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WESTERN UNION | 2009 ANNUAL REPORT
We speak in every currency of the world.

Table of contents

  • Page 1
    We speak in every currency of the world. WESTERN UNION | 2009 ANNUAL REPORT

  • Page 2
    Our performance is CHRISTINA A. GOLD President, CEO and Director | The Western Union Company

  • Page 3
    ... company for continued growth by completing two acquisitions that enable us to enter new markets and attract new customers to our brand. Revenue for 2009 was $5.1 billion, and we delivered $1.2 billion in cash ï¬,ows from operations. We also raised our dividend and repurchased $400 million in stock...

  • Page 4
    ... see opportunities with new customers and market segments. We are taking steps to position ourselves to take advantage of emerging opportunities over the long term by driving operational excellence, improving speed to market and creating financial ï¬,exibility to fund growth and support margins. To...

  • Page 5
    ... and advances our ability to drive increased growth throughout Europe. The Payment Services Directive in Europe will enable us to offer our Westernunion.com allows people to send money online from a variety of countries. opportunities to expand our customer base. services at new retail locations to...

  • Page 6
    ... service allows people to send and receive money via their cell phones in select countries. Mobile Money Transfer will offer in intra-country transfers outside the U.S. last year. Although this intracountry business currently accounts for less than 2% of our total revenue, we see opportunities...

  • Page 7
    ... 10,000 Western Union Agent locations with cash-to-mobile service technology. Over the long term, we see the potential to transform the world's nearly five billion mobile phones into virtual Western Union locations and are building key alliances today consumers a new way to move money. to be well...

  • Page 8
    ... us the opportunity to offer new services to our customers. Our reloadable prepaid offerings in the U.S. include our Prepaid Visa Gold card, MoneyWiseTM Visa® and Mastercard® programs. Consumers can add money to these cards in a variety of ways, including loading a Western Union Money Transfer...

  • Page 9
    ... customer service and reliability, providing foreign currency payment services to small- and medium-sized enterprises. We intend to grow this business by combining Western Union's financial strength and global presence with Custom House's proven business model. Our U.S. bill payment business...

  • Page 10
    .... The Western Union Foundation helps fund programs that provide individuals, families and communities with access to better education and economic opportunity. WHAT'S AHEAD? AGENT LOCATIONS (in thousands) It is clear 2010 will be another challenging year, and we are once again taking action to...

  • Page 11
    ... Western Union to succeed. To support these priorities, we have made some changes to our organization, including the recent promotion of Hikmet Ersek to Chief Operating Officer. Hikmet is a proven leader in our company and he is focused on aligning our resources to help drive our business forward...

  • Page 12
    ... Financial Services, Inc. RANJANA CLARK President, Chief Executive Officer and Director, The Western Union Company BETSY D. HOLDEN President, Global Business Payments and Executive Vice President, Head of Global Strategy GAIL GALUPPO Director, Member of the Corporate Governance and Public Policy...

  • Page 13
    ...the closing sale price of $16.40 of the common stock as reported on the New York Stock Exchange. As of February 12, 2010, 682,769,241 shares of the registrant's common stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for the 2010 annual meeting...

  • Page 14
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...131...

  • Page 15
    ... 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...

  • Page 16
    ... First Data Corporation; 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 management...

  • Page 17
    ...including Visa» and Mastercard» prepaid debit card offerings. The majority of our revenue comes from fees that consumers pay when they send money or make payments. In certain money transfer and payment services transactions involving different send and receive currencies, we generate revenue based...

  • Page 18
    ... in cash at agent locations, in some places we offer payout directly to the receiver's bank account, to a stored-value card, to a mobile phone or through the issuance of a money order. Operations Our revenue is derived primarily from transaction fees charged to consumers to transfer money. In money...

  • Page 19
    ... United Kingdom and use a debit card or credit card to initiate a transaction. The money transfer is then available for pay-out at an agent location. Account to cash. This service allows consumers to debit their bank accounts and send the money through Western Union for pay-out at an agent location...

