Western Union 2012 Annual Report Download - page 31

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Risks associated with operations outside the United States and foreign currencies could adversely affect our business, financial
condition and results of operations.
A substantial portion of our revenue is generated in currencies other than the United States dollar. As a result, we are subject
to risks associated with changes in the value of our revenues denominated in foreign currencies. Our Business Solutions business
provides currency conversion and, in certain countries, foreign exchange hedging services to its customers, further exposing us to
foreign currency exchange risk. In order to mitigate these risks, we enter into derivative contracts. However, these contracts do
not eliminate all of the risks related to fluctuating foreign currency rates.
These risks have increased in recent years as concerns rise regarding the ability of certain European countries to continue to
service their sovereign debt obligations, the overall stability of the euro and the suitability of the euro as a single currency given
the diverse economic and political circumstances in individual Eurozone countries. These concerns may cause the value of the
euro to fluctuate more widely than in the past and could lead to the re-introduction of individual currencies in one or more Eurozone
countries, or, in more extreme circumstances, the possible dissolution of the euro currency entirely. If there is a significant
devaluation of the euro and we are unable to hedge our foreign exchange exposure to the euro, the value of our euro-denominated
net monetary assets and liabilities would be correspondingly reduced when translated into U.S. dollars for inclusion in our financial
statements. Similarly, the re-introduction of certain individual country currencies or the complete dissolution of the euro could
adversely affect the value of our euro-denominated net monetary assets and liabilities.
Our foreign exchange risk is greater, and our foreign exchange risk management is heightened, in our Business Solutions
business. The significant majority of Business Solutions' revenue is from 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 derivative contracts at inception is generally less than one year. The credit risk associated
with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting
their ability to honor their obligations to deliver currency to us or to maintain appropriate collateral with us. Business Solutions
aggregates its foreign exchange exposures arising from customer contracts, including the derivative contracts described above,
and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties.
If we are unable to obtain offsetting positions, our business, financial condition and results of operations could be adversely affected.
A substantial portion of our revenue is generated outside of the United States and much of the cash and cash equivalents from
this business are held by our foreign entities. Repatriating these funds to the United States would, in many cases, result in significant
tax obligations because most of these funds have been taxed at foreign tax rates that are relatively low compared to our combined
federal and state tax rates in the United States. If repatriation of these funds is required or if a change in legislation requires a
different tax treatment, our business, financial condition and results of operations could be adversely impacted. For further discussion
regarding the risk that our future effective tax rates could be adversely impacted by changes in tax laws, both domestically and
internationally, see risk factor “Changes in tax laws and unfavorable resolution of tax contingencies could adversely affect our
tax expense” below.
Money transfers and payments to, from, within, or between countries may be limited or prohibited by law. At times in the
past, we have been required to cease operations in particular countries due to political uncertainties or government restrictions
imposed by foreign governments or the United States. Occasionally agents have been required by their regulators to cease offering
our services, see risk factor “Regulatory initiatives and changes in laws, regulations and industry practices and standards affecting
us, our agents or their subagents could require changes in our business model and increase our costs of operations, which could
adversely affect our operations, results of operations and financial condition” below. Additionally, economic or political instability
or natural disasters may make money transfers to, from, within, or between particular countries difficult or impossible, such as
when banks are closed, when currency devaluation makes exchange rates difficult to manage or when natural disasters or civil
unrest makes access to agent locations unsafe. These risks could negatively impact our ability to offer our services, to make
payments to or receive payments from international agents or our subsidiaries or our ability to recoup funds that have been advanced
to international agents or are held by our subsidiaries and could adversely affect our business, financial condition and results of
operations. In addition, the general state of telecommunications and infrastructure in some lesser developed countries, including
countries where we have a large number of transactions, creates operational risks for us and our agents that generally are not present
in our operations in the United States and other more developed countries.