e10vq
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
June 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
001-32903
THE WESTERN UNION
COMPANY
(Exact name of registrant as
specified in its charter)
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DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
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20-4531180
(I.R.S. Employer
Identification No.)
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12500 EAST BELFORD AVENUE
ENGLEWOOD, CO
(Address of Principal Executive
Offices)
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80112
(Zip Code)
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Registrants telephone number, including area code
(866) 405-5012
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes x No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer x
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Accelerated filer o
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Non-accelerated filer o
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Smaller Reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No x
As of July 30, 2010, 660,120,082 shares of our common stock
were outstanding.
THE
WESTERN UNION COMPANY
INDEX
2
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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Revenues:
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Transaction fees
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$
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995.5
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$
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999.9
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$
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1,961.2
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$
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1,958.4
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Foreign exchange revenues
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249.3
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217.2
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487.4
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422.3
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Commission and other revenues
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28.6
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37.2
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57.5
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74.8
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Total revenues
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1,273.4
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1,254.3
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2,506.1
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2,455.5
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Expenses:
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Cost of services
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727.7
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700.3
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1,442.3
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1,369.4
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Selling, general and administrative
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234.7
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212.3
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437.0
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403.5
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Total expenses
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962.4
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912.6
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1,879.3
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1,772.9
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Operating income
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311.0
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341.7
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626.8
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682.6
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Other income/(expense):
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Interest income
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0.5
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2.8
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1.4
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6.5
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Interest expense
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(41.1
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(39.8
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(79.9
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(79.8
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Derivative gains/(losses), net
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0.7
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0.8
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(0.2
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(2.8
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Other income/(expense), net
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1.2
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(9.8
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0.2
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(5.6
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Total other expense, net
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(38.7
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(46.0
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(78.5
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(81.7
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Income before income taxes
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272.3
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295.7
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548.3
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600.9
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Provision for income taxes
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51.3
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75.5
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119.4
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156.8
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Net income
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$
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221.0
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$
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220.2
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$
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428.9
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$
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444.1
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Earnings per share:
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Basic
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$
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0.33
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$
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0.31
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$
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0.63
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$
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0.63
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Diluted
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$
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0.33
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$
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0.31
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$
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0.63
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$
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0.63
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Weighted-average shares outstanding:
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Basic
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669.3
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700.6
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675.6
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703.8
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Diluted
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671.6
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702.7
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677.9
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705.2
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See Notes to Condensed Consolidated Financial Statements.
3
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June 30,
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December 31,
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2010
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2009
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Assets
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Cash and cash equivalents
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$
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1,746.8
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$
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1,685.2
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Settlement assets
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2,341.3
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2,389.1
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Property and equipment, net of accumulated depreciation of
$354.8 and $335.4, respectively
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196.1
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204.3
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Goodwill
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2,156.5
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2,143.4
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Other intangible assets, net of accumulated amortization of
$401.7 and $355.4, respectively
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471.8
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489.2
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Other assets
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435.2
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442.2
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Total assets
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$
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7,347.7
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$
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7,353.4
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Liabilities and Stockholders Equity
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Liabilities:
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Accounts payable and accrued liabilities
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$
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469.3
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$
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501.2
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Settlement obligations
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2,341.3
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2,389.1
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Income taxes payable
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305.7
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519.0
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Deferred tax liability, net
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276.6
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268.9
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Borrowings
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3,296.5
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3,048.5
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Other liabilities
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258.6
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273.2
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Total liabilities
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6,948.0
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6,999.9
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Commitments and contingencies (Note 7)
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Stockholders equity:
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Preferred stock, $1.00 par value; 10 shares
authorized; no shares issued
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Common stock, $0.01 par value; 2,000 shares
authorized; 661.6 shares and 686.5 shares issued and
outstanding at June 30, 2010 and December 31, 2009,
respectively
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6.6
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6.9
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Capital surplus
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73.2
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40.7
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Retained earnings
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364.9
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433.2
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Accumulated other comprehensive loss
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(45.0
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(127.3
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Total stockholders equity
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399.7
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353.5
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Total liabilities and stockholders equity
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$
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7,347.7
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$
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7,353.4
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See Notes to Condensed Consolidated Financial Statements.
4
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Six Months Ended
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June 30,
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2010
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2009
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Cash flows from operating activities
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Net income
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$
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428.9
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$
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444.1
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Adjustments to reconcile net income to net cash provided by
operating activities:
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Depreciation
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30.1
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26.9
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Amortization
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55.5
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45.9
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Stock compensation expense
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20.6
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16.2
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Other non-cash items, net
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(4.9
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28.6
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Increase/(decrease) in cash, excluding the effects of
acquisitions, resulting from changes in:
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Other assets
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64.2
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10.7
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Accounts payable and accrued liabilities
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(36.3
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(24.0
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Income taxes payable (Note 14)
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(213.5
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67.7
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Other liabilities
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(18.5
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(9.8
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Net cash provided by operating activities
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326.1
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606.3
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Cash flows from investing activities
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Capitalization of contract costs
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(13.0
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(5.5
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Capitalization of purchased and developed software
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(9.8
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(6.5
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Purchases of property and equipment
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(20.8
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(27.9
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Acquisition of business, net of cash acquired
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(145.2
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Proceeds from receivable for securities sold
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234.9
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Repayments of notes receivable issued to agents
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16.9
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11.1
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Net cash (used in)/provided by investing activities
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(26.7
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60.9
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Cash flows from financing activities
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Proceeds from exercise of options
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11.9
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5.9
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Cash dividends paid
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(80.1
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Common stock repurchased
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(417.1
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(100.1
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Net repayments of commercial paper
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(82.8
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Net proceeds from issuance of borrowings
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247.5
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496.6
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Principal payments on borrowings
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(500.0
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Net cash used in financing activities
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(237.8
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(180.4
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Net change in cash and cash equivalents
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61.6
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486.8
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Cash and cash equivalents at beginning of period
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1,685.2
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1,295.6
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Cash and cash equivalents at end of period
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$
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1,746.8
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$
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1,782.4
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Supplemental cash flow information:
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Interest paid
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$
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77.8
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$
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83.0
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Income taxes paid (Note 14)
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$
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341.4
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$
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84.3
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Non-cash exchange of 5.400% notes due 2011 for
5.253% notes due 2020
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$
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303.7
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$
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See Notes to Condensed Consolidated Financial Statements.
5
THE
WESTERN UNION COMPANY
(Unaudited)
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1.
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Business
and Basis of Presentation
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Business
The Western Union Company (Western Union or the
Company) is a leader in global money transfer 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 Companys services are
available through a network of agent locations in more than 200
countries and territories. Each location in the Companys
agent network is capable of providing one or more of the
Companys services.
The Western Union business consists of the following segments:
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Consumer-to-consumermoney
transfer services between consumers, primarily through a global
network of third-party agents using the Companys
multi-currency, real-time money transfer processing systems.
This service is available for international cross-border
transfersthat is, the transfer of funds from one country
to anotherand, in certain countries, intra-country
transfersthat is, money transfers from one location to
another in the same country.
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Global business paymentsthe processing of payments from
consumers or businesses to other businesses. The Companys
business payments services allow consumers to make payments to a
variety of organizations including utilities, auto finance
companies, mortgage servicers, financial service providers,
government agencies and other businesses. As described further
in Note 4, in September 2009, the Company acquired
Canada-based Custom House, Ltd. (Custom House), a
provider of international
business-to-business
payment services, which is included in this segment. Custom
House facilitates cross-border, cross-currency payment
transactions. While the Company continues to pursue further
international expansion of its offerings in this segment, the
majority of the segments revenue was generated in the
United States during all periods presented.
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All businesses that have not been classified into the
consumer-to-consumer
or global business payments segments are reported as
Other and primarily include the Companys money
order services business.
There are legal or regulatory limitations on transferring
certain assets of the Company outside of the countries where
these assets are located, or which constitute undistributed
earnings of affiliates of the Company accounted for under the
equity method of accounting. 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
June 30, 2010, the amount of net assets subject to these
limitations totaled nearly $190 million.
Various aspects of the Companys 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
6
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
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 have been eliminated.
In the opinion of management, these condensed consolidated
financial statements include all the normal recurring
adjustments necessary to fairly present the Companys
condensed consolidated results of operations, financial position
and cash flows as of June 30, 2010 and for all periods
presented. These condensed consolidated financial statements
should be read in conjunction with the Companys
consolidated financial statements within the Companys
Annual Report on
Form 10-K
for the year ended December 31, 2009.
Consistent with industry practice, the accompanying Condensed
Consolidated Balance Sheets are unclassified due to the
short-term nature of Western Unions settlement obligations
contrasted with the Companys 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.
Restructuring
and Related Expenses
The Company records severance-related expenses once they are
both probable and estimable in accordance with the provisions of
the applicable accounting guidance for severance provided under
an ongoing benefit arrangement. One-time, involuntary benefit
arrangements and other exit costs are generally recognized when
the liability is incurred. The Company also evaluates impairment
issues associated with restructuring activities when the
carrying amount of the assets may not be fully recoverable, in
accordance with the appropriate accounting guidance.
Restructuring and related expenses consist of direct and
incremental expenses associated with restructuring and related
activities, including severance, outplacement and other employee
related benefits; facility closure and migration of the
Companys IT infrastructure; and other expenses related to
the relocation of various operations to new or existing Company
facilities and third-party providers, including hiring,
training, relocation, travel and professional fees. Also
included in the facility closure expenses are non-cash expenses
related to fixed asset and leasehold improvement write-offs and
the acceleration of depreciation. For more information on the
Companys restructuring and related expenses see
Note 3.
Consolidation
of Variable Interest Entities
On January 1, 2010, the Company adopted new accounting
standards for the consolidation of variable interest entities.
These new accounting standards amend the evaluation criteria to
determine whether an enterprise has a controlling financial
interest in a variable interest entity. This determination
identifies the primary beneficiary of a variable interest entity
as the enterprise that has both the power to direct the
activities of a variable interest entity that most significantly
impacts the entitys economic performance and the ability
to absorb losses or the right to receive benefits of the entity
that could potentially be significant to the variable interest
entity. The new guidance also requires an ongoing reassessment
of the primary beneficiary. Adoption of these new requirements
did not have an impact on the Companys consolidated
financial position, results of operations or cash flows.
7
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
|
|
2.
|
Earnings
Per Share and Dividends
|
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. 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, the unamortized compensation expense and
assumed tax benefits of options and restricted stock are
available to acquire shares at an average market price
throughout the year, and therefore, reduce the dilutive effect.
For the three months ended June 30, 2010 and 2009, there
were 36.8 million and 38.0 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. For the six months ended
June 30, 2010 and 2009, there were 36.2 million and
41.5 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
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Basic weighted-average shares outstanding
|
|
|
669.3
|
|
|
|
700.6
|
|
|
|
675.6
|
|
|
|
703.8
|
|
Common stock equivalents
|
|
|
2.3
|
|
|
|
2.1
|
|
|
|
2.3
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding
|
|
|
671.6
|
|
|
|
702.7
|
|
|
|
677.9
|
|
|
|
705.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Dividends Paid
During the first half of 2010, the Companys Board of
Directors declared quarterly cash dividends of $0.06 per common
share representing $80.1 million in total dividends. Of
this amount, $40.5 million was paid on March 31, 2010
to shareholders of record on March 19, 2010 and
$39.6 million was paid on June 30, 2010 to
shareholders of record on June 18, 2010. During the first
half of 2009, no dividend was declared or paid.
|
|
3.
|
Restructuring
and Related Expenses
|
On May 25, 2010, the Companys Board of Directors
approved a restructuring plan (the Restructuring
Plan) designed to reduce the Companys overall
headcount by approximately 175 positions and migrate
approximately 550 positions from various facilities, primarily
within the United States and Europe, to regionalized operating
centers upon completion of the Restructuring Plan. The Company
expects to incur approximately $80 million of expenses,
including expenses related to the Restructuring Plan and the
planned departure of an executive announced in the second
quarter of 2010. The $80 million in expenses consists of
approximately $60 million for severance and employee
related benefits, approximately $10 million for facility
closures, including lease terminations; and approximately
$10 million for other expenses. Included in these estimated
expenses are approximately $2 million of non-cash expenses
related to fixed asset and leasehold improvement write-offs and
accelerated depreciation at impacted facilities. Subject to
complying with and undertaking the necessary individual and
collective employee information and consultation obligations as
may be required by local law for potentially affected employees,
the Company expects all of these activities to be completed by
the end of 2011, with the significant majority of these expenses
expected to be incurred by the
8
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
end of 2010. The foregoing figures are the Companys
estimates and are subject to change as the proposed
Restructuring Plan continues to be implemented.
The following table summarizes the activity for the
restructuring and related expenses discussed above and the
related restructuring accruals for the three and six months
ended June 30, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Fixed Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Write-Offs and
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
|
|
|
Accelerated
|
|
|
Lease
|
|
|
|
|
|
|
|
|
|
Related
|
|
|
Depreciation
|
|
|
Terminations
|
|
|
Other (b)
|
|
|
Total
|
|
|
Balance, December 31, 2009
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Expenses (a)
|
|
|
33.5
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.9
|
|
|
|
34.5
|
|
Cash payments
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
(0.6
|
)
|
Non-cash charges (a)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2010
|
|
$
|
33.0
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.6
|
|
|
$
|
33.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative expenses incurred to date
|
|
$
|
33.5
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.9
|
|
|
$
|
34.5
|
|
Additional expenses expected to be incurred
|
|
|
26.5
|
|
|
|
1.9
|
|
|
|
8.0
|
|
|
|
9.1
|
|
|
|
45.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expected expenses
|
|
$
|
60.0
|
|
|
$
|
2.0
|
|
|
$
|
8.0
|
|
|
$
|
10.0
|
|
|
$
|
80.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expenses include non-cash write-offs and accelerated
depreciation of fixed assets and leasehold improvements.
However, these amounts were recognized outside of the
restructuring accrual. |
|
(b) |
|
Other expenses related to the relocation of various operations
to new and existing Company facilities include expenses for
hiring, training, relocation, travel and professional fees. All
such expenses will be recorded when incurred. |
Restructuring and related expenses are reflected in the
Condensed Consolidated Statements of Income as follows (in
millions):
|
|
|
|
|
|
|
Three and Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
Cost of services
|
|
$
|
9.4
|
|
Selling, general and administrative
|
|
|
25.1
|
|
|
|
|
|
|
Total restructuring and related expenses, pre-tax
|
|
$
|
34.5
|
|
|
|
|
|
|
Total restructuring and related expenses, net of tax
|
|
$
|
22.4
|
|
|
|
|
|
|
The following table summarizes the restructuring and related
expenses, including expenses recorded to date, along with the
additional expenses expected to be incurred, by reportable
segment (in millions). These expenses have not been allocated to
the Companys segments disclosed in Note 16. While
these items are identifiable to the Companys segments,
these expenses have been excluded from the measurement of
segment operating profit provided to the chief operating
decision maker (CODM) for purposes of assessing
segment performance and decision making with respect to resource
allocation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global
|
|
|
|
|
|
|
|
|
|
Consumer-to-
|
|
|
Business
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Payments
|
|
|
Other
|
|
|
Total
|
|
|
Expenses incurred to date
|
|
$
|
26.2
|
|
|
$
|
6.9
|
|
|
$
|
1.4
|
|
|
$
|
34.5
|
|
Additional expenses expected to be incurred
|
|
|
36.9
|
|
|
|
6.2
|
|
|
|
2.4
|
|
|
|
45.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expected expenses
|
|
$
|
63.1
|
|
|
$
|
13.1
|
|
|
$
|
3.8
|
|
|
$
|
80.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Custom
House, Ltd.
On September 1, 2009, the Company acquired Canada-based
Custom House, a provider of international
business-to-business
payment services, for $371.0 million. The acquisition of
Custom House has allowed the Company to enter the international
business-to-business
payments market. Custom House facilitates cross-border,
cross-currency payment transactions. These payment transactions
are conducted through various channels including the telephone
and internet. The significant majority of Custom Houses
revenue is from exchanges of currency at the spot rate enabling
customers to make cross-currency payments. In addition, this
business writes foreign currency forward and option contracts
for their customers to facilitate future payments. The duration
of these derivatives contracts is generally nine months or less.
The results of operations for Custom House have been included in
the Companys consolidated financial statements from the
date of acquisition, September 1, 2009.
The Company recorded the assets and liabilities of Custom House
at fair value, excluding the deferred tax liability described
below. The following table summarizes the preliminary allocation
of purchase price:
|
|
|
|
|
Assets:
|
|
|
|
|
Cash acquired
|
|
$
|
2.5
|
|
Settlement assets
|
|
|
152.5
|
|
Property and equipment
|
|
|
6.7
|
|
Goodwill
|
|
|
272.2
|
|
Other intangible assets
|
|
|
118.1
|
|
Other assets
|
|
|
78.1
|
|
|
|
|
|
|
Total assets
|
|
$
|
630.1
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
23.5
|
|
Settlement obligations
|
|
|
152.5
|
|
Deferred tax liability, net
|
|
|
31.9
|
|
Other liabilities
|
|
|
51.2
|
|
|
|
|
|
|
Total liabilities
|
|
|
259.1
|
|
|
|
|
|
|
Total consideration, including cash acquired
|
|
$
|
371.0
|
|
|
|
|
|
|
The valuation of assets acquired resulted in $118.1 million
of identifiable intangible assets, $99.8 million of which
were attributable to customer and other contractual
relationships and were valued using an income approach and
$18.3 million of other intangibles, which were valued using
both income and cost approaches. These fair values were derived
using primarily unobservable Level 3 inputs which require
significant management judgment and estimation. For the
remaining assets and liabilities excluding goodwill, fair value
approximated carrying value. The intangible assets related to
customer and other contractual relationships are being amortized
over 10 to 12 years. The remaining intangibles are being
amortized over three to five years. The goodwill recognized of
$272.2 million is attributable to the projected long-term
business growth in current and new markets and an assembled
workforce. All goodwill relates entirely to the global business
payments segment. The assessment of goodwill expected to be
deductible for United States income tax purposes is
approximately $225.1 million. The net deferred tax
liability of $31.9 million and the resulting impacts on
goodwill are preliminary and will be completed once the Company
finalizes its tax review for this acquisition. In addition, the
Company is finalizing its analysis of certain settlement related
accounts, which may also result in an adjustment to goodwill.
