Western Union 2011 Annual Report Download

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MOVING
MONEY
FOR
BETTER
2011 Annual Report

Table of contents

  • Page 1
    MOVING MONEY FOR BETTER 2011 Annual Report

  • Page 2
    ..., compliance capabilities, and a global Agent network, Western Union has the assets, capability and drive to be a truly customer-centric organization focused on the needs of the underserved." -Hikmet Ersek "...2011 was a good year for Western Union with many strong accomplishments, both in business...

  • Page 3
    ...฀in฀each฀of฀our฀Global฀Financial฀Services฀regions฀in฀2011.฀ In Europe, specifically, we advanced our strategy of being closer to the consumer and optimizing our operating model by completing฀the฀Angelo฀Costa฀and฀Finint฀super-agent฀acquisitions.฀ Our focus is on...

  • Page 4
    ... channels business continued to advance in 2011 with 35 percent revenue growth, demonstrating that combining our retail network with digital send and receive options-web, mobile and stored value-is helping to meet consumer needs in the marketplace. We opened a digital office in San Francisco and...

  • Page 5
    ... markets, unmet financial needs and rapidlyevolving technologies. For example, we're partnering with telecommunications companies to offer mobile money transfer services in far reaches of the world where financial services weren't previously available. When we deploy new ways to send and receive...

  • Page 6
    ...฀expansion •฀฀ Electronic฀money฀transfers฀ (westernunion.com,฀mobile) •฀฀ Prepaid/stored฀value •฀฀ Integrate฀Travelex฀Global฀Business฀ Payments •฀฀ E xpand฀sales฀resources, vertical and online partners •฀฀ Grow,฀increase฀market฀share Our...

  • Page 7
    Form 10-K

  • Page 8
    ... Employer Identification No.) THE WESTERN UNION COMPANY 12500 East Belford Avenue Englewood, Colorado 80112 (Address of principal executive offices) Registrant's telephone number, including area code: (866) 405-5012 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange...

  • Page 9
    ... ...Principal Accounting Fees and Services ...151 151 151 151 151 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations...

  • Page 10
    ... gain market acceptance of such services; mergers, acquisitions and integration of acquired businesses and technologies into our Company, and the realization of anticipated financial benefits from these acquisitions; decisions to downsize, sell or close units, or to transition operating activities...

  • Page 11
    ... by us, our agents or their subagents to comply with laws and regulations designed to detect and prevent money laundering, terrorist financing, fraud and other illicit activity; changes in United States or foreign laws, rules and regulations including the Internal Revenue Code, governmental or...

  • Page 12
    ... class-action lawsuits and similar matters, including costs, expenses, settlements and judgments; failure to comply with regulations regarding consumer privacy and data use and security; effects of unclaimed property laws; failure to maintain sufficient amounts or types of regulatory capital to meet...

  • Page 13
    ... offering a Western Union branded service. As of December 31, 2011, approximately 70% of our locations had experienced money transfer activity in the previous 12 months. We also provide consumers and businesses with flexible and convenient options for making one-time or recurring bill payments...

  • Page 14
    ... 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 15
    ... in which cash is collected by the agent and payment (usually cash) is available for pick-up at another agent location in the designated receive location, usually within minutes. We also offer convenience to our consumers to initiate a transaction through the phone using a debit or credit card. To...

  • Page 16
    Online money transfer service. Our websites allow consumers to send funds online, generally using a credit or debit card, for pay-out at most Western Union branded agent locations around the world. As of December 31, 2011, we are now providing online money transfer service in more than 20 countries,...

  • Page 17
    ... promotional activities, grassroots, digital, and loyalty programs. Our marketing benefits from feedback from our agents and consumers. Our marketing strategy includes our global loyalty card program, which is available in a growing number of countries and territories. As of December 31, 2011...

  • Page 18
    ... channels for sending and receiving money include mail and commercial courier services, money transfers using mobile phones, and card-based options, such as ATM cards and stored-value cards. We believe the most significant competitive factors in consumer-to-consumer remittances relate to brand...

  • Page 19
    ... of businesses using credit cards, debit cards, ACH and in limited situations, checks. Payments are initiated over the phone or the Internet. We also partner with some businesses to allow their customers to access Speedpay from their websites. Equity Accelerator. Our Equity Accelerator service...

  • Page 20
    ..., convenience, speed, variety of payment methods, service offerings and price. For additional details regarding our global business payments segment, see Item 7 of Part II and our historical financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10...