  • Page 20
    ...-border money transfer business tend to correlate to migration trends, global economic opportunity and related employment rates worldwide. The top four inbound remittance countries in the world are India, China, Mexico and the Philippines, and cumulatively receive an estimated $136 billion annually...

  • Page 21
    ...our acquisition of Custom House in September 2009. We can process payments using the customer's credit card, debit card, bank account or cash depending on the service selected. We believe our business customers who receive payments from consumers benefit from their relationship with Western Union as...

  • Page 22
    ... have accounts or other business relationships. Similar to our Quick Collect service, consumers use our Western Union Convenience Pay» ("Convenience Pay") service to send payments by cash or check from a smaller number of Convenience Pay agent locations primarily to utilities and telecommunication...

  • Page 23
    .... Our internet services are marketed to consumers and businesses on our websites as well as through co-branding arrangements with our website partners who offer our payment solutions. Consumers can also participate in the Western Union Gold Card program when using our Quick Collect service. We...

  • Page 24
    ... 1, 2009 (the "Transition Date"), in accordance with the agreement signed on July 18, 2008, Integrated Payment Systems Inc. ("IPS"), a subsidiary of First Data Corporation ("First Data"), assigned and transferred to us certain operating assets used by IPS to issue Western Union branded money orders...

  • Page 25
    ... of the Western Union business model is our ability to manage financial risk associated with conducting transactions worldwide. We settle accounts with the majority of our agents in United States dollars or euros. We utilize foreign currency exchange contracts, primarily forward contracts, to...

  • Page 26
    ... control regulations, money transfer and payment instrument licensing regulations, payment service laws, rules, laws and regulations applicable to credit cards and electronic payments including those governing foreign exchange hedging services and the sale of spot and forward currency contracts...

  • Page 27
    ..., limitations on the number of money transfers that may be sent or received by a consumer and agreements on the rates of exchange between currencies. They may also include laws and regulations intended to help detect and prevent money laundering or terrorist financing. In most countries, our agents...

  • Page 28
    ... related laws and regulations in the United States and other countries. In the United States, data privacy and data breach laws such as the federal Gramm-Leach-Bliley Act and various state laws apply directly to a broad range of financial institutions including money transmitters like Western Union...

  • Page 29
    ...31, 2010, our businesses employed approximately 6,800 employees. Our United States based employees are no longer represented by any unions or collective bargaining agreements. Available Information The Western Union Company is a Delaware corporation and its principal executive offices are located at...

  • Page 30
    ..., Head of Global Strategy. Prior to joining Western Union in March 2009, she led the Wholesale Customer Experience Group at Wells Fargo & Company from January 2009. From April 2007 to December 2008, she served as Chief Marketing Officer of Wachovia Corporation. Prior to that time, from January 2001...

  • Page 31
    ... Accounts. Prior to taking this position in January 2010, Mr. Stockdale served as our Executive Vice President and President, The Americas from November 2008. From June 2008 to November 2008, Mr. Stockdale served as Executive Vice President and President, United States and Canada, with Western Union...

  • Page 32
    ... in a timely manner to new technology-based money transfer services such as internet, land and mobile phone-based money transfer services and prepaid, stored-value and other card-based money transfer services. Failure to respond well to these challenges could adversely impact our business, financial...

  • Page 33
    ... we provide our services. One example of such a change is the Payment Services Directive ("PSD") which became effective on November 1, 2009. The PSD has changed the payments market in the European Union ("EU"), harmonizing the licensing and certain other requirements for offering payment and other...

  • Page 34
    ...reduced sales or business as a result of a deterioration in economic conditions. As a result, our agents could reduce their numbers of locations or hours of operation, or cease doing business altogether. Businesses using our services may make fewer cross-currency payments or may have fewer customers...

  • Page 35
    ...the United States dollar. As a result, we are subject to risks associated with changes in the value of our revenues denominated in foreign currency. We also recently acquired Canada-based Custom House which provides currency conversion and foreign exchange hedging services to its customers. In order...

  • Page 36
    ...agents have been required by their regulators to cease offering our services. Additionally, economic or political instability or natural disasters may make money transfers to, from or within a particular country difficult, such as when banks are closed, when currency devaluation makes exchange rates...

