WESTERN UNION CO, 10-Q filed on 8/5/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Document and Entity Information    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Entity File Number 001-32903  
Entity Registrant Name Western Union CO  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 20-4531180  
Entity Address, Address Line One 7001 EAST BELLEVIEW AVENUE  
Entity Address, City or Town Denver  
Entity Address, State or Province CO  
Entity Address, Postal Zip Code 80237  
City Area Code 866  
Local Phone Number 405-5012  
Title of 12(b) Security Common Stock, $0.01 Par Value  
Trading Symbol WU  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   411,003,966
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0001365135  
Amendment Flag false  
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF INCOME        
Revenues $ 1,114.7 $ 1,340.5 $ 2,304.7 $ 2,677.5
Type of Revenue us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember
Expenses:        
Cost of services $ 662.2 $ 776.4 $ 1,345.6 $ 1,561.4
Type of Cost of Service us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember
Selling, general, and administrative $ 230.7 $ 305.2 $ 504.1 $ 606.0
Total expenses 892.9 1,081.6 1,849.7 2,167.4
Operating income 221.8 258.9 455.0 510.1
Other income/(expense):        
Gain on divestitures of businesses (Note 4)   524.6   524.6
Interest income 0.8 1.0 2.4 3.1
Interest expense (29.3) (38.6) (62.2) (78.3)
Other income/(expense), net (0.1) (0.3) (0.1) 2.2
Total other income/(expense), net (28.6) 486.7 (59.9) 451.6
Income before income taxes 193.2 745.6 395.1 961.7
Provision for income taxes 31.3 130.8 56.5 173.8
Net income $ 161.9 $ 614.8 $ 338.6 $ 787.9
Earnings per share:        
Basic (USD per share) $ 0.39 $ 1.43 $ 0.82 $ 1.82
Diluted (USD per share) $ 0.39 $ 1.42 $ 0.81 $ 1.81
Weighted-average shares outstanding:        
Basic (shares) 411.5 430.0 412.9 433.8
Diluted (shares) 413.6 432.3 415.9 436.1
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        
Net income $ 161.9 $ 614.8 $ 338.6 $ 787.9
Other comprehensive income, net of reclassifications and tax (Note 11):        
Unrealized gains on investment securities 19.5 9.9 25.2 22.9
Unrealized gains/(losses) on hedging activities (19.1) (5.9) 1.6 (2.0)
Defined benefit pension plan adjustments 2.1 1.9 4.4 4.4
Total other comprehensive income 2.5 5.9 31.2 25.3
Comprehensive income $ 164.4 $ 620.7 $ 369.8 $ 813.2
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Assets    
Cash and cash equivalents $ 1,181.6 $ 1,450.5
Settlement assets 3,522.3 3,296.7
Property and equipment, net of accumulated depreciation of $643.7 and $616.5, respectively 167.5 186.9
Goodwill 2,566.6 2,566.6
Other intangible assets, net of accumulated amortization of $995.7 and $961.5, respectively 473.9 494.9
Other assets 795.1 762.9
Total assets 8,707.0 8,758.5
Liabilities:    
Accounts payable and accrued liabilities 466.9 601.9
Settlement obligations 3,522.3 3,296.7
Income taxes payable 1,005.5 1,019.7
Deferred tax liability, net 167.9 152.1
Borrowings 3,085.8 3,229.3
Other liabilities 532.0 498.3
Total liabilities 8,780.4 8,798.0
Commitments and contingencies (Note 8)
Stockholders' deficit:    
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
Common stock, $0.01 par value; 2,000 shares authorized; 411.0 shares and 418.0 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 4.1 4.2
Capital surplus 860.5 841.2
Accumulated deficit (760.2) (675.9)
Accumulated other comprehensive loss (177.8) (209.0)
Total stockholders' deficit (73.4) (39.5)
Total liabilities and stockholders' deficit $ 8,707.0 $ 8,758.5
v3.20.2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
shares in Millions, $ in Millions
Jun. 30, 2020
Dec. 31, 2019
Assets    
Accumulated Depreciation on Property Plant and Equipment $ 643.7 $ 616.5
Accumulated Amortization on Other Intangible Assets $ 995.7 $ 961.5
Stockholders' Equity:    
Preferred stock, par value (USD per share) $ 1.00 $ 1.00
Preferred stock, shares authorized 10.0 10.0
Preferred stock, shares issued 0.0 0.0
Common stock, par value (USD per share) $ 0.01 $ 0.01
Common stock, shares authorized 2,000.0 2,000.0
Common stock, shares issued 411.0 418.0
Common stock, shares outstanding 411.0 418.0
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities    
Net income $ 338.6 $ 787.9
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 32.0 38.2
Amortization 83.3 91.4
Gain on divestitures of businesses, excluding transaction costs (Note 4)   (532.1)
Other non-cash items, net 63.9 52.3
Increase/(decrease) in cash, excluding the effects of divestitures, resulting from changes in:    
Other assets (16.6) 12.3
Accounts payable and accrued liabilities (130.9) (59.3)
Income taxes payable (19.2) 21.5
Other liabilities (3.3) (9.6)
Net cash provided by operating activities 347.8 402.6
Cash flows from investing activities    
Payments for capitalized contract costs (46.0) (24.5)
Payments for internal use software (22.3) (19.1)
Purchases of property and equipment (15.9) (31.4)
Proceeds from the sale of former corporate headquarters (Note 4) 44.2  
Proceeds from divestitures of businesses, net of cash divested (Note 4)   732.6
Purchases of non-settlement related investments (2.2) (4.5)
Proceeds from maturity of non-settlement related investments 0.6 19.8
Purchases of held-to-maturity non-settlement related investments   (1.3)
Proceeds from held-to-maturity non-settlement related investments   15.4
Other investing activities (2.6)  
