EX-99.4

EX-99.4 12 d780843dex994.htm EX-99.4 EX-99.4

Exhibit 99.4

Interim unaudited consolidated financial statements of First Data Corporation

as of June 30, 2019 and for the three and six months ended June, 2019 and 2018

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
(in millions, except per share amounts)	2019			2018			2019			2018
Revenues:
Revenues excluding reimbursable items^(a)	$	2,289		$	2,244		$	4,413		$	4,328
Reimbursable items		196			204			388			402

Total revenues		2,485			2,448			4,801			4,730

Expenses:
Cost of revenues (exclusive of items shown below)		757			751			1,514			1,530
Selling, general, and administrative		688			683			1,348			1,330
Depreciation and amortization		253			255			499			505
Other operating expenses, net		24			17			60			77

Total expenses excluding reimbursable items		1,722			1,706			3,421			3,442
Reimbursable items		196			204			388			402

Total expenses		1,918			1,910			3,809			3,844

Operating profit		567			538			992			886

Interest expense, net		(202	)		(234	)		(405	)		(467	)
Loss on debt extinguishment		(2	)		(1	)		(3	)		(1	)
Other (expense) income		(8	)		2			(35	)		(1	)

Income before income taxes and equity earnings in affiliates		355			305			549			417
Income tax expense (benefit)		85			(37	)		114			(10	)
Equity earnings in affiliates		64			60			116			109

Net income		334			402			551			536
Less: Net income attributable to noncontrolling interests and redeemable noncontrolling interest		59			61			107			94

Net income attributable to First Data Corporation	$	275		$	341		$	444		$	442

Net income attributable to First Data Corporation per share:
Basic	$	0.29		$	0.37		$	0.47		$	0.48
Diluted	$	0.28		$	0.36		$	0.46		$	0.47

Weighted-average common shares outstanding:
Basic		943			928			940			926
Diluted		971			954			969			950

(a)

Includes processing fees, administrative service fees, and other fees charged to merchant alliances accounted for under the equity method of $48 million and $96 million for the three and six months ended June 30, 2019, respectively, and $51 million and $103 million for the comparable periods in 2018.

See notes to unaudited consolidated financial statements.

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019			2018
Net income	$	334		$	402		$	551		$	536
Other comprehensive income (loss):
Foreign currency translation adjustment		1			(174	)		60			(84	)
Pension liability adjustments		—			—			2			—
Derivative instruments		(50	)		(9	)		(78	)		—

Total other comprehensive income, net of tax		(49	)		(183	)		(16	)		(84	)

Comprehensive income		285			219			535			452
Less: Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest		59			53			107			90

Comprehensive income attributable to First Data Corporation	$	226		$	166		$	428		$	362

See notes to unaudited consolidated financial statements.

-2-

FIRST DATA CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in millions, except par value)	As of June 30, 2019			As of December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	544		$	555
Accounts receivable, net of allowance for doubtful accounts of $46 and $46		2,162			2,217
Settlement assets		23,929			11,423
Prepaid expenses and other current assets		323			319

Total current assets		26,958			14,514
Property and equipment, net of accumulated depreciation of $1,781 and $1,647		922			905
Goodwill		17,508			17,460
Customer relationships, net of accumulated amortization of $5,682 and $5,509		1,641			1,763
Other intangibles, net of accumulated amortization of $2,450 and $2,271		1,935			1,893
Investment in affiliates		1,078			1,055
Other long-term assets		989			737

Total assets	$	51,031		$	38,327

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,727		$	1,636
Short-term and current portion of long-term borrowings		1,150			1,170
Settlement obligations		23,929			11,423

Total current liabilities		26,806			14,229
Long-term borrowings		15,811			16,429
Deferred tax liabilities		94			97
Other long-term liabilities		807			528

Total liabilities		43,518			31,283

Commitments and contingencies (See note 13)
Redeemable noncontrolling interest		92			77
First Data Corporation stockholders’ equity:
Class A Common stock, $0.01 par value; 1,600 shares authorized as of June 30, 2019 and December 31, 2018, 597 shares and 584 shares issued as of June 30, 2019 and December 31, 2018, respectively; and 577 shares and 568 shares outstanding as of June 30, 2019 and December 31, 2018, respectively		6			6
Class B Common stock, $0.01 par value; 448 shares authorized as of June 30, 2019 and December 31, 2018; 369 shares issued and outstanding as of June 30, 2019 and December 31, 2018		4			4
Preferred stock, $0.01 par value; 100 shares authorized as of June 30, 2019 and December 31, 2018; no shares issued and outstanding as of June 30, 2019 and December 31, 2018		—			—
Class A Treasury stock, at cost, 20 shares and 16 shares as of June 30, 2019 and December 31, 2018, respectively		(347	)		(251	)
Additional paid-in capital		13,933			13,791
Accumulated loss		(7,617	)		(8,067	)
Accumulated other comprehensive loss		(1,326	)		(1,310	)

Total First Data Corporation stockholders’ equity		4,653			4,173

Noncontrolling interests		2,768			2,794

Total equity		7,421			6,967

Total liabilities and equity	$	51,031		$	38,327

See notes to unaudited consolidated financial statements.

-3-

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended June 30,
(in millions)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	551		$	536
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization (including amortization netted against equity earnings in affiliates and revenues)		525			546
Deferred income taxes		57			(80	)
Charges related to other operating expenses, net and other (expense) income		95			78
Loss on debt extinguishment		3			1
Stock-based compensation expense		115			133
Other non-cash and non-operating items, net		4			12
Increase (decrease) in cash, excluding the effects of acquisitions and dispositions, resulting from changes in:
Accounts receivable, current and long-term		100			50
Other assets, current and long-term		(18	)		(1	)
Accounts payable and other liabilities, current and long-term		(123	)		(139	)
Income tax accounts		19			2

Net cash provided by operating activities		1,328			1,138

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment		(211	)		(139	)
Payments to obtain customer contracts, including outlays for conversion, and capitalized systems development costs		(173	)		(151	)
Acquisitions, net of cash acquired		(73	)		(17	)
Proceeds from the maturity of net investment hedges		—			26
Other investing activities, net		(29	)		(9	)

Net cash used in investing activities		(486	)		(290	)

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net		(38	)		(364	)
Principal payments on long-term debt		(616	)		(246	)
Payment of taxes related to net settlement of equity awards		(118	)		(79	)
Distributions and dividends paid to noncontrolling interests and redeemable noncontrolling interest		(133	)		(128	)
Other financing activities, net		67			33

Net cash used in financing activities		(838	)		(784	)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(1	)		(18	)

Change in cash, cash equivalents, and restricted cash		3			46

Cash, cash equivalents, and restricted cash at beginning of period^(a)		583			525

Cash, cash equivalents, and restricted cash at end of period^(a)	$	586		$	571

NON-CASH TRANSACTIONS
Finance leases, net of trade-ins	$	2		$	15

(a)	The Company held $42 million and $28 million in restricted cash within “Other long-term assets” in the unaudited consolidated balance sheets as of June 30, 2019 and December 31, 2018, respectively.

