WESTERN UNION CO, 10-K filed on 2/22/2018
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Feb. 14, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
Western Union CO 
 
 
Entity Central Index Key
0001365135 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
459,298,652 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 8.7 
Consolidated Statements of Income/(Loss) (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Revenues
$ 5,524.3 
$ 5,422.9 
$ 5,483.7 
Expenses:
 
 
 
Cost of services
3,355.4 
3,270.0 
3,199.4 
Selling, general and administrative
1,231.5 
1,669.2 
1,174.9 
Goodwill impairment charge
464.0 
Total expenses
5,050.9 1
4,939.2 1
4,374.3 1
Operating income
473.4 
483.7 
1,109.4 
Other income/(expense):
 
 
 
Interest income
4.9 
3.5 
10.9 
Interest expense
(142.1)
(152.5)
(167.9)
Gain (Loss) on Derivative Instruments, Net, Pretax
7.1 
4.5 
1.2 
Other income/(expense), net
4.2 
2.5 
(11.8)
Total other expense, net
(125.9)
(142.0)
(167.6)
Income before income taxes
347.5 
341.7 
941.8 
Provision for income taxes (Note 10)
904.6 
88.5 
104.0 
Net income/(loss)
$ (557.1)
$ 253.2 
$ 837.8 
Earnings/(loss) per share:
 
 
 
Basic (USD per share)
$ (1.19)
$ 0.52 
$ 1.63 
Diluted (USD per share)
$ (1.19)
$ 0.51 
$ 1.62 
Weighted-average shares outstanding:
 
 
 
Basic (shares)
467.9 
490.2 
512.6 
Diluted (shares)
467.9 
493.5 
516.7 
Cash dividends declared per common share (USD per share)
$ 0.7 
$ 0.64 
$ 0.62 
Consolidated Statements of Comprehensive Income/(Loss) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net income/(loss)
$ (1,120.9)
$ 235.6 
$ 166.5 
$ 161.7 
$ (355.0)
$ 216.9 
$ 205.6 
$ 185.7 
$ (557.1)
$ 253.2 
$ 837.8 
Other comprehensive income/(loss), net of tax (Note 13):
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses) on investment securities
 
 
 
 
 
 
 
 
6.5 
(11.6)
(1.1)
Unrealized losses on hedging activities
 
 
 
 
 
 
 
 
(74.4)
(7.6)
(7.2)
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
(6.2)
(4.7)
(16.8)
Defined benefit pension plan adjustments
 
 
 
 
 
 
 
 
9.0 
5.0 
0.1 
Total other comprehensive loss
 
 
 
 
 
 
 
 
(65.1)
(18.9)
(25.0)
Comprehensive income/(loss)
 
 
 
 
 
 
 
 
$ (622.2)
$ 234.3 
$ 812.8 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Assets
 
 
Cash and cash equivalents
$ 838.2 
$ 877.5 
Settlement assets
4,188.9 
3,749.1 
Property and equipment, net of accumulated depreciation of $635.7 and $600.0, respectively
214.2 
220.5 
Goodwill
2,727.9 
3,162.0 
Other intangible assets, net of accumulated amortization of $1,042.7 and $958.2, respectively
586.3 
664.2 
Other assets
675.9 
746.3 
Total assets
9,231.4 
9,419.6 
Liabilities:
 
 
Accounts payable and accrued liabilities (Note 5)
718.5 
1,129.6 
Settlement obligations
4,188.9 
3,749.1 
Income taxes payable (Note 10)
1,252.0 
407.3 
Deferred tax liability, net
173.0 
85.9 
Borrowings
3,033.6 
2,786.1 
Other liabilities
356.8 
359.4 
Total liabilities
9,722.8 
8,517.4 
Commitments and contingencies (Note 5)
   
   
Stockholders' equity/(deficit):
 
 
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
Common stock, $0.01 par value; 2,000 shares authorized; 459.0 shares and 481.5 shares issued and outstanding as of December 31, 2017 and 2016, respectively
4.6 
4.8 
Capital surplus
697.8 
640.9 
Retained earnings/(accumulated deficit)
(965.9)
419.3 
Accumulated other comprehensive loss
(227.9)
(162.8)
Total stockholders' equity/(deficit)
(491.4)
902.2 
Total liabilities and stockholders' equity/(deficit)
$ 9,231.4 
$ 9,419.6 
Consolidated Balance Sheets (Parentheticals) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Assets
 
 
Accumulated Depreciation on Property Plant and Equipment
$ 635.7 
$ 600.0 
Accumulated Amortization on Other Intangible Assets
$ 1,042.7 
$ 958.2 
Stockholders’ Equity:
 
 
Preferred stock, par value (USD per share)
$ 1 
$ 1 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Common stock, par value (USD per share)
$ 0.01 
$ 0.01 
Common stock, shares authorized
2,000,000,000 
2,000,000,000 
Common stock, shares issued
459,000,000 
481,500,000 
Common stock, shares outstanding
459,000,000 
481,500,000 
Consolidated Statements of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities
 
 
 
Net income/(loss)
$ (557.1)
$ 253.2 
$ 837.8 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Depreciation
77.1 
74.2 
67.7 
Amortization
185.8 
189.0 
202.5 
Goodwill impairment charge (Note 4)
464.0 
Deferred income tax provision/(benefit) (Note 10)
69.5 
(174.2)
(39.9)
Other non-cash items, net
124.2 
98.3 
63.7 
Increase/(decrease) in cash, excluding the effects of acquisitions, resulting from changes in:
 
 
 
Other assets
(68.7)
(71.4)
(107.4)
Accounts payable and accrued liabilities (Note 5)
(417.6)
522.8 
14.2 
Income taxes payable (Note 10)
850.4 
190.9 
47.1 
Other liabilities
8.2 
(40.9)
(14.6)
Net cash provided by operating activities
735.8 
1,041.9 
1,071.1 
Cash flows from investing activities
 
 
 
Capitalization of contract costs
(74.8)
(107.3)
(122.8)
Capitalization of purchased and developed software
(33.2)
(53.7)
(49.3)
Purchases of property and equipment
(69.1)
(68.8)
(94.4)
Purchases of non-settlement related investments and other
(192.1)
(64.7)
(110.9)
Proceeds from maturity of non-settlement related investments and other
203.8 
53.2 
100.3 
Purchases of held-to-maturity non-settlement related investments
(42.7)
(39.7)
(9.3)
Proceeds from held-to-maturity non-settlement related investments
28.4 
9.9 
Acquisition of businesses, net (Note 4)
(24.9)
Net cash provided by/(used in) investing activities
(204.6)
(271.1)
(286.4)
Cash flows from financing activities
 
 
 
Cash dividends paid
(325.6)
(312.2)
(316.5)
Common stock repurchased (Note 13)
(502.8)
(501.6)
(511.3)
Net proceeds from issuance of borrowings
746.2 
575.0 
Principal payments on borrowings
(500.0)
(1,005.4)
(500.0)
Proceeds from exercise of options and other
11.7 
35.0 
75.8 
Net cash used in financing activities
(570.5)
(1,209.2)
(1,252.0)
Net change in cash and cash equivalents
(39.3)
(438.4)
(467.3)
Cash and cash equivalents at beginning of year
877.5 
1,315.9 
1,783.2 
Cash and cash equivalents at end of year
838.2 
877.5 
1,315.9 
Supplemental cash flow information:
 
 
 
Interest paid
128.0 
159.0 
161.8 
Income taxes (refunded)/paid
$ (11.6)
$ 68.4 
$ 92.8 
Consolidated Statements of Stockholders' Equity/(Deficit) (USD $)
In Millions, unless otherwise specified
Total
Common Stock
Capital Surplus
Retained Earnings/(Accumulated Deficit)
Accumulated Other Comprehensive Loss
Stockholders' equity, beginning balance at Dec. 31, 2014
$ 1,300.4 
$ 5.2 
$ 445.4 
$ 968.7 
$ (118.9)
Common stock outstanding, beginning balance (shares) at Dec. 31, 2014
 
521.5 
 
 
 
Increase/(Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income/(loss)
837.8 
 
 
837.8 
 
Stock-based compensation
42.2 
 
42.2 
 
 
Common stock dividends
(316.5)
 
 
(316.5)
 
Repurchase and retirement of common stock (shares)
 
(25.7)
 
 
 
Repurchase and retirement of common shares
(513.0)
(0.3)
 
(512.7)
 
Shares issued under stock-based compensation plans (shares)
 
6.6 
 
 
 
Shares issued under stock-based compensation plans
79.0 
0.1 
78.9 
 
 
Unrealized gains/(losses) on investment securities, net of tax
(1.1)
 
 
 
(1.1)
Unrealized losses on hedging activities, net of tax
(7.2)
 
 
 
(7.2)
Foreign currency translation adjustments, net of tax
(16.8)
 
 
 
(16.8)
Defined benefit pension plan adjustments, net of tax
0.1 
 
 
 
0.1 
Stockholders' equity, ending balance at Dec. 31, 2015
1,404.9 
5.0 
566.5 
977.3 
(143.9)
Common stock outstanding, ending balance (shares) at Dec. 31, 2015
 
502.4 
 
 
 
Increase/(Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income/(loss)
253.2 
 
 
253.2 
 
Stock-based compensation
41.8 
 
41.8 
 
 
Common stock dividends
(312.2)
 
 
(312.2)
 
Repurchase and retirement of common stock (shares)
 
(25.8)
 
 
 
Repurchase and retirement of common shares
(499.2)
(0.2)
 
(499.0)
 
Shares issued under stock-based compensation plans (shares)
 
4.9 
 
 
 
Shares issued under stock-based compensation plans
32.6 
 
32.6 
 
 
Unrealized gains/(losses) on investment securities, net of tax
(11.6)
 
 
 
(11.6)
Unrealized losses on hedging activities, net of tax
(7.6)
 
 
 
(7.6)
Foreign currency translation adjustments, net of tax
(4.7)
 
 
 
(4.7)
Defined benefit pension plan adjustments, net of tax
5.0 
 
 
 
5.0 
Stockholders' equity, ending balance at Dec. 31, 2016
902.2 
4.8 
640.9 
419.3 
(162.8)
Common stock outstanding, ending balance (shares) at Dec. 31, 2016
481.5 
481.5 
 
 
 
Increase/(Decrease) in Stockholders' Equity [Roll Forward]
 
 
 
 
 
Net income/(loss)
(557.1)
 
 
(557.1)
 
Stock-based compensation
43.9 
 
43.9 
 
 
Common stock dividends
(325.6)
 
 
(325.6)
 
Repurchase and retirement of common stock (shares)
 
(25.7)
 
 
 
Repurchase and retirement of common shares
(502.7)
(0.2)
 
(502.5)
 
Shares issued under stock-based compensation plans (shares)
 
3.2 
 
 
 
Shares issued under stock-based compensation plans
13.0 
 
13.0 
 
 
Unrealized gains/(losses) on investment securities, net of tax
6.5 
 
 
 
6.5 
Unrealized losses on hedging activities, net of tax
(74.4)
 
 
 
(74.4)
Foreign currency translation adjustments, net of tax
(6.2)
 
 
 
(6.2)
Defined benefit pension plan adjustments, net of tax
9.0 
 
 
 
9.0 
Stockholders' equity, ending balance at Dec. 31, 2017
$ (491.4)
$ 4.6 
$ 697.8 
$ (965.9)
$ (227.9)
Common stock outstanding, ending balance (shares) at Dec. 31, 2017
459.0 
459.0 
 
 
 
Business and Basis of Presentation
Business and Basis of Presentation
Business and Basis of Presentation

The Western Union Company ("Western Union" or the "Company") is a leader in global money movement and payment services, providing people and businesses with fast, reliable and convenient ways to send money and make payments around the world. The Western Union® brand is globally recognized. The Company's services are primarily available through a network of agent locations in more than 200 countries and territories. Each location in the Company's agent network is capable of providing one or more of the Company's services.

