Western Union 2010 Annual Report Download

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Moving money
for better
ANNUAL REPORT

Table of contents

  • Page 1
    2010 ANNUAL REPORT Moving money for better

  • Page 2
    ...one in China. Westernunion.com Internet money transfer is available in 20 countries, and over 80,000 Agent locations in 48 countries are enabled to provide cash-tomobile service. We have active mobile money transfer service with network operators in the Philippines, Kenya, Canada, and Malaysia, with...

  • Page 3
    ...the closing sale price of $14.91 of the common stock as reported on the New York Stock Exchange. As of February 18, 2011, 646,777,157 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 4
    ..., 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 ...130...

  • Page 5
    ... of United States government relations with countries in which we have or are implementing material agent contracts; 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...

  • Page 6
    ... one location to another or to third parties, particularly transitions from the United States to other countries; changes in industry standards affecting our business; changes in accounting standards, rules and interpretations; significantly slower growth or declines in the money transfer market and...

  • Page 7
    ...acquired Canada-based Custom House, Ltd. ("Custom House"), a provider of international business-to-business cross-border, cross-currency payment services. In the third quarter of 2010, Custom House was rebranded "Western Union» Business Solutions." Although the majority of the revenue in our global...

  • Page 8
    ... options to receive a money transfer. While the vast majority of transfers are paid in cash at agent locations, in some places we offer payout directly to the receiver's bank account, to a storedvalue card, to a mobile phone or through the issuance of a money order. Operations Our revenue is derived...

  • Page 9
    ... expect. Online money transfer service. Our websites allow consumers to send funds on-line, generally using a credit or debit card, for pay-out at most Western Union branded agent locations around the world. As of December 31, 2010, we are now providing on-line money transfer service in 20 countries...

  • Page 10
    ... 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 $150 billion annually according to The World Bank's November 2010 report. Due...

  • Page 11
    ...utilities, auto finance companies, mortgage servicers, financial service providers, governmental agencies and other businesses. We also provide international business-to-business cross-border, cross-currency payment services. We can process payments using the customer's credit card, debit card, bank...

  • Page 12
    ... write foreign currency forward and option contracts for customers to facilitate future payments. Western Union Payments. The Western Union Payments service, formerly Quick Collect», allows consumers to send funds to businesses and government agencies across the United States and Canada, using cash...

  • Page 13
    ... be deposited directly into bank accounts or cashed at check cashiers, some banks and some retailers. We derive investment income from interest generated on our money order settlement assets, which are primarily held in United States tax exempt state and municipal debt securities. Our prepaid cards...

  • Page 14
    ... 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 15
    ... and explore new service offerings. In 2009, we used our foreign earnings to acquire the money transfer business of our largest European-based agent, FEXCO, and also to acquire Custom House, which expanded the service offerings of the global business payments segment to include cross-currency, cross...

  • Page 16
    ... of a country, limitations on the number of money transfers that may be sent or received by a consumer and controls 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, including reporting...

  • Page 17
    ... an anti-money laundering compliance program comprising policies, procedures, systems and internal controls. We have employees in a number of our offices around the world dedicated to our global compliance program efforts. In connection with an agreement and settlement with the State of Arizona...

  • Page 18
    ..., and notice and reporting requirements. Banking Department approval is required under the New York Banking Law and the Agreement of Supervision prior to any change in control of the Article XII investment company. Since these subsidiaries do not operate any banking offices in the United States and...

  • Page 19
    ... or collective bargaining agreements. Available Information The Western Union Company is a Delaware corporation and its principal executive offices are located at 12500 East Belford Avenue, Englewood, CO, 80112, telephone (866) 405-5012. The Company's Annual Report on Form 10-K, quarterly reports on...

  • Page 20
    ... November 2008. From June 2008 to November 2008, Mr. Stockdale served as Executive Vice President and President, United States and Canada, with Western Union. Prior to joining Western Union in June 2008, Mr. Stockdale served as the President of Simon Brand Ventures and as Chief Marketing Officer of...

  • Page 21
    ... to new technology-based money transfer services such as internet, 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 position and results of operations...

