Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10‑Q


 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to

 

Commission File Number: 001‑32903

PICTURE 1

THE WESTERN UNION COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)

 

20‑4531180
(I.R.S. Employer
Identification No.)

 

7001 EAST BELLEVIEW AVENUE
Denver, Colorado 80237
(Address of principal executive offices)

 

 

Registrant’s 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☒        Accelerated filer☐        Non-accelerated filer ☐

Smaller reporting company ☐        Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.01 Par Value

WU

The New York Stock Exchange

 

As of April 30, 2019, 430,708,512 shares of the registrant’s common stock were outstanding.

 

 

 

 


 

Table of Contents

THE WESTERN UNION COMPANY

INDEX

 

 

 

 

 

PAGE
NUMBER

PART I FINANCIAL INFORMATION  

 

 

 

 

Item 1.  

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2019 and 2018

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

4

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

6

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2019 and 2018

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements

8

 

 

 

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

 

 

 

Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

54

 

 

 

Item 4.  

Controls and Procedures

54

 

 

 

 

Review Report of Independent Registered Public Accounting Firm

55

 

 

 

PART II OTHER INFORMATION  

 

 

 

 

Item 1.  

Legal Proceedings

56

 

 

 

Item 1A.  

Risk Factors

59

 

 

 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

60

 

 

 

Item 3.  

Defaults Upon Senior Securities

60

 

 

 

Item 4.  

Mine Safety Disclosures

60

 

 

 

Item 5.  

Other Information

60

 

 

 

Item 6.  

Exhibits

61

 

 

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Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Revenues

 

$

1,337.0

 

$

1,389.4

 

Expenses:

 

 

  

 

 

  

 

Cost of services

 

 

785.0

 

 

825.4

 

Selling, general and administrative

 

 

300.8

 

 

299.1

 

Total expenses

 

 

1,085.8

 

 

1,124.5

 

Operating income

 

 

251.2

 

 

264.9

 

Other income/(expense):

 

 

  

 

 

  

 

Interest income

 

 

2.1

 

 

0.7

 

Interest expense

 

 

(39.7)

 

 

(35.5)

 

Other income, net

 

 

2.5

 

 

4.4

 

Total other expense, net

 

 

(35.1)

 

 

(30.4)

 

Income before income taxes

 

 

216.1

 

 

234.5

 

Provision for income taxes

 

 

43.0

 

 

20.9

 

Net income

 

$

173.1

 

$

213.6

 

Earnings per share:

 

 

  

 

 

  

 

Basic

 

$

0.40

 

$

0.46

 

Diluted

 

$

0.39

 

$

0.46

 

Weighted-average shares outstanding:

 

 

  

 

 

  

 

Basic

 

 

437.7

 

 

460.3

 

Diluted

 

 

439.9

 

 

463.6

 

 

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Net income

 

$

173.1

 

$

213.6

 

Other comprehensive income/(loss), net of tax (Note 10):

 

 

  

 

 

  

 

Unrealized gains/(losses) on investment securities

 

 

13.0

 

 

(8.7)

 

Unrealized gains/(losses) on hedging activities

 

 

3.9

 

 

(3.1)

 

Foreign currency translation adjustments

 

 

 —

 

 

(7.0)

 

Defined benefit pension plan adjustments

 

 

2.5

 

 

2.1

 

Total other comprehensive income/(loss)

 

 

19.4

 

 

(16.7)

 

Comprehensive income

 

$

192.5

 

$

196.9

 

 

See Notes to Condensed Consolidated Financial Statements.