  • Page 37
    ... financial statements in future periods and could impact our operating cash flows. The Internal Revenue Service ("IRS") completed its examination of the United States federal consolidated income tax returns of First Data Corporation ("First Data") for 2003 and 2004, of which Western Union...

  • Page 38
    ... business payments networks under terms consistent with those currently in place, or if our agents or subagents fail to comply with Western Union business and technology standards and contract requirements or applicable laws and regulations, our business, financial position and results of operations...

  • Page 39
    ... our contracts could adversely affect our operations and revenue by, for example, allowing competitors to benefit from the goodwill associated with the Western Union brand at our agent locations. We have relationships with more than 6,300 businesses to which our consumers can make payments. These...

  • Page 40
    ... fails to pay us for the value of these contracts, we may be exposed to the value of an offsetting position with a financial institution counterparty. We offer consumers, primarily in the United States, the ability to transfer money utilizing their credit or debit card via the internet and telephone...

  • Page 41
    ... costs of borrowing money, adversely affecting our business, financial position and results of operations. Western Union has been the subject of class-action litigation, and remains the subject of other litigation as well as consent agreements with or enforcement actions by regulators. Western Union...

  • Page 42
    ... affect our business, financial position and results of operations. We face competition from global and niche or corridor money transfer providers, United States and international banks, card associations, card-based payments providers and a number of other types of service providers, including...

  • Page 43
    ... associated with the name would harm our business. Similar to the Western Union trademark, the Vigo, Orlandi Valuta, Speedpay, Paymap, Equity Accelerator, Just in Time EFT, Pago Fácil, Western Union Quick Collect, Quick Pay, Quick Cash, Convenience Pay, Custom House and other trademarks and service...

  • Page 44
    ... of our cash flow from operations to payments on our debt, thereby reducing funds available for working capital, capital expenditures, acquisitions and other purposes. There would be adverse tax consequences associated with using certain earnings generated outside the United States to pay the...

  • Page 45
    ...tax allocation agreement, the IRS might seek to collect such taxes from Western Union. Even if the Spin-off otherwise qualified as a tax-free distribution under section 355 of the Internal Revenue Code, the Spin-off may result in significant United States federal income tax liabilities to First Data...

  • Page 46
    ... and global business payments segments and are all currently being utilized. In certain locations, our offices include customer service centers, where our employees answer operational questions from agents and customers. Our office in Dublin, Ireland serves as our international headquarters. We...

  • Page 47
    PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the New York Stock Exchange under the symbol "WU." There were 4,643 stockholders of record as of February 12, 2010. This figure does not include an...

  • Page 48
    ... receiving dividends from our operating subsidiaries. Several of our operating subsidiaries are subject to financial services regulations and their ability to pay dividends may be restricted. On February 25, 2010, our Board of Directors declared a quarterly cash dividend of $0.06 per share payable...

  • Page 49
    ... the accounts of the Company and our majority-owned subsidiaries. On September 29, 2006, First Data Corporation ("First Data") distributed 100% of its money transfer and consumer payments businesses and its interest in a Western Union money transfer agent, as well as related assets, including...

  • Page 50
    ... requires us 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 settlement agreement was signed on February 11, 2010. (e) Interest income is attributed...

  • Page 51
    ...money transfer services worldwide. Amounts include Vigo Remittance Corp. transactions since the acquisition date of October 21, 2005. (l) Global business payments transactions include Quick Collect, Western Union Convenience Pay, Speedpay, Equity Accelerator, Just in Time EFT, Pago Fácil and Custom...

  • Page 52
    ..., including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. On September 1, 2009, we acquired Canada-based Custom House, Ltd. ("Custom House"), a provider of international business-to-business payment services, which...

  • Page 53
    ... consumer, expanding our global business payments segment to other markets across the world through our cross-border, cross-currency payment service offerings and improving our profitability by leveraging our scale, reducing costs and effectively utilizing capital. Significant factors affecting...

  • Page 54
    ...interest in a Western Union money transfer agent, as well as related assets, including real estate, through a tax-free distribution to First Data shareholders ("Spin-off ") through this previously owned subsidiary. Basis of Presentation The financial statements in this Annual Report on Form 10-K are...

