)         (205)

Other                                                (311)         (332)
Total deferred tax liabilities                     (5,252)       (5,526)
Total                                            $ (4,361)     $ (4,135)


In connection with the acquisition of First Data (see Note 4), the Company
recorded $3.7 billion of deferred tax liabilities for the deferred tax effects
associated with the fair value of assets acquired and liabilities assumed using
the applicable tax rates, with a corresponding adjustment to goodwill. During
the current year through the measurement period ended July 29, 2020, the Company
recognized an incremental increase of $136 million to deferred tax liabilities
related to measurement period adjustments, with a corresponding adjustment to
goodwill. The measurement period adjustments to the preliminary First Data
purchase price allocation were the result of additional analysis performed and
information identified based on facts and circumstances that existed as of the
acquisition date.
The Company recorded a valuation allowance of $888 million and $1.1 billion at
December 31, 2020 and 2019, respectively, against its deferred tax assets. The
decrease in the valuation allowance in 2020 is primarily the result of a
subsidiary restructuring. Substantially all of the acquired First Data valuation
allowance relates to certain foreign and state net operating loss carryforwards.
Deferred tax assets and liabilities are reported in the consolidated balance
sheets as follows at December 31:
(In millions)                2020          2019
Noncurrent assets         $     28      $    112
Noncurrent liabilities      (4,389)       (4,247)
Total                     $ (4,361)     $ (4,135)

Noncurrent deferred tax assets are included in other long-term assets in the consolidated balance sheets at December 31, 2020 and 2019.

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The following table presents the amounts of federal, state and foreign net
operating loss carryforwards and general business credit carryforwards at
December 31:
(In millions)                                 2020        2019

Net operating loss carryforwards: (1)

  Federal                                   $  443      $ 1,674
  State                                      3,944        4,636
  Foreign                                    3,343        3,201
General business credit carryforwards (2)       41           57


(1)At December 31, 2020, the Company had federal net operating loss
carryforwards of $443 million, most of which expire in 2021 through 2037, state
net operating loss carryforwards of $3.9 billion, most of which expire in 2021
through 2040, and foreign net operating loss carryforwards of $3.3 billion, of
which $263 million expire in 2021 through 2040, and the remainder of which do
not expire.
(2)At December 31, 2020, the Company had general business credit carryforwards
of $41 million which expire in 2025 through 2038.
The Company asserts that its investment in its foreign subsidiaries is intended
to be indefinitely reinvested with limited exceptions for select foreign
subsidiaries. Undistributed historical and future earnings of its foreign
subsidiaries are not considered to be indefinitely reinvested. Should these
earnings be distributed in the future in the form of dividends or otherwise, the
Company may be subject to foreign taxes. The Company has the ability and intent
to limit distributions so as to not make a distribution in excess of its
investment in those subsidiaries. The Company will continue to monitor its
global cash requirements and the need to recognize a deferred tax liability.
Unrecognized tax benefits were as follows at December 31:
(In millions)                                                2020       2019       2018
Unrecognized tax benefits - Beginning of year               $ 145      $  49      $ 42
Increases for assumed tax positions related to First Data       -         82         -
Increases for tax positions taken during the current year       9          8         3
Increases for tax positions taken in prior years               53         16        20
Decreases for tax positions taken in prior years              (23)        (2)       (8)
Decreases for settlements                                      (2)        (1)        -
Lapse of the statute of limitations                           (11)        (7)       (8)
Unrecognized tax benefits - End of year                     $ 171      $ 