  • Page 22
    ... the foreign exchange derivative products offered to certain of its customers. Other examples of such regulatory changes are the Payment Services Directive ("PSD") in the European Union ("EU") which became effective in late 2009, and a similar law, the Funds Settlement Act, enacted in Japan in 2010...

  • Page 23
    ... working abroad. Remittance companies accepting the subsidy are prohibited from charging fees to the sender or receiver. Such initiatives may have an adverse impact on our business, financial position and results of operations. In 2009, one state passed a law imposing a fee on certain money transfer...

  • Page 24
    ...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 25
    ... management is greater in our Business Solutions business due to the nature of this business. The significant majority of Business Solutions' revenue is from exchanges of currency at the spot rate enabling customers to make cross-currency payments. This business also writes foreign currency forward...

  • Page 26
    ...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 was a part, and issued a Notice of Deficiency in December 2008. The...

  • Page 27
    ..., training and agent oversight requirements under applicable state and federal law. The consent agreements with the New York State Banking Department and the California Department of Financial Institutions were lifted during 2008. However, the financial services industry and businesses like ours...

  • Page 28
    ... these acquisitions and where necessary, improving internal controls of these acquired businesses; complying with regulatory requirements; fluctuations in currency exchange rates; enforcement of intellectual property rights in some foreign countries; difficulty entering new markets with the services...

  • Page 29
    ..., financial position and results of operations. The vast majority of our global funds transfer business is conducted through third-party agents that provide our services to consumers at their retail locations. These agents sell our services, collect funds from consumers and are required to pay the...

  • Page 30
    ... and could damage our reputation, business, financial position and results of operations. We collect, transfer and retain consumer, employee and agent data as part of our business. These activities are subject to laws and regulations in the United States and other jurisdictions. The requirements...

  • Page 31
    ... the number of locations at which money transfer services are offered and other negative consequences. The regulatory status of our agents could affect their ability to offer our services. For example, our agents in the United States are considered Money Service Businesses, or "MSBs," under the Bank...

  • Page 32
    ... money, adversely affecting 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...

  • Page 33
    ... to the Western Union trademark, the Vigo, Orlandi Valuta, Speedpay, Paymap, Equity Accelerator, Just in Time EFT, Pago Fácil, Western Union Payments, Western Union Quick Collect, Quick Pay, Quick Cash, Convenience Pay, Western Union Business Solutions and other trademarks and service marks are...

  • Page 34
    ... 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 35
    ... 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 36
    ... against the Company. Should such charges or claims be brought, the Company could face significant fines, damage awards or regulatory consequences which could have a material adverse effect on the Company's business, financial position and results of operations. The Company is a party to a variety...

  • Page 37
    ... low prices of the common stock on the New York Stock Exchange as well as dividends declared per share during the calendar quarter indicated. Common Stock Market Price High Low Dividends Declared per Share 2010 First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...2009 First Quarter...

  • Page 38
    ... be dependent on our 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, 2011, our Board of Directors declared a quarterly cash dividend of $0.07...

  • Page 39
    ... with our historical consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K. (in millions, except per share data) 2010 Year ended December 31, 2009 2008 2007 2006 Statements of Income Data: Revenues (a) ...Operating expenses...

  • Page 40
    ... and related foreign currency swap agreements were settled in cash in connection with the Spin-off. Net cash provided by operating activities decreased during the year ended December 31, 2010, primarily due to a $250 million refundable tax deposit made relating to potential United States federal tax...

  • Page 41
    ...-to-consumer money transfer services worldwide. (n) Global business payments transactions include the Western Union Payments service, formerly Quick Collect, Convenience Pay, Speedpay, Equity Accelerator, Just in Time EFT, Pago Fácil and Western Union Business Solutions transactions processed by us...

  • Page 42
    ... revenue during the years ended December 31, 2010, 2009 and 2008. Prior to October 1, 2009, the Company's money orders were issued by Integrated Payment Systems Inc. ("IPS"), a subsidiary of First Data Corporation ("First Data"), to consumers at retail locations primarily in the United States...

  • Page 43
    ... cash flows provided by operating activities were $994.4 million, a decrease of 18% over 2009. This decrease was primarily the result of a $250 million refundable tax deposit we made relating to potential United States federal tax liabilities, including those arising from our 2003 international...

