WESTERN UNION CO, 10-Q filed on 5/7/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 30, 2019
Document and Entity Information    
Entity Registrant Name Western Union CO  
Entity Central Index Key 0001365135  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Trading Symbol wu  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   430,708,512
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF INCOME    
Revenues $ 1,337.0 $ 1,389.4
Type of Revenue us-gaap:ServiceMember us-gaap:ServiceMember
Expenses:    
Cost of services $ 785.0 $ 825.4
Type of Cost of Service us-gaap:ServiceMember us-gaap:ServiceMember
Selling, general and administrative $ 300.8 $ 299.1
Total expenses 1,085.8 1,124.5
Operating income 251.2 264.9
Other income/(expense):    
Interest income 2.1 0.7
Interest expense (39.7) (35.5)
Other income, net 2.5 4.4
Total other expense, net (35.1) (30.4)
Income before income taxes 216.1 234.5
Provision for income taxes 43.0 20.9
Net income $ 173.1 $ 213.6
Earnings per share:    
Basic (USD per share) $ 0.40 $ 0.46
Diluted (USD per share) $ 0.39 $ 0.46
Weighted-average shares outstanding:    
Basic (shares) 437.7 460.3
Diluted (shares) 439.9 463.6
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME    
Net income $ 173.1 $ 213.6
Other comprehensive income/(loss), net of tax (Note 10):    
Unrealized gains/(losses) on investment securities 13.0 (8.7)
Unrealized gains/(losses) on hedging activities 3.9 (3.1)
Foreign currency translation adjustments   (7.0)
Defined benefit pension plan adjustments 2.5 2.1
Total other comprehensive income/(loss) 19.4 (16.7)
Comprehensive income $ 192.5 $ 196.9
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 31, 2019
Dec. 31, 2018
Assets    
Cash and cash equivalents $ 833.1 $ 973.4
Settlement assets 3,497.5 3,813.8
Property and equipment, net of accumulated depreciation of $668.8 and $702.4 respectively 229.0 270.4
Goodwill 2,568.5 2,725.0
Other intangible assets, net of accumulated amortization of $1,044.6 and $1,047.6, respectively 562.7 598.2
Other assets (Note 5) 767.0 616.0
Assets held for sale (Note 4) 974.2  
Total assets 9,432.0 8,996.8
Liabilities:    
Accounts payable and accrued liabilities 471.3 564.9
Settlement obligations 3,497.5 3,813.8
Income taxes payable 1,085.1 1,054.0
Deferred tax liability, net 165.3 161.1
Borrowings 3,370.3 3,433.7
Other liabilities (Note 5) 492.0 279.1
Liabilities associated with assets held for sale (Note 4) 724.7  
Total liabilities 9,806.2 9,306.6
Commitments and contingencies (Note 7)
Stockholders' deficit:    
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
Common stock, $0.01 par value; 2,000 shares authorized; 432.9 shares and 441.2 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively 4.3 4.4
Capital surplus 771.1 755.6
Accumulated deficit (938.0) (838.8)
Accumulated other comprehensive loss (211.6) (231.0)
Total stockholders' deficit (374.2) (309.8)
Total liabilities and stockholders' deficit $ 9,432.0 $ 8,996.8
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
shares in Millions, $ in Millions
Mar. 31, 2019
Dec. 31, 2018
Assets    
Accumulated Depreciation on Property Plant and Equipment $ 668.8 $ 702.4
Accumulated Amortization on Other Intangible Assets $ 1,044.6 $ 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 432.9 441.2
Common stock, shares outstanding 432.9 441.2
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income $ 173.1 $ 213.6
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 19.2 19.3
Amortization 45.6 47.4
Other non-cash items, net 28.4 8.9
Increase/(decrease) in cash resulting from changes in:    
Other assets (7.3) (47.3)
Accounts payable and accrued liabilities (44.1) (123.2)
Income taxes payable 31.1 11.5
Other liabilities (6.4) 2.5
Net cash provided by operating activities 239.6 132.7
Cash flows from investing activities    
Capitalization of contract costs (15.1) (10.3)
Capitalization of purchased and developed software (6.4) (6.7)
Purchases of property and equipment (16.1) (20.2)
Purchases of non-settlement related investments and other (4.1) (4.3)