See notes to unaudited consolidated financial statements.

-4-

FIRST DATA CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	First Data Corporation Stockholders
	Common Stock								Treasury Stock					Additional Paid-In Capital			Accumulated Loss			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total
(in millions)	Class A				Class B				Class A
(in millions)	Shares		Amount		Shares		Amount		Shares		Amount
Balance, December 31, 2018		568	$	6		369	$	4		16	$	(251	)	$	13,791		$	(8,067	)	$	(1,310	)	$	2,794		$	6,967
Adoption of New Lease Standard		—		—		—		—		—		—			—			6			—			—			6
Dividends and distributions paid to noncontrolling interests^(a)		—		—		—		—		—		—			—			—			—			(45	)		(45	)
Net income^(b)		—		—		—		—		—		—			—			169			—			40			209
Other comprehensive income		—		—		—		—		—		—			—			—			33			—			33
Adjustments to redemption value of redeemable noncontrolling interest		—		—		—		—		—		—			(15	)		—			—			—			(15	)
Stock compensation expense		—		—		—		—		—		—			64			—			—			—			64
Stock activity under stock compensation plans and other		7		—		—		—		4		(87	)		32			—			—			—			(55	)

Balance, March 31, 2019		575	$	6		369	$	4		20	$	(338	)	$	13,872		$	(7,892	)	$	(1,277	)	$	2,789		$	7,164

Dividends and distributions paid to noncontrolling interests^(a)		—		—		—		—		—		—			—			—			—			(73	)		(73	)
Net income^(b)		—		—		—		—		—		—			—			275			—			52			327
Other comprehensive income		—		—		—		—		—		—			—			—			(49	)		—			(49	)
Stock compensation expense		—		—		—		—		—		—			59			—			—			—			59
Stock activity under stock compensation plans and other		2		—		—		—		—		(9	)		2			—			—			—			(7	)

Balance, June 30, 2019		577	$	6		369	$	4		20	$	(347	)	$	13,933		$	(7,617	)	$	(1,326	)	$	2,768		$	7,421

(a)	The total distribution presented in the unaudited consolidated statements of equity for the three and six months ended June 30, 2019 excludes $8 million and $15 million, respectively, in distributions paid to redeemable noncontrolling interest not included in equity.

(b)

The total net income presented in the unaudited consolidated statements of equity for the three and six months ended June 30, 2019 is $7 million and $15 million, respectively, different than the amounts presented in the unaudited consolidated statements of income due to the net income attributable to the redeemable noncontrolling interest not included in equity.

See notes to unaudited consolidated financial statements.

-5-


	First Data Corporation Stockholders
	Common Stock									Treasury Stock					Additional Paid-In Capital			Accumulated Loss			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total
(in millions)	Class A				Class B					Class A
(in millions)	Shares		Amount		Shares			Amount		Shares		Amount
Balance, December 31, 2017		482	$	5		443		$	4		11	$	(149	)	$	13,495		$	(9,059	)	$	(1,144	)	$	2,862		$	6,014
Adoption of New Revenue Standard		—		—		—			—		—		—			—			(13	)		—			—			(13	)
Dividends and distributions paid to noncontrolling interests^(a)		—		—		—			—		—		—			—			—			—			(44	)		(44	)
Net income^(b)		—		—		—			—		—		—			—			101			—			25			126
Other comprehensive income		—		—		—			—		—		—			—			—			95			4			99
Adjustments to redemption value of redeemable noncontrolling interest		—		—		—			—		—		—			(6	)		—			—			—			(6	)
Stock compensation expense		—		—		—			—		—		—			74			—			—			—			74
Stock activity under stock compensation plans and other		3		—		1			—		3		(53	)		15			—			—			—			(38	)

Balance, March 31, 2018		485	$	5		444		$	4		14	$	(202	)	$	13,578		$	(8,971	)	$	(1,049	)	$	2,847		$	6,212

Dividends and distributions paid to noncontrolling interests^(a)		—		—		—			—		—		—			—			—			—			(68	)		(68	)
Net income^(b)		—		—		—			—		—		—			—			341			—			53			394
Other comprehensive income		—		—		—			—		—		—			—			—			(175	)		(8	)		(183	)
Stock compensation expense		—		—		—			—		—		—			59			—			—			—			59
Stock activity under stock compensation plans and other		6		—		(1	)		—		1		(18	)		11			—			—			—			(7	)

Balance, June 30, 2018		491	$	5		443		$	4		15	$	(220	)	$	13,648		$	(8,630	)	$	(1,224	)	$	2,824		$	6,407

(a)	The total distribution presented in the unaudited consolidated statements of equity for the three and six months ended June 30, 2018 excludes $8 million and $16 million, respectively, in distributions paid to redeemable noncontrolling interest not included in equity.

(b)

The total net income presented in the unaudited consolidated statements of equity for the three and six months ended June 30, 2018 is $8 million and $16 million, respectively, different than the amounts presented in the unaudited consolidated statements of income due to the net income attributable to the redeemable noncontrolling interest not included in equity.

See notes to unaudited consolidated financial statements.

-6-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1: Basis of Presentation and Summary of Significant Accounting Policies

Business Description

First Data Corporation (FDC, First Data, or the Company) is a global leader in commerce-enabling technology and solutions for merchants, financial institutions, and card issuers. The Company provides merchant transaction processing and acquiring; credit, retail, and debit card processing; prepaid and payroll services; check verification; settlement and guarantee services; and statement printing as well as solutions to help clients grow their businesses including the Company’s Clover line of payment solutions and related applications.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Significant accounting policies disclosed therein have not changed, except for those disclosed below in the recently adopted section.

The accompanying consolidated financial statements are unaudited; however, in the opinion of management, they include all normal recurring adjustments necessary for a fair presentation of the consolidated financial position of the Company, the consolidated results of the Company’s operations, comprehensive income, consolidated cash flows and changes in equity as of and for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year due in part to the seasonality of certain business units.