145 $ 49

At December 31, 2020, unrecognized tax benefits of $116 million, net of federal
and state benefits, would affect the effective income tax rate if recognized.
The Company believes it is reasonably possible that the liability for
unrecognized tax benefits may decrease by up to $61 million over the next twelve
months as a result of possible closure of federal tax audits, potential
settlements with certain states and foreign countries, and the lapse of the
statute of limitations in various state and foreign jurisdictions.
The Company classifies interest expense and penalties related to income taxes as
components of its income tax provision. The income tax provision included
interest expense and penalties on unrecognized tax benefits of $3 million in
2020, $2 million in 2019 and $1 million in 2018. Accrued interest expense and
penalties related to unrecognized tax benefits totaled $22 million and $19
million at December 31, 2020 and 2019, respectively.
The Company's U.S. federal income tax returns for 2016 through 2020, and tax
returns in certain states and foreign jurisdictions for 2005 through 2020,
remain subject to examination by taxing authorities. In connection with the
acquisition of First Data, the Company is subject to income tax examination from
2009 forward in relation to First Data's U.S. federal income tax return. State
and local examinations are substantially complete through 2010 in relation to
First Data's state and local tax filings.  Foreign jurisdictions generally
remain subject to examination by their respective authorities from 2010 forward
in relation to First Data's foreign tax filings, none of which are considered
significant jurisdictions.
During the third quarter of 2020, the U.S. Department of Treasury released
certain proposed and final regulations relating to provisions that were enacted
under the Tax Cuts and Jobs Act of 2017. The new regulations did not have a
material impact on the Company's consolidated financial statements.
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The Company accounts for research and development costs in accordance with ASC
subtopic 730-10, Research and Development ("ASC 730-10"). Under ASC 730-10, all
research and development costs are charged to expense as incurred.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. In September 2017, the
Internal Revenue Service issued Directive LB&I-04-0917-005 pertaining to the
allowance of the credit for increasing research activities under Internal
Revenue Code section 41 allowing a safe harbor for LB&I taxpayers reporting
research and development costs under ASC 730-10. During the year ended December
31, 2020, the Company incurred $150 million of research and development costs
related to First Data.
19. Commitments and Contingencies
Litigation
In the normal course of business, the Company or its subsidiaries are named as
defendants in lawsuits in which claims are asserted against the Company. In
addition, the Company assumed certain legal proceedings in connection with the
acquisition of First Data (see Note 4) primarily associated with its merchant
business including claims associated with alleged processing errors and a tax
matter. In 2020, the Company resolved a matter with the Federal Trade Commission
related to a U.S.-based wholesale independent sales organization resulting in a
payment of $40 million, for which the Company previously had accrued. The
Company maintained reserves of $32 million and $43 million at December 31, 2020
and 2019, respectively, related to its various legal proceedings, primarily
associated with the Company's merchant business as described above. The
Company's estimate of the possible range of exposure for various litigation
matters in excess of amounts accrued is $0 million to approximately $60 million.
In the opinion of management, the liabilities, if any, which may ultimately
result from such lawsuits are not expected to have a material adverse effect on
the Company's consolidated financial statements.
Electronic Payments Transactions
In connection with the Company's processing of electronic payments transactions,
funds received from subscribers are invested from the time the Company collects
the funds until payments are made to the applicable recipients. These subscriber
funds are invested in short-term, highly liquid investments. Subscriber funds,
which are not included in the Company's consolidated balance sheets, can
fluctuate significantly based on consumer bill payment and debit card activity
and totaled approximately $1.7 billion and $2.0 billion at December 31, 2020 and
2019, respectively.
Indemnifications and Warranties
The Company may indemnify its clients from certain costs resulting from claims
of patent, copyright or trademark infringement associated with its clients' use
of the Company's products or services. The Company may also warrant to clients
that its products and services will operate substantially in accordance with
identified specifications. From time to time, in connection with sales of
businesses, the Company agrees to indemnify the buyers of such businesses for
liabilities associated with the businesses that are sold. Payments, net of
recoveries, under such indemnification or warranty provisions were not material
to the Company's consolidated results of operations or financial position.
20. Related Party Transactions
Merchant Alliances
A significant portion of the Company's business is conducted through merchant
alliances between the Company and financial institutions (see Note 9). To the
extent the Company maintains a controlling financial interest in an alliance,
the alliance's financial statements are consolidated with those of the Company
and the related processing fees are treated as an intercompany transaction and
eliminated in consolidation. To the extent the Company has significant influence
but not control in an alliance, the Company uses the equity method of accounting
to account for its investment in the alliance. As a result, the Company's
consolidated revenues include processing fees, administrative service fees, and
other fees charged to alliances accounted for under the equity method. Such fees
totaled $183 million and $76 million for the years ended December 31, 2020 and
2019, respectively. No directors or officers of the Company have ownership
interests in any of the alliances. The formation of each of these alliances
generally involves the Company and the bank contributing contractual merchant
relationships to the alliance and a cash payment from one owner to the other to
achieve the desired ownership percentage for each. The Company and the bank
enter into a long-term processing service agreement as part of the negotiation
process. This agreement governs the Company's provision of transaction
processing services to the alliance. At December 31, 2020 and 2019, the Company
had approximately $37 million and $35 million, respectively, of amounts due from
unconsolidated merchant alliances included within trade accounts receivable, net
in the Company's consolidated balance sheets.
Effective July 1, 2020, the Company and Bank of America dissolved their BAMS
joint venture, of which the Company maintained a 51% controlling ownership