Proceeds from maturity of non-settlement related investments and other 19.8 10.0
Purchases of held-to-maturity non-settlement related investments (0.7) (1.4)
Proceeds from held-to-maturity non-settlement related investments 5.9  
Net cash used in investing activities (16.7) (32.9)
Cash flows from financing activities    
Cash dividends paid (87.4) (87.5)
Common stock repurchased (Note 10) (171.6) (11.6)
Net (repayments of)/proceeds from commercial paper (65.0) 110.0
Proceeds from exercise of options 1.8 3.8
Other financing activities (0.1) (5.2)
Net cash (used in)/provided by financing activities (322.3) 9.5
Net change in cash, cash equivalents and restricted cash (99.4) 109.3
Cash, cash equivalents and restricted cash at beginning of year 979.7 844.4
Cash, cash equivalents and restricted cash at end of year 880.3 953.7
Supplemental cash flow information:    
Interest paid 24.0 23.0
Income taxes paid 10.3 13.7
Cash paid for lease liabilities 12.0  
Non-cash lease liabilities arising from obtaining right-of-use assets (Note 5) 269.1  
Cash included in Assets held for sale (Note 4) 41.0  
Restricted cash at end of period (included in Other assets) $ 6.2 $ 19.4
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT - USD ($)
shares in Millions, $ in Millions
Common Stock
Capital Surplus
Retained Earnings/(Accumulated Deficit)
Accumulated Other Comprehensive Loss
Total
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Adoption of new accounting pronouncements as of January 1, 2018     $ 30.7 $ (31.4) $ (0.7)
Beginning balance at Dec. 31, 2017 $ 4.6 $ 697.8 (965.9) (227.9) (491.4)
Beginning balance, Shares at Dec. 31, 2017 459.0        
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     213.6   213.6
Stock-based compensation   13.8     13.8
Common stock dividends     (87.5)   (87.5)
Repurchase and retirement of common shares     (11.8)   (11.8)
Repurchase and retirement of common shares (shares) (0.5)        
Shares issued under stock-based compensation plans   3.8     3.8
Shares issued under stock-based compensation plans (shares) 2.1        
Unrealized gains (losses) on investment securities, net of tax       (8.7) (8.7)
Unrealized gains (losses) on hedging activities, net of tax       (3.1) (3.1)
Foreign currency translation adjustments, net of tax       (7.0) (7.0)
Defined benefit pension plan adjustments, net of tax       2.1 2.1
Ending balance at Mar. 31, 2018 $ 4.6 715.4 (820.9) (276.0) (376.9)
Ending balance (shares) at Mar. 31, 2018 460.6        
Beginning balance at Dec. 31, 2018 $ 4.4 755.6 (838.8) (231.0) $ (309.8)
Beginning balance, Shares at Dec. 31, 2018 441.2       441.2
Increase/(Decrease) in Stockholders' Equity [Roll Forward]          
Net income     173.1   $ 173.1
Stock-based compensation   13.7     13.7
Common stock dividends     (87.4)   (87.4)
Repurchase and retirement of common shares $ (0.1)   (184.9)   (185.0)
Repurchase and retirement of common shares (shares) (10.2)        
Shares issued under stock-based compensation plans   1.8     1.8
Shares issued under stock-based compensation plans (shares) 1.9        
Unrealized gains (losses) on investment securities, net of tax       13.0 13.0
Unrealized gains (losses) on hedging activities, net of tax       3.9 3.9
Defined benefit pension plan adjustments, net of tax       2.5 2.5
Ending balance at Mar. 31, 2019 $ 4.3 $ 771.1 $ (938.0) $ (211.6) $ (374.2)
Ending balance (shares) at Mar. 31, 2019 432.9       432.9
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (Parentheticals) - $ / shares
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT    
Common stock dividends (USD per share) $ 0.20 $ 0.19
v3.19.1
Business and Basis of Presentation
3 Months Ended
Mar. 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 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 views its multi-currency money transfer service as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers and, in certain countries, intra-country transfers. This segment also includes money transfer transactions that can be initiated through websites and mobile devices.

