WESTERN UNION CO, 10-K filed on 2/20/2020
Annual Report
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Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 14, 2020
Jun. 28, 2019
Document and Entity Information      
Document Type 10-K    
Document Annual Report true    
Document Transition Report false    
Document Period End Date Dec. 31, 2019    
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 Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
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 Public Float     $ 8.4
Entity Common Stock, Shares Outstanding   413,122,401  
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001365135    
Amendment Flag false    
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CONSOLIDATED STATEMENTS OF INCOME/(LOSS) - USD ($)
shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CONSOLIDATED STATEMENTS OF INCOME/(LOSS)      
Revenues $ 5,292.1 $ 5,589.9 $ 5,524.3
Type of Revenue us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember
Expenses:      
Cost of services. $ 3,086.5 $ 3,300.8 $ 3,353.0
Type of Cost of Service us-gaap:ServiceMember us-gaap:ServiceMember us-gaap:ServiceMember
Selling, general, and administrative $ 1,271.6 $ 1,167.0 $ 1,231.5
Goodwill impairment charge 0.0 0.0 464.0
Total expenses 4,358.1 4,467.8 5,048.5
Operating income 934.0 1,122.1 475.8
Other income/(expense):      
Gain on divestitures of businesses (Note 4) 524.6    
Interest income 6.3 4.8 4.9
Interest expense (152.0) (149.6) (142.1)
Other income, net 8.5 14.1 8.9
Total other income/(expense), net 387.4 (130.7) (128.3)
Income before income taxes 1,321.4 991.4 347.5
Provision for income taxes (Note 11) 263.1 139.5 904.6
Net income/(loss) $ 1,058.3 $ 851.9 $ (557.1)
Earnings/(loss) per share:      
Basic (USD per share) $ 2.47 $ 1.89 $ (1.19)
Diluted (USD per share) $ 2.46 $ 1.87 $ (1.19)
Weighted-average shares outstanding:      
Basic (shares) 427.6 451.8 467.9
Diluted (shares) 430.9 454.4 467.9
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CONSOLIDATED STATEMENTS OF INCOME/(LOSS) (Parentheticals) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CONSOLIDATED STATEMENTS OF INCOME/(LOSS)      
Related party expenses $ 57.1 $ 57.6 $ 65.9
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)      
Net income/(loss) $ 1,058.3 $ 851.9 $ (557.1)
Other comprehensive income/(loss), net of reclassifications and tax (Note 14):      
Unrealized gains/(losses) on investment securities 25.8 (4.3) 6.5
Unrealized gains/(losses) on hedging activities (11.0) 50.3 (74.4)
Foreign currency translation adjustments   (19.5) (6.2)
Defined benefit pension plan adjustments 7.2 1.8 9.0
Total other comprehensive income/(loss) 22.0 28.3 (65.1)
Comprehensive income/(loss) $ 1,080.3 $ 880.2 $ (622.2)
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Assets    
Cash and cash equivalents $ 1,450.5 $ 973.4
Settlement assets 3,296.7 3,813.8
Property and equipment, net of accumulated depreciation of $616.5 and $702.4, respectively 186.9 270.4
Goodwill 2,566.6 2,725.0
Other intangible assets, net of accumulated amortization of $961.5 and $1,047.6, respectively 494.9 598.2
Other assets (Note 10) 762.9 616.0
Total assets 8,758.5 8,996.8
Liabilities:    
Accounts payable and accrued liabilities 601.9 564.9
Settlement obligations 3,296.7 3,813.8
Income taxes payable 1,019.7 1,054.0
Deferred tax liability, net 152.1 161.1
Borrowings 3,229.3 3,433.7
Other liabilities (Note 10) 498.3 279.1
Total liabilities 8,798.0 9,306.6
Commitments and contingencies (Note 6)
Stockholders' deficit:    
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
Common stock, $0.01 par value; 2,000 shares authorized; 418.0 shares and 441.2 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively 4.2 4.4
Capital surplus 841.2 755.6
Accumulated deficit (675.9) (838.8)
Accumulated other comprehensive loss (209.0) (231.0)
Total stockholders' deficit (39.5) (309.8)
Total liabilities and stockholders' deficit $ 8,758.5 $ 8,996.8
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CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
shares in Millions, $ in Millions
Dec. 31, 2019
Dec. 31, 2018
Assets    
Accumulated Depreciation on Property Plant and Equipment $ 616.5 $ 702.4
Accumulated Amortization on Other Intangible Assets $ 961.5 $ 1,047.6
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 418.0 441.2
Common stock, shares outstanding 418.0 441.2
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities      
Net income/(loss) $ 1,058.3 $ 851.9 $ (557.1)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:      
Depreciation 79.6 76.9 77.1
Amortization 178.1 187.8 185.8
Goodwill impairment charge (Note 5) 0.0 0.0 464.0
Gain on divestitures of businesses, excluding transaction costs (Note 5) (532.1)    
Deferred income tax provision/(benefit) (Note 11) (24.5) (15.1) 69.5
Other non-cash items, net 118.4 66.2 124.2