10
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
FEXCO
On February 24, 2009, the Company acquired the money
transfer business of European-based FEXCO, one of the
Companys largest agents providing services in a number of
European countries, primarily the United Kingdom, Spain, Sweden
and Ireland. The acquisition of FEXCOs money transfer
business has assisted the Company in the implementation of the
Payment Services Directive (PSD) in the European
Union by providing an initial operating infrastructure. The PSD
has allowed the Company to operate under a single license in 27
european countries and, in those European Union countries where
the Company has been limited to working with banks, post-banks
and foreign exchange houses, to expand its network to additional
types of businesses. The acquisition does not impact the
Companys revenue, because the Company was already
recording all of the revenue arising from money transfers
originating at FEXCOs locations. As of the acquisition
date, the Company no longer incurs commission costs for
transactions related to FEXCO; rather, the Company now pays
commissions directly to former FEXCO subagents, resulting in
lower overall commission expense. The Companys operating
expenses include costs attributable to FEXCOs operations
subsequent to the acquisition date.
Prior to the acquisition, the Company held a 24.65% interest in
FEXCO Group Holdings (FEXCO Group), which was a
holding company for both the money transfer business as well as
various unrelated businesses. The Company surrendered its 24.65%
interest in FEXCO Group as non-cash consideration, which had an
estimated fair value of $86.2 million on the acquisition
date, and paid 123.1 million ($157.4 million) as
additional consideration for all of the common shares of the
money transfer business, resulting in a total purchase price of
$243.6 million. The Company recognized no gain or loss in
connection with the disposition of its equity interest in the
FEXCO Group, because its estimated fair value approximated its
carrying value. The Company recorded the assets and liabilities
of FEXCO at fair value, excluding the deferred tax liability.
|
|
5.
|
Receivable
for Securities Sold
|
On September 15, 2008, Western Union requested redemption
of its shares in the Reserve International Liquidity Fund, Ltd.
(the Fund), a money market fund, totaling
$298.1 million. Western Union included the value of the
receivable in Other assets in the Condensed
Consolidated Balance Sheets. At the time the redemption request
was made, the Company was informed by the Reserve Management
Company, the Funds investment advisor (the
Manager), that the Companys redemption trades
would be honored at a $1.00 per share net asset value. In 2009,
the Company received partial distributions totaling
$255.5 million from the Fund. The Company continues to
vigorously pursue collection of the remaining balance and
believes it has a right to full payment of the remaining amount
based on the written and verbal representations from the Manager
and the Companys legal position. However, given the
increased uncertainty surrounding the numerous third-party legal
claims associated with the Fund, the Company reserved
$12 million representing the estimated impact of a pro-rata
distribution of the Fund during the quarter ended June 30,
2009. As of June 30, 2010, the Company had a remaining
receivable balance of $30.6 million, net of the related
reserve. The Company anticipates receiving a distribution
pending the resolution of the legal matters surrounding the
Fund. If the Fund incurs significant legal, administrative or
other costs during the distribution process, the Company may
record additional reserves related to the remaining receivable
balance, although such amounts are not expected to be
significant.
|
|
6.
|
Fair
Value Measurements
|
Fair value, as defined by the relevant accounting standards,
represents the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. For
11
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
additional information on how Western Union measures fair value,
refer to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2009.
The following table reflects assets and liabilities that were
measured and carried at fair value on a recurring basis as of
June 30, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets/
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Fair Value Measurement Using
|
|
|
at Fair
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations
|
|
$
|
|
|
|
$
|
854.9
|
|
|
$
|
|
|
|
$
|
854.9
|
|
State and municipal variable rate demand notes
|
|
|
|
|
|
|
351.5
|
|
|
|
|
|
|
|
351.5
|
|
Corporate debt securities
|
|
|
|
|
|
|
20.5
|
|
|
|
|
|
|
|
20.5
|
|
Other
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Derivatives
|
|
|
|
|
|
|
154.8
|
|
|
|
|
|
|
|
154.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
0.2
|
|
|
$
|
1,381.7
|
|
|
$
|
|
|
|
$
|
1,381.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
73.7
|
|
|
$
|
|
|
|
$
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
|
|
|
$
|
73.7
|
|
|
$
|
|
|
|
$
|
73.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No non-recurring fair value adjustments were recorded during the
three and six months ended June 30, 2010.
Other
Fair Value Measurements
The carrying amounts for Western Union financial instruments,
including cash and cash equivalents, settlement cash and cash
equivalents, settlement receivables and settlement obligations
approximate fair value due to their short maturities. The
Companys borrowings had a carrying value and fair value of
$3,296.5 million and $3,535.2 million, respectively,
at June 30, 2010 and had a carrying value and fair value of
$3,048.5 million and $3,211.3 million, respectively,
at December 31, 2009 (see Note 13).
|
|
7.
|
Commitments
and Contingencies
|
Letters
of Credit and Bank Guarantees
The Company had $84.3 million in outstanding letters of
credit and bank guarantees at June 30, 2010 with expiration
dates through 2015, the significant majority of which contain a
one-year renewal option. The letters of credit and bank
guarantees are primarily held in connection with lease
arrangements and certain agent agreements. The Company expects
to renew the letters of credit and bank guarantees prior to
expiration in most circumstances.
Litigation
and Related Contingencies
The United States Department of Justice (DOJ) served
one of the Companys subsidiaries with a grand jury
subpoena requesting documents in connection with an
investigation into money transfers from the United States to the
Dominican Republic during the last several years. The Company is
cooperating fully with the DOJ investigation. Due to the stage
of the DOJ investigation, the Company is unable to predict the
outcome of the investigation or the possible loss or range of
loss, if any, associated with the resolution of any charges that
may be brought against the Company.
12
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
During the third quarter of 2009, the Company recorded an
accrual of $71.0 million for an anticipated agreement and
settlement with the State of Arizona. On February 11, 2010,
the Company signed this agreement and settlement, which resolved
all outstanding legal issues and claims with the State and
requires the Company to fund a multi-state
not-for-profit
organization promoting safety and security along the United
States and Mexico border, in which California, Texas and New
Mexico will participate with Arizona. The accrual includes
amounts for reimbursement to the State of Arizona for its costs
associated with this matter. In addition, as part of the
agreement and settlement, the Company expects to make certain
investments in its compliance programs along the United States
and Mexico border and to engage a monitor for that program,
which are expected to cost up to $23 million over the next
two to four years. During the six months ended June 30,
2010, cash payments of $41 million were made related to the
agreement and settlement.
In the normal course of business, Western Union is subject to
claims and litigation. Management of the Company believes such
matters involving a reasonably possible chance of loss will not,
individually or in the aggregate, result in a material adverse
effect on the Companys financial position, results of
operations and cash flows. The Company accrues for loss
contingencies as they become probable and estimable.
In May 2007, the Company initiated litigation against MoneyGram
Payment Systems, Inc. (MoneyGram) for infringement
of the Companys Money Transfer by Phone patents by
MoneyGrams FormFree service. On September 24, 2009, a
jury found that MoneyGram was liable for patent infringement and
awarded the Company $16.5 million in damages. This case is
on appeal to the United States Court of Appeals for the Federal
Circuit. In accordance with its policies, the Company does not
recognize gain contingencies in earnings until realization and
collectability are assured and, therefore, due to
MoneyGrams challenges to the verdict, the Company has not
recognized any amounts in its Condensed Consolidated Statement
of Income through June 30, 2010.
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 Separation or
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 Companys business with the Company and financial
responsibility for the obligations and liabilities of First
Datas retained businesses with First Data. The Company
also entered into a 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 14).
|
|
8.
|
Related
Party Transactions
|
The Company has ownership interests in certain of its agents
accounted for under the equity method of accounting. The Company
pays these agents, as it does its other agents, commissions for
money transfer and other services provided on the Companys
behalf. Commission expense recognized for these agents for the
three months ended June 30, 2010 and 2009 totaled
$44.5 million and $46.2 million, respectively, and
$89.2 million and $99.7 million for the six months
ended June 30, 2010 and 2009, respectively. Commission
expense recognized for FEXCO prior to February 24, 2009,
the date of the acquisition (see Note 4), was considered a
related party transaction.
13
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
In July 2009, the Company appointed a director who is also a
director for a company holding significant investments in two of
the Companys existing agents. These agents had been agents
of the Company prior to the director being appointed to the
board. The Company recognized commission expense of
$12.8 million and $13.2 million for the three months
ended June 30, 2010 and 2009, respectively, and
$26.3 million and $25.6 million for the six months
ended June 30, 2010 and 2009, respectively, related to
these agents.
|
|
9.
|
Settlement
Assets and Obligations
|
Settlement assets represent funds received or to be received
from agents for unsettled money transfers, money orders and
consumer payments. Western Union 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 businesses for the value
of customer cross-currency payment transactions related to the
global business payments segment.
Settlement assets and obligations consisted of the following (in
millions):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Settlement assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
193.8
|
|
|
$
|
161.9
|
|
Receivables from selling agents and
business-to-business
customers
|
|
|
920.4
|
|
|
|
1,004.4
|
|
Investment securities
|
|
|
1,227.1
|
|
|
|
1,222.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,341.3
|
|
|
$
|
2,389.1
|
|
|
|
|
|
|
|
|
|
|
Settlement obligations:
|
|
|
|
|
|
|
|
|
Money transfer, money order and payment service payables
|
|
$
|
1,894.5
|
|
|
$
|
1,954.8
|
|
Payables to agents
|
|
|
446.8
|
|
|
|
434.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,341.3
|
|
|
$
|
2,389.1
|
|
|
|
|
|
|
|
|
|
|
Investment securities consist primarily of high-quality state
and municipal debt obligations. The Company is required to
maintain specific high-quality, investment grade securities and
such investments are restricted to satisfy outstanding
settlement obligations in accordance with applicable state and
foreign country requirements. Western Union does not hold
investment securities for trading purposes. All 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 making high-quality investments and
through investment diversification. At June 30, 2010, the
majority of the Companys investment securities had credit
ratings of AA- or better from a major credit rating
agency.
Unrealized gains and losses on
available-for-sale
securities are excluded from earnings and presented as a
component of accumulated other comprehensive income or loss, net
of related deferred taxes. Gains and losses on investments are
calculated using the specific-identification method and are
recognized during the period the investment is sold or when an
investment experiences an
other-than-temporary
decline in value.
In the fourth quarter of 2009, the Company received cash from
Integrated Payment Systems Inc. (IPS), a subsidiary
of First Data, in connection with the Company assuming the
responsibility of issuing money orders. The Company invested the
cash received from IPS in investment securities, including
variable rate demand notes. Generally, variable rate demand
notes are used by the Company for short-term liquidity needs and
are held for short periods of time, typically less than
30 days, although they have varying maturity dates through
2049. As a result, the frequency of purchases and proceeds
received by the Company has increased.
14
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Proceeds from the sale and maturity of
available-for-sale
securities during the six months ended June 30, 2010 and
2009 were $7.0 billion and $3.7 billion, respectively.
The components of investment securities, all of which are
classified as
available-for-sale,
were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Gains/
|
|
June 30, 2010
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
(Losses)
|
|
|
State and municipal obligations (a)
|
|
$
|
845.4
|
|
|
$
|
854.9
|
|
|
$
|
11.3
|
|
|
$
|
(1.8
|
)
|
|
$
|
9.5
|
|
State and municipal variable rate demand notes
|
|
|
351.5
|
|
|
|
351.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
20.2
|
|
|
|
20.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
Other
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,217.2
|
|
|
$
|
1,227.1
|
|
|
$
|
11.7
|
|
|
$
|
(1.8
|
)
|
|
$
|
9.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Gains/
|
|
December 31, 2009
|
|
Cost
|
|
|
Value
|
|
|
Gains
|
|
|
Losses
|
|
|
(Losses)
|
|
|
State and municipal obligations (a)
|
|
$
|
686.4
|
|
|
$
|
696.4
|
|
|
$
|
10.6
|
|
|
$
|
(0.6
|
)
|
|
$
|
10.0
|
|
State and municipal variable rate demand notes
|
|
|
513.8
|
|
|
|
513.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
12.2
|
|
|
|
12.4
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
Other
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,212.5
|
|
|
$
|
1,222.8
|
|
|
$
|
10.9
|
|
|
$
|
(0.6
|
)
|
|
$
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The majority of these securities are fixed rate instruments. |
The following summarizes the contractual maturities of
investment securities as of June 30, 2010 (in millions):
|
|
|
|
|
|
|
Fair
|
|
|
|
Value
|
|
|
Due within 1 year
|
|
$
|
87.0
|
|
Due after 1 year through 5 years
|
|
|
737.5
|
|
Due after 5 years through 10 years
|
|
|
99.0
|
|
Due after 10 years
|
|
|
303.6
|
|
|
|
|
|
|
|
|
$
|
1,227.1
|
|
|
|
|
|
|
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
$42.5 million, $33.9 million and $275.1 million,
are included in the Due after 1 year through
5 years, Due after 5 years through
10 years and Due after 10 years
categories, respectively, in the table above.
15
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The components of other comprehensive income, net of tax, were
as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$
|
221.0
|
|
|
$
|
220.2
|
|
|
$
|
428.9
|
|
|
$
|
444.1
|
|
Unrealized gains/losses on investments securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses)
|
|
|
(1.7
|
)
|
|
|
1.0
|
|
|
|
0.7
|
|
|
|
3.0
|
|
Tax benefit/(expense)
|
|
|
0.7
|
|
|
|
(0.4
|
)
|
|
|
(0.2
|
)
|
|
|
(1.1
|
)
|
Reclassification of gains into earnings
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
(1.7
|
)
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains/(losses) on investment securities
|
|
|
(1.2
|
)
|
|
|
0.6
|
|
|
|
(0.2
|
)
|
|
|
0.8
|
|
Unrealized gains/losses on hedging activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains/(losses)
|
|
|
49.2
|
|
|
|
(52.7
|
)
|
|
|
84.2
|
|
|
|
(20.6
|
)
|
Tax benefit/(expense)
|
|
|
(5.6
|
)
|
|
|
8.4
|
|
|
|
(9.8
|
)
|
|
|
3.8
|
|
Reclassification of gains into earnings
|
|
|
(10.2
|
)
|
|
|
(15.5
|
)
|
|
|
(9.8
|
)
|
|
|
(32.9
|
)
|
Tax expense
|
|
|
1.0
|
|
|
|
2.3
|
|
|
|
0.6
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains/(losses) on hedging activities
|
|
|
34.4
|
|
|
|
(57.5
|
)
|
|
|
65.2
|
|
|
|
(44.7
|
)
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
8.8
|
|
|
|
(2.0
|
)
|
|
|
19.5
|
|
|
|
(22.3
|
)
|
Tax benefit/(expense)
|
|
|
(1.7
|
)
|
|
|
0.7
|
|
|
|
(4.1
|
)
|
|
|
7.8
|
|
Reclassification of gains into earnings (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.1
|
)
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign currency translation adjustments
|
|
|
7.1
|
|
|
|
(1.3
|
)
|
|
|
15.4
|
|
|
|
(29.5
|
)
|
Pension liability adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of losses into earnings
|
|
|
1.5
|
|
|
|
0.9
|
|
|
|
3.1
|
|
|
|
1.8
|
|
Tax benefit
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(1.2
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension liability adjustments
|
|
|
1.0
|
|
|
|
0.5
|
|
|
|
1.9
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income
|
|
$
|
262.3
|
|
|
$
|
162.5
|
|
|
$
|
511.2
|
|
|
$
|
371.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The six months ended June 30, 2009 includes the impact to
the foreign currency translation account of the surrender of the
Companys interest in FEXCO Group. See Note 4. |
|
|
11.
|
Employee
Benefit Plans
|
The Company has two frozen defined benefit pension plans for
which it had a recorded unfunded pension obligation of
$111.0 million and $124.2 million as of June 30,
2010 and December 31, 2009, respectively, included in
Other liabilities in the Condensed Consolidated
Balance Sheets. Through July 2010, the Company has made
contributions totaling approximately $22 million to the
plans, including a discretionary contribution of
$10 million.