interest. Upon dissolution of the joint venture's operations, the joint venture
transferred a proportionate share of value, primarily the client contracts, to
each party via an agreed upon contractual separation.
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The revenues and expenses of the BAMS joint venture were consolidated into the
Company's financial results through the date of dissolution. See Note 4 for
additional information.
Joint Venture Transition Services Agreements
Pursuant to certain transition services agreements, the Company provides, at
fair value, various administration, business process outsourcing, and technical
and data center related services for defined periods to the Lending Joint
Ventures and Tegra 118 (see Note 4). Amounts transacted through these agreements
totaled $58 million, $36 million and $30 million during the years ended
December 31, 2020, 2019 and 2018, respectively, and were primarily recognized as
processing and services revenue in the Company's consolidated statements of
income.
Share Repurchase
On December 14, 2020, New Omaha Holdings L.P. ("New Omaha"), a shareholder of
the Company, completed an underwritten secondary public offering of 20.1 million
shares of Fiserv, Inc. common stock (the "offering"). The Company did not sell
any shares in, nor did it receive any proceeds from, the offering. New Omaha
received all of the net proceeds from the offering. In connection with the
offering, the Company repurchased from the underwriters 1.8 million shares of
its common stock that were subject to the offering, at a price equal to the
price per share paid by the underwriters to New Omaha in the offering (the
"share repurchase"). The share repurchase totaled $200 million and was funded
with cash on hand. The repurchased shares were cancelled and no longer
outstanding following the completion of the share repurchase. Prior to the
offering, New Omaha owned approximately 16% of the Company's outstanding shares
of common stock, and following the offering, New Omaha owned approximately 13%
as of December 31, 2020.
21. Business Segment Information
Following the Segment Realignment (see Note 1), the Company's operations are
comprised of the Acceptance segment, the Fintech segment and the Payments
segment.
The businesses in the Acceptance segment provide a wide range of
commerce-enabling solutions to merchants of all sizes around the world. These
solutions include point-of-sale merchant acquiring and digital commerce
services; mobile payment services; security and fraud protection products;
CaratSM, the Company's omnichannel commerce ecosystem; and the Company's
cloud-based Clover point-of-sale platform, which includes a marketplace for
proprietary and third-party business applications. The products and services in
the global Acceptance businesses are distributed through a variety of channels,
including through direct sales teams, strategic partnerships with agent sales
forces, independent software vendors, financial institutions and other strategic
partners in the form of joint venture alliances, revenue sharing alliances and
referral agreements. Many merchants, financial institutions and distribution
partners within the Acceptance segment are also clients of the Company's other
segments.
The businesses in the Fintech segment provide financial institutions around the
world with the technology solutions they need to run their operations, including
products and services that enable financial institutions to process customer
deposit and loan accounts, as well as management of an institution's general
ledger and central information files. As a complement to the core account
processing functionality, the businesses in the global Fintech segment also
provide digital banking, financial and risk management, cash management,
professional services and consulting, item processing and source capture, and
other products and services that support numerous types of financial
transactions. In addition, some of the businesses in the Fintech segment provide
products or services to corporate clients to facilitate the management of
financial processes and transactions. Many of the products and services offered
in the Fintech segment are integrated with solutions from the Company's other
segments.
The businesses in the Payments segment provide financial institutions and
corporate clients around the world with the products and services required to
process digital payment transactions. This includes card transactions such as
debit, credit and prepaid card processing and services, a range of network
services, security and fraud protection products, card production and print
services. In addition, the Payments segment businesses offer non-card digital
payment software and services, including bill payment, account-to-account
transfers, person-to-person payments, electronic billing, and security and fraud
protection products. Clients of the global Payments segment businesses reflect a
wide range of industries, including merchants, distribution partners and
financial institution customers in the Company's other segments.
Corporate and Other supports the reportable segments described above, and
consists of amortization of acquisition-related intangible assets, unallocated
corporate expenses and other activities that are not considered when management
evaluates segment performance, such as gains or losses on sales of businesses,
costs associated with acquisition and divestiture activity, and the Company's
Output Solutions postage reimbursements. Corporate and Other also includes the
historical results of the Company's Investment Services business, of which the
Company sold a 60% controlling interest in February 2020 (see Note 4), as well
as certain transition services revenue associated with various dispositions.
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Operating results for each segment are presented below and include the results
of First Data from July 29, 2019, the date of acquisition. Segment results for
the years ended December 31, 2019 and 2018 have been restated to reflect the
Segment Realignment.
                                                                                                 Corporate
(In millions)                          Acceptance           Fintech           Payments           and Other            Total
2020
Processing and services revenue      $     4,736          $  2,714          $   4,702          $       63          $ 12,215
Product revenue                              786               187                802                 862             2,637
Total revenue                              5,522             2,901              5,504                 925            14,852
Operating income (loss) (1)                1,427               992              2,361              (2,928)            1,852
Capital expenditures, including
capitalized software and other
intangibles                                  227               183                242                 248               900
Depreciation and amortization
expense                                      239               202                248               2,568             3,257