Increase/(decrease) in cash, excluding the effects of acquisitions and divestitures, resulting from changes in:      
Other assets 7.5 (31.0) (62.5)
Accounts payable and accrued liabilities (Note 6) 94.3 (126.5) (417.6)
Income taxes payable (Note 11) (36.8) (193.1) 850.4
Other liabilities (28.2) 4.2 8.2
Net cash provided by operating activities 914.6 821.3 742.0
Cash flows from investing activities      
Payments for capitalized contract costs (46.6) (150.3) (74.8)
Payments for internal use software (33.0) (52.0) (33.2)
Purchases of property and equipment (48.1) (136.7) (69.1)
Proceeds from divestitures of businesses, net of cash divested (Note 5) 711.7    
Acquisition of business, net     (24.9)
Purchases of non-settlement related investments and other (6.8) (24.2) (192.1)
Proceeds from maturity of non-settlement related investments and other 23.4 13.7 203.8
Purchases of held-to-maturity non-settlement related investments (1.3) (2.8) (42.7)
Proceeds from held-to-maturity non-settlement related investments 33.0 23.5 28.4
Net cash provided by/(used in) investing activities 632.3 (328.8) (204.6)
Cash flows from financing activities      
Cash dividends paid (340.8) (341.7) (325.6)
Common stock repurchased (Note 14) (552.6) (412.4) (502.8)
Net proceeds from commercial paper 120.0 125.0  
Net proceeds from issuance of borrowings 495.9 685.4 746.2
Principal payments on borrowings (824.9) (414.4) (500.0)
Proceeds from exercise of options 36.7 10.1 13.0
Other financing activities (4.1) (9.2) (1.3)
Net cash used in financing activities (1,069.8) (357.2) (570.5)
Net change in cash, cash equivalents, and restricted cash 477.1 135.3 (33.1)
Cash, cash equivalents, and restricted cash at beginning of year 979.7 844.4 877.5
Cash, cash equivalents, and restricted cash at end of year 1,456.8 979.7 844.4
Supplemental cash flow information:      
Interest paid 151.3 142.5 128.0
Income taxes paid/(refunded) 318.9 339.4 (11.6)
Cash paid for lease liabilities 53.8    
Non-cash lease liabilities arising from obtaining right-of-use assets (Note 13) 269.1    
Restricted cash at end of year (included in Other assets) $ 6.3 $ 6.3 $ 6.2
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) - USD ($)
shares in Millions, $ in Millions
Common Stock
Capital Surplus
Retained Earnings/(Accumulated Deficit)
Accumulated Other Comprehensive Loss
Total
Beginning balance at Dec. 31, 2016 $ 4.8 $ 640.9 $ 419.3 $ (162.8) $ 902.2
Beginning balance (shares) at Dec. 31, 2016 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 and dividend equivalents declared     (325.6)   (325.6)
Repurchase and retirement of common shares $ (0.2)   (502.5)   (502.7)
Repurchase and retirement of common shares (shares) (25.7)        
Shares issued under stock-based compensation plans   13.0     13.0
Shares issued under stock-based compensation plans (shares) 3.2        
Other comprehensive income (loss) (Note 14)       (65.1) (65.1)
Ending balance at Dec. 31, 2017 $ 4.6 697.8 (965.9) (227.9) (491.4)
Ending balance (shares) at Dec. 31, 2017 459.0        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income/(loss)     851.9   851.9
Stock-based compensation   47.7     47.7
Common stock dividends and dividend equivalents declared     (341.7)   (341.7)
Repurchase and retirement of common shares $ (0.2)   (413.8)   (414.0)
Repurchase and retirement of common shares (shares) (20.9)        
Shares issued under stock-based compensation plans   10.1     10.1
Shares issued under stock-based compensation plans (shares) 3.1        
Other comprehensive income (loss) (Note 14)       28.3 28.3
Ending balance at Dec. 31, 2018 $ 4.4 755.6 (838.8) (231.0) $ (309.8)
Ending balance (shares) at Dec. 31, 2018 441.2       441.2
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Adoption of new accounting pronouncements     30.7 (31.4) $ (0.7)
Net income/(loss)     1,058.3   1,058.3
Stock-based compensation   48.9     48.9
Common stock dividends and dividend equivalents declared     (342.6)   (342.6)
Repurchase and retirement of common shares $ (0.2)   (552.8)   (553.0)
Repurchase and retirement of common shares (shares) (27.6)        
Shares issued under stock-based compensation plans   36.7     36.7
Shares issued under stock-based compensation plans (shares) 4.4        
Other comprehensive income (loss) (Note 14)       22.0 22.0
Ending balance at Dec. 31, 2019 $ 4.2 $ 841.2 $ (675.9) $ (209.0) $ (39.5)
Ending balance (shares) at Dec. 31, 2019 418.0       418.0
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT) (Parentheticals) - $ / shares
3 Months Ended
Dec. 31, 2019
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/(DEFICIT)                        
Common stock dividends (USD per share) $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.175 $ 0.175 $ 0.175 $ 0.175
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Business and Basis of Presentation
12 Months Ended
Dec. 31, 2019
Business and Basis of Presentation  
Business and Basis of Presentation

