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Leases

12 Months Ended

Dec. 31, 2019

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 for the year ended December 31, 2019 and the financial position as of December 31, 2019 reflect the application of ASC 842 while the reported results for the years ended December 31, 2018 and 2017 and the financial position as of December 31, 2018 were not adjusted and continue to be reported under the accounting guidance, ASC 840, Leases (“ASC 840”), in effect for the prior periods.

Company as Lessee

The Company primarily leases office space, land, 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 to 18 years.

The Company uses the right-of-use (“ROU”) 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 a variable lease expense 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.

Lease Balances



(In millions)
December 31,	2019
Assets
Operating lease assets ⁽¹⁾	$	684
Finance lease assets ⁽²⁾	235
Total lease assets	$	919

Liabilities
Current
Operating lease liabilities ⁽¹⁾	$	140
Finance lease liabilities ⁽²⁾	78
Noncurrent
Operating lease liabilities ⁽¹⁾	603
Finance lease liabilities ⁽²⁾	144
Total lease liabilities	$	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 Company’s consolidated balance sheet.


⁽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 Company’s consolidated balance sheets.

Components of Lease Cost



(In millions)
Year ended December 31,	2019
Operating lease cost ⁽¹⁾	$	207
Finance lease cost ⁽²⁾
Amortization of right-of-use assets	40
Interest on lease liabilities	8
Total lease cost	$	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 Company’s consolidated statements of income. Operating lease cost includes approximately $56 million of variable lease costs for the year ended December 31, 2019.


⁽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 Company’s consolidated statements of income.

Supplemental Cash Flow Information



(In millions)
Year ended December 31,	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	139
Operating cash flows from finance leases	8
Financing cash flows from finance leases	37

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


⁽¹⁾	Includes right-of-use assets and lease liabilities obtained through the acquisition of First Data

Lease Term and Discount Rate



December 31,	2019
Weighted-average remaining lease term:
Operating leases	7 years
Finance leases	3 years
Weighted-average discount rate:
Operating leases	3.0	%
Finance leases	3.5	%

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2019:



(In millions)
Year ending December 31,	Operating Leases ⁽¹⁾			Finance Leases ⁽²⁾
2020	$	153		$	83
2021	139			73
2022	123			64
2023	104			10
2024	86			3
Thereafter	212			5
Total lease payments	817			238
Less: Interest	(74		)	(16		)
Present value of lease liabilities	$	743		$	222


⁽¹⁾	Operating lease payments include $47 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $4 million of legally binding minimum lease payments for leases signed but not yet commenced. Operating leases that have been signed but not yet commenced are for real estate and will commence in 2020 with lease terms of 5 years.


⁽²⁾	Finance lease payments exclude $302 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 2020 with lease terms of 5 years.

Maturity of Lease Liabilities under ASC 840

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2018:



(In millions)
Year ending December 31,
2019	$	94
2020	75
2021	62
2022	51
2023	40
Thereafter	108
Total	$	430

Rent expense for all operating leases was $118 million and $126 million during the years ended December 31, 2018 and 2017, respectively.

Company as Lessor

The Company owns certain 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 two to five years. For operating leases, 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 sheet and depreciated to its estimated residual value over the lease term. 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 sheet. 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,	2019
Sales-type leases:
Selling profit ⁽¹⁾	$	20
Interest income ⁽¹⁾	33
Operating lease income ⁽²⁾	36


⁽¹⁾	Selling profit includes $48 million recorded within product revenue with a corresponding charge of $28 million recorded in cost of product in the consolidated statement of income for the year ended December 31, 2019. Interest income is included within product revenue in the consolidated statement of income.


⁽²⁾	Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the Company’s consolidated statement of income for the year ended December 31, 2019.

Components of Net Investment in Sales-Type Leases



(In millions)
December 31,	2019
Minimum lease payments	$	376
Residual values	34
Less: Unearned interest income	(160		)
Net investment in leases ⁽¹⁾	$	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 sheet.

Maturities of Future Minimum Lease Payment Receivables

Future minimum lease payments receivable on sales-type leases were as follows at December 31, 2019:



(In millions)
Year ending December 31,	Sales-Type Leases
2020	$	161
2021	120
2022	70
2023	23
2024	2
Thereafter	—
Total minimum lease payments	$	376

Leases

Company as Lessee

Lease Balances



(In millions)
December 31,	2019
Assets
Operating lease assets ⁽¹⁾	$	684
Finance lease assets ⁽²⁾	235
Total lease assets	$	919

Liabilities
Current
Operating lease liabilities ⁽¹⁾	$	140
Finance lease liabilities ⁽²⁾	78
Noncurrent
Operating lease liabilities ⁽¹⁾	603
Finance lease liabilities ⁽²⁾	144
Total lease liabilities	$	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 Company’s consolidated balance sheet.


⁽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 Company’s consolidated balance sheets.

Components of Lease Cost



(In millions)
Year ended December 31,	2019
Operating lease cost ⁽¹⁾	$	207
Finance lease cost ⁽²⁾
Amortization of right-of-use assets	40
Interest on lease liabilities	8
Total lease cost	$	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 Company’s consolidated statements of income. Operating lease cost includes approximately $56 million of variable lease costs for the year ended December 31, 2019.