For the six months ended June 30, 2019 the Company recorded expenses of $23 million for an out of period adjustment, which impacted multiple years, related to correction of a lease classification error. The Company does not believe this adjustment will be material to the financial statements for the year ended December 31, 2019 and it is not material to previously reported financial statements. Effective January 1, 2019, initial direct costs associated with hardware revenue are now recorded in costs of products sold within “Cost of revenues (exclusive of items shown below)”.

Pending Merger with Fiserv, Inc.

On January 16, 2019, First Data and Fiserv, Inc. (Fiserv), and 300 Holdings, Inc. (Merger Sub), a wholly-owned subsidiary of Fiserv, entered into an agreement and plan of merger (Merger Agreement), pursuant to which the Company will merge into Merger Sub (the Merger). The terms are subject to the conditions set forth in the Merger Agreement, which states at closing each share of the Company’s common stock issued and outstanding will be converted into the right to receive 0.303 (Exchange Ratio) of a share of common stock, par value $0.01 per share, of Fiserv. First Data’s equity awards will generally be converted into Fiserv equity awards after giving effect to the Exchange Ratio and appropriate adjustments and be governed by the same terms and conditions as applicable to First Data’s corresponding equity awards. For additional information see Form 425 and Form 8-K filed with the Securities and Exchange Commission dated January 16, 2019 and available through the “Investor Relations” portion of our website at http://investor.firstdata.com.

On March 15, 2019, First Data, following the declaration by the U.S. Securities and Exchange Commission on March 14, 2019 that the Registration Statement of Fiserv became effective, received the written consent of New Omaha Holdings L.P. ( New Omaha), with respect to 364,441,146 shares of Class B common stock of First Data, to approve (i) the adoption of the Merger Agreement and (ii) the adoption of a resolution regarding certain Merger-related executive officer compensation payments that will or may be made to First Data’s named executive officers in connection with the Merger.

As of July 23, 2019, the Company and Fiserv received the final required regulatory approvals and non-objections needed to complete the proposed combination. The Company and Fiserv expect to close the proposed acquisition on or about July 29, 2019.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

-7-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Presentation

Depreciation and amortization, presented as a separate line item on the Company’s unaudited consolidated statements of income, does not include amortization of payments for customer contracts which is recorded as contra-revenue within “Revenues excluding reimbursable items.” Also not included is amortization related to equity method investments which is netted within “Equity earnings in affiliates.”

The following table presents the amounts associated with such amortization for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2019		2018		2019		2018
Amortization of payments for customers contracts	$	10	$	13	$	24	$	26
Amortization related to equity method investments		1		7		2		15

Leases

Effective January 1, 2019, the Company determines if an arrangement is a lease at inception. Right-of-use (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. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. When applicable, the operating lease ROU asset also includes initial direct costs, lease prepayments, and is reduced by lease incentives received and accrued lease payments. The Company’s lease terms include periods covered by an option to extend the lease when it is reasonably certain that the Company will exercise that option as well as periods covered by options to terminate the lease when the Company is reasonably certain not to exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Operating lease ROU assets are included in “Other long-term assets” and the corresponding lease liabilities are included in “Accounts payable and accrued liabilities” and “Other long-term liabilities” in the Company’s unaudited consolidated balance sheet. Finance leases ROU assets are included in “Property and equipment” and the corresponding lease liabilities are included in “Short-term and current portion of long-term borrowings”, and “Long-term borrowings” in the Company’s unaudited consolidated balance sheet.

Reclassifications

Certain amounts for prior years have been reclassified to conform with the current year financial statement presentation.

New Accounting Guidance

Recently Adopted Accounting Guidance

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued guidance which requires lessees to recognize most leases on their balance sheets but recognize expenses in the income statement in a manner similar to historical accounting and adds new presentation and disclosure requirements for both lessees and lessors (New Lease Standard). The accounting guidance for lessors remains largely unchanged. Adoption of the guidance resulted in recognition on the unaudited consolidated balance sheet of assets and liabilities arising out of operating leases. The Company recognizes ROU assets for the underlying leased property during the lease term and recognizes liabilities for the corresponding financial obligation to make lease payments to the lessor.

The Company adopted the new standard on January 1, 2019 using a modified retrospective approach that permits an entity to use the effective date as the date of initial application through the recognition of a cumulative effect adjustment to the opening balance of retained earnings upon adoption. The Company elected the transition package of practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial

-8-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

direct costs. Further, the Company elected a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to leases with terms of 12 months or less, and elected an accounting policy to account for lease and non-lease components as a single lease component for certain classes of assets. The adoption of the new guidance did not have a material impact to the consolidated financial statements. The adoption resulted in a decrease to the January 1, 2019 balance of accumulated loss of $6 million for the cumulative effect of applying the New Lease Standard. Additionally, adoption of the guidance did not impact any debt covenants or result in significant changes to the internal processes, including the internal control over financial reporting. See note 4 “Leases” in the Company’s unaudited consolidated financial statements in Exhibit 99.4 to this Current Report on Form 8-K.

Internal-Use Software

In August 2018, the FASB issued guidance to align the requirements for capitalizing certain implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The guidance provides flexibility in adoption, allowing for either retrospective adjustment or prospective adjustment for all implementation costs incurred after the date of adoption. The Company adopted the new guidance on a prospective basis on January 1, 2019 with no material impact to the consolidated financial statements.

Securities and Exchange Commission Disclosure Requirements

In August 2018, the Securities and Exchange Commission (SEC) issued a final rule that amends certain disclosure requirements that were duplicative, outdated or superseded. In addition, the final rule expanded the financial reporting requirements for changes in stockholders’ equity for interim reporting periods. The Company adopted the new guidance on January 1, 2019 with no material impact to the consolidated financial statements.

Derivatives and Hedging

In October 2018, the FASB issued guidance which expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. The amendments permit the use of the overnight index swap rate based on the Secured Overnight Financing Rate to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The Company adopted the new guidance on January 1, 2019 with no material impact to the consolidated financial statements.

Comprehensive Income

In February 2018, the FASB issued guidance that permits a reclassification from accumulated other comprehensive income to accumulated loss for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments also require certain disclosures about stranded tax effects. The Company adopted the new guidance on January 1, 2019 with no material impact to the consolidated financial statements. The Company did not elect to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive income to accumulated loss.