  • Page 44
    ...locations from and to which the funds are sent and received. Transaction fees represented 78% of our total consolidated revenues for the year ended December 31, 2010. Foreign exchange revenues-In certain consumer money transfer and global business payments transactions involving different currencies...

  • Page 45
    ... losses also do not include fluctuations in foreign currency forward and option contracts used in our international business-to-business payments operations. The impact of these contracts is classified within foreign exchange revenues in the consolidated statements of income. Other income, net-Other...

  • Page 46
    ... in our United States bill payments businesses, geographic and product mix, including a higher percentage of revenue earned from intra-country activity, which has a lower revenue per transaction, and the strengthening of the United States dollar compared to most other foreign currencies, which...

  • Page 47
    ... 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...

  • Page 48
    ... due to incremental costs, including those related to Custom House, our money order business and advancing our electronic channel initiatives, including our web and account based money transfer services; agent commissions, which primarily increase in relation to revenue increases; and restructuring...

  • Page 49
    ... 2009, as described below, lower marketing expenses and operating efficiencies, offset by incremental costs associated with Custom House and our retail expansion in Europe pursuant to the Payment Services Directive, restructuring and related expenses of $44.5 million and higher employee compensation...

  • Page 50
    ... 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...

  • Page 51
    ... 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...

  • Page 52
    ..., 2010 2009 2008 % Change 2010 2009 vs. 2009 vs. 2008 (dollars and transactions in millions) Revenues: Transaction fees ...$ 3,434.3 $ 3,373.5 $ 3,532.9 Foreign exchange revenues ...905.8 877.1 893.1 Other revenues ...43.3 50.1 45.6 Total revenues ...$ 4,383.4 $ 4,300.7 $ 4,471.6 Operating income...

  • Page 53
    ... related to pricing reductions taken in the domestic business commencing in the fourth quarter of 2009, geographic and product mix, including a higher percentage of revenue earned from intra-country activity, and the strengthening of the United States dollar compared to most other foreign currencies...

  • Page 54
    ... 31, 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 ValutaSM and Vigo») experienced money transfer activity in the previous 12 months. In the developing regions of Asia...

  • Page 55
    ... December 31, 2010 2009 2008 % Change 2010 2009 vs. 2009 vs. 2008 (dollars and transactions in millions) Revenues: Transaction fees...Foreign exchange revenues ...Other revenues ...Total revenues ...Operating income ...Operating income margin...Key indicator: Global business payments transactions...

  • Page 56
    ... 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 generated from the 2008 restructurings. The decline in operating income margin in...

  • Page 57
    ... in revenue from our money order services business, as described above, and an increase in promotional marketing activities related to our prepaid business in the United States. In 2009, we also incurred additional costs associated with evaluating and closing acquisitions compared to 2010. 2009...

  • Page 58
    ... 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 before we settle the payment of those...

  • Page 59
    ... 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 as of and during the year ended December 31, 2010. Revolving Credit Facility Our revolving credit facility expires in September...

  • Page 60
    ...are an important consideration in managing our financing costs and facilitating access to additional capital on favorable terms. Factors that we believe are important in assessing our credit ratings include earnings, cash flow generation, leverage, available liquidity and overall business risks. 58

  • Page 61
    ... 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. 59

  • Page 62
    ... one of our largest money transfer agents in Europe. We will acquire the 70% interest for cash of A100 million (approximately $133 million based on currency exchange rates at December 31, 2010), less a working capital deficiency adjustment to be determined at closing. The acquisition is expected to...

  • Page 63
    ... new financing under similar conditions as historically reported. Our ability to continue to grow the business, make acquisitions, return capital to shareholders, including share repurchases and dividends, and service our debt will depend on our ability to continue to generate excess operating cash...

  • Page 64
    ...the table above. Represents the liability position of our foreign currency derivative contracts as of December 31, 2010, which will fluctuate based on market conditions. This line item relates to accrued and unpaid initial payments for new and renewed agent contracts as of December 31, 2010. Many of...

  • Page 65
    ... expected to cost up to $19 million over the next three years pursuant to the agreement and settlement with the State of Arizona and other states. Other Commercial Commitments We had $85 million in outstanding letters of credit and bank guarantees at December 31, 2010, with expiration dates through...