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Table of Contents

THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions, except per share amounts)

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

 

2019

 

2018

    

Assets

 

 

  

 

 

  

 

Cash and cash equivalents

 

$

833.1

 

$

973.4

 

Settlement assets

 

 

3,497.5

 

 

3,813.8

 

Property and equipment, net of accumulated depreciation of $668.8 and $702.4, respectively

 

 

229.0

 

 

270.4

 

Goodwill

 

 

2,568.5

 

 

2,725.0

 

Other intangible assets, net of accumulated amortization of $1,044.6 and $1,047.6, respectively

 

 

562.7

 

 

598.2

 

Other assets (Note 5)

 

 

767.0

 

 

616.0

 

Assets held for sale (Note 4)

 

 

974.2

 

 

 —

 

Total assets

 

$

9,432.0

 

$

8,996.8

 

Liabilities and Stockholders' Deficit

 

 

  

 

 

  

 

Liabilities:

 

 

  

 

 

  

 

Accounts payable and accrued liabilities

 

$

471.3

 

$

564.9

 

Settlement obligations

 

 

3,497.5

 

 

3,813.8

 

Income taxes payable

 

 

1,085.1

 

 

1,054.0

 

Deferred tax liability, net

 

 

165.3

 

 

161.1

 

Borrowings

 

 

3,370.3

 

 

3,433.7

 

Other liabilities (Note 5)

 

 

492.0

 

 

279.1

 

Liabilities associated with assets held for sale (Note 4)

 

 

724.7

 

 

 —

 

Total liabilities

 

 

9,806.2

 

 

9,306.6

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 7)

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

  

 

 

  

 

Preferred stock, $1.00 par value; 10 shares authorized; no shares issued

 

 

 —

 

 

 —

 

Common stock, $0.01 par value; 2,000 shares authorized; 432.9 shares and 441.2 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

4.3

 

 

4.4

 

Capital surplus

 

 

771.1

 

 

755.6

 

Accumulated deficit

 

 

(938.0)

 

 

(838.8)

 

Accumulated other comprehensive loss

 

 

(211.6)

 

 

(231.0)

 

Total stockholders' deficit

 

 

(374.2)

 

 

(309.8)

 

Total liabilities and stockholders' deficit

 

$

9,432.0

 

$

8,996.8

 

 

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Cash flows from operating activities

 

 

  

 

 

  

 

Net income

 

$

173.1

 

$

213.6

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

  

 

 

  

 

Depreciation

 

 

19.2

 

 

19.3

 

Amortization

 

 

45.6

 

 

47.4

 

Other non-cash items, net

 

 

28.4

 

 

8.9

 

Increase/(decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

Other assets

 

 

(7.3)

 

 

(47.3)

 

Accounts payable and accrued liabilities

 

 

(44.1)

 

 

(123.2)

 

Income taxes payable

 

 

31.1

 

 

11.5

 

Other liabilities

 

 

(6.4)

 

 

2.5

 

Net cash provided by operating activities

 

 

239.6

 

 

132.7

 

Cash flows from investing activities

 

 

  

 

 

  

 

Capitalization of contract costs

 

 

(15.1)

 

 

(10.3)

 

Capitalization of purchased and developed software

 

 

(6.4)

 

 

(6.7)

 

Purchases of property and equipment

 

 

(16.1)

 

 

(20.2)

 

Purchases of non-settlement related investments and other

 

 

(4.1)

 

 

(4.3)

 

Proceeds from maturity of non-settlement related investments

 

 

19.8

 

 

10.0

 

Purchases of held-to-maturity non-settlement related investments

 

 

(0.7)

 

 

(1.4)

 

Proceeds from held-to-maturity non-settlement related investments

 

 

5.9

 

 

 —

 

Net cash used in investing activities

 

 

(16.7)

 

 

(32.9)

 

Cash flows from financing activities

 

 

  

 

 

  

 

Cash dividends paid

 

 

(87.4)

 

 

(87.5)

 

Common stock repurchased (Note 10)

 

 

(171.6)

 

 

(11.6)

 

Net (repayments of)/proceeds from commercial paper

 

 

(65.0)

 

 

110.0

 

Proceeds from exercise of options

 

 

1.8

 

 

3.8

 

Other financing activities

 

 

(0.1)

 

 

(5.2)

 

Net cash (used in)/provided by financing activities

 

 

(322.3)

 

 

9.5

 

Net change in cash, cash equivalents and restricted cash

 

 

(99.4)

 

 

109.3

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

979.7

 

 

844.4

 

Cash, cash equivalents and restricted cash at end of period

 

$

880.3

 

$

953.7

 

Supplemental cash flow information:

 

 

  

 

 

  

 