  • Page 55
    ... operations, and related information technology costs. Expenses within these functions include personnel, software, equipment, telecommunications, bank fees, depreciation and amortization and other expenses incurred in connection with providing money transfer and other payment services. Selling...

  • Page 56
    ... per share amounts) 2009 2008 2007 % Change 2009 2008 vs. 2008 vs. 2007 Revenues: Transaction fees ...Foreign exchange revenue ...Commission and other revenues...Total revenues ...Expenses: Cost of services ...Selling, general and administrative...Total expenses ...Operating income ...Other income...

  • Page 57
    ... transfers at existing agent locations, and to a lesser extent, money transfers at new agent locations and due to the impact of translating foreign currency denominated revenues into the United States dollar, specifically the euro, discussed below. Our international consumer-to-consumer transactions...

  • Page 58
    ... strengthening of other currencies most notably the euro, against the United States dollar. Operating expenses overview The following factors impacted both cost of services and selling, general and administrative expenses during the periods presented: • Restructuring and Related Activities-For the...

  • Page 59
    ...selective consumer-to-consumer agent commission initiatives, restructuring costs incurred in 2008 which did not recur in 2009 and the related 2009 cost savings, offset somewhat by incremental operating costs, including increased technology costs and costs associated with Custom House. In addition to...

  • Page 60
    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. ...

  • Page 61
    ... 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...

  • Page 62
    ..., 2010, we signed this agreement and settlement, which resolved all outstanding legal issues and claims with the State and requires us 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...

  • Page 63
    ... 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%, 6% and 5% of consolidated Western Union revenues during the years ended December 31, 2009, 2008...

  • Page 64
    ... 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 fee and foreign exchange revenue for the year ended December 31, 2009 of $101...

  • Page 65
    ... more of our services; however, not every location completes a transaction in a given period. For example, as of December 31, 2009, 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...

  • Page 66
    ... against the United States dollar and, as a result, we experienced a spike in transactions as United States senders took advantage of the more favorable exchange rates. As the devaluation of the peso was sudden and unusual, we needed to acquire pesos at less favorable rates in order to meet the...

  • Page 67
    ... States cash and electronic bill payments businesses, partially offset by revenue generated from our recent acquisition of Custom House, as described below, and slight growth in the Pago Fácil business. We believe many United States consumers who would use our services are having difficulty paying...

  • Page 68
    ... 31, 2009, operating income decreased compared to the same period in the prior year primarily due to operating income declines related to the United States-based bill payments business and operating and integration costs associated with the acquisition of Custom House, offset slightly by the savings...

  • Page 69
    ... existing agreement whereby IPS paid Western Union a fixed return of 5.5% on the outstanding money order balances. Following the Transition Date, we invested the cash received from IPS in high-quality, investment grade securities, primarily tax exempt United States state and municipal securities, in...

  • Page 70
    ... 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 many cases, we receive funds from money transfers and certain other payment services and money orders before we...

  • Page 71
    ... 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 ("PSD") in the European Union, we expect to have...

  • Page 72
    ...% of the related aggregate commitments, a utilization fee of 5 basis points as of December 31, 2009 based upon such ratings is payable to the lenders on the aggregate outstanding borrowings. The interest rate margin, facility fee and utilization fee are all based on certain of our credit ratings. As...

  • Page 73
    ... regulated subsidiaries to pay dividends; and Our agent relationships may be adversely impacted, particularly those agents that are financial institutions or post offices. The Revolving Credit Facility contains covenants which, among other things, limit or restrict our ability to sell or transfer...

  • Page 74
    ... acquired Canada-based Custom House, a provider of international business-to-business payment services, for cash consideration of $371.0 million for 100% 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...

  • Page 75
    ... relationship at more favorable commission rates to Western Union. As a result, we earn a pro-rata share of profits and have enhanced voting rights. We also have the right to add additional agent relationships in Singapore under this agreement. In October 2007, we completed an agreement to acquire...

  • Page 76
    ...2) discount rate. Western Union employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed income securities are considered consistent with the widely accepted capital...