Net cash (used in)/provided by investing activities (44.2) 687.0
Cash flows from financing activities    
Cash dividends paid (184.9) (172.9)
Common stock repurchased (Note 11) (237.7) (341.6)
Net (repayments of)/proceeds from commercial paper (145.0) 143.0
Principal payments on borrowings   (500.0)
Proceeds from exercise of options 1.5 20.5
Other financing activities (0.7) (0.8)
Net cash used in financing activities (566.8) (851.8)
Net change in cash, cash equivalents, and restricted cash (263.2) 237.8
Cash, cash equivalents, and restricted cash at beginning of period 1,456.8 979.7
Cash, cash equivalents, and restricted cash at end of period 1,193.6 1,217.5
Supplemental cash flow information:    
Interest paid 53.5 78.1
Income taxes paid 59.7 156.6
Cash paid for lease liabilities 25.6 24.3
Non-cash lease liabilities arising from obtaining right-of-use assets 17.8 269.1
Restricted cash at end of year (included in Other assets) $ 12.0 $ 7.3
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) - USD ($)
shares in Millions, $ in Millions
Common Stock
Capital Surplus
Accumulated Deficit
Accumulated Other Comprehensive Loss
Total
Beginning balance at Dec. 31, 2018 $ 4.4 $ 755.6 $ (838.8) $ (231.0) $ (309.8)
Beginning balance (shares) at Dec. 31, 2018 441.2        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     173.1   173.1
Stock-based compensation   13.7     13.7
Common stock dividends and dividend equivalents declared     (87.4)   (87.4)
Repurchase and retirement of common shares $ (0.1)   (184.9)   (185.0)
Repurchase and retirement of common shares (shares) (10.2)        
Shares issued under stock-based compensation plans   1.8     1.8
Shares issued under stock-based compensation plans (shares) 1.9        
Other comprehensive income (Note 11)       19.4 19.4
Ending balance at Mar. 31, 2019 $ 4.3 771.1 (938.0) (211.6) (374.2)
Ending balance (shares) at Mar. 31, 2019 432.9        
Beginning balance at Dec. 31, 2018 $ 4.4 755.6 (838.8) (231.0) (309.8)
Beginning balance (shares) at Dec. 31, 2018 441.2        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income         787.9
Other comprehensive income (Note 11)         25.3
Ending balance at Jun. 30, 2019 $ 4.3 801.3 (569.7) (205.7) 30.2
Ending balance (shares) at Jun. 30, 2019 425.9        
Beginning balance at Mar. 31, 2019 $ 4.3 771.1 (938.0) (211.6) (374.2)
Beginning balance (shares) at Mar. 31, 2019 432.9        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     614.8   614.8
Stock-based compensation   11.6     11.6
Common stock dividends and dividend equivalents declared     (85.5)   (85.5)
Repurchase and retirement of common shares     (161.0)   (161.0)
Repurchase and retirement of common shares (shares) (8.3)        
Shares issued under stock-based compensation plans   18.6     18.6
Shares issued under stock-based compensation plans (shares) 1.3        
Other comprehensive income (Note 11)       5.9 5.9
Ending balance at Jun. 30, 2019 $ 4.3 801.3 (569.7) (205.7) 30.2
Ending balance (shares) at Jun. 30, 2019 425.9        
Beginning balance at Dec. 31, 2019 $ 4.2 841.2 (675.9) (209.0) $ (39.5)
Beginning balance (shares) at Dec. 31, 2019 418.0       418.0
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     176.7   $ 176.7
Stock-based compensation   12.5     12.5
Common stock dividends and dividend equivalents declared     (93.3)   (93.3)
Repurchase and retirement of common shares $ (0.1)   (235.1)   (235.2)
Repurchase and retirement of common shares (shares) (9.2)        
Shares issued under stock-based compensation plans   1.0     1.0
Shares issued under stock-based compensation plans (shares) 2.1        
Other comprehensive income (Note 11)       28.7 28.7
Ending balance at Mar. 31, 2020 $ 4.1 854.7 (828.2) (180.3) (149.7)
Ending balance (shares) at Mar. 31, 2020 410.9        
Beginning balance at Dec. 31, 2019 $ 4.2 841.2 (675.9) (209.0) $ (39.5)
Beginning balance (shares) at Dec. 31, 2019 418.0       418.0
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income         $ 338.6
Other comprehensive income (Note 11)         31.2
Ending balance at Jun. 30, 2020 $ 4.1 860.5 (760.2) (177.8) $ (73.4)
Ending balance (shares) at Jun. 30, 2020 411.0       411.0
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Adoption of new accounting pronouncements (Note 1)     (0.6)   $ (0.6)
Beginning balance at Mar. 31, 2020 $ 4.1 854.7 (828.2) (180.3) (149.7)
Beginning balance (shares) at Mar. 31, 2020 410.9        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     161.9   161.9
Stock-based compensation   5.3     5.3
Common stock dividends and dividend equivalents declared     (93.3)   (93.3)
Repurchase and retirement of common shares     (0.6)   (0.6)
Repurchase and retirement of common shares (shares) (0.1)        
Shares issued under stock-based compensation plans   0.5     0.5
Shares issued under stock-based compensation plans (shares) 0.2        
Other comprehensive income (Note 11)       2.5 2.5
Ending balance at Jun. 30, 2020 $ 4.1 $ 860.5 $ (760.2) $ (177.8) $ (73.4)
Ending balance (shares) at Jun. 30, 2020 411.0       411.0
v3.20.2
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) (Parentheticals) - $ / shares
3 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)        
Common stock dividends (USD per share) $ 0.225 $ 0.225 $ 0.20 $ 0.20
v3.20.2
Business and Basis of Presentation
6 Months Ended
Jun. 30, 2020
Business and Basis of Presentation  
Business and Basis of Presentation