Recently Issued Accounting Guidance

Credit Losses

In June 2016, the FASB issued guidance that will change the accounting for credit loss impairment. Under the new guidance, companies are required to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit exposures. This new guidance will be effective for public companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

Fair Value Measurements

In August 2018, the FASB issued guidance that modified the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The new guidance also expands disclosure requirements for Level 3 fair value measurements, primarily focused

-9-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

on changes in unrealized gains and losses included in other comprehensive income. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact of the guidance on its consolidated financial statements.

Note 2: Borrowings

The following table presents borrowings as of June 30, 2019 and December 31, 2018:


(in millions)	As of June 30, 2019			As of December 31, 2018
Short-term borrowings:
Lines of credit	$	117		$	224
Senior Secured Revolving Credit Facility		250			250
Receivable securitized loan		542			472
Unamortized deferred financing costs^(a)		(2	)		(3	)

Total short-term borrowings		907			943
Current portion of long-term borrowings:
Senior secured term loan facility due 2023		148			119
Finance lease obligations and other arrangements		95			108

Total current portion of long-term borrowings		243			227

Total short-term and current portion of long-term borrowings		1,150			1,170

Long-term borrowings:
Senior secured term loan facility due 2022		2,018			2,518
Senior secured term loan facility due 2023		4,542			4,631
Senior secured term loan facility due 2024		3,892			3,892
5.375% Senior secured first lien notes due 2023		1,210			1,210
5.0% Senior secured first lien notes due 2024		1,883			1,883
5.75% Senior secured second lien notes due 2024		2,176			2,176
Unamortized discount and unamortized deferred financing costs^(a)		(78	)		(91	)
Finance lease obligations and other arrangements		168			210

Total long-term borrowings^(b)		15,811			16,429

Total borrowings	$	16,961		$	17,599

(a)	Unamortized deferred financing costs and certain lenders’ fees associated with debt transactions were capitalized as discounts and are amortized on a straight-line basis, which approximates the effective interest method, over the remaining term of the respective debt.

(b)

As of June 30, 2019 and December 31, 2018, the fair value of the Company’s long-term borrowings, excluding finance lease obligations and other arrangements, was $16.0 billion and $15.7 billion, respectively. The estimated fair value of the Company’s long-term borrowings was primarily based on market trading prices and is considered to be a Level 2 measurement.

Lines of Credit

As of June 30, 2019 and December 31, 2018, the Company had $329 million and $516 million, respectively, available under short-term lines of credit with foreign banks and alliance partners primarily to fund settlement activity. As of June 30, 2019 and December 31, 2018, this included a $125 million and $290 million, respectively, committed line of credit for one of the Company’s consolidated alliances. The remainder of these arrangements are primarily associated with international operations and are in various functional currencies, the most significant of which are the Australian dollar, the Polish zloty, and the euro. Of the amounts outstanding as of June 30, 2019 and December 31, 2018, $27 million and $13 million, respectively, were uncommitted. As of June 30, 2019 and December 31, 2018, the weighted average interest rate associated with foreign lines of credit was 8.9% and 2.6%, respectively.

-10-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Senior Secured Revolving Credit Facility

The Company has a $1.25 billion senior secured revolving credit facility maturing on October 26, 2023. Up to $250 million of the senior secured revolving credit facility is available for letters of credit, of which $5 million of letters of credit were issued under the facilities as of June 30, 2019 and December 31, 2018. As of June 30, 2019, $995 million remained available.

Senior Unsecured Revolving Credit Facility

The Company has a $33 million senior unsecured revolving credit facility maturing December 20, 2019, available for letters of credit. The interest rate associated with the credit facility is 1.85%. As of June 30, 2019 and December 31, 2018, the Company had $30 million of outstanding letters of credit, for both periods presented.

Receivable Securitization Agreement

The Company has a consolidated wholly-owned subsidiary, First Data Receivables, LLC (FDR). FDR and FDC entered into an agreement where certain wholly-owned subsidiaries of FDC agreed to transfer and contribute receivables to FDR. FDR’s assets are not available to satisfy obligations of any other entities or affiliates of FDC. FDR’s creditors will be entitled, upon its liquidation, to be satisfied out of FDR’s assets prior to any assets or value in FDR becoming available to FDC. As of June 30, 2019 and December 31, 2018, the Company transferred $746 million and $726 million, respectively, in receivables to FDR as part of the securitization program. As of June 30, 2019, the maximum borrowing capacity, subject to collateral availability, under the agreement is $600 million. FDR utilized the receivables as collateral in borrowings of $542 million and $472 million as of June 30, 2019 and December 31, 2018, respectively. As of June 30, 2019 and December 31, 2018, the receivables held by FDR are recorded within “Accounts receivable, net” in the Company’s unaudited consolidated balance sheets. The weighted average interest rate on the securitization facility borrowings was 3.55% and 3.65% as of June 30, 2019 and December 31, 2018, respectively. The term of the receivables securitization agreement is through July 2021.

Note 3: Revenue Recognition

Transaction and Processing Services

Revenue is comprised of fees charged to the Company’s customers, net of interchange fees and assessments charged by the credit card associations and debit networks, which are pass-through charges collected on behalf of the card issuers and payment networks. Interchange fees and assessments charged by credit card and debit networks to the Company’s consolidated subsidiaries were as follows for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2019		2018		2019		2018
Interchange fees and assessments	$	7,573	$	7,164	$	14,371	$	13,640
Debit network fees		975		903		1,846		1,721

-11-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Disaggregation of Revenue

The following tables present revenues disaggregated by primary geographical regions for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30, 2019
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Total
North America	$	1,216	$	413	$	362	$	1,991
EMEA		173		92		4		269
LATAM		103		35		1		139
APAC		55		30		1		86

Total Revenue^(a)(b)	$	1,547	$	570	$	368	$	2,485

(a)	See note 7 “Segment Information” for the reconciliation to segment revenues.

(b)	Global Business Solutions includes non wholly-owned entities and Global Financial Solutions includes reimbursable items, which includes postage and customized orders.


	Three months ended June 30, 2018
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Total
North America	$	1,161	$	432	$	359	$	1,952
EMEA		172		121		5		298
LATAM		84		37		1		122
APAC		50		25		1		76

Total Revenue^(a)(b)	$	1,467	$	615	$	366	$	2,448

(a)	See note 7 “Segment Information” for the reconciliation to segment revenues.

(b)	Global Business Solutions includes non wholly-owned entities and Global Financial Solutions includes reimbursable items, which includes postage and customized orders.