  • Page 77
    .... This line item primarily includes the expected payment of $71.0 million related to the agreement and settlement with the State of Arizona, including amounts to be paid to fund a multi-state not-for-profit organization promoting safety and security along the United States and Mexico border...

  • Page 78
    ... in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities and other related disclosures. Actual...

  • Page 79
    ...(ii) any difference from our tax position as recorded in the financial statements and the final resolution of a tax issue during the period. The Internal Revenue Service ("IRS") has completed audits of the United States federal consolidated income tax returns of First Data for the years 2002 through...

  • Page 80
    ... Differ from Assumptions Derivative Financial Instruments We utilize derivatives to (a) minimize our exposure related to changes in foreign currency exchange rates and interest rates and (b) facilitate crosscurrency business-to-business payments by writing derivatives to customers and entering into...

  • Page 81
    ... accounting policy criteria and requires management judgment as to the appropriate time to initiate capitalization. Our accounting policy is to limit the amount of capitalized costs for a given agent contract to the lesser of the estimated future cash flows from the contract or the termination fees...

  • Page 82
    ... primarily using discounted cash flows and replacement cost analysis. During the last three years, we completed the following significant acquisitions: • • In September 2009, we acquired Custom House for $371.0 million. In February 2009, we acquired the money transfer business of FEXCO...

  • Page 83
    ... 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...

  • Page 84
    ... 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...

  • Page 85
    ... global financial institutions. Since January 1, 2009, we also limit our investment level to no more than $100 million with respect to individual funds. We are also exposed to credit risk related to receivable balances from agents in the money transfer, walkin bill payment and money order settlement...

  • Page 86
    ...8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE WESTERN UNION COMPANY Index To Consolidated Financial Statements Management's Reports on the Financial Statements and Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Consolidated Statements of...

  • Page 87
    ... of Western Union's internal control over financial reporting as of December 31, 2009, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. The Company completed its acquisition of Custom House, Ltd...

  • Page 88
    ...have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Western Union Company as of December 31, 2009 and 2008, and the related consolidated statements of income, cash flows, and stockholders' equity...

  • Page 89
    ... 740, "Income Taxes"). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Western Union Company's internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated...

  • Page 90
    THE WESTERN UNION COMPANY Consolidated Statements of Income (in millions, except per share amounts) Year Ended December 31, 2009 2008 2007 Revenues: Transaction fees ...$4,036.2 $4,240.8 $3,989.8 Foreign exchange revenue ...910.3 896.3 771.3 Commission and other revenues ...137.1 144.9 139.1 Total ...

  • Page 91
    THE WESTERN UNION COMPANY Consolidated Balance Sheets (in millions, except per share amounts) December 31, 2009 2008 Assets Cash and cash equivalents ...$1,685.2 $1,295.6 Settlement assets ...2,389.1 1,207.5 Property and equipment, net of accumulated depreciation of $335.4 and $284.0, respectively ...

  • Page 92
    ....4) Accounts payable and accrued liabilities ...75.5 Income taxes payable ...138.3 Other liabilities ...(22.5) Net cash provided by operating activities ...1,218.1 Cash flows from investing activities Capitalization of contract costs ...(27.3) Capitalization of purchased and developed software...(11...

  • Page 93
    ... date change ...Unrealized gains on investment securities, net of tax ...Unrealized gains on hedging activities, net of tax ...Foreign currency translation adjustment, net of tax ...Pension liability adjustment, net of tax ...Comprehensive income ...Balance, December 31, 2008 ...Net income ...Stock...

  • Page 94
    ... services regulations. Spin-off from First Data On January 26, 2006, the First Data Board of Directors announced its intention to pursue the distribution of 100% of its money transfer and consumer payments business and its interest in a Western Union money transfer agent, as well as its related...

  • Page 95
    ... awaiting settlement in long-term investment securities. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates...

  • Page 96
    ... a purchase are derived utilizing one of the three recognized approaches: the market approach, the income approach or the cost approach. • Except as it pertains to an investment redemption discussed in Note 9, carrying amounts for many Western Union financial instruments, including cash and cash...