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Business

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 and through online money transfer transactions conducted and funded through websites and mobile apps marketed under the Company’s brands (“westernunion.com”) and transactions initiated on internet and mobile applications hosted by the Company’s third-party white label or co-branded digital partners (together with westernunion.com, “Digital Money Transfer”). Each location in the Company’s agent network is capable of providing one or more of the Company’s services.

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 provided through 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 primarily includes the Company’s cash-based and electronic-based bill payment services which facilitate payments from consumers to businesses and other organizations and the Company’s money order services. In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4. The Company’s other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other. See Note 16 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, 2019, the amount of these net asset limitations totaled approximately $610 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.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, certain

information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated as of June 30, 2020 and December 31, 2019 and for all periods presented.

In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position, and cash flows as of June 30, 2020 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Consistent with industry practice, the accompanying Condensed 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.

Use of Estimates

The preparation of financial statements in conformity with 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.

In March 2020, the World Health Organization declared the outbreak associated with a novel coronavirus a pandemic (“COVID-19”), and governments throughout the world instituted various actions such as lockdowns, stay-at-home orders, travel restrictions, and closures of non-essential businesses in an effort to reduce the spread of COVID-19. These actions have negatively impacted the Company’s ability to offer its services through a portion of its locations and its retail agent locations, at least temporarily. As a result, the Company’s revenues for the second quarter of 2020 were negatively impacted by the effects of COVID-19. Beginning in March 2020, the Company experienced a decrease in transaction volumes, which continued into the second quarter of 2020. The Company believes this decrease is due in part to economic decline and uncertainty resulting from the outbreak. The extent to which the COVID-19 outbreak continues to impact the Company’s business, financial condition, results of operations or cash flows will depend on future developments, which are highly uncertain and are difficult to predict.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted a new accounting standard that 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. Additionally, the standard requires certain credit losses relating to investment securities classified as available-for-sale to be recorded through an allowance for credit losses. The Company recognized the cumulative effect of the new accounting standard as an adjustment to the January 1, 2020 balance of Accumulated deficit in the Condensed Consolidated Balance Sheets, and the adoption of the new accounting standard did not have a material impact on the Company’s January 1, 2020 accumulated deficit. In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. Refer to Note 10 for additional information on expected credit losses and the related disclosures.

v3.20.2
Revenue
6 Months Ended
Jun. 30, 2020
Revenue  
Revenue

2. Revenue

The Company’s revenues are primarily derived from consideration paid by customers to transfer money. These revenues vary by transaction based upon factors such as channel, 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, and speed of service, 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. For the substantial majority of the Company’s revenues, the Company acts as the principal in transactions and reports revenue on a gross basis, as the Company controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

The Company recognized $1,055.6 million and $1,275.0 million for the three months ended June 30, 2020 and 2019, and $2,178.2 million and $2,550.4 million for the six months ended June 30, 2020 and 2019, respectively, in revenues from contracts with customers. There are no material upfront costs incurred to obtain contracts with customers. Under the Company’s loyalty programs, which are primarily offered in its money transfer services, the Company must fulfill loyalty program rewards earned by customers. The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations, and the Company has immaterial contract liability balances, which primarily relate to its customer loyalty programs and other services. Contract asset balances related to customers were also immaterial as of the periods presented, as the Company typically receives payment of consideration from its customers prior to satisfying performance obligations under the customer contracts. In addition to revenue generated from contracts with customers, the Company recognizes revenue from other sources, including the sale of derivative financial instruments and investment income generated on settlement assets primarily related to money transfer and money order services.

The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below. Revenues from consumer money transfers are included in the Company’s Consumer-to-Consumer segment, revenues from foreign exchange and payment services are included in the Company’s Business Solutions segment, and revenues from consumer bill payments and other services are not included in the Company’s segments and are reported as Other. See Note 16 for further information on the Company’s segments.

Consumer Money Transfers

For the Company’s money transfer services, customers agree to the Company’s terms and conditions at the time of initiating a transaction. In a money transfer, the Company has one performance obligation as the customer engages the Company to perform one integrated service which typically occurs within minutes — collect the customer’s money and make funds available for payment to a designated person in the currency requested. Therefore, the Company recognizes revenue upon completion of the following: (i) the customer’s acknowledgment of the Company’s terms and conditions and payment information has been received by the Company, (ii) the Company has agreed to process the money transfer, (iii) the Company has provided the customer a unique transaction identification number, and (iv) funds are available to be picked up by the customer’s designated receiving party. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated.

Foreign Exchange and Payment Services

For the Company’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with the Company to provide payment services on the customer’s behalf. In the majority of the Company’s foreign exchange and payment services, the Company makes payments to the recipient to satisfy its performance obligation to the customer, and therefore, the Company recognizes revenue on foreign exchange and payment services when this performance obligation has been fulfilled.

Revenues from foreign exchange and payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market.

Consumer Bill Payments

The Company offers several different bill payment services that vary by considerations such as: (i) who pays the fee to the Company (consumer or biller), (ii) whether the service is offered to all potential consumers, or only to those for which the Company has a relationship with the biller, and (iii) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors. The determination of which party is the Company’s customer for revenue recognition purposes is based on these considerations for each of the Company’s bill payment services. For all transactions, the Company’s customers agree to the Company’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with the Company to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers, customers engage the Company to perform one integrated service — collect money from the consumer and process the bill payment transaction, thereby providing the billers real-time or near real-time information regarding their customers’ payments and simplifying the billers’ collection efforts. In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4.

Management has determined that the significant majority of the Company’s revenue is recognized at a point in time. The following tables represent the disaggregation of revenue earned from contracts with customers by product type and region for the three and six months ended June 30, 2020 and 2019 (in millions). The regional split of revenue shown in the tables below is based upon where transactions are initiated.

