WESTERN UNION CO, 10-Q filed on 5/1/2018
Quarterly Report
v3.8.0.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2018
Apr. 25, 2018
Document and Entity Information [Abstract]    
Entity Registrant Name Western Union CO  
Entity Central Index Key 0001365135  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Mar. 31, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   460,727,597
v3.8.0.1
Condensed Consolidated Statements of Income (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Income Statement [Abstract]    
Revenues $ 1,389.4 $ 1,302.4
Expenses:    
Cost of services (Note 1) 825.4 799.9
Selling, general and administrative 299.1 262.4
Total expenses 1,124.5 1,062.3
Operating income 264.9 240.1
Other income/(expense):    
Interest income 0.7 1.1
Interest expense (35.5) (31.3)
Other income, net (Note 1) 4.4 3.2
Total other expense, net (30.4) (27.0)
Income before income taxes 234.5 213.1
Provision for income taxes 20.9 51.4
Net income $ 213.6 $ 161.7
Earnings per share:    
Basic (USD per share) $ 0.46 $ 0.34
Diluted (USD per share) $ 0.46 $ 0.33
Weighted-average shares outstanding:    
Basic (shares) 460.3 479.8
Diluted (shares) 463.6 483.4
Cash dividends declared per common share (USD per share) $ 0.19 $ 0.175
v3.8.0.1
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Statement of Comprehensive Income [Abstract]    
Net income $ 213.6 $ 161.7
Other comprehensive loss, net of tax (Note 10):    
Unrealized gains/(losses) on investment securities (8.7) 4.4
Unrealized losses on hedging activities (3.1) (17.0)
Foreign currency translation adjustments (7.0) (0.2)
Defined benefit pension plan adjustments 2.1 1.8
Total other comprehensive loss (16.7) (11.0)
Comprehensive income $ 196.9 $ 150.7
v3.8.0.1
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Assets    
Cash and cash equivalents $ 934.3 $ 838.2
Settlement assets 4,026.5 4,188.9
Property and equipment, net of accumulated depreciation of $653.6 and $635.7, respectively 215.7 214.2
Goodwill 2,726.7 2,727.9
Other intangible assets, net of accumulated amortization of $1,071.8 and $1,042.7, respectively 569.2 586.3
Other assets 715.6 675.9
Total assets 9,188.0 9,231.4
Liabilities:    
Accounts payable and accrued liabilities 594.1 718.5
Settlement obligations 4,026.5 4,188.9
Income taxes payable 1,262.4 1,252.0
Deferred tax liability, net 173.8 173.0
Borrowings 3,143.4 3,033.6
Other liabilities 363.6 356.8
Total liabilities 9,563.8 9,722.8
Commitments and contingencies (Note 7)
Stockholders' deficit:    
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued 0.0 0.0
Common stock, $0.01 par value; 2,000 shares authorized; 460.6 shares and 459.0 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 4.6 4.6
Capital surplus 715.4 697.8
Accumulated deficit (819.8) (965.9)
Accumulated other comprehensive loss (276.0) (227.9)
Total stockholders' deficit (375.8) (491.4)
Total liabilities and stockholders' deficit $ 9,188.0 $ 9,231.4
v3.8.0.1
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2018
Dec. 31, 2017
Assets    
Accumulated depreciation on property, plant, and equipment $ 653.6 $ 635.7
Accumulated amortization on other intangible assets $ 1,071.8 $ 1,042.7
Stockholders' deficit:    
Preferred stock, par value (in dollars per share) $ 1 $ 1
Preferred stock, shares authorized (in shares) 10,000,000 10,000,000
Preferred stock, shares issued (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 2,000,000,000 2,000,000,000
Common stock, shares issued (in shares) 460,600,000 459,000,000
Common stock, shares outstanding (in shares) 460,600,000 459,000,000
v3.8.0.1
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2018
Mar. 31, 2017
Cash flows from operating activities    
Net income $ 213.6 $ 161.7
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation 19.3 18.6
Amortization 47.4 47.8
Other non-cash items, net 8.9 76.0
Increase/(decrease) in cash resulting from changes in:    
Other assets (47.3) (20.4)
Accounts payable and accrued liabilities (Note 7) (123.2) (192.7)
Income taxes payable 11.5 (5.2)
Other liabilities 2.5 0.5
Net cash provided by operating activities 132.7 86.3
Cash flows from investing activities    
Capitalization of contract costs (10.3) (6.8)
Capitalization of purchased and developed software (6.7) (11.7)
Purchases of property and equipment (20.2) (7.9)
Purchases of non-settlement related investments and other (4.3) (21.3)
Proceeds from maturity of non-settlement related investments 10.0 0.0
Purchases of held-to-maturity non-settlement related investments (1.4) (15.2)
Proceeds from held-to-maturity non-settlement related investments 0.0 12.3
Net cash used in investing activities (32.9) (50.6)
Cash flows from financing activities    
Cash dividends paid (87.5) (83.3)
Common stock repurchased (Note 10) (11.6) (219.3)
Net proceeds from commercial paper 110.0 310.0
Net proceeds from issuance of borrowings 0.0 396.9
Proceeds from exercise of options 3.8 5.8
Other financing activities (5.2) 0.0
Net cash provided by financing activities 9.5 410.1
Net change in cash, cash equivalents and restricted cash 109.3 445.8
Cash, cash equivalents and restricted cash at beginning of period 844.4 877.5
Cash, cash equivalents and restricted cash at end of period 953.7 1,323.3
Supplemental cash flow information:    
Interest paid 23.0 13.7
Income taxes paid 13.7 13.1
Unsettled repurchases of common stock 0.0 18.8
Restricted cash at end of period $ 19.4 $ 0.0
v3.8.0.1
Business and Basis of Presentation
3 Months Ended
Mar. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Basis of Presentation
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. Each location in the Company's agent network is capable of providing one or more of the Company's services.