  • Page 97
    ...various financial institutions, including a substantial portion in money market funds. Western Union limits the concentration of its cash and cash equivalents with any one institution; however, such balances often exceed United States federal deposit insurance limits. Western Union regularly reviews...

  • Page 98
    ...): December 31, 2009 2008 Settlement assets: Cash and cash equivalents ...$ 161.9 Receivables from selling agents and business-to-business customers ...1,004.4 Investment securities ...1,222.8 $2,389.1 Settlement obligations: Money transfer, money order and payment service payables ...$1,954...

  • Page 99
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Deferred Customer Set Up Costs The Company capitalizes direct incremental costs not to exceed related deferred revenues associated with the enrollment of customers in the Equity Accelerator program, a service that ...

  • Page 100
    ...based on the difference between the exchange rate set by the Company to the customer and the rate at which the Company or its agents are able to acquire currency. This foreign exchange revenue is recorded at the time the related consumer money transfer transaction fee revenue is recognized or at the...

  • Page 101
    .... Foreign Currency Translation The United States dollar is the functional currency for all of Western Union's businesses except global business payments subsidiaries located primarily in Canada and South America. Revenues and expenses are translated at average exchange rates prevailing during...

  • Page 102
    ...its cross-currency business-to-business payments operations. These contracts have durations generally of nine months or less. The Company aggregates its foreign exchange exposures in its Custom House business, including the exposure generated by the derivative contracts it writes to its customers as...

  • Page 103
    ..., results of operations and cash flows. 3. Acquisitions 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...

  • Page 104
    ... accounts associated with working capital and settlement, which may also result in an adjustment to goodwill. FEXCO On February 24, 2009, the Company acquired the money transfer business of European-based FEXCO, one of the Company's largest agents providing services in a number of European countries...

  • Page 105
    ...as non-cash consideration, which had an estimated fair value of $86.2 million on the acquisition date, and paid A123.1 million ($157.4 million) as additional consideration for 100% of the common shares of the money transfer business, resulting in a total purchase price of $243.6 million. The Company...

  • Page 106
    ... favorable commission rates to Western Union. As a result, the Company earns a pro-rata share of profits and has enhanced voting rights. The Company also has the right to add additional agent relationships in Singapore. In addition, in October 2007, the Company completed an agreement to acquire a 25...

  • Page 107
    ... working in the United States under a collective bargaining agreement. The Company incurred severance and employee related benefit expenses for all union and certain affected management employees, facility closure expenses and other expenses associated with the relocation of these operations...

  • Page 108
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. 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...

  • Page 109
    ... a major credit rating agency. Effective October 1, 2009 (the "Transition Date"), in accordance with the agreement signed on July 18, 2008, IPS, a subsidiary of First Data, assigned and transferred to the Company certain operating assets used by IPS to issue Western Union branded money orders and...

  • Page 110
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) no longer provides to IPS the services required under the original money order agreement or receives from IPS the fee for such services. In 2008, the Company began increasing its investment levels in various state and ...

  • Page 111
    ... 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 Western Union measures fair value, refer to Note 2, "Summary of Significant Accounting Policies." The...

  • Page 112
    ... 31, 2009 2008 Other assets: Derivatives ...Equity method investments...Other receivables ...Amounts advanced to agents, net of discounts...Receivable for securities sold ...Deferred customer set up costs ...Receivables from First Data ...Prepaid expenses ...Debt issue costs ...Accounts receivable...

  • Page 113
    ... Fund incurs significant legal and/or administrative costs during the distribution process, the Company may record additional reserves related to the remaining receivable balance, which could negatively affect its financial position, results of operations and cash flows. Amounts advanced to agents...

  • Page 114
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company continues 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, in the ...

  • Page 115
    ...benefits relate to the 2003 restructuring of the Company's international operations whereby the Company's income from certain foreign-to-foreign money transfer transactions has been taxed at relatively low foreign tax rates compared to the Company's combined federal and state tax rates in the United...

  • Page 116
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) the Company, are eligible to be examined for the years 2002 through 2006. The Company's United States federal income tax returns since the Spin-off are also eligible to be examined. The United States Internal Revenue ...

