filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
Fiserv, Inc.
Consolidated Statements of Income
(In millions, except per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Processing and services (1) | $ | 4,000 | $ | 3,673 | |||||||||||||||||||
| Product | 883 | 874 | |||||||||||||||||||||
| Total revenue | 4,883 | 4,547 | |||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Cost of processing and services | 1,354 | 1,405 | |||||||||||||||||||||
| Cost of product | 651 | 600 | |||||||||||||||||||||
| Selling, general and administrative | 1,697 | 1,604 | |||||||||||||||||||||
| Net loss on sale of businesses and other assets | — | 4 | |||||||||||||||||||||
| Total expenses | 3,702 | 3,613 | |||||||||||||||||||||
| Operating income | 1,181 | 934 | |||||||||||||||||||||
| Interest expense, net | (261) | (202) | |||||||||||||||||||||
| Other expense, net | (7) | (20) | |||||||||||||||||||||
| Income before income taxes and loss from investments in unconsolidated affiliates | 913 | 712 | |||||||||||||||||||||
| Income tax provision | (153) | (124) | |||||||||||||||||||||
| Loss from investments in unconsolidated affiliates | (8) | (12) | |||||||||||||||||||||
| Net income | 752 | 576 | |||||||||||||||||||||
| Less: net income attributable to noncontrolling interests and redeemable noncontrolling interest | 17 | 13 | |||||||||||||||||||||
| Net income attributable to Fiserv, Inc. | $ | 735 | $ | 563 | |||||||||||||||||||
| Net income attributable to Fiserv, Inc. per share: | |||||||||||||||||||||||
| Basic | $ | 1.24 | $ | 0.90 | |||||||||||||||||||
| Diluted | $ | 1.24 | $ | 0.89 | |||||||||||||||||||
| Shares used in computing net income attributable to Fiserv, Inc. per share: | |||||||||||||||||||||||
| Basic | 590.9 | 626.9 | |||||||||||||||||||||
| Diluted | 594.8 | 631.3 |
**(1)**Includes processing and other fees charged to related party investments accounted for under the equity method of $40 million and $46 million for the three months ended March 31, 2024 and 2023, respectively (see Note 19).
See accompanying notes to consolidated financial statements.
Fiserv, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
(Unaudited)
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| Net income | $ | 752 | $ | 576 | |||||||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Fair market value adjustment on derivatives | 1 | 5 | |||||||||||||||||||||
| Reclassification adjustment for net realized (gains) losses on cash flow hedges included in cost of processing and services | (1) | 1 | |||||||||||||||||||||
| Reclassification adjustment for net realized losses on cash flow hedges included in net interest expense | 4 | 5 | |||||||||||||||||||||
| Tax impacts of derivatives | (1) | (3) | |||||||||||||||||||||
| Unrealized (loss) gain on defined benefit pension plans (see Note 1) | (84) | 3 | |||||||||||||||||||||
| Tax impacts of defined benefit pension plans | 21 | (1) | |||||||||||||||||||||
| Foreign currency translation | (133) | 115 | |||||||||||||||||||||
| Tax impacts of foreign currency translation | (31) | 22 | |||||||||||||||||||||
| Total other comprehensive (loss) income | (224) | 147 | |||||||||||||||||||||
| Comprehensive income | $ | 528 | $ | 723 | |||||||||||||||||||
| Less: net income attributable to noncontrolling interests and redeemable noncontrolling interest | 17 | 13 | |||||||||||||||||||||
| Less: other comprehensive (loss) income attributable to noncontrolling interests | (13) | 12 | |||||||||||||||||||||
| Comprehensive income attributable to Fiserv, Inc. | $ | 524 | $ | 698 |
See accompanying notes to consolidated financial statements.
Fiserv, Inc.
Consolidated Balance Sheets
(In millions)
(Unaudited)
| March 31, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 1,214 | $ | 1,204 | |||||||
| Trade accounts receivable, less allowance for doubtful accounts | 3,574 | 3,582 | |||||||||
| Prepaid expenses and other current assets | 2,595 | 2,344 | |||||||||
| Settlement assets | 29,711 | 27,681 | |||||||||
| Total current assets | 37,094 | 34,811 | |||||||||
| Property and equipment, net | 2,226 | 2,161 | |||||||||
| Customer relationships, net | 6,747 | 7,075 | |||||||||
| Other intangible assets, net | 4,179 | 4,135 | |||||||||
| Goodwill | 37,038 | 37,205 | |||||||||
| Contract costs, net | 941 | 968 | |||||||||
| Investments in unconsolidated affiliates | 2,220 | 2,262 | |||||||||
| Other long-term assets | 2,253 | 2,273 | |||||||||
| Total assets | $ | 92,698 | $ | 90,890 | |||||||
| Liabilities and Equity | |||||||||||
| Accounts payable and accrued expenses | $ | 3,957 | $ | 4,355 | |||||||
| Short-term and current maturities of long-term debt | 671 | 755 | |||||||||
| Contract liabilities | 779 | 761 | |||||||||
| Settlement obligations | 29,711 | 27,681 | |||||||||
| Total current liabilities | 35,118 | 33,552 | |||||||||
| Long-term debt | 23,754 | 22,363 | |||||||||
| Deferred income taxes | 3,048 | 3,078 | |||||||||
| Long-term contract liabilities | 247 | 250 | |||||||||
| Other long-term liabilities | 948 | 978 | |||||||||
| Total liabilities | 63,115 | 60,221 | |||||||||
| Commitments and Contingencies (see Note 18) | |||||||||||
| Redeemable Noncontrolling Interest | 160 | 161 | |||||||||
| Fiserv, Inc. Shareholders’ Equity: | |||||||||||
| Preferred stock, no par value: 25 million shares authorized; none issued | — | — | |||||||||
| Common stock, $0.01 par value: 1,800 million shares authorized; 784 million shares issued | 8 | 8 | |||||||||
| Additional paid-in capital | 22,861 | 23,103 | |||||||||
| Accumulated other comprehensive loss | (994) | (783) | |||||||||
| Retained earnings | 21,179 | 20,444 | |||||||||
| Treasury stock, at cost, 198 million and 190 million shares, respectively | (14,253) | (12,915) | |||||||||
| Total Fiserv, Inc. shareholders’ equity | 28,801 | 29,857 | |||||||||
| Noncontrolling interests | 622 | 651 | |||||||||
| Total equity | 29,423 | 30,508 | |||||||||
| Total liabilities and equity | $ | 92,698 | $ | 90,890 |
See accompanying notes to consolidated financial statements.
