Western Union CO [WU] Filings

10-Q 1 wu-20210930x10q.htm 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2021


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number: 001-32903

THE WESTERN UNION COMPANY

(Exact name of registrant as specified in its charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)		20-4531180 (I.R.S. Employer Identification No.)
	7001 EAST BELLEVIEW AVENUE Denver, Colorado 80237 (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:


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.01 Par Value	WU	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer☐ Non-accelerated filer ☐

Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 29, 2021, 402,006,648 shares of the registrant’s common stock were outstanding.

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THE WESTERN UNION COMPANY

INDEX


		PAGE NUMBER
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020	3

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020	4

	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	6

	Condensed Consolidated Statements of Stockholders’ Equity/(Deficit) for the three and nine months ended September 30, 2021 and 2020	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	55

Item 4.	Controls and Procedures	55

	Review Report of Independent Registered Public Accounting Firm	56

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3.	Defaults Upon Senior Securities	57

Item 4.	Mine Safety Disclosures	57

Item 5.	Other Information	57

Item 6.	Exhibits	58

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PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in millions, except per share amounts)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues	$	1,286.3	$	1,258.5	$	3,786.0	$	3,563.2
Expenses:
Cost of services		720.1		721.7		2,181.1		2,067.3
Selling, general, and administrative		247.6		251.6		798.6		755.7
Total expenses		967.7		973.3		2,979.7		2,823.0
Operating income		318.6		285.2		806.3		740.2
Other income/(expense):
Interest income		0.4		0.5		1.1		2.9
Interest expense		(25.7)		(28.2)		(79.7)		(90.4)
Other income/(expense), net		(1.8)		3.5		26.8		3.4
Total other expense, net		(27.1)		(24.2)		(51.8)		(84.1)
Income before income taxes		291.5		261.0		754.5		656.1
Provision for income taxes		58.8		32.4		117.5		88.9
Net income	$	232.7	$	228.6	$	637.0	$	567.2
Earnings per share:
Basic	$	0.57	$	0.56	$	1.56	$	1.38
Diluted	$	0.57	$	0.55	$	1.55	$	1.37
Weighted-average shares outstanding:
Basic		406.3		411.6		409.1		412.5
Diluted		408.0		414.6		411.3		415.5

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in millions)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	232.7	$	228.6	$	637.0	$	567.2
Other comprehensive income, net of reclassifications and tax (Note 10):
Unrealized gains/(losses) on investment securities		(7.9)		7.1		(18.7)		32.3
Unrealized gains/(losses) on hedging activities		18.2		(18.2)		44.4		(16.6)
Defined benefit pension plan adjustments		2.3		2.3		7.1		6.7
Total other comprehensive income/(loss)		12.6		(8.8)		32.8		22.4
Comprehensive income	$	245.3	$	219.8	$	669.8	$	589.6

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in millions, except per share amounts)


	September 30,		December 31,
	2021		2020
Assets
Cash and cash equivalents	$	1,003.4	$	1,428.2
Settlement assets		3,007.1		3,821.4
Property and equipment, net of accumulated depreciation of $644.2 and $659.9, respectively		131.5		150.4
Goodwill		2,034.6		2,566.6
Other intangible assets, net of accumulated amortization of $723.9 and $1,044.6, respectively		441.0		505.0
Other assets		761.2		1,024.7
Assets held for sale (Note 4)		1,492.2		—
Total assets	$	8,871.0	$	9,496.3
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities	$	442.9	$	500.9
Settlement obligations		3,007.1		3,821.4
Income taxes payable		864.7		928.9
Deferred tax liability, net		206.4		188.9
Borrowings		2,852.6		3,067.2
Other liabilities		273.3		802.4
Liabilities associated with assets held for sale (Note 4)		855.4		—
Total liabilities		8,502.4		9,309.7

Commitments and contingencies (Note 7)

Stockholders' equity:
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued		—		—
Common stock, $0.01 par value; 2,000 shares authorized; 403.6 shares and 411.2 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		4.0		4.1
Capital surplus		927.9		885.1
Accumulated deficit		(436.6)		(543.1)
Accumulated other comprehensive loss		(126.7)		(159.5)
Total stockholders' equity		368.6		186.6
Total liabilities and stockholders' equity	$	8,871.0	$	9,496.3

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in millions)