Leadership and organizational structure changes within the Company have impacted how its Chief Operating Decision Maker (“CODM”) manages the Company, resulting in changes to its operating and reportable segments in the second quarter of 2017. Prior to these changes, the Company had organized its business into the following operating segments: Consumer-to-Consumer, Consumer-to-Business, and Business Solutions. As a result of these leadership and organizational structure changes, the components of the historical Consumer-to-Business operating segment have been divided between two executives, with the majority of the Company's cash-based bill payments services under one executive and the majority of the Company's electronic-based bill payments services under the other executive. The CODM allocates resources and assesses performance using discrete information for these separate components, neither of which is material from either a quantitative or qualitative perspective. Accordingly, the Company no longer reports a separate Consumer-to-Business operating segment, and no new reportable segments result from the impact of these changes. The cash-based and electronic-based bill payments services are therefore included in "Other."

The Western Union business consists of the following segments:
 
Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company's multi-currency money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers and, in certain countries, intra- country transfers. This segment also includes money transfer transactions that can be initiated through websites and mobile devices.

Business Solutions - The Business Solutions operating segment facilitates payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations and individuals. The majority of the segment's business relates to exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments.

All businesses and other services that have not been classified in the above segments are reported as "Other," which, as noted above, primarily includes the Company's electronic-based and cash-based bill payment services which facilitate bill payments from consumers to businesses and other organizations and which were previously reported in the historical Consumer-to-Business operating segment, and the Company's money order and other services, in addition to costs for the review and closing of acquisitions. Results and balances as of and for the years ended December 31, 2016 and 2015 have been adjusted to conform to the changes in reportable segments discussed above. See Note 17 for further information regarding the Company's segments.

There are legal or regulatory limitations on transferring certain assets of the Company outside of the countries where these assets are located. However, there are generally no limitations on the use of these assets within those countries. Additionally, the Company must meet minimum capital requirements in some countries in order to maintain operating licenses. As of December 31, 2017, the amount of these net asset limitations totaled approximately $265 million.

Various aspects of the Company's services and businesses are subject to United States federal, state and local regulation, as well as regulation by foreign jurisdictions, including certain banking and other financial services regulations.

Spin-off from First Data

On January 26, 2006, the First Data Corporation ("First Data") Board of Directors announced its intention to pursue the distribution of all of its money transfer and consumer payments businesses and its interest in a Western Union money transfer agent, as well as its related assets, including real estate, through a tax-free distribution to First Data shareholders (the "Spin-off"). Effective on September 29, 2006, First Data completed the separation and the distribution of these businesses by distributing The Western Union Company common stock to First Data shareholders (the "Distribution"). Prior to the Distribution, the Company had been a segment of First Data.

Basis of Presentation

The financial statements in this Annual Report on Form 10-K are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Beginning in the first quarter of 2017, the Company has reported total "Revenues" in its Consolidated Statements of Income/(Loss) for all periods presented and no longer presents the subcaptions previously reported, including "Transaction fees," "Foreign exchange revenues," and "Other revenues."

Consistent with industry practice, the accompanying Consolidated Balance Sheets are unclassified due to the short-term nature of the Company's settlement obligations contrasted with the Company's ability to invest cash awaiting settlement in long-term investment securities.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Principles of Consolidation

The Company consolidates financial results when it has a controlling financial interest in a subsidiary via voting rights or when it has both the power to direct the activities of an entity that most significantly impact the entity's economic performance and the ability to absorb losses or the right to receive benefits of the entity that could potentially be significant to the entity. The Company utilizes the equity method of accounting when it is able to exercise significant influence over the entity's operations, which generally occurs when the Company has an ownership interest of between 20% and 50% in an entity.

Earnings/(Loss) Per Share

The calculation of basic earnings/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Outstanding options to purchase Western Union stock and unvested shares of restricted stock are excluded from basic shares outstanding. Diluted earnings/(loss) per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested, using the treasury stock method. The treasury stock method assumes proceeds from the exercise price of stock options and the unamortized compensation expense of options and restricted stock are available to acquire shares at an average market price throughout the period, and therefore, reduce the dilutive effect.

For the years ended December 31, 2017, 2016 and 2015, there were 2.8 million, 3.4 million and 6.0 million, respectively, of outstanding options to purchase shares of Western Union stock excluded from the diluted earnings/(loss) per share calculation, as their exercise prices were above the Company's weighted-average share price during the periods and their effect was anti-dilutive. Due to the net loss for the year ended December 31, 2017, an additional 3.0 million shares have been excluded from diluted weighted-average shares outstanding, because the effect of including such shares would be anti-dilutive in the calculation of diluted loss per share.


The following table provides the calculation of diluted weighted-average shares outstanding (in millions):
 
For the Year Ended December 31,
 
2017
 
2016
 
2015
Basic weighted-average shares outstanding
467.9

 
490.2

 
512.6

Common stock equivalents

 
3.3

 
4.1

Diluted weighted-average shares outstanding
467.9

 
493.5

 
516.7



Fair Value Measurements

The Company determines the fair values of its assets and liabilities that are recognized or disclosed at fair value in accordance with the hierarchy described below. The fair values of the assets and liabilities held in the Company's defined benefit plan trust ("Trust") are recognized or disclosed utilizing the same hierarchy. The following three levels of inputs may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For most of these assets, the Company utilizes pricing services that use multiple prices as inputs to determine daily market values.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation. The Company has Level 3 assets that are recognized and disclosed at fair value on a non-recurring basis related to the Company's business combinations, where the values of the intangible assets and goodwill acquired in a purchase are derived utilizing one of the three recognized approaches: the market approach, the income approach or the cost approach.

In addition, the Trust has other investments that are valued at net asset value which is not quoted on an active market; however, the unit price is based on underlying investments which are traded on an active market.
 
Carrying amounts for many of the Company's financial instruments, including cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and settlement obligations approximate fair value due to their short maturities. Available-for-sale investment securities and derivative financial instruments are carried at fair value and included in Note 8. Fixed rate notes are carried at their original issuance values as adjusted over time to accrete that value to par, except for portions of notes hedged by interest rate swap agreements as disclosed in Note 14. The fair values of fixed rate notes are disclosed in Note 8 and are based on market quotations. The Company's investments in foreign corporate debt securities are classified as held-to-maturity securities. The fair values of the foreign corporate debt securities are disclosed in Note 8 and are based on market quotations.

The fair values of non-financial assets and liabilities related to the Company's business combinations are disclosed in Note 4. The fair value of the assets in the Trust, which holds the assets for the Company's defined benefit plan, is disclosed in Note 11.

Business Combinations

The Company accounts for all business combinations where control over another entity is obtained using the acquisition method of accounting, which requires that most assets (both tangible and intangible), liabilities (including contingent consideration), and remaining noncontrolling interests be recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets less liabilities and noncontrolling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or noncontrolling interests made subsequent to the acquisition date, but within the measurement period, which is one year or less, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is remeasured to fair value at acquisition with a resulting gain or loss recognized in income for the difference between fair value and existing book value. Results of operations of the acquired company are included in the Company's results from the date of the acquisition forward and include amortization expense arising from acquired intangible assets. The Company expenses all costs as incurred related to or involved with an acquisition in "Selling, general and administrative" expenses.

Cash and Cash Equivalents

Highly liquid investments (other than those included in settlement assets) with maturities of three months or less at the date of purchase (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates fair value.

The Company maintains cash and cash equivalent balances, including a portion in money market funds, with a group of globally diversified banks and financial institutions. The Company limits the concentration of its cash and cash equivalents with any one institution and regularly reviews investment concentrations and credit worthiness of these institutions.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts when it is probable that the related receivable balance will not be collected based on its history of collection experience, known collection issues, such as agent suspensions and bankruptcies, consumer chargebacks and insufficient funds, and other matters the Company identifies in its routine collection monitoring. The allowance for doubtful accounts was $64.5 million and $55.4 million as of December 31, 2017 and 2016, respectively, and is recorded in the same Consolidated Balance Sheet caption as the related receivable. During the years ended December 31, 2017, 2016, and 2015, the provision for doubtful accounts (bad debt expense) reflected in the Consolidated Statements of Income/(Loss) was $60.6 million, $63.9 million and $60.3 million, respectively.

Settlement Assets and Obligations

Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders and consumer payments. The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment.

Settlement assets consist of cash and cash equivalents, receivables from selling agents and Business Solutions customers, and investment securities. Cash received by Western Union agents generally becomes available to the Company within one week after initial receipt by the agent. Cash equivalents consist of short-term time deposits, commercial paper and other highly liquid investments. Receivables from selling agents represent funds collected by such agents, but in transit to the Company. Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent. In addition, the Company performs ongoing credit evaluations of its agents' financial condition and credit worthiness. See Note 7 for information concerning the Company's investment securities.

Receivables from Business Solutions customers arise from cross-currency payment transactions in the Business Solutions segment. Receivables occur when funds have been paid out to a beneficiary but not yet received from the customer. Aside from these receivables, the credit risk associated with spot foreign currency exchange contracts is largely mitigated, as in most cases the Company requires the receipt of funds from customers before releasing the associated cross-currency payment.

Settlement obligations consist of money transfer, money order and payment service payables and payables to agents. Money transfer payables represent amounts to be paid to transferees when they request their funds. Most agents typically settle with transferees first and then obtain reimbursement from the Company. Money order payables represent amounts not yet presented for payment. Payment service payables represent amounts to be paid to utility companies, auto finance companies, mortgage servicers, financial service providers, government agencies and others. Due to the agent funding and settlement process, payables to agents represent amounts due to agents for money transfers that have been settled with transferees.

Settlement assets and obligations consisted of the following (in millions):
 
December 31,
 
2017
 
2016
Settlement assets:
 
 
 
Cash and cash equivalents
$
1,264.8

 
$
1,190.0

Receivables from selling agents and Business Solutions customers
1,573.9

 
1,327.3

Investment securities
1,350.2

 
1,231.8

 
$
4,188.9

 
$
3,749.1

Settlement obligations:
 
 
 
Money transfer, money order and payment service payables
$
2,789.2

 
$
2,598.2

Payables to agents
1,399.7

 
1,150.9

 
$
4,188.9

 
$
3,749.1



Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the lesser of the estimated life of the related assets (generally three to ten years for equipment and furniture and fixtures, and 30 years for buildings) or the lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred.

Property and equipment consisted of the following (in millions):
 
December 31,
 
2017
 
2016
Equipment
$
604.7

 
$
585.5

Buildings
88.6

 
88.3

Leasehold improvements
87.4

 
84.3

Furniture and fixtures
42.0

 
40.4

Land and improvements
17.0

 
17.0

Projects in process
10.2

 
5.0

Total property and equipment, gross
849.9

 
820.5

Less accumulated depreciation
(635.7
)
 
(600.0
)
Property and equipment, net
$
214.2

 
$
220.5



Amounts charged to expense for depreciation of property and equipment were $77.1 million, $74.2 million and $67.7 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Goodwill

Goodwill represents the excess of purchase price over the fair value of tangible and other intangible assets acquired, less liabilities assumed arising from business combinations. For the year ended December 31, 2017, the Company recognized a goodwill impairment charge of $464.0 million related to its Business Solutions reporting unit, as disclosed in Note 4. The Company's annual impairment assessment did not identify any goodwill impairment during the years ended December 31, 2016 and 2015.

Other Intangible Assets

Other intangible assets primarily consist of contract costs (primarily amounts paid to agents in connection with establishing and renewing long-term contracts), acquired contracts and software. Other intangible assets are amortized on a straight-line basis over the length of the contract or benefit periods. Included in the Consolidated Statements of Income/(Loss) is amortization expense of $185.8 million, $189.0 million and $202.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The Company capitalizes initial payments for new and renewed agent contracts to the extent recoverable through future operations or penalties in the case of early termination. The Company's accounting policy is to limit the amount of capitalized costs for a given contract to the lesser of the estimated future cash flows from the contract or the termination fees the Company would receive in the event of early termination of the contract.

Acquired contracts include customer and contractual relationships and networks of subagents that are recognized in connection with the Company's acquisitions.

The Company purchases and develops software that is used in providing services and in performing administrative functions. Software development costs are capitalized once technological feasibility of the software has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed all planning and designing activities that are necessary to determine that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is available for general use. Software development costs and purchased software are generally amortized over a term of three to five years.