Fiserv, Inc.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 752 | $ | 576 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and other amortization | 401 | 352 | |||||||||
| Amortization of acquisition-related intangible assets | 373 | 433 | |||||||||
| Amortization of financing costs and debt discounts | 11 | 10 | |||||||||
| Share-based compensation | 86 | 93 | |||||||||
| Deferred income taxes | (24) | (87) | |||||||||
| Net loss on sale of businesses and other assets | — | 4 | |||||||||
| Loss from investments in unconsolidated affiliates | 8 | 12 | |||||||||
| Distributions from unconsolidated affiliates | 8 | 11 | |||||||||
| Non-cash impairment charges | 14 | — | |||||||||
| Other operating activities | 10 | (1) | |||||||||
| Changes in assets and liabilities, net of effects from acquisitions and dispositions: | |||||||||||
| Trade accounts receivable | 3 | 255 | |||||||||
| Prepaid expenses and other assets | (315) | (224) | |||||||||
| Contract costs | (57) | (66) | |||||||||
| Accounts payable and other liabilities | (457) | (336) | |||||||||
| Contract liabilities | 18 | 98 | |||||||||
| Net cash provided by operating activities | 831 | 1,130 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures, including capitalized software and other intangibles | (420) | (339) | |||||||||
| Distributions from unconsolidated affiliates | 22 | 34 | |||||||||
| Purchases of investments | (3) | (5) | |||||||||
| Proceeds from sale of investments | 3 | — | |||||||||
| Other investing activities | 1 | (4) | |||||||||
| Net cash used in investing activities | (397) | (314) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Debt proceeds | 2,743 | 2,071 | |||||||||
| Debt repayments | (987) | (424) | |||||||||
| Net repayments of commercial paper and short-term borrowings | (484) | (781) | |||||||||
| Payments of debt financing costs | (11) | (15) | |||||||||
| Proceeds from issuance of treasury stock | 39 | 29 | |||||||||
| Purchases of treasury stock, including employee shares withheld for tax obligations | (1,674) | (1,530) | |||||||||
| Settlement activity, net | 219 | (460) | |||||||||
| Distributions paid to noncontrolling interests and redeemable noncontrolling interest | (34) | (8) | |||||||||
| Other financing activities | — | (31) | |||||||||
| Net cash used in financing activities | (189) | (1,149) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (17) | 17 | |||||||||
| Net change in cash and cash equivalents | 228 | (316) | |||||||||
| Cash and cash equivalents, beginning balance | 2,963 | 3,192 | |||||||||
| Cash and cash equivalents, ending balance | $ | 3,191 | $ | 2,876 | |||||||
See accompanying notes to consolidated financial statements.
Fiserv, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements for the three months ended March 31, 2024 and 2023 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and accompanying notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual consolidated financial statements and accompanying notes of Fiserv, Inc. (the “Company”). These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Segment Realignment
Effective for the three months ended March 31, 2024, the Company realigned its reportable segments to correspond with changes in its business designed to further enhance operational performance in the delivery of its integrated portfolio of products and solutions to its financial institution clients (the “Segment Realignment”). The Company’s new reportable segments are the Merchant Solutions (“Merchant”) segment and the Financial Solutions (“Financial”) segment. Segment results for the three months ended March 31, 2023 have been recast to reflect the Segment Realignment. See Note 20 for additional information.
Principles of Consolidation
The consolidated financial statements include the accounts of Fiserv, Inc. and its subsidiaries in which the Company holds a majority controlling financial interest. All intercompany transactions and balances between the Company and its subsidiaries have been eliminated in consolidation. Control is typically 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 loss 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 of between 20% and 50%; however, for partnerships and limited liability companies, an ownership interest of between 3% and 50% or board of director representation may also constitute significant influence.
The Company maintains a majority controlling financial interest in certain entities, mostly related to consolidated merchant alliances (see Note 19). 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 interest. Noncontrolling interests are presented as a component of equity in the consolidated balance sheets. 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 11).
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and investments with original maturities of 90 days or less and are stated at cost in the consolidated balance sheets, which approximates market value. Cash and cash equivalents that are restricted from use due to regulatory or other requirements are included in other long-term assets in the consolidated balance sheets. Cash and cash equivalents held on behalf of merchants and other payees are included in settlement assets in the consolidated balance sheets. The changes in settlement cash and cash equivalents are included in settlement activity, net within cash flows from financing activities in the consolidated statements of cash flows.
The following table provides a reconciliation between cash and cash equivalents on the consolidated balance sheets and the consolidated statements of cash flows:
| (In millions) | March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||||||||||||||||
| Cash and cash equivalents on the consolidated balance sheets | $ | 1,214 | $ | 1,204 | $ | 1,046 | ||||||||||||||||||||
| Cash and cash equivalents included in settlement assets | 1,975 | 1,756 | 1,823 | |||||||||||||||||||||||
| Other restricted cash | 2 | 3 | 7 | |||||||||||||||||||||||
| Total cash and cash equivalents on the consolidated statements of cash flows | $ | 3,191 | $ | 2,963 | $ | 2,876 | ||||||||||||||||||||
Allowance for Doubtful Accounts
The Company analyzes the collectability of trade accounts receivable by considering historical bad debts and issued client credits, 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 $69 million and $86 million at March 31, 2024 and December 31, 2023, respectively.
Prepaid Expenses and Other Current Assets
Prepaid expenses represent advance payments for goods and services to be consumed in the future, such as maintenance, postage and insurance, and totaled $543 million and $423 million at March 31, 2024 and December 31, 2023, respectively. Other current assets, including net income tax receivables, Clover Capital cash advances and settlement advance cash payments, totaled $2,052 million and $1,921 million at March 31, 2024 and December 31, 2023, respectively. The net income tax receivable balance, including receivables associated with transferable federal tax credits (see Note 15), were $568 million and $534 million at March 31, 2024 and December 31, 2023, respectively.
The Company offers merchants advance access to capital through its Clover Capital cash advance program. Under this program, merchants sell fixed amounts of their future credit card receivables to the Company in exchange for an up-front purchase price payment. Future credit card receivables purchased by the Company under the Clover Capital program were $297 million and $281 million at March 31, 2024 and December 31, 2023, respectively. The Company maintained a reserve of $13 million and $12 million at March 31, 2024 and December 31, 2023, respectively, based on an estimate of uncollectible amounts.
The Company also offers merchants within its international operations advance access to capital by providing them the opportunity to receive settlement cash payments in advance in exchange for their receivables from card issuers, including when the cardholders have elected to pay over time in installments. The Company maintains short-term lines of credit with foreign banks and alliance partners to fund such anticipated settlement activity (see Note 10). These local currency denominated arrangements are primarily associated with the Company’s operations in Latin America, the most significant of which are denominated in Argentine Peso and Brazilian Real. The Company’s outstanding cash advances from card issuers related to this settlement funding activity were $520 million and $381 million at March 31, 2024 and December 31, 2023, respectively.
Settlement Assets and Obligations
Settlement assets and obligations represent intermediary balances arising from the settlement process, which involves the transfer of funds among card issuers, payment networks, processors, merchants and consumers, and collateral amounts held to manage merchant credit risk, primarily associated with the Company’s merchant acquiring services. As a processor, the Company facilitates the clearing and settlement activity for the merchant and records settlement assets and obligations upon processing a payment transaction. Settlement assets represent cash received or amounts receivable from agents, payment networks, bank partners, merchants or direct consumers. Settlement obligations represent amounts payable to merchants and payees.
Certain merchant settlement assets (included within settlement receivables) that relate to settlement obligations are held by partner banks to which the Company does not have legal ownership, but which the Company has the right to use, to satisfy the related settlement obligations. The Company records settlement obligations for amounts payable to merchants and for outstanding payment instruments issued to payees that have not yet been presented for settlement.
Allowance 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 a 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 mitigate this risk. Collateral held by the Company, or held by partner banks for the Company’s benefit, is classified within settlement assets, and the obligation to repay the collateral is classified within settlement obligations in the consolidated balance sheets. The Company also utilizes a number of systems and procedures to manage merchant credit risk. Despite these efforts, the Company experiences losses due to merchant defaults. The aggregate merchant credit loss expense, recognized by the Company within cost of processing and services in the consolidated statements of income, was $25 million and $15 million for the three months ended March 31, 2024 and 2023, respectively.