	Nine Months Ended
	September 30,
	2021		2020
Cash flows from operating activities
Net income	$	637.0	$	567.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		38.4		46.3
Amortization		121.9		123.2
Gain on the sale of noncontrolling interest in a private company (Note 4)		(47.9)		—
Other non-cash items, net		124.2		106.4
Increase/(decrease) in cash resulting from changes in:
Other assets		(78.3)		(11.5)
Accounts payable and accrued liabilities		(27.9)		(142.7)
Income taxes payable		(61.7)		(97.6)
Other liabilities		(19.7)		(5.7)
Net cash provided by operating activities		686.0		585.6
Cash flows from investing activities
Payments for capitalized contract costs		(94.7)		(51.7)
Payments for internal use software		(59.1)		(30.1)
Purchases of property and equipment		(26.4)		(24.5)
Proceeds from the sale of former corporate headquarters		—		44.2
Proceeds from the sale of noncontrolling interest in a private company (Note 4)		50.9		—
Regulatory deposit made to purchase a noncontrolling interest in stc Bank (Note 4)		(200.0)		—
Other investing activities		(3.6)		(6.6)
Net cash used in investing activities		(332.9)		(68.7)
Cash flows from financing activities
Cash dividends and dividend equivalents paid		(288.7)		(277.8)
Common stock repurchased (Note 10)		(235.8)		(238.0)
Net proceeds from/(repayments of) commercial paper		40.0		(195.0)
Net proceeds from issuance of borrowings		891.7		—
Principal payments on borrowings		(1,150.0)		—
Make-whole premium on early extinguishment of debt (Note 12)		(14.3)		—
Proceeds from exercise of options		11.6		1.7
Other financing activities		—		(0.7)
Net cash used in financing activities		(745.5)		(709.8)
Net change in cash, cash equivalents, and restricted cash		(392.4)		(192.9)
Cash, cash equivalents, and restricted cash at beginning of period		1,447.4		1,456.8
Cash, cash equivalents, and restricted cash at end of period	$	1,055.0	$	1,263.9
Supplemental cash flow information:
Interest paid	$	69.7	$	75.7
Income taxes paid	$	156.5	$	169.1
Cash included in Assets held for sale (Note 4)	$	43.0	$	—
Restricted cash at end of period (included in Other assets)	$	8.6	$	12.5
Internal use software capitalized but not yet paid	$	24.1	$	4.4

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

(Unaudited)

(in millions)


								Accumulated
								Other		Total
	Common Stock			Capital		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Surplus		Deficit		Loss		Equity
Balance, December 31, 2020	411.2	$	4.1	$	885.1	$	(543.1)	$	(159.5)	$	186.6
Net income	—		—		—		181.8		—		181.8
Stock-based compensation	—		—		10.8		—		—		10.8
Common stock dividends and dividend equivalents declared ($0.235 per share)	—		—		—		(97.9)		—		(97.9)
Repurchase and retirement of common shares	(3.7)		—		—		(89.0)		—		(89.0)
Shares issued under stock-based compensation plans	2.3		—		8.1		—		—		8.1
Other comprehensive income (Note 10)	—		—		—		—		18.4		18.4
Balance, March 31, 2021	409.8		4.1		904.0		(548.2)		(141.1)		218.8
Net income	—		—		—		222.5		—		222.5
Stock-based compensation	—		—		12.0		—		—		12.0
Common stock dividends and dividend equivalents declared ($0.235 per share)	—		—		—		(97.0)		—		(97.0)
Repurchase and retirement of common shares	(3.0)		—		—		(75.3)		—		(75.3)
Shares issued under stock-based compensation plans	0.2		—		3.5		—		—		3.5
Other comprehensive income (Note 10)	—		—		—		—		1.8		1.8
Balance, June 30, 2021	407.0		4.1		919.5		(498.0)		(139.3)		286.3
Net income	—		—		—		232.7		—		232.7
Stock-based compensation	—		—		8.4		—		—		8.4
Common stock dividends and dividend equivalents declared ($0.235 per share)	—		—		—		(95.9)		—		(95.9)
Repurchase and retirement of common shares	(3.5)		(0.1)		—		(75.4)		—		(75.5)
Shares issued under stock-based compensation plans	0.1		—		—		—		—		—
Other comprehensive income (Note 10)	—		—		—		—		12.6		12.6
Balance, September 30, 2021	403.6	$	4.0	$	927.9	$	(436.6)	$	(126.7)	$	368.6


								Accumulated
								Other		Total
	Common Stock			Capital		Accumulated		Comprehensive		Stockholders'
	Shares	Amount		Surplus		Deficit		Loss		Equity/(Deficit)
Balance, December 31, 2019	418.0	$	4.2	$	841.2	$	(675.9)	$	(209.0)	$	(39.5)
Adoption of new accounting pronouncement (Note 1)	—		—		—		(0.6)		—		(0.6)
Net income	—		—		—		176.7		—		176.7
Stock-based compensation	—		—		12.5		—		—		12.5
Common stock dividends and dividend equivalents declared ($0.225 per share)	—		—		—		(93.3)		—		(93.3)
Repurchase and retirement of common shares	(9.2)		(0.1)		—		(235.1)		—		(235.2)
Shares issued under stock-based compensation plans	2.1		—		1.0		—		—		1.0
Other comprehensive income (Note 10)	—		—		—		—		28.7		28.7
Balance, March 31, 2020	410.9		4.1		854.7		(828.2)		(180.3)		(149.7)
Net income	—		—		—		161.9		—		161.9
Stock-based compensation	—		—		5.3		—		—		5.3
Common stock dividends and dividend equivalents declared ($0.225 per share)	—		—		—		(93.3)		—		(93.3)
Repurchase and retirement of common shares	(0.1)		—		—		(0.6)		—		(0.6)
Shares issued under stock-based compensation plans	0.2		—		0.5		—		—		0.5
Other comprehensive income (Note 10)	—		—		—		—		2.5		2.5
Balance, June 30, 2020	411.0		4.1		860.5		(760.2)		(177.8)		(73.4)
Net income	—		—		—		228.6		—		228.6
Stock-based compensation	—		—		14.2		—		—		14.2
Common stock dividends and dividend equivalents declared ($0.225 per share)	—		—		—		(93.3)		—		(93.3)
Repurchase and retirement of common shares	—		—		—		(0.4)		—		(0.4)
Shares issued under stock-based compensation plans	—		—		0.2		—		—		0.2
Other comprehensive loss (Note 10)	—		—		—		—		(8.8)		(8.8)
Balance, September 30, 2020	411.0	$	4.1	$	874.9	$	(625.3)	$	(186.6)	$	67.1