16
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The following table provides the components of net periodic
benefit cost for the plans (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Interest cost
|
|
$
|
5.0
|
|
|
$
|
5.9
|
|
|
$
|
10.0
|
|
|
$
|
11.8
|
|
Expected return on plan assets
|
|
|
(5.1
|
)
|
|
|
(6.1
|
)
|
|
|
(10.2
|
)
|
|
|
(12.3
|
)
|
Amortization of actuarial loss
|
|
|
1.5
|
|
|
|
0.9
|
|
|
|
3.1
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
1.4
|
|
|
$
|
0.7
|
|
|
$
|
2.9
|
|
|
$
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
and other currencies, related to forecasted money transfer
revenues and on money transfer settlement assets and
obligations. Subsequent to the acquisition of Custom House, the
Company is also exposed to risk from derivative contracts
written to its customers arising from its cross-currency
business-to-business
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-to-business
payments by writing derivatives to customers.
The Company executes derivatives related to its
consumer-to-consumer
business 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 executes global business
payments derivatives, as a result of its acquisition of Custom
House, mostly with small and medium size enterprises. The credit
risk inherent in both the
consumer-to-consumer
and global business payments 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 (including termination of contracts) when doubt arises
about the counterparties ability to perform. The
Companys 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
CurrencyConsumer-to-Consumer
The Companys 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 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. At
June 30, 2010, the Companys 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. Accordingly, all changes in the fair
value of the hedges not considered effective or portions of the
hedge that are excluded from the measure of effectiveness are
recognized immediately in Derivative gains/(losses),
net within the Companys Condensed Consolidated
Statements of Income.
17
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
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, are utilized to offset foreign
exchange rate fluctuations on certain foreign currency
denominated cash positions. None of these contracts are
designated as accounting hedges.
The aggregate United States dollar notional amounts of foreign
currency forward contracts as of June 30, 2010 were as
follows (in millions):
|
|
|
|
|
Contracts not designated as hedges:
|
|
|
|
|
Euro
|
|
$
|
225.5
|
|
British pound
|
|
|
37.8
|
|
Other
|
|
|
43.7
|
|
Contracts designated as hedges:
|
|
|
|
|
Euro
|
|
$
|
513.3
|
|
Canadian dollar
|
|
|
102.0
|
|
British pound
|
|
|
83.9
|
|
Other
|
|
|
92.2
|
|
Foreign
CurrencyGlobal Business Payments
As a result of the acquisition of Custom House, the Company
writes derivatives, primarily foreign currency forward contracts
and, to a much smaller degree, option contracts, mostly with
small and medium size enterprises (customer contracts) and
derives a currency spread from this activity as part of its
global business payments operations. In this capacity, the
Company facilitates cross-currency payment transactions for its
customers but aggregates its Custom House 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 its
cross-currency
business-to-business
payments operation, which includes significant spot exchanges of
currency in addition to forwards and options. None of these
contracts are designated as accounting hedges. The duration of
these derivative contracts is generally nine months or less.
The aggregate United States dollar notional amounts of foreign
currency derivative customer contracts held by the Company as of
June 30, 2010 were approximately $1.2 billion. The
significant majority of customer contracts are written in major
currencies such as the Canadian dollar, euro, Australian dollar
and the British pound.
In 2009, the Company also entered into a forward contract, with
a notional amount of approximately 230 million Canadian
dollars, to offset foreign exchange rate fluctuations on a
Canadian dollar denominated position in connection with the
purchase of Custom House. This contract is not designated as an
accounting hedge.
Interest
Rate HedgingCorporate
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 utilizing the short-cut method, which permits an
assumption of no ineffectiveness if certain criteria are met.
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
18
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
the Companys 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.
Such derivatives were used in connection with the note exchange
and note issuance discussed in Note 13.
At both June 30, 2010 and December 31, 2009, the
Company held interest rate swaps in an aggregate notional amount
of $750 million. Of this aggregate notional amount held at
June 30, 2010, $695 million related to notes due in
2011 and $55 million related to notes due in 2014.
Balance
Sheet
The following table summarizes the fair value of derivatives
reported in the Condensed Consolidated Balance Sheets as of
June 30, 2010 and December 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Fair Value
|
|
|
|
Balance Sheet
|
|
June 30,
|
|
|
December 31,
|
|
|
Balance Sheet
|
|
June 30,
|
|
|
December 31,
|
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
Location
|
|
2010
|
|
|
2009
|
|
|
Derivativeshedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate fair value hedges Corporate
|
|
Other assets
|
|
$
|
3.5
|
|
|
$
|
31.0
|
|
|
Other liabilities
|
|
$
|
|
|
|
$
|
|
|
Foreign currency cash flow hedges
Consumer-to-consumer
|
|
Other assets
|
|
|
68.1
|
|
|
|
15.1
|
|
|
Other liabilities
|
|
|
6.0
|
|
|
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
71.6
|
|
|
$
|
46.1
|
|
|
|
|
$
|
6.0
|
|
|
$
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivativesundesignated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency Global business payments
|
|
Other assets
|
|
$
|
75.7
|
|
|
$
|
58.9
|
|
|
Other liabilities
|
|
$
|
67.1
|
|
|
$
|
48.2
|
|
Foreign currency
Consumer-to-consumer
|
|
Other assets
|
|
|
7.5
|
|
|
|
4.9
|
|
|
Other liabilities
|
|
|
0.6
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
83.2
|
|
|
$
|
63.8
|
|
|
|
|
$
|
67.7
|
|
|
$
|
49.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
154.8
|
|
|
$
|
109.9
|
|
|
|
|
$
|
73.7
|
|
|
$
|
80.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
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 and
six months ended June 30, 2010 and 2009 (in millions):
Fair
Value Hedges
The following table presents the location and amount of
gains/(losses) from fair value hedges for the three months ended
June 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
Derivatives
|
|
|
|
|
Related Hedged Item(b)
|
|
|
|
Income Statement
|
|
|
|
|
|
|
Income Statement
|
|
|
|
|
|
Location
|
|
Amount
|
|
|
|
|
Location
|
|
Amount
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Derivatives
|
|
|
|
2010
|
|
|
2009
|
|
|
Hedged Items
|
|
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
Interest expense
|
|
$
|
3.7
|
|
|
$
|
(1.1
|
)
|
|
Fixed-rate debt
|
|
Interest expense
|
|
$
|
1.9
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain
|
|
|
|
$
|
3.7
|
|
|
$
|
(1.1
|
)
|
|
|
|
|
|
$
|
1.9
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the location and amount of
gains/(losses) from fair value hedges for the six months ended
June 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
Derivatives
|
|
|
|
|
Related Hedged Item(b)
|
|
|
|
Income Statement
|
|
|
|
|
|
|
Income Statement
|
|
|
|
|
|
Location
|
|
Amount
|
|
|
|
|
Location
|
|
Amount
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Derivatives
|
|
|
|
2010
|
|
|
2009
|
|
|
Hedged Items
|
|
|
|
2010
|
|
|
2009
|
|
|
Interest rate contracts
|
|
Interest expense
|
|
$
|
9.9
|
|
|
$
|
1.0
|
|
|
Fixed-rate debt
|
|
Interest expense
|
|
$
|
2.6
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain
|
|
|
|
$
|
9.9
|
|
|
$
|
1.0
|
|
|
|
|
|
|
$
|
2.6
|
|
|
$
|
6.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow
Hedges
The following table presents the location and amount of
gains/(losses) from cash flow hedges for the three months ended
June 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Reclassified from
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Accumulated OCI into Income
|
|
|
Derivatives (Ineffective Portion and Amount
|
|
|
|
Recognized in OCI on
|
|
|
(Effective Portion)
|
|
|
Excluded from Effectiveness Testing) (c)
|
|
|
|
Derivatives (Effective
|
|
|
Income Statement
|
|
|
|
|
Income Statement
|
|
|
|
|
|
Portion)
|
|
|
Location
|
|
Amount
|
|
|
Location
|
|
Amount
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Derivatives
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
Foreign currency contracts
|
|
$
|
56.7
|
|
|
$
|
(52.7
|
)
|
|
Revenue
|
|
$
|
10.6
|
|
|
$
|
15.9
|
|
|
Derivative
gains/(losses), net
|
|
$
|
(1.7
|
)
|
|
$
|
2.4
|
|
Interest rate contracts (d)
|
|
|
(7.5
|
)
|
|
|
|
|
|
Interest expense
|
|
|
(0.4
|
)
|
|
|
(0.4
|
)
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain/(loss)
|
|
$
|
49.2
|
|
|
$
|
(52.7
|
)
|
|
|
|
$
|
10.2
|
|
|
$
|
15.5
|
|
|
|
|
$
|
(1.8
|
)
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The following table presents the location and amount of
gains/(losses) from cash flow hedges for the six months ended
June 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Reclassified from
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
Accumulated OCI into Income
|
|
|
Gain/(Loss) Recognized in Income on
|
|
|
|
Recognized in OCI on
|
|
|
(Effective Portion)
|
|
|
Derivatives (Ineffective Portion and Amount Excluded from
Effectiveness Testing) (c)
|
|
|
|
Derivatives (Effective
|
|
|
Income Statement
|
|
|
|
|
Income Statement
|
|
|
|
|
|
Portion)
|
|
|
Location
|
|
Amount
|
|
|
Location
|
|
Amount
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Derivatives
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Foreign currency contracts
|
|
$
|
88.4
|
|
|
$
|
(20.6
|
)
|
|
Revenue
|
|
$
|
10.6
|
|
|
$
|
33.7
|
|
|
Derivative
gains/(losses), net
|
|
$
|
(3.0
|
)
|
|
$
|
(1.7
|
)
|
Interest rate contracts (d)
|
|
|
(4.2
|
)
|
|
|
|
|
|
Interest expense
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
Interest expense
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain/(loss)
|
|
$
|
84.2
|
|
|
$
|
(20.6
|
)
|
|
|
|
$
|
9.8
|
|
|
$
|
32.9
|
|
|
|
|
$
|
(3.1
|
)
|
|
$
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undesignated Hedges
The following table presents the location and amount of net
gains/(losses) from undesignated hedges for the three and six
months ended June 30, 2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(Loss) Recognized in Income on Derivatives
|
|
|
|
Income Statement Location
|
|
Amount
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Derivatives
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Foreign currency contracts (e)
|
|
Foreign exchange revenue
|
|
$
|
5.3
|
|
|
$
|
|
|
|
$
|
10.1
|
|
|
$
|
|
|
Foreign currency contracts (a)
|
|
Selling, general and administrative
|
|
|
37.1
|
|
|
|
1.5
|
|
|
|
48.3
|
|
|
|
13.5
|
|
Foreign currency contracts (f)
|
|
Derivative gains/(losses), net
|
|
|
3.4
|
|
|
|
(3.5
|
)
|
|
|
5.0
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain/(loss)
|
|
|
|
$
|
45.8
|
|
|
$
|
(2.0
|
)
|
|
$
|
63.4
|
|
|
$
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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. The gain of $37.1 million and $48.3 million
generated by the undesignated foreign currency contracts for the
three and six months ended June 30, 2010, respectively, was
offset by a foreign exchange loss on settlement assets and
obligations and cash balances of $37.8 million and
$49.4 million, respectively. The foreign exchange gain of
$1.5 million and $13.5 million generated by the
undesignated foreign currency contracts for the three and six
months ended June 30, 2009, respectively, was offset by a
foreign exchange loss on settlement assets and obligations and
cash balances of $2.2 million and $17.6 million,
respectively. |
|
(b) |
|
The net gain of $1.9 million and $5.6 million in the
three months ended June 30, 2010 and 2009, respectively,
was comprised of a (loss)/gain in value on the debt of
($3.7) million and $1.1 million, respectively, and
amortization of hedge accounting adjustments of
$5.6 million and $4.5 million, respectively. The net
gain of $2.6 million and $6.7 million in the six
months ended June 30, 2010 and 2009, respectively, was
comprised of a loss in value on the debt of $9.9 million
and $1.0 million, respectively, and amortization of hedge
accounting adjustments of $12.5 million and
$7.7 million, respectively. |
|
(c) |
|
The portion of the change in fair value of a derivative excluded
from the effectiveness assessment for foreign currency forward
contracts designated as cash flow hedges represents the
difference between changes in forward rates and spot rates. |
21
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
|
|
|
(d) |
|
The Company uses derivatives to hedge the forecasted issuance of
fixed rate debt and records the effective portion of the
derivatives fair value in Accumulated other
comprehensive loss in the Condensed Consolidated Balance
Sheets. These amounts are reclassified to Interest
expense over the life of the related notes. |
|
(e) |
|
The Company uses foreign currency forward and option contracts
as part of its international
business-to-business
payments operation. The derivative contracts are managed as part
of a broader currency portfolio that includes non-derivative
currency exposures. |
|
(f) |
|
The derivative contracts used in the Companys revenue
hedging program are not designated as hedges in the final month
of the contract. |
An accumulated other comprehensive pre-tax gain of
$42.8 million related to the foreign currency forward
contracts is expected to be reclassified into revenue within the
next 12 months as of June 30, 2010. Approximately
$1.6 million of net losses on the forecasted debt issuance
hedges are expected to be recognized in interest expense within
the next 12 months as of June 30, 2010. No amounts
have been reclassified into earnings as a result of the
underlying transaction being considered probable of not
occurring within the specified time period.
The Companys outstanding borrowings consisted of the
following (in millions):
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
Due in greater than one year (a):
|
|
|
|
|
|
|
|
|
5.400% notes (effective rate of 2.8%) due 2011 (b)(c)
|
|
$
|
696.3
|
|
|
$
|
1,000.0
|
|
6.500% notes due 2014 (d)
|
|
|
500.0
|
|
|
|
500.0
|
|
5.930% notes due 2016 (d)
|
|
|
1,000.0
|
|
|
|
1,000.0
|
|
5.253% notes due 2020 (b)(d)
|
|
|
324.9
|
|
|
|
|
|
6.200% notes due 2036 (d)
|
|
|
500.0
|
|
|
|
500.0
|
|
6.200% notes due 2040 (e)
|
|
|
250.0
|
|
|
|
|
|
Other borrowings
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
Total borrowings at par value
|
|
|
3,277.2
|
|
|
|
3,006.0
|
|
Fair value hedge accounting adjustments, net (a)
|
|
|
44.5
|
|
|
|
47.1
|
|
Unamortized discount, net (b)
|
|
|
(25.2
|
)
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
Total borrowings at carrying value (f)
|
|
$
|
3,296.5
|
|
|
$
|
3,048.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The Company utilizes interest rate swaps designated as fair
value hedges 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 changes in fair value of
these interest rate swaps result in an offsetting hedge
accounting adjustment recorded to the carrying value of the
related note. These hedge accounting adjustments will be
reclassified as reductions to Interest expense over
the life of the related notes, and cause the effective rate of
interest to differ from the notes stated rate. |
|
(b) |
|
On March 30, 2010, the Company exchanged
$303.7 million of aggregate principal amount of the
5.400% notes due 2011 (2011 Notes) for 5.253%
unsecured notes due 2020 (2020 Notes). The 5.7%
effective interest rate of the 2020 Notes differs from the
stated rate as the notes have a par value of
$324.9 million. The $21.2 million premium is being
accreted over the life of the 2020 Notes. See below for
additional detail relating to the note exchange. |
22
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
|
|
|
(c) |
|
The effective interest rate related to the 2011 Notes includes
the impact of the interest rate swaps entered into in
conjunction with the assumption of the money order investments
from IPS. |
|
(d) |
|
The difference between the stated interest rate and the
effective interest rate is not significant. |
|
(e) |
|
On June 21, 2010, the Company issued $250.0 million of
aggregate principal amount of 6.200% unsecured notes due 2040
(the 2040 Notes). In anticipation of this issuance,
the Company entered into interest rate swaps to fix the interest
rate of the debt issuance, and recorded a loss on the swaps of
$7.5 million, which increased the effective rate to 6.3%,
in Accumulated other comprehensive loss, which will
be amortized into interest expense over the life of the 2040
Notes. See below for additional detail relating to the debt
issuance. |
|
(f) |
|
At June 30, 2010, the Companys weighted average
effective rate on total borrowings was approximately 5.3%. |
The aggregate fair value of our long-term debt, based on quotes
from multiple banks, excluding the impact of discounts and
related interest rate swaps, was $3,535.2 million and
$3,211.3 million at June 30, 2010 and
December 31, 2009, respectively.
The Companys maturities of borrowings at par value as of
June 30, 2010 are $700 million in 2011,
$500 million in 2014 and $2.1 billion thereafter.
The Companys obligations with respect to its outstanding
borrowings, as described above, rank equally.
2040
Notes
On June 21, 2010, the Company issued $250.0 million of
aggregate principal amount of unsecured notes due June 21,
2040. Interest with respect to the 2040 Notes is payable
semiannually on June 21 and December 21 each year based on the
fixed per annum interest rate of 6.200%. The 2040 Notes contain
covenants that, among other things, limit or restrict the
ability of the Company and certain of its subsidiaries to grant
certain types of security interests or enter into sale and
leaseback transactions. The Company may redeem the 2040 Notes at
any time prior to maturity at the greater of par or a price
based on the applicable treasury rate plus 30 basis points.
2020
Notes
On March 30, 2010, the Company exchanged
$303.7 million of aggregate principal amount of the 2011
Notes for unsecured notes due April 1, 2020. Interest with
respect to the 2020 Notes is payable semiannually on April 1 and
October 1 each year based on the fixed per annum interest rate
of 5.253%. In connection with the exchange, note holders were
given a 7% premium ($21.2 million), which approximated
market value at the exchange date, as additional principal. As
this transaction was accounted for as a debt modification, this
premium was not charged to expense. Rather, the premium, along
with the offsetting hedge accounting adjustments, will be
accreted into interest expense over the life of the notes. The
2020 Notes contain covenants that, among other things, limit or
restrict the ability of certain subsidiaries of the Company to
incur certain indebtedness, and limit or restrict the ability of
the Company and certain of its subsidiaries to grant certain
types of security interests or enter into sale and leaseback
transactions. The Company may redeem the 2020 Notes at any time
prior to maturity at the greater of par or a price based on the
applicable treasury rate plus 15 basis points.