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 Western Union branded websites and mobile apps (“westernunion.com”). 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. In May 2019, the Company sold a substantial majority of its United States based bill payments services, as discussed in Note 5. The Company’s money order and 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 18 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 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.

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.

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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

2. 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 an entity’s operations, which generally occurs when the Company has an ownership interest between 20% and 50%.

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, 2019, 2018, and 2017, there were 1.9 million, 2.6 million, and 2.8 million, respectively, of shares excluded from the diluted earnings/(loss) per share calculation under the treasury stock method, primarily due to outstanding options to purchase shares of Western Union stock, 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):

Year Ended December 31, 

    

2019

    

2018

    

2017

Basic weighted-average shares outstanding

427.6

 

451.8

467.9

Common stock equivalents

3.3

 

2.6

Diluted weighted-average shares outstanding

430.9

 

454.4

467.9

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 holds assets classified as Level 3 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 are 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 further discussed in Note 9. Fixed-rate notes are carried at their original issuance values and adjusted over time to accrete that value to par, except for portions of notes hedged by interest rate swap agreements as disclosed in Note 15. The fair values of fixed-rate notes are disclosed in Note 9 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 5. The fair value of the assets in the Trust, which holds the assets for the Company’s defined benefit pension plan, is disclosed in Note 12.

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 within Net 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 within Other income, net 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 $42.2 million and $47.7 million as of December 31, 2019 and 2018, respectively, and is recorded in the same balance sheet captions as the related receivable. During the years ended December 31, 2019, 2018, and 2017, the provision for doubtful accounts (bad debt expense) reflected in the Consolidated Statements of Income/(Loss) was $47.1 million, $43.9 million, and $60.6 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 8 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, 

    

2019

    

2018

Settlement assets:

 

  

 

  

Cash and cash equivalents

$

368.2

$

1,247.8

Receivables from selling agents and Business Solutions customers

 

1,230.1

 