The following table provides the components of other intangible assets (in millions):
 
 
December 31, 2017
 
December 31, 2016
 
 
Weighted-
Average
Amortization
Period
(in years)
 
Initial Cost
 


Net of
Accumulated
Amortization
 
Initial Cost
 


Net of
Accumulated
Amortization
Acquired contracts
 
11.5
 
$
600.4

 
$
220.0

 
$
599.6

 
$
264.4

Capitalized contract costs
 
6.2
 
559.5

 
268.2

 
559.2

 
294.0

Internal use software
 
3.2
 
387.8

 
53.1

 
371.3

 
56.4

Acquired trademarks
 
24.8
 
33.2

 
16.9

 
34.2

 
18.5

Projects in process
 
3.0
 
28.1

 
28.1

 
30.6

 
30.6

Other intangibles
 
4.6
 
20.0

 

 
27.5

 
0.3

Total other intangible assets
 
7.7
 
$
1,629.0

 
$
586.3

 
$
1,622.4

 
$
664.2



The estimated future aggregate amortization expense for existing other intangible assets as of December 31, 2017 is expected to be $175.7 million in 2018, $136.2 million in 2019, $109.1 million in 2020, $76.7 million in 2021, $39.8 million in 2022 and $48.8 million thereafter.

Other intangible assets are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted cash flows associated with these assets or operations are compared with their carrying values to determine if a write-down to fair value (normally measured by the present value technique) is required. The Company recorded immaterial impairments related to other intangible assets during the years ended December 31, 2017, 2016 and 2015.

Revenue Recognition

The Company's revenues are primarily derived from consideration paid by customers to transfer money. These revenues vary by transaction based upon send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, speed of service, and channel, as applicable. The Company also offers several other services, including foreign exchange and payment services and other bill payment services, for which revenue is impacted by similar factors. Generally, revenues are recorded at the time a transaction is initiated.

Cost of Services

Cost of services primarily consists of agent commissions and expenses for call centers, settlement operations and related information technology costs. Expenses within these functions include personnel, software, equipment, telecommunications, bank fees, depreciation, amortization and other expenses incurred in connection with providing money transfer and other payment services.

Advertising Costs

Advertising costs are charged to operating expenses as incurred. Advertising costs for the years ended December 31, 2017, 2016 and 2015 were $168.3 million, $151.1 million, and $166.3 million, respectively.

Income Taxes

The Company accounts for income taxes under the liability method, which requires that deferred tax assets and liabilities be determined based on the expected future income tax consequences of events that have been recognized in the consolidated financial statements. Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. The Company assesses the realizability of its deferred tax assets. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized.

The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

Foreign Currency Translation

The United States dollar is the functional currency for substantially all of the Company's businesses. Revenues and expenses are translated at average exchange rates prevailing during the period. Foreign currency denominated assets and liabilities for those businesses for which the local currency is the functional currency are translated into United States dollars based on exchange rates at the end of the year. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of these businesses are included as a component of "Accumulated other comprehensive loss" in the accompanying Consolidated Balance Sheets. Foreign currency denominated monetary assets and liabilities of businesses for which the United States dollar is the functional currency are remeasured based on exchange rates at the end of the period, and the resulting remeasurement gains and losses are recognized in net income/(loss). Non-monetary assets and liabilities of these operations are remeasured at historical rates in effect when the asset was recognized or the liability was incurred.

Derivatives

The Company uses derivatives to (a) minimize its exposures related to changes in foreign currency exchange rates and interest rates and (b) facilitate cross-currency Business Solutions payments by writing derivatives to customers. The Company recognizes all derivatives in the "Other assets" and "Other liabilities" captions in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows.

Cash flow hedges - Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss." Cash flow hedges consist of foreign currency hedging of forecasted revenues, as well as hedges of the forecasted issuance of fixed rate debt. Derivative fair value changes that are captured in "Accumulated other comprehensive loss" are reclassified to earnings in the same period or periods the hedged item affects earnings, to the extent the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged. The portions of the change in fair value that are either considered ineffective or are excluded from the measure of effectiveness are recognized immediately in "Derivative gains, net."

Fair value hedges - Changes in the fair value of derivatives that are designated as fair value hedges of fixed rate debt are recorded in "Interest expense." The offsetting change in value of the related debt instrument attributable to changes in the benchmark interest rate is also recorded in "Interest expense."

Undesignated - Derivative contracts entered into to reduce the variability related to (a) money transfer settlement assets and obligations, generally with maturities from a few days up to one month, and (b) certain foreign currency denominated cash and other asset and liability positions, typically with maturities of less than one year at inception, are not designated as hedges for accounting purposes and changes in their fair value are included in "Selling, general and administrative." The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency Business Solutions payments operations. The duration of these derivative contracts at inception is generally less than one year. The Company aggregates its Business Solutions payments foreign currency exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties (economic hedge contracts) as part of a broader foreign currency portfolio, including significant spot exchanges of currency in addition to forwards and options. The changes in fair value related to these contracts are recorded in "Revenues."

The fair value of the Company's derivatives is derived from standardized models that use market-based inputs (e.g., forward prices for foreign currency).

The details of each designated hedging relationship are formally documented at the inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks being hedged, the derivative instrument, how effectiveness is being assessed, and how ineffectiveness, if any, will be measured. The derivative must be highly effective in offsetting the changes in cash flows or fair value of the hedged item, and effectiveness is evaluated quarterly on a retrospective and prospective basis.

Legal Contingencies

The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company records an accrual for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.

Stock-Based Compensation

The Company currently has a stock-based compensation plan that provides for grants of Western Union stock options, restricted stock awards and restricted and unrestricted stock units to employees and non-employee directors of the Company.

All stock-based compensation to employees is required to be measured at fair value and expensed over the requisite service period. The Company recognizes compensation expense on awards on a straight-line basis over the requisite service period for the entire award, with an estimate of forfeitures. Refer to Note 16 for additional discussion regarding details of the Company's stock-based compensation plans.

Severance and Other Related Expenses

The Company records severance-related expenses once they are both probable and estimable in accordance with the provisions of the applicable accounting guidance for severance provided under an ongoing benefit arrangement. One-time, involuntary benefit arrangements and other costs are generally recognized when the liability is incurred. The Company also evaluates impairment issues associated with restructuring and other activities when the carrying amount of the related assets may not be fully recoverable, in accordance with the appropriate accounting guidance.

Recently Adopted Accounting Pronouncements

On January 1, 2017, the Company adopted an accounting pronouncement related to share-based payments to employees. This standard requires all excess tax benefits and tax deficiencies to be recognized as income tax expense (benefit) in the Consolidated Statements of Income/(Loss) and that excess tax benefits be included as an operating activity for the cash flow statement. In addition, these tax benefits must be removed from the dilutive weighted-average shares outstanding calculation as these assumed proceeds will have already been recognized in the Consolidated Statements of Income/(Loss). The Company will continue its current practice of estimating forfeitures when calculating compensation expense. The adoption of this standard did not have a material impact on the Company's financial position, results of operations, cash flows, or related disclosures.

In January 2017, the Financial Accounting Standards Board issued a new accounting pronouncement to simplify the method of measuring a goodwill impairment charge in the event a reporting unit’s carrying amount exceeds its fair value. In those circumstances, the new standard requires the Company to recognize an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. The Company early-adopted the new standard in the fourth quarter of 2017 and measured its goodwill impairment charge related to its Business Solutions reporting unit under this approach.

Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board issued a new accounting pronouncement regarding revenue from contracts with customers, which the Company is required to adopt on January 1, 2018. This new standard, along with subsequent amendments, provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Based on management's analysis of the new standard, for the significant majority of the Company's revenues, the Company has an obligation to perform one integrated service for the customer - collect the consumer's money and make funds available for payment, predominantly on the same day, to a designated recipient in the currency requested. Accordingly, management has determined that the adoption of this standard will not have a material impact on the Company's financial position and results of operations. The Company will adopt the standard using the modified retrospective approach, applied to all contracts with customers, with the cumulative effect of adoption included in retained earnings as of January 1, 2018. Management has completed an analysis of the new disclosure requirements of the standard and has made minor enhancements to its systems and processes to comply with the new disclosure requirements.


In January 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding classification and measurement of financial instruments. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The Company is required to adopt the new standard on January 1, 2018. Management believes that the adoption of this standard will not have a material impact on the Company's financial position, results of operations, or related disclosures.

In February 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding the financial reporting of leasing transactions. This new standard requires a lessee to record assets and liabilities on the balance sheet for the rights and obligations arising from leases with terms of more than 12 months. The Company is required to adopt the new standard on January 1, 2019 using a modified retrospective approach. Management is currently evaluating the potential impact that the adoption of this standard will have on the Company’s financial position, results of operations, and related disclosures.

In June 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is required to adopt the new standard on January 1, 2020. Management is currently evaluating the potential impact that the adoption of this standard will have on the Company's financial position, results of operations, and related disclosures.

In October 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding certain intra-entity asset transfers, requiring that an entity recognize any income tax consequences when the transfer occurs. The Company is required to adopt the new standard on January 1, 2018. Management believes that the adoption of this standard will not have a material impact on the Company's financial position and results of operations.

In March 2017, the Financial Accounting Standards Board issued a new accounting pronouncement to require the service cost component of defined benefit plan pension cost to be included in the same line item as other compensation costs arising from services rendered by relevant employees, with the other non-service cost components of this net benefit cost presented in the Consolidated Statements of Income/(Loss) separately from the service cost component, outside a subtotal of income from operations. The Company's defined benefit pension plan is frozen, thus there are no related service costs. The Company currently records the non-service costs of the defined benefit pension plan in the "Cost of services" line item of the Consolidated Statements of Income/(Loss), whereas the Company expects to record these costs in the "Other income/(expense), net" line item upon adoption of the standard. The Company is required to adopt the new standard on January 1, 2018, with retrospective presentation. Management believes that the adoption of this standard will not have a material impact on the Company's results of operations or related disclosures.

In August 2017, the Financial Accounting Standards Board issued a new accounting pronouncement to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The Company adopted the standard on January 1, 2018, using the amortization approach for excluded components related to the Company's foreign currency hedging program. Additionally, the impact of the excluded components will be recognized in "Revenues" in the Consolidated Statements of Income/(Loss) rather than "Derivative gains, net" as previously reported. The effects of the standard will be recognized prospectively in the Company's financial statements, since for foreign currency hedges existing at the date of adoption that exclude time value from the assessment of effectiveness, the Company will continue using the mark-to-market recognition model for the excluded component. The adoption of this standard will have no impact on the Company's existing interest rate hedges and will not have a material impact on the Company's financial position or results of operations, but will require the addition of certain disclosures.

In February 2018, the Financial Accounting Standards Board issued a new accounting pronouncement that gives entities the option to reclassify tax effects included within accumulated other comprehensive income/(loss) as a result of the United States tax reform legislation enacted in December 2017 (the “Tax Act”) to retained earnings. The Company will adopt this standard in the first quarter of 2018 and will record the reclassification in the period of adoption. The adoption of this standard will not have a material impact on the Company's financial position or results of operations, but will require the addition of certain disclosures.
Business Transformation and Productivity and Cost-Savings Initiatives Expenses
Business Transformation and Productivity and Cost-Savings Initiatives Expenses
Business Transformation and Productivity and Cost-Savings Initiatives Expenses

In the second quarter of 2016, the Company began incurring expenses related to a business transformation initiative, referred to as the WU Way. Although the expenses related to the WU Way are specific to that initiative, the types of expenses related to the WU Way initiative are similar to expenses that the Company has previously incurred related to productivity and cost-savings initiatives, and can reasonably be expected to incur in the future. The following table summarizes the activity for the years ended December 31, 2017 and December 31, 2016 for the consulting service fees, severance, and other costs related to the business transformation accruals, which are included in "Accounts payable and accrued liabilities" in the Company's Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016 (in millions):

 
Consulting Service Fees
 
Severance and Related Employee Benefits
 
Other
 
Total
Balance, December 31, 2015
$

 
$

 
$

 
$

Expenses
16.4

 
3.9

 

 
20.3

Cash payments
(7.4
)
 

 

 
(7.4
)
Balance, December 31, 2016
$
9.0

 
$
3.9

 
$

 
$
12.9

Expenses (a)
36.1

 
44.2

 
14.1

 
94.4

Cash payments
(36.9
)
 
(28.2
)
 
(12.2
)
 
(77.3
)
Non-cash benefits/charges (a)

 
3.3

 
(0.3
)
 
3.0

Balance, December 31, 2017
$
8.2

 
$
23.2

 
$
1.6

 
$
33.0

____________

(a)
Expenses incurred during 2017 include a non-cash benefit for adjustments to stock compensation for awards forfeited by employees and other immaterial items. These benefits and charges have been removed from the liability balance in the table above as they do not impact the business transformation accruals.
During the year ended December 31, 2015, the Company implemented initiatives to improve productivity and reduce costs. A significant majority of the productivity and cost-savings initiatives costs related to severance and related expenses, including termination benefits received by certain of the Company's former executives. During the year ended December 31, 2015, the Company incurred $11.1 million of expenses related to productivity and cost-savings initiatives. During the years ended December 31, 2016 and 2015, the Company made cash payments of $12.7 million and $30.0 million, respectively, related to productivity and cost-savings initiatives, and as of December 31, 2016, the amount remaining to be paid related to productivity and cost-savings initiatives was immaterial.