  • Page 66
    ... 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 67
    ... our financial position, results of operations and cash flows. If we are 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 our business, financial position, results of operations and cash...

  • Page 68
    ...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 cross-currency business-to-business payments by writing derivatives to customers. We recognize all...

  • Page 69
    ...and renewed agent contracts as well as acquired intangible assets and software. The capitalization of initial payments for new and renewed agent contracts is subject to strict accounting policy criteria and requires management judgment as We evaluate such intangible assets to the appropriate time to...

  • Page 70
    .... In some cases, that level is the operating segment (e.g., Consumer-to-Consumer money transfer) and in others it is one level below the operating segment (e.g., Business Solutions, which is included in our global business payments segment). We calculate the fair value of each reporting unit through...

  • Page 71
    ... • In September 2009, we acquired Custom House for $371.0 million. • In February 2009, we acquired the money transfer business of FEXCO for $243.6 million. See Note 4, Acquisitions, to the Notes to the Consolidated Financial Statements, included in Item 8, of this Annual Report on Form 10-K, for...

  • Page 72
    ... non-cash expenses related to fixed asset and leasehold improvement write-offs and acceleration of depreciation. These costs represent management's best estimate, until all such amounts are paid and settled. As such, these costs require assumptions about the activities that may change over time. The...

  • Page 73
    ... Currency Exchange Rates We provide consumer-to-consumer money transfer services in 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...

  • Page 74
    ...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. To manage our exposures to...

  • Page 75
    ...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...

  • Page 76
    ... 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 ...75 Reports of Independent Registered Public Accounting Firm...76 Consolidated Statements...

  • Page 77
    ... in the United States. Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Western Union Company...

  • Page 78
    ... 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, 2010 and 2009, and the related consolidated statements of income, cash flows, and stockholders' equity/(deficiency) for each of the...

  • Page 79
    ... The Western Union Company at December 31, 2010 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial...

  • Page 80
    THE WESTERN UNION COMPANY Consolidated Statements of Income (in millions, except per share amounts) 2010 Year Ended December 31, 2009 2008 Revenues: Transaction fees ...$ Foreign exchange revenues ...Commission and other revenues ...Total revenues ...Expenses: Cost of services ...Selling, general ...

  • Page 81
    THE WESTERN UNION COMPANY Consolidated Balance Sheets (in millions, except per share amounts) December 31, 2010 2009 Assets Cash and cash equivalents ...$ Settlement assets ...Property and equipment, net of accumulated depreciation of $383.6 and $335.4, respectively ...Goodwill ...Other intangible ...

  • Page 82
    ... by operating activities ...Cash flows from investing activities Capitalization of contract costs ...Capitalization of purchased and developed software ...Purchases of property and equipment ...Acquisition of businesses, net of cash acquired ...Proceeds from/(increase in) receivable for securities...

  • Page 83
    ... issued under stock-based compensation plans .. Tax adjustments from employee stock option plans ...Effects of pension plan measurement date change...Unrealized gains on investment securities, net of tax...Unrealized gains on hedging activities, net of tax ...Foreign currency translation adjustment...

  • Page 84
    ..., 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"), which has been rebranded "Western Union Business Solutions...

  • Page 85
    ... stock are available to acquire shares at an average market price throughout the year, and therefore, reduce the dilutive effect. As of December 31, 2010, 2009 and 2008, there were 34.0 million, 37.5 million and 8.0 million, respectively, of outstanding options to purchase shares of Western Union...

  • Page 86
    ... value. Results of operations of the acquired company are included in the Company's results from the date of the acquisition forward and include amortization expense arising from acquired intangible assets. Effective January 1, 2009, the Company expenses all costs as incurred related to or involved...

  • Page 87
    ...these spot foreign currency exchange contracts is largely mitigated, as in most cases Business Solutions requires the receipt of funds from customers before releasing the associated cross-currency payment. Settlement obligations consist of money transfer, money order and payment service payables and...