1,355.4

Investment securities

 

1,698.4

 

1,210.6

Total settlement assets

$

3,296.7

$

3,813.8

Settlement obligations:

 

  

 

  

Money transfer, money order, and payment service payables

$

2,571.5

$

2,793.6

Payables to agents

 

725.2

 

1,020.2

Total settlement obligations

$

3,296.7

$

3,813.8

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, 

    

2019

    

2018

Equipment

$

591.4

$

656.8

Leasehold improvements

 

159.2

 

158.6

Buildings

 

0.4

 

88.6

Furniture and fixtures

 

49.4

 

51.6

Land and improvements

 

 

17.0

Projects in process

 

3.0

 

0.2

Total property and equipment, gross

 

803.4

 

972.8

Less accumulated depreciation

 

(616.5)

 

(702.4)

Property and equipment, net (a)

$

186.9

$

270.4

(a)At December 31, 2019, Property and equipment, net, excludes assets held for sale of $49.3 million, which primarily consists of the Company’s former headquarters, which was sold in January 2020, and land. These assets are included in Other assets in the Company’s Consolidated Balance Sheets.

Amounts charged to expense for depreciation of property and equipment were $79.6 million, $76.9 million, and $77.1 million during the years ended December 31, 2019, 2018, and 2017, 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. In the event a reporting unit’s carrying amount exceeds its fair value, the Company recognizes an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. The Company’s annual impairment assessment did not identify any goodwill impairment during the years ended December 31, 2019 and 2018. 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 5.

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 $178.1 million, $187.8 million, and $185.8 million for the years ended December 31, 2019, 2018, and 2017, 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. Internal and external software development costs incurred that are directly related to the chosen design, development, and testing phases of the software are capitalized once the Company has completed all planning and analysis activities. Any other software development related costs are expensed as incurred. 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 seven years.

The following table provides the components of other intangible assets (in millions):

    

December 31, 2019

    

December 31, 2018

    

Weighted-

    

    

    

    

Average

Amortization

Net of

Net of

Period

Accumulated

Accumulated

(in years)

Initial Cost

Amortization

Initial Cost

Amortization

Acquired contracts

11.5

$

584.2

$

124.1

$

598.1

$

171.2

Capitalized contract costs

6.2

 

510.3

 

271.7

 

536.5

 

318.9

Internal use software

3.8

 

281.2

 

54.7

 

447.3

 

80.6

Acquired trademarks

25.4

 

30.1

 

13.2

 

32.5

 

15.5

Other intangibles

4.3

 

19.4

 

 

19.4

 

Projects in process

(a)

 

31.2

 

31.2

 

12.0

 

12.0

Total other intangible assets

8.1

$

1,456.4

$

494.9

$

1,645.8

$

598.2

(a)Not applicable as the assets have not been placed in service.

The estimated future aggregate amortization expense for existing other intangible assets as of December 31, 2019 is expected to be $146.6 million in 2020, $113.9 million in 2021, $75.9 million in 2022, $55.9 million in 2023, $38.6 million in 2024, and $32.8 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, 2019, 2018, and 2017.

Revenue Recognition

For the Company’s accounting policies with respect to revenue recognition, refer to Note 3.

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, 2019, 2018, and 2017 were $209.1 million, $180.9 million, and $168.3 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.

The Company accounts for the tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.

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 (“AOCL”) 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 (i) minimize its exposures related to changes in foreign currency exchange rates and interest rates and (ii) 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. Certain of the Company’s derivative arrangements are designated as either cash flow hedges or fair value hedges at the time of inception, and others are not designated as accounting hedges.