As of December 31, 2017, expenses associated with the WU Way initiative are effectively complete. The following table presents the above expenses related to business transformation and productivity and cost-savings initiatives as reflected in the Consolidated Statements of Income/(Loss) (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
Business Transformation
 
Productivity and Cost-Savings Initiatives
Cost of services
$
35.7

 
$
2.5

 
$
1.0

Selling, general and administrative
58.7

 
17.8

 
10.1

Total expenses, pre-tax
$
94.4

 
$
20.3

 
$
11.1

Total expenses, net of tax
$
63.3

 
$
12.9

 
$
7.2



The following table summarizes the business transformation expenses incurred by reportable segment (in millions). Certain business transformation expenses, primarily consulting expenses, are not identifiable to a specific segment, and have therefore been excluded from the table below. These expenses have not been allocated to the Company's segments disclosed in Note 17. While the expenses shown below are identifiable to the Company's segments, they have been excluded from the measurement of segment operating income provided to the CODM for purposes of assessing segment performance and decision making with respect to resource allocation.
 
 
Business Transformation
 
 
Consumer-to-Consumer
 
Business Solutions
 
Other
 
Total
2017 expenses
 
$
30.8

 
$
16.1

 
$
13.6

 
$
60.5

2016 expenses
 
2.7

 
0.6

 
0.5

 
3.8



For those expenses related to initiatives to improve productivity and reduce costs that the Company incurred during the year ended December 31, 2015, $7.6 million, $1.8 million, and $1.7 million were identifiable to the Consumer-to-Consumer and Business Solutions segments, and Other, respectively.
Goodwill
Goodwill
Goodwill

Business Solutions Goodwill Impairment Charge

For the year ended December 31, 2017, the Company recognized a goodwill impairment charge of $464.0 million related to its Business Solutions reporting unit, as the estimated fair value of the reporting unit declined below its carrying value. The reduction in estimated fair value primarily resulted from a decrease in projected revenue growth rates and EBITDA margins and the impact of the Tax Act. Revenue and EBITDA projections were reevaluated due to the declines in revenues and operating results recognized in the fourth quarter of 2017, which were significantly below management’s expectations. Additionally, as disclosed in prior Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, the total estimated fair value of the Business Solutions reporting unit previously included value derived from strategies to optimize United States cash flow management and global liquidity by utilizing international cash balances (including balances generated by other operating segments) to initially fund global principal payouts for Business Solutions transactions initiated in the United States ("Cash Management Strategies") that would have been available to certain market participants. However, the Tax Act, which imposes a tax on certain previously undistributed foreign earnings and establishes minimum taxes on certain future payments and foreign earnings, eliminated any fair value associated with the Cash Management Strategies.

The Company estimated the fair value of its Business Solutions reporting unit using the income approach. The estimated fair value was derived primarily using unobservable Level 3 inputs, which require significant management judgment and estimation.

Business Combinations

On November 6, 2017, the Company completed the purchase of Opus Software Technologies Private Limited and the assets of its affiliate for total consideration of approximately $25.3 million. The Company expects that the acquisition will assist in enhancing and centralizing the Company’s information technology expertise through a newly established information technology development and maintenance center located in India, which was an integral part of the Company’s WU Way transformation efforts. The Company has recognized $22.2 million of goodwill related to this acquisition. The valuation of the acquisition, which is preliminary, was derived primarily using unobservable Level 3 inputs, which require significant management judgment and estimation.

The Company completed one other immaterial acquisition during the fourth quarter of 2017.

The following table presents changes to goodwill for the years ended December 31, 2017 and 2016 (in millions):

Consumer-to-Consumer
 
Business Solutions
 
Other
 
Total
January 1, 2016 goodwill, net
$
1,950.1

 
$
996.0

 
$
217.7

 
$
3,163.8

Currency translation

 

 
(1.8
)
 
(1.8
)
December 31, 2016 goodwill, net
$
1,950.1

 
$
996.0

 
$
215.9

 
$
3,162.0

Goodwill impairment charge

 
(464.0
)
 

 
(464.0
)
Acquisitions
30.9

 

 

 
30.9

Currency translation

 

 
(1.0
)
 
(1.0
)
December 31, 2017 goodwill, net
$
1,981.0

 
$
532.0

 
$
214.9

 
$
2,727.9



The following table presents accumulated impairment losses for the years ended December 31, 2017, 2016 and 2015 (in millions):
 
 
As of December 31,
 
 
2017
 
2016
 
2015
Goodwill, gross
 
$
3,191.9

 
$
3,162.0

 
$
3,163.8

Accumulated impairment losses
 
(464.0
)
 

 

Goodwill, net
 
$
2,727.9

 
$
3,162.0

 
$
3,163.8

Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company had approximately $210 million in outstanding letters of credit and bank guarantees as of December 31, 2017 that are primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements. The letters of credit and bank guarantees have expiration dates through 2021, with many having a one-year renewal option. The Company expects to renew the letters of credit and bank guarantees prior to expiration in most circumstances.

Litigation and Related Contingencies

The Company is subject to certain claims and litigation that could result in losses, including damages, fines and/or civil penalties, which could be significant, and in some cases, criminal charges. The Company regularly evaluates the status of legal matters to assess whether a loss is probable and reasonably estimable in determining whether an accrual is appropriate. Furthermore, in determining whether disclosure is appropriate, the Company evaluates each legal matter to assess if there is at least a reasonable possibility that a loss or additional loss may have been incurred and whether an estimate of possible loss or range of loss can be made. Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional loss may have been incurred for each of the matters described below.
For those matters that the Company believes there is at least a reasonable possibility that a loss or additional loss may have been incurred and can reasonably estimate the loss or potential loss, the reasonably possible potential litigation losses in excess of the Company’s recorded liability for probable and estimable losses was approximately $100 million as of December 31, 2017. For the remaining matters, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons: (a) the proceedings are in preliminary stages; (b) specific damages have not been sought; (c) damage claims are unsupported and/or unreasonable; (d) there is uncertainty as to the outcome of pending appeals or motions; (e) there are significant factual issues to be resolved; or (f) novel legal issues or unsettled legal theories are being asserted.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss.
United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements

In late November 2016, the Company entered into discussions with the United States Department of Justice (the “DOJ”), the United States Attorney's Office for the Central District of California ("USAO-CDCA"), the United States Attorney’s Office for the Eastern District of Pennsylvania ("USAO-EDPA"), the United States Attorney’s Office for the Middle District of Pennsylvania ("USAO-MDPA"), and the United States Attorney’s Office for the Southern District of Florida (“USAO-SDFL”) to resolve the investigations by the USAO-CDCA, USAO-EDPA, USAO-MDPA, and USAO-SDFL (collectively, the “USAOs”) (collectively, the “USAO Investigations”). On January 19, 2017, the Company announced that it, or its subsidiary Western Union Financial Services, Inc. (“WUFSI”), had entered into (1) a Deferred Prosecution Agreement (the “DPA”) with the DOJ and the USAOs; (2) a Stipulated Order for Permanent Injunction and Final Judgment (the “Consent Order”) with the United States Federal Trade Commission (“FTC”) resolving claims by the FTC alleging unfair acts and practices under the Federal Trade Commission Act and for violations of the FTC Telemarketing Sales Rule; and (3) a Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of Treasury (the “FinCEN Agreement”), to resolve the respective investigations of those agencies. FinCEN provided notice to the Company dated December 16, 2016 of its investigation regarding possible violations of the United States Bank Secrecy Act ("BSA"). On January 31, 2017, the Company entered into assurances of discontinuance/assurances of voluntary compliance with the attorneys general of 49 U.S. states and the District of Columbia named therein to resolve investigations by the state attorneys general, which sought information and documents relating to money transfers sent from the United States to certain countries, consumer fraud complaints that the Company had received and the Company's procedures to help identify and prevent fraudulent transfers. On April 12, 2017, the Company settled with the one remaining state attorney general under effectively the same terms as the January 31, 2017 agreement with no additional monetary payment required. The agreements with the state attorneys general are collectively referred to herein as the "State AG Agreement." The DPA, Consent Order, FinCEN Agreement, and State AG Agreement are collectively referred to herein as the "Joint Settlement Agreements."

Pursuant to the DPA, the USAOs filed a two-count criminal information in the United States District Court for the Middle District of Pennsylvania, charging the Company with aiding and abetting wire fraud and willfully failing to implement an effective anti-money laundering ("AML") program. The USAOs agreed that if the Company fully complies with all of its obligations under the DPA, the USAOs will, at the conclusion of the DPA’s term, seek dismissal with prejudice of the criminal information filed against the Company.

Under the Joint Settlement Agreements, the Company was required to (1) pay an aggregate amount of $586 million to the DOJ to be used to reimburse consumers who were the victims of third-party fraud conducted through the Company’s money transfer services (the “Compensation Payment”), (2) pay an aggregate amount of $5 million to the State Attorneys General to reimburse investigative, enforcement, and other costs, and (3) retain an independent compliance auditor for three years to review and assess actions taken by the Company under the Consent Order to further enhance its oversight of agents and protection of consumers. The FinCEN Agreement also set forth a civil penalty of $184 million, the full amount of which was deemed satisfied by the Compensation Payment, without any additional payment or non-monetary obligations. No separate payment to the FTC was required under the Joint Settlement Agreements. The Company paid the Compensation Payment and the aggregate amount due to the State Attorneys General during the first half of 2017. The Company had accrued the Compensation Payment and the aggregate amount due to the State Attorneys General in "Accounts payable and accrued liabilities" in the Company's Consolidated Balance Sheets as of December 31, 2016. In the second quarter of 2017, pursuant to the terms of the Joint Settlement Agreements, the Company engaged an independent compliance auditor, and during the year ended December 31, 2017, the Company accrued an additional $8 million of expenses related to the independent compliance auditor.

The Joint Settlement Agreements also require, among other things, the Company to adopt certain new or enhanced practices with respect to its compliance program relating to consumer reimbursement, agent due diligence, agent training, monitoring, reporting, and record-keeping by the Company and its agents, consumer fraud disclosures, agent suspensions and terminations, and other items. The changes in the Company’s compliance program required by the Joint Settlement Agreements will have adverse effects on the Company’s business, including additional costs and potential loss of business. The Company has faced (as described below) and could also face additional actions from other regulators as a result of the Joint Settlement Agreements. Further, if the Company fails to comply with the Joint Settlement Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards or other regulatory consequences. Any or all of these outcomes could have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.


Shareholder Derivative Actions

On January 13, 2014, Natalie Gordon served the Company with a Verified Shareholder Derivative Complaint and Jury Demand that was filed in District Court, Douglas County, Colorado naming the Company’s President and Chief Executive Officer, one of its former executive officers, one of its former directors, and all but one of its current directors as individual defendants, and the Company as a nominal defendant. The complaint asserts claims for breach of fiduciary duty and gross mismanagement against all of the individual defendants and unjust enrichment against the President and Chief Executive Officer and the former executive officer based on allegations that between February 12, 2012 to October 30, 2012, the individual defendants made or caused the Company to issue false and misleading statements or failed to make adequate disclosures regarding the effects of a settlement agreement signed on February 11, 2010 between WUFSI and the State of Arizona regarding WUFSI's AML compliance programs along the United States and Mexico border ("Southwest Border Agreement"), including regarding the anticipated costs of compliance with the Southwest Border Agreement, potential effects on business operations, and Company projections. Plaintiff also alleges that the individual defendants caused or allowed the Company to lack requisite internal controls, caused or allowed financial statements to be misstated, and caused the Company to be subject to the costs, expenses and liabilities associated with City of Taylor Police and Fire Retirement System v. The Western Union Company, et al., a lawsuit that was subsequently renamed and dismissed. Plaintiff further alleges that the Company’s President and Chief Executive Officer and the former executive officer received excessive compensation based on the allegedly inaccurate financial statements. On March 12, 2014, the Court entered an order granting the parties' joint motion to stay proceedings in the case during the pendency of certain of the shareholder derivative actions described below.