Interest paid

 

$

24.0

 

$

23.0

 

Income taxes paid

 

$

10.3

 

$

13.7

 

Cash paid for lease liabilities

 

$

12.0

 

$

 —

 

Non-cash lease liabilities arising from obtaining right-of-use assets (Note 5)

 

$

269.1

 

$

 —

 

Cash included in Assets held for sale (Note 4)

 

$

41.0

 

$

 —

 

Restricted cash at end of period (included in Other assets)

 

$

6.2

 

$

19.4

 

 

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

Common Stock

 

Capital

 

Accumulated 

 

Comprehensive

 

Stockholders'

 

    

Shares

    

Amount

    

Surplus

    

Deficit

    

Loss

    

Deficit

Balance, December 31, 2018

 

441.2

 

$

4.4

 

$

755.6

 

$

(838.8)

 

$

(231.0)

 

$

(309.8)

Net income

 

 —

 

 

 —

 

 

 —

 

 

173.1

 

 

 —

 

 

173.1

Stock-based compensation

 

 —

 

 

 —

 

 

13.7

 

 

 —

 

 

 —

 

 

13.7

Common stock dividends ($0.20 per share)

 

 —

 

 

 —

 

 

 —

 

 

(87.4)

 

 

 —

 

 

(87.4)

Repurchase and retirement of common shares

 

(10.2)

 

 

(0.1)

 

 

 —

 

 

(184.9)

 

 

 —

 

 

(185.0)

Shares issued under stock-based compensation plans

 

1.9

 

 

 —

 

 

1.8

 

 

 —

 

 

 —

 

 

1.8

Unrealized gains on investment securities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

13.0

 

 

13.0

Unrealized gains on hedging activities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3.9

 

 

3.9

Defined benefit pension plan adjustment, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2.5

 

 

2.5

Balance, March 31, 2019

 

432.9

 

$

4.3

 

$

771.1

 

$

(938.0)

 

$

(211.6)

 

$

(374.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

Common Stock

 

Capital

 

Accumulated 

 

Comprehensive

 

Stockholders'

 

    

Shares

    

Amount

    

Surplus

    

Deficit

    

Loss

    

Deficit

Balance, December 31, 2017

 

459.0

 

$

4.6

 

$

697.8

 

$

(965.9)

 

$

(227.9)

 

$

(491.4)

Adoption of accounting pronouncements as of January 1, 2018

 

 —

 

 

 —

 

 

 —

 

 

30.7

 

 

(31.4)

 

 

(0.7)

Net income

 

 —

 

 

 —

 

 

 —

 

 

213.6

 

 

 —

 

 

213.6

Stock-based compensation

 

 —

 

 

 —

 

 

13.8

 

 

 —

 

 

 —

 

 

13.8

Common stock dividends ($0.19 per share)

 

 —

 

 

 —

 

 

 —

 

 

(87.5)

 

 

 —

 

 

(87.5)

Repurchase and retirement of common shares

 

(0.5)

 

 

 —

 

 

 —

 

 

(11.8)

 

 

 —

 

 

(11.8)

Shares issued under stock-based compensation plans

 

2.1

 

 

 —

 

 

3.8

 

 

 —

 

 

 —

 

 

3.8

Unrealized losses on investment securities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8.7)

 

 

(8.7)

Unrealized losses on hedging activities, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(3.1)

 

 

(3.1)

Foreign currency translation adjustment, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(7.0)

 

 

(7.0)

Defined benefit pension plan adjustment, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2.1

 

 

2.1

Balance, March 31, 2018

 

460.6

 

$

4.6

 

$

715.4

 

$

(820.9)

 

$

(276.0)

 

$

(376.9)

See Notes to Condensed Consolidated Financial Statements.

 

 

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Table of Contents

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Business

The Western Union Company ("Western Union" or the "Company") is a leader in global money movement and payment services, providing people and businesses with fast, reliable and convenient ways to send money and make payments around the world. The Western Union ® brand is globally recognized. The Company’s services are primarily available through a network of agent locations in more than 200 countries and territories and through online money transfer transactions conducted through Western Union branded websites and mobile apps (“westernunion.com”). Each location in the Company’s agent network is capable of providing one or more of the Company’s services.

