Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

Leases

Company as Lessee

The Company primarily leases office space, land, data centers and equipment from third parties. The Company’s leases have remaining lease terms ranging from one to 18 years.

Components of Lease Cost

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Operating lease cost (1)	$	60	$	64	$	183	$	141
Finance lease cost (2)
Amortization of right-of-use assets	48		16		137		18
Interest on lease liabilities	7		3		16		3
Total lease cost	$	115	$	83	$	336	$	162

(1)Operating lease expense is included within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the right-of-use (“ROU”) asset, in the consolidated statements of income. Operating lease cost includes approximately $8 million and $14 million of variable lease costs for the three months ended September 30, 2020 and 2019, respectively, and $27 million and $42 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Finance lease expense is recorded as depreciation and amortization expense within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, and interest expense, net in the consolidated statements of income. Finance lease expense during the three and nine months ended September 30, 2020 includes $17 million and $62 million, respectively, of accelerated amortization associated with the termination of certain vendor contracts (see Note 16).

Supplemental Cash Flow Information

	Nine Months Ended September 30,
(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116	$	94
Operating cash flows from finance leases	16		3
Financing cash flows from finance leases	161		17
Right-of-use assets obtained in exchange for lease liabilities: (1)
Operating leases	$	2	$	459
Finance leases	331		288

(1)Amounts in 2019 include the right-of-use assets and lease liabilities obtained through the acquisition of First Data.

Company as Lessor

In connection with the acquisition of First Data, the Company owns certain POS terminal equipment which it leases to merchants. The terms of the leases typically range from two to five years.

Components of Lease Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Sales-type leases:
Selling profit (1)	$	8	$	8	$	34	$	8
Interest income (1)	20		15		57		15
Operating lease income (2)	21		14		69		14

(1)Selling profit includes $26 million and $78 million recorded within product revenue with a corresponding charge of $18 million and $44 million recorded within cost of product in the consolidated statements of income for the three and nine months ended September 30, 2020, respectively. Selling profit includes $21 million recorded within product revenue with a corresponding charge of $13 million recorded within cost of product in the consolidated statements of income for the both the three and nine months ended September 30, 2019. 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 the three and nine months ended September 30, 2020 and 2019.

Lease Payment Receivables Portfolio

The Company accounts for lease payment receivables in connection with POS terminal equipment as a single portfolio. The Company recognizes an allowance for expected credit losses on lease payment receivables at the commencement date of the lease by considering the vintage, geography and internal credit risk ratings of such lease. The internal credit risk ratings are established based on lessee specific risk factors, such as FICO score, number of years the lessee has been in business and the nature of the lessee’s industry, which are considered indicators of the likelihood a lessee may default in the future. The established reserve for estimated credit losses on lease payment receivables upon adoption of ASU 2016-13 on January 1, 2020 was $56 million. Such reserve for estimated credit losses at September 30, 2020 was $60 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 September 30, 2020 was $233 million. Lease payment receivables that were determined to be on non-accrual status were nominal at each of September 30, 2020 and December 31, 2019.

Leases

Leases

Company as Lessee

The Company primarily leases office space, land, data centers and equipment from third parties. The Company’s leases have remaining lease terms ranging from one to 18 years.

Components of Lease Cost

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Operating lease cost (1)	$	60	$	64	$	183	$	141
Finance lease cost (2)
Amortization of right-of-use assets	48		16		137		18
Interest on lease liabilities	7		3		16		3
Total lease cost	$	115	$	83	$	336	$	162

(1)Operating lease expense is included within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the right-of-use (“ROU”) asset, in the consolidated statements of income. Operating lease cost includes approximately $8 million and $14 million of variable lease costs for the three months ended September 30, 2020 and 2019, respectively, and $27 million and $42 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Finance lease expense is recorded as depreciation and amortization expense within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, and interest expense, net in the consolidated statements of income. Finance lease expense during the three and nine months ended September 30, 2020 includes $17 million and $62 million, respectively, of accelerated amortization associated with the termination of certain vendor contracts (see Note 16).