	Six months ended June 30, 2019
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Total
North America	$	2,304	$	823	$	713	$	3,840
EMEA		334		177		7		518
LATAM		203		68		1		272
APAC		107		62		2		171

Total Revenue^(a)(b)	$	2,948	$	1,130	$	723	$	4,801

(a)	See note 7 “Segment Information” for the reconciliation to segment revenues.

(b)	Global Business Solutions includes non wholly-owned entities and Global Financial Solutions includes reimbursable items, which includes postage and customized orders.


	Six months ended June 30, 2018
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Total
North America	$	2,194	$	855	$	710	$	3,759
EMEA		334		233		7		574
LATAM		171		68		1		240
APAC		98		56		3		157

Total Revenue^(a)(b)	$	2,797	$	1,212	$	721	$	4,730

(a)	See note 7 “Segment Information” for the reconciliation to segment revenues.

(b)	Global Business Solutions includes non wholly-owned entities and Global Financial Solutions includes reimbursable items, which includes postage and customized orders.

-12-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents revenues disaggregated by product types for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2019		2018		2019		2018
Transaction and processing services	$	2,197	$	2,160	$	4,239	$	4,171
Hardware, Professional Services, and Other		288		288		562		559

Total Revenue	$	2,485	$	2,448	$	4,801	$	4,730

Contract Balances

Accounts Receivable

As of June 30, 2019 and December 31, 2018, long-term accounts receivable, net of allowance for doubtful accounts, included within “Other long-term assets” in the unaudited consolidated balance sheets was $191 million and $220 million, respectively.

Contract Liabilities

The following table presents the changes in deferred revenue for the six months ended June 30, 2019 and 2018:


	Six months ended June 30,
(in millions)	2019			2018
Balance, beginning of the period	$	298		$	344
New Revenue Standard adjustments		—			(39	)
Deferral of revenue		81			120
Recognition of unearned revenue		(96	)		(109	)
Other (primarily foreign currency translation)		(9	)		(22	)

Balance, end of period	$	274		$	294

Remaining Performance Obligation

Over 95% of the Company’s performance obligations relate to transaction and processing services or hardware that are subject to a practical expedient (e.g., variable consideration) or point in time recognition, respectively. The Company’s contracts with customers typically do not specify fixed revenues to be realized. Certain customer contracts contain fixed minimums and non-refundable up-front fees (fixed price guarantees). However, the amounts which are considered fixed price guarantees are not material to “Total revenues”. The Company’s contracts with Small Medium Business (SMB) merchants within the Global Business Solutions segment typically have a contractual duration of less than one year. Larger contracts in the Global Business Solutions, Global Financial Solutions, and Network & Security Solutions segments typically have contractual terms ranging from one to fifteen years with variability being resolved on a daily basis.

Costs to Obtain and Fulfill a Contract

The Company capitalizes incremental costs to obtain new contracts and contract renewals and amortizes these costs on a straight-line basis as a reduction of revenue over the benefit period, which is generally the contract term, unless a commensurate payment is not expected at renewal. As of June 30, 2019 and December 31, 2018, the Company had $175 million and $152 million, respectively, of capitalized contract costs included within “Other intangibles, net” on the unaudited consolidated balance sheets. The Company had contra-revenue related to these costs for the three and six months ended June 30, 2019 of $10 million and $24 million, respectively, and $13 million and $26 million for the three and six months ended June 30, 2018, respectively.

The Company expenses sales commissions as incurred for the Company’s sales commission plans that are paid on recurring monthly revenues, portfolios of existing customers, or have a substantive stay requirement prior to payment.

-13-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company capitalizes conversion related costs associated with enabling customers to receive its processing services. These costs are amortized on a straight-line basis over the expected benefit period of seven years based on the related services being provided, and are reflected within “Depreciation and amortization” in the Company’s unaudited consolidated statement of income. As of June 30, 2019 and December 31, 2018, the Company had $183 million and $172 million, respectively, of capitalized conversion costs, net of amortization, included within “Other intangibles, net” on the unaudited consolidated balance sheets. The Company had amortization expense related to these costs for the three and six months ended June 30, 2019 of $9 million and $18 million, respectively, and $10 million and $20 million for the three and six months ended June 30, 2018, respectively.

Note 4: Leases

The Company has leases for office space, land, data centers, computer hardware, airplanes, and other equipment. Certain of the Company’s leases include lessee options to extend the lease term from one to 15 years or to terminate the lease prior to its contractual end date.

For leases of properties, the Company uses the practical expedient to account for lease and non-lease components as a single lease component. Accordingly, the financial information presented below includes charges for common area maintenance, utilities, and other miscellaneous costs incurred under property leases. For leases with an initial term of 12 months or less, the Company recognizes lease expense on a straight-line basis over the lease term.

The following table presents supplemental balance sheet information as of June 30, 2019:


(in millions)	As of June 30, 2019
Finance leases
Assets under finance leases	$	542
Accumulated depreciation		(374	)

Assets under finance lease, net	$	168

Current finance lease liabilities	$	63
Non-current finance lease liabilities		127

Total finance lease liabilities	$	190

Operating leases
Operating lease ROU assets	$	303
Current operating lease liabilities	$	66
Non-current operating lease liabilities		253

Total operating lease liabilities	$	319

Note 5: Stock Compensation Plans

The Company provides stock-based compensation awards to its employees. Total stock-based compensation expense recognized in the “Cost of revenues”, “Selling, general, and administrative”, and “Other operating expenses, net” line items of the unaudited consolidated statements of income resulting from stock options, non-vested restricted stock awards, and non-vested restricted stock units was as follows for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2019		2018		2019		2018
Cost of revenues	$	14	$	11	$	29	$	27
Selling, general, and administrative		45		48		86		106
Other operating expenses, net		—		—		8		—

Total stock-based compensation expense	$	59	$	59	$	123	$	133

-14-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company’s employees are granted restricted stock awards or units on an annual basis, which generally vest 20% on the first anniversary, 40% on the second anniversary, and the remaining 40% on the third anniversary. For the six months ended June 30, 2019, approximately six million restricted stock awards and units were granted at a weighted average price per share of $24.94. For the six months ended June 30, 2018, approximately ten million restricted stock awards and units were granted at a weighted average price per share of $15.55.

As of June 30, 2019, there was $17 million and $276 million of total unrecognized compensation expense related to non-vested stock options and restricted stock awards and units, respectively.

The Company paid approximately $21 million and $23 million for the three months ended June 30, 2019 and 2018, respectively, and $118 million and $79 million for the six months ended June 30, 2019 and 2018, respectively, for taxes related to the settlement of vested stock-based awards.