In 2014, Stanley Lieblein, R. Andre Klein, City of Cambridge Retirement System, Mayar Fund Ltd, Louisiana Municipal Police Employees' Retirement System, MARTA/ATU Local 732 Employees Retirement Plan, and The Police Retirement System of St. Louis filed shareholder derivative complaints in the United States District Court for the District of Colorado (or were removed to the United States District Court for the District of Colorado) naming the Company’s President and Chief Executive Officer and certain current and former directors and a former executive officer as individual defendants, and the Company as a nominal defendant. On January 5, 2015, the court entered an order consolidating the actions and appointing City of Cambridge Retirement System and MARTA/ATU Local 732 Employees Retirement Plan as co-lead plaintiffs. On February 4, 2015, co-lead plaintiffs filed a verified consolidated shareholder derivative complaint naming the Company’s President and Chief Executive Officer and nine current or former executive officers and directors as individual defendants, and the Company as a nominal defendant. The consolidated complaint asserts separate claims for breach of fiduciary duty against the director defendants and the officer defendants, claims against all of the individual defendants for violations of section 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), corporate waste and unjust enrichment, and a claim against the former executive officer for breach of fiduciary duties for insider selling and misappropriation of information. The breach of fiduciary duty claim against the director defendants includes allegations that they declined to implement an effective AML compliance system after receiving numerous red flags indicating prolonged willful illegality, obstructed the efforts of the monitor assigned to the Company pursuant to the Southwest Border Agreement to impose effective compliance systems on the Company, failed to take action in response to alleged Western Union management efforts to undermine the monitor, reappointed the same directors to the Audit Committee and Corporate Governance and Public Policy Committees constituting a majority of those committees between 2006 and 2014, appointed a majority of directors to the Compliance Committee who were directly involved in overseeing the alleged misconduct as members of the Audit Committee and the Corporate Governance and Public Policy Committee, caused the Company to materially breach the Southwest Border Agreement, caused the Company to repurchase its stock at artificially inflated prices, awarded the Company’s senior executives excessive compensation despite their responsibility for the Company’s alleged willful non-compliance with state and federal AML laws, and failed to prevent the former executive officer from misappropriating and profiting from nonpublic information when making allegedly unlawful stock sales. The breach of fiduciary duty claim against the officer defendants includes allegations that they caused the Company and allowed its agents to ignore the recording and reporting requirements of the BSA and parallel AML laws and regulations for a prolonged period of time, authorized and implemented AML policies and practices that they knew or should have known to be inadequate, caused the Company to fail to comply with the Southwest Border Agreement and refused to implement and maintain adequate internal controls.
The claim for violations of section 14(a) of the Exchange Act includes allegations that the individual defendants caused the Company to issue proxy statements in 2012, 2013 and 2014 containing materially incomplete and inaccurate disclosures - in particular, by failing to disclose the extent to which the Company’s financial results depended on the non-compliance with AML requirements, the Board’s awareness of the regulatory and criminal enforcement actions in real time pursuant to the 2003 Consent Agreement with the California Department of Financial Institutions and that the directors were not curing violations and preventing misconduct, the extent to which the Board considered the flood of increasingly severe red flags in their determination to re-nominate certain directors to the Audit Committee between 2006 and 2010, and the extent to which the Board considered ongoing regulatory and criminal investigations in awarding multi-million dollar compensation packages to senior executives. The corporate waste claim includes allegations that the individual defendants paid or approved the payment of undeserved executive and director compensation based on the illegal conduct alleged in the consolidated complaint, which exposed the Company to civil liabilities and fines. The corporate waste claim also includes allegations that the individual defendants made improper statements and omissions, which forced the Company to expend resources in defending itself in City of Taylor Police and Fire Retirement System v. The Western Union Company, et al., a lawsuit that was subsequently renamed and dismissed, authorized the repurchase of over $1.565 billion of the Company’s stock at prices they knew or recklessly were aware, were artificially inflated, failed to maintain sufficient internal controls over the Company’s marketing and sales process, failed to consider the interests of the Company and its shareholders, and failed to conduct the proper supervision. The claim for unjust enrichment includes allegations that the individual defendants derived compensation, fees and other benefits from the Company and were otherwise unjustly enriched by their wrongful acts and omissions in managing the Company. The claim for breach of fiduciary duties for insider selling and misappropriation of information includes allegations that the former executive sold Company stock while knowing material, nonpublic information that would have significantly reduced the market price of the stock. On March 16, 2015, the defendants filed a motion to dismiss the consolidated complaint. On March 31, 2016, the Court entered an order granting the defendants’ collective motion to dismiss without prejudice, denying as moot a separate motion to dismiss that was filed by the former executive officer, and staying the order for 30 days, within which plaintiffs could file an amended complaint that cured the defects noted in the order. On May 2, 2016, co-lead plaintiffs filed a verified amended consolidated shareholder derivative complaint naming the Company’s President and Chief Executive Officer, six of its current directors (including the Company’s President and Chief Executive Officer, who also serves as a director) and three of its former directors as individual defendants, and the Company as a nominal defendant. The amended complaint, among other things, drops the claims against the former executive officer named in the prior complaint, realleges and narrows the breach of fiduciary duty claims, and drops the remaining claims. On June 15, 2016, defendants filed a motion to dismiss the amended consolidated shareholder derivative complaint. On August 1, 2016, plaintiffs filed an opposition to the motion to dismiss. On September 1, 2016, defendants filed a reply brief in support of the motion to dismiss. On February 24, 2017, plaintiffs filed a motion to supplement the amended complaint with allegations relating to the DPA, the criminal information filed in the United States District Court for the Middle District of Pennsylvania, and the FTC’s January 19, 2017 Complaint for Permanent Injunctive and Other Equitable Relief and the Consent Order referenced in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above. The same day, the Court granted plaintiffs’ request to supplement the complaint, ordered them to file a second amended complaint, denied without prejudice defendants’ motion to dismiss and granted defendants leave to renew the motion to dismiss. On March 17, 2017, plaintiffs filed a second amended derivative complaint. On September 29, 2017, the Court granted defendants’ motion to dismiss the second amended derivative complaint. On December 19, 2017, plaintiffs filed an appeal brief in the United States Court of Appeals for the Tenth Circuit, seeking reversal of the dismissal, to which the Company filed an opposition on February 20, 2018.

Due to the stages of the actions described above under "Shareholder Derivative Actions," the Company is unable to predict the outcome, or reasonably estimate the possible loss or range of loss, if any, which could be associated with these actions. The Company and the named individuals intend to vigorously defend themselves in all of these matters.

Other Matters

The Company and one of its subsidiaries are defendants in two purported class action lawsuits: James P. Tennille v. The Western Union Company and Robert P. Smet v. The Western Union Company, both of which are pending in the United States District Court for the District of Colorado. The original complaints asserted claims for violation of various consumer protection laws, unjust enrichment, conversion and declaratory relief, based on allegations that the Company waits too long to inform consumers if their money transfers are not redeemed by the recipients and that the Company uses the unredeemed funds to generate income until the funds are escheated to state governments. During the fourth quarter of 2012, the parties executed a settlement agreement, which the Court preliminarily approved on January 3, 2013. On June 25, 2013, the Court entered an order certifying the class and granting final approval to the settlement. Under the approved settlement, a substantial amount of the settlement proceeds, as well as all of the class counsel’s fees, administrative fees and other expenses, would be paid from the class members' unclaimed money transfer funds. During the final approval hearing, the Court overruled objections to the settlement that had been filed by several class members. In July 2013, two of those class members filed notices of appeal. On May 1, 2015, the United States Court of Appeals for the Tenth Circuit affirmed the District Court’s decision to overrule the objections filed by the two class members who appealed. On January 11, 2016, the United States Supreme Court denied petitions for certiorari that were filed by the two class members who appealed. On February 1, 2016, pursuant to the settlement agreement and the Court's June 25, 2013 final approval order, Western Union deposited the class members' unclaimed money transfer funds into a class settlement fund, from which class member claims, administrative fees and class counsel’s fees, as well as other expenses have been paid, with the remainder to go to eligible jurisdictions to which the unclaimed funds would have escheated in the absence of a settlement. Some jurisdictions may opt not to participate in the settlement, taking the position that the Company must escheat those jurisdictions’ full share of the settlement fund and that the pro rata deductions for class counsel's fees, administrative costs, and other expenses that are required under the settlement agreement are not permitted. In that event, there is a reasonable possibility a loss could result up to approximately the pro rata amount of those fees and other expenses.

On March 12, 2014, Jason Douglas filed a purported class action complaint in the United States District Court for the Northern District of Illinois asserting a claim under the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq., based on allegations that since 2009, the Company has sent text messages to class members’ wireless telephones without their consent. During the first quarter of 2015, the Company's insurance carrier and the plaintiff reached an agreement to create an $8.5 million settlement fund that will be used to pay all class member claims, class counsel’s fees and the costs of administering the settlement. The agreement has been signed by the parties and, on November 10, 2015, the Court granted preliminary approval to the settlement. On January 9, 2018, plaintiff filed a motion requesting decisions on its pending motion to approve the settlement and motion for attorneys’ fees, costs, and incentive award. On January 10, 2018, the Court issued an order stating that the pending motions will be decided shortly and setting a status conference for February 28, 2018. The Company accrued an amount equal to the retention under its insurance policy in previous quarters and believes that any amounts in excess of this accrual will be covered by the insurer. However, if the Company's insurer is unable to or refuses to satisfy its obligations under the policy or the parties are unable to reach a definitive agreement or otherwise agree on a resolution, the Company's financial condition, results of operations, and cash flows could be adversely impacted. As the parties have reached an agreement in this matter, the Company believes that the potential for additional loss in excess of amounts already accrued is remote.


On February 10, 2015, Caryn Pincus filed a purported class action lawsuit in the United States District Court for the Southern District of Florida against Speedpay, Inc. ("Speedpay"), a subsidiary of the Company, asserting claims based on allegations that Speedpay imposed an unlawful surcharge on credit card transactions and that Speedpay engages in money transmission without a license. The complaint requests certification of a class and two subclasses generally comprised of consumers in Florida who made a payment through Speedpay’s bill payment services using a credit card and were charged a surcharge for such payment during the four-year and five-year periods prior to the filing of the complaint through the date of class certification. On April 6, 2015, Speedpay filed a motion to dismiss the complaint. On April 23, 2015, in response to the motion to dismiss, Pincus filed an amended complaint that adds claims (1) under the Florida Civil Remedies for Criminal Practices Act, which authorizes civil remedies for certain criminal conduct; and (2) for violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"). On May 15, 2015, Speedpay filed a motion to dismiss the amended complaint. On October 6, 2015, the Court entered an order denying Speedpay’s motion to dismiss. On October 20, 2015, Speedpay filed an answer to the amended complaint. On December 1, 2015, Pincus filed a second amended complaint that revised her factual allegations, but added no new claims. On December 18, 2015, Speedpay filed an answer to the second amended complaint. On May 20, 2016, Speedpay filed a motion for judgment on the pleadings as to Pincus' Florida Civil Remedies for Criminal Practices Act and federal RICO claims. On June 7, 2016, Pincus filed an opposition to Speedpay's motion for judgment on the pleadings. On June 17, 2016, Speedpay filed a reply brief in support of the motion. On October 28, 2016, Pincus filed a motion seeking class certification. The motion seeks the certification of a class consisting of “All (i) persons in Florida (ii) who paid Speedpay, Inc. a fee for using Speedpay, Inc.’s electronic payment services (iii) during the five-year period prior to the filing of the complaint in this action through the present.” Pincus also filed a motion to file her motion under seal. On November 4, 2016, the Court denied Pincus’ motion for class certification without prejudice and motion to seal and ordered her to file a new motion that redacts proprietary and private information. Later that day, Pincus filed a redacted version of the motion. On November 7, 2016, Speedpay filed a motion for summary judgment on Pincus’ remaining claims. On December 15, 2016, Speedpay filed an opposition to Pincus’ class certification motion. The same day, Pincus filed an opposition to Speedpay’s summary judgment motion and requested summary judgment on her individual and class claims. On January 12, 2017, Speedpay filed a reply in support of its summary judgment motion and Pincus filed a reply in support of her class certification motion. On March 28, 2017, the Court granted Speedpay’s motion for judgment on the pleadings as to Pincus’ Florida Civil Remedies for Criminal Practices Act and federal RICO claims. On June 27, 2017, the Court granted Speedpay’s summary judgment motion, entered judgment in favor of Speedpay and ordered the Court clerk to close the case. On October 19, 2017, Pincus filed an appeal brief in the United States Court of Appeals for the Eleventh Circuit, seeking reversal of the summary judgment, to which the Company filed an opposition on December 4, 2017. Pincus filed her reply brief on January 17, 2018. Due to this pending appeal, the Company is unable to predict the outcome, or the possible loss or range of loss, if any, which could be associated with this action. Speedpay intends to vigorously defend itself in this matter.