  • Page 88
    ...): December 31, 2010 2009 Settlement assets: Cash and cash equivalents ...$ Receivables from selling agents and business-to-business customers ...Investment securities...$ Settlement obligations: Money transfer, money order and payment service payables ...$ Payables to agents ...$ Property and...

  • Page 89
    ... 31, 2010, 2009 and 2008, respectively. The Company capitalizes initial payments for new and renewed agent contracts to the extent recoverable through future operations or penalties in the case of early termination. The Company's accounting policy is to limit the amount of capitalized costs for...

  • Page 90
    ...of sale. In certain consumer money transfer and global business payments transactions involving different currencies, the Company generates revenue 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...

  • Page 91
    ... fair value related to these contracts are recorded in "Foreign exchange revenues." • • The fair value of the Company's derivatives is derived from standardized models that use market based inputs (e.g., forward prices for foreign currency). The details of each designated hedging relationship...

  • Page 92
    ..., 2010 and as subsequently revised, the Company's Board of Directors approved a restructuring plan (the "Restructuring Plan") designed to reduce the Company's overall headcount and migrate positions from various facilities, primarily within the United States and Europe, to regional operating centers...

  • Page 93
    ...): Severance and Employee Related Fixed Asset Write-Offs and Accelerated Depreciation Lease Terminations Other (b) Total Balance, December 31, 2009 ...Expenses (a) ...Cash payments ...Non-cash charges (a) ...Balance, December 31, 2010 ...Cumulative expenses incurred to date ...Additional expenses...

  • Page 94
    ... including the telephone and internet. The significant majority of Custom House's 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 its customers to facilitate...

  • Page 95
    ... Company's largest agents providing services in a number of European countries, primarily the United Kingdom, Spain, Sweden and Ireland. The acquisition of FEXCO's money transfer business has assisted the Company in the implementation of the Payment Services Directive ("PSD") in the European Union...

  • Page 96
    ... transfer agent in Peru for a purchase price of $35.0 million. The aggregate consideration paid was $29.7 million, net of a holdback reserve of $3.0 million. The Company acquired cash of $2.3 million as part of the acquisition. $1.0 million holdback reserve payments were made in both 2009 and 2010...

  • Page 97
    ... quarter of 2009, the Antitrust Division of the United States Department of Justice ("DOJ") served one of the Company's subsidiaries with a grand jury subpoena requesting documents in connection with an investigation into money transfers, including related foreign exchange rates, from the United...

  • Page 98
    ...fixed return of 5.5% on the outstanding money order balances. Following the Transition Date, the Company invested the cash received from IPS in high-quality, investment grade securities, primarily tax exempt United States state and municipal debt securities, in accordance with applicable regulations...

  • Page 99
    ... income or loss, net of related deferred taxes. Proceeds from the sale and maturity of available-for-sale securities during the years ended December 31, 2010, 2009 and 2008 were $14.7 billion, $8.4 billion and $2.8 billion, respectively. The transition of the money order business from IPS in October...

  • Page 100
    ... 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...

  • Page 101
    ... 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 Consolidated Balance Sheets. At the time the redemption request was made, the Company was informed by the Reserve Management...

  • Page 102
    ... combined federal and state tax rates in the United States. In addition, during 2010 the Company has also benefitted from cumulative and ongoing tax planning benefits, including benefits related to certain previous foreign acquisitions, and certain IRS settlements related to 2002 through 2004. 100

  • Page 103
    ... Company's assets and liabilities. The following table outlines the principal components of deferred tax items (in millions): December 31, 2010 2009 Deferred tax assets related to: Reserves, accrued expenses and employee-related items ...$ Pension obligations ...Deferred revenue ...Other ...Total...

  • Page 104
    ... 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 Company's 2003 international restructuring, which have been previously accrued in the Company's financial statements. The deposit...

  • Page 105
    ... adverse effect on the Company's business, financial position and results of operations. First Data generally will be liable for all Spin-off Related Taxes, other than those described above. 11. Employee Benefit Plans Defined Contribution Plans The Western Union Company Incentive Savings Plan ("401...

  • Page 106
    ...," net of tax. The following table provides a reconciliation of the changes in the Plan's projected benefit obligation, fair value of assets and the funded status (in millions): 2010 2009 Change in projected benefit obligation Projected benefit obligation at January 1, ...Interest cost ...Actuarial...