Three Months Ended June 30, 2020

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

399.6

$

17.0

$

17.1

$

14.3

$

448.0

Europe and Russia/CIS

 

301.2

 

26.2

 

0.5

 

0.2

 

328.1

Middle East, Africa, and South Asia

 

137.7

 

0.3

 

 

 

138.0

Latin America and the Caribbean

 

54.3

 

0.6

 

15.8

 

2.0

 

72.7

East Asia and Oceania

 

55.5

 

12.9

 

0.4

 

 

68.8

Revenues from contracts with customers

$

948.3

$

57.0

$

33.8

$

16.5

$

1,055.6

Other revenues (a)

 

28.3

 

22.4

 

2.6

 

5.8

 

59.1

Total revenues (b)

$

976.6

$

79.4

$

36.4

$

22.3

$

1,114.7

Six Months Ended June 30, 2020

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

784.4

$

39.2

$

39.8

$

28.7

$

892.1

Europe and Russia/CIS

 

602.1

 

57.7

 

1.3

 

0.9

 

662.0

Middle East, Africa, and South Asia

 

294.6

 

0.8

 

0.1

 

 

295.5

Latin America and the Caribbean

 

138.7

 

1.2

 

39.6

 

4.1

 

183.6

East Asia and Oceania

 

114.6

 

29.7

 

0.7

 

 

145.0

Revenues from contracts with customers

$

1,934.4

$

128.6

$

81.5

$

33.7

$

2,178.2

Other revenues (a)

 

57.6

 

49.2

 

7.9

 

11.8

 

126.5

Total revenues (b)

$

1,992.0

$

177.8

$

89.4

$

45.5

$

2,304.7

Three Months Ended June 30, 2019

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments (c)

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

424.3

$

23.3

$

61.1

$

14.1

$

522.8

Europe and Russia/CIS

 

339.8

 

31.6

 

0.9

 

1.0

 

373.3

Middle East, Africa, and South Asia

 

159.9

 

0.5

 

0.1

 

 

160.5

Latin America and the Caribbean

 

98.8

 

1.0

 

32.3

 

4.1

 

136.2

East Asia and Oceania

 

65.4

 

16.4

 

0.4

 

 

82.2

Revenues from contracts with customers

$

1,088.2

$

72.8

$

94.8

$

19.2

$

1,275.0

Other revenues (a)

 

24.7

 

22.8

 

11.3

 

6.7

 

65.5

Total revenues (b)

$

1,112.9

$

95.6

$

106.1

$

25.9

$

1,340.5

Six Months Ended June 30, 2019

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments (c)

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

819.8

$

45.4

$

176.2

$

28.6

$

1,070.0

Europe and Russia/CIS

 

663.0

 

63.5

 

1.5

 

1.9

 

729.9

Middle East, Africa, and South Asia

 

313.2

 

1.0

 

0.2

 

 

314.4

Latin America and the Caribbean

 

194.1

 

2.0

 

65.9

 

7.6

 

269.6

East Asia and Oceania

 

131.9

 

33.9

 

0.7

 

 

166.5

Revenues from contracts with customers

$

2,122.0

$

145.8

$

244.5

$

38.1

$

2,550.4

Other revenues (a)

 

47.8

 

45.4

 

20.8

 

13.1

 

127.1

Total revenues (b)

$

2,169.8

$

191.2

$

265.3

$

51.2

$

2,677.5

(a)Includes revenue from the sale of derivative financial instruments, investment income generated on settlement assets primarily related to money transfer and money order services, and other sources.
(b)Revenues from "Consumer money transfers" are included in the Company’s Consumer-to-Consumer segment, revenues from "Foreign exchange and payment services" are included in the Company’s Business Solutions segment, and revenues from "Consumer bill payments" and "Other services" are not included in the Company’s segments and are reported as Other. See Note 16 for further information on the Company’s segments.
(c)On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp. and ACW Worldwide, Inc. to sell its United States based electronic bill payments business known as “Speedpay,” and closed the transaction on May 9, 2019. Included within North America revenues are Speedpay revenues of $37.2 million and $125.4 million for the three and six months ended June 30, 2019, respectively.
v3.20.2
Earnings Per Share
6 Months Ended
Jun. 30, 2020
Earnings Per Share  
Earnings Per Share

3. Earnings Per Share

The calculation of basic earnings per share is computed by dividing net income 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 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.

Shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above the Company’s average share price during the periods and their effect was

anti-dilutive, were 2.6 million and 2.3 million for the three months ended June 30, 2020 and 2019, respectively, and 1.8 million and 3.4 million for the six months ended June 30, 2020 and 2019, respectively.

The following table provides the calculation of diluted weighted-average shares outstanding (in millions):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2020

    

2019

    

2020

    

2019

    

Basic weighted-average shares outstanding

 

411.5

 

430.0

 

412.9

 

433.8

Common stock equivalents

 

2.1

 

2.3

 

3.0

 

2.3

Diluted weighted-average shares outstanding

 

413.6

 

432.3

 

415.9

 

436.1

v3.20.2
Divestitures
6 Months Ended
Jun. 30, 2020
Divestitures  
Divestitures

4. Divestitures

On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp. and ACW Worldwide, Inc. to sell its United States based electronic bill payments business known as “Speedpay,” which had been included as a component of Other in the Company’s segment reporting. The Company received approximately $750 million and recorded a pre-tax gain on the sale of approximately $523 million, which is included in Gain on divestitures of businesses in the accompanying Condensed Consolidated Statements of Income, in the all-cash transaction that closed on May 9, 2019. Speedpay revenues and direct operating expenses included in the Company’s results were $37.2 million and $30.6 million, respectively, for the three months ended June 30, 2019 and $125.4 million and $98.2 million, respectively, for the six months ended June 30, 2019.