Cash flow hedges – 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 AOCL are reclassified to earnings in the same period the hedged item affects earnings when the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged. On January 1, 2018, the Company early adopted an accounting pronouncement related to hedging activities. As a result of the new accounting pronouncement, for foreign currency cash flow hedges entered into on or after January 1, 2018, the Company excludes time value from the assessment of effectiveness, and the initial value of the excluded components is amortized into Revenues within the Consolidated Statements of Income/(Loss). For foreign currency cash flow hedges entered into before January 1, 2018, all changes in the fair value of the excluded components are recognized immediately in Revenues for the years ended December 31, 2019 and 2018. For the year ended December 31, 2017, the changes in fair value of the excluded components were recognized immediately within the Consolidated Statements of Income/(Loss) and are included in Other income, net.
Fair value hedges - Fair value hedges consist of hedges of fixed-rate debt, through interest rate swaps. 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. At December 31, 2019, there were no fair value hedges outstanding.
Undesignated - Derivative contracts entered into to reduce the foreign exchange variability related to (i) money transfer settlement assets and obligations, generally with maturities from a few days up to one month, and (ii) 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, and how effectiveness is being assessed. 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 other amounts 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 for forfeitures. Refer to Note 17 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, 2019, the Company adopted a new accounting standard, as amended, that requires the Company to record assets and liabilities on the balance sheet for lease-related rights and obligations and disclose key information about its leasing arrangements. The Company elected the effective date method, utilized the modified retrospective approach upon adoption, and elected the package of practical expedients available under the new standard, including the expedients to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease. This new standard establishes a right-of-use (“ROU”) model that requires the Company to recognize ROU assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months at commencement of the lease. Refer to Note 13 for additional information and the related disclosures.

On January 1, 2018, the Company adopted a new accounting standard, as amended, regarding revenue from contracts with customers using the modified retrospective approach. This standard provides guidance on recognizing revenue, including a five-step model to determine when revenue recognition is appropriate. The adoption of this standard did not have a material impact on the Company’s financial position and results of operations. Refer to Note 3 for the related additional disclosures.

On January 1, 2018, the Company retrospectively adopted an accounting pronouncement that requires restricted cash, which is recorded in Other assets in the Company’s Consolidated Balance Sheets, to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The adoption of this standard had an immaterial impact on the Company’s historical operating cash flows within the Consolidated Statements of Cash Flows.

In the first quarter of 2018, the Company adopted a new accounting pronouncement that provides entities the option to reclassify tax effects included within AOCL as a result of the United States tax reform legislation enacted in December 2017 (the “Tax Act”) to retained earnings. The adoption of this standard resulted in an increase to AOCL and a decrease to Accumulated deficit in the Consolidated Balance Sheets of $31.4 million, which represents the tax effects of the lower federal tax rate on unrealized gains/(losses) on investment securities, hedging activities, and adjustments related to the Company’s defined benefit pension plan, in addition to the release of deferred taxes accrued on undistributed earnings of one of the Company’s subsidiaries that are no longer owed under the Tax Act. The Company will continue to release tax effects remaining in AOCL into income as the individual units of account are sold or otherwise extinguished. Refer to Note 14 for additional information.

Accounting Pronouncements Not Yet Adopted

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. 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 is required to adopt the new standard on January 1, 2020. The Company has completed its analysis of the standard and has concluded that the adoption of the standard will not have a material impact on the Company’s financial statements.

v3.19.3.a.u2
Revenue
12 Months Ended
Dec. 31, 2019
Revenue  
Revenue

3. Revenue

On January 1, 2018, the Company adopted a new accounting standard, as amended, regarding revenue from contracts with customers using the modified retrospective approach, which was applied to all contracts with customers. 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. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of Accumulated deficit in the Consolidated Balance Sheet, and the adoption of the new accounting standard did not have a material impact on the Company’s January 1, 2018 accumulated deficit. In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard did not have a material impact to the Company’s revenues or net income on an ongoing basis.

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 $5,033.2 million and $5,382.6 million in revenues from contracts with customers for the years ended December 31, 2019 and 2018, respectively. 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 December 31, 2019 and 2018, 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 18 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. The significant majority of the Company’s revenues from bill payment services are generated from contracts to

process transactions at any time during the duration of the contract. In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 5.