  • Page 21
    ... of operations. Risk Management Our Company has a credit risk management department that evaluates and monitors our agent-related credit and fraud risks. We are exposed to credit risk related to receivable balances from agents in the money transfer, walk-in bill payment and money order settlement...

  • Page 22
    ... control regulations, money transfer and payment instrument licensing regulations, payment service laws, rules, laws and regulations including those governing credit and debit cards, electronic payments, foreign exchange hedging services and the sale of spot, forward and option currency contracts...

  • Page 23
    ... services, limitations on the amount of principal that can be sent into or out 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...

  • Page 24
    ...-money laundering compliance program, which comprises 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 and...

  • Page 25
    ... limitations, capital requirements, affiliate transaction limitations, and notice and reporting requirements. Financial Services 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...

  • Page 26
    ... transmit payment card data are required to comply with PCI DSS as a condition to accepting credit cards. We are subject to annual reviews to ensure compliance with PCI regulations worldwide and are subject to fines if we are found to be non-compliant. Stored-value services offered by Western Union...

  • Page 27
    ...with Western Union. Prior to that time, she was Senior Vice President, Sales, Marketing and Operations for Western Union Commercial Services from July 2002 until June 2003 and Senior Vice President, Operations and Client Management for Integrated Payment Systems Inc. ("IPS"), a First Data subsidiary...

  • Page 28
    ...) and President, Western Union Ventures (from August 2011). Prior to April 2011, Ms. Scott was Senior Vice President, Marketing, Americas since March 2009. From March 2008 to March 2009, Ms. Scott served as Vice President, Marketing Services, and General Manager, Domestic Money Transfer. From March...

  • Page 29
    ... in turn adversely impact our business, financial condition and results of operations. A number of factors could adversely affect consumers' confidence in our business, or in traditional money transfer and payment service providers generally, many of which are beyond our control, and could have an...

  • Page 30
    ...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 31
    ... exchanges of currency at the spot rate enabling customers to make cross-currency payments. In certain countries, this business also writes foreign currency forward and option contracts for our customers. The duration of these derivatives contracts is generally nine months or less. The credit risk...

  • Page 32
    ..., changes with respect to consumer needs, competition and industry standards. We actively seek solutions that respond in a timely manner 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...

  • Page 33
    • • integrating the acquired technologies into our Company; realization of anticipated financial benefits from these acquisitions and where necessary, improving internal controls of these acquired businesses; complying with regulatory requirements; fluctuations in currency exchange rates; ...

  • Page 34
    ... 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 phone. Because...

  • Page 35
    ...work stoppages or other labor actions by employees, the significant majority of which are located outside the United States, who support our systems or perform any of our major functions could adversely affect our business. If we are unable to maintain our agent, subagent or global business payments...

  • Page 36
    ...money, travel cards or stored-value cards, informal remittance systems, web-based services, phone payment systems (including mobile phone networks), postal organizations, retailers, check cashers, mail and courier services, currency exchanges and traditional money transfer companies. These services...

  • Page 37
    ... services relating to our business, such as software application support, the development, hosting and maintenance of our operating systems, check clearing, and processing of returned checks are outsourced to thirdparty vendors, which would be difficult to replace quickly. If our third-party vendors...

  • Page 38
    ... European Union. Regulations to which we are subject include financial services regulations, consumer disclosure and consumer protection laws, currency control regulations, money transfer, payment instrument, and foreign exchange derivative licensing regulations, unclaimed property laws, competition...

  • Page 39
    ...by state, federal or international governments and expectations regarding our compliance efforts, are impacting the manner in which we operate our business and may change the competitive landscape and adversely affect our financial results. New and proposed legislation relating to financial services...

  • Page 40
    ... the risk of regulatory enforcement actions, fines and penalties. For example, our business is currently being affected by on-going changes to our compliance procedures related to our agreement and settlement with the State of Arizona. See risk factor "Western Union is the subject of governmental...

  • Page 41
    ...to change. A material change in the regulatory requirements for offering money transfer services in a jurisdiction important to our business could mean increased costs and/or operational demands on our agents and subagents, which could result in their attrition, a decrease in the number of locations...

  • Page 42
    ..., we have entered into consent agreements with federal and state authorities, including FinCEN, the New York Department of Financial Services, the California Department of Financial Institutions and the Arizona Department of Financial Institutions, relating to the BSA and anti-money laundering 35

  • Page 43
    ... us to limit or change our business practices, limiting our ability to pursue business opportunities, requiring us to invest valuable management time and resources in compliance efforts, imposing additional costs on us, limiting fees we can charge for services, requiring us to meet more stringent...