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

Beginning in the second quarter of 2017, the Western Union business consists of the following segments:
 
Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company's multi-currency money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers and, in certain countries, intra-country transfers. This segment also includes money transfer transactions that can be initiated through websites and mobile devices.

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

All businesses and other services that have not been classified in the above segments are reported as "Other," which, as noted above, primarily includes the Company's electronic-based and cash-based bill payment services which facilitate payments from consumers to businesses and other organizations and which were previously reported in the historical Consumer-to-Business operating segment, and the Company's money order and other services, in addition to costs for the review and closing of acquisitions. 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, 2017, the amount of these net asset limitations totaled approximately $265 million.

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

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, 2018 and December 31, 2017 and for all periods presented. Beginning with this Quarterly Report on Form 10-Q, the Company will no longer present the "Derivative gains, net" line item in its Condensed Consolidated Statements of Income for all periods presented due to the early adoption of the new accounting pronouncement to improve the financial reporting of hedging relationships, as further described below. Amounts previously reported in prior periods in "Derivative gains, net" are now reported in "Other income, net" in the Condensed Consolidated Statements of Income. Additionally, certain historical amounts reported in the Condensed Consolidated Statements of Income for the three months ended March 31, 2017 have been adjusted due to the adoption of an accounting standard related to pension costs, as further described below.

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, 2018 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, 2017.

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, 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 2 for the related additional disclosures.

On January 1, 2018, the Company adopted an accounting pronouncement regarding classification and measurement of financial instruments. This standard provides guidance on how entities measure certain equity investments and present changes in fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. The adoption of this standard did not have a material impact on the Company's financial position, results of operations, or related disclosures. The Company's money market funds have readily determinable fair values, as disclosed in Note 6, and for those equity investments that are not accounted for under the equity method and that do not have readily determinable fair values, the Company has elected to measure these securities at cost less impairment, adjusted for observable price changes for identical or similar investments of the same issuer.

On January 1, 2018, the Company adopted an accounting pronouncement regarding certain intra-entity asset transfers that requires that an entity recognize any income tax consequences when the transfer occurs. The adoption of this standard did not have a material impact on the Company's financial position.

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 Condensed 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 did not have a significant impact on the Company's statements of cash flows.

On January 1, 2018, the Company retrospectively adopted an accounting pronouncement that requires the non-service cost components of defined benefit plan pension costs to be presented in the income statement separately from the service cost component, outside a subtotal of income from operations. The Company has no service costs, as the Company's defined benefit pension plan is frozen. Prior to the adoption of this standard, the Company recorded the non-service costs of the defined benefit pension plan in the "Cost of services" line item of the Condensed Consolidated Statements of Income. After the adoption of this standard, the Company records these costs in the "Other income, net" line item, including for the three months ended March 31, 2018 and 2017. The adoption of this standard resulted in reductions to "Cost of services" and "Other income, net" of $0.6 million for the three months ended March 31, 2017 from the amounts previously reported.

On January 1, 2018, the Company elected to adopt an accounting pronouncement to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The effects of the standard are recognized prospectively in the Company's financial statements. The adoption of this standard did not have a material impact on the Company's financial position or results of operations, but does require the addition of certain disclosures. Refer to Note 11 for additional information and the related disclosures.

In the first quarter of 2018, the Company adopted a new accounting pronouncement that provides entities the option to reclassify tax effects included within accumulated other comprehensive income/(loss) as a result of the United States tax reform legislation enacted in December 2017 (the “Tax Act”) to retained earnings. The adoption of this standard resulted in an increase to "Accumulated other comprehensive loss" and a decrease to "Accumulated deficit" in the Condensed Consolidated Balance Sheet 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 "Accumulated other comprehensive loss" into income as the individual units of account are sold or otherwise extinguished. Refer to Note 10 for additional information.

Accounting Pronouncements Not Yet Adopted

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

In June 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company is required to adopt the new standard on January 1, 2020. Management is currently evaluating the potential impact that the adoption of this standard will have on the Company's financial position, results of operations, and related disclosures.
v3.8.0.1
Revenue
3 Months Ended
Mar. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
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 Condensed 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 Company does not expect the adoption of the new revenue standard to 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 send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, speed of service, and channel, as applicable. The Company also offers several other services, including foreign exchange and payment services and other bill payment services, for which revenue is impacted by similar factors. When more than one party is involved in providing services to a customer, the Company generally acts as the principal in transactions and reports revenue on a gross basis, as the Company 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, 2018, the Company recognized $1,346.0 million in revenues from contracts with customers. There are no material upfront costs incurred to obtain contracts with customers. Under the Company's loyalty programs, which are primarily offered in its money transfer services, the Company must fulfill loyalty program rewards earned by customers. The loyalty program redemption activity has been and continues to be insignificant to the Company's results of operations, and the Company has immaterial contract liability balances, which primarily relate to its customer loyalty programs and other services. Contract asset balances related to customers were also immaterial as of March 31, 2018, as the Company typically receives payment of consideration from its customers prior to providing its services. In addition to revenue generated from contracts with customers, the Company recognizes revenue from other sources which are not in the scope of the new accounting standard, 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 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 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 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 and payment information has been received by the Company, 2) the Company has agreed to process the money transfer, and 3) the Company has provided the customer a unique transaction identification number and funds are available. 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 what 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 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 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, as further described below. 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.

Satisfaction of Performance Obligations Timing of Transfer of Services
Management has determined that the significant majority of revenue, including revenue from the Company's money transfer services, is recognized at a point in time. However, with respect to the Company's bill payment services in Argentina, its United States electronic bill payment services, and certain foreign exchange and payment services, customers sign contracts with the Company to process transactions at any time during the duration of the contract. The performance obligation under these contracts represents a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. The Company satisfies its performance obligation for these contracts over time, but the Company's right to revenue is determinable at the time of each individual transaction, as the contracts have fixed prices and the Company knows how many transactions it processes daily, allowing for revenue to be recognized as each distinct transaction occurs. Since the Company recognizes revenue for these customer contracts in essentially the same way as in services for which performance obligations are satisfied at a point in time, the Company has not separately identified revenues for services transferred to customers at a point in time and services transferred over time in the table below.