The Western Union business consists of the following segments:

·

Consumer-to-Consumer  - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. The Company views its multi-currency money transfer service as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers and, in certain countries, intra-country transfers. This segment also includes money transfer transactions that can be initiated through websites and mobile devices.

·

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

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

There are legal or regulatory limitations on transferring certain assets of the Company outside of the countries where these assets are located. However, there are generally no limitations on the use of these assets within those countries. Additionally, the Company must meet minimum capital requirements in some countries in order to maintain operating licenses. As of December 31, 2018, the amount of these net asset limitations totaled approximately $365 million.

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

Basis of Presentation

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

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THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

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

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

Use of Estimates

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

Recently Adopted Accounting Pronouncements

On January 1, 2019, the Company adopted a new accounting standard, as amended, that requires the Company to record assets and liabilities on the balance sheet for lease-related rights and obligations and disclose key information about its leasing arrangements. The Company elected the effective date method, utilized the modified retrospective approach upon adoption, and elected the package of practical expedients available under the new standard, including the expedients to not reassess whether an existing contract is a lease or contains a lease and whether the lease is an operating or finance lease.   This new standard establishes a right-of-use (“ROU”) model that requires the Company to recognize ROU assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months at commencement of the lease. Refer to Note 5 for additional information and the related disclosures.

Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. Additionally, the standard requires certain credit losses relating to investment securities classified as available-for-sale to be recorded through an allowance for credit losses. The Company is required to adopt the new standard on January 1, 2020. Management is currently evaluating the potential impact that the adoption of this standard will have on the Company’s financial position, results of operations, and related disclosures.

2. Revenue

The Company’s revenues are primarily derived from consideration paid by customers to transfer money. These revenues vary by transaction based upon channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, and speed of service, as applicable. The Company also offers several other services, including foreign exchange and payment services and other bill payment

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THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

For the three months ended March 31, 2019 and 2018, the Company recognized $1,275.4 million and $1,346.0 million in revenues from contracts with customers, respectively. There are no material upfront costs incurred to obtain contracts with customers. Under the Company’s loyalty programs, which are primarily offered in its money transfer services, the Company must fulfill loyalty program rewards earned by customers. The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations, and the Company has immaterial contract liability balances, which primarily relate to its customer loyalty programs and other services. Contract asset balances related to customers were also immaterial as of the periods presented, as the Company typically receives payment of consideration from its customers prior to satisfying performance obligations under the customer contracts. In addition to revenue generated from contracts with customers, the Company recognizes revenue from other sources, including the sale of derivative financial instruments and investment income generated on settlement assets primarily related to money transfer and money order services.

The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below. Revenues from consumer money transfers are included in the Company’s Consumer-to-Consumer segment, revenues from foreign exchange and payment services are included in the Company’s Business Solutions segment, and revenues from consumer bill payments and other services are not included in the Company’s segments and are reported as "Other." See Note 15 for further information on the Company’s segments.

Consumer Money Transfers

For the Company’s money transfer services, customers agree to the Company’s terms and conditions at the time of initiating a transaction. In a money transfer, the Company has one performance obligation as the customer engages the Company to perform one integrated service which typically occurs within minutes — collect the customer’s money and make funds available for payment to a designated person in the currency requested. Therefore, the Company recognizes revenue upon completion of the following: 1) the customer’s acknowledgment of the Company’s terms and conditions and payment information has been received by the Company, 2) the Company has agreed to process the money transfer, 3) the Company has provided the customer a unique transaction identification number, and 4) funds are available to be picked up by the customer designated receiving party. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated.

Foreign Exchange and Payment Services

For the Company’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with the Company to provide payment services on the customer’s behalf. In the majority of the Company’s foreign exchange and payment services, the Company makes payments to the recipient to satisfy its performance obligation to the customer, and therefore, the Company recognizes revenue on foreign exchange and payment services when this performance obligation has been fulfilled. Revenues from foreign exchange and payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market.