  • Page 107
    .... The Company 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 principle...

  • Page 108
    before long-term capital market assumptions are determined. Consideration is given to diversification, re-balancing and yields anticipated on fixed income securities held. Historical returns are reviewed to check for reasonableness and appropriateness. The Company then applies this rate against a ...

  • Page 109
    ... on how the Company measures fair value, refer to Note 2. December 31, 2010 Asset Class Fair Value Measurement Using Level 1 Level 2 Level 3 Total Assets at Fair Value Equity investments Domestic ...International ...Private equity ...Debt securities Corporate debt (a) ...U.S. treasury bonds...

  • Page 110
    ... properties for use as customer service centers and administrative and sales offices. The Company also leases data communications terminals, computers and office equipment. Certain of these leases contain renewal options and escalation provisions. Total rent expense under operating leases, net of...

  • Page 111
    ...United States dollar are translated using the appropriate exchange rate as of the end of the year. Foreign currency translation adjustments represent unrealized gains and losses on assets and liabilities arising from the difference in the foreign country currency compared to the United States dollar...

  • Page 112
    ... of the Company's interest in FEXCO Group. See Note 4. The components of accumulated other comprehensive loss, net of tax, were as follows (in millions): 2010 2009 2008 Unrealized gains on investment securities ...Unrealized gains/(losses) on hedging activities ...Foreign currency translation...

  • Page 113
    ... 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 December 31, 2010, the Company's longer-term foreign currency forward contracts had maturities of a maximum...

  • Page 114
    ...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 derivatives, primarily foreign currency forward contracts and...

  • Page 115
    ... 2010 2009 Balance Sheet Location Derivative Liabilities Fair Value 2010 2009 Derivatives-hedges: Interest rate fair value hedges-Corporate ...Foreign currency cash flow hedges-Consumer-toconsumer ...Total ...Derivatives-undesignated: Foreign currency-Global business payments ...Foreign currency...

  • Page 116
    ... 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. The Company uses foreign currency forward contracts to offset foreign exchange rate fluctuations on settlement...

  • Page 117
    ....9 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...

  • Page 118
    ... of up to 397 days from date of issuance. Interest rates for borrowings are based on market rates at the time of issuance. The Company had no commercial paper borrowings outstanding at December 31, 2010 and 2009, respectively. Revolving Credit Facility On September 27, 2006, the Company entered into...

  • Page 119
    ... 31, 2010. Options granted under the 2006 LTIP are issued with exercise prices equal to the fair value of Western Union common stock on the grant date, have 10-year terms, and vest over four equal annual increments beginning 12 months after the date of grant. Compensation expense related to stock...

  • Page 120
    ... Stock-Based Awards. After the Spin-off, the Company receives all cash proceeds related to the exercise of all Western Union stock options, recognizes all stock compensation expense and retains the resulting tax benefits relating to Western Union awards held by Western Union employees. First Data...

  • Page 121
    ...purchase shares of common stock of the Company were held by employees of First Data. The Company received $44.1 million, $23.9 million and $289.7 million in cash proceeds related to the exercise of stock options during the years ended December 31, 2010, 2009 and 2008, respectively. Upon the exercise...

  • Page 122
    ... volatility was calculated using the market price of traded options on Western Union's common stock. In 2010 and 2009, the historical volatility represented a blend of Western Union and First Data (prior to the Spin-off) stock data. In 2008, the historical volatility also included a peer group...

  • Page 123
    ... on Custom House, now referred to as Western Union Business Solutions, 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 Company's money order services businesses. The Company...

  • Page 124
    ... and a multi-state agreement to fund a not-for-profit organization promoting safety and security along the United States and Mexico border. While this item was identifiable to the Company's consumer-to-consumer segment, it was not included in the measurement of segment operating profit provided to...

  • Page 125
    ... 2008 Revenues: Consumer-to-consumer: Transaction fees ...Foreign exchange revenues ...Other revenues ...Global business payments: Transaction fees ...Foreign exchange revenues ...Other revenues ...Other: Transaction fees ...Commission and other revenues ...Total consolidated revenues...Operating...