  • Page 117
    ... Savings Plan ("401(k)") covers eligible employees on the United States payroll of Western Union. Employees who make voluntary contributions to this plan receive up to a 4% Western Union matching contribution. All matching contributions are immediately 100% vested. On September 30, 2009, the Company...

  • Page 118
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table provides a reconciliation of the changes in the pension plans' projected benefit obligations, fair value of assets and the funded status (in millions): 2009 2008 Change in projected benefit ...

  • Page 119
    .... Western Union employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are considered consistent with the widely accepted capital market...

  • Page 120
    ... to buy or sell a United States treasury bond or note at predetermined future dates and prices. Futures are transacted in standardized amounts on regulated exchanges. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability...

  • Page 121
    ... in 2015 through 2019. 12. Operating Lease Commitments Western Union leases certain real properties for use as customer service centers and administrative and sales offices. Western Union also leases data communications terminals, computers and office equipment. Certain of these leases contain...

  • Page 122
    ...amounts are recognized in income when the related forecasted transaction affects earnings. See Note 14 for further discussion. The assets and liabilities of foreign subsidiaries whose functional currency is not the United States dollar are translated using the appropriate exchange rate as of the end...

  • Page 123
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The income tax effects allocated to and the cumulative balance of each component of accumulated other comprehensive loss were as follows (in millions): 2009 2008 2007 Beginning balance, January 1 ...Unrealized gains/(...

  • Page 124
    ... 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...

  • Page 125
    ... 2009 were as follows (in millions): Contracts not designated as hedges: Euro ...British pound ...Other ...Contracts designated as hedges: Euro ...Canadian dollar ...British pound ...Other ...Foreign Currency-Global Business Payments As a result of the acquisition of Custom House, the Company writes...

  • Page 126
    ... 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 Hedging-Corporate The Company utilizes interest rate swaps to effectively change the interest rate payments...

  • Page 127
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes the fair value of derivatives held at December 31, 2009 and their expected maturities (in millions): Total 2010 2011 Thereafter Foreign currency cash flow hedges-Consumer-to-consumer ......

  • Page 128
    ...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...

  • Page 129
    ... rate loan and Western Union credit spreads did not move significantly between the date of the borrowing (December 5, 2008) and December 31, 2008. The fair value of the fixed rate notes is determined by obtaining quotes from multiple independent banks and excludes the impact of discounts and related...

  • Page 130
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) issuance. The Company's commercial paper borrowings at December 31, 2008 had weighted-average interest rates of approximately 4.1% and weighted-average initial terms of 27 days. The Company had no commercial paper ...

  • Page 131
    ... enter into sale and leaseback transactions. The Company may redeem the 2016 Notes at any time prior to maturity at the greater of par or a price based on the applicable treasury rate plus 20 basis points. 16. Stock Compensation Plans Stock Compensation Plans The Western Union Company 2006 Long-Term...

  • Page 132
    ...the Company receives all cash proceeds related to the exercise of all Western Union stock options, and recognizes all stock compensation expense and retains the resulting tax benefits relating to Western Union awards held by Western Union employees. First Data recognizes all stock-based compensation...

  • Page 133
    ... As of December 31, 2009, approximately 40% of outstanding options to purchase shares of common stock of the Company were held by employees of First Data. The Company received $23.9 million, $289.7 million and $211.8 million in cash proceeds related to the exercise of stock options during the years...

  • Page 134
    .... In 2009 and 2008, Western Union used a blend of implied and historical volatility. The Company's implied volatility was calculated using the market price of traded options on Western Union's common stock. In 2009, the historical volatility represented a blend of Western Union and First Data (prior...

  • Page 135
    ...accounted for as a change in estimate, with the cumulative effect of the change on periods previously reported being reflected in the financial statements of the period in which the change is made. In the future, as more historical data is available to calculate the volatility of Western Union stock...

  • Page 136
    .... On February 11, 2010, the Company signed an 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...

  • Page 137
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents the Company's reportable segment results for the years ended December 31, 2009, 2008 and 2007, respectively (in millions): Years Ended December 31, 2009 2008 2007 Revenues: Consumer-to-...