The following table represents the disaggregation of revenue earned from contracts with customers which are in the scope of the new accounting standard, by product type and region for the three months ended March 31, 2018 (in millions). The regional split of revenue shown 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.

 
 
Consumer money transfers
 
Foreign exchange and payment services
 
Consumer bill payments
 
Other 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, which are not subject to the new accounting standard.
(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.
v3.8.0.1
Earnings Per Share
3 Months Ended
Mar. 31, 2018
Earnings Per Share [Abstract]  
Earnings Per Share
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, 2018 and 2017, there were 2.0 million and 2.5 million, respectively, of outstanding options to purchase shares of Western Union stock excluded from the diluted earnings per share calculation, as their effect was anti-dilutive.

The following table provides the calculation of diluted weighted-average shares outstanding (in millions):
 
Three Months Ended March 31,
 
2018
 
2017
Basic weighted-average shares outstanding
460.3

 
479.8

Common stock equivalents
3.3

 
3.6

Diluted weighted-average shares outstanding
463.6

 
483.4

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Acquistions
3 Months Ended
Mar. 31, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions

On November 6, 2017, the Company completed the purchase of Opus Software Technologies Private Limited and the assets of its affiliate for total consideration of approximately $25.3 million. The Company expects that the acquisition will assist in enhancing and centralizing the Company’s information technology expertise through a newly established information technology development and maintenance center located in India, which was an integral part of the Company’s WU Way transformation efforts. The 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 and has recognized $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.
v3.8.0.1
Business Transformation Expenses
3 Months Ended
Mar. 31, 2018
Business Transformation Expenses [Abstract]  
Business Transformation Expenses
Business Transformation Expenses

In 2016, the Company began incurring expenses related to a business transformation initiative, referred to as the 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 following table summarizes the activity for the three months ended March 31, 2018 for the consulting service fees, severance, and other costs related to the business transformation accruals, which are included in "Accounts payable and accrued liabilities" in the Company's Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (in millions):

 
Consulting Service Fees
 
Severance and Related Employee Benefits
 
Other
 
Total
Balance, December 31, 2017
$
8.2

 
$
23.2

 
$
1.6

 
$
33.0

Cash payments
(7.3
)
 
(13.7
)
 
(0.4
)
 
(21.4
)
Balance, March 31, 2018
$
0.9

 
$
9.5

 
$
1.2

 
$
11.6



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

 
Three Months Ended
March 31,
 
2017
Cost of services
$
4.2

Selling, general and administrative
10.1

Total expenses, pre-tax
$
14.3

Total expenses, net of tax
$
9.3



Business transformation expenses have not been allocated to the Company's segments disclosed in Note 15. While certain of these items are identifiable to the Company's segments, these expenses have been excluded from the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of assessing segment performance and decision making with respect to resource allocation. For the three months ended March 31, 2017, business transformation expenses identifiable to the Company's segments were $2.4 million and $1.0 million for the Consumer-to-Consumer and Business Solutions segments, respectively, and $0.3 million for Other.

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements

Fair value, as defined by the relevant accounting standards, represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Company measures fair value, refer to the Company's consolidated financial statements within the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

The following tables reflect assets and liabilities that were measured at fair value on a recurring basis (in millions):
  
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
March 31, 2018
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Settlement assets:
 
 
 
 
 
 
 
Measured at fair value through net income:
 
 
 
 
 
 
 
Money market funds
$
6.2

 
$

 
$

 
$
6.2

Measured at fair value through other comprehensive income:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
967.5

 
$

 
$
967.5

State and municipal variable rate demand notes

 
110.1

 

 
110.1

Corporate and other debt securities

 
75.0

 

 
75.0

United States Treasury securities
9.6

 

 

 
9.6

Other assets:
 
 
 
 
 
 
 
Derivatives

 
282.9

 

 
282.9

Total assets
$
15.8

 
$
1,435.5

 
$

 
$
1,451.3

Liabilities:
 
 
 
 
 
 
 
Derivatives
$

 
$
271.6

 
$

 
$
271.6

Total liabilities
$

 
$
271.6

 
$

 
$
271.6

 
 
 
 
 
 
 
 
 
Fair Value Measurement Using
 
Assets/
Liabilities at
Fair
Value
December 31, 2017
Level 1
 
Level 2
 
Level 3
 
Assets:
 
 
 
 
 
 
 
Settlement assets:
 
 
 
 
 
 
 
Measured at fair value through other comprehensive income:
 
 
 
 
 
 
 
State and municipal debt securities
$

 
$
960.0

 
$

 
$
960.0

State and municipal variable rate demand notes

 
319.6

 

 
319.6

Corporate and other debt securities

 
60.8

 

 
60.8

United States Treasury securities
9.8

 

 

 
9.8

Other assets:
 
 
 
 
 
 
 
Derivatives

 
273.4

 

 
273.4

Total assets
$
9.8

 
$
1,613.8

 
$

 
$
1,623.6

Liabilities:
 
 
 
 
 
 
 
Derivatives
$

 
$
263.0

 
$

 
$
263.0

Total liabilities
$

 
$
263.0

 
$

 
$
263.0



No non-recurring fair value adjustments were recorded during the three months ended March 31, 2018 and 2017.

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, 2018, the carrying value and fair value of the Company's borrowings were $3,143.4 million and $3,213.6 million, respectively (see Note 12). As of December 31, 2017, the carrying value and fair value of the Company's borrowings were $3,033.6 million and $3,146.5 million, respectively.