In connection with the issuance of the 2020 Notes on
March 30, 2010, the Company entered into a Registration
Rights Agreement which will give the holders of the 2020 Notes
certain exchange and registration rights, including the
Companys completion of a registered exchange offer within
360 days of the March 30, 2010 settlement date.
23
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The Companys effective tax rates on pre-tax income for the
three months ended June 30, 2010 and 2009 were 18.8% and
25.5%, respectively, and 21.8% and 26.1% for the six months
ended June 30, 2010 and 2009, respectively. During the
three months ended June 30, 2010, the Company continued to
benefit from an increasing proportion of profits being
foreign-derived,
and therefore, taxed at lower rates than its combined federal
and state tax rates in the United States. In addition, during
the second quarter of 2010 the Company recognized a benefit from
the settlement with the United States Internal Revenue Service
(IRS) of certain issues arising in the
2002-04 tax
years.
Uncertain
Tax Positions
The Company has established contingency reserves for material,
known tax exposures, including potential tax audit adjustments
with respect to its international operations, which were
restructured in 2003. The Companys tax reserves reflect
managements judgment as to the resolution of the issues
involved if subject to judicial review. While the Company
believes its reserves are adequate to cover reasonably expected
tax risks, there can be no assurance that, in all instances, an
issue raised by a tax authority will be resolved at a financial
cost that does not exceed its related reserve. With respect to
these reserves, the Companys income tax expense would
include (i) any changes in tax reserves arising from
material changes during the period in the facts and
circumstances (i.e., new information) surrounding a tax issue,
and (ii) any difference from the Companys tax
position as recorded in the financial statements and the final
resolution of a tax issue during the period.
Unrecognized tax benefits represent the aggregate tax effect of
differences between tax return positions and the amounts
otherwise recognized in the Companys financial statements,
and are reflected in Income taxes payable in the
Condensed Consolidated Balance Sheets. The total amount of
unrecognized tax benefits as of June 30, 2010 and
December 31, 2009 was $530.4 million and
$477.2 million, respectively, excluding interest and
penalties. A substantial portion of the Companys
unrecognized tax benefits relate to the 2003 restructuring of
the Companys international operations whereby the
Companys income from certain
foreign-to-foreign
money transfer transactions has been taxed at relatively low
foreign tax rates compared to the Companys combined
federal and state tax rates in the United States. The total
amount of unrecognized tax benefits that, if recognized, would
affect the effective tax rate was $522.5 million and
$468.6 million as of June 30, 2010 and
December 31, 2009, respectively, excluding interest and
penalties.
The Company recognizes interest and penalties with respect to
unrecognized tax benefits in Provision for income
taxes in its Condensed Consolidated Statements of Income,
and records the associated liability in Income taxes
payable in its Condensed Consolidated Balance Sheets. The
Company recognized $0.3 million and $2.2 million in
interest and penalties during the three months ended
June 30, 2010 and 2009, respectively, and $2.7 million
and $6.5 million during the six months ended June 30,
2010 and 2009, respectively. The Company has accrued
$48.2 million and $45.5 million for the payment of
interest and penalties at June 30, 2010 and
December 31, 2009, respectively.
Subject to the matter referenced in the paragraph below, the
Company has identified no other uncertain tax positions for
which it is reasonably possible that the total amount of
unrecognized tax benefits will significantly increase or
decrease within 12 months, except for recurring accruals on
existing uncertain tax positions. The change in unrecognized tax
benefits during the six months ended June 30, 2010 is
substantially attributable to such recurring accruals.
The Company and its subsidiaries file tax returns for the United
States, for multiple states and localities, and for various
non-United
States jurisdictions, and the Company has identified the United
States and Ireland as its two major tax jurisdictions. The
United States federal income tax returns of First Data, which
include
24
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
the Company, are eligible to be examined for the years 2002
through 2006. The Companys United States federal income
tax returns since the Spin-off are also eligible to be examined.
In the second quarter of 2010, the IRS, First Data and the
Company reached a resolution of all outstanding issues related
to First Datas United States federal consolidated income
tax return for 2002 (which included issues related to the
Company). The resolution did not result in a material change to
the Companys financial position. In addition, the IRS
completed its examination of the United States federal
consolidated income tax returns of First Data for 2003 and 2004,
which included the Company, and issued a Notice of Deficiency in
December 2008. The Notice of Deficiency alleges significant
additional taxes, interest and penalties owed with respect to a
variety of adjustments involving the Company and its
subsidiaries, and the Company generally has responsibility for
taxes associated with these potential Company-related
adjustments under the tax allocation agreement with First Data
executed at the time of the Spin-off. The Company agrees with a
number of the adjustments in the Notice of Deficiency; however,
the Company does not agree with the Notice of Deficiency
regarding several substantial adjustments representing total
alleged additional tax and penalties due of approximately
$114 million. As of June 30, 2010, interest on the
alleged amounts due for unagreed adjustments would be
approximately $33 million. A substantial part of the
alleged amounts due for these unagreed adjustments relates to
the Companys international restructuring, which took
effect in the fourth quarter of 2003, and, accordingly, the
alleged amounts due related to such restructuring largely are
attributable to 2004. On March 20, 2009, the Company filed
a petition in the United States Tax Court contesting those
adjustments with which it does not agree. The Company believes
its overall reserves are adequate, including those associated
with the adjustments alleged in the Notice of Deficiency. If the
IRS position in the Notice of Deficiency is sustained, the
Companys tax provision related to 2003 and later years
would materially increase. An examination of the United States
federal consolidated income tax returns of First Data that cover
the Companys 2005 and pre-spin-off 2006 taxable periods is
ongoing, as is an examination of the Companys United
States federal consolidated income tax returns for the 2006
post-spin-off period, 2007 and 2008. The Irish income tax
returns of certain subsidiaries for the years 2005 and forward
are eligible to be examined by the Irish tax authorities,
although no examinations have commenced.
In the first quarter of 2010, the Company made a
$250 million refundable tax deposit relating to potential
United States federal tax liabilities, including those arising
from the Companys 2003 international restructuring, which
have been previously accrued in the Companys financial
statements. The deposit was recorded as a reduction to
Income taxes payable in the Condensed Consolidated
Balance Sheets and a decrease in cash flows from operating
activities in the Condensed Consolidated Statement of Cash
Flows. Making the deposit limits the further accrual of interest
charges with respect to such potential tax liabilities, to the
extent of the deposit.
At June 30, 2010, no provision had been made for United
States federal and state income taxes on foreign earnings of
approximately $2.3 billion, which are expected to be
reinvested outside the United States indefinitely. Upon
distribution of those earnings to the United States in the form
of actual or constructive dividends, the Company would be
subject to United States income taxes (subject to an adjustment
for foreign tax credits), state income taxes and possible
withholding taxes payable to various foreign countries.
Determination of this amount of unrecognized deferred United
States tax liability is not practicable because of the
complexities associated with its hypothetical calculation.
Tax
Allocation Agreement with First Data
The Company and First Data each are liable for taxes imposed on
their respective businesses both prior to and after the
Spin-off. If such taxes have not been appropriately apportioned
between First Data and the Company, subsequent adjustments may
occur that may impact the Companys financial position or
results of operations.
25
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Also under the tax allocation agreement, with respect to taxes
and other liabilities that result from a final determination
that is inconsistent with the anticipated tax consequences of
the Spin-off (as set forth in the private letter ruling and
relevant tax opinion) (Spin-off Related Taxes), the
Company will be liable to First Data for any such Spin-off
Related Taxes attributable solely to actions taken by or with
respect to the Company. In addition, the Company will also be
liable for half of any Spin-off Related Taxes (i) that
would not have been imposed but for the existence of both an
action by the Company and an action by First Data or
(ii) where the Company and First Data each take actions
that, standing alone, would have resulted in the imposition of
such Spin-off Related Taxes. The Company may be similarly liable
if it breaches certain representations or covenants set forth in
the tax allocation agreement. If the Company is required to
indemnify First Data for taxes incurred as a result of the
Spin-off being taxable to First Data, it likely would have a
material adverse effect on the Companys business,
financial position and results of operations. First Data
generally will be liable for all Spin-off Related Taxes, other
than those described above.
|
|
15.
|
Stock
Compensation Plans
|
For the three and six months ended June 30, 2010, the
Company recognized stock-based compensation expense of
$10.2 million and $20.6 million, respectively,
resulting from stock options, restricted stock awards,
restricted stock units and deferred stock units in the Condensed
Consolidated Statements of Income. For the three and six months
ended June 30, 2009, the Company recognized stock-based
compensation expense of $7.8 million and
$16.2 million, respectively. During the first half of 2010,
the Company granted 3.9 million options at a
weighted-average exercise price of $16.06 and 1.4 million
restricted stock units at a weighted-average grant date fair
value of $15.62. During the first half of 2010, the Company had
stock option and restricted stock cancellations and forfeitures
of 2.8 million and 0.6 million, respectively, mainly
due to restructuring activities.
As of June 30, 2010, the Company had 43.1 million
outstanding options at a weighted-average exercise price of
$18.61, and had 35.0 million options exercisable at a
weighted-average exercise price of $19.10. Approximately 37% of
the outstanding options at June 30, 2010 were held by
employees of First Data. The Company had 2.9 million
non-vested restricted stock awards and units at a
weighted-average grant-date fair value of $15.23 as of
June 30, 2010.
The Company used the following assumptions for the Black-Scholes
option pricing model to determine the value of Western Union
options granted in the six months ended June 30, 2010:
|
|
|
|
|
Stock options granted:
|
|
|
|
|
Weighted-average risk-free interest rate
|
|
|
2.7
|
%
|
Weighted-average dividend yield
|
|
|
1.3
|
%
|
Volatility
|
|
|
34.0
|
%
|
Expected term (in years)
|
|
|
5.7
|
|
Weighted-average grant date fair value
|
|
$
|
5.09
|
|
All assumptions used to calculate the fair value of Western
Unions stock options granted during the six months ended
June 30, 2010 were determined on a consistent basis with
those assumptions disclosed in the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2009.
As previously described in Note 1, the Company classifies
its businesses into two reportable segments:
consumer-to-consumer
and global business payments. Operating segments are defined as
components of an enterprise that engage in business activities,
about which separate financial information is available that is
26
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
evaluated regularly by the Companys CODM in deciding where
to allocate resources and in assessing performance.
The
consumer-to-consumer
reporting segment is viewed as one global network where a money
transfer can be sent from one location to another, around the
world. The segment consists of three regions, which primarily
coordinate agent network management and marketing activities.
The CODM makes decisions regarding resource allocation and
monitors performance based on specific corridors within and
across these regions, but also reviews total revenue and
operating profit of each region. These regions frequently
interact on transactions with consumers and share processes,
systems and licenses, thereby constituting one global
consumer-to-consumer
money transfer network. The regions and corridors generally
offer the same services distributed by the same agent network,
have the same types of customers, are subject to similar
regulatory requirements, are processed on the same system and
have similar economic characteristics, allowing the geographic
regions to be aggregated into one reporting segment.
The global business payments segment processes payments from
consumers or businesses to other businesses. The results of the
Companys existing
consumer-to-business
operations as well as the acquired Custom House business have
been combined in this segment as both are focused on
facilitating payments. For further information on Custom House,
see Note 4.
All businesses that have not been classified into
consumer-to-consumer
or global business payments are reported as Other.
These businesses primarily include the Companys money
order services businesses.
During both the three and six months ended June 30, 2010,
the Company incurred expenses of $34.5 million for
restructuring and related activities, which were not allocated
to segments. While these items were identifiable to the
Companys segments, they were not included in the
measurement of segment operating profit provided to the CODM for
purposes of assessing segment performance and decision making
with respect to resource allocation. For additional information
on restructuring and related activities refer to Note 3.
27
THE
WESTERN UNION COMPANY
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The following table presents the Companys reportable
segment results for the three and six months ended June 30,
2010 and 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-to-consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
$
|
843.0
|
|
|
$
|
835.6
|
|
|
$
|
1,650.0
|
|
|
$
|
1,621.2
|
|
Foreign exchange revenues
|
|
|
220.0
|
|
|
|
216.5
|
|
|
|
431.9
|
|
|
|
420.8
|
|
Other revenues
|
|
|
10.1
|
|
|
|
13.4
|
|
|
|
21.4
|
|
|
|
27.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,073.1
|
|
|
|
1,065.5
|
|
|
|
2,103.3
|
|
|
|
2,069.2
|
|
Global business payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
|
142.4
|
|
|
|
154.2
|
|
|
|
290.4
|
|
|
|
317.2
|
|
Foreign exchange revenues
|
|
|
29.3
|
|
|
|
0.7
|
|
|
|
55.5
|
|
|
|
1.5
|
|
Other revenues
|
|
|
7.6
|
|
|
|
9.5
|
|
|
|
15.2
|
|
|
|
19.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179.3
|
|
|
|
164.4
|
|
|
|
361.1
|
|
|
|
338.6
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
|
10.1
|
|
|
|
10.1
|
|
|
|
20.8
|
|
|
|
20.0
|
|
Commission and other revenues
|
|
|
10.9
|
|
|
|
14.3
|
|
|
|
20.9
|
|
|
|
27.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.0
|
|
|
|
24.4
|
|
|
|
41.7
|
|
|
|
47.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
1,273.4
|
|
|
$
|
1,254.3
|
|
|
$
|
2,506.1
|
|
|
$
|
2,455.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-to-consumer
|
|
$
|
312.4
|
|
|
$
|
293.6
|
|
|
$
|
595.1
|
|
|
$
|
580.3
|
|
Global business payments
|
|
|
33.8
|
|
|
|
44.1
|
|
|
|
71.4
|
|
|
|
94.6
|
|
Other
|
|
|
(0.7
|
)
|
|
|
4.0
|
|
|
|
(5.2
|
)
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
345.5
|
|
|
|
341.7
|
|
|
|
661.3
|
|
|
|
682.6
|
|
Restructuring and related expenses
|
|
|
(34.5
|
)
|
|
|
|
|
|
|
(34.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated operating income
|
|
$
|
311.0
|
|
|
$
|
341.7
|
|
|
$
|
626.8
|
|
|
$
|
682.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
THE
WESTERN UNION COMPANY
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
Item 2.
This report on
Form 10-Q
contains certain statements that are forward-looking within the
meaning of the Private Securities Litigation Reform Act of 1995.
These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are
difficult to predict. Actual outcomes and results may differ
materially from those expressed in, or implied by, our
forward-looking statements. Words such as expects,
intends, anticipates,
believes, estimates, guides,
provides guidance, provides outlook and
other similar expressions or future or conditional verbs such as
will, should, would and
could are intended to identify such forward-looking
statements. Readers of the
Form 10-Q
of The Western Union Company (the company,
Western Union, we, our or
us) should not rely solely on the forward-looking
statements and should consider all uncertainties and risks
discussed in the Risk Factors section and throughout
the Annual Report on
Form 10-K
for the year ended December 31, 2009. The statements are
only as of the date they are made, and the company undertakes no
obligation to update any forward-looking statement.
Possible events or factors that could cause results or
performance to differ materially from those expressed in our
forward-looking statements include the following: changes in
immigration laws, patterns and other factors related to
migrants; our ability to adapt technology in response to
changing industry and consumer needs or trends; our failure to
develop and introduce new products, services and enhancements,
and gain market acceptance of such products; the failure by us,
our agents or subagents to comply with our business and
technology standards and contract requirements or applicable
laws and regulations, especially laws designed to prevent money
laundering and terrorist financing,
and/or
changing regulatory or enforcement interpretations of those
laws; failure to comply with the settlement agreement with the
State of Arizona; the impact on our business of the Dodd-Frank
Wall Street Reform and Consumer Protection Act and the rules
promulgated there-under; changes in United States or foreign
laws, rules and regulations including the Internal Revenue Code
of 1986, as amended, and governmental or judicial
interpretations thereof; changes in general economic conditions
and economic conditions in the regions and industries in which
we operate; adverse movements and volatility in capital markets
and other events which affect our liquidity, the liquidity of
our agents or clients, or the value of, or our ability to
recover our investments or amounts payable to us; political
conditions and related actions in the United States and abroad
which may adversely affect our businesses and economic
conditions as a whole; interruptions of United States government
relations with countries in which we have or are implementing
material agent contracts; our ability to resolve tax matters
with the Internal Revenue Service and other tax authorities
consistent with our reserves; mergers, acquisitions and
integration of acquired businesses and technologies into our
company, and the realization of anticipated financial benefits
from these acquisitions; changes in, and failure to manage
effectively exposure to, foreign exchange rates, including the
impact of the regulation of foreign exchange spreads on money
transfers and payment transactions; failure to maintain
sufficient amounts or types of regulatory capital to meet the
changing requirements of our regulators worldwide; our ability
to maintain our agent network and business relationships under
terms consistent with or more advantageous to us than those
currently in place; failure to implement agent contracts
according to schedule; deterioration in consumers and
clients confidence in our business, or in money transfer
providers generally; failure to manage credit and fraud risks
presented by our agents, clients and consumers or
non-performance by our banks, lenders, other financial services
providers or insurers; any material breach of security of or
interruptions in any of our systems; adverse rating actions by
credit rating agencies; liabilities and unanticipated
developments resulting from litigation and regulatory
investigations and similar matters, including costs, expenses,
settlements and judgments; failure to compete effectively in the
money transfer industry with respect to global and niche or
corridor money transfer providers, banks and other money
transfer services providers, including telecommunications
providers, card associations, card-based payment providers and
electronic and internet providers; our ability to protect our
brands and our other intellectual property rights; our failure
to manage the potential both for patent
29
protection and patent liability in the context of a rapidly
developing legal framework for intellectual property protection;
cessation of various services provided to us by third-party
vendors; changes in industry standards affecting our business;
changes in accounting standards, rules and interpretations; our
ability to attract and retain qualified key employees and to
manage our workforce successfully; significantly slower growth
or declines in the money transfer market and other markets in
which we operate; adverse consequences from our spin-off from
First Data Corporation (First Data); decisions to
downsize, sell or close units, or to transition operating
activities from one location to another or to third parties,
particularly transitions from the United States to other
countries; decisions to change our business mix; catastrophic
events; and managements ability to identify and manage
these and other risks.