  • Page 44
    ... costly to implement, restrict our ability to advertise or promote our services, limit the amount of our foreign exchange income and/or change our consumers' behavior. In addition, as a Company that provides global financial services primarily to consumers, we could be subject to future class-action...

  • Page 45
    ... subsidiary of First Data on February 17, 2006. On September 29, 2006, 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 real estate, through a tax-free distribution to...

  • Page 46
    ...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 47
    ... Englewood, Colorado. Our owned and leased facilities are used for operational, sales and administrative purposes in support of both our consumer-to-consumer and global business payments segments and are all currently being utilized. In certain locations, our offices include customer service centers...

  • Page 48
    ... with a grand jury subpoena requesting documents in connection with an investigation into money transfers, including related foreign exchange rates, from the United States to the Dominican Republic from 2004 through the date of subpoena. The Company is cooperating fully with the DOJ investigation...

  • Page 49
    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 4,763 stockholders of record as of February 17, 2012. This figure does not include an ...

  • Page 50
    ...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 7, 2012, the Board of Directors declared a quarterly cash dividend of $0.10 per share payable...

  • Page 51
    ... of revenue related to the Custom House acquisition in September 2009, which has subsequently been rebranded to "Western Union Business Solutions." Revenue for the year ended December 31, 2011 included $35.2 million of revenue related to Travelex Global Business Payments ("TGBP"), which was acquired...

  • Page 52
    ... cash payments of $71.0 million related to the agreement and settlement with the State of Arizona and other states. Capital expenditures include capitalization of contract costs, capitalization of purchased and developed software and purchases of property and equipment. (j) (k) On February 1, 2011...

  • Page 53
    ... 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. Amounts also include transactions for Custom...

  • Page 54
    ... Annual Report on Form 10-K. See "Risk Factors" and "Forward-looking Statements." Overview We are a leading provider of money movement services, operating in two business segments: • Consumer-to-consumer - money transfer services between consumers, primarily through a global network of third-party...

  • Page 55
    ...in Finint to fair value. • In November 2011, we completed the acquisition of the business-to-business payment business known as TGBP from Travelex Holdings Limited for cash consideration of $967.8 million. • • In December 2011, we reached an agreement with the United States Internal Revenue...

  • Page 56
    ... in a Western Union money transfer agent, as well as its related assets, including real estate, through a tax-free distribution to First Data shareholders ("Spin-off") through this previously owned subsidiary. Basis of Presentation The financial statements in this Annual Report on Form 10-K are...

  • Page 57
    Other revenues-Other revenues primarily consist of commissions and fees we receive in connection with the sale of money orders, investment income primarily derived from interest generated on consumer-to-consumer money transfer, money order and payment services settlement assets as well as realized ...

  • Page 58
    ... of the Consolidated Statements of Income. All significant intercompany accounts and transactions between our Company's segments have been eliminated. During the year ended December 31, 2011, we reached an agreement with the United States Internal Revenue Service ("IRS") resolving substantially...

  • Page 59
    ... 2009 % Change 2011 2010 vs. 2010 vs. 2009 (in millions, except per share amounts) Revenues: Transaction fees ...Foreign exchange revenues ...Other revenues ...Total revenues ...Expenses: Cost of services ...Selling, general and administrative ...Total expenses ...Operating income ...Other income...

  • Page 60
    ... were positively impacted by the acquisition of TGBP and revenue growth experienced in our existing Business Solutions business. Fluctuations in the exchange rate between the United States dollar and currencies other than the United States dollar have resulted in a benefit to transaction fees and...

  • Page 61
    ... 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 62
    ... lower marketing-related expenditures 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 costs. During...

  • Page 63
    ... combined federal and state tax rates in the United States. In December 2011, we reached an agreement with the IRS resolving substantially all of the issues related to the restructuring of our international operations in 2003. As a result of the IRS Agreement, we expect to make cash payments in 2012...

  • Page 64
    ... our business around the consumers and businesses we serve and the types of services we offer. Each of our two segments addresses a different combination of consumer groups, distribution networks and services offered. Our segments are consumer-to-consumer and global business payments. Businesses not...

  • Page 65
    ... and 2009. Years Ended December 31, 2011 2010 % Change 2011 2010 vs. 2010 vs. 2009 (dollars and transactions in millions) 2009 Revenues: Transaction fees ...Foreign exchange revenues ...Other revenues ...Total revenues ...Operating income ...Operating income margin ...Key indicator: Consumer-to...