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, 2018, the carrying value and fair value of the Company's foreign corporate debt securities were $58.9 million and $59.0 million, respectively. As of December 31, 2017, both the carrying value and fair value of the Company's foreign corporate debt securities were $56.2 million.
v3.8.0.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company had approximately $245 million in outstanding letters of credit and bank guarantees as of March 31, 2018 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 $100 million as of March 31, 2018. For the remaining matters, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons: (a) the proceedings are in preliminary stages; (b) specific damages have not been sought; (c) damage claims are unsupported and/or unreasonable; (d) there is uncertainty as to the outcome of pending appeals or motions; (e) there are significant factual issues to be resolved; or (f) novel legal issues or unsettled legal theories are being asserted.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss.
United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements
In late November 2016, the Company entered into discussions with the United States Department of Justice (the “DOJ”), the United States Attorney's Office for the Central District of California ("USAO-CDCA"), the United States Attorney’s Office for the Eastern District of Pennsylvania ("USAO-EDPA"), the United States Attorney’s Office for the Middle District of Pennsylvania ("USAO-MDPA"), and the United States Attorney’s Office for the Southern District of Florida (“USAO-SDFL”) to resolve the investigations by the USAO-CDCA, USAO-EDPA, USAO-MDPA, and USAO-SDFL (collectively, the “USAOs”) (collectively, the “USAO Investigations”). On January 19, 2017, the Company announced that it, or its subsidiary Western Union Financial Services, Inc. (“WUFSI”), had entered into (1) a Deferred Prosecution Agreement (the “DPA”) with the DOJ and the USAOs; (2) a Stipulated Order for Permanent Injunction and Final Judgment (the “Consent Order”) with the United States Federal Trade Commission (“FTC”) resolving claims by the FTC alleging unfair acts and practices under the Federal Trade Commission Act and for violations of the FTC Telemarketing Sales Rule; and (3) a Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of Treasury (the “FinCEN Agreement”), to resolve the respective investigations of those agencies. FinCEN provided notice to the Company dated December 16, 2016 of its investigation regarding possible violations of the United States Bank Secrecy Act ("BSA"). On January 31, 2017, the Company entered into assurances of discontinuance/assurances of voluntary compliance with the attorneys general of 49 U.S. states and the District of Columbia named therein to resolve investigations by the state attorneys general, which sought information and documents relating to money transfers sent from the United States to certain countries, consumer fraud complaints that the Company had received and the Company's procedures to help identify and prevent fraudulent transfers. On April 12, 2017, the Company settled with the one remaining state attorney general under effectively the same terms as the January 31, 2017 agreement with no additional monetary payment required. The agreements with the state attorneys general are collectively referred to herein as the "State AG Agreement." The DPA, Consent Order, FinCEN Agreement, and State AG Agreement are collectively referred to herein as the "Joint Settlement Agreements."

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

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

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

Shareholder Derivative Actions

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

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

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

Other Matters

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

On March 12, 2014, Jason Douglas filed a purported class action complaint in the United States District Court for the Northern District of Illinois asserting a claim under the Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq., based on allegations that since 2009, the Company has sent text messages to class members’ wireless telephones without their consent. During the first quarter of 2015, the Company's insurance carrier and the plaintiff reached an agreement to create an $8.5 million settlement fund that will be used to pay all class member claims, class counsel’s fees and the costs of administering the settlement. The agreement has been signed by the parties and, on November 10, 2015, the Court granted preliminary approval to the settlement. On January 9, 2018, plaintiff filed a motion requesting decisions on its pending motion to approve the settlement and motion for attorneys' fees, costs, and incentive award. On January 10, 2018, the Court issued an order stating that the pending motions will be decided shortly. A status conference has been set for May 21, 2018. The Company accrued an amount equal to the retention under its insurance policy in previous quarters and believes that any amounts in excess of this accrual will be covered by the insurer. However, if the Company's insurer is unable to or refuses to satisfy its obligations under the policy or the parties are unable to reach a definitive agreement or otherwise agree on a resolution, the Company's financial condition, results of operations, and cash flows could be adversely impacted. As the parties have reached an agreement in this matter, the Company believes that the potential for additional loss in excess of amounts already accrued is remote.

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

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

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

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

On March 31, 2017, the Company received a request for the production of documents from the New York State Department of Financial Services (the "NYDFS"), following up on a meeting the Company had with the NYDFS on March 7, 2017. The requests pertain to the Company’s oversight of one current and two former Western Union agents located in New York state. The two former agents were identified in the DPA described in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above, and were terminated as agents by the Company prior to 2013. The Company complied with all requests and produced all requested documents to the NYDFS. On July 28, 2017, the NYDFS informed the Company that the facts set forth in the DPA regarding the Company’s anti-money laundering programs over the 2004 through 2012 period gave the NYDFS a basis to take additional enforcement action. On January 4, 2018, the Company’s subsidiary, WUFSI, and the NYDFS agreed to a consent order (the "NYDFS Consent Order"), which resolved the NYDFS investigation into these matters. Under the NYDFS Consent Order, the Company is required, among other things, to pay to the NYDFS a civil monetary penalty of $60 million, which the Company paid on January 12, 2018. 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 RICO 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 action is in a preliminary stage and the Company is unable to predict the outcome, or the possible loss or range of loss, if any, which could be associated with it. The Company and the 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.