·

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

All businesses and other services that have not been classified in the above segments are reported as "Other," which primarily includes the Company’s electronic-based and cash-based bill payment services which facilitate payments from consumers to businesses and other organizations. On February 28, 2019, the Company entered into an agreement to sell the substantial majority of its United States based electronic bill payments services, as discussed in Note 4. The Company expects to close the transaction during the second quarter of 2019. The Company’s money order and other services, in addition to certain corporate costs such as costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures are also included in "Other." See Note 15 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, 2018, the amount of these net asset limitations totaled approximately $365 million.

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

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10‑Q and Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated as of March 31, 2019 and December 31, 2018 and for all periods presented.

In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position and cash flows as of March 31, 2019 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

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 5 for additional information and the related disclosures.

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. Management is currently evaluating the potential impact that the adoption of this standard will have on the Company’s financial position, results of operations, and related disclosures.

v3.19.1
Revenue
3 Months Ended
Mar. 31, 2019
Revenue  
Revenue

2. Revenue

The Company’s revenues are primarily derived from consideration paid by customers to transfer money. These revenues vary by transaction based upon 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.

For the three months ended March 31, 2019 and 2018, the Company recognized $1,275.4 million and $1,346.0 million in revenues from contracts with customers, 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 the periods presented, as the Company typically receives payment of consideration from its customers prior to satisfying performance obligations under the customer contracts. In addition to revenue generated from contracts with customers, the Company recognizes revenue from other sources, including the sale of derivative financial instruments and investment income generated on settlement assets primarily related to money transfer and money order services.

The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below. Revenues from consumer money transfers are included in the Company’s Consumer-to-Consumer segment, revenues from foreign exchange and payment services are included in the Company’s Business Solutions segment, and revenues from consumer bill payments and other services are not included in the Company’s segments and are reported as "Other." See Note 15 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: 1) the customer’s acknowledgment of the Company’s terms and conditions and payment information has been received by the Company, 2) the Company has agreed to process the money transfer, 3) the Company has provided the customer a unique transaction identification number, and 4) funds are available to be picked up by the customer 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: 1) who pays the fee to the Company (consumer or biller), 2) whether the service is offered to all potential consumers, or only to those for which the Company has a relationship with the biller, and 3) 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. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which the Company records as a reduction to revenue.

Management has determined that the significant majority of the Company’s revenue is recognized at a point in time. The following tables represent the disaggregation of revenue earned from contracts with customers by product type and region for the three months ended March 31, 2019 and 2018 (in millions). The regional split of revenue shown in the tables below is based upon where transactions are initiated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

    

 

 

    

Foreign 

    

 

 

    

 

 

    

 

 

 

 

Consumer 

 

Exchange 

 

 

 

 

 

 

 

 

 

 

 

Money 

 

and Payment 

 

Consumer 

 

Other 

 

 

 

 

 

Transfers

 

Services

 

Bill Payments (c)

 

Services

 

Total

Regions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

North America

 

$

395.5

 

$

22.1

 

$

115.1

 

$

14.5

 

$

547.2

Europe and Russia/CIS

 

 

323.2

 

 

31.9

 

 

0.6

 

 

0.9

 

 

356.6

Middle East, Africa, and South Asia

 

 

153.3

 

 

0.5

 

 

0.1

 

 

 —

 

 

153.9

Latin America and the Caribbean

 

 

95.3

 

 

1.0

 

 

33.6

 

 

3.5

 

 

133.4

East Asia and Oceania

 

 

66.5

 

 

17.5

 

 

0.3

 

 

 —

 

 

84.3

Revenues from contracts with customers

 

$

1,033.8

 

$

73.0

 

$

149.7

 

$

18.9

 

$

1,275.4

Other revenues (a)

 

 

23.1

 

 

22.6

 

 

9.5

 

 

6.4

 

 

61.6

Total revenues (b)

 

$

1,056.9

 

$

95.6

 

$

159.2

 

$

25.3

 

$

1,337.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

    

 

 

    

Foreign 

    

 

 

    

 

 

    

 

 

 

 

Consumer 

 

Exchange 

 

 

 

 

 

 

 

 

 

 

 

Money 

 

and Payment 

 

Consumer 

 

Other 

 

 

 

 

 

Transfers

 

Services

 

Bill Payments (c)

 

Services

 

Total

Regions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

North America

 

$

394.6

 

$

24.9

 

$

123.1

 

$

14.6

 

$

557.2

Europe and Russia/CIS

 

 

345.5

 

 

32.3

 

 

0.8

 

 

1.0

 

 

379.6

Middle East, Africa, and South Asia

 

 

166.8

 

 

 —

 

 

0.1

 

 

 —

 

 

166.9

Latin America and the Caribbean

 

 

97.7

 

 

0.2

 

 

45.0

 

 

3.2

 

 

146.1

East Asia and Oceania

 

 

78.5

 

 

17.3

 

 

0.4

 

 

 —

 

 

96.2

Revenues from contracts with customers

 

$

1,083.1

 

$

74.7

 

$

169.4

 

$

18.8

 

$

1,346.0

Other revenues (a)

 

 

7.9

 

 

22.0

 

 

8.1

 

 

5.4

 

 

43.4

Total revenues (b)

 

$

1,091.0

 

$

96.7

 

$

177.5

 

$

24.2

 

$

1,389.4


(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 15 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.” The Company expects to close the transaction during the second quarter of 2019. Included within North America revenues are Speedpay revenues of $88.2 million and $95.0 million for the three months ended March 31, 2019 and 2018, respectively.

 

v3.19.1
Earnings Per Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share  
Earnings Per Share

3. Earnings Per Share

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

For the three months ended March 31, 2019 and 2018, there were 4.4 million and 2.0 million, respectively, of shares excluded from the diluted earnings 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.