Supplemental Cash Flow Information

	Nine Months Ended September 30,
(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116	$	94
Operating cash flows from finance leases	16		3
Financing cash flows from finance leases	161		17
Right-of-use assets obtained in exchange for lease liabilities: (1)
Operating leases	$	2	$	459
Finance leases	331		288

(1)Amounts in 2019 include the right-of-use assets and lease liabilities obtained through the acquisition of First Data.

Company as Lessor

In connection with the acquisition of First Data, the Company owns certain POS terminal equipment which it leases to merchants. The terms of the leases typically range from two to five years.

Components of Lease Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Sales-type leases:
Selling profit (1)	$	8	$	8	$	34	$	8
Interest income (1)	20		15		57		15
Operating lease income (2)	21		14		69		14

(1)Selling profit includes $26 million and $78 million recorded within product revenue with a corresponding charge of $18 million and $44 million recorded within cost of product in the consolidated statements of income for the three and nine months ended September 30, 2020, respectively. Selling profit includes $21 million recorded within product revenue with a corresponding charge of $13 million recorded within cost of product in the consolidated statements of income for the both the three and nine months ended September 30, 2019. 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 the three and nine months ended September 30, 2020 and 2019.

Lease Payment Receivables Portfolio

The Company accounts for lease payment receivables in connection with POS terminal equipment as a single portfolio. The Company recognizes an allowance for expected credit losses on lease payment receivables at the commencement date of the lease by considering the vintage, geography and internal credit risk ratings of such lease. The internal credit risk ratings are established based on lessee specific risk factors, such as FICO score, number of years the lessee has been in business and the nature of the lessee’s industry, which are considered indicators of the likelihood a lessee may default in the future. The established reserve for estimated credit losses on lease payment receivables upon adoption of ASU 2016-13 on January 1, 2020 was $56 million. Such reserve for estimated credit losses at September 30, 2020 was $60 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 September 30, 2020 was $233 million. Lease payment receivables that were determined to be on non-accrual status were nominal at each of September 30, 2020 and December 31, 2019.

Leases

Leases

Company as Lessee

The Company primarily leases office space, land, data centers and equipment from third parties. The Company’s leases have remaining lease terms ranging from one to 18 years.

Components of Lease Cost

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Operating lease cost (1)	$	60	$	64	$	183	$	141
Finance lease cost (2)
Amortization of right-of-use assets	48		16		137		18
Interest on lease liabilities	7		3		16		3
Total lease cost	$	115	$	83	$	336	$	162

(1)Operating lease expense is included within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the right-of-use (“ROU”) asset, in the consolidated statements of income. Operating lease cost includes approximately $8 million and $14 million of variable lease costs for the three months ended September 30, 2020 and 2019, respectively, and $27 million and $42 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Finance lease expense is recorded as depreciation and amortization expense within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, and interest expense, net in the consolidated statements of income. Finance lease expense during the three and nine months ended September 30, 2020 includes $17 million and $62 million, respectively, of accelerated amortization associated with the termination of certain vendor contracts (see Note 16).

Supplemental Cash Flow Information

	Nine Months Ended September 30,
(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116	$	94
Operating cash flows from finance leases	16		3
Financing cash flows from finance leases	161		17
Right-of-use assets obtained in exchange for lease liabilities: (1)
Operating leases	$	2	$	459
Finance leases	331		288

(1)Amounts in 2019 include the right-of-use assets and lease liabilities obtained through the acquisition of First Data.

Company as Lessor

In connection with the acquisition of First Data, the Company owns certain POS terminal equipment which it leases to merchants. The terms of the leases typically range from two to five years.

Components of Lease Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Sales-type leases:
Selling profit (1)	$	8	$	8	$	34	$	8
Interest income (1)	20		15		57		15
Operating lease income (2)	21		14		69		14

(1)Selling profit includes $26 million and $78 million recorded within product revenue with a corresponding charge of $18 million and $44 million recorded within cost of product in the consolidated statements of income for the three and nine months ended September 30, 2020, respectively. Selling profit includes $21 million recorded within product revenue with a corresponding charge of $13 million recorded within cost of product in the consolidated statements of income for the both the three and nine months ended September 30, 2019. 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 the three and nine months ended September 30, 2020 and 2019.