The Company maintains an allowance for merchant credit losses that are expected to exceed the amount of merchant collateral. The amount of merchant collateral available to the Company was $692 million and $690 million at March 31, 2024 and December 31, 2023, respectively. The allowance includes estimated losses from anticipated chargebacks and fraud events that have been incurred on merchants’ payment transactions that have been processed but not yet reported to the Company, which is recorded within accounts payable and accrued expenses in the consolidated balance sheets, as well as estimated losses on refunded amounts to cardholders that have not yet been collected from the merchants, which is recorded within prepaid expenses and other current assets in the consolidated balance sheets. The allowance is based primarily on the Company’s historical experience of credit losses and other factors such as changes in economic conditions or increases in merchant fraud. The aggregate merchant credit loss allowance was $34 million and $36 million at March 31, 2024 and December 31, 2023, respectively.
Goodwill
Goodwill represents the excess of purchase price over the fair value of identifiable assets acquired and liabilities assumed in a business combination. The Company evaluates goodwill for impairment on an annual basis, or more frequently if circumstances indicate possible impairment. Goodwill is tested for impairment at a reporting unit level, which is one level below the Company’s operating segments. The Company’s most recent annual impairment assessment of its reporting units in the fourth quarter of 2023 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 interest or currency exchange rate environments; a shift in strategic initiatives; a deterioration in financial performance within a particular reporting unit; or significant changes in the composition of, or assumptions used in, the quantitative test for certain of the Company’s reporting units (such as an increase in risk-adjusted discount rates) could have a future material impact on one or more of the estimates and assumptions used to evaluate goodwill impairment. Additionally, a significant change in a merchant alliance business relationship or operating performance could result in a material goodwill impairment charge.
In connection with the Segment Realignment, the Company performed an interim goodwill impairment assessment in the first quarter of 2024 for the impacted reporting units, and determined that its goodwill was not impaired based on an assessment of various qualitative factors. 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. There is no accumulated goodwill impairment for the Company through March 31, 2024.
Foreign Currency
The U.S. dollar is the functional currency of the Company’s U.S.-based 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.
Financial statements of subsidiaries located in highly inflationary economies outside of the U.S. are remeasured into U.S. dollars, and the foreign currency gains and losses from the remeasurement of monetary assets and liabilities are reflected in the consolidated statements of income, rather than as foreign currency translation within accumulated other comprehensive loss in the consolidated balance sheets. The remeasurement of monetary assets and liabilities in highly inflationary economies, including Argentina, resulted in foreign currency exchange losses of $35 million and $18 million for the three months ended March 31, 2024 and 2023, respectively, which is included within other expense, net in the consolidated statements of income.
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 fixed-to-fixed cross-currency rate swap contracts and foreign currency-denominated debt as economic hedges of its net investments in such foreign currency-denominated subsidiaries. Foreign currency transaction gains or losses on the qualifying net investment hedge instruments are recorded as foreign currency translation, net of tax, within other comprehensive (loss) income in the consolidated statements of comprehensive income and will remain in accumulated other comprehensive loss within the consolidated balance sheets until the sale or complete liquidation of the underlying foreign currency-denominated 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. If the derivative is designated as a net investment hedge, changes in the fair value of the derivative, net of tax, are recorded in the foreign currency translation component of other comprehensive (loss) income until the sale or complete liquidation of the underlying net investment. If the derivative is designated as a fair value hedge, changes in the fair value of the derivative are recorded in the same line item as the changes in the fair value of the hedged item and recognized in the consolidated statements of income. To the extent a derivative is not designated as a hedge, changes in fair value are recognized in the consolidated statements of income. The Company’s policy is to enter into derivatives with creditworthy institutions and not to enter into such derivatives for speculative purposes.
Defined Benefit Pension Plans
The Company maintains frozen noncontributory defined benefit pension plans covering certain employees in Europe and the U.S. Effective September 30, 2023, the Company terminated the United Kingdom (“U.K.”) and U.S. defined benefit pension plans. In March 2024, the Company entered into a group annuity insurance contract to provide for the administration of future payments to eligible plan participants of the terminated U.K. plan. In connection with the buy-in of this insurance policy, the plan’s projected benefit obligation was remeasured to the value of the group annuity insurance contract, resulting in an unrecognized loss, net of tax, of approximately $63 million recorded in accumulated other comprehensive loss within the consolidated balance sheet at March 31, 2024.
Upon the settlement of the terminated plans, which is expected to be completed in 2024, the Company will fund the estimated plan termination liability shortfall for the U.S. defined benefit pension plan of approximately $25 million and expects to recognize a non-cash pre-tax pension settlement charge for the terminated plans of approximately $150 million, which also includes the recognition of remaining net actuarial unrecognized losses recorded within accumulated other comprehensive loss. The amount of accrued vested benefits to be received by participants will not be impacted.
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. Interest expense, net consisted of the following:
| Three Months Ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Interest expense | $ | (271) | $ | (210) | |||||||||||||||||||
| Interest income | 10 | 8 | |||||||||||||||||||||
| Interest expense, net | $ | (261) | $ | (202) | |||||||||||||||||||
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with ASC Topic 820. For public entities, ASU 2022-03 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. The provisions within ASU 2022-03 are to be applied prospectively with any adjustments from the adoption recognized in earnings and disclosed on the date of adoption. The Company adopted ASU 2022-03 effective January 1, 2024, and the adoption did not have a material impact on the Company’s consolidated financial statements or disclosures for the three months ended March 31, 2024.
Recently Issued Accounting Pronouncements
In 2023, the FASB issued ASU No. 2023-09*, Income Taxes (Topic 740) - Improvement to Income Tax Disclosures* (“ASU 2023-09”), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. ASU 2023-09 requires entities to consistently categorize and provide greater disaggregation of information within the income tax reconciliation to enable users of financial statements to understand the nature and magnitude of factors contributing to the difference between the effective and statutory tax rates. For public entities, the provisions within ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, and for interim periods of fiscal years beginning after December 15, 2025. The Company is currently assessing the impact the adoption of ASU 2023-09 will have on its consolidated financial statement disclosures.
In 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances and expands the current annual and interim requirements on segment information disclosures. Under the new disclosure requirements, entities will be required to disclose, on an annual and interim basis: significant segment expense categories and amounts for each reportable segment that are included in the reported measure of segment profit or loss and regularly provided to the chief operating decision maker (“CODM”); an aggregate amount and qualitative description of other segment items included in each reported measure of segment profit or loss for each reportable segment; measures of a segment’s profit or loss that are used by the CODM to assess segment performance and decide how to allocate resources; and disclosure of the title and position of the individual or the name of the group identified as the CODM. For public entities, the provisions within ASU 2023-07 are to be applied retrospectively for all comparative periods and are effective for fiscal years beginning after December 15, 2023, and for interim periods of fiscal years beginning after December 15, 2024. The Company is currently assessing the impact the adoption of ASU 2023-07 will have on its consolidated financial statement disclosures.
3. Revenue Recognition
The Company generates revenue from the delivery of processing, service and product solutions. Revenue is measured based on consideration specified in a contract with a customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time.