⁽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 Company’s consolidated statements of income.

Supplemental Cash Flow Information



(In millions)
Year ended December 31,	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	139
Operating cash flows from finance leases	8
Financing cash flows from finance leases	37

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


⁽¹⁾	Includes right-of-use assets and lease liabilities obtained through the acquisition of First Data

Lease Term and Discount Rate



December 31,	2019
Weighted-average remaining lease term:
Operating leases	7 years
Finance leases	3 years
Weighted-average discount rate:
Operating leases	3.0	%
Finance leases	3.5	%

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2019:



(In millions)
Year ending December 31,	Operating Leases ⁽¹⁾			Finance Leases ⁽²⁾
2020	$	153		$	83
2021	139			73
2022	123			64
2023	104			10
2024	86			3
Thereafter	212			5
Total lease payments	817			238
Less: Interest	(74		)	(16		)
Present value of lease liabilities	$	743		$	222


⁽¹⁾	Operating lease payments include $47 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $4 million of legally binding minimum lease payments for leases signed but not yet commenced. Operating leases that have been signed but not yet commenced are for real estate and will commence in 2020 with lease terms of 5 years.


⁽²⁾	Finance lease payments exclude $302 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 2020 with lease terms of 5 years.

Maturity of Lease Liabilities under ASC 840

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2018:



(In millions)
Year ending December 31,
2019	$	94
2020	75
2021	62
2022	51
2023	40
Thereafter	108
Total	$	430

Rent expense for all operating leases was $118 million and $126 million during the years ended December 31, 2018 and 2017, respectively.

Company as Lessor

Components of Lease Income



(In millions)
Year ended December 31,	2019
Sales-type leases:
Selling profit ⁽¹⁾	$	20
Interest income ⁽¹⁾	33
Operating lease income ⁽²⁾	36


⁽¹⁾	Selling profit includes $48 million recorded within product revenue with a corresponding charge of $28 million recorded in cost of product in the consolidated statement of income for the year ended December 31, 2019. Interest income is included within product revenue in the consolidated statement of income.


⁽²⁾	Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the Company’s consolidated statement of income for the year ended December 31, 2019.

Components of Net Investment in Sales-Type Leases



(In millions)
December 31,	2019
Minimum lease payments	$	376
Residual values	34
Less: Unearned interest income	(160		)
Net investment in leases ⁽¹⁾	$	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 sheet.

Maturities of Future Minimum Lease Payment Receivables

Future minimum lease payments receivable on sales-type leases were as follows at December 31, 2019:



(In millions)
Year ending December 31,	Sales-Type Leases
2020	$	161
2021	120
2022	70
2023	23
2024	2
Thereafter	—
Total minimum lease payments	$	376

Leases

Company as Lessee

Lease Balances



(In millions)
December 31,	2019
Assets
Operating lease assets ⁽¹⁾	$	684
Finance lease assets ⁽²⁾	235
Total lease assets	$	919

Liabilities
Current
Operating lease liabilities ⁽¹⁾	$	140
Finance lease liabilities ⁽²⁾	78
Noncurrent
Operating lease liabilities ⁽¹⁾	603
Finance lease liabilities ⁽²⁾	144
Total lease liabilities	$	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 Company’s consolidated balance sheet.


⁽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 Company’s consolidated balance sheets.

Components of Lease Cost



(In millions)
Year ended December 31,	2019
Operating lease cost ⁽¹⁾	$	207
Finance lease cost ⁽²⁾
Amortization of right-of-use assets	40
Interest on lease liabilities	8
Total lease cost	$	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 Company’s consolidated statements of income. Operating lease cost includes approximately $56 million of variable lease costs for the year ended December 31, 2019.


⁽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 Company’s consolidated statements of income.

Supplemental Cash Flow Information



(In millions)
Year ended December 31,	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	139
Operating cash flows from finance leases	8
Financing cash flows from finance leases	37

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


⁽¹⁾	Includes right-of-use assets and lease liabilities obtained through the acquisition of First Data

Lease Term and Discount Rate



December 31,	2019
Weighted-average remaining lease term:
Operating leases	7 years
Finance leases	3 years
Weighted-average discount rate:
Operating leases	3.0	%
Finance leases	3.5	%

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2019:



(In millions)
Year ending December 31,	Operating Leases ⁽¹⁾			Finance Leases ⁽²⁾
2020	$	153		$	83
2021	139			73
2022	123			64
2023	104			10
2024	86			3
Thereafter	212			5
Total lease payments	817			238
Less: Interest	(74		)	(16		)
Present value of lease liabilities	$	743		$	222


⁽¹⁾	Operating lease payments include $47 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $4 million of legally binding minimum lease payments for leases signed but not yet commenced. Operating leases that have been signed but not yet commenced are for real estate and will commence in 2020 with lease terms of 5 years.


⁽²⁾	Finance lease payments exclude $302 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 2020 with lease terms of 5 years.

