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.

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.

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,

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

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.

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.

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.

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,

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

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.