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 years ended December 31, 2019 and 2018 (in millions). The regional split of revenue shown in the tables below is based upon where transactions are initiated. Revenues that would have been reported under previous accounting guidance would not have been materially different from the amounts shown below:

Year Ended December 31, 2019

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments (c)

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

1,653.5

$

95.4

$

223.0

$

55.9

$

2,027.8

Europe and Russia/CIS

 

1,350.1

 

127.1

 

3.2

 

4.1

 

1,484.5

Middle East, Africa, and South Asia

 

642.0

 

1.8

 

0.4

 

 

644.2

Latin America and the Caribbean

 

395.2

 

3.4

 

129.4

 

15.3

 

543.3

East Asia and Oceania

 

263.5

 

68.4

 

1.5

 

 

333.4

Revenues from contracts with customers

$

4,304.3

$

296.1

$

357.5

$

75.3

$

5,033.2

Other revenues (a)

 

103.5

 

92.7

 

37.3

 

25.4

 

258.9

Total revenues (b)

$

4,407.8

$

388.8

$

394.8

$

100.7

$

5,292.1

Year Ended December 31, 2018

    

    

Foreign 

    

    

    

Consumer 

Exchange 

Money 

and Payment 

Consumer 

Other 

Transfers

Services

Bill Payments (c)

Services

Total

Regions:

 

  

 

  

 

  

 

  

 

  

North America

$

1,632.3

$

97.6

$

463.9

$

57.4

$

2,251.2

Europe and Russia/CIS

 

1,399.5

 

130.0

 

3.1

 

3.9

 

1,536.5

Middle East, Africa, and South Asia

 

654.4

 

1.5

 

0.3

 

 

656.2

Latin America and the Caribbean

 

393.2

 

3.1

 

152.7

 

13.7

 

562.7

East Asia and Oceania

 

304.6

 

69.9

 

1.5

 

 

376.0

Revenues from contracts with customers

$

4,384.0

$

302.1

$

621.5

$

75.0

$

5,382.6

Other revenues (a)

 

69.6

 

84.7

 

30.8

 

22.2

 

207.3

Total revenues (b)

$

4,453.6

$

386.8

$

652.3

$

97.2

$

5,589.9

(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 18 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 electronic bill payments business known as “Speedpay,” and closed the transaction on May 9, 2019. Included within North America revenues are Speedpay revenues of $125.4 million and $352.0 million for the years ended December 31, 2019 and 2018, respectively.

v3.19.3.a.u2
Restructuring-Related Expenses and Business Transformation Expenses
12 Months Ended
Dec. 31, 2019
Restructuring-Related Expenses and Business Transformation Expenses  
Restructuring-Related Expenses and Business Transformation Expenses

4. Restructuring-Related Expenses and Business Transformation Expenses

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 (“CEO”), 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, costs related to 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 year ended December 31, 2019 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Consolidated Balance Sheets as of December 31, 2019 (in millions):

    

Severance and 

    

Facility Relocations

    

Related 

and Closures,

Employee 

Consulting,

Benefits

and Other

Total

Balance, December 31, 2018

$

$

$

Expenses (a)

 

98.0

 

17.5

 

115.5

Cash payments

(28.6)

(9.6)

(38.2)

Non-cash benefits/(charges) (a)

1.8

(5.8)

(4.0)

Balance, December 31, 2019

$

71.2

$

2.1

$

73.3

(a)Non-cash benefits/(charges) include non-cash write-offs and accelerated depreciation of ROU 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 Consolidated Statements of Income/(Loss) (in millions):

Year Ended December 31, 2019

Cost of services

$

39.8

Selling, general, and administrative

 

75.7

Total expenses, pre-tax

$

115.5

Total expenses, net of tax

$

90.0

Business Transformation Expenses

In the second quarter of 2016, the Company began incurring expenses related to a business transformation initiative (“WU Way”). As of December 31, 2017, expenses associated with the WU Way initiative were effectively complete. 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 and can reasonably be expected to incur in the future. The cash payments related to the WU Way for the years ended December 31, 2018 and 2017 were $32.3 million and $77.3 million, respectively. The business transformation liability was not material as of December 31, 2018.