  • Page 66
    ...31, 2011. Our Mexico business is being affected by on-going changes to our compliance procedures related to the agreement and settlement with the State of Arizona and other states. These changes are expected to cause our Mexico business to decline in 2012. Revenue in our Asia Pacific ("APAC") region...

  • Page 67
    ... 31, 2011, more than 85% of agent locations in the United States, Canada and Western Europe (representing at least one of our three money transfer brands: Western Union®, Orlandi Valuta(SM) and Vigo®) experienced money transfer activity in the previous 12 months. In the developing regions of Asia...

  • Page 68
    ...December 31, 2011 2010 2009 % Change 2011 2010 vs. 2010 vs. 2009 (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 69
    ... integration expenses related to the acquisition of Custom House, decreased debit card bank fees due to the recent Durbin legislation, and restructuring savings, partially offset by declines in our United States cash-based bill payments business, which has a higher margin than other payment services...

  • Page 70
    ... deal costs associated with the TGBP acquisition. 2010 compared to 2009 During the year ended December 31, 2010, the decrease in operating income was due to the decrease in revenue from our money order services business, as described above, and an increase in promotional marketing activities related...

  • Page 71
    ... to meet our business needs, including approximately $190 million of tax payments we expect to make in 2012 as a result of the IRS Agreement, dividends and share repurchases, through our existing cash balances and our ability to generate cash flows through operations. As of December 31, 2011, we...

  • Page 72
    ... tax rates compared to our combined federal and state tax rate in the United States. We expect to use foreign funds to expand and fund our international operations and to acquire businesses internationally. In many cases, we receive funds from money transfers and certain other payment services...

  • Page 73
    ... from fixed-rate payments to short-term LIBOR-based variable rate payments in order to manage our overall exposure to interest rates. The changes in fair value of these interest rate swaps result in an offsetting hedge accounting adjustment recorded to the carrying value of the related note. These...

  • Page 74
    ...are based on market rates at the time of issuance. Our commercial paper borrowings as of December 31, 2011 had a weighted-average annual interest rate of approximately 0.6% and a weightedaverage term of 9 days. During the year ended December 31, 2011, the average commercial paper balance outstanding...

  • Page 75
    ...fee which are determined based on certain of our credit ratings. In addition, we are subject to certain provisions in our 2013 Notes, 2014 Notes, 2018 Notes and 2040 Notes and certain of our derivative contracts which could require settlement or collateral posting in the event of a change in control...

  • Page 76
    ... cash balances, cash flows from operating activities, access to the commercial paper markets and our Revolving Credit Facility available to support the needs of our business. Capital Expenditures The total aggregate amount paid for contract costs, purchases of property and equipment and purchased...

  • Page 77
    ... 2009, we acquired Canada-based Custom House, a provider of international business-to-business payment services, for cash consideration of $371.0 million for all of the common shares of this business and acquired cash of $2.5 million. On February 24, 2009, we acquired the money transfer business of...

  • Page 78
    ... anticipated on fixed income securities held. Historical returns are reviewed within the context of current economic conditions to check for reasonableness and appropriateness. We then apply this rate against a calculated value for our plan assets. The calculated value recognizes changes in the fair...

  • Page 79
    ...outside our control. (e) Represents the liability position of our foreign currency and interest rate derivative contracts as of December 31, 2011, which will fluctuate based on market conditions. (f) This line item relates to accrued and unpaid initial payments for new and renewed agent contracts as...

  • Page 80
    ... cash consideration of £3 million (approximately $4.7 million based on currency exchange rates at December 31, 2011) has not been finalized as of December 31, 2011. This acquisition is expected to close in 2012, subject to regulatory approval and satisfaction of closing conditions. Other Commercial...

  • Page 81
    ...earnings Income taxes, as reported in our consolidated financial statements, represent the net amount of income taxes we expect to pay to various taxing jurisdictions in connection with our operations. We provide for income taxes based on amounts that we believe we will ultimately owe after applying...

  • Page 82
    ... connection with the Spin-off from First Data, we believe we have appropriately apportioned the taxes between First Data and us. Our tax contingency reserves for our uncertain tax positions as of December 31, 2011 were $135.0 million, including accrued interest and penalties, net of related benefits...

  • Page 83
    ...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 84
    ... 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 85
    ... at which management reviews segment operating results. 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). Our...