Disaggregation of Revenue
The Company’s operations are comprised of the Merchant and the Financial reportable segments. Additional information regarding the Company’s business segments is included in Note 20. The table below presents the Company’s revenue disaggregated by business line, including a reconciliation with its reportable segments. The Company’s disaggregation of revenue for the three months ended March 31, 2023 has been recast to reflect the Segment Realignment. The Company serves its global client base by working among its geographic teams across various regions, including the U.S. and Canada; Europe, Middle East and Africa (“EMEA”); Latin America (“LATAM”); and Asia Pacific (“APAC”). The majority of the Company’s revenue is earned domestically, with revenue generated within its EMEA, LATAM and APAC regions comprising approximately 15% and 13% of total revenue for the three months ended March 31, 2024 and 2023, respectively.
| (In millions) | Three Months Ended March 31, | |||||||||||||||||||||||||
| Revenue by Business Line | 2024 | 2023 | ||||||||||||||||||||||||
| Small Business | $ | 1,488 | $ | 1,285 | ||||||||||||||||||||||
| Enterprise | 463 | 437 | ||||||||||||||||||||||||
| Processing | 302 | 274 | ||||||||||||||||||||||||
| Total Merchant segment revenue | $ | 2,253 | $ | 1,996 | ||||||||||||||||||||||
| Digital Payments | $ | 920 | $ | 873 | ||||||||||||||||||||||
| Issuing | 761 | 731 | ||||||||||||||||||||||||
| Banking | 604 | 619 | ||||||||||||||||||||||||
| Total Financial segment revenue | $ | 2,285 | $ | 2,223 | ||||||||||||||||||||||
| Corporate and Other | $ | 345 | $ | 328 | ||||||||||||||||||||||
| Total Revenue | $ | 4,883 | $ | 4,547 |
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers:
| (In millions) | March 31, 2024 | December 31, 2023 | |||||||||
| Contract assets | $ | 784 | $ | 754 | |||||||
| Contract liabilities | 1,026 | 1,011 |
Contract assets, reported within other long-term assets in the consolidated balance sheets, primarily relate to customer discounts where revenue recognition and payment of consideration under the contract is contingent upon the transfer of services to a customer over the contractual period. Contract liabilities primarily relate to advance consideration received from customers (deferred revenue) for which transfer of control occurs, and therefore revenue is recognized, as services are provided. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company recognized $285 million of revenue during the three months ended March 31, 2024 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 and services revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) at March 31, 2024:
| (In millions) | |||||
| Year Ending December 31, | |||||
| Remainder of 2024 | $ | 1,828 | |||
| 2025 | 2,053 | ||||
| 2026 | 1,505 | ||||
| 2027 | 965 | ||||
| Thereafter | 1,071 |
The Company applies the optional exemption under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), and does not disclose information about remaining performance obligations for account- and transaction-based processing fees that qualify for recognition under the as-invoiced practical expedient. These multi-year contracts contain variable consideration for stand-ready performance obligations for which the exact quantity and mix of transactions to be processed are contingent upon the customer’s request. The Company also applies the optional exemptions under ASC 606 and does not disclose information for variable consideration that is a sales-based or usage-based royalty promised in exchange for a license of intellectual property or that is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service in a series. The amounts disclosed above as remaining performance obligations consist primarily of fixed or monthly minimum processing fees and maintenance fees under contracts with an original expected duration of greater than one year.
4. Acquisitions and Dispositions
Acquisitions were accounted for as business combinations using the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. Purchase price was allocated to the respective identifiable assets acquired and liabilities assumed based on the estimated fair values at the date of acquisitions. The results of operations for the following acquired and divested businesses are included in the consolidated results of the Company from the respective dates of acquisition and through the respective dates of disposition. Pro forma information for these acquired businesses is not provided because they did not have a material effect, individually or in the aggregate, on the Company’s consolidated results of operations.
Acquisitions
On October 9, 2023, the Company acquired Skytef Solucões em Captura de Transações Ltda (“Skytef”), a distributor for independent software vendor partners and merchants of the Company’s Electronic Funds Transfer payments software. Skytef is included within the Merchant segment and expands the Company’s distribution network and POS applications. On November 1, 2023, the Company acquired Sled S.A. (“Sled”), a provider of instant payment solutions. Sled is included within the Merchant segment and expands the Company’s direct payment service capabilities. The Company acquired these businesses in Latin America for an aggregate purchase price, including hold-backs, of $17 million. The purchase price allocations for the Skytef and Sled acquisitions were finalized in the first quarter of 2024, and measurement period adjustments did not have a material impact on the Company’s consolidated income statement.
Dispositions
On July 25, 2023, the Company sold its financial reconciliation business, which was reported within the Financial segment, for cash proceeds of $235 million. The Company recognized a pre-tax gain of $172 million on the sale, recorded within net gain (loss) on sale of businesses and other assets, with a related tax expense of $48 million recorded within the income tax provision, in the consolidated statement of income for the year ended December 31, 2023. The pre-tax gain was comprised of the difference between the consideration received and the net carrying amount of the business, including $38 million of allocated goodwill; $15 million of other net assets, primarily consisting of trade accounts receivable and capitalized software; and $10 million of accumulated foreign currency translation losses which were reclassified from accumulated other comprehensive loss.
5. Intangible Assets
Identifiable intangible assets consisted of the following:
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Net Book Value | ||||||||||||||
| March 31, 2024 | |||||||||||||||||
| Customer relationships | $ | 14,593 | $ | 7,846 | $ | 6,747 | |||||||||||
| Acquired software and technology | 2,121 | 1,180 | 941 | ||||||||||||||
| Trade names | 639 | 370 | 269 | ||||||||||||||
| Purchased software | 1,078 | 482 | 596 | ||||||||||||||
| Capitalized software and other intangibles | 3,544 | 1,171 | 2,373 | ||||||||||||||
| Total | $ | 21,975 | $ | 11,049 | $ | 10,926 | |||||||||||
| December 31, 2023 | |||||||||||||||||
| Customer relationships | $ | 14,669 | $ | 7,594 | $ | 7,075 | |||||||||||
| Acquired software and technology | 2,148 | 1,148 | 1,000 | ||||||||||||||
| Trade names | 641 | 356 | 285 | ||||||||||||||
| Purchased software | 1,087 | 520 | 567 | ||||||||||||||
| Capitalized software and other intangibles | 3,356 | 1,073 | 2,283 | ||||||||||||||
| Total | $ | 21,901 | $ | 10,691 | $ | 11,210 |
Amortization expense associated with the above identifiable intangible assets was $534 million and $595 million for the three months ended March 31, 2024 and 2023, respectively.
6. Investments in Unconsolidated Affiliates
The Company maintains investments in various affiliates that are accounted for as equity method investments, the most significant of which are related to the Company’s merchant alliances. The Company’s share of net income or loss from these investments is reported within loss 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. The Company reviews its equity method investments each reporting period for indications of an other-than-temporary deterioration in value, including significant changes in business relationships with merchant alliances. A deterioration in value of an equity method investment determined to be other-than-temporary is recorded as a current-period impairment charge within loss from investments in unconsolidated affiliates in the consolidated statements of income. The estimated fair values of the Company’s investments in unconsolidated merchant alliances assume a continuation beyond the existing contractual term. A renewal of certain of the merchant alliance agreements beyond the current contractual term is not solely within the Company’s control.
Merchant Alliances
The Company maintains ownership interests in various merchant alliances. A merchant alliance 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 financial institution. 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 based on contractual pricing (see Note 19). The Company’s investment in its merchant alliances was $1.9 billion at both March 31, 2024 and December 31, 2023, and is reported within investments in unconsolidated affiliates in the consolidated balance sheets.
Other Equity Investments
The Company also maintains investments, over which it does not have significant influence, in various equity securities without a readily determinable fair value. Such investments totaled $174 million and $156 million at March 31, 2024 and December 31, 2023, respectively, and are included within other long-term assets in the 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. To the extent such events or changes occur, the Company evaluates the fair value compared to its cost basis in the investment. Gains or losses from a sale of these investments or a change in fair value are included within other expense, net in the consolidated statements of income for the period. Adjustments made to the values recorded for certain equity securities and gains and losses from sales of equity securities were $21 million during the three months ended March 31, 2024 and were not significant during the three months ended March 31, 2023.