On May 6, 2019, the Company completed the sale of Paymap Inc. (“Paymap”), which provides electronic mortgage bill payment services, for contingent consideration and immaterial cash proceeds received at closing. The Company recorded an immaterial pre-tax gain related to this sale for the three and six months ended June 30, 2019.

In the first quarter of 2020, the Company sold its former corporate headquarters and recorded an immaterial pre-tax net gain on the sale. The proceeds from this sale have been included in Cash flows from investing activities within the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020.

v3.20.2
Restructuring-Related Expenses
6 Months Ended
Jun. 30, 2020
Restructuring-Related Expenses  
Restructuring-Related Expenses

5. Restructuring-Related Expenses

On August 1, 2019, the Company’s Board of Directors approved a plan to change the Company’s operating model and improve its business processes and cost structure by reorganizing the Company’s senior management, including those managers reporting to the Chief Executive Officer, reducing its headcount, and consolidating various facilities. The Company expects to incur approximately $150 million of total expenses through 2020, with approximately $110 million related to severance and employee-related benefits and approximately $40 million related to costs associated with the relocation of various operations to other Company facilities, facility closures, lease terminations, consulting, and other expenses. Substantially all of these expenses are expected to be paid in cash. The foregoing figures are the Company’s estimates and are subject to change as the plan is anticipated to be completed by the end of 2020.

While certain of the expenses may be identifiable to the Company’s segments, primarily to the Company’s Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of performance assessment and resource allocation. These expenses are therefore excluded from the Company’s segment operating income results. These expenses are specific to this initiative; however, the types of expenses related to this initiative are similar to expenses that the Company has previously incurred and can reasonably be expected to incur in the future.

The following table summarizes the activity for the six months ended June 30, 2020 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020, and the total expenses incurred since the inception of the restructuring plan (in millions):

    

Severance and 

    

Facility Relocations

    

Related 

and Closures,

Employee 

Consulting,

Benefits

and Other

Total

Balance, December 31, 2019

$

71.2

$

2.1

$

73.3

Expenses (a)

 

3.4

 

12.3

 

15.7

Cash payments

(32.8)

(10.9)

(43.7)

Non-cash benefits/(charges) (a)

0.1

(1.6)

(1.5)

Balance, June 30, 2020

$

41.9

$

1.9

$

43.8

Total expenses incurred-to-date

$

101.4

$

29.8

$

131.2

(a)Non-cash benefits/(charges) include non-cash write-offs and accelerated depreciation of right-of-use assets and leasehold improvements and a non-cash benefit for adjustments to stock compensation for awards forfeited by employees. These amounts have been removed from the liability balance in the table above as they do not impact the restructuring accruals.

The following table presents restructuring-related expenses as reflected in the Condensed Consolidated Statements of Income (in millions):

Three Months Ended

Six Months Ended

    

June 30, 

June 30, 

2020

2019

2020

2019

Cost of services

$

0.8

$

$

1.7

$

Selling, general, and administrative

 

4.4

 

7.4

 

14.0

 

7.4

Total expenses, pre-tax

$

5.2

$

7.4

$

15.7

$

7.4

Total expenses, net of tax

$

5.5

$

6.0

$

14.7

$

6.0

v3.20.2
Leases
6 Months Ended
Jun. 30, 2020
Leases  
Leases

6. Leases

The Company leases real properties for use as administrative and sales offices, in addition to automobiles and office equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Operating lease right-of-use (“ROU”) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the future lease payments. Lease and variable non-lease components within the Company’s lease agreements are accounted for separately. The Company has no material leases in which the Company is the lessor.

The Company’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis. As of June 30, 2020 and December 31, 2019, total ROU assets were $195.0 million and $199.7 million, respectively, and operating lease liabilities were $234.9 million and $242.3 million, respectively. The ROU assets and operating lease liabilities are included in Other assets and Other liabilities, respectively, in the Company’s Condensed Consolidated Balance Sheets. Cash paid for operating lease liabilities is recorded as Cash flows from operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. Operating lease costs, which are included in Total expenses in the Company’s Condensed Consolidated Statements of Income, were $12.8 million and $14.3 million for the three months ended June 30, 2020 and 2019, respectively, and $26.0 million and $29.3 million for the six months ended

June 30, 2020 and 2019, respectively. Short-term and variable lease costs were not material for the three and six months ended June 30, 2020.

The Company’s leases have remaining terms from less than 1 year to 11 years. Certain of these leases contain escalation provisions and/or renewal options, giving the Company the right to extend the lease by up to 10 years. However, a significant majority of these options are not reflected in the calculation of the ROU asset and operating lease liability due to uncertainty surrounding the likelihood of renewal.  

The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities:

June 30, 2020

Weighted-average remaining lease term (in years)

7.6

Weighted-average discount rate

6.2

%

The following table represents maturities of operating lease liabilities as of June 30, 2020 (in millions):

Due within 1 year

$

49.7

Due after 1 year through 2 years

43.0

Due after 2 years through 3 years

36.4

Due after 3 years through 4 years

32.7

Due after 4 years through 5 years

29.8

Due after 5 years

98.1

Total lease payments

289.7

Less imputed interest

(54.8)

Total operating lease liabilities

$

234.9

v3.20.2
Fair Value Measurements
6 Months Ended
Jun. 30, 2020
Fair Value Measurements  
Fair Value Measurements

7. 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 the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The following tables present the Company’s assets and liabilities which are measured at fair value on a recurring basis, by balance sheet line item (in millions):

Fair Value Measurement Using

Total

June 30, 2020

    

Level 1

    

Level 2

    

Fair Value

Assets:

 

  

 

  

 

  

Settlement assets:

 

  

 

  

 

  

Measured at fair value through net income:

 

  

 

  

 

  