On January 26, 2006, the First Data Corporation ("First Data") Board of Directors announced its intention to pursue the distribution of all of its money transfer and consumer payments business and its interest in a Western Union money transfer agent, as well as its related assets, including real estate, through a tax-free distribution to First Data shareholders (the "Spin-off"). The Spin-off resulted in the formation of the Company and these assets and businesses no longer being part of First Data. Pursuant to the separation and distribution agreement with First Data in connection with the Spin-off, First Data and the Company are each liable for, and agreed to perform, all liabilities with respect to their respective businesses. In addition, the separation and distribution agreement also provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of the Company's business with the Company and financial responsibility for the obligations and liabilities of First Data's retained businesses with First Data. The Company also entered into a tax allocation agreement ("Tax Allocation Agreement") that sets forth the rights and obligations of First Data and the Company with respect to taxes imposed on their respective businesses both prior to and after the Spin-off as well as potential tax obligations for which the Company may be liable in conjunction with the Spin-off (see Note 13).
v3.8.0.1
Related Party Transactions
3 Months Ended
Mar. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
The Company has ownership interests in certain of its agents accounted for under the equity method of accounting. The Company pays these agents commissions for money transfer and other services provided on the Company's behalf. Commission expense recognized for these agents for the three months ended March 31, 2018 and 2017 totaled $13.8 million and $16.0 million, respectively.
v3.8.0.1
Settlement Assets and Obligations and Non-Settlement Related Investments
3 Months Ended
Mar. 31, 2018
Investments, Debt and Equity Securities [Abstract]  
Settlement Assets and Obligations and Non-Settlement Related Investments
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):
 
2018
 
2017
Settlement assets:
 
 
 
Cash and cash equivalents
$
1,374.4

 
$
1,264.8

Receivables from selling agents and Business Solutions customers
1,489.9

 
1,573.9

Investment securities
1,162.2

 
1,350.2

 
$
4,026.5

 
$
4,188.9

Settlement obligations:
 
 
 
Money transfer, money order, and payment service payables
$
2,819.0

 
$
2,789.2

Payables to agents
1,207.5

 
1,399.7

 
$
4,026.5

 
$
4,188.9



Investment securities included in "Settlement assets" in the Company's Condensed Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed rate term notes and variable rate demand notes. Variable rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week, but have varying maturities through 2050. These securities may be used by the Company for short-term liquidity needs and held for short periods of time. 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. 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. Proceeds from the sale and maturity of available-for-sale securities during the three months ended March 31, 2018 and 2017 were $2.7 billion and $1.4 billion, respectively.

The components of investment securities are as follows (in millions):
March 31, 2018
 
Amortized
Cost
 
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized Gains/(Losses)
Settlement assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
 
 
Money market funds
$
6.2

 
$
6.2

 
$

 
$

 
$

Available-for-sale securities:
 
 
 
 
 
 
 
 
 
State and municipal debt securities (a)
973.7

 
967.5

 
3.5

 
(9.7
)
 
(6.2
)
State and municipal variable rate demand notes
110.1

 
110.1

 

 

 

Corporate and other debt securities
75.6

 
75.0

 
0.1

 
(0.7
)
 
(0.6
)
United States Treasury securities
9.9

 
9.6

 

 
(0.3
)
 
(0.3
)
 
1,169.3

 
1,162.2

 
3.6

 
(10.7
)
 
(7.1
)
Other assets:
 
 
 
 
 
 
 
 
 
Held-to-maturity securities:
 
 
 
 
 
 
 
 
 
Foreign corporate debt securities
58.9

 
59.0

 
0.1

 

 
0.1

 
$
1,234.4

 
$
1,227.4

 
$
3.7

 
$
(10.7
)
 
$
(7.0
)
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Amortized
Cost
 
 
Fair
Value
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Net
Unrealized
Gains/(Losses)
Settlement assets:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
State and municipal debt securities (a)
$
955.7

 
$
960.0

 
$
7.9

 
$
(3.6
)
 
$
4.3

State and municipal variable rate demand notes
319.6

 
319.6

 

 

 

Corporate and other debt securities
60.9

 
60.8

 
0.2

 
(0.3
)
 
(0.1
)
United States Treasury securities
9.9

 
9.8

 

 
(0.1
)
 
(0.1
)
 
1,346.1

 
1,350.2

 
8.1

 
(4.0
)
 
4.1

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

 
56.2

 

 

 

 
$
1,402.3

 
$
1,406.4

 
$
8.1

 
$
(4.0
)
 
$
4.1

____________

(a)
The majority of these securities are fixed rate instruments.
The following summarizes the contractual maturities of settlement-related debt securities as of March 31, 2018 (in millions):

 
Fair
Value
Due within 1 year
$
109.2

Due after 1 year through 5 years
557.6

Due after 5 years through 10 years
227.8

Due after 10 years
267.6

 
$
1,162.2



Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations or the Company may have the right to put the obligation prior to its contractual maturity, as with variable rate demand notes. Variable rate demand notes, having a fair value of $110.1 million are included in the "Due after 10 years" category, in the table above. The held-to-maturity foreign corporate debt securities are due within 2 years.
v3.8.0.1
Stockholders' Deficit
3 Months Ended
Mar. 31, 2018
Equity [Abstract]  
Stockholders' Deficit
Stockholders' Deficit

Accumulated other comprehensive loss

The following table summarizes the components of accumulated other comprehensive loss, net of tax (in millions). All amounts reclassified from accumulated other comprehensive loss affect the line items as indicated below within the Condensed Consolidated Statements of Income. Additionally, as described in Note 1, in the first quarter of 2018, the Company adopted a new accounting pronouncement and reclassified tax effects included within accumulated other comprehensive income/(loss) as a result of the Tax Act to "Accumulated deficit" in the Condensed Consolidated Balance Sheet.
 