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

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Basic weighted-average shares outstanding

 

437.7

 

460.3

 

Common stock equivalents

 

2.2

 

3.3

 

Diluted weighted-average shares outstanding

 

439.9

 

463.6

 

 

v3.19.1
Assets and Liabilities Held For Sale
3 Months Ended
Mar. 31, 2019
Assets and Liabilities Held For Sale  
Assets and Liabilities Held For Sale

4. Assets and Liabilities Held For Sale

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,” which is included as a component of “Other” in the Company’s segment reporting. The Company will receive approximately $750 million in the all-cash transaction that is expected to close during the second quarter of 2019, and the Company will record a gain on the sale. Speedpay revenues were $88.2 million and $95.0 million, and direct operating expenses were $67.6 million and $66.1 million for the three months ended March 31, 2019 and 2018, respectively.

The following table reflects the assets and liabilities held for sale of Speedpay in the accompanying Condensed Consolidated Balance Sheet (in millions):  

 

 

 

 

 

 

    

March 31, 

    

 

    

2019

 

Cash and cash equivalents

 

$

41.0

 

Settlement assets

 

 

705.7

 

Property and equipment, net of accumulated depreciation of $17.6

 

 

0.3

 

Goodwill

 

 

162.5

 

Other intangible assets, net of accumulated amortization of $27.3

 

 

10.3

 

Other assets

 

 

18.8

 

Total assets

 

$

938.6

 

 

 

 

  

 

Settlement obligations

 

$

705.7

 

Accounts payable and accrued liabilities

 

 

17.6

 

Deferred tax liability

 

 

1.4

 

Total liabilities

 

$

724.7

 

 

In addition to Speedpay, the Company has included property and equipment related to the Company’s former headquarters of $35.6 million, which is net of accumulated depreciation of $35.1 million, in “Assets held for sale” in the accompanying Condensed Consolidated Balance Sheet as of March 31, 2019. On April 29, 2019, the Company entered into an agreement to sell its former headquarters and expects to record a gain on the sale. 

 

On May 6, 2019, the Company agreed to sell and completed the sale of Paymap Inc. (“Paymap”), which provides electronic mortgage bill payment services, for contingent consideration and immaterial cash proceeds received at closing. Balances related to Paymap were not held for sale as of March 31, 2019.

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases  
Leases

5. Leases

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

Substantially all of the Company’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis. As of March 31, 2019, the total ROU asset and lease liability were $216.8 million and $261.2 million, respectively, and were included in “Other assets” and “Other liabilities,” respectively, in the Company’s Condensed Consolidated Balance Sheet. The Company’s finance leases were not material as of March 31, 2019. Cash paid for lease liabilities is recorded as cash flows from operating activities in the Company’s Condensed Consolidated Statements of Cash Flows. For the three months ended March 31, 2019, operating lease costs were $15.0 million, which were included in the Company’s Condensed Consolidated Statement of Income. Short term and variable lease costs were not material for the three months ended March 31, 2019.

The Company’s leases have remaining terms from less than 1 year to 12 years. Certain of these leases contain escalation provisions or renewal options, giving the Company the right to extend the lease by up to 12 years. However, a substantial majority of these options are not reflected in the calculation of the ROU asset and lease liability due to uncertainty surrounding the likelihood of renewal. 

The following table summarizes the weighted average lease terms and discount rates for operating lease liabilities:

 

 

 

 

 

March 31, 2019

Weighted average remaining lease term (in years)

 

8.1

Weighted average discount rate

 

6.1%

 

The following table represents maturities of operating lease liabilities as of March 31, 2019 (in millions):

 

 

 

 

Due within 1 year

 

$

51.9

Due after 1 year through 2 years

 

 

46.8

Due after 2 years through 3 years

 

 

39.6

Due after 3 years through 4 years

 

 

34.5

Due after 4 years through 5 years

 

 

31.4

Due after 5 years

 

 

125.9

Total future minimum lease payments

 

 

330.1

Less imputed interest

 

 

(68.9)

Total

 

$

261.2

 

v3.19.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2019
Fair Value Measurements  
Fair Value Measurements

6. Fair Value Measurements

Fair value, as defined by the relevant accounting standards, represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Company measures fair value, refer to the Company’s consolidated financial statements within the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

The following tables reflect assets and liabilities that were measured at fair value on a recurring basis (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets/

 

 

 

 

 

 

 

 

 

 

 

Liabilities at

 

 

Fair Value Measurement Using

 

Fair

March 31, 2019

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Settlement assets:

 

 

  

 

 

  

 

 

  

 

 

  

Measured at fair value through net income:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

14.8

 

$

 —

 

$

 —

 

$

14.8

Measured at fair value through other comprehensive income:

 

 

  

 

 

  

 

 

  

 

 

  

State and municipal debt securities

 

 

 —

 

 

984.8

 

 

 —

 

 

984.8

State and municipal variable rate demand notes

 

 

 —

 

 

295.6

 

 

 —

 

 

295.6

Corporate and other debt securities

 