See Notes to Condensed Consolidated Financial Statements.

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THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Basis of Presentation

Business

The Western Union Company ("Western Union" or the "Company") is a leader in global money movement and payment services, providing people and businesses with fast, reliable, and convenient ways to send money and make payments around the world. The Western Union^® brand is globally recognized. The Company’s services are available through a network of agent locations in more than 200 countries and territories and also through money transfer transactions conducted and funded through websites and mobile applications marketed under the Company’s brands (“westernunion.com”) and transactions initiated on websites and mobile applications hosted by the Company’s third-party white label or co-branded digital partners (together with westernunion.com, “Digital Money Transfer”). Each location in the Company’s agent network is capable of providing one or more of the Company’s services.

The Western Union business consists of the following segments:

●

Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers which are sent from retail agent locations worldwide or through websites and mobile devices, including Digital Money Transfer services. The Company’s money transfer service is provided through one interconnected global network. This service is available for international cross-border transfers and, in certain countries, intra-country transfers.

●

Business Solutions - The Business Solutions operating segment facilitates payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises, and other organizations and individuals. The majority of the segment’s business relates to exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments. On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group. See Note 4 for further information regarding this transaction.

All businesses and other services that have not been classified in the above segments are reported as Other, which primarily includes the Company’s bill payment services which facilitate payments from consumers to businesses and other organizations and the Company’s money order services. The Company’s other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other. See Note 15 for further information regarding the Company’s segments.

There are legal or regulatory limitations on transferring certain assets of the Company outside of the countries where these assets are located. However, there are generally no limitations on the use of these assets within those countries. Additionally, the Company must meet minimum capital requirements in some countries in order to maintain operating licenses. As of December 31, 2020, the amount of these net asset limitations totaled approximately $680 million.

Various aspects of the Company’s services and businesses are subject to United States federal, state, and local regulation, as well as regulation by foreign jurisdictions, including certain banking and other financial services regulations.

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

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THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated as of September 30, 2021 and December 31, 2020 and for all periods presented.

In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position, and cash flows as of September 30, 2021 and for all periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Consistent with industry practice, the accompanying Condensed Consolidated Balance Sheets are unclassified due to the short-term nature of the Company’s settlement obligations contrasted with the Company’s ability to invest cash awaiting settlement in long-term investment securities.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted a new accounting standard that requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. Additionally, the standard requires certain credit losses relating to investment securities classified as available-for-sale to be recorded through an allowance for credit losses. The Company recognized the cumulative effect of the new accounting standard as an adjustment to the January 1, 2020 balance of Accumulated deficit in the Condensed Consolidated Balance Sheets, and the adoption of the new accounting standard did not have a material impact on the Company’s January 1, 2020 accumulated deficit. Refer to Note 9 for additional information and the related disclosures.

2. Revenue

The Company’s revenues are primarily derived from consideration paid by customers to transfer money. These revenues vary by transaction based upon factors such as channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, and speed of service, as applicable. The Company also offers several other services, including foreign exchange and payment services and other bill payment services, for which revenue is impacted by similar factors. For the substantial majority of the Company’s revenues, the Company acts as the principal in transactions and reports revenue on a gross basis, as the Company controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices. The Company also provides services to financial institutions and other third parties to enable such entities to offer money transfer services to their own customers under their brands. Generally, in these arrangements, consumers agree to terms and conditions specified by the financial institution or other third party that, among other things, establish pricing paid by the consumer for the service. The Company recognizes revenue on a net basis under these arrangements. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

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THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The Company recognized $1,230.3 million and $1,214.3 million for the three months ended September 30, 2021 and 2020, respectively, and $3,635.7 million and $3,392.5 million for the nine months ended September 30, 2021 and 2020, respectively, in revenues from contracts with customers. There were no material upfront costs incurred to obtain contracts with customers during these same periods. Under the Company’s loyalty programs, which are primarily offered in its money transfer services, the Company must fulfill loyalty program rewards earned by customers. The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations, and the Company has immaterial contract liability balances, which primarily relate to its customer loyalty programs and other services. Contract asset balances related to customers were also immaterial as of the periods presented, as the Company typically re