Overview
We are a leading provider of money transfer services, operating
in two business segments:
|
|
|
|
|
Consumer-to-consumer
money transfer services, provided primarily through a global
network of third-party agents using our multi-currency,
real-time money transfer processing systems. This service is
available for international cross-border transfersthat is,
the transfer of funds from one country to anotherand, in
certain countries, intra-country transfersthat is, money
transfers from one location to another in the same country.
|
|
|
|
Global business payments, which allows for the processing of
payments from consumers or businesses to other businesses. Our
business payments services allow consumers to make payments to a
variety of organizations, including utilities, auto finance
companies, mortgage servicers, financial service providers,
government agencies and other businesses. We also provide
international
business-to-business
payment services which facilitate cross-border, cross-currency
payment transactions. On September 1, 2009, we acquired
Canada-based Custom House, Ltd. (Custom House), a
provider of international
business-to-business
payment services, which is included in this segment. Custom
House facilitates cross-border, cross-currency payment
transactions. While we continue to pursue further international
expansion of our offerings in this segment, the majority of the
segments revenue was generated in the United States during
all periods presented.
|
Businesses not considered part of the segments described above
are categorized as Other and represented 2% or less
of consolidated revenue for all periods presented.
Significant
Financial and Other Highlights
Significant financial and other highlights for the three and six
months ended June 30, 2010 included:
|
|
|
|
|
We generated $1,273.4 million and $2,506.1 million,
respectively, in total consolidated revenues compared to
$1,254.3 million and $2,455.5 million, respectively,
for the comparable periods in the prior year, representing an
increase of 2% in both periods. The acquisition of Custom House
contributed $28.5 million and $54.1 million to revenue
for the three and six months ended June 30, 2010,
respectively.
|
|
|
|
We incurred $34.5 million of restructuring and related
expenses, as described within Operating expenses
overview, and estimate we will incur a total of
approximately $80 million of restructuring and related
expenses through 2011 related to the announced actions. No
restructuring and related expenses were recognized in the
corresponding periods in 2009.
|
|
|
|
We generated $311.0 million and $626.8 million in
consolidated operating income, respectively, compared to
$341.7 million and $682.6 million, respectively, for
the comparable periods in the prior year, representing a
decrease of 9% and 8%, respectively. The current year results
include $34.5 million of restructuring and related expenses
mentioned above.
|
|
|
|
Our operating income margin was 24% and 25%, respectively,
compared to 27% and 28%, respectively, for the comparable
periods in the prior year. The current year results include
$34.5 million of restructuring and related expenses
mentioned above.
|
30
|
|
|
|
|
Consolidated net income was $221.0 million and
$428.9 million, respectively, representing flat net income
and a decrease of 3% over the comparable periods in the prior
year, respectively. The current year results include
$22.4 million in restructuring and related expenses, net of
tax.
|
|
|
|
Our consumers transferred $18 billion and $36 billion
in
consumer-to-consumer
principal, respectively, of which $17 billion and
$33 billion related to cross-border principal, which
represented increases of 7% in
consumer-to-consumer
principal and 6% in cross-border principal over both of the
comparable periods in the prior year.
|
|
|
|
Consolidated cash flows provided by operating activities for the
six months ended June 30, 2010 were $326.1 million and
were impacted by a $250 million refundable tax deposit we
made relating to potential United States federal tax
liabilities, including those arising from our 2003 international
restructuring, which have been previously accrued in our
financial statements. Also impacting consolidated cash flows
provided by operating activities were cash payments of
$41.0 million related to the multi-state agreement and
settlement.
|
|
|
|
We issued $250 million of aggregate principal amount of our
6.200% notes due 2040 (2040 Notes) during the
three months ended June 30, 2010.
|
|
|
|
We exchanged $303.7 million of aggregate principal amount
of our 5.400% notes due 2011 (2011 Notes) for
$324.9 million aggregate principal amount of 5.253%
(effective rate of 5.7%) notes due 2020 (2020 Notes)
during the six months ended June 30, 2010.
|
Consolidation
of Variable Interest Entities
On January 1, 2010, we adopted new accounting standards for
the consolidation of variable interest entities. These new
accounting standards amend the evaluation criteria to determine
whether an enterprise has a controlling financial interest in a
variable interest entity. This determination identifies the
primary beneficiary of a variable interest entity as the
enterprise that has both the power to direct the activities of a
variable interest entity that most significantly impacts the
entitys economic performance and the ability to absorb
losses or the right to receive benefits of the entity that could
potentially be significant to the variable interest entity. The
new guidance also requires an ongoing reassessment of the
primary beneficiary. Adoption of these new requirements did not
have an impact on our consolidated financial position, results
of operations or cash flows.
Results
of Operations
The following discussion of our consolidated results of
operations and segment results refers to the three and six
months ended June 30, 2010 compared to the same periods in
2009. The results of operations should be read in conjunction
with the discussion of our segment results of operations, which
provide more detailed discussions concerning certain components
of the condensed consolidated statements of income. All
significant intercompany accounts and transactions have been
eliminated.
We incurred expenses of $34.5 million for the three and six
months ended June 30, 2010 for restructuring and related
activities, which have not been allocated to segments. No
restructuring and related expenses were recognized in the
corresponding periods in 2009. While these items are
identifiable to our segments, they are not included in the
measurement of segment operating profit provided to the chief
operating decision maker (CODM) for purposes of
assessing segment performance and decision making with respect
to resource allocation. For additional information on
restructuring and related activities refer to Operating
expenses overview.
31
Overview
The following table sets forth our results of operations for the
three and six months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(in millions, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
$
|
995.5
|
|
|
$
|
999.9
|
|
|
|
|
%
|
|
$
|
1,961.2
|
|
|
$
|
1,958.4
|
|
|
|
|
%
|
Foreign exchange revenues
|
|
|
249.3
|
|
|
|
217.2
|
|
|
|
15
|
%
|
|
|
487.4
|
|
|
|
422.3
|
|
|
|
15
|
%
|
Commission and other revenues
|
|
|
28.6
|
|
|
|
37.2
|
|
|
|
(23
|
)%
|
|
|
57.5
|
|
|
|
74.8
|
|
|
|
(23
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,273.4
|
|
|
|
1,254.3
|
|
|
|
2
|
%
|
|
|
2,506.1
|
|
|
|
2,455.5
|
|
|
|
2
|
%
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
727.7
|
|
|
|
700.3
|
|
|
|
4
|
%
|
|
|
1,442.3
|
|
|
|
1,369.4
|
|
|
|
5
|
%
|
Selling, general and administrative
|
|
|
234.7
|
|
|
|
212.3
|
|
|
|
11
|
%
|
|
|
437.0
|
|
|
|
403.5
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
962.4
|
|
|
|
912.6
|
|
|
|
5
|
%
|
|
|
1,879.3
|
|
|
|
1,772.9
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
311.0
|
|
|
|
341.7
|
|
|
|
(9
|
)%
|
|
|
626.8
|
|
|
|
682.6
|
|
|
|
(8
|
)%
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
0.5
|
|
|
|
2.8
|
|
|
|
(82
|
)%
|
|
|
1.4
|
|
|
|
6.5
|
|
|
|
(78
|
)%
|
Interest expense
|
|
|
(41.1
|
)
|
|
|
(39.8
|
)
|
|
|
3
|
%
|
|
|
(79.9
|
)
|
|
|
(79.8
|
)
|
|
|
|
%
|
Derivative gains/(losses), net
|
|
|
0.7
|
|
|
|
0.8
|
|
|
|
|
*
|
|
|
(0.2
|
)
|
|
|
(2.8
|
)
|
|
|
|
*
|
Other income/(expense), net
|
|
|
1.2
|
|
|
|
(9.8
|
)
|
|
|
|
*
|
|
|
0.2
|
|
|
|
(5.6
|
)
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(38.7
|
)
|
|
|
(46.0
|
)
|
|
|
(16
|
)%
|
|
|
(78.5
|
)
|
|
|
(81.7
|
)
|
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
272.3
|
|
|
|
295.7
|
|
|
|
(8
|
)%
|
|
|
548.3
|
|
|
|
600.9
|
|
|
|
(9
|
)%
|
Provision for income taxes
|
|
|
51.3
|
|
|
|
75.5
|
|
|
|
(32
|
)%
|
|
|
119.4
|
|
|
|
156.8
|
|
|
|
(24
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
221.0
|
|
|
$
|
220.2
|
|
|
|
|
%
|
|
$
|
428.9
|
|
|
$
|
444.1
|
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
|
|
6
|
%
|
|
$
|
0.63
|
|
|
$
|
0.63
|
|
|
|
|
%
|
Diluted
|
|
$
|
0.33
|
|
|
$
|
0.31
|
|
|
|
6
|
%
|
|
$
|
0.63
|
|
|
$
|
0.63
|
|
|
|
|
%
|
Weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
669.3
|
|
|
|
700.6
|
|
|
|
|
|
|
|
675.6
|
|
|
|
703.8
|
|
|
|
|
|
Diluted
|
|
|
671.6
|
|
|
|
702.7
|
|
|
|
|
|
|
|
677.9
|
|
|
|
705.2
|
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful |
Revenues
Overview
The majority of transaction fees and foreign exchange revenues
were contributed by our
consumer-to-consumer
segment, which is discussed in greater detail in Segment
Discussion.
For the three months ended June 30, 2010 compared to the
corresponding period in the prior year, consolidated revenue
increased 2% due to
consumer-to-consumer
transaction growth and the acquisition of Custom House, which
contributed $28.5 million to revenue. Offsetting these
factors were price decreases, primarily related to pricing
reductions taken in the domestic business (transactions between
and within the United States and Canada) in the fourth quarter
of 2009, declines in our United States bill payments businesses,
geographic mix and product mix, including a higher percentage of
revenue earned from
32
intra-country
activity, which has a lower revenue per transaction. The
strengthening of the United States dollar compared to most other
foreign currencies also negatively impacted revenue growth by
approximately 1%.
For the six months ended June 30, 2010 compared to the
corresponding period in the prior year, consolidated revenues
increased 2% due to
consumer-to-consumer
transaction growth and the acquisition of Custom House, which
contributed $54.1 million to revenue. Negatively impacting
revenue were price decreases, primarily related to pricing
reductions previously discussed, declines in our United States
bill payments businesses and geographic mix and product mix,
including a higher percentage of revenue earned from
intra-country activity.
The Europe, Middle East, Africa and South Asia
(EMEASA) region of our
consumer-to-consumer
segment represented 44% of our total consolidated revenue for
both the three and six months ended June 30, 2010. For the
three months ended June 30, 2010 compared to the
corresponding period in the prior year, EMEASA experienced
slight revenue declines despite transaction growth mainly due to
the strengthening of the United States dollar in the region
compared to most other foreign currencies, which negatively
impacted revenue, and many of the same factors described above.
For the six months ended June 30, 2010 compared to the
corresponding period in the prior year, EMEASA experienced
revenue growth on transaction growth, offset by many of the same
factors described above.
The Americas region (including North America, Latin America, the
Caribbean and South America) of our
consumer-to-consumer
segment represented 32% of our total consolidated revenue for
both the three and six months ended June 30, 2010. For the
three months ended June 30, 2010, the Americas revenue
increased due to strong transaction growth, although the
increase was partially offset by the impact of pricing actions
taken in our domestic business in the fourth quarter of 2009.
For the six months ended June 30, 2010, revenue declined
despite transaction growth due to the pricing actions previously
described.
The global business payments segment, which is discussed in
greater detail in Segment Discussion, experienced
revenue growth during the three and six months ended
June 30, 2010 compared to the corresponding period in the
prior year due to our acquisition of Custom House, which
contributed $28.5 million and $54.1 million,
respectively, of revenue, which was partially offset by
continued declines in our United States bill payments businesses.
Foreign exchange revenues increased for the three and six months
ended June 30, 2010 over the corresponding previous periods
due to foreign exchange revenues contributed from our
acquisition of Custom House. In addition to the impact of Custom
House, foreign exchange revenues in the
consumer-to-consumer
segment also grew, driven primarily by revenue from the
international business outside of the United States.
Fluctuations in the exchange rate between the United States
dollar and currencies other than the United States dollar have
resulted in a reduction of transaction fees and foreign exchange
revenues for the three months ended June 30, 2010 of
$16.1 million over the same period in the previous year,
net of foreign currency hedges, that would not have occurred had
there been constant currency rates. The strengthening of the
United States dollar in the second quarter of 2010 offset most
of the revenue benefit of $20.0 million experienced in the
first quarter of 2010, resulting in a net benefit of
$3.9 million for the six months ended June 30, 2010.
The largest impact was related to the EMEASA region.
Operating
Expenses Overview
Restructuring
and related expenses
On May 25, 2010, our Board of Directors approved a
restructuring plan (the Restructuring Plan) designed
to reduce our overall headcount and migrate positions from
various facilities, primarily within the United States and
Europe, to regionalized operating centers upon completion of the
Restructuring Plan. In conjunction with this decision, we expect
to incur approximately $80 million, including expenses
related to the Restructuring Plan and the planned departure of
an executive announced in the second quarter of 2010. The
$80 million in expenses consists of approximately
$60 million for severance and employee related benefits,
approximately $10 million for facility closures, including
lease terminations; and approximately $10 million for other
expenses. Included in these estimated expenses are approximately
$2 million of non-cash expenses
33
related to fixed asset and leasehold improvement write-offs and
accelerated depreciation at impacted facilities. Subject to
complying with and undertaking the necessary individual and
collective employee information and consultation obligations as
may be required by local law for potentially affected employees,
we expect all of these activities to be completed by the end of
2011, with the significant majority of these expenses expected
to be incurred by the end of 2010. We expect the total
Restructuring Plan expenses of approximately $80 million to
generate expense savings of approximately $10 million in
2010, approximately $30 million to $40 million in
2011, and approximately $50 million a year beginning in
2012, following completion of the Restructuring Plan.
For both the three and six months ended June 30, 2010,
restructuring and related expenses of $9.4 million are
classified within cost of services and
$25.1 million are classified within selling, general
and administrative in the condensed consolidated
statements of income. No restructuring and related expenses were
recognized in the corresponding periods in 2009.
Cost of
services
Cost of services primarily consists of agent commissions, which
represent approximately 70% of total cost of services for both
the three and six months ended June 30, 2010, expenses for
call centers, settlement operations and related information
technology costs. Expenses within these functions include
personnel, software, equipment, telecommunications, bank fees,
depreciation, amortization and other expenses incurred in
connection with providing money transfer and other payment
services. Cost of services increased for the three months ended
June 30, 2010 compared to the corresponding period
primarily due to incremental costs associated with Custom House
and restructuring and related expenses of $9.4 million, as
described above, offset by the strengthening of the United
States dollar compared to most other foreign currencies, which
resulted in a positive impact on the translation of our
expenses. Also contributing to the increase in cost of services
for the three and six months compared to the corresponding
periods in 2009 were costs associated with our money order
business, which were partially offset by other operating
efficiencies. For the six months ended June 30, 2010, cost
of services increased compared to the corresponding period in
2009 primarily due to incremental costs associated with Custom
House, the weakening of the United States dollar compared to
most other foreign currencies, which resulted in a negative
impact on the translation of our expenses, restructuring and
related expenses and incremental operating costs, including
investments in technology. Cost of services as a percentage of
revenue was 57% and 58% for the three and six months ended
June 30, 2010, respectively, and 56% for the three and six
months ended June 30, 2009. The increase in cost of
services as a percentage of revenue for the three months ended
June 30, 2010 compared to the corresponding period in 2009
was primarily due to restructuring and related expenses, costs
associated with our money order business and currency impacts,
including the effect of foreign currency hedges, which were
partially offset by other operating efficiencies. For the six
months ended June 30, 2010, the increase in cost of
services as a percentage of revenue compared to the
corresponding period in 2009 was primarily due to incremental
operating costs, including costs associated with our money order
business and investments in technology, currency impacts,
including the effect of foreign currency hedges, and
restructuring and related expenses, which were partially offset
by other operating efficiencies.
Selling,
general and administrative
Selling, general and administrative expenses
(SG&A) increased for the three months ended
June 30, 2010 compared to the same period in the prior year
due to restructuring and related expenses of $25.1 million
and incremental costs associated with Custom House, which were
partially offset by lower marketing expenses. SG&A
increased for the six months ended June 30, 2010 compared
to the same period in the prior year due to incremental costs
associated with Custom House, restructuring and related expenses
and higher employee compensation expenses, which were partially
offset by lower marketing expenses.