  • Page 138
    ... allocated to that country. Long-lived assets, consisting of "Property and equipment, net," are presented based upon the location of the assets. A majority of Western Union's consumer-to-consumer transactions involve at least one non-United States location. Based on the method used to attribute...

  • Page 139
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 18. Quarterly Financial Information (Unaudited) Summarized quarterly results for the years ended December 31, 2009 and 2008 were as follows (in millions): 2009 by Quarter: Q1 Q2 Q3 Q4 Year Ended December 31, 2009 ...

  • Page 140
    ... 31, 2009 and 2008 and statements of income and cash flows for each of the three years in the period ended December 31, 2009. THE WESTERN UNION COMPANY CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in millions, except per share amounts) December 31, 2009 2008 Assets Cash and cash equivalents...

  • Page 141
    THE WESTERN UNION COMPANY CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2009 2008 2007 Revenues ...$ - Expenses ...- Operating income ...Interest income ...Interest expense ...Loss before equity in earnings of affiliates and income taxes ......

  • Page 142
    THE WESTERN UNION COMPANY CONDENSED STATEMENTS OF CASH FLOW (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2009 2008 2007 Cash flows from operating activities Net cash provided by operating activities ...$ 505.0 Cash flows from investing activities Purchases of property and ...

  • Page 143
    ... 2009. The Parent's subsidiaries periodically distribute excess cash balances to the Parent in the form of a dividend, although the amounts of such dividends may vary from year to year. The Parent files a consolidated U.S. federal income tax return, and also a number of consolidated state income tax...

  • Page 144
    ... report on Western Union's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), and the related Report of Independent Registered Public Accounting Firm, are set forth under Item 8 of this Annual Report on Form...

  • Page 145
    ...Officers, Auditing Complaint Procedure, Professional Conduct Policy for Attorneys, and the Code of Conduct are available without charge through the "Corporate Governance" portion of the company's web site, www.westernunion.com, or by writing to the attention of: Investor Relations, The Western Union...

  • Page 146
    ... part of this report: 1. 2. 3. Financial Statements (See Index to Consolidated Financial Statements on page 72 of this Annual Report on Form 10-K); Financial Statement Schedule (See Index to Consolidated Financial Statements on page 72 of this Annual Report on Form 10-K); The exhibits listed in the...

  • Page 147
    ... duly authorized. THE WESTERN UNION COMPANY (Registrant) February 26, 2010 By: /s/ CHRISTINA A. GOLD Christina A. Gold, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of...

  • Page 148
    ...of September 6, 2007, among The Western Union Company and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.13 to the Company's Annual Report on Form 10-K filed on February 26, 2008 and incorporated herein by reference thereto). Tax Allocation Agreement, dated as of September 29...

  • Page 149
    ...the Company's Annual Report on Form 10-K filed on February 19, 2009 and incorporated herein by reference thereto).* The Western Union Company Severance/Change in Control Policy (Executive Committee Level), as Amended and Restated Effective January 1, 2010.* The Western Union Company Senior Executive...

  • Page 150
    ... thereto).* Form of 2010 Cash Performance Grant Award Agreement for Executive Committee Members.* Form of Award Agreement under The Western Union Company Senior Executive Annual Incentive Plan for 2010.* Employment Contract, dated as of November 9, 2009, between Western Union Financial Services GmbH...

  • Page 151
    ... Union Company Code of Ethics for Senior Financial Officers, as Amended and Restated Effective December 9, 2009. Subsidiaries of The Western Union Company Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer of The Western Union Company Pursuant to Rule...

  • Page 152
    ... write the company at 12500 East Belford Avenue, Englewood, CO 80112, call +1-866-405-5012 or visit the "Investor Relations" section of our website at www.westernunion. com. A copy of the Western Union 2009 Form 10-K report to the Securities and Exchange Commission will be furnished to stockholders...

  • Page 153
    We speak in every currency of the world. Customers trust us to provide meaningful money movement solutions, anytime, anywhere. 12500 EAST BELFORD AVENUE | ENGLEWOOD, CO 80112, USA | WESTERNUNION.COM