7. Derivatives and Hedging Instruments
In order to limit exposure to risk, the Company maintains derivative instruments with creditworthy institutions to hedge against changing interest rates and foreign currency rate fluctuations. The Company utilizes forward exchange contracts, fixed-to-fixed cross-currency rate swap contracts and other non-derivative hedging instruments to manage such risk. The Company has designated these instruments as cash flow hedges, net investment hedges, or fair value hedges, as further described below. Derivative instruments maintained by the Company are measured on a recurring basis and are recorded at fair value either as an asset or liability in the consolidated balance sheets (see Note 8).
Cash Flow Hedges
The Company maintains forward exchange contracts, designated as cash flow hedges, to hedge foreign currency exposure to the Indian Rupee. The notional amount of these derivatives was $447 million and $443 million at March 31, 2024 and December 31, 2023, respectively. Based on the amounts recorded in accumulated other comprehensive loss at March 31, 2024, the Company estimates that it will recognize gains of approximately $3 million in cost of processing and services during the next twelve months as foreign exchange forward contracts settle.
The Company previously entered into treasury lock agreements (“Treasury Locks”), designated as cash flow hedges to manage exposure to fluctuations in benchmark interest rates in anticipation of the issuance of fixed rate debt in connection with the acquisition and refinancing of certain indebtedness of First Data Corporation and its subsidiaries. In 2019, concurrent with the issuance of U.S dollar-denominated senior notes, the Treasury Locks were settled resulting in a loss, net of income taxes, and recorded in accumulated other comprehensive loss that is being amortized to earnings over the terms of the originally forecast interest payments. The unamortized balance recorded in accumulated other comprehensive loss related to the Treasury Locks was $112 million and $116 million at March 31, 2024 and December 31, 2023, respectively. Based on the amounts recorded in
accumulated other comprehensive loss at March 31, 2024, the Company estimates that it will recognize approximately $14 million in net interest expense during the next twelve months related to settled interest rate hedge contracts.
Net Investment Hedges
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 fixed-to-fixed cross-currency rate swap contracts and foreign currency-denominated debt as economic hedges of its net investments in such foreign currency-denominated subsidiaries.
At March 31, 2024, aggregate notional fixed-to-fixed cross-currency rate swaps of 475 million Euros and 751 million Singapore Dollars have been designated as net investment hedges to hedge a portion of the Company’s net investment in certain subsidiaries whose functional currencies are the Euro and Singapore Dollar. The Company has also designated certain of its Euro- and British Pound-denominated senior notes and Euro commercial paper 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.
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 currency-denominated subsidiaries.
Foreign currency transaction gains (losses), net of income tax, related to net investment hedges that were recorded as foreign currency translation within other comprehensive (loss) income in the consolidated statements of comprehensive income were as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Cross-currency rate swap contracts | $ | 16 | $ | (2) | |||||||||||||||||||
| Foreign currency-denominated debt | 77 | (64) |
The Company recorded income tax impacts of $(31) million and $22 million during the three months ended March 31, 2024 and 2023, respectively, in other comprehensive (loss) income from the translation of foreign currency-denominated senior notes, Euro commercial paper notes and cross-currency rate swap contracts.
Fair Value Hedges
The Company maintains a fixed-to-fixed cross-currency rate swap contract of 525 million notional British Pounds, designated as a fair value hedge, to mitigate the spot foreign exchange rate risk on the principal amount of its British Pound-denominated 2.250% senior notes due in July 2025. Changes in the fair value of the cross-currency rate swap, along with the offsetting changes in the fair value of the senior notes, attributable to fluctuations in the British Pound/U.S. dollar spot rates are recognized in other expense, net within the consolidated statements of income. The Company also maintains fixed-to-fixed cross-currency rate swap contracts in the aggregate notional amount of 157 million Euros, designated as fair value hedges, to mitigate the spot foreign exchange rate risk on the principal amount of a Euro-denominated intercompany note. Changes in the fair value of the cross-currency rate swaps, along with the offsetting change in the fair value of the intercompany note, attributable to fluctuations in the Euro/U.S. dollar spot rates are recognized in other expense, net within the consolidated statements of income. Changes in the fair value of cross-currency rate swaps attributable to fluctuations in foreign currency spot rates, along with the offsetting changes in the fair values of the hedged notes, of $2 million were recognized in other expense, net within the consolidated statements of income for the three months ended March 31, 2024.
8. Fair Value Measurements
The fair values of cash equivalents, trade accounts receivable, other current assets, settlement assets and obligations, accounts payable, and client deposits approximate their respective carrying values due to the short period of time to maturity. Derivative instruments maintained by the Company (see Note 7) 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. Contingent consideration related to certain of the Company’s acquisitions is estimated using the present value of a probability-weighted assessment approach based on 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:
| Fair Value | |||||||||||||||||||||||
| (In millions) | Classification | Fair Value Hierarchy | March 31, 2024 | December 31, 2023 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Forward exchange contracts designated as cash flow hedges | Prepaid expenses and other current assets | Level 2 | $ | 3 | $ | 2 | |||||||||||||||||
| Cross-currency rate swap contract designated as fair value hedge | Prepaid expenses and other current assets | Level 2 | 1 | — | |||||||||||||||||||
| Cross-currency rate swap contract designated as fair value hedge | Other long-term assets | Level 2 | 1 | 3 | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Cross-currency rate swap contracts designated as fair value hedges | Other long-term liabilities | Level 2 | $ | 4 | $ | 1 | |||||||||||||||||
| Cross-currency rate swap contracts designated as net investment hedges | Other long-term liabilities | Level 2 | 40 | 61 | |||||||||||||||||||
| Contingent consideration | Accounts payable and accrued expenses | Level 3 | 3 | 2 | |||||||||||||||||||
| Contingent debt guarantee | Other long-term liabilities | Level 3 | 22 | 23 | |||||||||||||||||||
Debt
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 foreign lines of credit, commercial paper notes and revolving credit facility borrowings 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 $22.7 billion and $21.6 billion at March 31, 2024 and December 31, 2023, respectively, and the carrying value was $23.5 billion and $22.2 billion at March 31, 2024 and December 31, 2023, respectively.
Debt Guarantee Arrangements
The Company maintains noncontrolling ownership interests in Sagent M&C, LLC and defi SOLUTIONS Group, LLC (collectively the “Lending Joint Ventures”), which are accounted for under the equity method. The Lending Joint Ventures maintain variable-rate term loan facilities with aggregate outstanding borrowings of $437 million in senior unsecured debt at March 31, 2024 and variable-rate revolving credit facilities with an aggregate borrowing capacity of $83 million with a syndicate of banks, which mature in April 2027. There were $52 million of aggregate outstanding borrowings on the revolving credit facilities at March 31, 2024. The Company has guaranteed the debt of the Lending Joint Ventures.
The Company maintains liabilities for its obligations to perform over the term of its debt guarantee arrangements with the Lending Joint Ventures, which are reported within other long-term liabilities in the consolidated balance sheets. The Company has provided aggregate guarantees of $520 million associated with the debt of the Lending Joint Ventures and is entitled to receive a defined fee in exchange for its guarantee of this indebtedness. The Company has not made any payments under the guarantees, nor has it been called upon to do so, and does not anticipate that the Lending Joint Ventures will fail to fulfill their debt obligations.
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 $28 million and $31 million approximates the fair value at March 31, 2024 and December 31, 2023, respectively (Level 3 of the fair value hierarchy). Such guarantees will be amortized in future periods over the contractual term of the debt. The contingent component of the Company’s debt guarantee arrangements represents the current expected credit losses to which the Company is exposed. The amount of the liability, as reflected within the table above, is estimated based on certain financial metrics of the Lending Joint Ventures and historical industry data, which is used to develop assumptions of the likelihood the guaranteed parties will default and the level of credit losses in the event a default occurs. The Company recognized $4 million and $2 million during the three months ended March 31, 2024 and 2023, respectively, within other expense, net 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.