  • Page 86
    .... In February 2009, we acquired the money transfer business of FEXCO Group for $243.6 million. See Note 3, Acquisitions, to the Notes to the Consolidated Financial Statements, included in Item 8, of this Annual Report on Form 10-K, for more information related to the purchase price allocations for...

  • Page 87
    ...changes in market rates and prices, including changes in foreign currency exchange rates and interest rates and credit risk related to our agents and customers. A risk management program is in place to manage these risks. Foreign Currency Exchange Rates We provide consumer-to-consumer money transfer...

  • Page 88
    ... our Western Union Business Solutions ("Business Solutions") business, which includes our Travelex Global Business Payments business ("TGBP"), which was acquired in November 2011. The significant majority of this business' revenue is from exchanges of currency at the spot rate enabling customers to...

  • Page 89
    ... among global financial institutions. We also limit our investment level in any individual money market fund to no more than $100 million. We are also exposed to credit risk related to receivable balances from agents in the money transfer, walk-in bill payment and money order settlement process...

  • Page 90
    ... within a few days. To mitigate risk, we perform credit reviews of the customer on an ongoing basis, and, for our derivatives, we may require certain customers to post collateral or increase collateral based on the fair value of the customer's contract and their risk profile. Our losses associated...

  • Page 91
    ... 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 Income...

  • Page 92
    ... of Travelex Global Business Payments ("TGBP") effective November 7, 2011. As permitted by the Securities and Exchange Commission, management's assessment did not include the internal control of the acquired operations of TGBP, which are included in the Company's consolidated financial statements as...

  • Page 93
    ... The Western Union Company's total assets as of December 31, 2011, and Travelex Global Business Payments revenues constituted approximately 0.6% of The Western Union Company's total revenues for the year then ended. Our audit of internal control over financial reporting of The Western Union Company...

  • Page 94
    ... Registered Public Accounting Firm The Board of Directors and Stockholders of The Western Union Company We have audited the accompanying consolidated balance sheets of The Western Union Company as of December 31, 2011 and 2010, and the related consolidated statements of income, cash flows, and...

  • Page 95
    THE WESTERN UNION COMPANY Consolidated Statements of Income (in millions, except per share amounts) Year Ended December 31, 2011 2010 2009 Revenues: Transaction fees ...Foreign exchange revenues ...Other revenues ...Total revenues ...Expenses: Cost of services ...Selling, general and administrative...

  • Page 96
    THE WESTERN UNION COMPANY Consolidated Balance Sheets (in millions, except per share amounts) December 31, 2011 2010 Assets Cash and cash equivalents ...Settlement assets ...Property and equipment, net of accumulated depreciation of $429.7 and $383.6, respectively ...Goodwill ...Other intangible ...

  • Page 97
    ... ...Purchases of property and equipment ...Acquisition of businesses, net of cash acquired ...Net proceeds from settlement of foreign currency forward contracts related to acquisitions ...Proceeds from receivable for securities sold ...Repayments of notes receivable issued to agents ...Net cash used...

  • Page 98
    THE WESTERN UNION COMPANY Consolidated Statements of Stockholders' Equity/(Deficiency) (in millions) Accumulated Total Capital Other Stockholders' Common Stock Surplus/ Retained Comprehensive Equity/ Comprehensive Shares Amount (Deficiency) Earnings Loss (Deficiency) Income/(Loss) Balance, December...

  • Page 99
    ... 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 all of its money transfer and consumer payments businesses and its interest in a Western Union money transfer agent, as well as its related...

  • Page 100
    ... the distribution of these businesses by distributing The Western Union Company common stock to First Data shareholders (the "Distribution"). Prior to the Distribution, the Company had been a segment of First Data. Basis of Presentation The financial statements in this Annual Report on Form 10-K are...

  • Page 101
    ...: the market approach, the income approach or the cost approach. • Carrying amounts for many of the Company's financial instruments, including cash and cash equivalents, settlement cash and cash equivalents, settlement receivables, settlement obligations, borrowings under the commercial paper...

  • Page 102
    ...amounts payable under money transfers, money orders and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from and payable to businesses for the value of customer crosscurrency payment transactions related to the global business payments segment...

  • Page 103
    ... 2011 2010 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 Equipment Property and...

  • Page 104
    ... charged to expense for depreciation of property and equipment were $61.0 million, $61.5 million and $55.9 million during the years ended December 31, 2011, 2010 and 2009, respectively. Deferred Customer Set Up Costs The Company capitalizes direct incremental costs not to exceed related deferred...

  • Page 105
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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...