  • Page 126
    ... outside the United States accounted for less than 10% of revenue for the years ended December 31, 2010, 2009 and 2008. In addition, each individual agent or global business payments customer accounted for less than 10% of revenue during these periods. 18. Quarterly Financial Information (Unaudited...

  • Page 127
    2009 by Quarter: Q1 Q2 Q3 Q4 Year Ended December 31, 2009 Revenues...$ 1,201.2 Expenses (b)...860.3 Other expense, net ...35.7 Income before income taxes ...Provision for income taxes...third quarter for an agreement and settlement with the State of Arizona and other states. See Note 6 ...

  • Page 128
    ... OF THE REGISTRANT The following lists the condensed financial information for the parent company as of December 31, 2010 and 2009 and statements of income and cash flows for each of the three years in the period ended December 31, 2010. THE WESTERN UNION COMPANY CONDENSED BALANCE SHEETS (PARENT...

  • Page 129
    THE WESTERN UNION COMPANY CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2010 2009 2008 Revenues ...Expenses ...Operating income ...Interest income...Interest expense...Other expense ...Loss before equity in earnings of affiliates and income ...

  • Page 130
    THE WESTERN UNION COMPANY CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2010 2009 2008 Cash flows from operating activities Net cash provided by operating activities ...Cash flows from investing activities Purchases of property and equipment...

  • Page 131
    ... THE REGISTRANT THE WESTERN UNION COMPANY NOTES TO CONDENSED FINANCIAL STATEMENTS 1. Basis of Presentation The Western Union Company (the "Parent") is a holding company that conducts substantially all of its business operations through its subsidiaries. Under a parent company only presentation, the...

  • Page 132
    ... Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure. Management's Annual Report on Internal Control Over Financial Reporting Management's report on Western Union's internal control over financial reporting (as such term is defined in Rules...

  • Page 133
    ... Policy for Attorneys, and the Code of Conduct are available without charge through the "Corporate Governance" portion of the Company's website, www.westernunion.com, or by writing to the attention of: Investor Relations, The Western Union Company, 12500 East Belford Avenue, Englewood, Colorado...

  • Page 134
    ... duly authorized. THE WESTERN UNION COMPANY (Registrant) February 25, 2011 By: /s/ HIKMET ERSEK Hikmet Ersek, 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 the...

  • Page 135
    ...Union Company and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.6 to the Company's Annual Report on Form 10-K filed on February 26, 2008 and incorporated herein by reference thereto). Indenture, dated as of November 17, 2006, between The Western Union Company and Wells Fargo...

  • Page 136
    ... 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, 2006, between First Data...

  • Page 137
    ... to the Company's Quarterly Report on Form 10-Q filed on May 6, 2010 and incorporated herein by reference thereto).* Form of Restricted Stock Award Agreement for Executive Committee Members Residing in the United States Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit...

  • Page 138
    ... Stock Unit Award Notice for Executive Committee Members Under The Western Union Company 2006 Long-Term Incentive Plan.* Employment Contract, dated as of November 9, 2009, between Western Union Financial Services GmbH and Hikmet Ersek (filed as Exhibit 10.35 to the Company's Annual Report on Form...

  • Page 139
    ... Amendment to Employment Contract and Expatriate Letter Agreement, dated as of October 7, 2010, between Western Union Financial Services GmbH, The Western Union Company and Hikmet Ersek (filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q filed on November 5, 2010 and incorporated...

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  • Page 142
    ... Committee, Special Advisor to General Atlantic LLC Hikmet Ersek President, Chief Executive Officer and Director, The Western Union Company Betsy DH Holden Director, Member of the Corporate Governance and Public Policy Committee and the Compensation and Benefits Committee, Senior Advisor to McKinsey...

  • Page 143
    ...PUBLIC ACCOUNTING FIRM The Western Union Company common stock is traded on the New York Stock Exchange under the symbol "WU". The high and low closing prices for our common stock during 2010 and 2009, were as follows: 2010 First Quarter Second Quarter Third Quarter Fourth Quarter 2009 First Quarter...

  • Page 144
    Western Union 2010 Annual Report 12500 East Belford Avenue, Englewood, CO 80112, USA westernunion.com