Three Months Ended
March 31,
 
2018
 
2017
Unrealized gains/(losses) on investment securities, beginning of period
$
2.7

 
$
(3.8
)
Unrealized gains/(losses)
(11.7
)
 
6.8

Tax (expense)/benefit
2.6

 
(2.4
)
Reclassification of losses into "Revenues"
0.5

 

Tax benefit related to reclassifications
(0.1
)
 

Net unrealized gains/(losses) on investment securities
(8.7
)
 
4.4

Reclassification of Tax Act effects into "Accumulated deficit" (Note 1)
0.5

 

Unrealized gains/(losses) on investment securities, end of period
$
(5.5
)
 
$
0.6

 
 
 
 
Unrealized gains/(losses) on hedging activities, beginning of period
$
(40.6
)
 
$
33.8

Unrealized losses
(12.3
)
 
(11.2
)
Tax (expense)/benefit
(0.5
)
 
0.2

Reclassification of (gains)/losses into "Revenues"
9.4

 
(6.6
)
Reclassification of losses into "Interest expense"
0.8

 
0.8

Tax benefit related to reclassifications
(0.5
)
 
(0.2
)
Net unrealized losses on hedging activities
(3.1
)
 
(17.0
)
Reclassification of Tax Act effects into "Accumulated deficit" (Note 1)
(2.3
)
 

Unrealized gains/(losses) on hedging activities, end of period
$
(46.0
)
 
$
16.8

 
 
 
 
Foreign currency translation adjustments, beginning of period
$
(76.9
)
 
$
(70.7
)
Foreign currency translation adjustments
(7.0
)
 
0.4

Tax expense

 
(0.6
)
Net foreign currency translation adjustments
(7.0
)
 
(0.2
)
Reclassification of Tax Act effects into "Accumulated deficit" (Note 1)
(4.8
)
 

Foreign currency translation adjustments, end of period
$
(88.7
)
 
$
(70.9
)
 
 
 
 
Defined benefit pension plan adjustments, beginning of period
$
(113.1
)
 
$
(122.1
)
Reclassification of losses into "Cost of services"
2.9

 
2.8

Tax benefit related to reclassifications
(0.8
)
 
(1.0
)
Net defined benefit pension plan adjustments
2.1

 
1.8

Reclassification of Tax Act effects into "Accumulated deficit" (Note 1)
(24.8
)
 

Defined benefit pension plan adjustments, end of period
$
(135.8
)
 
$
(120.3
)
Accumulated other comprehensive loss, end of period
$
(276.0
)
 
$
(173.8
)


Cash Dividends Paid

During the first quarter of 2018 and 2017, the Company's Board of Directors declared quarterly cash dividends of $0.19 and $0.175 per common share, respectively, representing $87.5 million and $83.3 million in total dividends, which were paid on March 30, 2018 and March 31, 2017, respectively.

Share Repurchases

No shares were repurchased during the three months ended March 31, 2018 under the share repurchase program approved by the Board of Directors. During the three months ended March 31, 2017, 11.3 million shares were repurchased for $224.9 million, excluding commissions, at an average cost of $19.99. These amounts represent shares authorized by the Board of Directors for repurchase under publicly announced authorizations. As of March 31, 2018, $943.5 million remained available under the share repurchase authorization approved by the Company's Board of Directors through December 31, 2019. The amounts included in the "Common stock repurchased" line in the Company's Condensed Consolidated Statements of Cash Flows represent both shares authorized by the Board of Directors for repurchase under publicly announced authorizations as well as shares withheld from employees to cover tax withholding obligations on restricted stock units that have vested.
v3.8.0.1
Derivatives
3 Months Ended
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
 Derivatives

The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and to a lesser degree the British pound, Canadian dollar, Mexican Peso, Australian dollar, Swiss franc, and other currencies, related to forecasted revenues and on settlement assets and obligations as well as on certain foreign currency denominated cash and other asset and liability positions. The Company is also exposed to risk from derivative contracts, primarily from customer derivatives, arising from its cross-currency Business Solutions payments operations. Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt. The Company uses derivatives to (a) minimize its exposures related to changes in foreign currency exchange rates and interest rates and (b) facilitate cross-currency Business Solutions payments by writing derivatives to customers.

The Company executes derivatives with established financial institutions, with the substantial majority of these financial institutions having credit ratings of "A-" or better from a major credit rating agency. The Company also writes Business Solutions derivatives mostly with small and medium size enterprises. The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring Business Solutions customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company's hedged foreign currency exposures are in liquid currencies; consequently, there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future.

Foreign Currency Derivatives
The Company's policy is to use longer-term foreign currency forward contracts, with maturities of up to 36 months at inception and a targeted weighted-average maturity of approximately one year, to help mitigate some of the risk that changes in foreign currency exchange rates compared to the United States dollar could have on forecasted revenues denominated in other currencies related to its business. As of March 31, 2018, the Company's longer-term foreign currency forward contracts had maturities of a maximum of 24 months with a weighted-average maturity of approximately one year. These contracts are accounted for as cash flow hedges of forecasted revenue, with effectiveness assessed based on changes in the spot rate of the affected currencies during the period of designation and thus time value is excluded from the assessment of effectiveness.
As discussed in Note 1, the Company early adopted an accounting pronouncement related to hedging activities as of January 1, 2018. 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 Company's Condensed Consolidated Statements of Income. 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 three months ended March 31, 2018. For the three months ended March 31, 2017, the changes in fair value of the excluded components were recognized immediately within the Company's Condensed Consolidated Statements of Income and are included in "Other income, net."
The Company also uses short duration foreign currency forward contracts, generally with maturities from a few days up to one month, to offset foreign exchange rate fluctuations on settlement assets and obligations between initiation and settlement. In addition, forward contracts, typically with maturities of less than one year at inception, are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability positions. None of these contracts are designated as accounting hedges.
The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of March 31, 2018 were as follows (in millions):
Contracts designated as hedges:
 
Euro
$
386.4

British pound
101.1

Canadian dollar
94.4

Australian dollar
53.9

Swiss franc
30.8

Other
60.2

Contracts not designated as hedges:
 
Euro
$
274.9

Mexican peso
166.9

British pound
113.8

Canadian dollar
75.7

Indian rupee
48.8

Australian dollar
35.3

Brazilian real
31.7

Singapore dollar
27.9

Japanese yen
26.0

Other (a)
127.5

____________________
(a)
Comprised of exposures to 19 different currencies. None of these individual currency exposures is greater than $25 million.