Money market funds

$

22.9

$

$

22.9

Measured at fair value through other comprehensive income (net of expected credit losses recorded through net income):

 

  

  

  

State and municipal debt securities

1,333.8

1,333.8

State and municipal variable-rate demand notes

 

 

441.3

 

441.3

Corporate debt securities

66.5

66.5

United States government agency mortgage-backed securities

 

 

60.4

 

60.4

Other assets:

 

  

 

 

  

Derivatives

 

 

266.5

 

266.5

Total assets

$

22.9

$

2,168.5

$

2,191.4

Liabilities:

 

  

 

  

 

  

Other liabilities:

Derivatives

$

$

206.3

$

206.3

Total liabilities

$

$

206.3

$

206.3

Fair Value Measurement Using

Total

December 31, 2019

    

Level 1

    

Level 2

    

Fair Value

Assets:

 

  

 

  

 

  

Settlement assets:

 

  

 

  

 

  

Measured at fair value through net income:

 

  

 

  

 

  

Money market funds

$

24.6

$

$

24.6

Measured at fair value through other comprehensive income:

 

  

  

  

State and municipal debt securities

1,257.8

1,257.8

State and municipal variable-rate demand notes

 

 

276.1

 

276.1

United States government agency mortgage-backed securities

67.2

67.2

Corporate debt securities

 

 

52.4

 

52.4

Other United States government agency debt securities

34.9

34.9

United States Treasury securities

 

10.0

 

 

10.0

Other assets:

 

  

 

  

 

  

Derivatives

 

 

204.5

 

204.5

Total assets

$

34.6

$

1,892.9

$

1,927.5

Liabilities:

 

  

 

  

 

  

Other liabilities:

Derivatives

$

$

159.5

$

159.5

Total liabilities

$

$

159.5

$

159.5

No material non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements were recorded during the three and six months ended June 30, 2020 and 2019.

Other Fair Value Measurements

The carrying amounts for many of the Company’s financial instruments, including certain cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and obligations approximate fair value due to their short

maturities. The Company’s borrowings are classified as Level 2 within the valuation hierarchy, and the aggregate fair value of these borrowings was based on quotes from multiple banks. Fixed-rate notes are carried in the Company’s Condensed Consolidated Balance Sheets at their original issuance values as adjusted over time to accrete that value to par. As of June 30, 2020, the carrying value and fair value of the Company’s borrowings were $3,085.8 million and $3,256.1 million, respectively (see Note 13). As of December 31, 2019, the carrying value and fair value of the Company’s borrowings were $3,229.3 million and $3,372.2 million, respectively.

v3.20.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies  
Commitments and Contingencies

8. Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company had approximately $360 million in outstanding letters of credit and bank guarantees as of June 30, 2020 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 2024, 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. These letters of credit and bank guarantees exclude guarantees that the Company may provide as part of its legal matters, as described below.

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 losses 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 losses 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 losses 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 $30 million as of June 30, 2020. For the remaining matters, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons: (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damage claims are unsupported and/or unreasonable; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; or (vi) 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”). 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 “FTC 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. 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, FTC 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 FTC 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. 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 2017.

The term of the DPA expired on January 19, 2020. On March 6, 2020, the DOJ filed an unopposed motion to dismiss the criminal information with prejudice in the United States District Court for the Middle District of Pennsylvania, and on March 9, 2020, the Court granted the motion.

On May 16, 2020, the term of the Independent Compliance Auditor (“ICA”) under the FTC Consent Order ended. On that same date, the ICA issued its final report to the FTC, which concluded that Western Union is in full compliance with the requirements of the FTC Consent Order. Western Union has continuing obligations under the FTC Consent Order, which is a permanent injunction, as well as the requirement to submit annual reports to the FTC through January 2028.

The Joint Settlement Agreements required, 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 ongoing obligations under the FTC Consent Order and the State AG Agreement have had and could continue to have adverse effects on the Company’s business, including additional costs and potential loss of business. The Company has faced (as described below) additional actions from other regulators as a result of the Joint Settlement Agreements. Further, if the Company fails to comply with the continuing obligations under the FTC Consent order and the State AG Agreement, 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 Action

On January 16, 2020, Stanley Lieblein filed a shareholder derivative complaint in the Court of Chancery of the State of Delaware naming the Company’s President and Chief Executive Officer, certain current and former directors, and a former executive officer as individual defendants and the Company as a nominal defendant. Mr. Lieblein had previously filed a shareholder derivative action asserting related claims in the United States District Court for the District of Colorado, which was subsequently consolidated with multiple pending related derivative actions. Following the filing of multiple amended complaints, the United States Court of Appeals for the Tenth Circuit affirmed dismissal of the consolidated derivative action on April 16, 2019 on the ground that the plaintiffs did not have standing to proceed on behalf of the Company without making a demand on the Company’s board of directors. The consolidated derivative action is described in further detail in Part I, Item I, Financial Statements, Note 8, Commitments and Contingencies in the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019.

On August 1, 2019, Mr. Lieblein made a written demand on the Company’s board of directors to investigate and address alleged misconduct related to the Company’s anti-fraud and AML compliance programs, including certain alleged misconduct at issue in the consolidated derivative action. The Company’s board of directors formed a special committee to evaluate Mr. Lieblein’s demand together with a related shareholder demand. The special committee’s investigation is ongoing. Mr. Lieblein alleges that he filed the January 16, 2020 complaint prior to the completion of the special committee’s investigation because of concerns regarding the statute of limitations on some of the claims asserted. Mr. Lieblein has agreed to stay the action pending completion of the special committee’s investigation, or until September 30, 2020, whichever occurs earlier.