For additional information on the Company’s stock compensation plans, see note 5 “Stock Compensation Plans” in “Item 8. Financial Statements and Supplementary Data” in Exhibit 99.2 to this Current Report on Form 8-K.

Note 6: Net Income Per Share Attributable to First Data Corporation

Basic net income per share is calculated by dividing net income attributable to FDC by the weighted-average shares outstanding during the period, without consideration for any potential dilutive shares. Diluted net income per share has been computed to give effect to the impact, if any, of shares issuable upon the assumed exercise of the Company’s common stock equivalents, which consist of outstanding stock options and unvested restricted stock. The dilutive effect of potentially dilutive securities is reflected in net income per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. Both Class A and B common stock are included in the net income per share attributable to First Data Corporation calculation because they have the same rights other than voting.

The following table sets forth the computation of the Company’s basic and diluted net income attributable to First Data Corporation per share for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions, except per share amounts)	2019		2018		2019		2018
Numerator:
Net income attributable to First Data Corporation	$	275	$	341	$	444	$	442

Denominator:
Weighted average shares used in computing net income per share, basic		943		928		940		926
Effect of dilutive securities		28		26		29		24

Total dilutive securities		971		954		969		950

Net income attributable to First Data Corporation per share:
Basic	$	0.29	$	0.37	$	0.47	$	0.48
Diluted^(a)	$	0.28	$	0.36	$	0.46	$	0.47
Anti-dilutive shares excluded from diluted net income per share		1		7		1		9

(a)	Potentially dilutive securities whose effect would have been anti-dilutive are excluded from the computation of diluted earnings per share for all periods presented.

-15-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7: Segment Information

For a detailed discussion of the Company’s accounting principles and its reportable segments see note 8 “Segment Information” in the Company’s consolidated financial statements in “Item 8. Financial Statements and Supplementary Data” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Exhibit 99.2 to this Current Report on Form 8-K.

The following tables present the Company’s reportable segment results including EBITDA (earnings before net interest expense, income taxes, depreciation, and amortization) for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30, 2019
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Corporate			Total
Revenues:
Revenues	$	1,521	$	375	$	375	$	—		$	2,271
Equity earnings in affiliates		6		1		—		—			7

Total segment revenues	$	1,527	$	376	$	375	$	—		$	2,278

Depreciation and amortization	$	126	$	83	$	28	$	—		$	237
Segment EBITDA		564		157		216		(44	)		893

	Three months ended June 30, 2018
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Corporate			Total
Revenues:
Revenues	$	1,439	$	413	$	371	$	—		$	2,223
Equity earnings in affiliates		10		1		—		—			11

Total segment revenues	$	1,449	$	414	$	371	$	—		$	2,234

Depreciation and amortization	$	125	$	88	$	30	$	3		$	246
Segment EBITDA		544		176		193		(49	)		864

	Six months ended June 30, 2019
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Corporate			Total
Revenues:
Total revenues	$	2,900	$	745	$	736	$	—		$	4,381
Equity earnings in affiliates		14		—		—		—			14

Total segment revenues	$	2,914	$	745	$	736	$	—		$	4,395

Depreciation and amortization	$	248	$	166	$	56	$	—		$	470
Segment EBITDA		1,035		304		411		(103	)		1,647

-16-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Six months ended June 30, 2018
(in millions)	Global Business Solutions		Global Financial Solutions		Network & Security Solutions		Corporate			Total
Revenues:
Total revenues	$	2,749	$	814	$	733	$	—		$	4,296
Equity earnings in affiliates		18		—		—		—			18

Total segment revenues	$	2,767	$	814	$	733	$	—		$	4,314

Depreciation and amortization	$	250	$	176	$	59	$	3		$	488
Segment EBITDA		978		342		368		(94	)		1,594

The following table presents a reconciliation of reportable segment amounts to the Company’s consolidated balances for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019			2018
Total segment revenues	$	2,278		$	2,234		$	4,395		$	4,314
Adjustments:
Non wholly-owned entities^(a)		11			10			18			14
Reimbursable items		196			204			388			402

Consolidated revenues	$	2,485		$	2,448		$	4,801		$	4,730

Total segment EBITDA	$	893		$	864		$	1,647		$	1,594
Adjustments:
Non wholly-owned entities^(a)		15			4			28			22
Depreciation and amortization		(253	)		(255	)		(499	)		(505	)
Interest expense, net		(202	)		(234	)		(405	)		(467	)
Loss on debt extinguishment		(2	)		(1	)		(3	)		(1	)
Other items ^(b)		(32	)		(15	)		(95	)		(78	)
Stock-based compensation		(59	)		(59	)		(115	)		(133	)
Income tax (expense) benefit		(85	)		37			(114	)		10

Net income attributable to First Data Corporation	$	275		$	341		$	444		$	442

(a)

Net adjustment to reflect the Company’s proportionate share of the results of the Company’s investments in businesses accounted for under the equity method and consolidated subsidiaries with noncontrolling ownership interests. Segment revenue for the Company’s significant affiliates is reflected based on the Company’s proportionate share of the results of the Company’s investments in businesses accounted for under the equity method and consolidated subsidiaries with noncontrolling ownership interests. For other affiliates, the Company includes equity earnings in affiliates, excluding amortization expense, in segment revenue.

(b)	See “Other operating expenses, net” and “Other (expense) income” in the Company’s unaudited consolidated statements of income.

-17-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents a reconciliation of reportable segment depreciation and amortization expense to the amounts in the consolidated balances in the unaudited consolidated statements of cash flows and unaudited consolidated statements of income for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019			2018
Segment depreciation and amortization	$	237		$	246		$	470		$	488
Adjustments for non wholly-owned entities		17			16			31			32
Amortization of payments for customer contracts^(a)		10			13			24			26

Total consolidated depreciation and amortization per unaudited consolidated statements of cash flows		264			275			525			546

Amortization of equity method investments^(b)		(1	)		(7	)		(2	)		(15	)
Amortization of payments for customer contracts^(a)		(10	)		(13	)		(24	)		(26	)

Total consolidated depreciation and amortization per unaudited consolidated statements of income	$	253		$	255		$	499		$	505

(a)	Included in “Revenues excluding reimbursable items” as contra-revenue in the Company’s unaudited consolidated statements of income.

(b)	Included in “Equity earnings in affiliates” in the Company’s unaudited consolidated statements of income.