  • Page 106
    ...revenue at the time 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...

  • Page 107
    ... in cash flows from operating activities in the Consolidated Statements of Cash Flows, except for cash flows associated with foreign currency forward contracts entered into in order to reduce the economic variability related to the cash amounts used to fund acquisitions of businesses with purchase...

  • Page 108
    ...other employee related benefits; facility closure and migration of the Company's IT infrastructure; and other expenses related to the relocation of various operations to new or existing Company facilities and third-party providers, including hiring, training, relocation, travel and professional fees...

  • Page 109
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 3. Acquisitions 2011 Acquisitions On November 7, 2011, the Company acquired the business-to-business payment business known as Travelex Global Business Payments ("TGBP") from Travelex Holdings Limited for cash ...

  • Page 110
    ... allocations of purchase price (in millions): Travelex Global Business Payments Angelo Costa S.r.l Assets: Cash and cash equivalents ...Settlement assets ...Property and equipment ...Goodwill ...Other intangible assets ...Other assets ...Total assets ...Liabilities: Accounts payable and accrued...

  • Page 111
    ... forward and option contracts for its customers to facilitate future payments. The duration of these derivatives contracts is generally nine months or less. The results of operations for Custom House have been included in the Company's consolidated financial statements from the date of acquisition...

  • Page 112
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Prior to the acquisition, the Company held a 24.65% interest in FEXCO Group Holdings ("FEXCO Group"), which was a holding company for both the money transfer business as well as various unrelated businesses. The Company...

  • Page 113
    ...in the Consolidated Statements of Income as follows (in millions): Year Ended December 31, 2011 Year Ended December 31, 2010 Cost of services ...Selling, general and administrative ...Total restructuring and related expenses, pre-tax ...Total restructuring and related expenses, net of tax ... $ 10...

  • Page 114
    .... 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 money transfer and other services provided on the Company's behalf. Commission...

  • Page 115
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) an investigation into money transfers, including related foreign exchange rates, from the United States to the Dominican Republic from 2004 through the date of subpoena. The Company is cooperating fully with the DOJ ...

  • Page 116
    ... orders in exchange for the payment by the Company to IPS of a per-item processing fee. The Company no longer provides to IPS the services required under the original money order agreement or receives from IPS the fee for such services. Unrealized gains and losses on available-for-sale securities...

  • Page 117
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) If potential impairment exists, the Company assesses whether it has the intent to sell the debt security, more likely than not will be required to sell the debt security before its anticipated recovery or expects that ...

  • Page 118
    ... relevant accounting standards, represents the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For...

  • Page 119
    ... receivables ...Amounts advanced to agents, net of discounts ...Deferred customer set up costs ...Debt issue costs ...Accounts receivable, net ...Receivables from First Data ...Other ...Total other assets ...Other liabilities: Pension obligations ...Derivatives ...Deferred revenue ...Other ...Total...

  • Page 120
    ... WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Receivable for securities sold On September 15, 2008, Western Union requested redemption of its shares from the Reserve International Liquidity Fund, Ltd. (the "Fund"), a money market fund, totaling $298.1 million. Western...

  • Page 121
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company's effective tax rates differed from statutory rates as follows: Year Ended December 31, 2011 2010 2009 Federal statutory rate ...State income taxes, net of federal income tax benefits ...Foreign rate ...

  • Page 122
    ... at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company's income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances (i.e., new information) surrounding a tax issue...

  • Page 123
    ... the payment of interest and penalties as of December 31, 2011 and 2010, respectively. The Company has identified no uncertain tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months. The change in...

  • Page 124
    ... accrued in the Company's consolidated financial statements. The deposit was recorded as a reduction to "Income taxes payable" in the Consolidated Balance Sheets and a decrease in cash flows from operating activities in the Consolidated Statement of Cash Flows. Making the deposit limits the further...

  • Page 125
    ... adverse effect on the Company's business, financial condition 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 126
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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): 2011 2010 Change in projected benefit obligation ...

  • Page 127
    ... on fixed income securities held. Historical returns are reviewed within the context of current economic conditions to check for reasonableness and appropriateness. The Company then applies this rate against a calculated value for its plan assets. The calculated value recognizes changes in the...

  • Page 128
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Pension plan asset allocation as of December 31, 2011 and 2010, and target allocations based on investment policies, were as follows: Percentage of Plan Assets as of Measurement Date 2011 2010 Asset Class Equity ...