During the six months ended June 30, 2010, marketing
related expenditures, principally classified within SG&A,
were slightly below 4% of revenue, with marketing expenses being
higher in the second quarter of 2010 compared to the first
quarter of 2010. Marketing related expenditures were slightly
below 5% of revenue for both the three and six months ended
June 30, 2009. Marketing related expenditures include
advertising,
34
events, loyalty programs and the cost of employees dedicated to
marketing activities. When making decisions with respect to
marketing investments, we review opportunities for advertising
and other marketing related expenditures together with
opportunities for fee adjustments, as discussed in Segment
Discussion, for
consumer-to-consumer
revenues and other initiatives in order to best maximize the
return on these investments.
Total
other expense, net
Total other expense, net decreased during both the three and six
months ended June 30, 2010 compared to the corresponding
periods in 2009 primarily due to the $12 million reserve
taken against our receivable from the Reserve International
Liquidity Fund during the three months ended June 30, 2009,
which did not recur in the current year, offset by a decrease in
interest income due to repayment of a note receivable due from
an agent. Financing costs incurred in connection with our note
exchange in the first quarter of 2010 also offset the decrease
in total other expense, net for the six months ended
June 30, 2010.
Income
taxes
Our effective tax rates on pre-tax income were 18.8% and 25.5%
for the three months ended June 30, 2010 and 2009,
respectively, and 21.8% and 26.1% for the six months ended
June 30, 2010 and 2009, respectively. During the three
months ended June 30, 2010, we continued to benefit from an
increasing proportion of profits being
foreign-derived,
and therefore, taxed at lower rates than our combined federal
and state tax rates in the United States. In addition, during
the second quarter of 2010 we recognized a benefit from the
settlement with the IRS of certain issues arising in the
2002-04 tax
years. Recent proposed changes to United States tax laws, if
enacted, could potentially adversely affect our future effective
tax rate. We are closely monitoring the proposed changes, and
the potential effect on our future effective tax rate will
depend on the final form of any new law.
We have established contingency reserves for material, known tax
exposures, including potential tax audit adjustments with
respect to our international operations restructured in 2003,
whereby our income from certain
foreign-to-foreign
money transfer transactions has been taxed at relatively low
foreign tax rates compared to our combined federal and state tax
rates in the United States. As of June 30, 2010, the total
amount of unrecognized tax benefits was $578.6 million,
including accrued interest and penalties. Our reserves reflect
our judgment as to the resolution of the issues involved if
subject to judicial review. While we believe that our reserves
are adequate to cover reasonably expected tax risks, there can
be no assurance that, in all instances, an issue raised by a tax
authority will be resolved at a financial cost that does not
exceed our related reserve. With respect to these reserves, our
income tax expense would include (i) any changes in tax
reserves arising from material changes during the period in
facts and circumstances (i.e. new information) surrounding a tax
issue and (ii) any difference from our tax position as
recorded in the financial statements and the final resolution of
a tax issue during the period. Such resolution could materially
increase or decrease income tax expense in our consolidated
financial statements in future periods and could impact our
operating cash flows.
The IRS completed its examination of the United States federal
consolidated income tax returns of First Data for 2003 and 2004,
of which we are a part, and issued a Notice of Deficiency in
December 2008. The Notice of Deficiency alleges significant
additional taxes, interest and penalties owed with respect to a
variety of adjustments involving us and our subsidiaries, and we
generally have responsibility for taxes associated with these
potential Western Union-related adjustments under the tax
allocation agreement with First Data executed at the time of the
spin-off. We agree with a number of the adjustments in the
Notice of Deficiency; however, we do not agree with the Notice
of Deficiency regarding several substantial adjustments
representing total alleged additional tax and penalties due of
approximately $114 million. As of June 30, 2010,
interest on the alleged amounts due for unagreed adjustments
would be approximately $33 million. A substantial part of
the alleged amounts due for these unagreed adjustments relates
to our international restructuring, which took effect in the
fourth quarter 2003, and, accordingly, the alleged amounts due
related to such restructuring largely are attributable to 2004.
On March 20, 2009, we filed a petition in the United States
Tax Court contesting those adjustments with which we do not
agree. We believe our overall reserves are adequate, including
those associated with adjustments alleged in the Notice of
Deficiency. If the IRS position in the
35
Notice of Deficiency is sustained, our tax provision related to
2003 and later years would materially increase, which could
materially impact our financial position, results of operations
and cash flows.
In 2010, we made a $250 million refundable tax deposit
relating to potential United States federal tax liabilities,
including those arising from our 2003 international
restructuring, which have been previously accrued in our
financial statements. Making the deposit limits the further
accrual of interest charges with respect to such potential tax
liabilities, to the extent of the deposit.
Earnings
per share
During the three months ended June 30, 2010 and 2009, basic
and diluted earnings per share were $0.33 and $0.31,
respectively. During both the six months ended June 30,
2010 and 2009, basic and diluted earnings per share were $0.63.
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. For the three months ended June 30, 2010
and 2009, there were 36.8 million and 38.0 million,
respectively, of outstanding options to purchase shares of
Western Union stock excluded from the diluted earnings per share
calculation under the treasury stock method as their effect was
anti-dilutive. For the six months ended June 30, 2010 and
2009, there were 36.2 million and 41.5 million,
respectively, of outstanding options to purchase shares of
Western Union stock excluded from the diluted earnings per share
calculation under the treasury stock method as their effect was
anti-dilutive.
Earnings per share increased and was flat for the three and six
months ended June 30, 2010, respectively, compared to the
same periods in the prior year as a result of the previously
described factors impacting net income, offset by lower
weighted-average shares outstanding. The lower number of shares
outstanding was driven by stock repurchases exceeding stock
option exercises from January 1, 2009 through June 30,
2010.
Segment
Discussion
We manage our business around the consumers and businesses we
serve and the types of services we offer. Each of our two
segments addresses a different combination of consumer groups,
distribution networks and services offered. Our segments are
consumer-to-consumer
and global business payments. Businesses not considered part of
these segments are categorized as Other.
We incurred expenses of $34.5 million for restructuring and
related activities during both the three and six months ended
June 30, 2010, respectively, which were not allocated to
segments. No restructuring and related expenses were recognized
in the corresponding periods in 2009. While these items were
identifiable to our segments, they were not included in the
measurement of segment operating profit provided to the CODM for
purposes of assessing segment performance and decision making
with respect to resource allocation. For additional information
on restructuring and related activities refer to Operating
expenses overview.
The following table sets forth the components of segment
revenues as a percentage of the consolidated totals for the
three and six months ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Consumer-to-consumer
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEASA
|
|
|
44
|
%
|
|
|
45
|
%
|
|
|
44
|
%
|
|
|
44
|
%
|
Americas
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
32
|
%
|
|
|
32
|
%
|
APAC
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consumer-to-consumer
|
|
|
84
|
%
|
|
|
85
|
%
|
|
|
84
|
%
|
|
|
84
|
%
|
Global business payments
|
|
|
14
|
%
|
|
|
13
|
%
|
|
|
14
|
%
|
|
|
14
|
%
|
Other
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
(a) |
|
The geographic split is determined based upon the region where
the money transfer is initiated and the region where the money
transfer is paid. For transactions originated and paid in
different regions, we split the revenue between the two regions,
with each region receiving 50%. For money transfers initiated
and paid in the same region, 100% of the revenue is attributed
to that region. |
Consumer-to-Consumer
Segment
The following table sets forth our
consumer-to-consumer
segment results of operations for the three and six months ended
June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(dollars and transactions in millions)
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
$
|
843.0
|
|
|
$
|
835.6
|
|
|
|
1
|
%
|
|
$
|
1,650.0
|
|
|
$
|
1,621.2
|
|
|
|
2
|
%
|
Foreign exchange revenues
|
|
|
220.0
|
|
|
|
216.5
|
|
|
|
2
|
%
|
|
|
431.9
|
|
|
|
420.8
|
|
|
|
3
|
%
|
Other revenues
|
|
|
10.1
|
|
|
|
13.4
|
|
|
|
(25
|
)%
|
|
|
21.4
|
|
|
|
27.2
|
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,073.1
|
|
|
$
|
1,065.5
|
|
|
|
1
|
%
|
|
$
|
2,103.3
|
|
|
$
|
2,069.2
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
312.4
|
|
|
$
|
293.6
|
|
|
|
6
|
%
|
|
$
|
595.1
|
|
|
$
|
580.3
|
|
|
|
3
|
%
|
Operating income margin
|
|
|
29
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
|
|
Key indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer-to-consumer
transactions
|
|
|
53.1
|
|
|
|
48.7
|
|
|
|
9
|
%
|
|
|
102.7
|
|
|
|
94.6
|
|
|
|
9
|
%
|
The table below sets forth transaction and revenue
growth/(decline) rates by region for the three and six months
ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2010
|
|
|
Consumer-to-consumer
transaction growth (a)
|
|
|
|
|
|
|
|
|
EMEASA
|
|
|
5
|
%
|
|
|
6
|
%
|
Americas
|
|
|
12
|
%
|
|
|
10
|
%
|
APAC
|
|
|
14
|
%
|
|
|
14
|
%
|
Consumer-to-consumer
revenue growth/(decline) (a)
|
|
|
|
|
|
|
|
|
EMEASA
|
|
|
(1
|
)%
|
|
|
2
|
%
|
Americas
|
|
|
1
|
%
|
|
|
(1
|
)%
|
APAC
|
|
|
11
|
%
|
|
|
12
|
%
|
|
|
|
(a) |
|
In determining the revenue and transaction growth rates under
the regional view in the above table, the geographic split is
determined based upon the region where the money transfer is
initiated and the region where the money transfer is paid. For
transactions originated and paid in different regions, we split
the transaction count and revenue between the two regions, with
each region receiving 50%. For money transfers initiated and
paid in the same region, 100% of the revenue and transactions
are attributed to that region. |
When referring to revenue and transaction growth rates for
individual countries in the following discussion, all
transactions to, from and within those countries, and 100% of
the revenue associated with each transaction to, from and within
those countries are included. The countries of India and China
combined represented approximately 7% of consolidated Western
Union revenues during both the three and six months ended
June 30, 2010 and 2009. No individual country, other than
the United States, represented more than approximately 6% of our
consolidated revenues during both of the three and six month
periods ended June 30, 2010 and 2009.
37
Transaction
fees and foreign exchange revenues
For the three months ended June 30, 2010 compared to the
corresponding period in the prior year,
consumer-to-consumer
money transfer revenue grew 1% primarily due to transaction
growth of 9%. Revenue growth was offset by price decreases,
primarily related to pricing reductions taken in the domestic
business in the fourth quarter of 2009, geographic mix and
product mix, including a higher percentage of revenue earned
from intra-country activity. The strengthening of the United
States dollar compared to most other foreign currencies also
negatively impacted revenue growth by approximately 1%.
For the six months ended June 30, 2010 compared to the
corresponding period in the prior year,
consumer-to-consumer
money transfer revenue grew 2% primarily due to transaction
growth of 9%. This growth was offset by price decreases,
primarily related to pricing reductions taken in the domestic
business in the fourth quarter of 2009, and geographic mix and
product mix, including a higher percentage of revenue earned
from intra-country activity. Our international
consumer-to-consumer
business experienced revenue growth of 2% and 4%, respectively,
on transaction growth of 7% and 8%, respectively, for the three
and six months ended June 30, 2010. Our international
business represents all transactions other than transactions
between and within the United States and Canada and transactions
to and from Mexico. Our international
consumer-to-consumer
business outside of the United States also experienced revenue
growth on transaction increases for the three and six months
ended June 30, 2010.
Revenue in our EMEASA region decreased 1% during the three
months ended June 30, 2010 compared to the corresponding
period in the prior year on transaction growth of 5%, and was
negatively impacted by the strengthening of the United States
dollar compared to most other foreign currencies in the region
and many of the same factors described above. For the six months
ended June 30, 2010 compared to the corresponding period in
the prior year, EMEASA revenue increased 2% on transaction
growth of 6%, and was also negatively impacted by many of the
same factors described above.
During the three and six months ended June 30, 2010,
revenue and transactions in the Gulf States declined moderately
compared to the same periods in 2009. Our money transfer
business to India continued to grow for the three and six months
ended June 30, 2010 versus the same periods in 2009 with
transaction growth of 3% and 5%, respectively, and revenue
growth of 4% and 5%, respectively. However, this growth has
continued to slow compared to the fourth quarter of 2009 due
primarily to fewer send transactions from the Gulf States.
Americas revenue increased 1% due to transaction growth of 12%
for the three months ended June 30, 2010 compared to the
same period in 2009, but transaction growth was offset by
pricing actions taken in the domestic business in the fourth
quarter of 2009. For the six months ended June 30, 2010
compared to the same period in 2009, revenue declined despite
transaction growth also due to the pricing actions taken in the
fourth quarter of 2009. Our domestic business experienced
revenue declines of 10% and 12% on transaction growth of 28% and
23% for the three and six months ended June 30, 2010,
respectively, due to the same factors. Our United States
outbound business experienced both transaction and revenue
growth in the three and six months ended June 30, 2010. Our
Mexico business contributed to revenue growth in the Americas
region during the three months ended June 30, 2010 with
revenue and transaction growth of 4% and 5%, respectively. For
the six months ended June 30, 2010, Mexico revenue declined
1% on transaction growth of 1%.
APAC revenue increased 11% and 12% for the three and six months
ended June 30, 2010, respectively, compared to the same
periods in 2009 due to transaction growth of 14% in both periods
and the weakening of the United States dollar compared to most
other foreign currencies in the region, which positively
impacted revenue. Chinas revenue increased 11% and 16% on
transaction growth of 6% and 7% for the three and six months
ended June 30, 2010, respectively.
Foreign exchange revenues for the three and six months ended
June 30, 2010 grew compared to the same periods in 2009,
primarily driven by revenue from our international
consumer-to-consumer
business outside of the United States.
Fluctuations in the exchange rate between the United States
dollar and currencies other than the United States dollar have
resulted in a reduction to transaction fees and foreign exchange
revenues for the three
38
months ended June 30, 2010 of $15.0 million over the
same period in the previous year, net of foreign currency
hedges, that would not have occurred had there been constant
currency rates. The overall strengthening of the United States
dollar in the second quarter of 2010 partially offset the
revenue benefit of $21.9 million experienced in the first
quarter of 2010, resulting in a smaller net benefit of
$6.9 million for the six months ended June 30, 2010.
The largest impact was related to the EMEASA region.
We have historically implemented and will likely implement
future strategic fee reductions and actions to reduce foreign
exchange spreads, where appropriate, taking into account a
variety of factors. Fee decreases and foreign exchange actions
generally reduce margins, but are done in anticipation that they
will result in increased transaction volumes and increased
revenues over time. We anticipate that fee decreases and foreign
exchange actions will be approximately 4% of total Western Union
revenue for the full year 2010 compared to approximately 2% for
the full year 2009. For the full year 2010, approximately
two-thirds of these actions relate to pricing reductions taken
in the domestic business.
The majority of transaction growth is derived from more mature
agent locations; new agent locations typically contribute only
marginally to growth in the first few years of their operation.
Increased productivity, measured by transactions per location,
is often experienced as locations mature. We believe that new
agent locations will help drive growth by increasing the number
of locations available to send and receive money. We generally
refer to locations with more than 50% of transactions being
initiated (versus paid) as send locations and to the
balance of locations as receive locations. Send
locations are the engine that drives
consumer-to-consumer
revenue. They contribute more transactions per location than
receive locations. However, a wide network of receive locations
is necessary to build each corridor and to help ensure global
distribution and convenience for consumers. The number of send
and receive transactions at an agent location can vary
significantly due to such factors as customer demographics
around the location, migration patterns, the locations
class of trade, hours of operation, length of time the location
has been offering our services, regulatory limitations and
competition. Each of the approximately 430,000 agent locations
in our agent network is capable of providing one or more of our
services; however, not every location completes a transaction in
a given period. For example, as of June 30, 2010, more than
85% of agent locations in the United States, Canada and Western
Europe (representing at least one of our three money transfer
brands: Western
Union®,
Orlandi
Valuta®
and
Vigo(sm))
experienced money transfer activity in the previous
12 months. In the developing regions of Asia and other
areas where there are primarily receive locations, approximately
70% of locations experienced money transfer activity in the
previous 12 months. We periodically review locations to
determine whether they remain enabled to perform money transfer
transactions.
Operating
income
Consumer-to-consumer
operating income increased 6% during the three months ended
June 30, 2010 compared to the same period in 2009 due to
lower marketing expenses and operating efficiencies. The
increase in operating income of 3% during the six months ended
June 30, 2010 was impacted by the same factors described
above, but was also offset by incremental operating costs,
including investments in technology and higher employee
compensation expenses. Operating income for both the three and
six months ended June 30, 2010 was also negatively impacted
by currency, including the effect of foreign currency hedges.
The change in operating income margin for the three and six
months ended June 30, 2010 compared to the same periods in
the prior year was driven by these same factors.