Lease Payment Receivables Portfolio

The Company accounts for lease payment receivables in connection with POS terminal equipment as a single portfolio. The Company recognizes an allowance for expected credit losses on lease payment receivables at the commencement date of the lease by considering the vintage, geography and internal credit risk ratings of such lease. The internal credit risk ratings are established based on lessee specific risk factors, such as FICO score, number of years the lessee has been in business and the nature of the lessee’s industry, which are considered indicators of the likelihood a lessee may default in the future. The established reserve for estimated credit losses on lease payment receivables upon adoption of ASU 2016-13 on January 1, 2020 was $56 million. Such reserve for estimated credit losses at September 30, 2020 was $60 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 September 30, 2020 was $233 million. Lease payment receivables that were determined to be on non-accrual status were nominal at each of September 30, 2020 and December 31, 2019.

Leases

Leases

Company as Lessee

The Company primarily leases office space, land, data centers and equipment from third parties. The Company’s leases have remaining lease terms ranging from one to 18 years.

Components of Lease Cost

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Operating lease cost (1)	$	60	$	64	$	183	$	141
Finance lease cost (2)
Amortization of right-of-use assets	48		16		137		18
Interest on lease liabilities	7		3		16		3
Total lease cost	$	115	$	83	$	336	$	162

(1)Operating lease expense is included within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the right-of-use (“ROU”) asset, in the consolidated statements of income. Operating lease cost includes approximately $8 million and $14 million of variable lease costs for the three months ended September 30, 2020 and 2019, respectively, and $27 million and $42 million for the nine months ended September 30, 2020 and 2019, respectively.

(2)Finance lease expense is recorded as depreciation and amortization expense within cost of processing and services, cost of product and selling, general and administrative expense, dependent upon the nature and use of the ROU asset, and interest expense, net in the consolidated statements of income. Finance lease expense during the three and nine months ended September 30, 2020 includes $17 million and $62 million, respectively, of accelerated amortization associated with the termination of certain vendor contracts (see Note 16).

Supplemental Cash Flow Information

	Nine Months Ended September 30,
(In millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	116	$	94
Operating cash flows from finance leases	16		3
Financing cash flows from finance leases	161		17
Right-of-use assets obtained in exchange for lease liabilities: (1)
Operating leases	$	2	$	459
Finance leases	331		288

(1)Amounts in 2019 include the right-of-use assets and lease liabilities obtained through the acquisition of First Data.

Company as Lessor

In connection with the acquisition of First Data, the Company owns certain POS terminal equipment which it leases to merchants. The terms of the leases typically range from two to five years.

Components of Lease Income

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2020		2019		2020		2019
Sales-type leases:
Selling profit (1)	$	8	$	8	$	34	$	8
Interest income (1)	20		15		57		15
Operating lease income (2)	21		14		69		14

(1)Selling profit includes $26 million and $78 million recorded within product revenue with a corresponding charge of $18 million and $44 million recorded within cost of product in the consolidated statements of income for the three and nine months ended September 30, 2020, respectively. Selling profit includes $21 million recorded within product revenue with a corresponding charge of $13 million recorded within cost of product in the consolidated statements of income for the both the three and nine months ended September 30, 2019. 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 the three and nine months ended September 30, 2020 and 2019.

Lease Payment Receivables Portfolio

The Company accounts for lease payment receivables in connection with POS terminal equipment as a single portfolio. The Company recognizes an allowance for expected credit losses on lease payment receivables at the commencement date of the lease by considering the vintage, geography and internal credit risk ratings of such lease. The internal credit risk ratings are established based on lessee specific risk factors, such as FICO score, number of years the lessee has been in business and the nature of the lessee’s industry, which are considered indicators of the likelihood a lessee may default in the future. The established reserve for estimated credit losses on lease payment receivables upon adoption of ASU 2016-13 on January 1, 2020 was $56 million. Such reserve for estimated credit losses at September 30, 2020 was $60 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 September 30, 2020 was $233 million. Lease payment receivables that were determined to be on non-accrual status were nominal at each of September 30, 2020 and December 31, 2019.