Note 8: Income Taxes

The following table presents the Company’s income tax expense (benefit) and effective income tax rate for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019			2018
Income tax expense (benefit)	$	85		$	(37	)	$	114		$	(10	)
Effective income tax rate		20	%		(10	)%		17	%		(2	)%

The effective tax rate for the three and six months ended June 30, 2019 was lower than the U.S. federal statutory rate of 21% primarily due to net tax benefits of $2 million and $25 million, respectively, which includes equity compensation related tax benefits, tax benefits associated with prior years’ refund claims, reductions to the liability for unrecognized tax benefits, and no tax expense recorded on income associated with noncontrolling interests from pass through entities. These benefits were partially offset by state income taxes, disallowed tax benefit on certain executive compensation deductions, and current U.S. taxation on certain non-U.S. income.

The effective tax rate for the three and six months ended June 30, 2018 was lower than the U.S. federal statutory rate of 21% primarily due to net tax benefits of $113 million and $120 million, respectively, which includes reductions to the liability for unrecognized tax benefits and interest primarily associated with the closure of the 2005 through 2007 federal tax years, equity compensation related tax benefits, tax benefits associated with the 2018 and 2017 research and development credits, remeasurement of certain state and foreign deferred tax assets and liabilities, and no tax expense recorded on income associated with noncontrolling interests from pass through entities. These benefits were partially offset by expenses associated with state income taxes, disallowed tax benefit on certain executive compensation deductions, and current U.S. taxation on certain non-U.S. income.

The Company’s liability for unrecognized tax benefits was approximately $82 million as of June 30, 2019. The Company believes it is reasonably possible that the liability for unrecognized tax benefits may decrease by up to $12 million over the next twelve months beginning July 1, 2019 as a result of possible closure of federal tax audits, potential settlements with certain states and foreign countries, and the lapse of the statute of limitations in various state and foreign jurisdictions.

-18-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9: Redeemable Noncontrolling Interest

One of the Company’s noncontrolling interests is redeemable at the option of the holder and is presented outside of equity and carried at its estimated redemption value.

The following table presents a summary of the redeemable noncontrolling interest activity during the six months ended June 30, 2019 and 2018:


	Six months ended June 30,
(in millions)	2019			2018
Balance as of January 1,	$	77		$	72
Distributions		(15	)		(16	)
Share of income		15			16
Adjustment to redemption value of redeemable noncontrolling interest		15			6

Balance as of June 30,	$	92		$	78

Note 10: Other Operating Expenses, Net

The following table details the components of “Other operating expenses, net” in the unaudited consolidated statements of income for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,						Six months ended June 30,
(in millions)	2019			2018			2019		2018
Restructuring, net	$	(2	)	$	16		$	1	$	48
Deal and deal integration costs		13			(4	)		46		3
Merchant matters		11			5			11		25
Other		2			—			2		1

Other operating expenses, net	$	24		$	17		$	60	$	77

Restructuring

During the three and six months ended June 30, 2019 and 2018, the Company recorded restructuring charges in connection with ongoing expense management initiatives. The Company has ongoing initiatives, which are expected to result in approximately $10 million of additional costs over the next twelve months. The Company continues to evaluate operating efficiencies and could incur further restructuring costs beyond these initiatives.

A summary of net pretax charges for restructuring costs incurred by segment was as follows for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,					Six months ended June 30,
(in millions)	2019			2018		2019			2018
Global Business Solutions	$	—		$	3	$	3		$	8
Global Financial Solutions		—			2		—			4
Network & Security Solutions		(1	)		4		(1	)		20
Corporate		(1	)		7		(1	)		16

Restructuring, net	$	(2	)	$	16	$	1		$	48

-19-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the Company’s utilization of restructuring accruals for the six months ended June 30, 2019:


(in millions)	Employee Severance			Other			Total
Remaining accrual as of January 1, 2019	$	9		$	7		$	16
Employee expense		1			—			1
Cash payments and other		(7	)		(2	)		(9	)

Remaining accrual as of June 30, 2019	$	3		$	5		$	8

Deal and Deal Integration Costs

The Company incurred $13 million and $46 million in deal and deal integration costs for the three and six months ended June 30, 2019, respectively, which is primarily related to the previously announced Fiserv transaction.

A summary of net pretax charges for deal and deal integration costs incurred by segment was as follows for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,					Six months ended June 30,
(in millions)	2019		2018			2019		2018
Global Business Solutions	$	2	$	(4	)	$	4	$	2
Global Financial Solutions		—		—			1		—
Network & Security Solutions		1		—			2		—
Corporate		10		—			39		1

Deal and deal integration costs	$	13	$	(4	)	$	46	$	3

Merchant Matters

During both the three and six months ended June 30, 2019 the Company incurred $11 million in costs related to customer matters. During the three and six months ended June 30, 2018 the Company incurred $5 million and $25 million, respectively, in costs related to customer matters.

Note 11: Acquisitions

In March 2019, the Company acquired 100% of Software Express. Software Express provides technology solutions to merchants, including multi-acquirer EFT, multi-acquirer EFT POS, reconciliation, a payment gateway, and automated recurring payments in Brazil. The purchase price was $79 million in cash, net of cash acquired, and Software Express is reported as part of the Company’s Global Business Solutions segment. The Company is holding $12 million in restricted cash that will be paid to the seller over a six years period. The acquisition was accounted for as a business combination and the accounting is currently incomplete. The acquisition of Software Express had an immaterial impact on revenue and operating income.

Note 12: Derivative Financial Instruments

The Company enters into the following types of derivatives:

•

Interest rate contracts: The Company uses a combination of floating to fixed interest rate swaps and collars to mitigate its exposure to interest rate fluctuations on interest payments related to variable rate debt. For interest rate swaps, floating rate payments are received in exchange for fixed-rate payments. For interest rate collar contracts, no payments or receipts are exchanged unless interest rates rise or fall in excess of a predetermined ceiling or floor rate. The Company uses these contracts in a qualifying hedging relationship.

•

Foreign exchange contracts: The Company uses cross-currency swaps to protect the net investment in certain foreign subsidiaries and/or affiliates with respect to changes in foreign currency exchange rates. The Company uses these contracts in qualifying hedging relationships.