Other Non-Financial Assets
Certain of the Company’s non-financial assets are measured at fair value on a non-recurring basis, including property and equipment, lease right-of-use assets, equity securities without a readily determinable fair value, goodwill and other intangible assets, and are subject to fair value adjustment in certain circumstances.
9. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
| (In millions) | March 31, 2024 | December 31, 2023 | ||||||||||||
| Trade accounts payable | $ | 540 | $ | 449 | ||||||||||
| Client deposits | 950 | 931 | ||||||||||||
| Transferable federal tax credits (see Note 15) | 307 | 804 | ||||||||||||
| Accrued compensation and benefits | 289 | 344 | ||||||||||||
| Accrued taxes | 205 | 203 | ||||||||||||
| Accrued interest | 222 | 298 | ||||||||||||
| Accrued payment network fees | 250 | 232 | ||||||||||||
| Operating lease liabilities | 114 | 118 | ||||||||||||
| Accrued professional fees | 103 | 96 | ||||||||||||
| Other accrued expenses | 977 | 880 | ||||||||||||
| Total | $ | 3,957 | $ | 4,355 |
10. Debt
The Company’s debt consisted of the following:
| (In millions) | March 31, 2024 | December 31, 2023 | ||||||||||||
| Short-term and current maturities of long-term debt: | ||||||||||||||
| Foreign lines of credit | $ | 380 | $ | 442 | ||||||||||
| Finance lease and other financing obligations | 291 | 313 | ||||||||||||
| Total short-term and current maturities of long-term debt | $ | 671 | $ | 755 | ||||||||||
| Long-term debt: | ||||||||||||||
| 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) | 662 | 672 | ||||||||||||
| 3.200% senior notes due July 2026 | 2,000 | 2,000 | ||||||||||||
| 5.150% senior notes due March 2027 | 750 | — | ||||||||||||
| 2.250% senior notes due June 2027 | 1,000 | 1,000 | ||||||||||||
| 1.125% senior notes due July 2027 (Euro-denominated) | 541 | 555 | ||||||||||||
| 5.450% senior notes due March 2028 | 900 | 900 | ||||||||||||
| 5.375% senior notes due August 2028 | 700 | 700 | ||||||||||||
| 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 | 1,000 | ||||||||||||
| 1.625% senior notes due July 2030 (Euro-denominated) | 541 | 555 | ||||||||||||
| 5.350% senior notes due March 2031 | 500 | — | ||||||||||||
| 4.500% senior notes due May 2031 (Euro-denominated) | 865 | 889 | ||||||||||||
| 3.000% senior notes due July 2031 (British Pound-denominated) | 662 | 672 | ||||||||||||
| 5.600% senior notes due March 2033 | 900 | 900 | ||||||||||||
| 5.625% senior notes due August 2033 | 1,300 | 1,300 | ||||||||||||
| 5.450% senior notes due March 2034 | 750 | — | ||||||||||||
| 4.400% senior notes due July 2049 | 2,000 | 2,000 | ||||||||||||
| U.S. dollar commercial paper notes | — | 418 | ||||||||||||
| Euro commercial paper notes | 1,286 | 1,321 | ||||||||||||
| Revolving credit facility | — | 74 | ||||||||||||
| Unamortized discount and deferred financing costs | (152) | (145) | ||||||||||||
| Finance lease and other financing obligations | 649 | 652 | ||||||||||||
| Total long-term debt | $ | 23,754 | $ | 22,363 |
The Company was in compliance with all financial debt covenants during the three months ended March 31, 2024.
Senior Notes
On March 4, 2024, the Company completed the public offering and issuance of $2.0 billion of senior notes, comprised of $750 million aggregate principal amount of 5.150% senior notes due in March 2027, $500 million aggregate principal amount of 5.350% senior notes due in March 2031 and $750 million aggregate principal amount of 5.450% senior notes due in March 2034. Interest on these senior notes is paid semi-annually. The Company used the net proceeds from this senior notes offering for general corporate purposes, including the repayment of a portion of the Company’s commercial paper notes and for share repurchases, and expects to use a portion of the net proceeds from this senior notes offering to repay a portion of its 2.750% senior notes upon maturity in July 2024.
At March 31, 2024, the 2.750% senior notes due in July 2024 were classified in the consolidated balance sheet as long-term, 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 and through use of a portion of the net proceeds from the March 2024 issuance of the senior notes as described above.
The indentures governing these 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 these senior notes, in whole or in part, at any time and from time to time at the applicable redemption price.
Commercial Paper
The Company maintains unsecured U.S. dollar and Euro commercial paper programs. From time to time, the Company may issue under these programs U.S. dollar commercial paper with maturities of up to 397 days from the date of issuance and Euro commercial paper with maturities of up to 183 days from the date of issuance. Outstanding borrowings under the U.S. dollar program were $418 million at December 31, 2023, with a weighted average interest rate of 5.454%. There were no outstanding borrowings under the U.S. dollar program at March 31, 2024. Outstanding borrowings under the Euro program were $1.3 billion at both March 31, 2024 and December 31, 2023, with weighted average interest rates of 4.016% and 4.029%, respectively. The Company intends to maintain available capacity under its revolving credit facility, as described below, in an amount at least equal to the aggregate outstanding borrowings under its commercial paper programs. Outstanding borrowings under the commercial paper programs are classified in the consolidated balance sheets as long-term as the Company has the intent to refinance this commercial paper on a long-term basis through the continued issuance of new commercial paper upon maturity, and the Company also has the ability to refinance such commercial paper under its revolving credit facility.
Revolving Credit Facility
The Company maintains a senior unsecured multicurrency revolving credit facility, which matures in June 2027 and provides for a maximum aggregate principal amount of availability of $6.0 billion. Borrowings under the credit facility bear interest at a variable base rate, determined by the term and currency of the borrowing, plus a specified margin based on the Company’s long-term debt rating. There were no outstanding borrowings under the revolving credit facility at March 31, 2024. The credit facility also requires the Company to pay a facility fee based on the aggregate commitments in effect under the agreement from time to time. The credit facility contains various restrictions and covenants that require the Company to, among other things, limit its consolidated indebtedness as of the end of each fiscal quarter to no more than 3.75 times the Company’s consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and expenses and certain other adjustments during the period of four fiscal quarters then ended, subject to certain exceptions.
Foreign Lines of Credit
The Company maintains certain short-term lines of credit and other borrowing arrangements with foreign banks and alliance partners primarily to fund settlement activity associated with operations in Latin America. The Company entered into an annually renewable term loan facility, which was fully funded in April 2023, to fund settlement advance cash payments in Brazil. This term loan has a notional value of 514 million Brazilian real ($103 million USD equivalent) at March 31, 2024 and bears interest at a variable Certificado de Depósito Interbancário (CDI) Rate, plus a specified margin per annum. In February 2024, this term loan facility was amended, which amendment extended its maturity date to April 2025 and decreased the specified margin to 1.25% per annum.