 

 —

 

 

75.9

 

 

 —

 

 

75.9

United States Treasury securities

 

 

9.8

 

 

 —

 

 

 —

 

 

9.8

Other assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivatives

 

 

 —

 

 

200.9

 

 

 —

 

 

200.9

Total assets

 

$

24.6

 

$

1,557.2

 

$

 —

 

$

1,581.8

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivatives

 

$

 —

 

$

129.5

 

$

 —

 

$

129.5

Total liabilities

 

$

 —

 

$

129.5

 

$

 —

 

$

129.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets/

 

 

 

 

 

 

 

 

 

 

 

Liabilities at

 

 

Fair Value Measurement Using

 

Fair

December 31, 2018

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Cash:

 

 

 

 

 

 

 

 

 

 

 

 

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

Liabilities:

 

 

  

 

 

  

 

 

  

 

 

  

Derivatives

 

$

 —

 

$

176.2

 

$

 —

 

$

176.2

Total liabilities

 

$

 —

 

$

176.2

 

$

 —

 

$

176.2

 

No non-recurring fair value adjustments were recorded during the three months ended March 31, 2019 and 2018.

Other Fair Value Measurements

The carrying amounts for many of the Company’s financial instruments, including certain cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and settlement obligations approximate fair value due to their short maturities. The Company’s borrowings are classified as Level 2 of the valuation hierarchy, and the aggregate fair value of these borrowings was based on quotes from multiple banks and excluded the impact of related interest rate swaps. Fixed rate notes are carried in the Company’s Condensed Consolidated Balance Sheets at their original issuance values as adjusted over time to accrete that value to par, except for portions of notes hedged by these interest rate swaps, as disclosed in Note 11. As of March 31, 2019, the carrying value and fair value of the Company’s borrowings were $3,370.3 million and $3,415.9 million, respectively (see Note 12). As of December 31, 2018, the carrying value and fair value the Company’s borrowings were $3,433.7 million and $3,394.6 million, respectively.

The Company holds investments in foreign corporate debt securities that are classified as held-to-maturity securities within Level 2 of the valuation hierarchy and are recorded at amortized cost in "Other Assets" in the Company’s Condensed Consolidated Balance Sheets. As of March 31, 2019, the carrying value and fair value of the Company’s foreign corporate debt securities were $27.0 million and $27.1 million, respectively. As of December 31, 2018, both the carrying value and fair value of the Company’s foreign corporate debt securities were $32.9 million.

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies  
Commitments and Contingencies

7. Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company had approximately $285 million in outstanding letters of credit and bank guarantees as of March 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 loss may have been incurred and whether an estimate of possible loss or range of loss can be made. Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional loss may have been incurred for each of the matters described below.

For those matters that the Company believes there is at least a reasonable possibility that a loss or additional loss may have been incurred and can reasonably estimate the loss or potential loss, the reasonably possible potential litigation losses in excess of the Company’s recorded liability for probable and estimable losses was approximately $50 million as of March 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: (a) the proceedings are in preliminary stages; (b) specific damages have not been sought; (c) damage claims are unsupported and/or unreasonable; (d) there is uncertainty as to the outcome of pending appeals or motions; (e) there are significant factual issues to be resolved; or (f) novel legal issues or unsettled legal theories are being asserted.

The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss.

United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements

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

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

Under the Joint Settlement Agreements, the Company was required to (1) pay an aggregate amount of $586 million to the DOJ to be used to reimburse consumers who were the victims of third-party fraud conducted through the Company’s money transfer services (the “Compensation Payment”), (2) pay an aggregate amount of $5 million to the State Attorneys General to reimburse investigative, enforcement, and other costs, and (3) retain an independent compliance auditor for three years to review and assess actions taken by the Company under the Consent Order to further enhance its oversight of agents and protection of consumers. The FinCEN Agreement also set forth a civil penalty of $184 million, the full amount of which was deemed satisfied by the Compensation Payment, without any additional payment or non-monetary obligations. No separate payment to the FTC was required under the Joint Settlement Agreements. The Company paid the Compensation Payment and the aggregate amount due to the State Attorneys General during 2017.