In October 2015, Consumidores Financieros Asociación Civil para su Defensa, an Argentinian consumer association, filed a purported class action lawsuit in Argentina’s National Commercial Court No. 19 against the Company’s subsidiary Western Union Financial Services Argentina S.R.L. (“WUFSA”). The lawsuit alleges, among other things, that WUFSA’s fees for money transfers sent from Argentina are excessive and that WUFSA does not provide consumers with adequate information about foreign exchange rates. The plaintiff is seeking, among other things, an order requiring WUFSA to reimburse consumers for the fees they paid and the foreign exchange revenue associated with money transfers sent from Argentina, plus punitive damages. The complaint does not specify a monetary value of the claim or a time period. In November 2015, the Court declared the complaint formally admissible as a class action. The notice of claim was served on WUFSA in May 2016, and in June 2016 WUFSA filed a response to the claim and moved to dismiss it on statute of limitations and standing grounds. In April 2017, the Court deferred ruling on the motion until later in the proceedings. In January 2018, the parties agreed on a notification process for potential class members. After notices are published, the case will move to the evidentiary stage. Due to the stage of this matter, the Company is unable to predict the outcome or the possible loss or range of loss, if any, associated with this matter. WUFSA intends to defend itself vigorously.

On February 22, 2017, the Company, its President and Chief Executive Officer, its Chief Financial Officer, and a former executive officer of the Company were named as defendants in two purported class action lawsuits, both of which asserted claims under section 10(b) of the Exchange Act and Securities and Exchange Commission rule 10b-5 and section 20(a) of the Exchange Act. On May 3, 2017, the two cases were consolidated by the United States District Court for the District of Colorado under the caption Lawrence Henry Smallen and Laura Anne Smallen Revocable Living Trust et al. v. The Western Union Company et al., Civil Action No. 1:17-cv-00474-KLM (D. Colo.). On September 6, 2017, the Court appointed Lawrence Henry Smallen and Laura Anne Smallen Revocable Living Trust as the lead plaintiff. On November 6, 2017, the plaintiffs filed a consolidated amended complaint (“Amended Complaint”) that, among other things, added two other former executive officers as defendants, one of whom subsequently was voluntarily dismissed by the plaintiffs. The Amended Complaint asserts claims under section 10(b) of the Exchange Act and Securities and Exchange Commission rule 10b-5 and section 20(a) of the Exchange Act, and alleges that, during the purported class period of February 24, 2012, through May 2, 2017, the defendants made false or misleading statements or failed to disclose purported adverse material facts regarding, among other things, the Company’s compliance with AML and anti-fraud regulations, the status and likely outcome of certain governmental investigations targeting the Company, the reasons behind the Company’s decisions to make certain regulatory enhancements, and the Company’s premium pricing. The defendants filed a motion to dismiss the complaint on January 16, 2018. The consolidated action is in a preliminary stage and the Company is unable to predict the outcome, or the possible loss or range of loss, if any, which could be associated with it. The Company and the individual defendants intend to vigorously defend themselves in this matter.

On February 13, 2017, the Company’s subsidiary, Western Union Payment Services Ireland Limited (“WUPSIL”), was served with a writ of accusation from the National Court of Spain. The writ charges 98 former Western Union money transfer agents or agent representatives with fraud and money laundering in connection with consumer fraud scams they allegedly perpetrated using Western Union money transfer transactions. The writ also names WUPSIL as a civil defendant, allegedly responsible under Spanish law to pay any portion of the alleged amount in victim losses that cannot be repaid by any of the criminal defendants who are convicted. In accordance with Spanish law, on January 4, 2018, the Company, through its subsidiary Western Union International Limited, provided a corporate guaranty in an amount of approximately €23 million to cover any liability that could theoretically attach to WUPSIL. Due to the preliminary stage of this matter, the Company is unable to predict the outcome, or the amount of loss, if any, associated with this matter.

On March 31, 2017, the Company received a request for the production of documents from the New York State Department of Financial Services (the "NYDFS"), following up on a meeting the Company had with the NYDFS on March 7, 2017. The requests pertain to the Company’s oversight of one current and two former Western Union agents located in New York state. The two former agents were identified in the DPA described in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above, and were terminated as agents by the Company prior to 2013. The Company complied with all requests and produced all requested documents to the NYDFS. On July 28, 2017, the NYDFS informed the Company that the facts set forth in the DPA regarding the Company’s anti-money laundering programs over the 2004 through 2012 period gave the NYDFS a basis to take additional enforcement action. On January 4, 2018, the Company’s subsidiary, WUFSI, and the NYDFS agreed to a consent order (the "NYDFS Consent Order"), which resolved the NYDFS investigation into these matters. Under the NYDFS Consent Order, the Company is required, among other things, to pay to the NYDFS a civil monetary penalty of $60 million, which the Company paid on January 12, 2018. In the second quarter of 2017, the Company accrued $49 million towards resolution of this matter, and in the fourth quarter of 2017, the Company accrued the remaining $11 million. The NYDFS Consent Order also imposes certain non-monetary obligations, including a requirement to provide to the NYDFS a remediation plan within 90 days after the date of the NYDFS Consent Order.

In addition to the principal matters described above, the Company is a party to a variety of other legal matters that arise in the normal course of the Company's business. While the results of these other legal matters cannot be predicted with certainty, management believes that the final outcome of these matters will not have a material adverse effect either individually or in the aggregate on the Company's financial condition, results of operations, or cash flows.

On January 26, 2006, the First Data Corporation ("First Data") Board of Directors announced its intention to pursue the distribution of all of its money transfer and consumer payments business and its interest in a Western Union money transfer agent, as well as its related assets, including real estate, through a tax-free distribution to First Data shareholders (the "Spin-off"). The Spin-off resulted in the formation of the Company and these assets and businesses no longer being part of First Data. Pursuant to the separation and distribution agreement with First Data in connection with the Spin-off, First Data and the Company are each liable for, and agreed to perform, all liabilities with respect to their respective businesses. In addition, the separation and distribution agreement also provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of First Data's retained businesses with First Data. The Company also entered into a tax allocation agreement ("Tax Allocation Agreement") that sets forth the rights and obligations of First Data and the Company with respect to taxes imposed on their respective businesses both prior to and after the Spin-off as well as potential tax obligations for which the Company may be liable in conjunction with the Spin-off (see Note 10).
Related Party Transactions
Related Party Transactions
Related Party Transactions
The Company has ownership interests in certain of its agents accounted for under the equity method of accounting. The Company pays these agents commissions for money transfer and other services provided on the Company's behalf. Commission expense recognized for these agents for the years ended December 31, 2017, 2016 and 2015 totaled $65.9 million, $68.0 million and $65.5 million, respectively.
Investment Securities
Investment Securities
Investment Securities

Investment securities included in "Settlement assets" in the Company's Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed rate term notes and variable rate demand notes. Variable rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but have varying maturities through 2050. These securities may be used by the Company for short-term liquidity needs and held for short periods of time. The Company is required to hold highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state and foreign country requirements.

The substantial majority of the Company's investment securities are classified as available-for-sale and recorded at fair value. Investment securities are exposed to market risk due to changes in interest rates and credit risk. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes. Proceeds from the sale and maturity of available-for-sale securities during the years ended December 31, 2017, 2016 and 2015 were $7.9 billion, $4.4 billion and $8.7 billion, respectively. The increase in proceeds from the sale and maturity of available-for-sale securities for the year ended December 31, 2017 compared to the year ended December 31, 2016 was primarily due to increased sales of variable rate demand notes securities. The decline in proceeds from the sale and maturity of available-for-sale securities for the year ended December 31, 2016 compared to the year ended December 31, 2015 was primarily due to reduced sales of variable rate demand note securities.

Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. If potential impairment exists, the Company assesses whether it has the intent to sell the debt security, more likely than not will be required to sell the debt security before its anticipated recovery or expects that some of the contractual cash flows will not be received. The Company had no material other-than-temporary impairments during the periods presented.






The components of investment securities are as follows (in millions):
December 31, 2017
 
Amortized
Cost
 
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/ (Losses)
Settlement assets:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
State and municipal debt securities (a)
$
955.7

 
$
960.0

 
$
7.9

 
$
(3.6
)
 
$
4.3

State and municipal variable rate demand notes
319.6

 
319.6

 

 

 

Corporate and other debt securities
60.9

 
60.8

 
0.2

 
(0.3
)
 
(0.1
)
United States Treasury securities
9.9

 
9.8

 

 
(0.1
)
 
(0.1
)
 
1,346.1

 
1,350.2

 
8.1

 
(4.0
)
 
4.1

Other assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
Foreign corporate debt securities
56.2

 
56.2

 

 

 

 
$
1,402.3

 
$
1,406.4

 
$
8.1

 
$
(4.0
)
 
$
4.1

 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
Amortized
Cost
 
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/ (Losses)
Settlement assets:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
State and municipal debt securities (a)
$
1,008.5

 
$
1,002.4

 
$
5.0

 
$
(11.1
)
 
$
(6.1
)
State and municipal variable rate demand notes
203.4

 
203.4

 

 

 

Corporate and other debt securities
26.0

 
26.0

 

 

 

 
1,237.9

 
1,231.8

 
5.0

 
(11.1
)
 
(6.1
)
Other assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
Foreign corporate debt securities
36.2

 
36.2

 
0.1

 
(0.1
)
 

 
$
1,274.1

 
$
1,268.0

 
$
5.1

 
$
(11.2
)
 
$
(6.1
)
____________

(a) The majority of these securities are fixed rate instruments.
There were no investments with a single issuer or individual securities representing greater than 10% of total investment securities as of December 31, 2017 and 2016.

The following summarizes the contractual maturities of settlement-related debt securities as of December 31, 2017 (in millions):
 
Amortized
Cost
 
Fair
Value
Due within 1 year
$
102.5

 
$
102.4

Due after 1 year through 5 years
525.7

 
527.6

Due after 5 years through 10 years
275.6

 
277.1

Due after 10 years
442.3

 
443.1

 
$
1,346.1

 
$
1,350.2



Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations or the Company may have the right to put the obligation prior to its contractual maturity, as with variable rate demand notes. Variable rate demand notes, having a fair value of $0.9 million, $15.9 million and $302.8 million are included in the "Due within 1 year", "Due after 5 years through 10 years" and "Due after 10 years" categories, respectively, in the table above. Held-to-maturity foreign corporate debt securities are due within 2 years.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements

Fair value, as defined by the relevant accounting standards, represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Company measures fair value, refer to Note 2.