The following table provides a summary of the outstanding borrowings and weighted average interest rates of the Company’s foreign lines of credit and other borrowing arrangements by country at March 31, 2024 and December 31, 2023:
| Outstanding Borrowings (in millions) | Weighted-Average Interest Rate | |||||||||||||||||||||||||
| March 31, 2024 | December 31, 2023 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
| Argentina | $ | 155 | $ | 208 | 83.821 | % | 121.581 | % | ||||||||||||||||||
| Brazil | 120 | 123 | 12.628 | % | 13.500 | % | ||||||||||||||||||||
| Uruguay | 65 | 55 | 10.695 | % | 11.125 | % | ||||||||||||||||||||
| Other | 40 | 56 | 3.658 | % | 4.912 | % | ||||||||||||||||||||
| Total | $ | 380 | $ | 442 | 40.354 | % | 63.060 | % |
11. Redeemable Noncontrolling Interest
The minority partner in one of the Company’s existing merchant alliance joint ventures maintains a redeemable noncontrolling 1% interest which is presented outside of equity and carried at its estimated redemption value. The minority partner is entitled to a contractually determined share of the entity’s income, and the joint venture agreement contains redemption features whereby the interest held by the minority partner is 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 joint venture may be terminated by either party for convenience any time after December 31, 2024. 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 interest at a price equal to the fair market value of the minority interest through a distribution of cash, certain merchant contracts of the joint venture, or a combination thereof. In conjunction with the termination of the joint venture, the minority partner may also exercise an option to purchase certain additional merchant contracts at fair market value.
The following table presents a summary of the redeemable noncontrolling interest activity during the three months ended March 31:
| (In millions) | 2024 | 2023 | ||||||||||||
| Balance at beginning of period | $ | 161 | $ | 161 | ||||||||||
| Distributions paid to redeemable noncontrolling interest | (7) | (8) | ||||||||||||
| Share of income | 6 | 7 | ||||||||||||
| Balance at end of period | $ | 160 | $ | 160 |
12. Equity
The following tables provide changes in equity during the three months ended March 31, 2024 and 2023:
| Fiserv, Inc. Shareholders’ Equity | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2024 | Number of Shares | Amount | ||||||||||||||||||||||||||||||
| (In millions) | Common Shares | Treasury Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||
| Balance at December 31, 2023 | 784 | 190 | $ | 8 | $ | 23,103 | $ | (783) | $ | 20,444 | $ | (12,915) | $ | 651 | $ | 30,508 | ||||||||||||||||
| Net income (1) | 735 | 11 | 746 | |||||||||||||||||||||||||||||
| Distributions paid to noncontrolling interests (2) | (27) | (27) | ||||||||||||||||||||||||||||||
| Other comprehensive loss | (211) | (13) | (224) | |||||||||||||||||||||||||||||
| Share-based compensation | 86 | 86 | ||||||||||||||||||||||||||||||
| Shares issued under stock plans | (2) | (328) | 174 | (154) | ||||||||||||||||||||||||||||
| Purchases of treasury stock | 10 | (1,512) | (1,512) | |||||||||||||||||||||||||||||
| Balance at March 31, 2024 | 784 | 198 | $ | 8 | $ | 22,861 | $ | (994) | $ | 21,179 | $ | (14,253) | $ | 622 | $ | 29,423 | ||||||||||||||||
(1)The total net income presented in equity for the three months ended March 31, 2024 is different than the amount presented in the consolidated statement of income due to the net income attributable to redeemable noncontrolling interest of $6 million not included in equity.
(2)The total distributions presented in equity for the three months ended March 31, 2024 excludes $7 million in distributions paid to redeemable noncontrolling interest not included in equity.
| Fiserv, Inc. Shareholders’ Equity | ||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2023 | Number of Shares | Amount | ||||||||||||||||||||||||||||||
| (In millions) | Common Shares | Treasury Shares | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Treasury Stock | Total Equity | ||||||||||||||||||||||||
| Noncontrolling Interests | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 784 | 154 | $ | 8 | $ | 23,011 | $ | (1,189) | $ | 17,376 | $ | (8,378) | $ | 699 | $ | 31,527 | ||||||||||||||||
| Net income (1) | 563 | 6 | 569 | |||||||||||||||||||||||||||||
| Other comprehensive income | 135 | 12 | 147 | |||||||||||||||||||||||||||||
| Share-based compensation | 93 | 93 | ||||||||||||||||||||||||||||||
| Shares issued under stock plans | (2) | (158) | 99 | (59) | ||||||||||||||||||||||||||||
| Purchases of treasury stock | 13 | (1,483) | (1,483) | |||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 784 | 165 | $ | 8 | $ | 22,946 | $ | (1,054) | $ | 17,939 | $ | (9,762) | $ | 717 | $ | 30,794 | ||||||||||||||||
(1)The total net income presented in equity for the three months ended March 31, 2023 is different than the amount presented in the consolidated statement of income due to the net income attributable to redeemable noncontrolling interest of $7 million not included in equity.
13. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss by component, net of income taxes, consisted of the following:
| (In millions) | Derivatives | Foreign Currency Translation | Pension Plans | Total | |||||||||||||||||||
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||
| Balance at December 31, 2023 | $ | (78) | $ | (688) | $ | (17) | $ | (783) | |||||||||||||||
| Other comprehensive income (loss) before reclassifications (see Note 1) | 1 | (151) | (63) | (213) | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 2 | — | — | 2 | |||||||||||||||||||
| Net current-period other comprehensive income (loss) | 3 | (151) | (63) | (211) | |||||||||||||||||||
| Balance at March 31, 2024 | $ | (75) | $ | (839) | $ | (80) | $ | (994) | |||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | (103) | $ | (1,064) | $ | (22) | $ | (1,189) | |||||||||||||||
| Other comprehensive income before reclassifications | 5 | 125 | 2 | 132 | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 3 | — | — | 3 | |||||||||||||||||||
| Net current-period other comprehensive income | 8 | 125 | 2 | 135 | |||||||||||||||||||
| Balance at March 31, 2023 | $ | (95) | $ | (939) | $ | (20) | $ | (1,054) | |||||||||||||||
14. Share-Based Compensation
The Company recognized $86 million and $93 million of share-based compensation expense during the three months ended March 31, 2024 and 2023, respectively. The Company’s share-based compensation awards are typically granted in the first quarter of the year, and may also occur throughout the year in conjunction with acquisitions of businesses. At March 31, 2024, the total remaining unrecognized compensation cost for restricted stock units and awards, performance share units, and unvested stock options, net of estimated forfeitures, of $558 million is expected to be recognized over a weighted-average period of 2.2 years.
A summary of restricted stock unit, restricted stock award and performance share unit activity during the three months ended March 31, 2024 is as follows:
| Restricted Stock Units and Awards | Performance Share Units | ||||||||||||||||||||||
| Shares (In thousands) | Weighted-Average Grant Date Fair Value | Shares (In thousands) | Weighted-Average Grant Date Fair Value | ||||||||||||||||||||
| Units and awards - December 31, 2023 | 5,419 | $ | 103.11 | 3,219 | $ | 104.09 | |||||||||||||||||
| Granted | 1,963 | 147.57 | 273 | 157.52 | |||||||||||||||||||
| Forfeited | (102) | 108.34 | (44) | 113.73 | |||||||||||||||||||
| Vested | (2,207) | 103.59 | (217) | 103.59 | |||||||||||||||||||
| Units and awards - March 31, 2024 | 5,073 | $ | 119.99 | 3,231 | $ | 107.97 |
A summary of stock option activity during the three months ended March 31, 2024 is as follows:
| Shares (In thousands) | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (In millions) | ||||||||||||||||||||
| Stock options outstanding - December 31, 2023 | 3,865 | $ | 72.36 | ||||||||||||||||||||
| Granted | — | — | |||||||||||||||||||||
| Forfeited | (10) | 108.15 | |||||||||||||||||||||
| Exercised | (1,784) | 55.95 | |||||||||||||||||||||
| Stock options outstanding - March 31, 2024 | 2,071 | $ | 86.31 | 4.55 | $ | 152 | |||||||||||||||||
| Stock options exercisable - March 31, 2024 | 2,022 | $ | 85.70 | 4.49 | $ | 150 |
15. Income Taxes
The Company’s income tax provision and effective income tax rate were as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (In millions) | 2024 | 2023 | ||||||||||||||||||||||||
| Income tax provision | $ | 153 | $ | 124 | ||||||||||||||||||||||
| Effective income tax rate | 16.7 | % | 17.4 | % |
The income tax provision as a percentage of income before income taxes and loss from investments in unconsolidated affiliates was 16.7% and 17.4% for the three months ended March 31, 2024 and 2023, respectively. The effective income tax rate for both the three months ended March 31, 2024 and 2023 included discrete tax benefits from equity compensation.