39
Global
Business Payments Segment
The following table sets forth our global business payments
segment results of operations for the three and six months ended
June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(dollars and transactions in millions)
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction fees
|
|
$
|
142.4
|
|
|
$
|
154.2
|
|
|
|
(8
|
)%
|
|
$
|
290.4
|
|
|
$
|
317.2
|
|
|
|
(8
|
)%
|
Foreign exchange revenues
|
|
|
29.3
|
|
|
|
0.7
|
|
|
|
*
|
|
|
|
55.5
|
|
|
|
1.5
|
|
|
|
*
|
|
Other revenues
|
|
|
7.6
|
|
|
|
9.5
|
|
|
|
(20
|
)%
|
|
|
15.2
|
|
|
|
19.9
|
|
|
|
(24
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
179.3
|
|
|
$
|
164.4
|
|
|
|
9
|
%
|
|
$
|
361.1
|
|
|
$
|
338.6
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
33.8
|
|
|
$
|
44.1
|
|
|
|
(23
|
)%
|
|
$
|
71.4
|
|
|
$
|
94.6
|
|
|
|
(25
|
)%
|
Operating income margin
|
|
|
19
|
%
|
|
|
27
|
%
|
|
|
|
|
|
|
20
|
%
|
|
|
28
|
%
|
|
|
|
|
Key indicator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global business payments transactions
|
|
|
98.0
|
|
|
|
104.6
|
|
|
|
(6
|
)%
|
|
|
196.2
|
|
|
|
210.5
|
|
|
|
(7
|
)%
|
|
|
|
* |
|
Calculation not meaningful |
Revenues
During the three and six months ended June 30, 2010, global
business payments segment revenue was positively impacted by our
acquisition of Custom House, which contributed
$28.5 million and $54.1 million of revenue,
respectively, and growth in the Pago Fácil business.
Partially offsetting these increases were revenue declines in
our United States bill payments businesses as many United States
consumers who would use our services continue to have difficulty
paying their bills and continue to be unable to obtain credit in
any form, resulting in us handling fewer bill payments. The
ongoing trend away from cash based bill payments in the United
States and competitive pressures, which resulted in lower
volumes and a shift to lower revenue per transaction products,
also contributed to the revenue declines. Due to these factors,
we expect to see revenue declines in our United States
consumer-to-business
service offerings throughout the remainder of 2010.
The significant majority of Custom Houses revenue, which
is primarily included in foreign exchange revenues, is from
exchanges of currency at the spot rate enabling customers to
make cross-currency payments. Although the majority of the
segments revenues were generated in the United States for
the three and six months ended June 30, 2010, we expect the
proportion of international revenue, specifically foreign
exchange revenue, will grow in future periods as a percentage of
total revenue due to our acquisition of Custom House and the
continuing declines in the United States businesses.
The transaction declines during the three and six months ended
June 30, 2010 compared to the same periods in 2009 were
driven by declines in our United States bill payments businesses.
Operating
income
For the three and six months ended June 30, 2010, operating
income decreased compared to the same periods in the prior year
primarily due to declines related to the United States-based
bill payments business and investing and operating costs,
including amortization expense, associated with Custom House.
The decline in operating income margin in the segment is
primarily due to the increased costs associated with the
acquisition of Custom House and declines in our United States
bill payments businesses.
40
Other
The following table sets forth other results for the three and
six months ended June 30, 2010 and 2009.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
(dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
2010
|
|
|
2009
|
|
|
% Change
|
|
|
Revenues
|
|
$
|
21.0
|
|
|
$
|
24.4
|
|
|
|
(14
|
)%
|
|
$
|
41.7
|
|
|
$
|
47.7
|
|
|
|
(13
|
)%
|
Operating income
|
|
$
|
(0.7
|
)
|
|
$
|
4.0
|
|
|
|
*
|
|
|
$
|
(5.2
|
)
|
|
$
|
7.7
|
|
|
|
*
|
|
Operating income margin
|
|
|
*
|
|
|
|
16
|
%
|
|
|
|
|
|
|
*
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
* |
|
Calculation not meaningful |
Revenues
Revenue, generated primarily from our money order services
business, declined for the three and six months ended
June 30, 2010 compared to the same periods in the prior
year. We experienced a decrease in the amount of revenue
recognized related to our money order services business as we no
longer receive a fixed return of 5.5% from Integrated Payment
Systems Inc. (IPS), a subsidiary of First Data, on
outstanding money order balances as we did for the first half of
2009. We now derive investment income from actual interest
generated on our money order settlement assets, which are
primarily held in United States tax exempt state and municipal
securities, which generally have a lower rate of return than we
were receiving under our previous agreement with IPS. In 2008,
we entered into interest rate swaps on certain of our fixed rate
notes to reduce our exposure to fluctuations in interest rates.
Through a combination of the revenue generated from the new
investment securities and the anticipated interest expense
savings resulting from the interest rate swaps, we estimate that
we should be able to retain, a materially comparable after-tax
rate of return through 2011 as we had been receiving under the
agreement with IPS.
Operating
income
During the three and six months ended June 30, 2010, the
decrease in operating income was due to the decrease in revenue
from our money order services business as described above.
Promotional marketing activities related to our prepaid business
in the United States negatively impacted operating income for
the six months ended June 30, 2010, but was offset by the
elimination of costs incurred in 2009 associated with evaluating
and closing acquisitions, which did not recur in 2010.
Capital
Resources and Liquidity
Our primary source of liquidity has been cash generated from our
operating activities, driven primarily from net income and
fluctuations in working capital. Our working capital is affected
by the timing of interest payments on our outstanding
borrowings, timing of income tax payments, including our
refundable tax deposit described further in Cash Flows
from Operating Activities and collections on receivables,
among other items. The majority of our interest payments are due
in the second and fourth quarters which results in a decrease in
the amount of cash provided by operating activities in those
quarters, and a corresponding increase to the first and third
quarters.
Our future cash flows could be impacted by a variety of factors,
some of which are out of our control, including changes in
economic conditions, especially those impacting the migrant
population, and changes in income tax laws or the status of
income tax audits, including the resolution of outstanding tax
matters.
A significant portion of our cash flows from operating
activities has been generated from subsidiaries, some of which
are regulated entities. These subsidiaries may transfer all
excess cash to the parent company for general corporate use,
except for assets subject to legal or regulatory restrictions.
The assets subject to legal or regulatory restrictions include
those located in countries outside of the United States
containing restrictions from being transferred outside of those
countries and cash and investment balances that are maintained
by a regulated subsidiary to secure certain money transfer
obligations initiated in the United States
41
in accordance with applicable state regulations. Significant
changes in the regulatory environment for money transmitters
could impact our primary source of liquidity.
We believe we have adequate liquidity to meet our business
needs, including dividends and share repurchases, through our
existing cash balances and our ability to generate cash flows
through operations. In addition, we have capacity to borrow up
to $1.5 billion in the aggregate under our commercial paper
program and revolving credit facility, which were not drawn on
at June 30, 2010. The revolving credit facility expires in
September 2012.
Cash
and Investment Securities
As of June 30, 2010, we had cash and cash equivalents of
$1.7 billion, of which $890 million was held by our
foreign entities. Our ongoing cash management strategies to fund
our business needs could cause United States and foreign cash
balances to fluctuate.
Repatriating foreign funds to the United States would, in many
cases, result in significant tax obligations because most of
these funds have been taxed at relatively low foreign tax rates
compared to our combined federal and state tax rate in the
United States. We expect to use foreign funds to expand and fund
our international operations and to acquire businesses
internationally.
In 2008, we requested redemption of our shares in the Reserve
International Liquidity Fund, Ltd. (the Fund), a
money market fund, totaling $298.1 million. In 2009, we
received partial distributions totaling $255.5 million from
the Fund, of which $234.9 million was received in the first
half of 2009. For further information regarding this redemption
receivable, see Credit Risk in the Risk
Management section below.
In many cases, we receive funds from money transfers and certain
other payment services before we settle the payment of those
transactions. These funds, referred to as settlement
assets on our condensed consolidated balance sheets, are
not used to support our operations. However, we earn income from
investing these funds. We maintain a portion of these settlement
assets in highly liquid investments, classified as cash
and cash equivalents within settlement assets,
to fund settlement obligations.
Investment securities, included in settlement assets, were
$1.2 billion as of June 30, 2010. Substantially all of
these investments are state and municipal debt instruments. Most
state regulators in the United States require us to maintain
specific high-quality, investment grade securities and such
investments are intended to secure relevant outstanding
settlement obligations in accordance with applicable
regulations. We do not hold investment securities for trading
purposes, and all of our investment securities are classified as
available-for-sale
and recorded at fair value. Under the Payment Services Directive
in the European Union, we expect to have a similar portfolio of
investment securities, which we will manage in a similar manner
and under similar guidelines as our current portfolio.
Investment securities are exposed to market risk due to changes
in interest rates and credit risk. We regularly monitor credit
risk and attempt to mitigate our exposure by making high-quality
investments, including diversifying our investment portfolio. As
of June 30, 2010, the majority of our investment securities
had credit ratings of AA- or better from a major
credit rating agency. Our investment securities are also
actively managed with respect to concentration. As of
June 30, 2010, there were no investments with a single
issuer or individual securities representing more than 10% of
our investment securities portfolio.
Cash
Flows from Operating Activities
Cash provided by operating activities decreased to
$326.1 million during the six months ended June 30,
2010, from $606.3 million in the comparable period in the
prior year, primarily due to a $250.0 million refundable
tax deposit made relating to potential United States federal tax
liabilities, including those arising from our 2003 international
restructuring, which have been previously accrued in our
financial statements. Making the deposit limits the further
accrual of interest charges with respect to such potential tax
liabilities, to the extent of the deposit. Also impacting
consolidated cash flows provided by operating activities for the
six months ended June 30, 2010 were cash payments of
$41.0 million related to the multi-state agreement and
settlement.
42
Financing
Resources
On June 21, 2010, we issued $250.0 million of
aggregate principal amount of unsecured notes due June 21,
2040. Interest with respect to the 2040 Notes is payable
semiannually on June 21 and December 21 each year based on the
fixed per annum interest rate of 6.200%. The 2040 Notes contain
covenants that, among other things, limit or restrict our
ability and certain of our subsidiaries to grant certain types
of security interests or enter into sale and leaseback
transactions. We may redeem the 2040 Notes at any time prior to
maturity at the greater of par or a price based on the
applicable treasury rate plus 30 basis points.
On March 30, 2010, we exchanged $303.7 million of
aggregate principal amount of our 2011 Notes for unsecured notes
due April 1, 2020. Interest with respect to the 2020 Notes
is payable semiannually on April 1 and October 1 each year based
on the fixed per annum interest rate of 5.253%. In connection
with the exchange, note holders were given a 7% premium
($21.2 million), which approximated market value at the
exchange date, as additional principal. As this transaction was
accounted for as a debt modification, this premium was not
charged to expense. Rather, the premium, along with the
offsetting hedge accounting adjustments, will be accreted into
interest expense over the life of the notes. The 2020 Notes
contain covenants that, among other things, limit or restrict
the ability of certain of our subsidiaries to incur certain
indebtedness, and limit or restrict our ability and certain of
our subsidiaries to grant certain types of security interests or
enter into sale and leaseback transactions. We may redeem the
2020 Notes at any time prior to maturity at the greater of par
or a price based on the applicable treasury rate plus
15 basis points.
At June 30, 2010, we have outstanding borrowings at par
value of $3,277.2 million. The substantial majority of
these outstanding borrowings consist of unsecured fixed rate
notes with maturities ranging from 2011 to 2040, including our
2040 Notes issued to provide liquidity for general corporate
purposes, which may include the repayment of indebtedness, and
our 2020 Notes which were issued in March 2010 and exchanged for
a portion of our 2011 Notes, as discussed above. Our revolving
credit facility expires in September 2012 and includes a
$1.5 billion revolving credit facility, a
$250.0 million letter of credit
sub-facility
and a $150.0 million swing line
sub-facility
(the Revolving Credit Facility). The Revolving
Credit Facility, which is diversified through a group of 15
participating institutions, is used to provide general liquidity
for us and to support borrowings under our commercial paper
program, which we believe enhances our short term credit rating.
The largest commitment from any single financial institution
within the total committed balance of $1.5 billion was
approximately 20%. The substantial majority of the banks within
this group had credit ratings of A− or better
from a major credit rating agency as of June 30, 2010. As
of June 30, 2010, there were no borrowings outstanding
under the revolving credit facility.
Pursuant to our commercial paper program, we may issue unsecured
commercial paper notes in an amount not to exceed
$1.5 billion outstanding at any time, reduced to the extent
of borrowings outstanding on our revolving credit facility. Our
commercial paper borrowings may have maturities of up to
397 days from date of issuance. Interest rates for
borrowings are based on market rates at the time of issuance. We
had no commercial paper borrowings outstanding at June 30,
2010.
Cash
Priorities
Liquidity
Our objective is to maintain strong liquidity and a capital
structure consistent with our current credit ratings. We have
existing cash balances, cash flows from operating activities,
access to the commercial paper markets and our $1.5 billion
revolving credit facility available to support the needs of our
business.
Capital
Expenditures
The total aggregate amount paid for contract costs, purchases of
property and equipment, and purchased and developed software was
$43.6 million and $39.9 million for the six months
ended June 30, 2010 and 2009, respectively. Amounts paid
for new and renewed agent contracts vary depending on the terms
of existing contracts as well as the timing of new and renewed
contract signings. Other capital expenditures
43
during these periods included investments in our information
technology infrastructure and purchased and developed software.
Acquisition
of Businesses
On September 1, 2009, we acquired Canada-based Custom
House, a provider of international
business-to-business
payment services, for cash consideration of $371.0 million
for all of the common shares of this business and acquired cash
of $2.5 million.
On February 24, 2009, we acquired the money transfer
business of European-based FEXCO Group Holdings (FEXCO
Group) one of our largest agents providing services in a
number of European countries, primarily the United Kingdom,
Spain, Sweden and Ireland. We surrendered our 24.65% interest in
FEXCO Group and paid 123.1 million
($157.4 million) as consideration for all of the common
shares of the money transfer business and acquired cash of
$11.8 million.
Share
Repurchases and Dividends
During the six months ended June 30, 2010 and 2009,
25.7 million and 8.8 million of shares were
repurchased for $416.8 million and $100.0 million,
excluding commissions, at an average cost of $16.25 and $11.39
per share, respectively. At June 30, 2010,
$583.2 million remains available under share repurchase
authorizations approved by our Board of Directors.
During the first half of 2010, our Board of Directors declared
quarterly cash dividends of $0.06 per common share representing
$80.1 million in total dividends. Of this amount,
$40.5 million was paid on March 31, 2010 to
shareholders of record on March 19, 2010 and
$39.6 million was paid on June 30, 2010 to
shareholders of record on June 18, 2010. During the first
half of 2009, no dividend was declared or paid.
Off-Balance
Sheet Arrangements
Other than facility and equipment leasing arrangements, we have
no material off-balance sheet arrangements that have or are
reasonably likely to have a material current or future effect on
our financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
Pension
Plans
We have two frozen defined benefit pension plans for which we
have a recorded unfunded pension obligation of
$111.0 million as of June 30, 2010. Through July 2010,
we have made contributions totaling approximately
$22 million to the plans, including a discretionary
contribution of $10 million.
Other
Commercial Commitments
We had $84.3 million in outstanding letters of credit and
bank guarantees at June 30, 2010, with expiration dates
through 2015, the significant majority of which contain a
one-year renewal option. The letters of credit and bank
guarantees are primarily held in connection with lease
arrangements and certain agent agreements. We expect to renew
the letters of credit and bank guarantees prior to expiration in
most circumstances.
As of June 30, 2010, our total amount of unrecognized
income tax benefits was $578.6 million, including
associated interest and penalties. The timing of related cash
payments for substantially all of these liabilities is
inherently uncertain because the ultimate amount and timing of
such liabilities is affected by factors which are variable and
outside our control.
Critical
Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts and disclosures in the financial statements
and accompanying notes. Actual results could differ from those
estimates. Our
44
Critical Accounting Policies and Estimates disclosed in
Managements Discussion and Analysis of Financial
Condition and Results of OperationsCritical Accounting
Policies and Estimates in our 2009 Annual Report on
Form 10-K,
for which there were no material changes, included:
|
|
|
|
|
Income taxes
|
|
|
|
Derivative financial instruments
|
|
|
|
Other intangible assets
|
|
|
|
Goodwill impairment testing
|
|
|
|
Acquisitionspurchase price allocation
|
In addition to the above Critical Accounting Policies, during
the six months ended June 30, 2010 we incurred expenses in
connection with restructuring and related expenses and expect to
incur additional expenses through December 2011. Accordingly, we
now consider our restructuring policy as a Critical Accounting
Policy as follows:
We record severance-related expenses once they are both probable
and estimable in accordance with the provisions of the
applicable accounting guidance for severance provided under an
ongoing benefit arrangement. One-time, involuntary benefit
arrangements and other exit costs are generally recognized when
the liability is incurred. We also evaluate impairment issues
associated with restructuring activities when the carrying
amount of the assets may not be fully recoverable, in accordance
with the appropriate accounting guidance. Restructuring and
related expenses consist of direct and incremental expenses
associated with restructuring and related activities, including
severance, outplacement and other employee related benefits;
facility closure and migration of our IT infrastructure; and
other expenses related to the relocation of various operations
to new or existing company facilities and third-party providers,
including hiring, training, relocation, travel and professional
fees. Also included in the facility closure expenses are
non-cash expenses related to fixed asset and leasehold
improvement write-offs and the acceleration of depreciation.
Risk
Management
We are exposed to market risks arising from changes in market
rates and prices, including changes in foreign currency exchange
rates and interest rates and credit risk related to our agents
and customers. A risk management program is in place to manage
these risks.