Business Solutions Operations

The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises and derives a currency spread from this activity as part of its Business Solutions operations. The Company aggregates its Business Solutions 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). The derivatives written are part of the broader portfolio of foreign currency positions arising from the Company's cross-currency payments operations, which primarily include spot exchanges of currency in addition to forwards and options. Foreign exchange revenues from the total portfolio of positions were $85.8 million and $83.2 million for the three months ended March 31, 2018 and 2017, respectively. None of the derivative contracts used in Business Solutions operations are designated as accounting hedges. The duration of these derivative contracts at inception is generally less than one year.

The aggregate equivalent United States dollar notional amount of foreign currency derivative customer contracts held by the Company in its Business Solutions operations as of March 31, 2018 was approximately $6.0 billion. The significant majority of customer contracts are written in major currencies such as the Australian dollar, British pound, Canadian dollar, and euro.

Interest Rate Hedging

The Company utilizes interest rate swaps to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term LIBOR-based variable rate payments in order to manage its overall exposure to interest rates. The Company designates these derivatives as fair value hedges. The change in fair value of the interest rate swaps is offset by a change in the carrying value of the debt being hedged within "Borrowings" in the Condensed Consolidated Balance Sheets and "Interest expense" in the Condensed Consolidated Statements of Income has been adjusted to include the effects of interest accrued on the swaps.

The Company, at times, utilizes derivatives to hedge the forecasted issuance of fixed-rate debt. These derivatives are designated as cash flow hedges of the variability in the fixed-rate coupon of the debt expected to be issued. The effective portion of the change in fair value of the derivatives is recorded in "Accumulated other comprehensive loss" in the Condensed Consolidated Balance Sheets.

The Company held interest rate swaps in an aggregate notional amount of $475.0 million as of both March 31, 2018 and December 31, 2017. Of this aggregate notional amount held at March 31, 2018, $300.0 million related to notes due in 2018, and $175.0 million related to notes due in 2020.

Balance Sheet
The following table summarizes the fair value of derivatives reported in the Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Fair Value
 
 
 
Fair Value
 
Balance Sheet
Location
 
March 31,
2018
 
December 31,
2017
 
Balance Sheet
Location
 
March 31,
2018
 
December 31,
2017
Derivatives — hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate fair value hedges
Other assets
 
$
2.1

 
$
3.3

 
Other liabilities
 
$
0.5

 
$

Foreign currency cash flow hedges
Other assets
 
7.3

 
8.0

 
Other liabilities
 
38.9

 
36.1

Total
 
 
$
9.4

 
$
11.3

 
 
 
$
39.4

 
$
36.1

Derivatives — undesignated:
 
 
 
 
 
 
 
 
 
 
 
Business Solutions operations — foreign currency (a)
Other assets
 
$
270.1

 
$
260.2

 
Other liabilities
 
$
227.6

 
$
221.6

Foreign currency
Other assets
 
3.4

 
1.9

 
Other liabilities
 
4.6

 
5.3

Total
 
 
$
273.5

 
$
262.1

 
 
 
$
232.2

 
$
226.9

Total derivatives
 
 
$
282.9

 
$
273.4

 
 
 
$
271.6

 
$
263.0

____________________
(a)
In many circumstances, the Company allows its Business Solutions customers to settle part or all of their derivative contracts prior to maturity. However, the offsetting positions originally entered into with financial institution counterparties do not allow for similar settlement. To mitigate this, additional foreign currency contracts are entered into with financial institution counterparties to offset the original economic hedge contracts. This frequently results in changes in the Company's derivative assets and liabilities that may not directly align to the growth in the underlying derivatives business.
The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted in the following tables to present the Company's net exposure with these counterparties. The Company's rights under these agreements generally allow for transactions to be settled on a net basis, including upon early termination, which could occur upon the counterparty's default, a change in control, or other conditions.
In addition, certain of the Company's other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction and depending on the circumstances. Due to the uncertainty related to the enforceability of these provisions, the derivative balances associated with these agreements are included within "Derivatives that are not or may not be subject to master netting arrangement or similar agreement" in the following tables. In certain circumstances, the Company may require its Business Solutions customers to maintain collateral balances which may mitigate the risk associated with potential customer defaults.
The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2018 and December 31, 2017 (in millions):

Offsetting of Derivative Assets
March 31, 2018
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheets
 
Net Amounts Presented
in the Condensed Consolidated Balance Sheets
 
Derivatives Not Offset
in the Condensed Consolidated Balance Sheets
 
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
 
$
131.5

 
$

 
$
131.5

 
$
(113.5
)
 
$
18.0

Derivatives that are not or may not be subject to master netting arrangement or similar agreement
 
151.4

 
 
 
 
 
 
 
 
Total
 
$
282.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
115.4

 
$

 
$
115.4

 
$
(98.7
)
 
$
16.7

Derivatives that are not or may not be subject to master netting arrangement or similar agreement
 
158.0

 
 
 
 
 
 
 
 
Total
 
$
273.4

 
 
 
 
 
 
 
 

Offsetting of Derivative Liabilities
March 31, 2018
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Condensed Consolidated Balance Sheets
 
Net Amounts Presented
in the Condensed Consolidated Balance Sheets
 
Derivatives Not Offset
in the Condensed Consolidated Balance Sheets
 
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
 
$
215.3

 
$

 
$
215.3

 
$
(113.5
)
 
$
101.8

Derivatives that are not or may not be subject to master netting arrangement or similar agreement
 
56.3

 
 
 
 
 
 
 
 
Total
 
$
271.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
214.9

 
$

 
$
214.9

 
$
(98.7
)
 
$
116.2

Derivatives that are not or may not be subject to master netting arrangement or similar agreement
 
48.1

 
 
 
 
 
 
 
 
Total
 
$
263.0

 
 
 
 
 
 
 
 