Pursuant to provisions under the Inflation Reduction Act, the Company has purchased transferable federal tax credits from various counterparties. Such federal tax credits were purchased at negotiated discounts, resulting in an income tax benefit. Receivables associated with transferable federal tax credits are recorded within prepaid expenses and other current assets, and amounts owed to counterparties for the purchased credits are recorded within accounts payable and accrued expenses within the consolidated balance sheet at March 31, 2024 and December 31, 2023.
The Company’s potential liability for unrecognized tax benefits before interest and penalties was approximately $88 million at March 31, 2024. The Company believes it is reasonably possible that the liability for unrecognized tax benefits may decrease by up to $5 million over the next twelve months as a result of possible closure of tax audits, audit settlements, and the lapse of the statutes of limitations in various jurisdictions.
As of March 31, 2024, the Company’s U.S. federal income tax return for 2023, and tax returns in certain states and foreign jurisdictions for 2017 through 2023, remain subject to examination by taxing authorities.
16. Shares Used in Computing Net Income Per Share Attributable to Fiserv, Inc.
The computation of shares used in calculating basic and diluted net income per share is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||
| (In millions) | 2024 | 2023 | |||||||||||||||||||||
| Weighted-average common shares outstanding used for the calculation of net income attributable to Fiserv, Inc. per share - basic | 590.9 | 626.9 | |||||||||||||||||||||
| Common stock equivalents | 3.9 | 4.4 | |||||||||||||||||||||
| Weighted-average common shares outstanding used for the calculation of net income attributable to Fiserv, Inc. per share - diluted | 594.8 | 631.3 | |||||||||||||||||||||
For the three months ended March 31, 2024 and 2023, stock options for 38 thousand and 2.2 million shares, respectively, were excluded from the calculation of weighted-average outstanding shares - diluted because their impact was anti-dilutive.
17. Cash Flow Information
Supplemental cash flow information consisted of the following:
| Three Months Ended March 31, | |||||||||||
| (In millions) | 2024 | 2023 | |||||||||
| Interest paid | $ | 335 | $ | 222 | |||||||
| Income taxes paid | 700 | 291 | |||||||||
| Treasury stock purchases settled after the balance sheet date | 47 | 33 | |||||||||
| Software obtained under financing arrangements | 96 | 8 | |||||||||
| Right-of-use assets obtained in exchange for lease liabilities - operating leases | 33 | 39 | |||||||||
| Right-of-use assets obtained in exchange for lease liabilities - finance leases | 58 | 29 |
18. Commitments and Contingencies
Litigation and Legislative Matters
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. The Company maintained an accrual of $34 million and $32 million at March 31, 2024 and December 31, 2023, respectively, related to its various legal proceedings, primarily associated with the Company’s merchant acquiring business and certain tax matters. The Company’s estimate of the possible range of exposure for various legal proceedings in excess of amounts accrued is $0 million to approximately $100 million. In the opinion of management, the liabilities, if any, which may ultimately result from such legal proceedings 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, which are separate and distinct from the settlement payment transactions described in Note 1, 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 $1.0 billion and $3.5 billion at March 31, 2024 and December 31, 2023, 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 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 financial statements.
19. Related Party Transactions
A portion of the Company’s business is conducted through merchant alliances between the Company and financial institutions. A merchant alliance 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 financial institution. 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 based on contractual pricing.
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 in, but not control of, an alliance, the Company uses the equity method to account for its investment in the alliance. As a result, the processing and other service fees charged to merchant alliances accounted for under the equity method are recognized in the Company’s consolidated statements of income primarily as processing and services revenue. Such fees totaled $40 million and $46 million for the three months ended March 31, 2024 and 2023, 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 financial institution contributing contracts with merchants 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 financial institution enter into a long-term processing service agreement, which governs the Company’s provision of transaction processing services to the alliance. The Company had approximately $38 million of amounts due from unconsolidated merchant alliances included within trade accounts receivable, net in the Company’s consolidated balance sheets at both March 31, 2024 and December 31, 2023.
20. Business Segment Information
Following the Segment Realignment (see Note 1), the Company’s operations are comprised of the Merchant segment and the Financial segment. The businesses in the Merchant segment provide commerce-enabling products and services to companies of all sizes around the world. These products and services include merchant acquiring and digital commerce services; mobile payment services; security and fraud protection solutions; stored-value solutions; and pay-by-bank solutions. The businesses within the Merchant segment consist of the following:
*•*Small Business – provides products and services to small businesses and independent software vendors, including Clover®, the Company's point-of-sale integrated commerce operating system for small business clients
*•*Enterprise – provides products and services to large businesses, including CaratSM, the Company's integrated commerce operating system for enterprise clients
*•*Processing – provides products and services to financial institutions, joint ventures, and other third party resellers which have direct relationships with merchants
The Company distributes the products and services in the Merchant segment businesses through a variety of channels, including 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.
The businesses in the Financial segment provide products and services to financial institution, corporate and public sector clients across the world, enabling the processing of customer loan and deposit accounts, digital payments and card transactions. The businesses within the Financial segment consist of the following:
*•*Digital Payments – provides debit card processing services; debit network services; security and fraud protection products; bill payment; person-to-person payments; and account-to-account transfers
*•*Issuing – provides credit card processing services; prepaid card processing services; card production services; print services; government payment processing; and student loan processing
*•*Banking – provides customer loan and deposit account processing; digital banking; financial and risk management; professional services and consulting; and check processing
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, certain assets or investments; costs associated with acquisition and divestiture activity; certain services revenue associated with various dispositions; and postage reimbursements.
Operating results for each segment were as follows:
| Reportable Segments | |||||||||||||||||||||||||||||
| (In millions) | Merchant | Financial | Corporate and Other | Total | |||||||||||||||||||||||||
| Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||
| Processing and services revenue | $ | 2,010 | $ | 1,985 | $ | 5 | $ | 4,000 | |||||||||||||||||||||
| Product revenue | 243 | 300 | 340 | 883 | |||||||||||||||||||||||||
| Total revenue | $ | 2,253 | $ | 2,285 | $ | 345 | $ | 4,883 | |||||||||||||||||||||
| Operating income (loss) | $ | 769 | $ | 1,008 | $ | (596) | $ | 1,181 | |||||||||||||||||||||
| Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Processing and services revenue | $ | 1,727 | $ | 1,940 | $ | 6 | $ | 3,673 | |||||||||||||||||||||
| Product revenue | 269 | 283 | 322 | 874 | |||||||||||||||||||||||||
| Total revenue | $ | 1,996 | $ | 2,223 | $ | 328 | $ | 4,547 | |||||||||||||||||||||
| Operating income (loss) | $ | 592 | $ | 943 | $ | (601) | $ | 934 | |||||||||||||||||||||
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