Foreign
Currency Exchange Rates
We provide
consumer-to-consumer
money transfer services in more than 200 countries and
territories. We manage foreign exchange risk through the
structure of the business and an active risk management process.
We settle with the vast majority of our agents in United States
dollars or euros. However, in certain circumstances, we settle
in other currencies. We typically require the agent to obtain
local currency to pay recipients; thus, we generally are not
reliant on international currency markets to obtain and pay
illiquid currencies. The foreign currency exposure that does
exist is limited by the fact that the majority of transactions
are paid within 24 hours after they are initiated. To
mitigate this risk further, we enter into short-term foreign
currency forward contracts, generally with maturities from a few
days up to one month, to offset foreign exchange rate
fluctuations between transaction initiation and settlement. We
also utilize foreign currency forward contracts, typically with
terms of less than one year at inception, to offset foreign
exchange rate fluctuations on certain foreign currency
denominated cash positions and intercompany loans. In certain
consumer money transfer and global business payments
transactions involving different send and receive currencies, we
generate revenue based on the difference between the exchange
rate set by us to the customer and the rate at which we or our
agents are able to acquire currency, helping to provide
protection against currency fluctuations. We promptly buy and
sell foreign currencies as necessary to cover our net payables
and receivables which are denominated in foreign currencies.
We use longer-term foreign currency forward contracts to
mitigate risks associated with changes in foreign currency
exchange rates on
consumer-to-consumer
revenues denominated primarily in the euro, and to
45
a lesser degree the British pound, Canadian dollar and other
currencies. We use contracts with maturities of up to
36 months at inception to mitigate some of the risk that
changes in foreign currency exchange rates could have on
forecasted revenues, with a targeted weighted-average maturity
of approximately one year. We believe the use of longer-term
foreign currency forward contracts provides predictability of
future cash flows from our international
consumer-to-consumer
operations.
With the acquisition of Custom House in the third quarter of
2009, our foreign exchange risk and associated foreign exchange
risk management has increased due to the nature of this
business. The significant majority of Custom Houses
revenue is from exchanges of currency at the spot rate enabling
customers to make cross-currency payments. This business also
writes foreign currency forward and option contracts for our
customers to facilitate future payments. The duration of these
derivatives contracts is generally nine months or less. Custom
House aggregates its foreign exchange 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. The foreign exchange risk is actively managed.
At December 31, 2009, a hypothetical uniform 10%
strengthening or weakening in the value of the United States
dollar relative to all other currencies in which our profits are
generated would have resulted in a decrease/increase to pre-tax
annual income of approximately $27 million based on our
2010 forecast of
consumer-to-consumer
unhedged exposure to foreign currency. The exposure as of
June 30, 2010 is not materially different based on our
forecast of unhedged exposure to foreign currency through
June 30, 2011. There are inherent limitations in this
sensitivity analysis, primarily due to the assumption that
foreign exchange rate movements are linear and instantaneous,
that the unhedged exposure is static, and that we would not
hedge any additional exposure. As a result, the analysis is
unable to reflect the potential effects of more complex market
changes that could arise, which may positively or negatively
affect income.
Interest
Rates
We invest in several types of interest bearing assets, with a
total value at June 30, 2010 of $2.8 billion.
Approximately $2.0 billion of these assets bear interest at
floating rates and are therefore sensitive to changes in
interest rates. These assets primarily include money market
funds and state and municipal variable rate securities and are
included in our condensed consolidated balance sheets within
cash and cash equivalents and settlement
assets. To the extent these assets are held in connection
with money transfers and other related payment services awaiting
redemption, they are classified as settlement
assets. Earnings on these investments will increase and
decrease with changes in the underlying short-term interest
rates.
Substantially all of the remainder of our interest bearing
assets consist of highly rated state and municipal obligations,
the majority of which are fixed rate instruments. These
investments may include investments made from cash received from
our money transfer business and other related payment services
awaiting redemption classified within settlement
assets in the condensed consolidated balance sheets. As
interest rates rise, the fair value of these fixed rate
interest-bearing securities will decrease; conversely, a
decrease to interest rates would result in an increase to the
fair values of the securities. We have classified these
investments as
available-for-sale
within settlement assets in the condensed
consolidated balance sheets, and accordingly, recorded these
instruments at their fair value with the net unrealized gains
and losses, net of the applicable deferred income tax effect,
being added to or deducted from our total
stockholders equity on our condensed consolidated
balance sheets.
As of June 30, 2010, $750 million of our total
$3.3 billion of borrowings at par value was effectively
floating rate debt through interest rate swap agreements,
changing our fixed-rate debt to LIBOR-based floating rate debt,
with
weighted-average
spreads of approximately 400 basis points above LIBOR.
Borrowings under our commercial paper program mature in such a
short period that the financing is effectively floating rate. No
commercial paper borrowings were outstanding as of June 30,
2010.
We review our overall exposure to floating and fixed rates by
evaluating our net asset or liability position in each, also
considering the duration of the individual positions. We manage
this mix of fixed versus floating exposure in an attempt to
minimize risk, reduce costs and improve returns. Our exposure to
interest rates can be modified by changing the mix of our
interest bearing assets, as well as adjusting the mix of fixed
versus
46
floating rate debt. The latter is accomplished primarily through
the use of interest rate swaps and the decision regarding terms
of any new debt issuances (i.e., fixed versus floating). We use
interest rate swaps designated as hedges to increase the
percentage of floating rate debt, subject to market conditions.
At June 30, 2010, our weighted average effective rate was
approximately 5.3%.
A hypothetical 100 basis point increase/decrease in
interest rates would result in a decrease/increase to pre-tax
income of approximately $8 million annually based on
borrowings on June 30, 2010 that are sensitive to interest
rate fluctuations. The same 100 basis point
increase/decrease in interest rates, if applied to our cash and
investment balances on June 30, 2010 that are sensitive to
interest rate fluctuations, would result in an offsetting
benefit/reduction to pre-tax income of approximately
$20 million annually. There are inherent limitations in the
sensitivity analysis presented, primarily due to the assumption
that interest rate changes would be instantaneous. As a result,
the analysis is unable to reflect the potential effects of more
complex market changes that could arise, including changes in
credit risk regarding our investments, which may positively or
negatively affect income. In addition, the current mix of fixed
versus floating rate debt and investments and the level of
assets and liabilities will change over time.
Credit
Risk
Our interest earning assets include investment securities,
substantially all of which are state and municipal debt
obligations, which are classified in settlement
assets and accounted for as
available-for-sale
securities, and money market fund investments, which are
classified in cash and cash equivalents. The
majority of our investment securities had credit ratings of
AA- or better from a major credit rating agency.
On September 15, 2008, we requested redemption of our
shares in the Reserve International Liquidity Fund, Ltd. (the
Fund), a money market fund, totaling
$298.1 million. In 2009, we received partial distributions
totaling $255.5 million from the Fund. We continue to
vigorously pursue collection of the remaining balance and
believe we have a right to full payment of the remaining amount
based on the written and verbal representations from the Reserve
Management Company, the Funds investment advisor, and our
legal position. However, given the increased uncertainty
surrounding the numerous third-party legal claims associated
with the Fund, we reserved $12 million representing the
estimated impact of pro-rata distribution of the Fund during
2009. As of June 30, 2010, we had a remaining receivable
balance of $30.6 million, net of the related reserve, which
is included in other assets in the condensed
consolidated balance sheet. We anticipate receiving a
distribution pending the resolution of the legal matters
surrounding the Fund. If the Fund incurs significant legal,
administrative or other costs during the distribution process,
we may record additional reserves related to the remaining
receivable balance, although such amounts are not expected to be
significant.
To manage our exposures to credit risk with respect to
investment securities, money market investments, derivatives and
other credit risk exposures resulting from our relationships
with banks and financial institutions, we regularly review
investment concentrations, trading levels, credit spreads and
credit ratings, and we attempt to diversify our investments
among global financial institutions. Since January 1, 2009,
we also limit our investment level to no more than
$100 million with respect to individual money market funds.
We are also exposed to credit risk related to receivable
balances from agents in the money transfer, walk-in bill payment
and money order settlement process. In addition, we are exposed
to credit risk directly from consumer transactions particularly
through our internet services and electronic channels, where
transactions are originated through means other than cash, and
therefore are subject to chargebacks, insufficient
funds or other collection impediments, such as fraud. We perform
a credit review before each agent signing and conduct periodic
analyses. Our losses associated with agent and consumer bad
debts have been less than 1% of our revenues in all periods
presented. We continue to monitor the credit worthiness of our
agents, and due to the challenging economy, we closed agents at
higher rates in 2009 than in prior years, primarily small
retailers in the United States. Closing agents may impact
transactions and revenues.
As a result of our acquisition of Custom House, we are now
exposed to credit risk relating to derivative financial
instruments written by us to our customers. The duration of
these derivative contracts is generally nine months or less. To
mitigate risk, we perform credit reviews of the customer on an
ongoing basis. In addition, we may require certain customers to
post collateral based on the fair value of the customers
contract
47
and their risk profile. The credit risk arising from our spot
foreign currency exchange contracts is largely mitigated, as in
most cases we require the receipt of funds from our customers
before releasing the associated cross-currency payment.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
The information under the caption Risk Management in
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 2 of
Part I of this report is incorporated herein by reference.
|
|
Item 4.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
Our management, under the supervision and with the participation
of the Principal Executive Officer and Principal Financial
Officer, have evaluated the effectiveness of our controls and
procedures related to our reporting and disclosure obligations
as of June 30, 2010, which is the end of the period covered
by this Quarterly Report on
Form 10-Q.
Based on that evaluation, the Principal Executive Officer and
Principal Financial Officer have concluded that, as of
June 30, 2010, the disclosure controls and procedures were
effective to ensure that information required to be disclosed by
us, including our consolidated subsidiaries, in the reports we
file or submit under the Exchange Act, is recorded, processed,
summarized and reported, as applicable, within the time periods
specified in the rules and forms of the Securities and Exchange
Commission, and are designed to ensure that information required
to be disclosed by us in the reports that we file or submit are
accumulated and communicated to our management, including our
Principal Executive Officer and Principal Financial Officer, to
allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
On May 25, 2010, our Board of Directors approved a
restructuring plan including the elimination and relocation of
employees who, among other functions, staffed certain of our
operational accounting, IT and other functions. Accordingly, we
will experience significant turnover in these areas during the
transition of these operations to new or existing Company
facilities and third-party providers. Management believes it is
taking the necessary steps to monitor and maintain appropriate
internal controls during this period of change.
There were no additional changes that occurred during the fiscal
quarter covered by this Quarterly Report on
Form 10-Q
that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial
reporting.
48
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of The Western Union
Company
We have reviewed the condensed consolidated balance sheet of The
Western Union Company (the Company) as of June 30, 2010,
and the related condensed consolidated statements of income for
the three-month and six-month periods ended June 30, 2010
and 2009, and the condensed consolidated statements of cash
flows for the six-month periods ended June 30, 2010 and
2009. These financial statements are the responsibility of the
Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting
principles.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of The Western Union Company as
of December 31, 2009, and the related consolidated
statements of income, cash flows, and stockholders
equity/(deficiency) for the year then ended (not presented
herein) and in our report dated February 26, 2010, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of
December 31, 2009, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
Denver, Colorado
August 4, 2010
49
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
On July 26, 2010, U.F.C.W. Local 1776 & Participating
Employers Pension Fund filed a Verified Shareholder Double
Derivative Complaint and Jury Demand in federal district court
in Colorado. The complaint names all members of the
Companys Board of Directors as individual defendants. The
Company and its subsidiary Western Union Financial Services,
Inc. are named as nominal defendants. The complaint seeks
damages from the individual defendants for breach of fiduciary
duty and waste of corporate assets. The complaint also seeks an
order to implement unspecified corrective measures. The
complaint alleges failure by the individual defendants to
appropriately oversee the Companys compliance program,
particularly the alleged deficiencies which resulted in the
Companys agreement and settlement with the State of
Arizona in early 2010. The Company is in the process of
preparing its response to the complaint.
In the normal course of business, Western Union is subject to
other claims and litigation. Western Unions Management
believes that such matters involving a reasonably possible
chance of loss will not, individually or in the aggregate,
result in a materially adverse effect on Western Unions
financial position, results of operations or cash flows. Western
Union accrues for loss contingencies as they become probable and
estimable.
There have been no material changes to the risk factors
described in our 2009 Annual Report on
Form 10-K,
except as described below.
Recently
enacted financial reform legislation in the United States may
adversely affect our business.
Our business may be adversely impacted by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Financial
Reform Act or Act) which was signed into law
on July 21, 2010 by the President of the United States. At
this time, we are unable to predict the impact on our business
because many of the provisions of the Act that could affect us
require the adoption of rules or mandate studies, which could
result in additional legislative or regulatory requirements. For
example, the Financial Reform Act creates a new Bureau of
Consumer Financial Protection (the Consumer Protection
Bureau) whose purpose will be to issue and enforce
consumer protection initiatives governing financial products and
services, including money transfer services in the United
States, which will require us to provide enhanced disclosures to
our money transfer customers. Depending upon the final rules to
be issued by the Consumer Protection Bureau, we may need to
modify our systems to provide these additional disclosures or we
may be liable for the failure of our money transfer agents to
comply with the Act, the extent of which liability will be
determined by rules not yet enacted. In addition, rules adopted
under the Act by other governmental agencies may subject our
corporate interest rate and foreign exchange hedging
transactions to centralized clearing and collateral posting
requirements. Also, our Custom House business in the United
States may be subjected to increased regulatory oversight and
licensing requirements relating to the foreign exchange
derivative products offered to certain of its customers.
50
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
The following table provides information about the
Companys repurchases of shares of the Companys
common stock during the second quarter of 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Dollar
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Value of Shares that
|
|
|
|
|
|
|
|
|
|
Repurchased as Part of
|
|
|
May Yet Be Repurchased
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Publicly Announced
|
|
|
Under the Plans or
|
|
|
|
Shares Repurchased*
|
|
|
Paid per Share
|
|
|
Plans or Programs**
|
|
|
Programs (in millions)
|
|
|
April 1 30
|
|
|
2,763,300
|
|
|
$
|
17.64
|
|
|
|
2,763,300
|
|
|
$
|
751.3
|
|
May 1 31
|
|
|
3,895,377
|
|
|
$
|
16.38
|
|
|
|
3,891,500
|
|
|
$
|
687.5
|
|
June 1 30
|
|
|
6,628,608
|
|
|
$
|
15.74
|
|
|
|
6,628,608
|
|
|
$
|
583.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,287,285
|
|
|
$
|
16.32
|
|
|
|
13,283,408
|
|
|
|
|
|
|
|
|
* |
|
These amounts represent both shares authorized by the Board of
Directors for repurchase under a publicly announced plan, as
described below, as well as shares withheld from employees to
cover tax withholding obligations on restricted stock awards and
units that have vested. |
|
** |
|
At June 30, 2010, $583.2 million remains available
under share repurchase authorizations approved by the
Companys Board of Directors. Management has and may
continue to establish prearranged written plans pursuant to
Rule 10b5-1.
A
Rule 10b5-1
plan permits the Company to repurchase shares at times when the
Company may otherwise be prevented from doing so, provided the
plan is adopted when the Company is not aware of material
non-public information. |
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
None.
|
|
Item 4.
|
(Removed
and Reserved)
|
|
|
Item 5.
|
Other
Information
|
None.
See Exhibit Index for documents filed herewith
and incorporated herein by reference.
51
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Western Union Company
(Registrant)
Date: August 4, 2010
|
|
|
|
By:
|
/s/ Scott
T. Scheirman
|
Scott T. Scheirman
Executive Vice President and
Chief Financial Officer
(Principal Financial
Officer)
Date: August 4, 2010
|
|
|
|
By:
|
/s/ Amintore
T.X. Schenkel
|
Amintore T.X. Schenkel
Senior Vice President, Chief
Accounting Officer, and
Controller (Principal Accounting
Officer)
52
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
4
|
.1
|
|
Form of 6.200% Note due 2040 (filed as Exhibit 4.1 to
the Companys Current Report on
Form 8-K
filed on June 21, 2010 and incorporated herein by reference
thereto)
|
|
10
|
.1
|
|
The Western Union Company Severance/Change in Control Policy
(Executive Committee Level), as Amended and Restated Effective
July 14, 2010*
|
|
10
|
.2
|
|
Form of Nonqualified Stock Option Award Agreement for Executive
Committee Members Residing in the United States Under The
Western Union Company 2006 Long-Term Incentive Plan, as Amended
and Restated Effective July 14, 2010*
|
|
10
|
.3
|
|
Form of Nonqualified Stock Option Award Agreement for Executive
Committee Member Residing in Austria Under The Western Union
Company 2006 Long-Term Incentive Plan, as Amended and Restated
Effective July 14, 2010*
|
|
12
|
|
|
Computation of Ratio of Earnings to Fixed Charges
|
|
15
|
|
|
Letter from Ernst & Young LLP Regarding Unaudited
Interim Financial Information
|
|
31
|
.1
|
|
Certification of Principal Executive Officer of The Western
Union Company Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
31
|
.2
|
|
Certification of Principal Financial Officer of The Western
Union Company Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934
|
|
32
|
|
|
Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
* |
|
Management contracts and compensatory plans and arrangements
required to be filed as exhibits pursuant to Item 6 of this
report. |
53