  • Page 129
    ...millions). For information on how the Company measures fair value, refer to Note 2. December 31, 2011 Asset Class Fair Value Measurement Using Level 1 Level 2 Level 3 Total Assets at Fair Value Equity investments Domestic ...International ...Debt securities Corporate debt (a) ...U.S. treasury bonds...

  • Page 130
    ... real 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...

  • Page 131
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2011, the minimum aggregate rental commitments under all noncancelable operating leases, net of sublease income commitments aggregating $2.0 million through 2016, were as follows (in millions): Year ...

  • Page 132
    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): 2011 2010 2009 Beginning balance, January 1 ...Unrealized gains/(...

  • Page 133
    ... money transfer settlement assets and obligations. The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency business-to-business payments operations. Additionally, the Company is exposed to interest rate risk related to changes in market...

  • Page 134
    ... changes in foreign currency exchange rates compared to the United States dollar could have on forecasted revenues denominated in other currencies related to its business. As of December 31, 2011, the Company's longer-term foreign currency forward contracts had maturities of a maximum of 24 months...

  • Page 135
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Foreign Currency-Global Business Payments The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises and derives a currency spread ...

  • Page 136
    ... 31, 2011 and their expected maturities (in millions): Total 2012 2013 2014 Thereafter Foreign currency undesignated hedges- Consumer-to-consumer ...Interest rate fair value hedges-Corporate ...Foreign currency undesignated hedges-Global business payments ...Foreign currency cash flow hedges...

  • Page 137
    ...Gain/(Loss) Recognized in Income on Related Hedged Item (a) Income Statement Location $ $ 2011 Amount 2010 10.5 $ 10.5 $ 2009 11.1 11.1 Interest rate contracts ...Interest expense Total gain ... 11.8 $ 11.8 $ 12.9 Fixed-rate debt Interest expense 12.9 12.6 $ 12.6 $ Cash Flow Hedges The following...

  • Page 138
    ... portfolio revenue for this business discussed above. (e) The Company uses foreign currency forward contracts to offset foreign exchange rate fluctuations on settlement assets and obligations as well as certain foreign currency denominated positions. Foreign exchange gain/(loss) on settlement assets...

  • Page 139
    ...were repaid using the Company's cash, including cash generated from operations and proceeds from the Company's 2011 borrowings and commercial paper issuances. (b) The Company utilizes interest rate swaps designated as fair value hedges to effectively change the interest rate payments on a portion of...

  • Page 140
    ... any time, reduced to the extent of borrowings outstanding on the Company's Revolving Credit Facility. The Commercial Paper Notes may have maturities of up to 397 days from date of issuance. The Company's commercial paper borrowings as of December 31, 2011 had a weighted-average annual interest rate...

  • Page 141
    ... to grant certain types of security interests or enter into sale and leaseback transactions. The Company may redeem the 2040 Notes at any time prior to maturity at the greater of par or a price based on the applicable treasury rate plus 30 basis points. On March 30, 2010, the Company exchanged $303...

  • Page 142
    ... are available as of December 31, 2011. Options granted under the 2006 LTIP are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date, have 10-year terms, and typically vest over four equal annual increments beginning 12 months after the date of...

  • Page 143
    ..., in 2011, non-executive employees of the Company participating in the 2006 LTIP received annual equity grants of two-thirds restricted stock units and one-third stock option awards, or all restricted stock units depending on their employment grade level. The Western Union Company 2006 Non-Employee...

  • Page 144
    ... 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 145
    ... WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Restricted Stock Activity A summary of Western Union activity for restricted stock units, performance based restricted stock units, and restricted stock awards for the year ended December 31, 2011 is listed below (awards...

  • Page 146
    ...market price of traded options on Western Union's common stock and the historical volatility represented a blend of Western Union and First Data (prior to the Spin-off) stock data. Expected dividend yield-The Company's expected annual dividend yield is the calculation of the annualized Western Union...

  • Page 147
    ... could change the grant-date fair value of future stock option awards and, ultimately, the recorded compensation expense. 17. Segments As previously described in Note 1, the Company classifies its businesses into two reportable operating segments: consumer-to-consumer and global business payments...

  • Page 148
    ... information on restructuring and related activities, refer to Note 4. • During the year ended December 31, 2009, the Company recorded an accrual of $71.0 million for an agreement and settlement with the State of Arizona and other states. The agreement and settlement includes resolution of all...

  • Page 149
    ... payments: Transaction fees ...Foreign exchange revenues ...Other revenues ...Other: Transaction fees ...Other revenues ...Total consolidated revenues ...Operating income/(loss): Consumer-to-consumer ...Global business payments ...Other ...Total segment operating income ...Agreement and settlement...