The following tables reflect assets and liabilities that were measured at fair value on a recurring basis (in millions):
  
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Settlement assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
960.0

 
$

 
$
960.0

State and municipal variable rate demand notes

 
319.6

 

 
319.6

Corporate and other debt securities

 
60.8

 

 
60.8

United States Treasury securities
9.8

 

 

 
9.8

Other assets:
 
 
 
 
 
 
 
Derivatives

 
273.4

 

 
273.4

Total assets
$
9.8

 
$
1,613.8

 
$

 
$
1,623.6

Liabilities:
 
 
 
 
 
 
 
Derivatives
$

 
$
263.0

 
$

 
$
263.0

Total liabilities
$

 
$
263.0

 
$

 
$
263.0

 
 
 
 
 
 
 
 
 
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Settlement assets:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
1,002.4

 
$

 
$
1,002.4

State and municipal variable rate demand notes

 
203.4

 

 
203.4

Corporate and other debt securities

 
26.0

 

 
26.0

Other assets:
 
 
 
 
 
 
 
Derivatives

 
365.6

 

 
365.6

Total assets
$

 
$
1,597.4

 
$

 
$
1,597.4

Liabilities:
 
 
 
 
 
 
 
Derivatives
$

 
$
262.3

 
$

 
$
262.3

Total liabilities
$

 
$
262.3

 
$

 
$
262.3



No non-recurring fair value adjustments were recorded during the years ended December 31, 2017 and 2016, except those associated with a goodwill impairment charge and acquisitions, as disclosed in Note 4, for which fair values were estimated primarily using unobservable Level 3 inputs, which require significant management judgment and estimation.

Other Fair Value Measurements

The carrying amounts for many of the Company's financial instruments, including cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and settlement obligations approximate fair value due to their short maturities. The Company's borrowings are classified as Level 2 of the valuation hierarchy, and the aggregate fair value of these borrowings was based on quotes from multiple banks and excluded the impact of related interest rate swaps. Fixed rate notes are carried in the Company's Consolidated Balance Sheets at their original issuance values as adjusted over time to accrete that value to par, except for portions of notes hedged by these interest rate swaps, as disclosed in Note 14. As of December 31, 2017, the carrying value and fair value of the Company's borrowings were $3,033.6 million and $3,146.5 million, respectively (see Note 15). As of December 31, 2016, the carrying value and fair value of the Company's borrowings were $2,786.1 million and $2,888.7 million, respectively.

The Company holds investments in foreign corporate debt securities that are classified as held-to-maturity securities within Level 2 of the valuation hierarchy and are recorded at amortized cost in "Other Assets" in the Company's Consolidated Balance Sheets. As of December 31, 2017, both the carrying value and fair value of the Company's foreign corporate debt securities was $56.2 million. As of December 31, 2016, both the carrying value and fair value of the Company's foreign corporate debt securities was $36.2 million.
Other Assets and Other Liabilities
Other Assets and Other Liabilities
Other Assets and Other Liabilities

The following table summarizes the components of other assets and other liabilities (in millions):

 
December 31,
 
2017
 
2016
Other assets:
 
 
 
Derivatives
$
273.4

 
$
365.6

Prepaid expenses
120.5

 
126.9

Amounts advanced to agents, net of discounts
53.5

 
58.0

Equity method investments
29.1

 
40.1

Other
199.4

 
155.7

Total other assets
$
675.9

 
$
746.3

Other liabilities:
 
 
 
Derivatives
$
263.0

 
$
262.3

Pension obligations
15.0

 
26.4

Other
78.8

 
70.7

Total other liabilities
$
356.8

 
$
359.4

Income Taxes
Income Taxes
Income Taxes

The components of pre-tax income, generally based on the jurisdiction of the legal entity, were as follows (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Domestic
$
(238.8
)
 
$
(546.4
)
 
$
(27.0
)
Foreign
586.3

 
888.1

 
968.8

 
$
347.5

 
$
341.7

 
$
941.8



For the years ended December 31, 2017, 2016 and 2015, 169%, 260% and 103% of the Company's pre-tax income was derived from foreign sources, respectively. The increase in domestic pre-tax income for the year ended December 31, 2017 compared to the prior year was primarily due to expenses recorded in 2016 as a result of the Joint Settlement Agreements, described further in Note 5, partially offset by the domestic portion of the goodwill impairment charge related to the Company's Business Solutions reporting unit, the NYDFS Consent Order accrual, as also discussed in Note 5, and an increase in business transformation expenses.

In December 2017, the Tax Act was enacted into United States law. Certain of the Tax Act's impacts have been provisionally estimated and will likely be adjusted in future periods as the Company completes its accounting for these matters in accordance with a recent staff accounting bulletin issued by the SEC. For those areas of the Tax Act where the Company does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting, the Company has recorded estimates which may need to be adjusted in subsequent periods, and those subsequent adjustments will be recorded in the Company's provision for income taxes if the estimates change as the Company completes the accounting for those matters during 2018. While management believes it has made reasonable estimates for the numerous complex provisions in the law, tax expense is provisional for the following items:

With respect to the United States taxation of certain previously undistributed earnings of foreign subsidiaries, the determination of the amount of earnings, the amount of assets which are to be included as cash and other specified assets, and which are therefore subject to the higher effective tax rate specified in the Tax Act, and the related potential foreign tax implications are provisional and subject to further analysis, including the Company's completion of the calculation for the 2017 federal, state, and foreign income tax returns. In addition, the Company is completing this analysis for a significant number of its controlled foreign corporations, as the analysis must be completed for each of the subsidiaries and not consolidated at a higher level. Therefore, the amount of this tax may change until the Company finalizes the calculation. The estimated tax provision amount related to this matter was $916 million in the year ended December 31, 2017.

The Company recorded a provisional $87 million benefit for the remeasurement of deferred tax assets and liabilities and other tax balances to reflect the lower federal income tax rate, among other effects. The Company is still analyzing certain aspects of the Tax Act and refining the calculations, which could potentially affect the measurement of these balances, and the amount is also subject to the Company's completion of the calculation for the 2017 federal, state, and foreign income tax returns.

The Company has provisionally estimated the total amount of outside basis differences with respect to its foreign subsidiaries as of December 31, 2017 to be $254 million (after giving effect to the Tax Act), and no deferred income tax effects have been recognized with respect to such outside basis differences. These outside tax basis differences primarily relate to the remaining undistributed foreign earnings not subject to the tax on certain previously undistributed earnings of foreign subsidiaries pursuant to the Tax Act and additional outside basis difference inherent in certain entities. To the extent such outside basis differences are attributable to undistributed earnings not already subject to United States tax, such undistributed earnings continue to be indefinitely reinvested in foreign operations. Upon the future realization of the Company's basis difference, the Company could be subject to United States income taxes, state income taxes and possible withholding taxes payable to various foreign countries. However, determination of this amount of unrecognized deferred tax liability is not practicable because of the complexities associated with its hypothetical calculation. The amount of total outside basis differences and appropriate deferred tax effects are impacted by the application of the Tax Act and will be finalized during 2018.


Subsequent to the enactment of the Tax Act, the Company must make an accounting policy election to account for the tax effects of global intangible low-tax income either as a component of income tax expense in the period the tax arises, or as a component of deferred taxes on the related investments in foreign subsidiaries. The Company is currently evaluating these provisions of the Tax Act and the related implications and has not finalized its accounting policy election. The Company will finalize its accounting policy election in 2018.

The Company's income tax expense could also increase or decrease in future periods as the effects of the Tax Act are clarified through federal or state regulations, interpretations, or law changes. For example, the Tax Act is broad and complex, and given its recent enactment, regulations or other interpretive guidance is currently limited. Any change in the interpretation of the Tax Act or other legislative proposals or amendments could have a significant effect on the Company's income tax expense in future periods. Furthermore, the effect of the Tax Act on state income taxes, including how the tax on certain previously undistributed earnings of foreign subsidiaries will be interpreted by the states and how states will apply forward-looking provisions of the Tax Act, are currently unclear and subject to potential changes affecting both the amount of state taxes and the remeasurement of the Company's deferred tax assets and liabilities and other tax balances.

The provision for income taxes was as follows (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Federal
$
848.5

 
$
43.5

 
$
33.2

State and local
5.4

 
2.9

 
(1.0
)
Foreign
50.7

 
42.1

 
71.8

 
$
904.6

 
$
88.5

 
$
104.0



No tax benefit was recorded in either 2017 for the $60 million NYDFS Consent Order accrual or in 2016 for the $586 million Compensation Payment resulting from the Joint Settlement Agreements. Domestic taxes have been incurred on certain pre-tax income amounts that were generated by the Company's foreign operations, including a tax on certain previously undistributed earnings of foreign subsidiaries imposed by the Tax Act. In addition, certain portions of the Company's foreign source income are subject to United States federal and state income tax as earned due to the nature of the income, and dividend repatriations of the Company's foreign source income may be subject to state income tax. Accordingly, the percentage obtained by dividing the total federal, state and local tax provision by the domestic pre-tax income, all as shown in the preceding tables, is higher than the statutory tax rates in the United States.

The Company's effective tax rates differed from statutory rates as follows:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal income tax benefits
1.7
 %
 
1.2
 %
 
0.4
 %
Foreign rate differential, net of United States tax paid on foreign earnings (1.1%, 24.8% and 3.4%, respectively)
(69.3
)%
 
(50.8
)%
 
(24.6
)%
Tax Act impact
251.5
 %
 
 %
 
 %
Joint Settlement Agreements impact
 %
 
62.1
 %
 
 %
NYDFS Consent Order impact
6.0
 %
 
 %
 
 %
Goodwill impairment
46.7
 %
 
 %
 
 %
Lapse of statute of limitations
(10.0
)%
 
(11.3
)%
 
(0.8
)%
Valuation allowances
0.8
 %
 
(2.8
)%
 
(0.9
)%
Other
(2.1
)%
 
(7.5
)%
 
1.9
 %
Effective tax rate
260.3
 %
 
25.9
 %
 
11.0
 %


The Company's effective tax rate for the year ended December 31, 2017 was significantly impacted by the enactment of the Tax Act into United States law, primarily due to a tax on certain previously undistributed earnings of foreign subsidiaries, partially offset by the remeasurement of the Company's deferred tax assets and liabilities and other tax balances to reflect the lower federal income tax rate, among other effects. The Company's effective tax rate for the year ended December 31, 2017 compared to 2016 was also impacted by the goodwill impairment in the Company's Business Solutions reporting unit, the NYDFS Consent Order accrual recorded in 2017, and the Joint Settlement Agreements recorded during 2016. The increase in the Company's effective tax rate for the year ended December 31, 2016 compared to 2015 was primarily due to the Joint Settlement Agreements and an increase in higher-taxed earnings (excluding the Joint Settlement Agreements) compared to lower-taxed foreign earnings, partially offset by the combined effects of various discrete items, including changes in tax contingency reserves.

The Company's provision for income taxes consisted of the following components (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
774.4

 
$
186.2

 
$
59.6

State and local
1.0

 
13.1

 
5.4

Foreign
59.7

 
63.4

 
78.9

Total current taxes
835.1

 
262.7

 
143.9

Deferred:
 
 
 
 
 
Federal
74.1

 
(142.7
)
 
(26.4
)
State and local
4.4

 
(10.2
)
 
(6.4
)
Foreign
(9.0
)
 
(21.3
)
 
(7.1
)
Total deferred taxes
69.5

 
(174.2
)
 
(39.9
)
 
$
904.6

 
$
88.5

 
$
104.0


Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book and tax bases of the Company's assets and liabilities. The following table outlines the principal components of deferred tax items (in millions):
 
December 31,
 
2017
 
2016
Deferred tax assets related to:
 
 
 
Reserves, accrued expenses and employee-related items
$
44.8

 
$
279.8

Tax attribute carryovers
27.1

 
39.1

Pension obligations
4.6

 
11.1

Intangibles, property and equipment
11.9

 
9.7

Other
10.7

 
14.8

Valuation allowance
(19.9
)
 
(22.0
)
Total deferred tax assets
79.2

 
332.5

Deferred tax liabilities related to:
 
 
 
Intangibles, property and equipment
239.4

 
394.4

Other
0.9

 
14.3

Total deferred tax liabilities
240.3

 
408.7

Net deferred tax liability (a)
$
161.1

 
$
76.2


____________

(a)
As of December 31, 2017 and 2016, deferred tax assets that cannot be fully offset by deferred tax liabilities in the respective tax jurisdictions of $11.9 million and $9.7 million, respectively, are reflected in "Other assets" in the Consolidated Balance Sheets.

The valuation allowances are primarily the result of uncertainties regarding the Company's ability to recognize tax benefits associated with certain United States foreign tax credit carryforwards and certain foreign and state net operating losses. Such uncertainties include generating sufficient United States foreign tax credit limitation related to passive income and generating sufficient income. Changes in circumstances, or the identification and implementation of relevant tax planning strategies, could make it foreseeable that the Company will recover these deferred tax assets in the future, which could lead to a reversal of these valuation allowances and a reduction in income tax expense.