The complaint filed by Mr. Lieblein on January 16, 2020 includes allegations that the director and officer defendants  declined to implement effective anti-fraud and AML compliance systems after receiving numerous red flags indicating prolonged willful illegality, condoned executive officers’ obstruction of efforts by various regulators to impose an effective compliance system on the Company, approved executive compensation packages for management that were not aligned with development of effective anti-fraud and AML compliance programs, allowed management to fail to timely report known or likely impropriety by Company employees or agents to regulatory authorities, failed to require management to adopt a risk assessment for all very high risk areas, refused to remedy the board’s oversight of executive officers, and, in effect, refused Mr. Lieblein’s shareholder demand and related request for tolling agreements.

It also includes allegations that the officer defendants declined to ensure that the Company implemented effective anti-fraud and AML compliance programs after receiving red flags that those programs were inadequate, allowed Company agents to willfully ignore anti-fraud and AML recording and reporting requirements for a prolonged period, opposed efforts by various regulators to implement effective anti-fraud and AML compliance programs, caused the Company to fail to comply with its obligations under settlements with regulators, and knowingly exposed the Company to criminal and civil sanctions. Due to the nature of this matter and the early stage of the proceedings, the Company cannot predict the outcome or potential impact of the matter.

Other Matters

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 August 31, 2018, the Court issued an order approving the settlement, in which the Court modified the class definition slightly and ordered the parties to provide additional notice to the class. In 2014, the Company accrued an amount equal to the retention under its insurance policy 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.

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. The process for notifying potential class members has been completed and the case proceeded to the evidentiary stage. On June 4, 2020, the case was stayed because the consumer association that filed the lawsuit no longer had the registration needed to assert its claims on behalf of the alleged class. The case will be stayed until (i) the Attorney-General instructs the Prosecutor to continue to litigate the claims on behalf of the plaintiff (during the time the registration of Consumidores Financieros before the Secretary of Commerce remains suspended); or (ii) the parties report to the Court that the plaintiff recovered its legal capacity. 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, and on March 27, 2019, the Court dismissed the action in its entirety with prejudice and entered final judgment in the defendants’ favor on March 28, 2019. On April 26, 2019, plaintiffs filed a notice of appeal to the United States Court of Appeals for the Tenth Circuit. On June 24, 2019, plaintiffs filed their opening brief on appeal and oral argument was held on January 22, 2020. Plaintiffs did not appeal the dismissal of one former executive officer and only appealed the district court’s conclusion that the remaining defendants did not make statements concerning the Company’s compliance programs with the requisite intent. On February 25, 2020, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of the case. Plaintiff’s deadline to file a petition for a writ of certiorari from the Supreme Court of the United States was July 27, 2020. Plaintiff did not file such a petition, and the case has now concluded.

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 guarantee in an amount of approximately €23 million to cover any liability that could theoretically attach to WUPSIL. On October 3, 2019, WUPSIL reached a settlement agreement with the Spanish prosecutor that extinguishes WUPSIL’s civil liability for the fraud scams at issue by stating that the liability has already been covered by the Compensation Payment under the DPA. On October 8, 2019, WUPSIL filed a motion requesting release of the corporate guarantee. On November 4, 2019, the Court issued final judgment in this matter consistent with the settlement agreement. WUPSIL filed a new motion requesting release of the corporate guarantee on December 2, 2019. On June 19, 2020, the Court released the corporate guarantee. This decision is now binding and final and cannot be further appealed or modified.

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. 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 was required, among other things, to pay to the NYDFS a civil monetary penalty of $60 million, which the Company paid on January 12, 2018.

On April 26, 2018, the Company, its WUFSI subsidiary, its President and Chief Executive Officer, and various “Doe Defendants” (purportedly including Western Union officers, directors, and agents) were named as defendants in a purported class action lawsuit asserting claims for alleged violations of civil Racketeer Influenced and Corrupt Organizations Act and the Colorado Organized Crime Act, civil theft, negligence, unjust enrichment, and conversion under the caption Frazier et al. v. The Western Union Company et al., Civil Action No. 1:18-cv-00998-KLM (D. Colo.). The complaint alleges that, during the purported class period of January 1, 2004 to the present, and based largely on the admissions and allegations relating to the DPA, the FTC Consent Order, and the NYDFS Consent Order, the defendants engaged in a scheme to defraud customers through Western Union’s money transfer system. The plaintiffs filed an amended complaint on July 17, 2018. The amended complaint is similar to the original complaint, although it adds additional named plaintiffs and additional counts, including claims on behalf of putative California, Florida, Georgia, Illinois, and New Jersey subclasses for alleged violations of the California Unfair Competition Law, the Florida Deceptive and Unfair Trade Practices Act, the Georgia Fair Business Practices Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the New Jersey Consumer Fraud Act. On August 28, 2018, the Company and the other defendants moved to stay the action in favor of individual arbitrations with the named plaintiffs, which defendants contend are contractually required. On March 27, 2019, the Court granted that motion and stayed the action pending individual arbitrations with the named plaintiffs. To date, no such individual arbitration requests have been filed. Due to the stage of the matter, 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 other defendants intend to vigorously defend themselves in this matter.