Income Statement

The following tables summarize the location and amount of gains and losses of derivatives in the Condensed Consolidated Statements of Income segregated by designated, qualifying hedging instruments and those that are not, for the three months ended March 31, 2018 and 2017 (in millions):
Cash Flow and Fair Value Hedges
The following table presents the amount of gains/(losses) recognized in other comprehensive income from cash flow hedges for the three months ended March 31, 2018 and 2017 (in millions):
 
 
Amount of Gain/(Loss) Recognized in Other
 
 
 Comprehensive Income on Derivatives
Derivatives
 
March 31, 2018
 
March 31, 2017
Cash Flow Hedges:
 
 
 
 
Foreign currency contracts (a)
 
$
(12.3
)
 
$
(11.2
)
Interest rate contracts (b)
 

 

Total gain/(loss)
 
$
(12.3
)
 
$
(11.2
)
The following table presents the location and amount of gains/(losses) from fair value and cash flow hedges for the three months ended March 31, 2018 and 2017 (in millions):
 
 
Location and Amount of Gain/(Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
 
 
March 31, 2018
 
March 31, 2017
 
 
Revenues
 
Interest Expense
 
Other income, net
 
Revenues
 
Interest Expense
 
Other income, net
Total amounts presented in the condensed consolidated statements of income in which the effects of fair value or cash flow hedges are recorded
 
$
1,389.4

 
$
(35.5
)
 
$
4.4

 
$
1,302.4

 
$
(31.3
)
 
$
3.2

The effects of fair value and cash flow hedging:
 
 
 
 
 
 
 
 
 
 
 
 
Gain/(loss) on fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Hedged items
 

 
1.4

 

 

 
2.5

 

Derivatives designated as hedging instruments
 

 
(1.5
)
 

 

 
(1.2
)
 

Gain/(loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (b):
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from accumulated other comprehensive loss into income
 

 
(0.8
)
 

 

 
(0.8
)
 

Foreign exchange contracts:
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain/(loss) reclassified from accumulated other comprehensive loss into income
 
(9.4
)
 

 

 
6.6

 

 

Amount excluded from effectiveness testing recognized in earnings based on an amortization approach
 
0.2

 

 

 

 

 

Amount excluded from effectiveness testing recognized in earnings based on changes in fair value
 
1.4

 

 

 

 

 
2.7

Amount of gain/(loss) reclassified from accumulated other comprehensive loss into income as a result that a forecasted transaction is no longer probable of occurring
 

 

 

 

 

 


Undesignated Hedges
The following table presents the location and amount of net gains/(losses) from undesignated hedges for the three months ended March 31, 2018 and 2017 (in millions):

 
Gain/(Loss) Recognized in Income on Derivatives (c)
 
Income Statement Location
 
Amount
 
 
 
Three Months Ended March 31,
Derivatives
 
 
2018
 
2017
Foreign currency contracts (d)
Selling, general and administrative
 
$
(0.1
)
 
$
(10.2
)
Foreign currency contracts (e)
Revenues
 
(0.5
)
 

Foreign currency contracts (e)
Other income, net
 
(2.0
)
 
(0.1
)
Total gain/(loss)
 
 
$
(2.6
)
 
$
(10.3
)
 
____________________
(a)
For the three months ended March 31, 2018, a loss of $0.2 million represents the amounts excluded from the assessment of effectiveness that were recognized in other comprehensive income, for which an amortization approach is applied. For the three months ended March 31, 2017, there were no amounts recorded in other comprehensive income for amounts excluded from the measurement of effectiveness.
(b)
The Company uses derivatives to hedge the forecasted issuance of fixed-rate debt and records the derivatives' fair value in "Accumulated other comprehensive loss" in the Condensed Consolidated Balance Sheets. These amounts are reclassified to "Interest expense" in the Condensed Consolidated Statements of Income over the life of the related notes.
(c)
The Company uses foreign currency forward and option contracts as part of its Business Solutions payments operations. These derivative contracts are excluded from this table as they are managed as part of a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed above.
(d)
The Company uses foreign currency forward contracts to offset foreign exchange rate fluctuations on settlement assets and obligations as well as certain foreign currency denominated positions. Foreign exchange gains/(losses) on settlement assets and obligations, cash balances, and other assets and liabilities, not including amounts related to derivatives activity as displayed above and included in "Selling, general and administrative" in the Condensed Consolidated Statements of Income, were $2.3 million and $10.4 million for the three months ended March 31, 2018 and 2017, respectively.
(e)
All derivative contracts executed in the Company's revenue hedging program prior to January 1, 2018 are not designated as hedges in the final month of the contract. The change in fair value in this final month was recorded to "Revenues" and "Other income, net" for the three months ended March 31, 2018 and 2017, respectively. The amount recorded to "Other income, net" for the three months ended March 31, 2018 relates to losses on certain undesignated foreign currency derivative contracts that were recognized after the Company determined that certain forecasted transactions were no longer probable of occurring.

All cash flows associated with derivatives are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows.

An accumulated other comprehensive pre-tax loss of $28.2 million related to the foreign currency forward contracts is expected to be reclassified into revenue within the next 12 months as of March 31, 2018. Approximately $1.3 million of net losses on the forecasted debt issuance hedges are expected to be recognized in "Interest expense" in the Condensed Consolidated Statements of Income within the next 12 months as of March 31, 2018.
v3.8.0.1
Borrowings
3 Months Ended
Mar. 31, 2018
Debt Disclosure [Abstract]  
Borrowings
Borrowings

The Company's outstanding borrowings consisted of the following (in millions):
 
March 31, 2018
 
December 31, 2017
Commercial paper (a)
$
110.0

 
$

Notes:
 
 
 
3.650% notes (effective rate of 5.2%) due 2018
400.0

 
400.0

3.350% notes due 2019 (b)
250.0

 
250.0

Floating rate notes (effective rate of 3.0%) due 2019
250.0

 
250.0

5.253% notes due 2020 (b)
324.9