Consumer Bill Payments

The Company offers several different bill payment services that vary by considerations such as: 1) who pays the fee to the Company (consumer or biller), 2) whether the service is offered to all potential consumers, or only to those for

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(Unaudited)

which the Company has a relationship with the biller, and 3) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors. The determination of which party is the Company’s customer for revenue recognition purposes is based on these considerations for each of the Company’s bill payment services. For all transactions, the Company’s customers agree to the Company’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with the Company to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes). As with consumer money transfers, customers engage the Company to perform one integrated service — collect money from the consumer and process the bill payment transaction, thereby providing the billers real-time or near real-time information regarding their customers’ payments and simplifying the billers’ collection efforts. The significant majority of the Company’s revenues from bill payment services are generated from contracts to process transactions at any time during the duration of the contract. The transaction price on bill payment services is contractual and determinable. Certain biller agreements may include per-transaction or fixed periodic rebates, which the Company records as a reduction to revenue.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

    

 

 

    

Foreign 

    

 

 

    

 

 

    

 

 

 

 

Consumer 

 

Exchange 

 

 

 

 

 

 

 

 

 

 

 

Money 

 

and Payment 

 

Consumer 

 

Other 

 

 

 

 

 

Transfers

 

Services

 

Bill Payments (c)

 

Services

 

Total

Regions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

North America

 

$

395.5

 

$

22.1

 

$

115.1

 

$

14.5

 

$

547.2

Europe and Russia/CIS

 

 

323.2

 

 

31.9

 

 

0.6

 

 

0.9

 

 

356.6

Middle East, Africa, and South Asia

 

 

153.3

 

 

0.5

 

 

0.1

 

 

 —

 

 

153.9

Latin America and the Caribbean

 

 

95.3

 

 

1.0

 

 

33.6

 

 

3.5

 

 

133.4

East Asia and Oceania

 

 

66.5

 

 

17.5

 

 

0.3

 

 

 —

 

 

84.3

Revenues from contracts with customers

 

$

1,033.8

 

$

73.0

 

$

149.7

 

$

18.9

 

$

1,275.4

Other revenues (a)

 

 

23.1

 

 

22.6

 

 

9.5

 

 

6.4

 

 

61.6

Total revenues (b)

 

$

1,056.9

 

$

95.6

 

$

159.2

 

$

25.3

 

$

1,337.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2018

 

    

 

 

    

Foreign 

    

 

 

    

 

 

    

 

 

 

 

Consumer 

 

Exchange 

 

 

 

 

 

 

 

 

 

 

 

Money 

 

and Payment 

 

Consumer 

 

Other 

 

 

 

 

 

Transfers

 

Services

 

Bill Payments (c)

 

Services

 

Total

Regions:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

North America

 

$

394.6

 

$

24.9

 

$

123.1

 

$

14.6

 

$

557.2

Europe and Russia/CIS

 

 

345.5

 

 

32.3

 

 

0.8

 

 

1.0

 

 

379.6

Middle East, Africa, and South Asia

 

 

166.8

 

 

 —

 

 

0.1

 

 

 —

 

 

166.9

Latin America and the Caribbean

 

 

97.7

 

 

0.2

 

 

45.0

 

 

3.2

 

 

146.1

East Asia and Oceania

 

 

78.5

 

 

17.3

 

 

0.4

 

 

 —

 

 

96.2

Revenues from contracts with customers

 

$

1,083.1

 

$

74.7

 

$

169.4

 

$

18.8

 

$

1,346.0

Other revenues (a)

 

 

7.9

 

 

22.0

 

 

8.1

 

 

5.4

 

 

43.4

Total revenues (b)

 

$

1,091.0

 

$

96.7

 

$

177.5

 

$

24.2

 

$

1,389.4


(a)

Includes revenue from the sale of derivative financial instruments, investment income generated on settlement assets primarily related to money transfer and money order services, and other sources.

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(Unaudited)

(b)

Revenues from "Consumer money transfers" are included in the Company’s Consumer-to-Consumer segment, revenues from "Foreign exchange and payment services" are included in the Company’s Business Solutions segment, and revenues from "Consumer bill payments" and "Other services" are not included in the Company’s segments and are reported as "Other." See Note 15 for further information on the Company’s segments.