The following table presents expenses related to business transformation initiatives as reflected in the Consolidated Statements of Income/(Loss) (in millions):

Year Ended December 31, 2017

Cost of services

$

35.7

Selling, general, and administrative

 

58.7

Total expenses, pre-tax

$

94.4

Total expenses, net of tax

$

63.3

While certain of the business transformation expenses were identifiable to the Company’s segments, primarily to the Company’s Consumer-to-Consumer segment, the expenses were not included in the measurement of segment operating income provided to the CODM for purposes of performance assessment and resource allocation. These expenses were therefore excluded from the Company’s segment operating income results.

v3.19.3.a.u2
Divestitures, Business Combinations, and Goodwill
12 Months Ended
Dec. 31, 2019
Divestitures, Business Combinations, and Goodwill  
Divestitures, Business Combinations, and Goodwill

5. Divestitures, Business Combinations, and Goodwill

Divestitures of Businesses

On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp. and ACW Worldwide, Inc. (together, “ACI”) to sell its United States 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 Consolidated Statements of Income/(Loss), in the all-cash transaction that closed on May 9, 2019. Speedpay revenues included in the Company’s results were $125.4 million, $352.0 million, and $368.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. Speedpay direct operating expenses were $98.2 million, $251.2 million, and $246.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

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 during 2019.

Business Solutions Goodwill Impairment Charge

During 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 Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) margins and the impact of the Tax Act. Revenue and EBITDA projections were reevaluated during the year ended December 31, 2017 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 imposed a tax on certain previously undistributed foreign earnings and established 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, including projections of revenue growth rates and EBITDA margins, which require significant management judgment and estimation.

The Company did not record any goodwill impairments during the years ended December 31, 2019 and 2018.

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 believes that the acquisition has assisted and will continue to 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 acquisition does not and will not impact the Company’s revenues.

During the first quarter of 2018, the Company finalized the valuation of the acquisition, for which it has recognized approximately $22.0 million of goodwill. The valuation of the acquisition was derived primarily using unobservable Level 3 inputs, which require significant management judgment and estimation.

The following table presents changes to goodwill for the years ended December 31, 2019 and 2018 (in millions):

    

Consumer-to-

    

Business

    

    

Consumer

Solutions

Other

Total

January 1, 2018 goodwill, net

$

1,981.0

$

532.0

$

214.9

$

2,727.9

Purchase accounting adjustments

 

(0.3)

 

 

 

(0.3)

Currency translation

 

 

 

(2.6)

 

(2.6)

December 31, 2018 goodwill, net

$

1,980.7

$

532.0

$

212.3

$

2,725.0

Divestitures (a)

(158.4)

(158.4)

December 31, 2019 goodwill, net

$

1,980.7

$

532.0

$

53.9

$

2,566.6

(a)Related to the Speedpay and Paymap divestitures, as described above.

The following table presents accumulated impairment losses as of December 31, 2019, 2018, and 2017 (in millions):

As of December 31, 

    

2019

    

2018

    

2017

Goodwill, gross

$

3,030.6

$

3,189.0

$

3,191.9

Accumulated impairment losses

 

(464.0)

 

(464.0)

 

(464.0)

Goodwill, net

$

2,566.6

$

2,725.0

$

2,727.9

v3.19.3.a.u2
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies  
Commitments and Contingencies

6. Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company had approximately $335 million in outstanding letters of credit and bank guarantees as of December 31, 2019 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 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 $30 million as of December 31, 2019. 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 “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. The term of the DPA ended on January 19, 2020, and the agreement has expired. Under the DPA, to close out this matter, the DOJ has 90 days from the expiration to file for dismissal of the charges.

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. 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 Joint Settlement Agreements also 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 Joint Settlement Agreements 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 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 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 the Company’s prior disclosures.

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 complaint 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 is currently in 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, 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 U.S. 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. 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, 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. 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, which is still pending before the Court.

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.

v3.19.3.a.u2
Related Party Transactions
12 Months Ended
Dec. 31, 2019
Related Party Transactions  
Related Party Transactions

7. 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, 2019, 2018, and 2017 totaled $57.1 million, $57.6 million, and $65.9 million, respectively.

v3.19.3.a.u2
Investment Securities
12 Months Ended
Dec. 31, 2019
Investment Securities  
Investment Securities

8. 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 2051. 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 regulatory requirements.