Maturity of Lease Liabilities under ASC 840

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2018:



(In millions)
Year ending December 31,
2019	$	94
2020	75
2021	62
2022	51
2023	40
Thereafter	108
Total	$	430

Rent expense for all operating leases was $118 million and $126 million during the years ended December 31, 2018 and 2017, respectively.

Company as Lessor

Components of Lease Income



(In millions)
Year ended December 31,	2019
Sales-type leases:
Selling profit ⁽¹⁾	$	20
Interest income ⁽¹⁾	33
Operating lease income ⁽²⁾	36


⁽¹⁾	Selling profit includes $48 million recorded within product revenue with a corresponding charge of $28 million recorded in cost of product in the consolidated statement of income for the year ended December 31, 2019. Interest income is included within product revenue in the consolidated statement of income.


⁽²⁾	Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the Company’s consolidated statement of income for the year ended December 31, 2019.

Components of Net Investment in Sales-Type Leases



(In millions)
December 31,	2019
Minimum lease payments	$	376
Residual values	34
Less: Unearned interest income	(160		)
Net investment in leases ⁽¹⁾	$	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 sheet.

Maturities of Future Minimum Lease Payment Receivables

Future minimum lease payments receivable on sales-type leases were as follows at December 31, 2019:



(In millions)
Year ending December 31,	Sales-Type Leases
2020	$	161
2021	120
2022	70
2023	23
2024	2
Thereafter	—
Total minimum lease payments	$	376

Leases

Company as Lessee

Lease Balances



(In millions)
December 31,	2019
Assets
Operating lease assets ⁽¹⁾	$	684
Finance lease assets ⁽²⁾	235
Total lease assets	$	919

Liabilities
Current
Operating lease liabilities ⁽¹⁾	$	140
Finance lease liabilities ⁽²⁾	78
Noncurrent
Operating lease liabilities ⁽¹⁾	603
Finance lease liabilities ⁽²⁾	144
Total lease liabilities	$	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 Company’s consolidated balance sheet.


⁽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 Company’s consolidated balance sheets.

Components of Lease Cost



(In millions)
Year ended December 31,	2019
Operating lease cost ⁽¹⁾	$	207
Finance lease cost ⁽²⁾
Amortization of right-of-use assets	40
Interest on lease liabilities	8
Total lease cost	$	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 Company’s consolidated statements of income. Operating lease cost includes approximately $56 million of variable lease costs for the year ended December 31, 2019.


⁽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 Company’s consolidated statements of income.

Supplemental Cash Flow Information



(In millions)
Year ended December 31,	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	139
Operating cash flows from finance leases	8
Financing cash flows from finance leases	37

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


⁽¹⁾	Includes right-of-use assets and lease liabilities obtained through the acquisition of First Data

Lease Term and Discount Rate



December 31,	2019
Weighted-average remaining lease term:
Operating leases	7 years
Finance leases	3 years
Weighted-average discount rate:
Operating leases	3.0	%
Finance leases	3.5	%

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2019:



(In millions)
Year ending December 31,	Operating Leases ⁽¹⁾			Finance Leases ⁽²⁾
2020	$	153		$	83
2021	139			73
2022	123			64
2023	104			10
2024	86			3
Thereafter	212			5
Total lease payments	817			238
Less: Interest	(74		)	(16		)
Present value of lease liabilities	$	743		$	222


⁽¹⁾	Operating lease payments include $47 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $4 million of legally binding minimum lease payments for leases signed but not yet commenced. Operating leases that have been signed but not yet commenced are for real estate and will commence in 2020 with lease terms of 5 years.


⁽²⁾	Finance lease payments exclude $302 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 2020 with lease terms of 5 years.

Maturity of Lease Liabilities under ASC 840

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at December 31, 2018:



(In millions)
Year ending December 31,
2019	$	94
2020	75
2021	62
2022	51
2023	40
Thereafter	108
Total	$	430

Rent expense for all operating leases was $118 million and $126 million during the years ended December 31, 2018 and 2017, respectively.

Company as Lessor

Components of Lease Income



(In millions)
Year ended December 31,	2019
Sales-type leases:
Selling profit ⁽¹⁾	$	20
Interest income ⁽¹⁾	33
Operating lease income ⁽²⁾	36


⁽¹⁾	Selling profit includes $48 million recorded within product revenue with a corresponding charge of $28 million recorded in cost of product in the consolidated statement of income for the year ended December 31, 2019. Interest income is included within product revenue in the consolidated statement of income.


⁽²⁾	Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the Company’s consolidated statement of income for the year ended December 31, 2019.

Components of Net Investment in Sales-Type Leases



(In millions)
December 31,	2019
Minimum lease payments	$	376
Residual values	34
Less: Unearned interest income	(160		)
Net investment in leases ⁽¹⁾	$	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 sheet.

Maturities of Future Minimum Lease Payment Receivables

Future minimum lease payments receivable on sales-type leases were as follows at December 31, 2019:



(In millions)
Year ending December 31,	Sales-Type Leases
2020	$	161
2021	120
2022	70
2023	23
2024	2
Thereafter	—
Total minimum lease payments	$	376