(c)

On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp. and ACW Worldwide, Inc. to sell its United States electronic bill payments business known as “Speedpay.” The Company expects to close the transaction during the second quarter of 2019. Included within North America revenues are Speedpay revenues of $88.2 million and $95.0 million for the three months ended March 31, 2019 and 2018, respectively.

 

3. Earnings Per Share

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

For the three months ended March 31, 2019 and 2018, there were 4.4 million and 2.0 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding options to purchase shares of Western Union stock, as their exercise prices were above the Company’s weighted-average share price during the periods and their effect was anti-dilutive .

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

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

Basic weighted-average shares outstanding

 

437.7

 

460.3

 

Common stock equivalents

 

2.2

 

3.3

 

Diluted weighted-average shares outstanding

 

439.9

 

463.6

 

 

 

 

4. Assets and Liabilities Held For Sale

On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp. and ACW Worldwide, Inc. to sell its United States electronic bill payments business known as “Speedpay,” which is included as a component of “Other” in the Company’s segment reporting. The Company will receive approximately $750 million in the all-cash transaction that is expected to close during the second quarter of 2019, and the Company will record a gain on the sale. Speedpay revenues were $88.2 million and $95.0 million, and direct operating expenses were $67.6 million and $66.1 million for the three months ended March 31, 2019 and 2018, respectively.

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(Unaudited)

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

 

 

 

 

 

 

    

March 31, 

    

 

    

2019

 

Cash and cash equivalents

 

$

41.0

 

Settlement assets

 

 

705.7

 

Property and equipment, net of accumulated depreciation of $17.6

 

 

0.3

 

Goodwill

 

 

162.5

 

Other intangible assets, net of accumulated amortization of $27.3

 

 

10.3

 

Other assets

 

 

18.8

 

Total assets

 

$

938.6

 

 

 

 

  

 

Settlement obligations

 

$

705.7

 

Accounts payable and accrued liabilities

 

 

17.6

 

Deferred tax liability

 

 

1.4

 

Total liabilities

 

$

724.7

 

 

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

 

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

 

5. Leases

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

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

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

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(Unaudited)

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

 

 

 

 

 

March 31, 2019

Weighted average remaining lease term (in years)

 

8.1

Weighted average discount rate

 

6.1%

 

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

 

 

 

 

Due within 1 year

 

$

51.9

Due after 1 year through 2 years

 

 

46.8

Due after 2 years through 3 years

 

 

39.6

Due after 3 years through 4 years

 

 

34.5

Due after 4 years through 5 years

 

 

31.4

Due after 5 years

 

 

125.9

Total future minimum lease payments

 

 

330.1

Less imputed interest

 

 

(68.9)

Total

 

$

261.2

 

6. Fair Value Measurements

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets/

 

 

 

 

 

 

 

 

 

 

 

Liabilities at

 

 

Fair Value Measurement Using

 

Fair

March 31, 2019

    

Level 1

    

Level 2

    

Level 3

    

Value

Assets:

 

 

  

 

 

  

 

 

  

 

 

  

Settlement assets:

 

 

  

 

 

  

 

 

  

 

 

  

Measured at fair value through net income:

 

 

  

 

 

  

 

 

  

 

 

  

Money market funds

 

$

14.8

 

$

 —

 

$

 —

 

$

14.8

Measured at fair value through other comprehensive income:

 

 

  

 

 

  

 

 

  

 

 

  

State and municipal debt securities

 

 

 —

 

 

984.8

 

 

 —

 

 

984.8

State and municipal variable rate demand notes

 

 

 —

 

 

295.6

 

 

 —

 

 

295.6

Corporate and other debt securities

 

 

 —

 

 

75.9

 

 

 —

 

 

75.9

United States Treasury securities

 

 

9.8

 

 

 —

 

 

 —

 

 

9.8

Other assets:

 

 

  

 

 

  

 

 

  

 

 

  

Derivatives

 

 

 —

 

 

200.9

 

 

 —

 

 

200.9

Total assets

 

$

24.6

 

$

1,557.2