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

Shareholder Derivative Actions

On January 13, 2014, Natalie Gordon served the Company with a Verified Shareholder Derivative Complaint and Jury Demand that was filed in District Court, Douglas County, Colorado naming the Company’s President and Chief Executive Officer, one of its former executive officers, one of its former directors, and all but one of its current directors as individual defendants, and the Company as a nominal defendant. The complaint asserts claims for breach of fiduciary duty and gross mismanagement against all of the individual defendants and unjust enrichment against the President and Chief Executive Officer and the former executive officer based on allegations that between February 12, 2012 to October 30, 2012, the individual defendants made or caused the Company to issue false and misleading statements or failed to make adequate disclosures regarding the effects of a settlement agreement signed on February 11, 2010 between WUFSI and the State of Arizona regarding WUFSI’s AML compliance programs along the United States and Mexico border ("Southwest Border Agreement"), including regarding the anticipated costs of compliance with the Southwest Border Agreement, potential effects on business operations, and Company projections. Plaintiff also alleges that the individual defendants caused or allowed the Company to lack requisite internal controls, caused or allowed financial statements to be misstated, and caused the Company to be subject to the costs, expenses and liabilities associated with City of Taylor Police and Fire Retirement System v. The Western Union Company, et al., a lawsuit that was subsequently renamed and dismissed. Plaintiff further alleges that the Company’s President and Chief Executive Officer and the former executive officer received excessive compensation based on the allegedly inaccurate financial statements. On March 12, 2014, the Court entered an order granting the parties’ joint motion to stay proceedings in the case during the pendency of certain of the shareholder derivative actions described below. On February 13, 2019, the case was administratively closed, although the Court indicated that a motion could be filed to re-open the matter.

In 2014, Stanley Lieblein, R. Andre Klein, City of Cambridge Retirement System, Mayar Fund Ltd, Louisiana Municipal Police Employees’ Retirement System, MARTA/ATU Local 732 Employees Retirement Plan, and The Police Retirement System of St. Louis filed shareholder derivative complaints in the United States District Court for the District of Colorado (or were removed to the United States District Court for the District of Colorado) naming the Company’s President and Chief Executive Officer and certain current and former directors and a former executive officer as individual defendants, and the Company as a nominal defendant. On January 5, 2015, the court entered an order consolidating the actions and appointing City of Cambridge Retirement System and MARTA/ATU Local 732 Employees Retirement Plan as co-lead plaintiffs. On February 4, 2015, co-lead plaintiffs filed a verified consolidated shareholder derivative complaint naming the Company’s President and Chief Executive Officer and nine current or former executive officers and directors as individual defendants, and the Company as a nominal defendant. The consolidated complaint asserts separate claims for breach of fiduciary duty against the director defendants and the officer defendants, claims against all of the individual defendants for violations of section 14(a) of the Securities Exchange Act of 1934 ("Exchange Act"), corporate waste and unjust enrichment, and a claim against the former executive officer for breach of fiduciary duties for insider selling and misappropriation of information. The breach of fiduciary duty claim against the director defendants includes allegations that they declined to implement an effective AML compliance system after receiving numerous red flags indicating prolonged willful illegality, obstructed the efforts of the monitor assigned to the Company pursuant to the Southwest Border Agreement to impose effective compliance systems on the Company, failed to take action in response to alleged Western Union management efforts to undermine the monitor, reappointed the same directors to the Audit Committee and Corporate Governance and Public Policy Committees constituting a majority of those committees between 2006 and 2014, appointed a majority of directors to the Compliance Committee who were directly involved in overseeing the alleged misconduct as members of the Audit Committee and the Corporate Governance and Public Policy Committee, caused the Company to materially breach the Southwest Border Agreement, caused the Company to repurchase its stock at artificially inflated prices, awarded the Company’s senior executives excessive compensation despite their responsibility for the Company’s alleged willful non-compliance with state and federal AML laws, and failed to prevent the former executive officer from misappropriating and profiting from nonpublic information when making allegedly unlawful stock sales. The breach of fiduciary duty claim against the officer defendants includes allegations that they caused the Company and allowed its agents to ignore the recording and reporting requirements of the BSA and parallel AML laws and regulations for a prolonged period of time, authorized and implemented AML policies and practices that they knew or should have known to be inadequate, caused the Company to fail to comply with the Southwest Border Agreement and refused to implement and maintain adequate internal controls.