-20-

FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company held the following derivative instruments as of June 30, 2019 and December 31, 2018:


			As of June 30, 2019						As of December 31, 2018
(in millions)	Notional Currency		Notional Value		Assets^(a)		Liabilities^(a)		Notional Value		Assets^(a)		Liabilities^(a)
Derivatives designated as hedges of net investments in foreign operations:
Foreign exchange contracts		EUR		915	$	—	$	12		915	$	—	$	19
Foreign exchange contracts		GBP		150		7		—		150		6		—
Foreign exchange contracts		CAD		95		2		—		95		5		—

						9		12				11		19

Derivatives designated as cash flow hedges:
Interest rate collar contracts^(b)		USD		1,500		2		—		2,800		10		—
Interest rate swap contracts ^(c)		USD		6,500		—		114		7,250		—		44

						2		114				10		44

					$	11	$	126			$	21	$	63

(a)	The Company’s derivatives are subject to master netting agreements to the extent that the swaps are with the same counterparty. The terms of those agreements require that the Company net settle the outstanding positions at the option of the counterparty upon certain events of default.

(b)	The interest rate collar with a notional value of $1.3 billion matured in January 2019. The remaining interest rate collar with a notional value of $1.5 billion will mature in September 2019.

(c)	The interest rate swap with a notional value of $4.75 billion decreased to $4.0 billion in June 2019.

The maximum length of time over which the Company is hedging its currency exposure of net investments in foreign operations, through utilization of foreign exchange contracts, is through June 2020.

The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is through May 2021.

As of June 30, 2019, the Company has not posted any collateral related to any of its derivative financial instruments.

Fair Value Measurement

The carrying amounts for the Company’s derivative financial instruments are the estimated fair value of the financial instruments. The Company’s derivatives are not exchange listed and therefore the fair value is estimated under an income approach using Bloomberg analytics models that are based on readily observable market inputs. These models reflect the contractual terms of the derivatives, such as notional value and expiration date, as well as market-based observables including interest and foreign currency exchange rates, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs to the derivative pricing models are generally observable and do not contain a high level of subjectivity and, accordingly, the Company’s derivatives were classified within Level 2 of the fair value hierarchy. While the Company believes its estimates result in a reasonable reflection of the fair value of these instruments, the estimated values may not be representative of actual values that could have been realized or that will be realized in the future.

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FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Effect of Derivative Instruments on the Unaudited Consolidated Financial Statements

Derivative gains and (losses) were as follows for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,											Six months ended June 30,
	2019					2018						2019					2018
(in millions, pretax)	Interest Rate Contracts			Foreign Exchange Contracts		Interest Rate Contracts			Foreign Exchange Contracts			Interest Rate Contracts			Foreign Exchange Contracts		Interest Rate Contracts		Foreign Exchange Contracts
Derivatives designated as hedging instruments:
Gain recognized in “Foreign currency translation adjustment” in the unaudited consolidated statements of comprehensive income (effective portion)	$	—		$	—	$	—		$	86		$	—		$	24	$	—	$	56
(Loss) recognized in “Derivative instruments” in the unaudited consolidated statements of comprehensive income (effective portion)	$	(50	)	$	—	$	(9	)	$	—		$	(78	)	$	—	$	—	$	—
Derivatives not designated as hedging instruments:
(Loss) recognized in “Other (expense) income” in the unaudited consolidated statements of income	$	—		$	—	$	—		$	(4	)	$	—		$	—	$	—	$	(4	)

Accumulated Derivative Gains and Losses

The following table summarizes activity in other comprehensive income related to derivative instruments classified as cash flow hedges and net investment hedges held by the Company for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,					Six months ended June 30,
(in millions, after tax)	2019			2018		2019			2018
Accumulated gain included in other comprehensive income at beginning of the period	$	162		$	105	$	165		$	121
(Decrease) increase in fair value of derivatives that qualify for hedge accounting, net of tax^{(a) (b)}		(38	)		58		(41	)		42

Accumulated gain included in other comprehensive income at end of the period	$	124		$	163	$	124		$	163

(a)	(Losses)\gains are included in “Derivative instruments” and “Foreign currency translation adjustment” in the unaudited consolidated statements of comprehensive income.

(b)	Net of tax of $(12) million and $19 million for the three months ended June 30, 2019 and 2018, respectively, and $(13) million and $14 million for the six months ended June 30, 2019 and 2018, respectively.

Note 13: Commitments and Contingencies

The Company is involved in various legal proceedings. Accruals have been made with respect to these matters, where appropriate, which are reflected in the Company’s unaudited consolidated financial statements. The Company may enter into discussions regarding settlement of these matters and may enter into settlement agreements, if it believes settlement is in the best interest of the Company. The matters discussed below, if decided adversely to or settled by the Company, individually or in the aggregate, may result in liability material to the Company’s financial condition and/or results of income.

There are asserted claims against the Company where an unfavorable outcome is considered to be reasonably possible. These claims can generally be categorized in the following areas: (1) patent infringement which results from claims that the Company is using technology that has been patented by another party; (2) merchant matters often associated with alleged processing errors or disclosure issues and claims that one of the subsidiaries of the Company has violated a federal or state requirement regarding credit reporting or collection in connection with its check verification guarantee and collection activities or other claims arising

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FIRST DATA CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

from its merchant business; and (3) other matters which may include issues such as employment and indemnification obligations to purchasers of former subsidiaries. The Company’s estimates of the possible ranges of losses in excess of any amounts accrued are $0 to $5 million for patent infringement, $0 to $81 million for merchant matters, and $0 to $5 million for other matters, resulting in a total estimated range of possible losses of $0 to $91 million for all of the matters described above.

The estimated range of reasonably possible losses is based on information currently available and involves elements of judgment and significant uncertainties. As additional information becomes available and the resolution of the uncertainties becomes more apparent, it is possible that actual losses may exceed the high end of the estimated range.

Note 14: Investment in Affiliates

Segment results include the Company’s proportionate share of income from affiliates, which consist of unconsolidated investments accounted for under the equity method of accounting. The most significant of these affiliates are related to the Company’s merchant bank alliance program.

As of June 30, 2019, the Company had no unconsolidated significant subsidiaries that were not required to be consolidated, but represented more than 20% of the Company’s pretax income. As of June 30, 2018, the company had one unconsolidated significant subsidiary that was not required to be consolidated, but represented more than 20% of the Company’s pretax income. Summarized unaudited financial information for this affiliate is presented below for the three and six months ended June 30, 2019 and 2018:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2019		2018		2019		2018
Net operating revenues	$	203	$	213	$	395	$	408
Operating expenses		103		102		206		203

Operating income	$	100	$	111	$	189	$	205

Net income	$	102	$	112	$	192	$	206
FDC equity earnings		41		40		77		73

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