Substantially all 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, 2019, 2018, and 2017 were $5.4 billion, $7.7 billion, and $7.9 billion, respectively.

Gains and losses on investment securities are calculated using the specific-identification method and are recognized in earnings 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: (i) earnings performance, (ii) changes in credit rating, or (iii) adverse changes in the regulatory or economic environment of the asset. If potential impairment exists, the Company assesses (i) whether it has the intent to sell the investment security, (ii) will more likely than not be required to sell the investment security before its anticipated recovery, or (iii) 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):

    

    

    

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

 

0.1

 

 

0.1

Other United States government agency debt securities

34.9

34.9

United States Treasury securities

 

9.8

 

10.0

 

0.2

 

 

0.2

Total investment securities within Settlement assets

 

1,666.8

 

1,698.4

 

32.2

 

(0.6)

 

31.6

Total investment securities

$

1,691.4

$

1,723.0

$

32.2

$

(0.6)

$

31.6

    

    

    

Gross

    

Gross

    

Net

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

 

Unrealized

December 31, 2018

Cost

Value

 

Gains

 

Losses

 

Gains/(Losses)

Cash and cash equivalents:

Money market funds

$

27.0

$

27.0

$

$

$

Settlement assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents:

 

  

 

  

 

  

 

  

 

  

Money market funds

23.9

23.9

Available-for-sale securities:

 

  

 

  

 

  

 

  

 

  

State and municipal debt securities (a)

963.4

962.7

6.1

(6.8)

(0.7)

State and municipal variable-rate demand notes

 

168.7

 

168.7

 

 

 

Corporate and other debt securities

 

70.0

 

69.5

 

 

(0.5)

 

(0.5)

United States Treasury securities

 

9.9

 

9.7

 

 

(0.2)

 

(0.2)

Total investment securities within Settlement assets

 

1,212.0

 

1,210.6

 

6.1

 

(7.5)

 

(1.4)

Other assets:

 

  

 

  

 

  

 

  

 

  

Held-to-maturity securities:

 

  

 

  

 

  

 

  

 

  

Foreign corporate debt securities

 

32.9

 

32.9

 

 

 

Total investment securities

$

1,295.8

$

1,294.4

$

6.1

$

(7.5)

$

(1.4)

(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, 2019 and 2018.

The following summarizes the contractual maturities of investment securities within Settlement assets as of December 31, 2019 (in millions):

Fair Value

Due within 1 year

$

182.5

Due after 1 year through 5 years

 

572.2

Due after 5 years through 10 years

 

525.3

Due after 10 years

 

418.4

$

1,698.4

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 $7.6 million, $17.9 million, $11.0 million, and $239.6 million are included in the “Due within 1 year,” “Due after 1 years through 5 years,” “Due after 5 years through 10 years,” and “Due after 10 years” categories, respectively, in the table above.

v3.19.3.a.u2
Fair Value Measurements
12 Months Ended
Dec. 31, 2019
Fair Value Measurements  
Fair Value Measurements

9. 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. Refer to Note 2 for additional information on how the Company measures fair value.

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

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

Fair Value Measurement Using

Total

December 31, 2018

    

Level 1

    

Level 2

    

Fair Value

Assets:

 

  

 

  

 

  

Cash and cash equivalents:

Measured at fair value through net income:

Money market funds

$

27.0

$

$

27.0

Settlement assets:

 

  

 

  

 

  

Measured at fair value through net income:

 

  

 

  

 

  

Money market funds

23.9

23.9

Measured at fair value through other comprehensive income:

 

  

  

  

State and municipal debt securities

962.7

962.7

State and municipal variable-rate demand notes

 

 

168.7

 

168.7

Corporate and other debt securities

 

 

69.5

 

69.5

United States Treasury securities

 

9.7

 

 

9.7

Other assets:

 

  

 

  

 

  

Derivatives

 

 

245.5

 

245.5

Total assets

$

60.6

$

1,446.4

$

1,507.0