Uncertain Tax Positions

The Company has established contingency reserves for a variety of material, known tax exposures. As of December 31, 2017, the total amount of tax contingency reserves was $344.0 million, including accrued interest and penalties, net of related items. The Company's tax reserves reflect management's judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While the Company believes its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company's income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue and (ii) any difference from the Company's tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in the Company's consolidated financial statements in future periods and could impact operating cash flows.

Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company's consolidated financial statements, and are reflected in "Income taxes payable" in the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):
 
2017
 
2016
Balance as of January 1,
$
352.0

 
$
105.6

Increase related to current period tax positions (a)
9.0

 
223.6

Increase related to prior period tax positions

 
71.7

Decrease related to prior period tax positions
(19.8
)
 
(14.9
)
Decrease due to lapse of applicable statute of limitations
(14.0
)
 
(33.1
)
Increase/(decrease) due to effects of foreign currency exchange rates
1.8

 
(0.9
)
Balance as of December 31,
$
329.0

 
$
352.0

____________

(a)
Includes recurring accruals for issues which initially arose in previous periods.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $319.6 million and $343.3 million as of December 31, 2017 and 2016, respectively, excluding interest and penalties.

The Company recognizes interest and penalties with respect to unrecognized tax benefits in "Provision for income taxes" in its Consolidated Statements of Income/(Loss), and records the associated liability in "Income taxes payable" in its Consolidated Balance Sheets. The Company recognized $2.2 million, $(0.2) million and $1.9 million in interest and penalties during the years ended December 31, 2017, 2016 and 2015, respectively. The Company has accrued $25.4 million and $22.5 million for the payment of interest and penalties as of December 31, 2017 and 2016, respectively.

The unrecognized tax benefits accrual as of December 31, 2017 consists of federal, state and foreign tax matters. It is reasonably possible that the Company's total unrecognized tax benefits will decrease by approximately $19 million during the next 12 months in connection with various matters which may be resolved.

The Company and its subsidiaries file tax returns for the United States, for multiple states and localities, and for various non-United States jurisdictions, and the Company has identified the United States as its major tax jurisdiction, as the income tax imposed by any one foreign country is not material to the Company. The United States federal income tax returns of First Data, which include the Company, are eligible to be examined for 2005 and 2006. The Company's United States federal income tax returns since the Spin-off (other than 2010-2013) are also eligible to be examined.

The United States Internal Revenue Service ("IRS") completed its examination of the United States federal consolidated income tax returns of First Data for 2003 and 2004, which included the Company, and issued a Notice of Deficiency in December 2008. In December 2011, the Company reached an agreement with the IRS resolving substantially all of the issues related to the Company's restructuring of its international operations in 2003 ("IRS Agreement"). As a result of the IRS Agreement, the Company expects to make cash payments of approximately $190 million, plus additional accrued interest, of which $94.1 million has been paid as of December 31, 2017. A substantial majority of these payments were made in the year ended December 31, 2012. The Company may pay the remaining amount in 2018. The IRS completed its examination of the United States federal consolidated income tax returns of First Data, which include the Company's 2005 and pre-Spin-off 2006 taxable periods and issued its report on October 31, 2012 ("FDC 30-Day Letter"). Furthermore, the IRS completed its examination of the Company's United States federal consolidated income tax returns for the 2006 post-Spin-off period through 2009 and issued its report also on October 31, 2012 ("WU 30-Day Letter"). Both the FDC 30-Day Letter and the WU 30-Day Letter propose tax adjustments affecting the Company, some of which are agreed and some of which are unagreed. Both First Data and the Company filed their respective protests with the IRS Appeals Division on November 28, 2012 related to the unagreed proposed adjustments. The Company believes its reserves are adequate with respect to both the agreed and unagreed adjustments. During the year ended December 31, 2016, the Company reached an agreement in principle with the IRS concerning its unagreed adjustments and adjusted its reserves accordingly. The Company anticipates concluding the matters related to these years in 2018.

Tax Allocation Agreement with First Data

The Company and First Data each are liable for taxes imposed on their respective businesses both prior to and after the Spin-off. If such taxes have not been appropriately apportioned between First Data and the Company, subsequent adjustments may occur that may impact the Company's financial condition or results of operations.

Also under the tax allocation agreement, with respect to taxes and other liabilities that result from a final determination that is inconsistent with the anticipated tax consequences of the Spin-off (as set forth in the private letter ruling and relevant tax opinion) ("Spin-off Related Taxes"), the Company will be liable to First Data for any such Spin-off Related Taxes attributable solely to actions taken by or with respect to the Company. In addition, the Company will also be liable for half of any Spin-off Related Taxes (i) that would not have been imposed but for the existence of both an action by the Company and an action by First Data or (ii) where the Company and First Data each take actions that, standing alone, would have resulted in the imposition of such Spin-off Related Taxes. The Company may be similarly liable if it breaches certain representations or covenants set forth in the tax allocation agreement. If the Company is required to indemnify First Data for taxes incurred as a result of the Spin-off being taxable to First Data, it likely would have a material adverse effect on the Company's business, financial condition and results of operations. First Data generally will be liable for all Spin-off Related Taxes, other than those described above.
Employee Benefit Plans
Employee Benefit Plans
Employee Benefit Plans

Defined Contribution Plans

The Company administers several defined contribution plans in various countries globally, including The Western Union Company Incentive Savings Plan (the "401(k)"), which covers eligible employees on the United States payroll. Such plans have vesting and employer contribution provisions that vary by country. In addition, the Company sponsors a non-qualified deferred compensation plan for a select group of highly compensated United States employees. The plan provides tax-deferred contributions and the restoration of Company matching contributions otherwise limited under the 401(k). The aggregate amount charged to expense in connection with all of the above plans was $19.2 million, $17.8 million, and $18.0 million during the years ended December 31, 2017, 2016 and 2015, respectively.

Defined Benefit Plan

The Company has a frozen defined benefit pension plan (the "Plan") and recognizes its funded status, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in "Other liabilities" in the Consolidated Balance Sheets. Plan assets, which are managed in a third-party trust, primarily consist of a diversified blend of approximately 60% fixed income, 20% equity investments, and 20% alternative investments (e.g., hedge funds, royalty rights and private equity funds) and had a total fair value of $271.7 million and $280.0 million as of December 31, 2017 and 2016, respectively. The significant majority of plan assets fall within either Level 1 or Level 2 of the fair value hierarchy. The benefit obligation associated with the Plan will vary over time only as a result of changes in market interest rates, the life expectancy of the plan participants, and benefit payments, since the accrual of benefits was suspended when the Plan was frozen in 1988. The benefit obligation was $286.7 million and $306.4 million, and the discount rate assumption used in the measurement of this obligation was 3.11% and 3.40% as of December 31, 2017 and 2016, respectively. The Company’s unfunded pension obligation was $15.0 million and $26.4 million as of December 31, 2017 and 2016, respectively.

The net periodic benefit cost associated with the Plan was $2.4 million, $3.3 million, and $2.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. The expected long-term return on plan assets assumption is 6.50% for 2018. The Company made no contributions to the Plan for the year ended December 31, 2017 and $38.1 million of contributions to the Plan in the year ended December 31, 2016. No funding to the Plan will be required for 2018. The estimated undiscounted future benefit payments are expected to be $31.5 million in 2018, $29.8 million in 2019, $28.0 million in 2020, $26.3 million in 2021, $24.5 million in 2022, and $98.1 million in 2023 through 2027.
Operating Lease Commitments
Operating Lease Commitments
Operating Lease Commitments

The Company leases certain real properties for use as customer service centers and administrative and sales offices. The Company also leases automobiles and office equipment. Certain of these leases contain renewal options and escalation provisions. Total rent expense under operating leases, net of sublease income, was $51.1 million, $46.2 million and $46.9 million during the years ended December 31, 2017, 2016 and 2015, respectively. Additionally, during the year ended December 31, 2017, the Company entered into lease agreements to move employees in its current corporate headquarters to other locations in the Denver, Colorado area, and is expected to relocate during the second half of 2018.

As of December 31, 2017, the minimum aggregate rental commitments under all non-cancelable operating leases were as follows (in millions):
Year Ending December 31,
 
2018
$
43.2

2019
35.5

2020
32.4

2021
26.3

2022
22.7

Thereafter
118.7

Total future minimum lease payments
$
278.8

Stockholders' Equity/(Deficit)
Stockholders' Equity/(Deficit)
Stockholders' Equity/(Deficit)

Accumulated other comprehensive loss

Accumulated other comprehensive loss includes all changes in equity during a period that have yet to be recognized in income, except those resulting from transactions with shareholders. The major components include unrealized gains and losses on investment securities, unrealized gains and losses from cash flow hedging activities, foreign currency translation adjustments and defined benefit pension plan adjustments.

Unrealized gains and losses on investment securities that are available for sale, primarily state and municipal debt securities, are included in "Accumulated other comprehensive loss" until the investment is either sold or deemed other-than-temporarily impaired. See Note 7 for further discussion.

The effective portion of the change in fair value of derivatives that qualify as cash flow hedges are recorded in "Accumulated other comprehensive loss." Generally, amounts are recognized in income when the related forecasted transaction affects earnings. See Note 14 for further discussion.

The assets and liabilities of foreign subsidiaries whose functional currency is not the United States dollar are translated using the appropriate exchange rate as of the end of the year. Foreign currency translation adjustments represent unrealized gains and losses on assets and liabilities arising from the difference in the foreign country currency compared to the United States dollar. These gains and losses are accumulated in other comprehensive income/(loss). When a foreign subsidiary is substantially liquidated, the cumulative translation gain or loss is removed from "Accumulated other comprehensive loss" and is recognized as a component of the gain or loss on the sale of the subsidiary.

The defined benefit pension plan adjustment is recognized for the difference between estimated assumptions (e.g., asset returns, discount rates, mortality) and actual results. The amount in "Accumulated other comprehensive loss" is amortized to income over the remaining life expectancy of the plan participants. Details of the pension plan's assets and obligations are explained further in Note 11.
    
The following table summarizes the components of accumulated other comprehensive loss, net of tax (in millions). All amounts reclassified from accumulated other comprehensive loss affect the line items as indicated below within the Consolidated Statements of Income/(Loss).
 
Year Ended December 31,
 
2017
 
2016
 
2015
Unrealized gains/(losses) on investment securities, beginning of year
$
(3.8
)
 
$
7.8

 
$
8.9

Unrealized gains/(losses)
12.6

 
(14.9
)
 
0.4

Tax (expense)/benefit
(4.6
)
 
5.4

 
(0.1
)
Reclassification of gains into "Revenues"
(2.4
)
 
(3.3
)
 
(2.2
)
Tax expense related to reclassifications
0.9

 
1.2

 
0.8

Net unrealized gains/(losses) on investment securities
6.5

 
(11.6
)
 
(1.1
)
Unrealized gains/(losses) on investment securities, end of year
$
2.7

 
$
(3.8
)
 
$
7.8

 


 
 
 


Unrealized gain/(losses) on hedging activities, beginning of year
$
33.8

 
$
41.4

 
$
48.6

Unrealized gains/(losses)
(73.9
)
 
34.3

 
70.8

Tax (expense)/benefit
2.2

 
1.0

 
(7.0
)
Reclassification of gains into "Revenues"
(4.8
)
 
(48.0
)
 
(77.8
)
Reclassification of losses into "Interest expense"
3.3

 
3.6

 
3.6

Tax expense/(benefit) related to reclassifications
(1.2
)
 
1.5

 
3.2

Net unrealized gains/(losses) on hedging activities
(74.4
)
 
(7.6
)
 
(7.2
)
Unrealized gains/(losses) on hedging activities, end of year
$
(40.6
)
 
$
33.8

 
$
41.4

 
 
 
 
 


Foreign currency translation adjustments, beginning of year
$
(70.7
)
 
$
(66.0
)
 
$
(49.2
)
Foreign currency translation adjustments
(6.8
)
 
(5.4
)
 
(20.3
)
Tax benefit
0.6

 
0.7

 
3.5

Net foreign currency translation adjustments
(6.2
)
 
(4.7
)
 
(16.8
)
Foreign currency translation adjustments, end of year
$
(76.9
)
 
$
(70.7