The claim for violations of section 14(a) of the Exchange Act includes allegations that the individual defendants caused the Company to issue proxy statements in 2012, 2013 and 2014 containing materially incomplete and inaccurate disclosures - in particular, by failing to disclose the extent to which the Company’s financial results depended on the non-compliance with AML requirements, the Board’s awareness of the regulatory and criminal enforcement actions in real time pursuant to the 2003 Consent Agreement with the California Department of Financial Institutions and that the directors were not curing violations and preventing misconduct, the extent to which the Board considered the flood of increasingly severe red flags in their determination to re-nominate certain directors to the Audit Committee between 2006 and 2010, and the extent to which the Board considered ongoing regulatory and criminal investigations in awarding multi-million dollar compensation packages to senior executives. The corporate waste claim includes allegations that the individual defendants paid or approved the payment of undeserved executive and director compensation based on the illegal conduct alleged in the consolidated complaint, which exposed the Company to civil liabilities and fines. The corporate waste claim also includes allegations that the individual defendants made improper statements and omissions, which forced the Company to expend resources in defending itself in City of Taylor Police and Fire Retirement System v. The Western Union Company, et al., a lawsuit that was subsequently renamed and dismissed, authorized the repurchase of over $1.565 billion of the Company’s stock at prices they knew or recklessly were aware, were artificially inflated, failed to maintain sufficient internal controls over the Company’s marketing and sales process, failed to consider the interests of the Company and its shareholders, and failed to conduct the proper supervision. The claim for unjust enrichment includes allegations that the individual defendants derived compensation, fees and other benefits from the Company and were otherwise unjustly enriched by their wrongful acts and omissions in managing the Company. The claim for breach of fiduciary duties for insider selling and misappropriation of information includes allegations that the former executive sold Company stock while knowing material, nonpublic information that would have significantly reduced the market price of the stock. On March 16, 2015, the defendants filed a motion to dismiss the consolidated complaint. On March 31, 2016, the Court entered an order granting the defendants’ collective motion to dismiss without prejudice, denying as moot a separate motion to dismiss that was filed by the former executive officer, and staying the order for 30 days, within which plaintiffs could file an amended complaint that cured the defects noted in the order. On May 2, 2016, co-lead plaintiffs filed a verified amended consolidated shareholder derivative complaint naming the Company’s President and Chief Executive Officer, six of its current directors (including the Company’s President and Chief Executive Officer, who also serves as a director) and three of its former directors as individual defendants, and the Company as a nominal defendant. The amended complaint, among other things, drops the claims against the former executive officer named in the prior complaint, realleges and narrows the breach of fiduciary duty claims, and drops the remaining claims. On June 15, 2016, defendants filed a motion to dismiss the amended consolidated shareholder derivative complaint. On August 1, 2016, plaintiffs filed an opposition to the motion to dismiss. On September 1, 2016, defendants filed a reply brief in support of the motion to dismiss. On February 24, 2017, plaintiffs filed a motion to supplement the amended complaint with allegations relating to the DPA, the criminal information filed in the United States District Court for the Middle District of Pennsylvania, and the FTC’s January 19, 2017 Complaint for Permanent Injunctive and Other Equitable Relief and the Consent Order referenced in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above. The same day, the Court granted plaintiffs’ request to supplement the complaint, ordered them to file a second amended complaint, denied without prejudice defendants’ motion to dismiss and granted defendants leave to renew the motion to dismiss. On March 17, 2017, plaintiffs filed a second amended derivative complaint. On September 29, 2017, the Court granted defendants’ motion to dismiss the second amended derivative complaint. On December 19, 2017, plaintiffs filed an appeal brief in the United States Court of Appeals for the Tenth Circuit, seeking reversal of the dismissal, to which the Company filed an opposition on February 20, 2018. Plaintiffs filed a reply brief on March 30, 2018. On April 16, 2019, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of the second amended derivative complaint.

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

Other Matters

The Company and one of its subsidiaries are defendants in two purported class action lawsuits: James P. Tennille v. The Western Union Company and Robert P. Smet v. The Western Union Company, both of which are pending in the United States District Court for the District of Colorado. The original complaints asserted claims for violation of various consumer protection laws, unjust enrichment, conversion and declaratory relief, based on allegations that the Company waits too long to inform consumers if their money transfers are not redeemed by the recipients and that the Company uses the unredeemed funds to generate income until the funds are escheated to state governments. During the fourth quarter of 2012, the parties executed a settlement agreement, which the Court preliminarily approved on January 3, 2013. On June 25, 2013, the Court entered an order certifying the class and granting final approval to the settlement. Under the approved settlement, a substantial amount of the settlement proceeds, as well as all of the class counsel’s fees, administrative fees and other expenses, would be paid from the class members’ unclaimed money transfer funds. During the final approval hearing, the Court overruled objections to the settlement that had been filed by several class members. In July 2013, two of those class members filed notices of appeal. On May 1, 2015, the United States Court of Appeals for the Tenth Circuit affirmed the District Court’s decision to overrule the objections filed by the two class members who appealed. On January 11, 2016, the United States Supreme Court denied petitions for certiorari that were filed by the two class members who appealed. On February 1, 2016, pursuant to the settlement agreement and the Court’s June 25, 2013 final approval order, Western Union deposited the class members’ unclaimed money transfer funds into a class settlement fund, from which class member claims, administrative fees and class counsel’s fees, as well as other expenses have been paid, with the remainder to go to eligible jurisdictions to which the unclaimed funds would have escheated in the absence of a settlement. On April 3, 2018, the Court entered an order creating a fund for the remainder of the unclaimed funds, which gave eligible jurisdictions one year to execute a release to receive their proportionate share of the fund. All but one of the eligible jurisdictions have executed a release in order to receive their share of the fund, relieving the Company from potential unclaimed property liability for the transactions covered by the settlement, and the Company believes that the reasonably possible loss associated with the remaining jurisdiction is immaterial.