2019

Processing and services revenue      $     2,215          $  2,737          $   3,431          $      190          $  8,573
Product revenue                              356               205                478                 575             1,614
Total revenue                              2,571             2,942              3,909                 765            10,187
Operating income (loss)                      764               885              1,658              (1,698)            1,609
Capital expenditures, including
capitalized software and other
intangibles                                  147               182                196                 196               721
Depreciation and amortization
expense                                      146               191                204               1,237             1,778

2018

Processing and services revenue      $         -          $  2,692          $   2,101          $      182          $  4,975
Product revenue                                -               225                307                 316               848
Total revenue                                  -             2,917              2,408                 498             5,823
Operating income (loss) (1)                    -               851              1,081                (179)            1,753
Capital expenditures, including
capitalized software and other
intangibles                                    -               153                 67                 140               360
Depreciation and amortization
expense                                        -               185                 81                 290               556


(1)Corporate and Other includes gains of $428 million from the sale of a 60%
interest of the Company's Investment Services business and $36 million on the
dissolution of BAMS in 2020, as well as a gain of $227 million from the sale of
a 55% interest of the Company's Lending Solutions business in 2018.
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22. Quarterly Financial Data (unaudited)
Quarterly financial data for 2020 and 2019 was as follows:
                                               First            Second           Third            Fourth            Full

(In millions, except per share data) Quarter Quarter

     Quarter          Quarter            Year

2020

Total revenue                                $ 3,769          $ 3,465          $ 3,786          $ 3,832          $ 14,852
Cost of processing and services                1,635            1,466            1,387            1,353             5,841
Cost of product                                  532              454              481              504             1,971
Selling, general and administrative expenses   1,404            1,377            1,412            1,459             5,652
(Gain) loss on sale of businesses               (431)               3              (36)               -              (464)
Total expenses                                 3,140            3,300            3,244            3,316            13,000
Operating income                                 629              165              542              516             1,852
Net income                                       377                9              276              313               975
Net income attributable to Fiserv, Inc.          392                2              264              300               958
Comprehensive (loss) income attributable to
Fiserv, Inc.                                    (239)             169               77              744               751
Net income attributable to Fiserv, Inc. per
share: (1)
Basic                                        $  0.58          $     -          $  0.39          $  0.45          $   1.42
Diluted                                      $  0.57          $     -          $  0.39          $  0.44          $   1.40

2019 (2)
Total revenue                                $ 1,502          $ 1,512          $ 3,128          $ 4,045          $ 10,187
Cost of processing and services                  624              617            1,204            1,571             4,016
Cost of product                                  174              168              413              538             1,293
Selling, general and administrative expenses     341              343            1,137            1,463             3,284
Gain on sale of businesses                       (10)               -                -               (5)              (15)
Total expenses                                 1,129            1,128            2,754            3,567             8,578
Operating income                                 373              384              374              478             1,609
Net income                                       225              223              225              241               914
Net income attributable to Fiserv, Inc.          225              223              198              247               893
Comprehensive income attributable to Fiserv,
Inc.                                             207              115               12              446               780
Net income attributable to Fiserv, Inc. per
share: (1)
Basic                                        $  0.58          $  0.57          $  0.34          $  0.36          $   1.74
Diluted                                      $  0.56          $  0.56          $  0.33          $  0.36          $   1.71

(1)Net income attributable to Fiserv, Inc. per share in each period is calculated using actual, unrounded amounts. (2)Includes the results of First Data from July 29, 2019, the date of acquisition.

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