Western Union 2014 Annual Report Download - page 164

2014 FORM 10-K
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Our ability to adopt new technology and develop and gain market acceptance of new and enhanced products and services in
response to changing industry and regulatory standards and evolving customer needs poses a challenge to our business.
Our industry is subject to rapid and significant technological changes, with the constant introduction of new and enhanced
products and services and evolving industry and regulatory standards and consumer needs and preferences. Our ability to enhance
our current products and services and introduce new products and services that address these changes has a significant impact
on our ability to be successful. We actively seek to respond in a timely manner to changes in customer (both consumer and
business) needs and preferences, technology advances and new and enhanced products and services such as technology-based
money transfer and Business Solutions payments services, including Internet, phone-based and other mobile money transfer
services. Failure to respond well to these challenges on a timely basis could adversely impact our business, financial condition
and results of operations. Further, even if we respond well to these challenges, the business and financial models offered by
many of these alternative, more technology-reliant means of money transfer and electronic payment solutions may be less
advantageous to us than the model offered by our traditional cash/agent model or our current online money transfer model.
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 and net monetary assets denominated in foreign currencies. For
example, a considerable portion of our revenue is generated in the euro. If we are unable to or elect not to hedge our foreign
exchange exposure to the euro against a significant devaluation, the value of our euro-denominated revenue, operating profit
and net monetary assets and liabilities would be correspondingly reduced when translated into United States dollars for inclusion
in our financial statements. Moreover, if we engage in foreign currency hedging activities, as it relates to our revenues, such
transactions may help to mitigate the adverse financial effects of an appreciation in the United States dollar relative to other
currencies. In an environment of a declining United States dollar relative to other currencies, such hedging transactions could
have the effect of limiting the translation benefits on our reported financial results. In addition, 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.
We operate in almost all emerging markets throughout the world. In many of these markets, our foreign currency exposure
is limited because most transactions are receive transactions and we reimburse our agents in either United States dollars or euros
for the payment of these transactions. However, in certain of these emerging markets we generate revenue from send
transactions. Our exposure to foreign currency fluctuations in those markets is increased as these fluctuations impact our revenues
and operating profits. Typically, in these markets the cost of hedging activities is prohibitive.
We have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature
of our Business Solutions business. The majority of this business' 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.