  • Page 150
    ...to that region. The geographic split of revenue above for global business payments is based upon the country where the transaction is initiated with 100% of the revenue allocated to that country. Long-lived assets, consisting of "Property and equipment, net," are presented based upon the location of...

  • Page 151
    THE WESTERN UNION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2012 Changes in Reportable Segments In connection with the acquisition of TGBP, recent management changes, and other key strategic initiatives, the Company will implement a new segment structure to assess performance ...

  • Page 152
    ... interest in Finint to fair value. (c) In December 2011, the Company reached an agreement with the IRS resolving substantially all of the issues related to the Company's restructuring of its international operations in 2003. As a result of the IRS Agreement, the Company recognized a tax benefit of...

  • Page 153
    ..., 2011. THE WESTERN UNION COMPANY CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY) (in millions, except per share amounts) December 31, 2011 2010 Assets Cash and cash equivalents ...Property and equipment, net of accumulated depreciation of $12.3 and $10.6, respectively ...Income tax deposit ...Other...

  • Page 154
    ... WESTERN UNION COMPANY CONDENSED STATEMENTS OF OPERATIONS (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2011 2010 2009 Revenues ...Expenses ...Operating income ...Interest income ...Interest expense ...Other expense ...Loss before equity in earnings of affiliates and income...

  • Page 155
    THE WESTERN UNION COMPANY CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY) (in millions) For the Years Ended December 31, 2011 2010 2009 Cash flows from operating activities Net cash provided by operating activities ...Cash flows from investing activities Purchases of property and equipment...

  • Page 156
    ...December 31, 2011 and 2010. 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 United States federal income tax return, and also a number of...

  • Page 157
    ..., 2011. Under guidelines established by the Securities and Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year following the acquisition while integrating the acquired company. Changes in Internal...

  • Page 158
    ... Reporting Compliance," and "Corporate Governance-Committees of the Board of Directors" of our definitive proxy statement for the 2012 annual meeting of stockholders. Code of Ethics The Company's Directors' Code of Conduct, Code of Ethics for Senior Financial Officers, Procedure for Accounting...

  • Page 159
    ... documents are filed as part of this report: 1. Financial Statements (See Index to Consolidated Financial Statements on page 84 of this Annual Report on Form 10-K); 2. Financial Statement Schedule (See Index to Consolidated Financial Statements on page 84 of this Annual Report on Form 10-K); 3. The...

  • Page 160
    ... by the undersigned, thereunto duly authorized. THE WESTERN UNION COMPANY (Registrant) February 24, 2012 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...

  • Page 161
    EXHIBIT INDEX Exhibit Number Description 2.1 Separation and Distribution Agreement, dated as of September 29, 2006, between First Data Corporation and The Western Union Company (filed as Exhibit 2.1 to the Company's Current Report on Form 8-K filed on October 3, 2006 and incorporated herein by ...

  • Page 162
    ... First Data Corporation and The Western Union Company (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed on October 3, 2006 and incorporated herein by reference thereto). Settlement Agreement, dated as of February 11, 2010, by and between Western Union Financial Services, Inc...

  • Page 163
    ... reference thereto).* Amendment to Form of Nonqualified Stock Option Award Agreement for Executive Committee Members Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2008 and incorporated herein by...

  • Page 164
    ... Data Corporation 1992 Long-Term Incentive Plan (filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2008 and incorporated herein by reference thereto).* Form of Nonqualified Stock Option Award Agreement for Scott T. Scheirman Under The Western Union Company 2006...

  • Page 165
    ... 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 166
    ... Certification of Chief Financial Officer of The Western Union Company Pursuant to Rule 13a14(a) under the Securities Exchange Act of 1934 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code XBRL Instance...

  • Page 167
    ... and Chief Integration Officer PAULA S. LARSON Executive Vice President and Chief Human Resources Officer SCOTT T. SCHEIRMAN Executive Vice President, Chief Financial Officer and Global Operations DIANE M. SCOTT Executive Vice President and Chief Marketing Officer and President, Western Union...

  • Page 168
    ... indices. Data points on the graph are annual. Historic stock price performance is not necessarily indicative of future stock price performance. 140 130 120 110 100 90 80 70 60 2006 2007 2008 2009 2010 2011 Western Union Co. 7389 -Service-Business Services, NEC S&P 500 Index-Total Returns CORPORATE...

  • Page 169
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