Investments in Unconsolidated Affiliates

9 Months Ended

Sep. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Affiliates

On March 29, 2018, the Company completed the sale of a 55% controlling interest of each of Fiserv Automotive Solutions, LLC and Fiserv LS LLC, which were subsidiaries of the Company that owned its Lending Solutions business (collectively, the “Lending Joint Ventures”), to funds affiliated with Warburg Pincus LLC. The Lending Joint Ventures, which were reported within the Financial segment, included all of the Company’s automotive loan origination and servicing products, as well as its LoanServ^TM mortgage and consumer loan servicing platform. The Company received gross sale proceeds of $419 million from the transactions. During the nine months ended September 30, 2018, the Company recognized a pre-tax gain on the sale of $227 million, with the related tax expense of $77 million recorded through the income tax provision, in the consolidated statements of income. The pre-tax gain included $124 million related to the remeasurement of the Company’s 45% retained interests based upon the estimated enterprise value of the Lending Joint Ventures. During the nine months ended September 30, 2019, the Company recognized a pre-tax gain on the sale of $10 million, with the related tax expense of $2 million recorded through the income tax provision, as contingent special distribution provisions within the transaction agreement were resolved and thereby realized.

Prior to the sale transactions described above, the Lending Joint Ventures entered into variable-rate term loan facilities for an aggregate amount of $350 million in senior unsecured debt and variable-rate revolving credit facilities for an aggregate amount of $35 million with a syndicate of banks, which transferred to the Lending Joint Ventures as part of the sale. The Company has guaranteed this debt of the Lending Joint Ventures and does not anticipate that the Lending Joint Ventures will fail to fulfill their debt obligations. These debt facilities mature in March 2023, and there are no outstanding borrowings on the revolving credit facilities as of September 30, 2019. The Company recorded an initial $34 million liability as a reduction to the gain on sale transactions for the estimated fair value of its obligations to stand ready to perform over the term of the guarantees, which is reported primarily within other long-term liabilities in the consolidated balance sheets. Such guarantees will be amortized in future periods over the contractual term. The Company recognized $2 million and $1 million during the three months ended September 30, 2019 and 2018, respectively, and $5 million and $3 million during the nine months ended September 30, 2019 and 2018, respectively, within other (expense) income in its consolidated statements of income related to its release from risk under the guarantees. The Company has not made any payments under the guarantees, nor has it been called upon to do so. In conjunction with the sale transactions described above, the Company also entered into certain transition services agreements to provide, at fair value, various administration, business process outsourcing, technical and

data center related services for defined periods to the Lending Joint Ventures. Amounts transacted through these agreements approximated $9 million and $27 million during the three and nine months ended September 30, 2019, respectively, and $10 million and $20 million during the three and nine months ended September 30, 2018, respectively, and were primarily recognized as processing and services revenue in the consolidated statements of income.

In August 2019, the Sagent Auto, LLC joint venture formerly known as Fiserv Automotive Solutions, LLC, completed a merger with a third-party, resulting in a dilution of the Company’s ownership interest in the new combined entity. The Company recognized a pre-tax gain of $14 million within income from investments in unconsolidated affiliates in the consolidated statements of income, with related tax expense of $3 million, during the three months ended September 30, 2019, reflecting the Company’s 31% ownership interest in the combined joint venture entity. In connection with the merger, Sagent Auto, LLC borrowed in aggregate an additional $50 million on its variable-rate term loan facility and increased the notional amount of its variable-rate revolving credit facility by $10 million. The Company has guaranteed this incremental debt and does not anticipate that the joint venture will fail to fulfill its debt obligations. The Company recorded a $4 million liability for the estimated fair value of its obligations to stand ready to perform over term of the guarantees. Such guarantees will be amortized in future periods over the contractual term, based upon amounts to be received by the Company for the respective guarantees. The Company has not made any payments under the guarantees, nor has it been called upon to do so.

The Company’s remaining ownership interests in the Lending Joint Ventures are accounted for as equity method investments, with the Company’s share of net (loss) income reported as income from investments in unconsolidated affiliates and the related tax (benefit) expense reported within the income tax provision in the consolidated statements of income. The revenues, expenses and cash flows of the Lending Joint Ventures after the sale transactions described above are not included in the Company’s consolidated financial statements.

On July 29, 2019, the Company acquired unconsolidated investments in connection with the acquisition of First Data (see Note 4). As of September 30, 2019, there were 17 affiliates accounted for as equity method investments, comprised of merchant alliances and strategic investments in companies in related markets. The Company’s share of net (loss) income are reported as income from investments in unconsolidated affiliates and the related tax expense reported within the income tax provision in the consolidated statements of income. The most significant of these affiliates are related to the Company’s merchant bank alliance program. A merchant alliance, as it pertains to investments accounted for under the equity method, 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 bank. The 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 primarily based on contractual pricing (see Note 21).

A summary of financial information for the Company’s unconsolidated affiliates accounted for under the equity method of accounting is presented below:



(In millions)	September 30, 2019
Total current assets	$	4,103
Total long-term assets	1
Total assets	$	4,104

Total current liabilities	$	4,063
Total long-term liabilities	—
Total liabilities	$	4,063

The primary components of assets and liabilities are settlement asset and obligation related accounts similar to those described in Note 1 of these consolidated financial statements.



(In millions)	Nine Months Ended September 30, 2019
Total revenues	$	189
Total expenses	106
Operating income	$	83
Net income	$	81
Income from investments in unconsolidated affiliates⁽¹⁾	$	11


⁽¹⁾	Amount reflects the Company’s share of investee’s net income or loss and the amortization basis difference between the estimated fair value and the underlying book value of equity method intangibles.

The Company received cash distributions of $91 million from unconsolidated affiliates during the three and nine months ended September 30, 2019, respectively, and were recorded as reductions in the Company’s investments in unconsolidated affiliates. Such distributions primarily represented returns of the Company’s investments and are reported in cash flows from investing activities.

In addition, the Company holds equity securities amounting to $182 million without a readily determinable fair value, which are only adjusted for impairment and changes resulting from observable price changes in orderly transactions for the same or similar equity securities. The equity securities were acquired primarily through the First Data acquisition and were recorded at fair market value at the acquisition date. No adjustments were made during the three and nine months ended September 30, 2019.