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.

v3.20.2
Related Party Transactions
6 Months Ended
Jun. 30, 2020
Related Party Transactions  
Related Party Transactions

9. 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 three months ended June 30, 2020 and 2019 totaled $12.9 million and $14.4 million, respectively, and $25.5 million and $27.4 million for the six months ended June 30, 2020 and 2019, respectively.

v3.20.2
Settlement Assets and Obligations
6 Months Ended
Jun. 30, 2020
Settlement Assets and Obligations  
Settlement Assets and Obligations

10. 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 and obligations consisted of the following (in millions):

    

June 30, 2020

Settlement assets:

 

  

Cash and cash equivalents

$

386.7

Receivables from agents and Business Solutions customers

 

1,274.3

Less: Allowance for credit losses

(40.7)

Receivables from agents and Business Solutions customers, net

1,233.6

Investment securities

 

1,902.0

Total settlement assets

$

3,522.3

Settlement obligations:

 

  

Money transfer, money order, and payment service payables

$

2,760.9

Payables to agents

 

761.4

Total settlement obligations

$

3,522.3

    

December 31, 2019

Settlement assets:

 

  

Cash and cash equivalents

$

368.2

Receivables from agents and Business Solutions customers, net

 

1,230.1

Investment securities

 

1,698.4

Total settlement assets

$

3,296.7

Settlement obligations:

 

  

Money transfer, money order, and payment service payables

$

2,571.5

Payables to agents

 

725.2

Total settlement obligations

$

3,296.7

Receivables from agents represent funds collected by such agents, but in transit to the Company, and were $1,171.7 million as of June 30, 2020. Cash received by Western Union agents generally becomes available to the Company within one week after initial receipt by the agent. Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent. The Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.

Receivables from Business Solutions customers arise from cross-currency payment transactions in the Business Solutions segment. Business Solutions receivables totaled $61.9 million as of June 30, 2020. Receivables occur when

funds have been paid out to a beneficiary but not yet received from the customer. Collection of these receivables ordinarily occurs within a few days.  To mitigate risk associated with potential Business Solutions customer defaults, the Company performs credit reviews on an ongoing basis.

On January 1, 2020, the Company adopted a new accounting standard related to the estimation of the allowance for credit losses, as discussed in Note 1. However, due to the short-term nature of the Company’s receivables and the Company’s historical and expected collections practice, the adoption did not have a material impact on the Company’s financial position or results of operations.  

The Company separately establishes and monitors an allowance for credit losses related to receivables from agents and Business Solutions customers. The Company estimates the allowance based on its historical collections experience, adjusted for current conditions and forecasts of future economic conditions, including those related to COVID-19. Given the short-term nature of these receivables, the Company would not expect the impact of forecasted economic conditions on its allowance for credit loss to be significant. However, during the three and six months ended June 30, 2020, the Company experienced delays in its collections from certain of its agents in connection with COVID-19 agent location closures and other impacts, and the Company believes these delays were largely temporary as certain agents were not able to remit settlement funds during lockdowns or other stay-at-home orders. Still, some of the Company’s agents, such as small businesses, may not easily be able to resume operations due to COVID-19. The Company has estimated credit losses based on information known as of June 30, 2020.

The following table summarizes activity in the allowance for credit losses on receivables from agents and Business Solutions customers (in millions):

Business Solutions

Agents

Customers

Allowance for credit losses as of January 1, 2020

$

20.4

$

4.5

Current period provision for expected credit losses (a)

19.9

1.4

Write-offs charged against the allowance

(4.7)

(1.7)

Recoveries of amounts previously written off

1.2

Impacts of foreign currency exchange rates and other

(0.9)

0.6

Allowance for credit losses as of June 30, 2020

$

35.9

$

4.8

(a)Provision does not include losses from chargebacks or fraud associated with transactions initiated through our electronic channels, as these losses are not credit-related.

Investment securities included in Settlement assets in the Company’s Condensed 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. Investment securities are exposed to market risk due to changes in interest rates and credit risk. 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 regulatory requirements.

The Company’s investment securities are classified as available-for-sale and recorded at fair value. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification.

Unrealized gains on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes. Available-for-sale securities with a fair value below the amortized cost basis are evaluated on an individual basis to determine whether the impairment is due to credit-related

factors or noncredit-related factors. Factors that could indicate a credit loss exists include but are not limited to: (i) negative earnings performance, (ii) credit rating downgrades, or (iii) adverse changes in the regulatory or economic environment of the asset. Any impairment that is not credit-related is excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes, unless the Company intends to sell the impaired security or it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. Credit-related impairments are recognized immediately as an adjustment to earnings, regardless of whether the Company has the ability or intent to hold the security to maturity, and are limited to the difference between fair value and the amortized cost basis. As of and for the three and six months ended June 30, 2020, the Company’s allowance for credit losses and provision for credit losses on its available-for-sale securities were immaterial.

The components of investment securities are as follows (in millions):

    

    

    

Gross

    

Gross

    

Net

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

 

Unrealized

June 30, 2020

Cost

Value

 

Gains

 

Losses

Gains/(Losses)

Settlement assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents:

 

  

 

  

 

  

 

  

 

  

Money market funds

$

22.9

$

22.9

$

$

$

Available-for-sale securities:

 

 

 

 

 

  

State and municipal debt securities (a)

 

1,274.2

 

1,333.8

 

60.1

 

(0.5)

 

59.6

State and municipal variable-rate demand notes

 

441.3

 

441.3

 

 

 

Corporate debt securities

65.4

66.5

1.1

1.1

United States government agency mortgage-backed securities

 

58.7

 

60.4

 

1.7

 

 

1.7

Total available-for-sale securities

 

1,839.6

 

1,902.0

 

62.9

 

(0.5)

 

62.4

Total investment securities

$

1,862.5

$

1,924.9

$

62.9

$

(0.5)

$

62.4

    

    

    

Gross

    

Gross

    

Net

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

 

Unrealized

December 31, 2019

Cost

Value

 

Gains

 

Losses

 

Gains/(Losses)

Settlement assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents:

 

  

 

  

 

  

 

  

 

  

Money market funds

$

24.6

$

24.6

$

$

$

Available-for-sale securities:

 

  

 

  

 

  

 

  

 

  

State and municipal debt securities (a)

1,227.4

1,257.8

31.0

(0.6)

30.4

State and municipal variable-rate demand notes

 

276.1

 

276.1

 

 

 

United States government agency mortgage-backed securities

 

66.3

 

67.2

 

0.9

 

 

0.9

Corporate debt securities

52.3

52.4