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. The Company accrued an amount equal to the retention under its insurance policy in previous quarters and believes that any amounts in excess of this accrual will be covered by the insurer. However, if the Company’s insurer is unable to or refuses to satisfy its obligations under the policy or the parties are unable to reach a definitive agreement or otherwise agree on a resolution, the Company’s financial condition, results of operations, and cash flows could be adversely impacted. As the parties have reached an agreement in this matter, the Company believes that the potential for additional loss in excess of amounts already accrued is remote.

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. 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. Due to the preliminary stage of this matter, the Company is unable to predict the outcome, or the amount of loss, if any, associated with this matter.

On March 31, 2017, the Company received a request for the production of documents from the New York State Department of Financial Services (the "NYDFS"), following up on a meeting the Company had with the NYDFS on March 7, 2017. The requests pertain to the Company’s oversight of one current and two former Western Union agents located in New York state. The two former agents were identified in the DPA described in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above, and were terminated as agents by the Company prior to 2013. 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. The NYDFS Consent Order also imposes certain non-monetary obligations, including a requirement to provide to the NYDFS a remediation plan within 90 days after the date of the NYDFS Consent Order, which the Company provided on April 4, 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.

v3.19.1
Related Party Transactions
3 Months Ended
Mar. 31, 2019
Related Party Transactions  
Related Party Transactions

8. Related Party Transactions

The Company has ownership interests in certain of its agents accounted for under the equity method of accounting. The Company pays these agents commissions for money transfer and other services provided on the Company’s behalf. Commission expense recognized for these agents for the three months ended March 31, 2019 and 2018 totaled $13.0 million and $13.8 million, respectively.

v3.19.1
Settlement Assets and Obligations and Non-Settlement Related Investments
3 Months Ended
Mar. 31, 2019
Settlement Assets and Obligations and Non-Settlement Related Investments  
Settlement Assets and Obligations and Non-Settlement Related Investments

9. Settlement Assets and Obligations and Non-Settlement Related Investments

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

Settlement assets and obligations consisted of the following (in millions):

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

    

2019

 

2018

Settlement assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

1,394.9

 

$

1,247.8

Receivables from selling agents and Business Solutions customers

 

 

1,442.2

 

 

1,355.4

Investment securities

 

 

1,366.1

 

 

1,210.6

 

 

$

4,203.2

 

$

3,813.8

Settlement obligations:

 

 

  

 

 

  

Money transfer, money order and payment service payables

 

$

2,790.2

 

$

2,793.6

Payables to agents

 

 

1,413.0

 

 

1,020.2

 

 

$

4,203.2

 

$

3,813.8

 

The table above includes $705.7 million of settlement assets and obligations related to Speedpay, which is classified as held for sale as of March 31, 2019 (see Note 4).

 

Investment securities included in "Settlement assets" in the Company’s Condensed Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed rate term notes and variable rate demand notes. Variable rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but have varying maturities through 2049. These securities may be used by the Company for short-term liquidity needs and held for short periods of time. The Company is required to hold highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable state and foreign country requirements.

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

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes. Proceeds from the sale and maturity of available-for-sale securities during the three months ended March 31, 2019 and 2018 were $1.5 billion and $2.7 billion, respectively. 

Gains and losses on investments are calculated using the specific-identification method and are recognized during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value. Factors that could indicate an impairment exists include, but are not limited to: earnings performance, changes in credit rating or adverse changes in the regulatory or economic environment of the asset. If potential impairment exists, the Company assesses whether it has the intent to sell the debt security, more likely than not will be required to sell the debt security before its anticipated recovery or expects that some of the contractual cash flows will not be received.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Gross

    

Gross

    

Net

 

 

Amortized

 

Fair

 

Unrealized

 

Unrealized

 

Unrealized

March 31, 2019

 

Cost

 

Value

 

Gains

 

Losses

 

Gains/(Losses)

Settlement assets:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Cash and cash equivalents:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

14.8

 

$

14.8

 

$

 —

 

$

 —

 

$

 —

Available-for-sale securities:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

State and municipal debt securities (a)

 

 

969.3

 

 

984.8

 

 

16.5

 

 

(1.0)

 

 

15.5

State and municipal variable rate demand notes

 

 

295.6

 

 

295.6

 

 

 —

 

 

 —

 

 

 —

Corporate and other debt securities

 

 

75.9

 

 

75.9

 

 

0.3

 

 

(0.3)

 

 

 —

United States Treasury securities

 

 

9.9

 

 

9.8

 

 

 —

 

 

(0.1)

 

 

(0.1)

 

 

 

1,350.7

 

 

1,366.1

 

 

16.8

 

 

(1.4)

 

 

15.4

Other assets: