EDGAR 10-K Filing

Company CIK: 1365135
Filing Year: 2023
Filename: 1365135_10-K_2023_0000950170-23-004146.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
The Western Union Company (the “Company,” “Western Union,” “we,” “our,” or “us”) 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. Our vision is to be the world leader of branded payments and accessible consumer financial services, serving the aspiring populations of the world.
The Western Union® brand is globally recognized and represents speed, reliability, trust, and convenience. Our Consumer-to-Consumer money transfer service enables people to use our well-recognized brand to send money around the world, usually within minutes. As of December 31, 2022, our global network included agent locations in more than 200 countries and territories and many Western Union branded or partner websites. Each location in our agent network is capable of facilitating a consumer’s use of one or more of our services, with the substantial majority offering a Western Union branded service. As of December 31, 2022, approximately 400,000 of our agent locations had conducted money transfer activity in the previous 12 months.
On August 4, 2021, we entered into an agreement to sell our Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC (collectively, the "Buyer"). The sale is expected to be completed in three closings, the first of which occurred on March 1, 2022. The second closing occurred on December 31, 2022, and the third closing is expected in the second quarter of 2023. Our Business Solutions services facilitate payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations and individuals. The significant majority of our Business Solutions business relates to exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, in limited countries, we write foreign currency forward and option contracts for customers to facilitate future payments.
We believe that brand strength and reach of our global network, convenience, reliability, and value for the price paid have been important to our business. As we continue to seek to meet the needs of our customers for fast, reliable, and convenient global money movement and payment services, with a continued focus on regulatory compliance, we are also working to provide consumers and our business clients with access to an expanding portfolio of financial services and to expand the ways our services can be accessed, including through the recent launch of our digital wallet in certain countries.
Our Segments
We manage our business around the consumers and businesses we serve and the types of services we offer. Each of our segments addresses a different combination of customer groups, distribution networks, and services offered. Our segments are Consumer-to-Consumer and Business Solutions.
All businesses and other services that have not been classified in these segments are reported as Other, which primarily includes our bill payment services which facilitate payments from consumers to businesses and other organizations and our money order services. Certain of our 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.
The table below presents the components of our consolidated revenue.
Year Ended December 31,
Consumer-to-Consumer
%
%
%
Business Solutions
%
%
%
Other
%
%
%
%
%
%
No individual country or territory outside the United States accounted for more than approximately 9% of our consolidated revenue for each of the years ended December 31, 2022, 2021, and 2020.
See Part I, Item 1A, Risk Factors, for a discussion of certain risks relating to our foreign operations.
Consumer-to-Consumer Segment
Money transfers from one consumer to another are the core of our business, representing 89% of our total consolidated revenues for 2022. A substantial majority of these transfers were cross-border transactions. Our money transfer service is mainly conducted through our retail agent locations worldwide but also includes our money transfer transactions conducted and funded through websites and mobile applications marketed under our brands (“Branded Digital”). This segment includes five geographic regions whose functions are primarily related to generating, managing, and maintaining agent relationships and localized marketing activities. We include Branded Digital transactions in these regions. By means of common processes and systems, these regions, including Branded Digital, create one interconnected global network for consumer transactions, thereby constituting one Consumer-to-Consumer money transfer business and one operating segment.
Operations
Our 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, and the difference between the exchange rate we set to the customer and a rate available in the wholesale foreign exchange market, as applicable.
In a typical money transfer transaction, a consumer provides information, either at one of our agent or subagent locations or online, specifying, among other things, the name and other identifying information regarding the recipient and the principal amount of the transfer. The consumer also provides funds for the transaction, including fees. Certain of these processes are streamlined for consumers who participate in our loyalty programs or are registered Branded Digital customers. This information is entered into our money transfer system, and the funds are made available for pick-up by the recipient within our system, usually within minutes, in the country or territory specified by the consumer, or paid into the designated account of the recipient. In some jurisdictions, the principal and fees are not collected until after the presentation of our written disclosure that generally identifies the exchange rate and all fees and charges associated with the transaction and the consumer has agreed to the transaction, as described in the disclosure. Consumers then receive a unique identifying number assigned by our system, which the consumer must communicate to the recipient in order to obtain a payout in cash. In this situation, the recipient generally enters an agent location in the designated receiving country or territory, presents the unique identifying number and identification, where applicable, and is paid the transferred amount by our agent based on the information in our system. Recipients generally do not pay a fee. However, in limited circumstances, a tax may be imposed by the local government on the receipt of the money transfer, or a fee may be charged by the recipient’s institution related to the use of an account. We determine the fee paid by the sender, which generally is based on the principal amount of the transaction, the send and receive country or territory, and channel.
In a retail transaction, we generally pay our agents a commission based on a percentage of revenue. A commission is usually paid to both the agent that initiated the transaction, the “send agent,” and the agent that paid the transaction, the “receive agent.” For most agents, the costs of providing the physical infrastructure and staff are typically covered by the agent’s primary business (e.g., postal services, banking, check cashing, travel, and retail businesses), making the economics of being a Western Union agent attractive. Western Union’s global reach and large consumer base allow us to attract agents we believe to be well-positioned to deliver our services. In a Branded Digital transaction, we typically pay a credit card processor or bank a fee for collecting the principal, and we are also responsible for losses from chargebacks and fraud, in addition to commissions owed to the receive agent in the event of cash payout.
Services
We offer money transfer services in more than 200 countries and territories, with a number of options for sending funds that provide consumers convenience and choice, through both our retail and digital money transfer channels.
•Retail money transfer - The majority of our remittances constitute retail transactions in which payment is collected by one of our agents and is available for pick-up at another agent location, usually within minutes. We offer a variety of methods for consumers to initiate transactions. In select markets, consumers may stage a transaction either online or using a mobile device and subsequently pay for the transaction at one of our agent locations.
Additionally, in certain agent locations, consumers can enter a transaction at a self-service kiosk and subsequently pay for the transaction at the counter of the location.
•Digital money transfer - In many countries and territories, consumers can initiate a money transfer from a Western Union branded website or mobile application or from sites and applications hosted by our third-party white label or co-branded digital partners.
Consumers can fund a transaction in a variety of ways, in addition to cash. For example, at certain of our agent locations, consumers can fund a transaction using a debit card, and, where available, consumers can fund a money transfer from an account and through an account using an automated teller machine (“ATM”). In digital money transfer channels, consumers can generally fund transactions using a credit card, debit card, electronic funds transfer processed through the automated clearing house (“ACH”) payment system or similar system outside the United States, online banking direct payment methods, or other bank account-based payment.
We also provide several options for the receipt of funds. At our retail agent locations, consumers generally receive payments in cash. However, in certain countries, our retail agents may also issue a money order or check or provide payout through an ATM. Funds can also be directed to a bank account in many countries, by either the sender or receiver, and in more limited circumstances, can be paid into or directed to a mobile wallet, a stored-value card, or debit card.
Distribution and Marketing Channels
We offer our Consumer-to-Consumer services around the world primarily through our global network of agents and sub-agents in most countries and territories, with approximately 90% of our agent locations being located outside the United States. Our agents facilitate the global distribution and convenience associated with our brands, which in turn helps create demand for our services and helps us to recruit and retain agents. Western Union agents include large networks such as post offices, banks and retailers, and other established organizations as well as smaller independent retail locations, which typically provide other consumer products and services. Many of our agents have multiple locations. Our agents know the markets they serve and leverage this local knowledge to develop business plans for their markets. In some regions, our agents contribute financial resources to, or otherwise support, our efforts to market our services. Many agents operate in locations that are open outside of traditional banking hours, for example on nights and weekends. Our top 40 agents and partners globally have been with us for more than 20 years, on average, and in 2022, these long-standing relationships accounted for transactions that generated nearly 60% of our Consumer-to-Consumer revenue. No individual agent or partner accounted for greater than 10% of the segment’s revenue during all periods presented.
We provide our agents with access to our multi-currency, real-time money transfer processing systems, which are used to originate and pay money transfers. Our systems and processes enable our agents to pay money transfers in nearly 130 currencies worldwide. Certain of our agents can pay in multiple currencies at a single location. Our agents provide the point-of-sale presence and facilitate the interface with Western Union required to complete the transfers. Western Union provides central operating functions such as transaction processing, settlement, marketing support, and consumer relationship management to our agents, as well as compliance training and related support. Some of our agents outside the United States manage subagents. We refer to these agents as master agents. Although the subagents are under contract with these master agents (and not with Western Union directly), the subagent locations typically have access to similar technology and services as our other agent locations. Our international agents often customize services as appropriate for their geographic markets. In some markets, individual agents are independently offering specific services such as stored-value card or account payout options. While we typically perform services under the Western Union brand, in certain geographic regions, we operate under other brands targeted to the local market.
We market our services to consumers in a number of ways, directly and indirectly through our agents and their subagents, leveraging promotional activities, grassroots, direct-to-consumer communications, digital advertising, and other incentives. Our marketing strategy includes our loyalty program, which is available in certain countries and territories. This program offers consumers faster service at the point-of-sale and the opportunity to earn points on eligible products, such as money transfers and bill payments, and channels (including Branded Digital and mobile applications) that can be redeemed for rewards, such as reduced transaction fees. Redemption activity has been insignificant to the results of our operations.
We cooperate with various partners around the world to offer a variety of branded, co-branded, and non-Western Union branded money transfer services, including services offered exclusively under the partners’ brands. While the terms of these arrangements vary, these services are often marketed by the third-party partner and offered under the partner’s license to provide money transfer services. As a result, the regulatory requirements applicable to us under these arrangements may also vary.
Industry Trends
Trends in the volume of cross-border money transfer activity correlate with migration, global economic opportunity and related employment levels worldwide. A significant trend that continues to impact the money transfer industry is increasing regulation. Regulations in the United States and elsewhere focus, in part, on anti-money laundering, anti-terrorist financing, consumer protection, transparent pricing, consumer privacy, data protection, and information security. Regulations require money transfer providers, banks, and other financial institutions to develop systems to prevent, detect, monitor, and report certain transactions. Such regulations increase the costs to provide money transfer services and can make it more difficult or less desirable for consumers and businesses to use money transfer services, either of which could have an adverse effect on money transfer providers’ revenues and operating income. For further discussion of the regulatory impact on our business, see the Regulation discussion in this section, Part I, Item 1A, Risk Factors, and the Enhanced Regulatory Compliance section in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Additionally, our ability to enter into or maintain exclusive arrangements with our agents has been and may continue to be challenged by both regulators and certain of our current and prospective agents.
We are seeing increased competition from, and increased market acceptance of, electronic, mobile, and internet-based money transfer services as well as digital currencies, including cryptocurrencies. We believe this shift in consumer preference will continue, resulting in an increasing proportion of remittances being sent through digital means in the future.
Competition
We face robust competition in the highly fragmented Consumer-to-Consumer money transfer industry. We compete with a variety of remittance providers, including:
•Global money transfer providers - Global money transfer providers allow consumers to send money to a wide variety of locations, in both their home countries and abroad.
•Regional money transfer providers - Regional money transfer providers, or “niche” providers, provide the same services as global money transfer providers, but focus on a smaller group of geographic corridors or services within one region, such as North America to the Caribbean, Central or South America, or Western Europe to North Africa.
•Digital channels - Digital money transfer service providers, including certain payment providers, allow consumers to send and receive money digitally using the internet or through mobile devices. Digital channels also include digital wallets, digital currencies, including cryptocurrencies, cryptocurrency exchanges, and social media and other predominantly communication or commerce-oriented platforms that offer money transfer services.
•Banks, postbanks, and post offices - Banks, postbanks, and post offices of all sizes compete with us in a number of ways, including money transfers, bank transfer and wire services, payment instrument issuances, and card-based services.
•Informal networks - Informal networks enable people to transfer funds without formal mechanisms and often without compliance with government reporting requirements.
•Alternative channels - Alternative channels for sending and receiving money include mail and commercial courier services 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 the overall consumer value proposition, including brand recognition, trust, reliability, consumer experience, price, speed of delivery, distribution network, variety of send and receive payment methods, and channel options.
Business Solutions Segment
On August 4, 2021, we entered into an agreement to sell our Business Solutions business to the Buyer for cash consideration of $910.0 million. The sale is expected to be completed in three closings, the first of which occurred on March 1, 2022 with the entire cash consideration collected at that time. The second closing occurred on December 31, 2022 and included the United Kingdom operations. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 5, Divestitures, Investment Activities, and Goodwill for further information related to our Business Solutions divestiture. In our Business Solutions segment, which represented 5% of our total consolidated revenues for 2022, we facilitate payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises, and other organizations and individuals.
Other
Our remaining businesses and services, which primarily consist of our bill payment services in Argentina and the United States and money order services, are included in Other, which also includes certain corporate costs such as costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures. Also included is our digital wallet, which allows consumers in certain countries to load funds and spend those funds or initiate a money transfer. Other revenue is derived primarily from transaction fees paid by customers and billers and represented 6% of our total consolidated revenues for 2022.
Our bill payment services provide fast and convenient options to make payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, and government agencies. Generally, these bill payment services are initiated by consumers making a cash payment at an agent or a Company-operated location. We believe our business partners, who receive payments through our services, benefit from their relationship with Western Union, as it provides them with real-time or near real-time posting of their customers’ payments. In many circumstances, our relationships with business partners also provide them with an additional source of income and reduce their expenses for handling of payments.
Consumers use our money orders for making purchases, paying bills, and as an alternative to checks. 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.
Intellectual Property
The Western Union trademarks and service marks and the Company’s Black & Yellow trade dress are used and/or registered worldwide and are material to our Company. We offer money transfer services under the Western Union®, Orlandi Valuta®, and Vigo® brands. We also provide various payment and other services under many brands and product names, including Pago Fácil®, Quick Collect®, Quick PaySM, Quick Cash®, and Western Union Convenience Pay®. Our operating results have allowed us to invest significantly each year to support our brands, and in some regions, our agents have also contributed financial resources to assist with marketing our services. Additionally, we own patents and patent applications covering various aspects of our products and services, covering a range of technologies, including those related to money transfer, compliance analytics, fraud prevention, and mobile applications. We also own a number of application programming interfaces.
Regulation
Our business is subject to a wide range of laws and regulations enacted by the United States federal government, each of the states, many localities, and many other countries and jurisdictions, including the EU. These include increasingly strict legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing, fraud, and other illicit activity. These also include laws and regulations regarding financial services, consumer disclosure and consumer protection, currency controls, money transfer and payment instrument licensing, payment services, credit and debit cards, electronic payments, foreign exchange hedging services, unclaimed property, the regulation of competition, consumer privacy, data protection, and information security. Failure by Western Union, our agents or their subagents (agents and subagents are third parties, over whom Western Union has limited legal and practical control), and certain of our service providers to comply with any of these requirements or their interpretation could result in regulatory action, the imposition of civil and criminal penalties, including fines and restrictions on our ability to offer services, the suspension or revocation of a license or registration required to provide money transfer services and/or payment services or foreign exchange products, the limitation, suspension or termination of services, changes to our business model, loss of consumer confidence, private class action litigation, and/or the seizure of our assets. For example, in early 2017, we entered into a Deferred Prosecution Agreement with the United States Department of Justice and certain United States Attorney’s Offices (the “DPA”), a Stipulated Order for Permanent Injunction and Final Judgment (the “FTC Consent Order”) with the United States Federal Trade Commission (“FTC”), a Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of Treasury (the “FinCEN Agreement”), and settlement agreements with various state attorneys general (collectively, the “Joint Settlement Agreements”), and in early 2018, we agreed to a consent order which resolved a matter with the New York State Department of Financial Services (the “NYDFS Consent Order”). For further discussion of these agreements, please see Part I, Item 1A, Risk Factors - “Our business is the subject of consent agreements with or enforcement actions by regulators.”
Money Transfer and Payment Instrument Licensing and Regulation
Most of our services are subject to anti-money laundering laws and regulations, including the Bank Secrecy Act in the United States, as amended (collectively, the “BSA”), and similar laws and regulations in the United States and abroad. The BSA, among other things, requires money transfer companies and the issuers and sellers of money orders to develop and implement risk-based anti-money laundering programs, to report large cash transactions and suspicious activity, and in some cases, to collect and maintain information about consumers who use their services and maintain other transaction records. In addition to United States federal laws and regulations, many other countries and states impose similar and, in some cases, more stringent requirements. These requirements may also apply to our agents and their subagents. In addition, the United States Department of the Treasury has interpreted the BSA to require money transfer companies to conduct due diligence into and risk-based monitoring of their agents and subagents inside and outside the United States, and certain states in the U.S. also require money transfer companies to conduct similar due diligence reviews. Compliance with anti-money laundering laws and regulations continues to be a focus of regulatory attention, with recent settlement agreements being reached with Western Union, other money transfer providers, and several large financial institutions. For example, in early 2017, we entered into the Joint Settlement Agreements, and in early 2018, we agreed to the NYDFS Consent Order.
Economic and trade sanctions programs administered by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and by certain foreign jurisdictions prohibit or restrict transactions to or from (or dealings with or involving) certain countries, regions, governments, and in certain circumstances, specified foreign nationals, as well as with certain individuals and entities such as narcotics traffickers, terrorists, and terrorist organizations. We provide limited money transfer and payment services to parties in Cuba, Syria and the Crimea region of Ukraine in accordance with United States laws authorizing such services, and pursuant to and as authorized by advisory opinions of, or specific or general licenses issued by, OFAC.
In the United States, almost all states license certain of our services, and many exercise authority over the operations of certain aspects of our business and, as part of this authority, regularly examine us. Many states specify the amount and composition of eligible assets that certain of our subsidiaries must hold in order to satisfy our outstanding settlement obligations. In compliance with these regulations, we invest the principal of outstanding money orders, money transfers, or payments in highly-rated, investment grade securities, and our use of such investments is restricted to satisfying outstanding settlement obligations. We regularly monitor credit risk and attempt to mitigate our exposure by investing in highly-rated securities. The substantial majority of our investment securities, classified within Settlement assets in the Consolidated Balance Sheets, are held in order to comply with state licensing requirements in the United States and are required to have credit ratings of “A-” or better from a major credit rating agency.
These licensing laws also cover matters such as government approval of controlling shareholders and senior management of our licensed entities, regulatory approval of agents and in some instances their locations, consumer disclosures and the filing of periodic reports by the licensee, and they may require the licensee to demonstrate and maintain certain net worth levels. Many U.S. states also require money transfer providers and their agents to comply with federal and/or state anti-money laundering laws and regulations. There are different shareholding thresholds that may require prior regulatory approval in connection with certain licenses our subsidiaries hold in the United States and outside of the United States. As such, any person who intends to acquire 10% or more of the total equity interest of our Company may be required to obtain prior approval from (or rebut the presumption that such person will become a controlling shareholder with) one or more of our regulators. In addition, certain of our licensed entities are required to make prior notification and seek prior approval from our regulators when certain shareholding thresholds are exceeded.
Outside the United States, our money transfer business is subject to some form of regulation in almost all of the countries and territories in which we offer those services. These laws and regulations may include limitations on what types of entities may offer money transfer services, agent registration requirements, 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 also include laws and regulations intended to detect and prevent money laundering or terrorist financing, including obligations to collect and maintain information about consumers, recordkeeping, reporting and due diligence, and supervision of agents and subagents similar to and in some cases exceeding those required under the BSA. In most countries, either we or our agents are required to obtain licenses or to register with a government authority in order to offer money transfer services, and in certain countries, we must maintain sufficient cash or other funds to satisfy payout obligations in these countries. Where we cooperate with partners around the world to offer money transfer services marketed exclusively under the partners’ brands, the regulatory requirements applicable to us may vary.
The majority of our EU business is managed through our Irish payment institution subsidiary, Western Union Payment Services Ireland Limited, which is regulated by the Central Bank of Ireland under the Second EU Payment Services Directive EU 2015/2366 (“PSD2”). PSD2 imposes rules on payment service providers like Western Union, aiming to drive increased competition, innovation, and transparency across the EU payments market, while enhancing consumer protection and the security of internet payments and account access. PSD2: (i) has increased the supervisory powers granted to member states with respect to activities performed by companies such as Western Union, and our agent network, (ii) provides for customer identity verification and authentication measures, and agent monitoring responsibilities, (iii) provides member states with the ability to limit the types, nature, and amount of charges we may assess, increases customer refund rights, and (iv) increases information security and incident reporting responsibilities.
Under our PSD2 license and local EU member states’ implementing legislation and associated regulatory supervisory powers, guidelines, and regulatory technical standards, we are responsible for the regulatory compliance of our agents and their subagents. We are also subject to requirements such as capital and safeguarding rules, certain consumer protection requirements, information technology, and operational security risk management requirements, outsourcing oversight requirements, and periodic regulatory examinations similar to those in the United States. These rules have resulted in increased compliance and agent monitoring costs and the increased risk of adverse regulatory action against us resulting from the actions of our agents in those areas. In addition to increasing our compliance costs, PSD2 increased the regulatory supervision and enforcement associated with non-compliance with it and the associated increasing body of applicable European Banking Authority guidelines and regulatory technical standards. PSD2 may also result in increased competition arising from other service providers utilizing the enhanced payment initiation and account information access provisions or by our failure to utilize those provisions to innovate our own service offerings. We continue to monitor the impact on our business of PSD2 and associated regulatory guidelines and technical standards, including indicators of changes in the payment services market such as competition from new payment and electronic money license authorizations, including those by multinational online service and technology companies.
In addition to our Irish PSD2 license, which covers most of our retail money transfer business in Europe, our European digital money transfer business is managed through our Austrian banking subsidiary, which is regulated by the Austrian Financial Market Authority under the Austrian Banking Act. Its digital money transfer business is subject to payment services regulated under PSD2 and local implementing legislation.
In view of the departure of the United Kingdom ("UK") from the EU on January 31, 2020 ("Brexit"), to ensure that our operations will continue in the UK, we set up a new payment institution to conduct money remittance in the UK, which was authorized by the Financial Conduct Authority in April 2019 and presently offers retail money transfer services via UK agents. We also applied for the UK branch of our Austrian banking subsidiary to be authorized by the UK Prudential Regulation Authority ("PRA") as a Third Country Branch (i.e., a UK branch of a non-UK bank), one avenue to continue to conduct our Branded Digital operations. Our application remains pending at this time. Since December 31, 2020, our digital business has been operating under the Temporary Permissions Regime introduced in the UK, which is available through December 31, 2023. If authorized as a Third Country Branch, this UK branch will be subject to certain additional UK regulatory requirements. Further, as a result of Brexit, including under the terms of any new regulatory authorizations we have and may obtain, we could be required to comply with differing regulatory requirements in the UK as a result of divergence from established EU regulation. This could make it more costly for us to provide our services.
We have developed and continue to enhance our global compliance programs, including our anti-money laundering program, comprised of policies, procedures, systems, and internal controls to monitor and to address various legal and regulatory requirements. In addition, we continue to adapt our business practices and strategies to help us comply with current and evolving legal standards and industry practices, including heightened regulatory focus on compliance with anti-money laundering or fraud prevention requirements. These programs include dedicated compliance personnel, training and monitoring programs, suspicious activity reporting, regulatory outreach and education, and support and guidance to our agent network on regulatory compliance. Our money transfer and payment service networks operate through agents in most countries, and, therefore, there are limitations on our legal and practical ability to completely control those agents’ compliance activities.
Regulators worldwide are exercising heightened supervision of money transfer providers and banks' relationships with money transfer providers and requiring increasing efforts to ensure compliance. As a result, we continue to incur significant compliance costs related to customer, agent, and subagent due diligence, verification, transaction approval, disclosure, and reporting requirements, including requirements to report transaction data to a greater extent or frequency than previously required, along with other requirements that have had and will continue to have a negative impact on our financial condition and results of operations.
Government agencies both inside and outside the United States may impose new or additional rules on money transfers affecting us, our agents, or their subagents, including regulations that:
•prohibit, restrict, and/or impose taxes or fees on money transfer transactions in, to, or from certain countries or with certain governments, individuals, and entities;
•impose additional customer identification and customer, agent, and subagent due diligence requirements;
•impose additional reporting or recordkeeping requirements or require enhanced transaction monitoring;
•limit the types of entities capable of providing money transfer services, impose additional licensing or registration requirements on us, our agents, or their subagents, or impose additional requirements on us with regard to selection or oversight of our agents or their subagents;
•impose minimum capital or other financial requirements on us or our agents and their subagents;
•limit or restrict the revenue which may be generated from money transfers, including transaction fees and revenue derived from foreign exchange;
•require enhanced disclosures to our money transfer customers;
•require the principal amount of money transfers originated in a country to be invested in that country or held in a trust until they are paid;
•limit the number or principal amount of money transfers, which may be sent to or from a jurisdiction, whether by an individual, through one agent, or in aggregate;
•impose more stringent information technology, cybersecurity, data, and operational security requirements on us or our agents and their subagents, including relating to data transfers and the use of cloud infrastructure;
•impose additional risk management and related governance and oversight requirements, including relating to the outsourcing of services to other group companies or to third parties; and
•prohibit or limit exclusive arrangements with our agents and subagents.
Consumer Protection Regulations
The Dodd-Frank Act created the CFPB, which implements, examines compliance with, and enforces federal consumer protection laws governing financial products and services, including money transfer services. The CFPB has created additional regulatory obligations for us and has the authority to examine and supervise us and our larger competitors, including for matters related to unfair, deceptive, or abusive acts and practices. The CFPB’s regulations implementing the remittance provisions of the Dodd-Frank Act have affected our business in a variety of areas. These include: (i) a requirement to provide consumers sending funds internationally from the United States enhanced, written, pre-transaction disclosures and transaction receipts, including the disclosure of fees, foreign exchange rates and taxes, (ii) an obligation to resolve various errors, including certain errors that may be outside our control, and (iii) an obligation at a consumer’s request to cancel transactions that have not been completed. We have modified certain of our systems, business practices, service offerings, and procedures to comply with these regulations. We also face liability for the failure of our money transfer agents to comply with the rules and have implemented and are continuing to enhance additional policies, procedures, and oversight measures designed to foster compliance by our agents. The extent of our and our agents’ implementation of these policies, procedures, and measures may be considered by the CFPB in any action or proceeding against us for noncompliance with the rules by our agents. The CFPB has also implemented a direct portal for gathering information regarding consumer complaints, including with respect to money transfers. The CFPB uses the information collected to help improve its supervision of companies, enforcement of federal consumer financial laws, and writing of rules and regulations. This effort may lead to additional regulations and regulatory scrutiny of our business.
In addition, various jurisdictions in and outside the United States have consumer protection laws and regulations, and numerous governmental agencies are tasked with enforcing those laws and regulations. Consumer protection principles continue to evolve globally, and new or enhanced consumer protection laws and regulations may be adopted. Governmental agencies tasked with enforcing consumer protection laws or regulations are communicating more frequently and coordinating their efforts to protect consumers. As the scope of consumer protection laws and regulations change, we may experience increased costs to comply and other adverse effects to our business.
Derivatives Regulations
Rules adopted under the Dodd-Frank Act by the Commodity Futures Trading Commission (the “CFTC”), as well as the provisions of the European Market Infrastructure Regulation (“EMIR”) and its technical standards, which are directly applicable in the member states of the EU, have subjected most of our foreign exchange hedging transactions, including certain intercompany hedging transactions and certain of the corporate interest rate hedging transactions we may enter into in the future, to reporting, recordkeeping, and other requirements. Following Brexit, EMIR and the European Markets in Financial Instruments Directive (“MiFID II”) have been retained as UK law pursuant to the European Union (Withdrawal) Act 2018 UK. Additionally, certain of the corporate interest rate hedging transactions and foreign exchange derivatives transactions we may enter into in the future may be subject to centralized clearing requirements or may be subject to margin requirements in the United States, the EU, and the UK. Other jurisdictions outside of the United States, the EU, and the UK, have implemented, are implementing, or may implement regulations similar to those described above. Derivatives regulations have added costs to our business, and any additional requirements, such as future registration requirements and increased regulation of derivatives contracts, will result in additional costs or impact the way we conduct our hedging activities. For further discussion of these risks, see Part I, Item 1A, Risk Factors - “The Dodd-Frank Act, the Electronic Funds Transfer Act and Regulation E, as well as the regulations required by these Acts and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other government authorities, could adversely affect us and the scope of our activities and could adversely affect our financial condition, results of operations, and cash flows.”
For example, the regulatory regimes for derivatives in the United States, the EU, and the UK, such as under the Dodd-Frank Act and “MiFID II,” are continuing to evolve. Any changes to such regimes, our designation under these regimes, or the implementation of new rules under these regimes, such as future registration requirements and increased regulation of derivatives contracts, may result in additional costs to our business. Other jurisdictions outside the United States, the EU, and the UK, have implemented, are implementing, or may implement regulations similar to those described above, and these will result in greater costs to us as well. Our implementation of these requirements has resulted, and will continue to result, in additional costs to our business. Moreover, following Brexit, we could be required to comply with differing regulatory requirements in the UK as a result of divergence from established EU regulation. This could make it more costly for us to provide our services. Furthermore, our failure to implement these requirements correctly could result in fines and other sanctions, as well as necessitate a temporary or permanent cessation to some or all of our derivative related activities. Any such fines, sanctions, or limitations on our business could adversely affect our operations and financial results.
Unclaimed Property Regulations
Our Company is subject to unclaimed property laws in the United States and in certain other countries, and our agents are subject to unclaimed property laws in some jurisdictions. These laws require us or our agents, as applicable, to turn over to certain government authorities the property of others held by our Company that has been unclaimed for a specified period of time, such as unpaid money transfers and money orders. We hold property subject to unclaimed property laws, and we have an ongoing program designed to help us comply with these laws. We are subject to audits with regard to our escheatment practices. For further discussion of the risks associated with unclaimed property, see Part I, Item 1A, Risk Factors - “We are subject to unclaimed property laws, and differences between the amounts we have accrued for unclaimed property and amounts that are claimed by a state or foreign jurisdiction could have a significant impact on our results of operations and cash flows.”
Privacy Regulations and Information Security Standards
We must collect, transfer, disclose, use, and store personal information in order to provide our services. These activities are subject to information security, data privacy, data protection, data breach, and related laws and regulations in the United States, the EU, and many other countries in which we provide services. These laws and requirements continue to evolve and may become increasingly challenging to comply with.
In the United States, federal data privacy laws such as the federal Gramm-Leach-Bliley Act and various state laws, such as the California Consumer Privacy Act (“CCPA”), the Colorado Privacy Act (“CPA”), and other data privacy and breach laws, apply to a broad range of financial institutions including money transfer providers like Western Union and to companies that provide services to or on behalf of those institutions. The United States Federal Trade Commission (“FTC”), which has jurisdiction over companies such as Western Union, has brought numerous enforcement actions, resulting in multi-year settlements and significant fines against companies whose privacy or data security practices allegedly violated the law. The CCPA, CPA, and other state privacy laws impose heightened data privacy requirements on companies that collect information from residents of the particular states and create a broad set of privacy rights and remedies modeled in part on the GDPR, as discussed below. The FTC, the CFPB, and some states continue to investigate companies’ privacy practices including those related to online and mobile applications. Most state laws require notification to be provided to affected individuals, state authorities, and consumer reporting agencies, in the event of a breach of certain types of personal data contained in electronic systems and, in some cases, physical documents. Such notification requirements may be subject to various factors, including the level of encryption, the data elements involved in the incident, and the potential harm to individuals, including consumers, employees, and other individuals. In addition, we are also subject to United States federal reporting requirements in connection with some such incidents.
Increasingly, data protection laws of countries outside of the United States are having a significant impact on our operations and the manner in which we provide our services. The EU has been particularly active in regulating the collection, transfer, disclosure, use, storage, and other processing of personal information, and the EU’s approach is frequently followed by other jurisdictions. The trend in this area is one of increasingly more stringent regulation, particularly with the EU’s GDPR. The GDPR imposes obligations upon our businesses and presents the risk of substantially increased penalties for non-compliance, including the possibility of not only fines but also enforcement action that may require an organization to cease certain of its data processing activities. We have incurred and we expect will continue to incur expenses to meet the obligations of the GDPR, which continue to evolve through national and EU case law, guidance and enforcement actions from data protection regulators, and developing best practices. The GDPR and other supranational, national, and provincial laws throughout the world are not uniform, but typically include one or more of the following objectives: (i) regulating the collection, transfer (including in some cases, the transfer outside of the country or region of collection), processing, storage, use and disclosure of personal information, (ii) requiring clear and transparent notice to individuals of the processing of their personal information and our privacy practices, (iii) providing for certain access, correction, deletion, and other privacy and related rights of individuals with respect to their personal information, (iv) restricting the use or disclosure of personal information for secondary purposes such as marketing, and (v) taking appropriate actions to protect the personal information from unauthorized disclosure. A significant number of these data protection laws outside of the United States require us to provide, under certain circumstances, notification to affected individuals, data protection authorities, and/or other regulators in the event of a data breach.
An emerging trend is the increase in data localization laws which require either that personal information be hosted on local servers or that organizations restrict the transfer of personal information outside of national borders. These laws present operational and technology challenges that can require companies to make significant changes to the management of personal information and can increase our costs and impact our ability to process personal information. These laws may also restrict or limit our ability to process transactions using centralized databases, including cloud computing infrastructure and software, for example, by requiring that transactions be processed using a database maintained in a particular country or region.
Data privacy regulations, laws, and industry standards also impose requirements for safeguarding personal information. We seek to maintain and upgrade our systems and processes to protect the security of our computer systems, software, networks, and other technology assets to help protect against the risks presented by hackers, nation-states and other threat actors. For further discussion of these risks, see Part I, Item 1A, Risk Factors - “Breaches of our information security safeguards could adversely affect our ability to operate and could damage our reputation and adversely affect our business, financial condition, results of operations, and cash flows.”
In connection with regulatory requirements to assist in the prevention of money laundering and terrorist financing, and pursuant to legal obligations and authorizations, we make information available to certain United States federal, state, and foreign government agencies when required by law. In recent years, we have experienced an increasing number of data sharing requests by these agencies, particularly in connection with efforts to prevent terrorist financing or to reduce the risk of identity theft. During the same period, there has also been increased public attention to the corporate use and disclosure of personal information, accompanied by legislation and regulations intended to strengthen data protection,
information security, and consumer privacy. These regulatory goals, including the prevention of money laundering, terrorist financing, and identity theft, and the protection of the individual’s right to privacy, may conflict or otherwise present challenges, and the law in these areas is not consistent or settled. The legal, political, and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings, or other events could expose us to increased program costs, liability, and reputational damage.
For further discussion of risks related to current and proposed data privacy and security laws and regulations, see Part I, Item 1A, Risk Factors - “Current and proposed regulation addressing consumer privacy and data use and security could increase our costs of operations, which could adversely affect our operations, results of operations, and financial condition.”
Banking Regulations
We have subsidiaries that operate under banking licenses granted by the Austrian Financial Market Authority and the Brazilian Central Bank. We are also subject to regulation, examination, and supervision by the New York State Department of Financial Services (“NYDFS”), which has regulatory authority over our subsidiary that holds our Austrian banking license. Further, an Agreement of Supervision with the NYDFS imposes various regulatory requirements including operational limitations, capital requirements, affiliate transaction limitations, and notice and reporting requirements on this entity and its Austrian subsidiary. However, because this entity and its Austrian subsidiary do not exercise banking powers in the United States, we are not subject to the Bank Holding Company Act in the United States.
London Interbank Offered Rate ("LIBOR") Transition
In July 2017, the Financial Conduct Authority in the UK, which regulates LIBOR, publicly announced that it will no longer compel or persuade banks to make LIBOR submissions after 2021. In March 2021, the Financial Conduct Authority issued an update announcing that certain LIBOR settings will continue to be published after 2021, including commonly utilized United States dollar ("USD") LIBOR settings which will continue to be published through June 2023. These announcements have ended certain LIBOR settings and are expected to effectively end various remaining settings on specified dates in the future. Alternatives, such as the Secured Overnight Financing Rate ("SOFR") have been endorsed by certain regulatory authorities and are currently in use for many market transactions, and other alternatives to LIBOR are in development and may also be adopted for use in major financial markets. As of December 31, 2022, we have transitioned all of our significant contracts away from LIBOR.
Other
Some of our services are subject to card association rules and regulations. For example, an independent standards-setting organization, the Payment Card Industry (“PCI”) Security Standards Council developed a set of comprehensive requirements concerning payment card account security through the transaction process, called the Payment Card Industry Data Security Standard (“PCI DSS”). All merchants and service providers that store, process and 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.
Human Capital Management
Our People
As of December 31, 2022, our businesses employed approximately 8,900 individuals, of which approximately 1,300 employees are located inside the United States. Our employees span more than 50 countries.
Attracting, Developing, and Engaging Employees
Recruitment
Our recruitment efforts focus on identifying internal and external talent with skills that are critical to our business strategy, including those individuals with cloud, data architecture, cybersecurity, payment systems, and many other areas of expertise. We actively assess our new talent needs, evaluate the extent to which current staff have those critical skills,
and provide development to build these capabilities. Our recruiting team uses multiple channels to find, assess, and hire employees, including channels that focus on diverse candidates.
Training and Professional Development
We invest in our people and their growth. Our talent processes endeavor to strike an appropriate balance between global scale and local responsiveness. Our development and training organization has members in many countries, so that training can be made available to all regions of our global workforce.
Our employee development philosophy centers around learning and empowerment. To position our people for success, we provide our employees with access to a variety of learning, including self-paced digital and facilitated formats. Employees also gain valuable experiences through on the job learning, special assignments and projects, and coaching and mentoring. We use a variety of assessments to help employees identify and develop areas to both improve current performance as well as areas that prepare them for future opportunities.
Reflecting our commitment to a culture of ethics and compliance, new employees receive mandatory education related to compliance, ethics, privacy, and information security. Existing employees receive continuing education on these same topics every year.
Engagement
We assess employee engagement regularly, and our employee engagement system utilizes periodic surveys, artificial intelligence, and machine learning to help leaders better understand what our employees are thinking, what they value, and what they need. We benchmark our engagement results against global peers to better understand our strengths and areas of opportunity. One of our ongoing goals is to foster greater communication to help ensure that our employees are informed, believe that their concerns are heard, and feel empowered to make decisions. To that end, we have implemented employee engagement and culture teams in certain of our offices worldwide. While each site varies somewhat in its approach, these teams are supported by on-site business leaders to focus on the “culture of the customer,” diversity and inclusion, community, the environment, and other issues that are meaningful to employees in those locations.
Diversity, Equity, and Inclusion
We are committed to fostering a diverse and inclusive work environment. We recognize the strategic importance of talent and diversity in our workforce and promote diversity through:
•our policies and practices in hiring, promotion, and compensation;
•encouraging ethical decision-making via our Code of Conduct and ethics training program;
•offering diversity training programs, sponsorship, and mentoring initiatives;
•unconscious bias training;
•goal setting; and
•providing support for grassroots affinity groups and belonging initiatives.
For example, as of December 31, 2022, over 50% of our global workforce were women and 37% of senior management-level and above positions were held by women. Our leadership team has diverse backgrounds, with wide-ranging, global experience. As of February 23, 2023, three out of our eight executive officers were diverse, including two who were female and one who identified as Black/African-American. In addition, our Board of Directors considers diversity in gender, ethnicity, geography, background, and cultural viewpoints when selecting nominees. As of December 31, 2022, five of our eleven directors were diverse, including three directors who were female and three directors who identified as Hispanic/Latino, Asian, or LGBTQ+.
Compensation, Benefits, and Wellness
We seek to provide compensation that motivates, retains, and rewards our employees and attracts future talent. We offer packages designed to inspire the delivery of exceptional performance and results to help us deliver on our business strategy, stockholder commitments, and Company values. To guide our annual compensation assessment, we examine and benchmark market data for countries where we operate, as available data allows.
We strive to achieve equal pay for equal work. We consistently review and update salary ranges and perform internal pay equity reviews, with the goal of developing impartial and competitive pay practices and aligning salaries to local market conditions and cost-of-labor changes. We also offer employees multiple channels to raise pay equity concerns, such as our human resources team, ethics helpline, and legal department.
Our benefit packages aim to support the health and well-being of our employees and their families, including same sex domestic partners in all countries where it is legally permissible. Our benefit packages vary among countries based on laws, cultural norms, and market practices. Benefits generally available to all full-time employees include medical benefits, risk insurance benefits (life, disability, and accidental death and dismemberment), global adoption assistance, our employee assistance program (counseling, legal, and other professional services), paid leave, a scholarship program available to employees with college-age children, a global recognition and reward program, and business travel assistance and insurance.
Available Information
The Western Union Company is a Delaware corporation, and its principal executive offices are located at 7001 East Belleview Avenue, Denver, CO, 80237, telephone (866) 405-5012. The Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Investor Relations” portion of the Company’s website, www.westernunion.com, as soon as reasonably practical after they are filed with the SEC. The SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements, and other information filed electronically with the SEC by the Company.
Information About our Executive Officers
As of February 23, 2023, our executive officers consist of the individuals listed below:
Name
Age
Position
Devin McGranahan
President, Chief Executive Officer, and Director
Matt Cagwin
Chief Financial Officer
Benjamin Adams
Chief Legal Officer and Interim Chief People Officer
Giovanni Angelini
President, Europe and Africa
Cherie Axelrod
Chief Enterprise Risk Officer
Jean Claude Farah
President, Middle East and Asia Pacific
Gabriella Fitzgerald
President, North America
Andrew Walker
Chief Operations Officer
Devin McGranahan is our President and Chief Executive Officer and member of the Company's Board of Directors (from December 2021). Prior to joining Western Union, Mr. McGranahan was with Fiserv, Inc., a global provider of payments and financial services technology solutions, where he served as Executive Vice President, Senior Group President, Global Business Solutions, from 2018 to 2021 and Group President, Billing and Payments Group, from 2016 to 2018. Before joining Fiserv, Mr. McGranahan served as a senior partner at McKinsey & Company, a global management consulting firm. While there, he held a variety of senior management roles, including leader of the global insurance practice from 2013 to 2016 and as a co-chair of the global senior partner election committee from 2013 to 2015. In addition, Mr. McGranahan served as co-leader of the North America financial services practice from 2009 to 2016. He joined McKinsey & Company in 1992 and served in a variety of other leadership positions prior to 2009.
Matt Cagwin is our Chief Financial Officer (from January 2023). Mr. Cagwin previously served as our Interim Chief Financial Officer from September 2022 to January 2023. Mr. Cagwin joined the Company in July 2022 as Head of Business Unit Financial Planning and Analysis. Prior to joining the Company, Mr. Cagwin served as Senior Vice President, Chief
Financial Officer - Merchant Acceptance of Fiserv, Inc. from 2019 to 2022, in the same role at First Data Corporation from 2018 to 2019, and as Senior Vice President, Corporate Controller and Chief Accounting Officer of First Data Corporation from 2014 to 2018. Prior to his roles at Fiserv and First Data, Mr. Cagwin spent ten years at Coca-Cola Enterprises in a variety of senior management roles, including Vice President and European Controller and Vice President and Assistant Corporate Controller.
Benjamin Adams is our Chief Legal Officer (from June 2022) and our Interim Chief People Officer (from February 2023). Prior to joining the Company, Mr. Adams was Vice President, Legal at PayPal from 2015 to 2022. From 2007 to 2015, Mr. Adams served as Assistant General Counsel, Global Commercial Lead for Microsoft Corporation and held various senior legal positions at Nokia Corporation, including Head of Legal, Americas Region, Head of Legal, India and Emerging Market Services, and Head of Legal, Mergers and Acquisitions.
Giovanni Angelini is our President, Europe and Africa (from September 2022). Mr. Angelini previously served as Head of Global Independent Channels and Senior Vice President and General Manager, Global Money Transfer Consumer Network. Earlier in his career, from 1996 until early 2002, he was a Senior Manager at Bain & Company in Italy. From 2002 to 2011, he served as General Manager of Angelo Costa Group (a former Western Union Master Agent). Following the acquisition of the Angelo Costa business by Western Union in 2011, Mr. Angelini became CEO of Angelo Costa and Finint, and then Head of Independent Channels, Europe at Western Union.
Cherie Axelrod is our Chief Enterprise Risk Officer (from August 2022). Ms. Axelrod previously served as the Company’s Chief Auditor from 2018 to 2022. Prior to that, she served as Deputy Chief Compliance Officer and U.S. Settlements Lead from 2016 to 2018 and Director of Project Management - Compliance from 2012, when she joined Western Union. Before joining Western Union, Ms. Axelrod held various roles of increasing responsibility, including divisional Chief Financial Officer for the Consumer and Small Business division of Qwest Communications International, Inc.
Jean Claude Farah is our President, Middle East and Asia Pacific (from September 2022) and previously served the Company as President, EMEA/APAC from 2021 to 2022, President of Global Network from 2019 to 2021, Executive Vice President and President, Global Payments from 2017 to 2019, Executive Vice President and President, Middle East, Africa, APAC, Eastern Europe and CIS from 2014 to 2017, and Senior Vice President for the Middle East and Africa region from 2009 to 2013. Mr. Farah joined Western Union in 1999 as Marketing Manager, Middle East & North Africa. From 1999 to 2013, Mr. Farah held a variety of progressively responsible positions with the Company, including Regional Director, Regional Vice President, and Senior Vice President for the Middle East, Pakistan and Afghanistan region. Mr. Farah started his career in 1995 with Renault SA. Prior to joining Western Union, he was Area Manager for Orangina Pernod Ricard.
Gabriella Fitzgerald is our President, North America (from September 2022). Prior to her current role, Ms. Fitzgerald was President, Americas from 2021 to 2022. Before joining Western Union, Ms. Fitzgerald worked at American Express from 1998 to 2021, holding various positions of increasing responsibility, including her last position as Executive Vice President, General Manager, Global Commercial Services where she was responsible for account management and development of American Express' largest commercial clients in the United States. During Ms. Fitzgerald’s time at American Express, she also held the roles in various disciplines and functions, including marketing, finance, and procurement.
Andrew Walker is our Chief Operations Officer (from April 2022). Previously, Mr. Walker was Executive Vice President and Chief Administrative Officer at United Services Automobile Association (USAA) from 2020 to 2022 and before that he was Chief Procurement Officer at USAA from 2018 to 2020. Prior to USAA, Mr. Walker was President of Nationwide Bank, a subsidiary to Nationwide where he spent 11 years in a variety of senior management roles, including Senior Vice President, Chief Procurement Officer and Information Technology Chief Financial Officer.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
The following is a summary of certain key risk factors with respect to our Company. You should read this summary together with the more detailed descriptions of risks relating to our Company below.
Risks Relating to Our Business and Industry
•Demand for our services is dependent on a number of factors that could be materially impacted by adverse changes in the global economy, including related to pandemics.
•We operate in highly competitive and rapidly evolving industries and face competition from a wide variety of service providers.
•Our business depends on consumer confidence, which could be adversely affected by a number of factors, many of which are outside of our control.
•Our Consumer-to-Consumer business is highly dependent on our ability to maintain our agent network under terms consistent with or more advantageous than those currently in place.
•Our industry is subject to rapid and significant technological changes.
•We are a global company and accordingly are subject to a number of risks related to our international operations.
•As a company that transfers and retains large amounts of confidential and personal information, we are exposed to risks relating to ensuring such information is not improperly used or disclosed.
•Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of our computer information systems and those of our service providers.
•We may not realize all of the anticipated benefits from restructuring and related initiatives.
•We face credit, liquidity, and fraud risks from our agents, consumers, businesses, and third-party processors.
•Changes in tax laws, or their interpretation, or unfavorable resolution of tax contingencies could adversely affect our tax expense.
•Our ability to remain competitive depends in part on our ability to protect our trademarks, patents, copyrights, and other intellectual property rights and to defend ourselves against potential intellectual property infringement claims.
Risks Relating to Our Regulatory and Litigation Environment
•Our services are subject to increasingly strict legal and regulatory requirements, including those intended to help detect and prevent money laundering, terrorist financing, fraud, and other illicit activity.
•The laws and regulations governing our business are frequently changing and evolving and could require changes in our business model and increase our costs of operations.
•The changes in our compliance program required by the consent orders and settlement agreements to which we are party have had, and may continue to have, adverse effects on our business.
•Western Union is, and may in the future be, the subject of litigation, including purported class action litigation, and regulatory actions, which could result in material settlements, judgments, fines, or penalties.
There are many factors that affect our business, financial condition, results of operations, and cash flows, some of which are beyond our control. These risks include, but are not limited to, the risks described in detail below. Such risks are grouped according to:
•Risks Relating to Our Business and Industry; and
•Risks Relating to Our Regulatory and Litigation Environment
You should carefully consider all of these risks.
Risks Relating to Our Business and Industry
Risks Relating to our Business Model and Competition
Global economic downturns or slower growth or declines in the money transfer, payment service, and other markets in which we operate, including downturns or declines related to interruptions in migration patterns, and difficult conditions in global financial markets and financial market disruptions could adversely affect our business, financial condition, results of operations, and cash flows.
The global economy has experienced in recent years, and may experience, downturns, volatility and disruption, and we face certain risks relating to such events, including:
•Demand for our services could soften, including due to low consumer confidence, high unemployment, high inflation, changes in foreign exchange rates, reduced global trade, including from trade disruptions or trade restrictions, or other events, such as civil unrest, war, terrorism, natural disasters, including those related to climate change, or public health emergencies or epidemics. For example, in March 2022, we suspended our operations in Russia and Belarus, due to the Russia/Ukraine conflict (the "Conflict"), which has had an adverse effect on our business, financial condition, results of operations, and cash flows. The Conflict has had and is expected to continue to have broader implications to our overall business, including reduced transaction activity in Ukraine and we expect that our results of operations will continue to be negatively impacted by this Conflict into 2023. The COVID-19 pandemic has also had an adverse impact on our business (see risk factor “The COVID-19 pandemic continues to evolve and negatively impact our business, and the extent to which it will further impact our business depends on future developments, which remain highly uncertain and difficult to predict. The effects of the pandemic have had an adverse effect and could have a material adverse effect on our business, financial condition, results of operations, and cash flows in the future.”).
•Our Consumer-to-Consumer money transfer business relies in large part on migration, which brings workers to countries with greater economic opportunities than those available in their native countries. A significant portion of money transfers are sent by international migrants. Migration is affected by (among other factors) overall economic conditions, the availability of job opportunities, changes in immigration laws, restrictions on immigration and travel, and political or other events (such as civil unrest, war, terrorism, natural disasters, or public health emergencies or epidemics) that would make it more difficult for workers to migrate or work abroad. Changes to these factors could adversely affect our remittance volume and could have an adverse effect on our business, financial condition, results of operations, and cash flows.
•Many of our consumers work in industries that may be impacted by deteriorating economic conditions more quickly or significantly than other industries. The prospect of reduced job opportunities, especially in retail, healthcare, construction, hospitality, and technology industries, or weakness in the regional economies could adversely affect the number of money transfer transactions, the principal amounts transferred and correspondingly our results of operations. If general market softness in the economies of countries important to migrant workers occurs, our results of operations could be adversely impacted. Additionally, if our consumer transactions decline, if the amount of money that consumers send per transaction declines, or if migration patterns shift due to weak or deteriorating economic conditions or immigration laws, our financial condition, results of operations, and cash flows may be adversely affected.
•Our agents or clients could experience 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 making payments to them through us, particularly businesses in those industries that may be more affected by an economic downturn.
•Our exposure to receivables from our agents, consumers, and businesses could impact us. For more information on this risk, see risk factor “We face credit, liquidity, and fraud risks from our agents, consumers, businesses, and third-party processors that could adversely affect our business, financial condition, results of operations, and cash flows.”
•The market value of the securities in our investment portfolio may substantially decline. The impact of that decline in value may adversely affect our liquidity, financial condition, and results of operations.
•The third-party service providers on whom we depend may experience difficulties in their businesses, which may impair their ability to provide services to us and have a potential impact on our own business. The impact of a change or temporary stoppage of services may have an adverse effect on our business, financial condition, results of operations, and cash flows.
•The counterparties to the derivative financial instruments that we use to reduce our exposure to various market risks, including changes in interest rates and foreign exchange rates, may fail to honor their obligations, which could expose us to risks we had sought to mitigate. That failure could have an adverse effect on our financial condition, results of operations, and cash flows.
•We may be unable to refinance our existing indebtedness or finance our obligations to pay tax on certain of our previously undistributed earnings pursuant to United States tax reform legislation enacted in December 2017 (the “Tax Act”) on favorable terms, as such amounts become due, or we may have to refinance or obtain new financing on unfavorable terms, which could require us to dedicate a substantial portion of our cash flow from operations to payments on our debt or tax obligations, thereby reducing funds available for working capital, capital expenditures, acquisitions, share repurchases, dividends, and other purposes.
•Our revolving credit facility with a consortium of banks is one source for funding liquidity needs and also backs our commercial paper program. If any of the banks participating in our credit facility fails to fulfill its lending commitment to us, our short-term liquidity and ability to support borrowings under our commercial paper program could be adversely affected.
•Banks upon which we rely to conduct our business could fail or be unable to satisfy their obligations to us. This could lead to our inability to access funds and/or credit losses for us and could adversely impact our ability to conduct our business.
•Insurers we utilize to mitigate our exposures to litigation and other risks may be unable to or refuse to satisfy their obligations to us, which could have an adverse effect on our liquidity, financial condition, results of operations, and cash flows.
•If market disruption or volatility occurs, we could experience difficulty in accessing capital on favorable terms, and our business, financial condition, results of operations, and cash flows could be adversely impacted.
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 providers, including electronic, mobile and internet-based services, and from digital currencies, including cryptocurrencies and related protocols, and other innovations in technology and business models. Our future success depends on our ability to compete effectively in the industry.
Money transfer and payment services are highly competitive industries which include service providers from a variety of financial and non-financial business groups. Our competitors include consumer money transfer companies, banks and
credit unions (including interbank partnerships), card associations, web-based services, mobile money transfer services, payment processors, card-based payments providers such as issuers of e-money, travel cards or stored-value cards, informal remittance systems, automated teller machine providers and operators, phone payment systems (including mobile phone networks), postal organizations, retailers, check cashers, mail and courier services, currency exchanges, and digital currencies, including cryptocurrencies and cryptocurrency exchanges. These services are differentiated by features and functionalities such as brand recognition, customer service, trust and reliability, distribution network and channel options, convenience, price, speed, variety of payment methods, service offerings and innovation. Our business, distribution network and channel options, such as our digital channels, have been and may continue to be impacted by increased competition, including from new competitors and the consolidation of competitors and the expansion of their services, which could adversely affect our financial condition, results of operations, and cash flows. For example, we have experienced increased competition in money transfers sent and received within the United States from competitors that do not charge a fee to send or receive money through bank accounts. The potential international expansion of these competitors could represent significant competition to us.
Our future success depends on our ability to compete effectively in money transfer and payment services. For example, if we fail to price our services appropriately, consumers may not use our services, which could adversely affect our business and financial results. In addition, we have historically implemented and will likely continue to implement price reductions from time to time in response to competition and other factors. Price reductions generally reduce margins and adversely affect financial results in the short term and may also adversely affect financial results in the long term if transaction volumes do not increase sufficiently. Further, failure to compete on service differentiation and service quality could significantly affect our future growth potential and results of operations.
As noted below under risk factor “Risks associated with operations outside the United States and foreign currencies could adversely affect our business, financial condition, results of operations, and cash flows,” many of our agents outside the United States are national post offices. These entities are often governmental organizations that may enjoy special privileges or protections that could allow them to simultaneously develop their own money transfer businesses. International postal organizations could agree to establish a money transfer network among themselves. Due to the size of these organizations and the number of locations they have, any such network could represent significant competition to us.
If customer confidence in our business or in consumer money transfer and payment service providers generally deteriorates, our business, financial condition, results of operations, and cash flows could be adversely affected.
Our business is built on customer confidence in our brands and our ability to provide fast, reliable money transfer and payment services. Erosion in customer confidence in our business, or in consumer money transfer and payment service providers as a means to transfer money, could adversely impact transaction volumes which would in turn adversely impact our business, financial condition, results of operations, and cash flows.
A number of factors could adversely affect customer confidence in our business, or in consumer money transfer and payment service providers generally, many of which are beyond our control, and could have an adverse impact on our results of operations. These factors include:
•changes or proposed changes in laws or regulations or regulator or judicial interpretation thereof that have the effect of making it more difficult or less desirable to transfer money using consumer money transfer and payment service providers, including additional consumer due diligence, identification, reporting, and recordkeeping requirements;
•the quality of our services and our customer experience, and our ability to meet evolving customer needs and preferences, including consumer preferences related to our Branded Digital services;
•failure of our agents, their subagents, our vendors, or other partners to deliver services in accordance with our requirements;
•reputational concerns resulting from actual or perceived events, including those related to fraud, consumer protection, data breaches, inappropriate use of personal data, or other matters;
•actions by federal, state or foreign regulators that interfere with our ability to transfer consumers’ money reliably, for example, attempts to seize money transfer funds, or limit our ability to or prohibit us from transferring money in certain corridors;
•federal, state or foreign legal requirements, including those that require us to provide consumer or transaction data either pursuant to requirements under the Joint Settlement Agreements or other requirements or to a greater extent than is currently required;
•any significant interruption in our systems, including by unauthorized entry and computer viruses, ransomware, fire, natural disaster, power loss, telecommunications failure, terrorism, vendor failure, or disruptions in our workforce; and
•any breach of our computer systems or other data storage facilities, or of certain of our third-party providers, resulting in a compromise of personal or other data.
Many of our money transfer consumers are migrants. Consumer advocacy groups or governmental agencies could consider migrants to be disadvantaged and entitled to protection, enhanced consumer disclosure, or other different treatment. If consumer advocacy groups are able to generate widespread support for actions that are detrimental to our business, then our business, financial condition, results of operations, and cash flows could be adversely affected.
If we are unable to maintain our agent, subagent, or global business relationships under terms acceptable to us or consistent with those currently in place, including due to increased costs or loss of business as a result of increased compliance requirements or difficulty for us, our agents, or their subagents in establishing or maintaining relationships with banks needed to conduct our services, or if our agents or their subagents fail to comply with our business and technology standards and contract requirements, our business, financial condition, results of operations, and cash flows would be adversely affected.
Most of our Consumer-to-Consumer revenue is derived through our agent network. Some of our international agents have subagent relationships in which we are not directly involved. If, due to competition or other reasons, agents or their subagents decide to leave our network, or if we are unable to sign new agents or maintain our agent network under terms acceptable to us or consistent with those currently in place, or if our agents are unable to maintain relationships with or sign new subagents, our revenue and profits may be adversely affected. Agent attrition might occur for a number of reasons, including a competitor engaging an agent, an agent’s dissatisfaction with its relationship with us or the revenue derived from that relationship, an agent’s or its subagents’ unwillingness or inability to comply with our standards or legal requirements, including those related to compliance with anti-money laundering regulations, anti-fraud measures, or agent registration and monitoring requirements or increased costs or loss of business as a result of difficulty for us, our agents, or their subagents in establishing or maintaining relationships with banks needed to conduct our services. For example, the Joint Settlement Agreements and the NYDFS Consent Order subjected us to heightened requirements relating to agent oversight, which resulted in and may continue to result in agent attrition, and certain agents decided to leave our network due to reputational concerns related to the Joint Settlement Agreements and the NYDFS Consent Order. Recently, we have had one retail agent stop offering our services and another communicate they were moving away from cash-based services at their retail locations. These changes have impacted and will continue to adversely impact our revenue. In addition, agents may generate fewer transactions or less revenue for various reasons, including increased competition, political unrest, changes in the economy, or factors impacting our agents’ ability to settle with us, and the cost of maintaining agent or subagent locations has increased and may continue to increase because of enhanced compliance efforts or changes to compliance requirements. Because an agent is a third-party that engages in a variety of activities in addition to providing our services, it may encounter business difficulties unrelated to its provision of our services, which could cause the agent to reduce its number of locations, hours of operation, or cease doing business altogether.
Changes in laws regulating competition or in the interpretation of those laws could undermine our ability to enter into or maintain our exclusive arrangements with our current and prospective agents. See risk factor “Regulatory initiatives and changes in laws, regulations, industry practices and standards, and third-party policies affecting us, our agents or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services could require changes in our business model and increase our costs of operations, which could adversely affect our financial condition, results of operations, and liquidity” below. In addition, certain of our agents and subagents have refused to enter into exclusive arrangements in recent years, including a significant agent in the United States. The inability to enter
into exclusive arrangements or to maintain our exclusive rights in agent contracts in certain situations could adversely affect our business, financial condition, results of operations, and cash flows by, for example, allowing competitors to benefit from the goodwill associated with the Western Union brand at our agent locations.
In our various bill payment services, we provide services for making one-time or recurring payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers and government agencies. Our relationships with these businesses and other organizations are a core component of our payment services, and we derive a substantial portion of our revenue from payment services through these relationships. Increased regulation and compliance requirements are impacting these businesses by making it more costly for us to provide our services or by making it more cumbersome for businesses or consumers to do business with us.
As a result of offering our services, our agents may be subject to various taxes, as governments outside the United States have viewed and may continue to view our agents’ services as subject to income, withholding, and other taxes. Any such taxes that are levied on our agents could make it less desirable for agents to offer our services, which could result in increased agent attrition, agents ceasing to offer some of our services, or increased costs to maintain our agent network, any of which could have an adverse effect on our business, results of operations, and cash flows.
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) and agent needs and preferences, technology advances, and new and enhanced products and services such as technology-based money transfer and payment services, including internet, digital wallet, other mobile money transfer services, and digital currencies, including cryptocurrencies. Failure to respond timely and well to these challenges could adversely impact our business, financial condition, results of operations, and cash flows. Further, even if we respond well to these challenges, the business and financial models offered by many of these alternatives, more technology-reliant means of money transfer and electronic payment solutions may be less advantageous to us than our traditional cash/agent model or our current electronic money transfer model.
Risks associated with operations outside the United States and foreign currencies could adversely affect our business, financial condition, results of operations, and cash flows.
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. In an environment of a rising United States dollar relative to the euro, the value of our euro-denominated revenue, operating income and net monetary assets would be reduced when translated into United States dollars for inclusion in our financial statements. Some of these adverse financial effects may be partially mitigated by foreign currency hedging activities. In an environment of a declining United States dollar relative to the euro, some of the translation benefits on our reported financial results could be limited by the impact of foreign currency hedging activities. We are also subject to changes in the value of other foreign currencies.
We operate in almost all developing markets throughout the world. In many of these markets, our foreign currency exposure is limited because most transactions are receive transactions, and we currently reimburse the substantial majority of our agents in United States dollars, Mexican pesos, or euros for the payment of these transactions. However, in certain of these developing markets we settle transactions in local currencies and generate revenue from send transactions. Our exposure to foreign currency fluctuations in those markets is increased as these fluctuations impact our revenues and operating income.
We utilize a variety of planning and financial strategies to help ensure that our worldwide cash is available where needed, including decisions related to the amounts, timing, and manner by which cash is repatriated or otherwise made available from our international subsidiaries. Changes in the amounts, timing, and manner by which cash is repatriated (or deemed repatriated) or otherwise made available from our international subsidiaries, including changes arising from new
legal or tax rules, disagreements with legal or tax authorities concerning existing rules that are ultimately resolved in their favor, or changes in our operations or business, could result in material adverse effects on our financial condition, results of operations, and cash flows including our ability to pay future dividends or make share repurchases. 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, or their interpretation, 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. Government sanctions imposed with respect to Russia and Ukraine in February 2022 impacted our ability to offer services in the region, and in March 2022, we voluntarily suspended our operations in Russia and Belarus due to the Conflict. Further or prolonged instability or tension in Russia, Ukraine, and the surrounding region could also cause us to adjust our operating model, which would increase our costs of operations. Occasionally agents or their subagents have been required by their regulators to cease offering our services; see risk factor “Regulatory initiatives and changes in laws, regulations, industry practices and standards, and third-party policies affecting us, our agents or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services could require changes in our business model and increase our costs of operations, which could adversely affect our financial condition, results of operations, and liquidity” 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 to recoup funds that have been advanced to international agents or are held by our subsidiaries, and as a result could adversely affect our business, financial condition, results of operations, and cash flows. 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.
Rules implemented by regulators may also restrict our ability to distribute excess cash balances from our subsidiaries. For example, in connection with our decision to suspend operations in Russia and Belarus, we sought to distribute excess cash balances held in our Russian subsidiary. While we continue to pursue the distribution, our initial request to do so was denied by the Russian regulator. Currently, our Russian subsidiary holds approximately $21 million of excess cash balances, in addition to approximately $8 million of cash held to maintain its banking license. We have classified the excess cash balances as restricted cash, included within Other assets in our Consolidated Balance Sheets as of December 31, 2022. Rules implemented by the regulator could further restrict or delay this distribution. An inability to utilize or distribute excess cash from our Russian subsidiary or our other subsidiaries could have an adverse effect on our financial condition, results of operations, and cash flows.
Many of our agents outside the United States are post offices, which are often owned and operated by national governments. These governments may decide to change the terms under which they allow post offices to offer remittances and other financial services. For example, governments may decide to separate financial service operations from postal operations or mandate the creation or privatization of a “post bank,” which could result in the loss of agent locations, or they may require multiple service providers in their network. These changes could have an adverse effect on our ability to distribute or offer our services in countries that are material to our business.
We face credit, liquidity and fraud risks from our agents, consumers, businesses, and third-party processors that could adversely affect our business, financial condition, results of operations, and cash flows.
The significant majority of our Consumer-to-Consumer money transfer activity and our walk-in bill payment and money order activity is conducted through 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 proceeds from these transactions to us. As a result, we have credit exposure to our agents. In some countries, our agent networks include master agents that establish subagent relationships; these agents must collect funds from their subagents in order to pay us. We are generally not insured against credit losses, except in certain circumstances related to agent theft or fraud. If an agent becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to pay money order, money transfer or payment services
proceeds to us, we must nonetheless pay the money order or complete the money transfer or payment services on behalf of the consumer.
The liquidity of our agents and other parties we transact with directly, including merchant acquirers, is necessary for our business to remain strong and to continue to provide our services. If our agents or other partners fail to settle with us in a timely manner, our liquidity could be affected.
From time to time, we have made, and may in the future make, advances to our agents. We generally owe settlement funds payable to these agents that offset these advances. However, the failure of these borrowing agents to repay these advances constitutes a credit risk to us.
In many countries, we offer consumers the ability to transfer money utilizing their bank account or credit or debit card via websites and mobile devices. These transactions have experienced and continue to experience a greater risk of fraud and higher fraud losses than transactions initiated at agent locations. Additionally, money transfers funded by ACH, or similar methods, are not preauthorized by the sender’s bank and carry the risk that the account may not exist or have sufficient funds to cover the transaction. We apply verification and other tools to help authenticate transactions and protect against fraud. However, these tools are not always successful in protecting us against fraud. As the merchant of these transactions, we may bear the financial risk of the full amount sent in some of the fraudulent transactions. Issuers of credit and debit cards may also incur losses due to fraudulent transactions through our distribution channels and may elect to block transactions by their cardholders in these channels with or without notice. We may be subject to additional fees or penalties if the amount of chargebacks exceeds a certain percentage of our transaction volume. Such fees and penalties increase over time if we do not take effective action to reduce chargebacks below the threshold, and if chargeback levels are not ultimately reduced to acceptable levels, our merchant accounts could be suspended or revoked, which would adversely affect our results of operations.
To help ensure availability of our worldwide cash where needed, we utilize a variety of planning and financial strategies, including decisions related to the amounts, timing, and manner by which cash is repatriated or otherwise made available from our international subsidiaries. These decisions can influence our overall tax rate and impact our total liquidity. Our overall liquidity may also be impacted by regulations or their interpretations that, if fully enacted or implemented, could require us to exchange collateral in connection with our derivative financial instruments used to hedge our exposures arising in connection with changes to foreign currency exchange and interest rates.
The COVID-19 pandemic continues to evolve and negatively impact our business, and the extent to which it will further impact our business depends on future developments, which remain highly uncertain and difficult to predict. The effects of the pandemic have had an adverse effect and could have a material adverse effect on our business, financial condition, results of operations, and cash flows in the future.
Although the pandemic has been ongoing for approximately three years, its course and impact on the global economy and our business has been unpredictable and has challenged industry forecasts, including from the World Bank, and the ultimate impact of the pandemic or a similar health epidemic is highly uncertain and subject to change. We cannot reasonably predict the extent of the impacts on our business, our operations, or the global economy as a whole. However, the effects of the pandemic have had an adverse effect on our business, financial condition, results of operations, and cash flows and could have a material adverse effect in the future.
Risks Relating to Cybersecurity and Third-Party Vendors
Breaches of our information security safeguards could adversely affect our ability to operate and could damage our reputation and adversely affect our business, financial condition, results of operations, and cash flows.
As part of our business, we collect, transfer, and retain confidential and personal information about consumers, business customer representatives, employees, applicants, agents and other individuals. With our services being offered in more than 200 countries and territories, these activities are subject to laws and regulations in the United States and many other jurisdictions; see risk factor “Current and proposed regulation addressing consumer privacy and data use and security could increase our costs of operations, which could adversely affect our operations, results of operations, and financial condition” below. The requirements imposed by these laws and regulations, which often differ materially among the many jurisdictions in which we operate and may impact our business operations, are designed to protect the privacy
and security of personal information, to prevent that information from being inappropriately accessed, used or disclosed, and to protect financial services providers and other regulated entities and their customers, as well as information technology systems, from cyber attacks. Although we strive to develop and maintain administrative, technical, and physical safeguards designed to comply with applicable legal requirements, it is nonetheless possible that hackers, employees acting contrary to our policies, or others could circumvent these safeguards to improperly access our systems or documents, or the systems or documents of our business partners, agents, or service providers, as well as to improperly access, obtain, misuse, or disclose sensitive business information or personal information about our consumers, business customer representatives, employees, applicants, agents or others. It is also possible that any of our third-party service providers or agents could experience a cybersecurity incident or intentionally or inadvertently use, disclose, or make available sensitive business or personal information to unauthorized parties in violation of law or its contract with us. Such risk of a third-party service provider or agent's cybersecurity or other data incident is significant as much of our data and our customers' data is collected and stored by our agents and other third parties, including providers of cloud-based software services. Security incidents have the potential to impose material costs on the Company and, despite measures that the Company takes to prevent and mitigate such incidents, there can be no assurance that security incidents will not occur in the future. The methods used to obtain unauthorized access, disable or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or to detect for significant periods of time. Additionally, transactions undertaken through our websites or other digital channels may create risks of fraud, hacking, unauthorized access or acquisition, and other deceptive practices. Any security incident resulting in a compromise of sensitive business information or the personal information of consumers, business customer representatives, employees, applicants, agents or other individuals, could result in material costs to us and require us to notify impacted individuals, and in some cases regulators, of a possible or actual incident, expose us to regulatory enforcement actions, including substantial fines, limit our ability to provide services, subject us to litigation, damage our reputation, and adversely affect our business, financial condition, results of operations, and cash flows.
Interruptions in our systems, including as a result of cyber attacks, or disruptions in our workforce may have a significant adverse effect on our business.
Our ability to provide reliable service depends on the efficient and uninterrupted operation of our computer information systems and those of our service providers. Any significant interruptions could harm our business and reputation and result in a loss of business. These systems and operations could be exposed to damage or interruption from unauthorized entry and computer viruses, ransomware, fire, natural disaster, power loss, telecommunications failure, war, terrorism, vendor failure, or other causes, many of which may be beyond our control or that of our service providers. The frequency and intensity of weather events related to climate change are increasing, which could increase the likelihood and severity of natural disasters as well as related damage and business interruption. Additionally, any significant damage or interruptions in the computer information systems of our agents or other partners could result in a disruption in providing our services to consumers at their locations. Further, we and our vendors have been, and continue to be, the subject of cyber attacks, including distributed denial of service and ransomware attacks. These attackers and attacks, which may in some cases be initiated by nation-states, are increasingly sophisticated and primarily aimed at either interrupting our business or exploiting information security vulnerabilities, both of which expose us to financial losses. Historically, none of these attacks or breaches has individually or in the aggregate resulted in any material liability to us or any material damage to our reputation, and disruptions related to cybersecurity have not caused any material disruption to the Company’s business, but there can be no assurance that such attacks will not have a material adverse impact on the Company in the future. The safeguards we have designed to help prevent future security incidents and systems disruptions and to comply with applicable legal requirements may not be successful, and we may experience material security incidents, disruptions, or other problems in the future. We also may experience software defects, development delays, installation difficulties and other systems problems, which could harm our business and reputation and expose us to potential liability which may not be fully covered by our business interruption insurance. In addition, hardware, software, or applications that we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. These applications may not be sufficient to address technological advances, regulatory requirements, changing market conditions or other developments. In addition, any work stoppages or other labor actions by employees, the significant majority of whom are located outside the United States, could adversely affect our business.
We receive services from third-party vendors that would be difficult to replace if those vendors ceased providing such services adequately or at all. Cessation of or defects in various services provided to us by third-party vendors could cause temporary disruption to our business.
Some services relating to our business, such as cloud-based software service providers, software application support, the development, hosting and maintenance of our operating systems, merchant acquiring services, call center services, check clearing, processing of returned checks, and other operating activities are outsourced to third-party vendors, which would be difficult to replace quickly. If our third-party vendors were unwilling or unable to provide us with these services in the future, due to labor shortages or otherwise, our business and operations could be adversely affected.
Risks Relating to Acquisitions, Divestitures, and Restructuring Activities
Acquisitions and integration of new businesses create risks and may affect operating results.
We have acquired and may acquire businesses both inside and outside the United States. If we or our reporting units do not generate operating cash flows at levels consistent with our expectations, we may be required to write down the goodwill on our balance sheet, which could have a significant adverse impact on our financial condition and results of operations in future periods.
In addition to the risk of goodwill impairment, the acquisition and integration of businesses involve a number of other risks. The core risks involve valuation (negotiating a fair price for the business based on inherently limited due diligence) and integration (managing the complex process of integrating the acquired company’s people, products and services, technology and other assets in an effort to realize the projected value of the acquired company and the projected synergies of the acquisition). Another risk is the need in some cases to improve regulatory compliance; see “Risks Relating to Our Regulatory and Litigation Environment” below. Acquisitions often involve additional or increased risks including, for example:
•realizing the anticipated financial benefits from these acquisitions and where necessary, improving internal controls of these acquired businesses;
•managing geographically separated organizations, systems and facilities;
•managing multi-jurisdictional operating, tax and financing structures;
•integrating personnel with diverse business backgrounds and organizational cultures;
•integrating the acquired technologies into our Company;
•complying with regulatory requirements, including those particular to the industry and jurisdiction of the acquired business;
•obtaining and enforcing intellectual property rights in some foreign countries;
•entering new markets with the services of the acquired businesses; and
•general economic and political conditions, including legal and other barriers to cross-border investment in general, or by United States companies in particular.
Integrating operations could cause an interruption of, or divert resources from, one or more of our businesses and could result in the loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with an acquisition and the integration of the acquired company’s operations could have an adverse effect on our business, financial condition, results of operations, and cash flows.
Divestitures and contingent liabilities from divested businesses could adversely affect our business and financial results.
We continually evaluate the performance and strategic fit of all of our businesses and may sell businesses or product lines. For example, on August 4, 2021, we entered an agreement to sell our Business Solutions business, as previously discussed. Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the diversion of management's attention from other business concerns, the disruption of our business, the potential loss of key employees and the retention of uncertain contingent liabilities related to the divested business. When we decide to sell assets or a business, we may encounter difficulty in finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the achievement of our strategic objectives. We may also dispose of a business at a price or on terms that are less desirable than we had anticipated, which could result in significant asset impairment charges, including those related to goodwill and other intangible assets, that could have a material adverse effect on our financial condition and results of operations. In addition, we may experience greater dis-synergies than expected, the impact of the divestiture on our revenue growth may be larger than projected, and some divestitures may be dilutive to earnings. There can be no assurance whether the strategic benefits and expected financial impact of the divestiture will be achieved. We cannot assure you that we will be successful in managing these or any other significant risks that we encounter in divesting a business or product line, and any divestiture we undertake could materially and adversely affect our business, financial condition, results of operations and cash flows.
We may not realize all of the anticipated benefits from restructuring and other related initiatives, which may include decisions to downsize or to transition operating activities from one location to another, and we may experience disruptions in our workforce as a result of those initiatives.
Over the past few years, we have been engaged in restructuring actions and activities associated with business transformation, productivity improvement initiatives, and expense reduction measures. For example, in October 2022, we announced an operating expense redeployment program which aims to redeploy approximately $150 million in expenses in our cost base over the next 5 years, accomplished through optimizations in vendor management, our real estate footprint, marketing, and people costs. We may implement additional initiatives in future periods. While these initiatives are designed to increase operational effectiveness and productivity and allow us to invest in strategic initiatives, there can be no assurance that the anticipated benefits will be realized, and the costs to implement such initiatives may be greater than expected. In addition, these initiatives have resulted and will likely result in the loss of personnel, some of whom may support significant systems or operations, and may make it more difficult to attract and retain key personnel, any of which could negatively impact our results of operations. Consequently, these initiatives could result in a disruption to our workforce. If we do not realize the anticipated benefits from these or similar initiatives, the costs to implement future initiatives are greater than expected, or if the actions result in a disruption to our workforce greater than anticipated, our business, financial condition, results of operations, and cash flows could be adversely affected.
General Risks
Changes in tax laws, or their interpretation, and unfavorable resolution of tax contingencies could adversely affect our tax expense.
Our future effective tax rates could be adversely affected by changes in tax laws or their interpretation, both domestically and internationally. For example, in December 2017, the Tax Act was enacted into United States law. Among other things, the Tax Act imposes a tax on certain previously undistributed foreign earnings, establishes minimum taxes related to certain payments deemed to erode the United States tax base, and retains and expands United States taxation on a broad range of foreign earnings (whether or not the earnings have been repatriated) while effectively exempting certain types of foreign earnings from United States tax. In August 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which, among other provisions, implemented a 15% minimum tax on book income of certain large corporations. Based on our evaluation of the IRA, we do not believe we will be subject to the 15% book minimum tax in 2023. However, we will continue to monitor the application of the minimum tax in future periods.
Additionally, the Organization for Economic Co-Operation and Development (“OECD”) has asked countries around the globe to act to prevent what it refers to as base erosion and profit shifting (“BEPS”). The OECD considers BEPS to refer to tax planning strategies that shift, perhaps artificially, profits across borders to take advantage of differing tax laws and rates among countries. Most recently, the OECD, through an association of almost 140 countries known as the “inclusive framework,” has announced a consensus around further changes in traditional international tax principles
(“BEPS 2.0”) to address, among other things, perceived challenges presented by global digital commerce (“Pillar 1”) and the perceived need for a minimum global effective tax rate of 15% (“Pillar 2”). On December 15, 2022, the European Union formally adopted the Pillar Two Directive and EU member states are expected to transpose the Pillar Two Directive into domestic law by December 31, 2023. Other countries are taking similar actions. We are evaluating developments to determine whether Pillar 2 will materially impact our financial position in the future. Any material change in tax laws or policies, or their interpretation, resulting from BEPS, BEPS 2.0, or other legislative proposals or inquiries could result in a higher effective tax rate on our earnings and have an adverse effect on our financial condition, results of operations, and cash flows.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and foreign taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations. We have established contingency reserves for a variety of material, known tax exposures. As of December 31, 2022, the total amount of unrecognized tax benefits was a liability of $237.2 million, including accrued interest and penalties, net of related items. Our reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve, and such resolution could have a material effect on our effective tax rate, financial condition, results of operations and cash flows in the current period and/or future periods. With respect to these reserves, our 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 and (ii) any difference from the Company’s tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could increase or decrease income tax expense in our consolidated financial statements in future periods and could impact our operating cash flows.
Our business, financial condition, results of operations, and cash flows could be harmed by adverse rating actions by credit rating agencies.
Downgrades in our credit ratings, or their review or revision to a negative outlook, could adversely affect our business, financial condition, results of operations, and cash flows, and could damage perceptions of our financial strength, which could adversely affect our relationships with our agents, particularly those agents that are financial institutions or post offices, and our banking and other business relationships. In addition, adverse ratings actions could result in regulators imposing additional capital and other requirements on us, including imposing restrictions on the ability of our regulated subsidiaries to pay dividends. Also, a downgrade below investment grade will increase our interest expense under certain of our notes and our revolving credit facility, and any significant downgrade could increase our costs of borrowing money more generally or adversely impact or eliminate our access to the commercial paper market, each of which could adversely affect our business, financial condition, results of operations, and cash flows.
There can be no guarantee that we will continue to make dividend payments or repurchase stock.
For risks associated with our ability to continue to make dividend payments or repurchase shares, please see Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our ability to remain competitive depends in part on our ability to protect our trademarks, patents, copyrights, and other intellectual property rights and to defend ourselves against potential intellectual property infringement claims.
The Western Union brands, which are protected by trademark registrations in many countries, are material to our Company. The loss of the Western Union® trademark or a diminution in the perceived quality of products or services associated with the names would harm our business. Similar to the Western Union® trademarks, the Orlandi Valuta®, Vigo®, Pago Fácil®, Quick Collect®, Quick PaySM, Quick Cash®, Western Union Convenience Pay®, and other trademarks and service marks are also important to our Company and a loss of the service mark or trademarks or a diminution in the perceived quality associated with these names could harm our business.
Our intellectual property rights are an important element in the value of our business. Our failure to take appropriate actions against those who infringe upon our intellectual property could adversely affect our business, financial condition, results of operations, and cash flows.
The laws of certain foreign countries in which we do business do not always protect intellectual property rights to the same extent as do the laws of the United States. Adverse determinations in judicial or administrative proceedings in the United States or in foreign countries could impair our ability to sell our products or services or license or protect our intellectual property, which could adversely affect our business, financial condition, results of operations, and cash flows.
We own patents and patent applications covering various aspects of our processes and services. We have been, are and in the future may be, subject to claims alleging that our platform, mobile application, or other products and services infringe third-party intellectual property or other proprietary rights, both inside and outside the United States. Unfavorable resolution of these claims could require us to change how we deliver or promote a service, result in significant financial consequences, or both, which could adversely affect our business, financial condition, results of operations, and cash flows.
Material changes in the market value or liquidity of the securities we hold may adversely affect our results of operations and financial condition.
As of December 31, 2022, we held $1.3 billion in investment securities, the majority of which are state and municipal debt securities. The majority of this money represents the principal of money orders issued by us to consumers primarily in the United States and money transfers sent by consumers. We regularly monitor our credit risk and attempt to mitigate our exposure by investing in highly-rated securities and by diversifying our investments. Despite those measures, it is possible that the value of our portfolio may decline in the future due to any number of factors, including general market conditions, credit issues, the viability of the issuer of the security, failure by a fund manager to manage the investment portfolio consistently with the fund prospectus or increases in interest rates. Any such decline in value may adversely affect our results of operations and financial condition.
We have substantial debt and other obligations that could restrict our operations.
As of December 31, 2022, we had approximately $2.6 billion in consolidated indebtedness, and we may also incur additional indebtedness in the future. Furthermore, the Tax Act imposes a tax on certain of our previously undistributed foreign earnings, which we have elected to pay in periodic installments through 2025.
Our indebtedness and tax obligations could have adverse consequences, including:
•limiting our ability to pay dividends to our stockholders or to repurchase stock consistent with our historical practices;
•increasing our vulnerability to changing economic, regulatory and industry conditions;
•limiting our ability to compete and our flexibility in planning for, or reacting to, changes in our business and the industry;
•limiting our ability to borrow additional funds; and
•requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt or tax obligations, thereby reducing funds available for working capital, capital expenditures, acquisitions, and other purposes.
Failure to attract, retain, and develop the key employees we need to support our objectives could have a material adverse impact on our business.
Much of our success depends on our ability to attract, retain, and develop key employees. Qualified individuals with experience in our industry are in high demand and we have faced and will continue to face competition globally to attract and retain a diverse workforce with skills that are critical to our success. In addition, legal or enforcement actions against compliance and other personnel in the money transfer industry may affect our ability to attract and retain key employees. Further, any failure to have in place and execute an effective succession plan for key employees could harm our business.
Risks Relating to Our Regulatory and Litigation Environment
As described under Part I, Item 1, Business, our business is subject to a wide range of laws and regulations enacted by the United States federal government, each of the states (including licensing requirements), many localities and many other countries and jurisdictions. Laws and regulations to which we are, or may in the future, be subject to including by virtue of the introduction of new products or acquisitions, include those related to: financial services generally, banking, anti-money laundering, countering the financing of terrorism, sanctions and anti-fraud, anti-bribery, anti-corruption, consumer disclosure and consumer protection, currency controls, money transfer and payment instrument licensing, payment services, credit and debit cards, electronic payments, foreign exchange hedging services and the sale of spot, forward, and option currency contracts, cryptocurrency licensing and other regulations, prepaid access, taxation, accessibility, unclaimed property, the regulation of competition, consumer privacy, data protection and information security, cybersecurity, operational security, outsourcing, risk management, environmental, sustainability and governance reporting, including climate and social governance-related reporting, and other governance requirements applicable to regulated financial service providers. Further, where we cooperate with partners around the world to offer money transfer services marketed exclusively under the partners’ brands, the regulatory requirements applicable to us may vary. The failure by us, our agents, their subagents, or our partners to comply with any such laws or regulations could have an adverse effect on our business, financial condition, results of operations, and cash flows and could seriously damage our reputation and brands, and result in diminished revenue and profit and increased operating costs.
Risks Relating to Significant Regulatory Requirements
Our business is subject to a wide range and increasing number of laws and regulations. Liabilities or loss of business resulting from a failure by us, our agents, or their subagents to comply with laws and regulations and regulatory or judicial interpretations thereof, including laws and regulations designed to protect consumers, or detect and prevent money laundering, terrorist financing, fraud, and other illicit activity, and increased costs or loss of business associated with compliance with those laws and regulations has had and we expect will continue to have an adverse effect on our business, financial condition, results of operations, and cash flows.
Our services are subject to increasingly strict legal and regulatory requirements, including those related to detecting and preventing money laundering, countering terrorist financing, fraud, and other illicit activity, and administering economic and trade sanctions. The interpretation of those requirements by judges, regulatory bodies and enforcement agencies may change quickly and with little notice. Additionally, these requirements or their interpretations in one jurisdiction may conflict with those of another jurisdiction. As United States federal and state as well as foreign legislative and regulatory scrutiny and enforcement action in these areas increase, we expect that our costs of complying with these requirements could continue to increase, perhaps substantially, and may make it more difficult or less desirable for consumers and others to use our services or for us to contract with certain intermediaries, either of which would have an adverse effect on our revenue and operating income. For example, in recent years we have made significant additional investments in our compliance programs based on the rapidly evolving and increasingly complex global regulatory and enforcement environment and our internal reviews. These additional investments relate to enhancing our compliance capabilities, including our consumer protection efforts. Further, failure by Western Union, our agents or their subagents (agents and subagents are third parties, over whom Western Union has limited legal and practical control), and service providers to comply with any of these requirements or their interpretation could result in the suspension or revocation of a license or registration required to provide money transfer, payment or foreign exchange services, the limitation, suspension, or termination of services, changes to our business model, loss of consumer confidence, the seizure of our assets, and/or the imposition of civil and criminal penalties, including fines and restrictions on our ability to offer services.
We are subject to regulations imposed by the Foreign Corrupt Practices Act (the “FCPA”) in the United States and similar laws in other countries, such as the Bribery Act in the UK, which generally prohibit companies and those acting on their behalf from making improper payments to foreign government officials for the purpose of obtaining or retaining business. Some of these laws, such as the Bribery Act, also prohibit improper payments between commercial enterprises. Because our services are offered in virtually every country of the world, we face significant risks associated with our obligations under the FCPA, the Bribery Act, and other national anti-corruption laws. Any determination that we have violated these laws could have an adverse effect on our business, financial condition, results of operations, and cash flows.
Our United States business is subject to reporting, recordkeeping and anti-money laundering provisions of the BSA and to regulatory oversight and enforcement by FinCEN. We have subsidiaries in Brazil and Austria that are subject to
banking regulations. Our Austrian banking subsidiary is also subject to regulation, examination, and supervision by the NYDFS. We also operate through a small number of licensed payment institutions in the EU. Under the Payment Services Directive (“PSD”), as amended by a revised Payment Services Directive known as PSD2, and the 4th and 5th Anti-Money Laundering Directive in the EU, our operating companies that are licensed in the EU have increasingly become directly subject to reporting, recordkeeping, and anti-money laundering regulations, and agent oversight and monitoring requirements, as well as broader supervision by EU member states. Additionally, the financial penalties associated with the failure to comply with anti-money laundering laws have increased in recent regulation, including the 4th and 5th Anti-Money Laundering Directive in the EU. These laws have increased and will continue to increase our costs and could also increase competition in some or all of our areas of service. Legislation that has been enacted or proposed in other jurisdictions could have similar effects.
The remittance industry, including Western Union, has come under increasing scrutiny from government regulators and others in connection with its ability to prevent its services from being abused by people seeking to defraud others. For example, in early 2017, we entered into the Joint Settlement Agreements with the United States Department of Justice (“DOJ”), certain United States Attorney’s Offices, the FTC, FinCEN, and various state attorneys general to resolve the respective investigations of those agencies, and in early 2018, we agreed to the NYDFS Consent Order. The ingenuity of criminal fraudsters, combined with the potential susceptibility to fraud by consumers, make the prevention of consumer fraud a significant and challenging problem. Our failure to continue to help prevent such frauds and increased costs related to the implementation of enhanced anti-fraud measures, or a change in fraud prevention laws or their interpretation or the manner in which they are enforced has had, and could in the future have, an adverse effect on our business, financial condition, results of operations, and cash flows.
Further, any determination that our agents or their subagents have violated laws and regulations could seriously damage our reputation and brands, resulting in diminished revenue and profit and increased operating costs. In some cases, we could be liable for the failure of our agents or their subagents to comply with laws which also could have an adverse effect on our business, financial condition, results of operations, and cash flows. In many jurisdictions where Western Union is licensed to offer money transfer services, the license holder is responsible for ensuring the agent’s compliance with the rules that govern the money transfer service. For example, in the EU, Western Union is responsible for the compliance of our agents and their subagents when they are acting on behalf of Western Union Payment Services Ireland Limited, which is regulated by the Central Bank of Ireland. Thus, the risk of adverse regulatory action against Western Union because of actions by our agents or their subagents and the costs to monitor our agents or their subagents in those areas has increased. The regulations implementing the remittance provisions of the Dodd-Frank Act also impose responsibility on us for any related compliance failures of our agents and their subagents.
The requirements under the PSD/PSD2, the Dodd-Frank Act, and similar legislation enacted or proposed in other countries have resulted and will likely continue to result in increased compliance costs, and in the event we or our agents are unable to comply, could have an adverse impact on our business, financial condition, results of operations, and cash flows. Additional countries may adopt similar legislation.
In view of the UK’s departure from the EU on January 31, 2020, to ensure that our operations will continue in the UK, we set up a new payment institution to conduct money remittance in the UK, which was authorized by the Financial Conduct Authority in April 2019, and presently offers retail money transfer services via UK agents. We also applied for the UK branch of our Austrian banking subsidiary to be authorized by the UK PRA as a Third Country Branch (i.e., a UK branch of a non-UK bank), one avenue to continue to conduct our Branded Digital operations. Our application remains pending at this time. Since December 31, 2020, our digital business has been operating under the Temporary Permissions Regime introduced in the UK, which is available through December 31, 2023. If authorized as a Third Country Branch, this UK branch will be subject to certain additional UK regulatory requirements. Further, as a result of Brexit, including under the terms of any new regulatory authorizations we have and may obtain, we could be required to comply with differing regulatory requirements in the UK as a result of divergence from established EU regulation. This could make it more costly for us to provide our services. Since Brexit, UK laws and regulations in the financial services sector have largely maintained equivalence with related EU laws and regulations. We continue to monitor developments in this area, particularly those forthcoming under the Financial Services and Markets Bill 2022-23, which is going through UK Parliamentary scrutiny, and is expected to be passed in 2023. The Bill aims to recast the UK regulatory framework post-Brexit and will give the UK Government the power to repeal retained EU financial services legislation and create new regulator rule-making powers in areas currently covered by retained EU law, with the objective of promoting the growth and international competitiveness of the UK economy.
Our fees, profit margins, and/or foreign exchange spreads may be reduced or limited because of regulatory initiatives and changes in laws and regulations or their interpretation and industry practices and standards that are either industry wide or specifically targeted at our Company.
The evolving regulatory environment, including increased fees or taxes, regulatory initiatives (and increases in regulatory authority, oversight, and enforcement), changes in laws and regulations or their interpretation, industry practices and standards imposed by state, federal, or foreign governments, and expectations regarding our compliance efforts, is impacting the manner in which we operate our business, may change the competitive landscape, and is expected to continue to adversely affect our financial results. Existing, new, and proposed legislation relating to financial services providers and consumer protection in various jurisdictions around the world has affected and may continue to affect the manner in which we provide our services; see risk factor "The Dodd-Frank Act, the Electronic Funds Transfer Act and Regulation E, as well as the regulations required by these Acts and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other government authorities, could adversely affect us and the scope of our activities and could adversely affect our financial condition, results of operations, and cash flows." Recently proposed and enacted legislation related to financial services providers and consumer protection in various jurisdictions around the world and at the federal and state level in the United States has subjected and may continue to subject us to additional regulatory oversight, mandate additional consumer disclosures and remedies, including refunds to consumers, or otherwise impact the manner in which we provide our services. If governments implement new laws or regulations that limit our right to set fees and/or foreign exchange spreads, then our business, financial condition, results of operations, and cash flows could be adversely affected. In addition, changes in regulatory expectations, interpretations, or practices could increase the risk of regulatory enforcement actions, fines, and penalties. For example, in early 2017, we entered into the Joint Settlement Agreements, and in early 2018, we agreed to the NYDFS Consent Order.
In addition, U.S. policy makers have sought and may continue to seek heightened customer due diligence requirements on, or restrict, remittances from the United States to Mexico or other jurisdictions. For example, government sanctions imposed in February 2022 with respect to Russia and Ukraine impacted our ability to offer services in the region and we voluntarily suspended our operations in Russia and Belarus in March 2022. Policy makers have also discussed potential legislation to add taxes to remittances from the United States to Mexico and/or other countries. Further, one state has passed a law imposing a fee on certain money transfer transactions, and certain other states have proposed similar legislation. Several foreign countries have enacted or proposed rules imposing taxes or fees on certain money transfer transactions, as well. The approach of policy makers and the ongoing budget shortfalls in many jurisdictions, combined with future federal action or inaction on immigration reform, may lead other states or localities to impose similar taxes or fees or other requirements or restrictions. Foreign countries in similar circumstances have invoked and could continue to invoke the imposition of sales, service, or similar taxes, or other requirements or restrictions, on money transfer services. A tax, fee, or other requirement or restriction exclusively on money transfer service providers like Western Union could put us at a competitive disadvantage to other means of remittance which are not subject to the same taxes, fees, requirements, or restrictions. Other examples of changes to our financial environment include the possibility of regulatory initiatives that focus on lowering international remittance costs. Such initiatives may have a material adverse impact on our business, financial condition, results of operations, and cash flows.
Regulators around the world look at each other’s approaches to the regulation of the payments and other industries. Consequently, a development in any one country, state, or region may influence regulatory approaches in other countries, states, or regions. Similarly, new laws and regulations in a country, state, or region involving one service may cause lawmakers there to extend the regulations to another service. As a result, the risks created by any one new law or regulation are magnified by the potential they may be replicated, affecting our business in another place or involving another service. Conversely, if widely varying regulations come into existence worldwide, we may have difficulty adjusting our services, fees, foreign exchange spreads and other important aspects of our business, with the same effect. Further, political changes and trends such as populism, economic nationalism, protectionism, and negative sentiment towards multinational companies could result in laws or regulations that adversely impact our ability to conduct business in certain jurisdictions. Any of these eventualities could materially and adversely affect our business, financial condition, results of operations, and cash flows.
Regulatory initiatives and changes in laws, regulations, industry practices and standards, and third-party policies affecting us, our agents or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services could require changes in our business model and increase our costs of operations, which could adversely affect our financial condition, results of operations, and liquidity.
Our agents and their subagents are subject to a variety of regulatory requirements, which differ from jurisdiction to jurisdiction, are subject to change, and continue to increase. Material changes in the regulatory requirements for offering money transfer services, including with respect to anti-money laundering requirements, sanctions, fraud prevention, licensing requirements, consumer protection, customer due diligence, agent registration, or increased requirements to monitor our agents or their subagents in a jurisdiction important to our business have meant and could continue to mean increased costs and/or operational demands on our agents and their subagents, which have resulted and could continue to result in their attrition, a decrease in the number of locations at which money transfer services are offered, an increase in the commissions paid to agents and their subagents to compensate for their increased costs, and other negative consequences.
We rely on our agents’ technology systems and/or processes to obtain transaction data. If an agent or its subagent experiences a breach of its systems, if there is a significant disruption to the technology systems of an agent or its subagent, if an agent or its subagent does not maintain the appropriate controls over their systems, or if we are unable to demonstrate adequate oversight of an agent’s or subagent’s handling of those matters, we may experience reputational and other harm which could result in losses to the Company.
Our regulatory status and the regulatory status of our agents and their subagents could affect our and their ability to offer our services. For example, we and our agents and their subagents rely on bank accounts to provide our Consumer-to-Consumer money transfer services. We also rely on bank accounts to provide our payment services. We and our agents and their subagents are considered Money Service Businesses (“MSBs”) under the BSA. Many banks view MSBs as a class of higher risk customers for purposes of their anti-money laundering programs. We and some of our agents and their subagents have had, and in the future may have, difficulty establishing or maintaining banking relationships due to the banks’ policies. If we or a significant number of our agents or their subagents are unable to maintain existing or establish new banking relationships under terms acceptable to us or our agents or consistent with those currently in place, or if we or these agents face higher fees to maintain or establish new bank accounts, our ability and the ability of our agents and their subagents to continue to offer our services may be adversely impacted, which would have an adverse effect on our business, financial condition, results of operations, and cash flows.
The types of enterprises that are legally authorized to act as our agents and their subagents vary significantly from one country to another. Changes in the laws affecting the kinds of entities that are permitted to act as money transfer agents or their subagents (such as changes in requirements for capitalization or ownership) could adversely affect our ability to distribute our services and the cost of providing such services, both by us and our agents and their subagents. For example, a requirement that a money transfer provider be a bank or other highly regulated financial entity could increase significantly the cost of providing our services in many countries where that requirement does not exist today or could prevent us from offering our services in an affected country. Further, any changes in law that would require us to provide money transfer services directly to consumers as opposed to through an agent network (which would effectively change our business model) or that would prohibit or impede the use of subagents could significantly adversely impact our ability to provide our services, and/or the cost of our services, in the relevant jurisdiction. Changes mandated by laws which make Western Union responsible for acts of its agents and their subagents while they are providing the Western Union money transfer service increase our risk of regulatory liability and our costs to monitor our agents’ or their subagents’ performance.
Although most of our Orlandi Valuta and Vigo branded agents also offer money transfer services of our competitors, many of our Western Union branded agents have agreed to offer only our money transfer services. While we expect to continue signing certain agents under exclusive arrangements and believe that these agreements are valid and enforceable, changes in laws regulating competition or in the interpretation of those laws could undermine our ability to enforce them in the future. Various jurisdictions continue to increase their focus on the potential impact of agent agreements on competition. In addition, over the past several years, several countries in Eastern Europe, the Commonwealth of Independent States, Africa, and Asia have promulgated laws or regulations, or authorities in these countries have issued orders, which effectively prohibit payment service providers, such as money transfer companies, from agreeing to exclusive arrangements with agents in those countries. Certain institutions, non-governmental organizations and others are actively advocating against exclusive arrangements in money transfer agent agreements. Advocates for laws prohibiting or limiting exclusive agreements continue to push for enactment of similar laws in other jurisdictions.
The Dodd-Frank Act, the Electronic Funds Transfer Act and Regulation E, as well as the regulations required by these Acts and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other government authorities, could adversely affect us and the scope of our activities and could adversely affect our financial condition, results of operations, and cash flows.
Rules and regulations implemented under the Dodd-Frank Act have made and continue to make significant structural reforms and new substantive regulation across the financial services industry. In addition, the Dodd-Frank Act created the CFPB, which implements, examines compliance with and enforces federal consumer protection laws governing financial products and services, including money transfer services. The CFPB has created additional regulatory obligations for us and has the authority to examine and supervise us and our larger competitors, including for matters related to unfair, deceptive, or abusive acts and practices (“UDAAP”), the Electronic Funds Transfer Act (“EFTA”), and Regulation E. The CFPB’s regulations implementing the remittance provisions of the Dodd-Frank Act have affected our business in a variety of areas. These include: (i) a requirement to provide consumers sending funds internationally from the United States enhanced, written, pre-transaction disclosures and transaction receipts, including the disclosure of fees, foreign exchange rates and taxes, (ii) an obligation to resolve various errors, including certain errors that may be outside our control, and (iii) an obligation at a consumer’s request to cancel transactions that have not been completed. These requirements have changed the way we operate our business and along with other potential changes under CFPB regulations could adversely affect our operations and financial results. In addition, the Dodd-Frank Act and interpretations and actions by the CFPB have had, and could continue to have a significant impact on us by, for example, requiring 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, delaying our ability to respond to marketplace changes, requiring us to alter our products and services in a manner that would make them less attractive to consumers and impair our ability to offer them profitably, or requiring us to make other changes that could adversely affect our business. In addition, these regulations impose responsibility on us for any related compliance failures of our agents.
The CFPB has broad authority to enforce consumer protection laws. The CFPB has a large staff and budget, which is not subject to Congressional appropriation, and has broad authority with respect to our money transfer service and related business. It is authorized to collect fines and provide consumer restitution in the event of violations, engage in consumer financial education, track and solicit consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. In addition, the CFPB may adopt other regulations governing consumer financial services, including regulations defining UDAAP, and new model disclosures. The CFPB’s authority to change regulations adopted in the past by other regulators, or to rescind or ignore past regulatory guidance, could increase our compliance costs and litigation exposure. In addition, attorneys general of the various states of the United States also have authority to enforce the consumer protection provisions of the Dodd-Frank Act in their respective jurisdictions.
We have been and continue to be subject to examination by the CFPB, which defines “larger participants of a market for other consumer financial products or services” as including companies, such as Western Union, that make at least one million aggregate annual international money transfers. The CFPB has the authority to examine and supervise us and our larger competitors, which will involve providing reports to the CFPB. The CFPB has used information gained in examinations as the basis for enforcement actions resulting in settlements involving monetary penalties and other remedies.
The effect of the Dodd-Frank Act, the EFTA, Regulation E, and the CFPB on our business and operations has been and will continue to be significant, and the application of the associated implementing regulations to our business may differ from the application to certain of our competitors, including banks.
Various jurisdictions in the United States and outside the United States have consumer protection laws and regulations, and numerous governmental agencies are tasked with enforcing those laws and regulations. Consumer protection principles continue to evolve globally, and new or enhanced consumer protection laws and regulations may be adopted. Governmental agencies tasked with enforcing consumer protection laws or regulations are communicating more frequently and coordinating their efforts to protect consumers. For instance, the International Consumer Protection and Enforcement Network (“ICPEN”) is an organization composed of consumer protection authorities from over 70 countries that provides a forum for developing and maintaining regular contact between consumer protection agencies and focusing on consumer protection concerns. By encouraging cooperation between agencies, ICPEN aims to enable its members to have a greater impact with their consumer protection laws and regulations. As the scope of consumer protection laws and regulations change, we may experience increased costs to comply and other adverse effects to our business.
Rules adopted under the Dodd-Frank Act by the CFTC, as well as the provisions of the EMIR and its technical standards, which are directly applicable in the member states of the EU, have subjected most of our foreign exchange hedging transactions, including certain intercompany hedging transactions and certain of the corporate interest rate hedging transactions we may enter into in the future, to reporting, recordkeeping, and other requirements. Following Brexit, EMIR and the MiFID II have been retained as UK law pursuant to the European Union (Withdrawal) Act 2018 UK. Additionally, certain of the corporate interest rate hedging transactions and foreign exchange derivatives transactions we may enter into in the future may be subject to centralized clearing requirements or may be subject to margin requirements in the United States, the EU, and the UK. Other jurisdictions outside of the United States, the EU, and the UK, have implemented, are implementing, or may implement regulations similar to those described above. Derivatives regulations have added costs to our business, and any additional requirements, such as future registration requirements and increased regulation of derivatives contracts, will result in additional costs or impact the way we conduct our hedging activities. For example, the regulatory regimes for derivatives in the United States, the EU, and the UK, such as under the Dodd-Frank Act and MiFID II, are continuing to evolve. Any changes to such regimes, our designation under such regimes, or the implementation of new rules under such regimes, such as future registration requirements and increased regulation of derivatives contracts, may result in additional costs to our business. Other jurisdictions outside the United States, the EU, and the UK, have implemented, are implementing, or may implement regulations similar to those described above, and these will result in greater costs to us as well. Our implementation of these requirements has resulted, and will continue to result, in additional costs to our business. Moreover, following Brexit, we could be required to comply with differing regulatory requirements in the UK as a result of divergence from established EU regulation. This could make it more costly for us to provide our services. Furthermore, our failure to implement these requirements correctly could result in fines and other sanctions, as well as necessitate a temporary or permanent cessation to some or all of our derivative related activities. Any such fines, sanctions, or limitations on our business could adversely affect our operations and financial results.
Current and proposed regulation addressing consumer privacy and data use and security could increase our costs of operations, which could adversely affect our operations, results of operations, and financial condition.
We are subject to extensive requirements relating to data privacy and security under federal, state, and foreign laws. These laws and requirements continue to evolve and may become increasingly difficult to comply with. For example, the FTC continues to investigate the privacy practices of many companies and has brought numerous enforcement actions, resulting in significant fines and multi-year agreements governing the settling companies’ privacy practices. In addition, the U.S. Securities and Exchange Commission and the New York Department of Financial Services have proposed new rules or amendments to existing rules that would modify reporting requirements and add prescriptive requirements relating to cybersecurity programs. Furthermore, certain industry groups require us to adhere to privacy requirements in addition to federal, state, and foreign laws, and certain of our business relationships depend upon our compliance with these requirements. As the number of countries enacting privacy and related laws increases and the scope of these laws and enforcement efforts expand, we will increasingly become subject to new and varying requirements. For example, in 2018, the EU implemented the GDPR, and other countries have enacted similar legislation, such as Brazil’s General Data Protection Law (“LGPD”), which became effective in 2020, and China’s Personal Information Protection Law ("PIPL"), which became effective in November 2021. The GDPR, LGPD, and PIPL impose obligations and present the risk of substantially increased penalties for non-compliance, including the possibility of not only fines but also enforcement action that may require an organization to cease certain of its data processing activities. Such penalties could have a material adverse effect on our financial condition, results of operations, and cash flows. In addition, in 2020 the Court of Justice of the European Union (“CJEU”) invalidated the EU-U.S. Privacy Shield framework, which provided a mechanism for companies transferring personal data from the EU to the U.S., and imposed additional obligations on companies such as Western Union when transferring personal data from the EU to the U.S. and other jurisdictions. This may result in increased
costs of compliance and limitations on us. Further, this CJEU decision or other regulatory changes relating to cross-border data transfers may serve as a basis for challenges to our personal data handling practices, which could also adversely impact our business, financial condition, and operating results. We have incurred, and we expect to continue to incur, expenses to meet the obligations of the GDPR and other similar legislation and new interpretations of their requirements. We are also subject to data privacy and security laws in various states, such as the California Consumer Privacy Act and the Colorado Privacy Act, that impose heightened data privacy requirements on companies that collect information from state residents and create a broad set of privacy rights and remedies modeled in part on the GDPR. Failure to comply with existing or future data privacy and security laws, regulations, and requirements to which we are subject or could become subject, including by reason of inadvertent disclosure of confidential information, could result in fines, sanctions, penalties, or other adverse consequences and loss of consumer confidence, which could materially adversely affect our results of operations, overall business, and reputation.
In addition, in connection with regulatory requirements to assist in the prevention of money laundering and terrorist financing and pursuant to legal obligations and authorizations, Western Union makes information available to certain United States federal, state, and foreign government agencies when required by law. In recent years, Western Union has experienced an increasing number of data sharing requests by these agencies, particularly in connection with efforts to prevent terrorist financing or to reduce the risk of identity theft. During the same period, there has also been increased public attention to the corporate use and disclosure of personal information, accompanied by legislation and regulations intended to strengthen data protection, information security, and consumer privacy. These regulatory goals, including the prevention of money laundering, terrorist financing, and identity theft, and the protection of the individual’s right to privacy, may conflict or otherwise present challenges, and the law in these areas is not consistent or settled. The legal, political, and business environments in these areas are rapidly changing, and subsequent legislation, regulation, litigation, court rulings, or other events could expose us to increased program costs, liability, and reputational damage.
We are subject to unclaimed property laws, and differences between the amounts we have accrued for unclaimed property and amounts that are claimed by a state or foreign jurisdiction could have a significant impact on our results of operations and cash flows.
We are subject to unclaimed property laws in the United States and abroad, and some of our agents are subject to unclaimed property laws in their respective jurisdictions which require us, or our agents, to turn over to certain government authorities the property of others held by us that has been unclaimed for a specified period of time, such as unpaid money transfers and money orders. We have an ongoing program to help us comply with those laws. These laws are evolving and are frequently unclear and inconsistent among various jurisdictions, making compliance challenging. In addition, we are subject to audits with regard to our escheatment practices. Currently in the United States, approximately 30 states are conducting a multi-year audit of our escheatment practices through a contracted third-party auditor. We have also commenced a contemporaneous internal review as part of our participation in Delaware’s voluntary disclosure program. Any difference between the amounts we have accrued for unclaimed property and amounts that are claimed by a state, foreign jurisdiction, or representative thereof could have a significant impact on our results of operations and cash flows.
We are subject to requirements and guidelines related to financial soundness and strength, and if we fail to meet current or changing requirements or guidelines, including maintaining sufficient amounts or types of regulatory capital to meet the changing requirements of our various regulators worldwide, our business, financial condition, results of operations, and cash flows could be adversely affected.
Our regulators expect us to possess sufficient financial soundness and strength to adequately support our regulated subsidiaries. We have substantial indebtedness and other obligations, including those related to the tax imposed on certain of our previously undistributed foreign earnings pursuant to the Tax Act, which could make it more difficult to meet these requirements or any additional requirements. In addition, although we are not a bank holding company for purposes of United States law or the law of any other jurisdiction, as a global provider of payment services and in light of the changing regulatory environment in various jurisdictions, we could become subject to new capital requirements introduced or imposed by our regulators that could require us to raise capital immediately or retain earnings over a period of time. Our regulators also impose restrictions on our ability to use cash generated by our regulated subsidiaries such as those related to minimum qualifying investments, net worth requirements, and restrictions on transferring assets outside of the countries where those assets are located. For instance, our regulators specify the amount and composition of eligible assets that certain of our subsidiaries must hold in order to satisfy our outstanding settlement obligations. These regulators could further restrict the type of instruments that qualify as permissible investments or require our regulated subsidiaries to
maintain higher levels of eligible assets. Further, some jurisdictions use tangible net worth and other financial strength guidelines to evaluate financial position. If our regulated subsidiaries do not abide by these guidelines, they may be subject to heightened review by these jurisdictions, and the jurisdictions may be more likely to impose new formal financial strength requirements. Additional financial strength requirements imposed on our regulated subsidiaries or significant changes in the regulatory environment for money transfer providers could impact our primary source of liquidity. Any change or increase in these regulatory requirements or guidelines could have a material adverse effect on our business, financial condition, and results of operations.
Risks Relating to Consent Agreements and Litigation
Our business is the subject of consent agreements with or enforcement actions by regulators.
In early 2017, the Company entered into Joint Settlement Agreements with the DOJ, certain United States Attorney’s Offices, the FTC, FinCEN, and various state attorneys general to resolve the respective investigations of those agencies. Under the Joint Settlement Agreements, the Company was required, among other things, to pay an aggregate amount of $586 million to the DOJ to be used to reimburse consumers who were the victims of third-party fraud conducted through the Company’s money transfer services, and retain an independent compliance auditor for three years to review and assess actions taken by the Company to further enhance its oversight of agents and protection of consumers, both of which were performed by the Company during 2017. The Joint Settlement Agreements also required the Company to adopt certain new or enhanced practices with respect to its compliance program, relating to, among other things, consumer reimbursement, agent due diligence, agent training, monitoring, reporting, and record-keeping by the Company and its agents, consumer fraud disclosures, and agent suspensions and terminations. Western Union has continuing obligations under the FTC Consent Order, which is a permanent injunction, as well as the requirement to submit annual reports to the FTC through January 2028. The ongoing obligations under the Joint Settlement Agreements have had and could have adverse effects on the Company’s business, including additional costs and potential loss of business. The Company has also faced actions from other regulators as a result of the Joint Settlement Agreements. For example, on July 28, 2017, the NYDFS informed the Company that the facts set forth in the Deferred Prosecution Agreement (the “DPA”) with the DOJ and with certain other United States Attorney’s Offices regarding the Company’s anti-money laundering programs over the 2004 through 2012 period gave the NYDFS a basis to take additional enforcement action. In January 2018, the Company agreed to the NYDFS Consent Order with the NYDFS, which required the Company to pay a civil monetary penalty of $60 million to the NYDFS and resolved its investigation into these matters. The term of the DPA expired in January 2020, and it was dismissed in March 2020, and the term of the Independent Compliance Auditor under the FTC Consent Order ended in May 2020. Notwithstanding, if the Company fails to comply with its continuing obligations under the Joint Settlement Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards, or other regulatory consequences. Any or all of these outcomes could have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.
Our business is, and may in the future be, the subject of litigation, including purported class action litigation, and regulatory actions, which could result in material settlements, judgments, fines, or penalties.
As a company that provides global financial services primarily to consumers, we are, and may in the future be, subject to litigation, including purported class action litigation, and regulatory actions alleging violations of consumer protection, anti-money laundering, sanctions, securities laws, and other laws, both foreign and domestic. Any such regulatory enforcement may be applied inconsistently across the industry, resulting in increased costs for the Company that may not be incurred by competitors. We also are subject to claims asserted by consumers based on individual transactions. There can be no guarantee that we will be successful in defending ourselves in these matters, and such failure may result in substantial fines, damages and expenses, revocation of required licenses, or other limitations on our ability to conduct business. Any of these outcomes could adversely affect our business, financial condition, results of operations, and cash flows. Further, we believe increasingly strict legal and regulatory requirements and increased regulatory investigations and enforcement, any of which could occur or intensify as a result of the Joint Settlement Agreements, are likely to continue to result in changes to our business, as well as increased costs, supervision, and examination for both ourselves and our agents and subagents. These developments have had, and we believe will continue to have, an adverse effect on our business, financial condition, and results of operations, and in turn may result in additional litigation or other actions. For more information, please see Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Commitments and Contingencies.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
Not applicable.

---

ITEM 2. PROPERTIES
Item 2. Properties
Properties and Facilities
As of December 31, 2022, we occupied facilities in nearly 45 countries. All of these facilities were leased. Our office in Denver, Colorado serves as our corporate headquarters. Our offices in Dublin, Ireland and Barbados represent key operational and leadership locations. We also operate shared service centers in Lithuania, Costa Rica, India, and the Philippines. Our facilities are shared and primarily used for operational, sales, and administrative purposes in support of our Consumer-to-Consumer and Business Solutions segments, and other services.
We believe that our facilities are suitable and adequate for our current business; however, we periodically review our facility requirements and may consolidate and dispose of or sublet facilities which are no longer required or acquire new facilities and update existing facilities to meet the needs of our business.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
The information required by this Item 3 is incorporated herein by reference to the discussion in Part II, Item 8, Financial Statements and Supplementary Data, Note 6, Commitments and Contingencies.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
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 2,915 stockholders of record as of February 17, 2023. This figure does not include an estimate of the indeterminate number of beneficial holders whose shares may be held of record by brokerage firms and clearing agencies.
The following table sets forth stock repurchases for each of the three months of the quarter ended December 31, 2022:
Approximate Dollar
Total Number of Shares
Value of Shares that
Purchased as Part of
May Yet Be Purchased
Total Number of
Average Price
Publicly Announced
Under the Plans or
Period
Shares Purchased (a)
Paid per Share
Plans or Programs (b)
Programs (in millions)
October 1 - 31
102,097
$
13.47
-
$
823.2
November 1 - 30
5,891,930
$
13.75
5,888,977
$
742.2
December 1 - 31
6,802,617
$
13.86
6,783,007
$
648.2
Total
12,796,644
$
13.81
12,671,984
(a)These amounts represent both shares authorized by the Board of Directors for repurchase under a publicly announced authorization, as described below, as well as shares withheld from employees to cover tax withholding obligations on restricted stock units that have vested.
(b)On February 10, 2022, our Board of Directors authorized $1.0 billion of common stock repurchases through December 31, 2024, of which $648.2 million remained available as of December 31, 2022. In certain instances, management has historically established and may continue to establish prearranged written plans pursuant to Rule 10b5-1. A Rule 10b5-1 plan permits us to repurchase shares at times when we may otherwise be unable to do so, provided the plan is adopted when we are not aware of material non-public information.
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 17, Stock-Based Compensation Plans, and Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for information related to our equity compensation plans.
Dividend Policy and Share Repurchases
During 2022 and 2021, the Board of Directors declared quarterly cash dividends of $0.235 per common share. The dividends were payable on December 30, September 30, June 30, and March 31 for 2022 and December 31, September 30, June 30, and March 31 for 2021. The declaration or authorization and amount of future dividends or share repurchases will be determined by the Board of Directors and will depend on our financial condition, earnings, liquidity, the amount and timing of payments under our debt and other obligations, capital requirements, regulatory constraints, cash generated or made available in the United States, industry practice, and any other factors that the Board of Directors believes are relevant. In connection with the IRA, there will be a 1% excise tax on net share repurchases made after December 31, 2022, which will increase our cost to repurchase shares in future periods. As a holding company with no material assets other than the capital stock of our subsidiaries, our ability to pay dividends or repurchase shares in future periods will depend primarily on our ability to use cash generated by our operating subsidiaries. Several of our operating subsidiaries are subject to financial services regulations, and their ability to pay dividends and distribute cash may be restricted. In addition, the Tax Act imposes a tax on certain of our previously undistributed foreign earnings, which we have elected to pay in periodic installments through 2025, as discussed in the Capital Resources and Liquidity section in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. These payments will adversely affect our cash flow and liquidity and may adversely affect future share repurchases.
On February 7, 2023, the Board of Directors declared a quarterly cash dividend of $0.235 per common share payable on March 31, 2023.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements included in Part II, Item 8, Financial Statements and Supplementary Data in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements contained in the Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions, and projections about our industry, business, and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in other sections of this Annual Report on Form 10-K. See “Risk Factors” and “Forward-Looking Statements.”
Overview
We are a leading provider of money movement and payment services, operating in two business segments:
•Consumer-to-Consumer - Our Consumer-to-Consumer operating segment facilitates money transfers, which are primarily sent from our retail agent locations worldwide or through websites and mobile devices. Our 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 - Our 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 limited countries, we write foreign currency forward and option contracts for customers to facilitate future payments. On August 4, 2021, we entered into an agreement to sell our Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC, and this business is expected to be fully divested in the second quarter of 2023 as discussed below.
All businesses and other services that have not been classified in the above segments are reported as Other, which primarily includes our bill payment services which facilitate payments from consumers to businesses and other organizations and our money order services. Certain of our 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. Additional information on our segments is provided in the Segment Discussion below.
Results of Operations
The following discussion of our consolidated results of operations and segment results refers to the year ended December 31, 2022 compared to the same period in 2021. For discussion of our consolidated results of operations and segment results for the year ended December 31, 2021 compared to the same period in 2020, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 24, 2022.
The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the Consolidated Statements of Income. All significant intercompany accounts and transactions between our segments have been eliminated. The below information has been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”) unless otherwise noted. All amounts provided in this section are rounded to the nearest tenth of a million, except as otherwise noted. As a result, the percentage changes and margins disclosed herein may not recalculate precisely using the rounded amounts provided.
Our revenues and operating income for the year ended December 31, 2022 were impacted by fluctuations in the United States dollar compared to foreign currencies. Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a decrease to revenues of $185.5 million for the year ended December 31, 2022 relative to the prior year. Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $5.0 million for the year ended December 31, 2022 relative to the prior year.
On August 4, 2021, we entered into an agreement to sell our Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC (collectively, the "Buyer") for cash consideration of $910.0 million. The sale is expected to be completed in three closings, with the entire cash consideration collected at the first closing and allocated to the closings on a relative fair value basis. The first closing occurred on March 1, 2022, excluded the operations in the European Union and the United Kingdom, and resulted in a gain of $151.4 million. The second closing, which occurred on December 31, 2022 and included the United Kingdom operations, resulted in a gain of $96.9 million. The third closing, which is currently expected to occur in the second quarter of 2023 pending required regulatory approvals, includes the European Union operations. During the periods between the first and third closings, we are required to pay the Buyer a measure of profit of the European Union and United Kingdom operations, while we owned them, adjusted for the provision for income taxes, occupancy charges for employees of the Buyer using our facilities, and other items.
Business Solutions revenues included in our Consolidated Statements of Income were $196.9 million and $421.8 million, and direct operating expenses, excluding corporate allocations, were $140.3 million and $317.7 million for the years ended December 31, 2022 and 2021, respectively. Costs related to the review and closing of this divestiture were $5.2 million and $14.4 million for the years ended December 31, 2022 and 2021, respectively.
In March 2022, we suspended our operations in Russia and Belarus, which are included in our Consumer-to-Consumer segment, due to the Russia/Ukraine conflict (the "Conflict"). Revenues associated with the Russia and Belarus operations, including transactions sent from, into, and within these countries for the years ended December 31, 2022 and 2021 were approximately $28 million and $145 million, respectively. The Conflict has had and is expected to continue to have broader implications to our overall business, including reduced transaction activity in Ukraine. We expect that our results of operations will continue to be negatively impacted by this Conflict into 2023.
The following table sets forth our consolidated results of operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(in millions, except per share amounts)
% Change
Revenues
$
4,475.5
$
5,070.8
(12
)%
Expenses:
Cost of services
2,626.4
2,896.4
(9
)%
Selling, general, and administrative
964.2
1,051.3
(8
)%
Total expenses
3,590.6
3,947.7
(9
)%
Operating income
884.9
1,123.1
(21
)%
Other income/(expense):
Gain on divestiture of business
248.3
-
(a)
Gain on sale of noncontrolling interest in a private company
-
47.9
(a)
Pension settlement charges
-
(109.8
)
(a)
Interest income
13.9
1.4
(a)
Interest expense
(101.0
)
(105.5
)
(4
)%
Other expense, net
(37.5
)
(21.7
)
(a)
Total other income/(expense), net
123.7
(187.7
)
(a)
Income before income taxes
1,008.6
935.4
%
Provision for income taxes
98.0
129.6
(24
)%
Net income
$
910.6
$
805.8
%
Earnings per share:
Basic
$
2.35
$
1.98
%
Diluted
$
2.34
$
1.97
%
Weighted-average shares outstanding:
Basic
387.2
406.8
Diluted
388.4
408.9
(a)Calculation not meaningful.
Revenues Overview
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, and the difference between the exchange rate we set to the customer and a rate available in the wholesale foreign exchange market, as applicable. We also offer several other services, including foreign exchange and payment services and other bill payment services, for which revenue is impacted by similar factors.
Due to the significance of the effect that foreign exchange fluctuations against the United States dollar can have on our reported revenues, constant currency results have been provided in the table below for consolidated revenues. Constant currency results assume foreign revenues are translated from foreign currencies to the United States dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year. We have also disclosed the impact of our Business Solutions divestiture on our revenues in the table below. Constant currency measures and measures that exclude the impact of divestitures are non-GAAP financial measures and are provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates and divestitures of our businesses, which is consistent with how management evaluates our revenue results and trends. We believe that these measures provide management and investors with information about revenue results and trends that eliminates currency volatility and divestitures, thereby providing greater clarity regarding, and increasing the comparability of, our underlying results and trends. These disclosures are provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the year ended December 31, 2022 compared to the prior year. Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.
The following table sets forth our consolidated revenue results for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars in millions)
% Change
Revenues, as reported - (GAAP)
$
4,475.5
$
5,070.8
(12
)%
Foreign currency impact(a)
%
Divestitures impact(b)
%
Revenue change, constant currency adjusted, excluding Business Solutions - (Non-GAAP)
(4
)%
(a)Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a decrease to revenues of $185.5 million for the year ended December 31, 2022 when compared to foreign currency rates in the prior year.
(b)Business Solutions revenues included in our results were $196.9 million and $421.8 million for the years ended December 31, 2022 and 2021, respectively.
In addition to the decline in revenues associated with fluctuations in exchange rates between the United States dollar and foreign currencies as well as our Business Solutions divestiture, GAAP and non-GAAP revenues decreased due to a transaction decline in our Consumer-to-Consumer segment, including as a result of the suspension of our operations in Russia and Belarus for the year ended December 31, 2022 when compared to the prior year.
Operating Expenses Overview
Operating expense redeployment program
On October 20, 2022, we announced an operating expense redeployment program which aims to redeploy approximately $150 million in expenses in our cost base over the next 5 years, accomplished through optimizations in vendor management, our real estate footprint, marketing, and people costs. We believe these changes will allow us to invest in strategic initiatives. The timing and pace of this redeployment may vary, and we believe that we will continue to refine aspects of the program into 2023. We incurred $2.7 million and $19.1 million of Cost of services and Selling, general, and administrative expenses, respectively, related to this program for the year ended December 31, 2022.
Cost of Services
Cost of services primarily consists of agent commissions, which represented approximately 60% of total cost of services for the year ended December 31, 2022. Cost of services decreased for the year ended December 31, 2022 compared to the prior year primarily due to a decrease in Consumer-to-Consumer money transfer agent commissions, which generally vary with revenues, and a decrease associated with the Business Solutions divestiture, as discussed above, partially offset by increased investments in information technology.
Selling, General, and Administrative
Selling, general, and administrative expenses decreased for the year ended December 31, 2022 compared to the prior year due to a decrease associated with the Business Solutions divestiture, as discussed above, and a decrease in employee-related expenses. The decrease was partially offset by an increase in marketing costs, severance and other costs associated with the operating expense redeployment initiatives, as discussed above, and exit costs associated with the suspension of our Russian and Belarus operations and the Business Solutions divestiture, as discussed below.
Total Other Income/(Expense), Net
Total other income/(expense), net for the year ended December 31, 2022 compared to the prior year benefited from the gain on the first two closings of the Business Solutions divestiture, pension settlement charges incurred in the prior period and a reduction in net periodic pension costs due to the termination of our U.S. defined benefit pension plan (the "Plan") in the fourth quarter of 2021, and debt extinguishment costs incurred in the prior period. This was partially offset by a prior year gain of $47.9 million recorded from the sale of a substantial majority of shares we held as a noncontrolling investor in a private company and by the expense associated with payment obligations to the Buyer of the Business Solutions business for a measure of the profits, as contractually agreed, from the European Union and United Kingdom operations subsequent to the first closing.
Income Taxes
Our effective tax rates on pre-tax income were 9.7% and 13.9% for the years ended December 31, 2022 and 2021, respectively. The decrease in our effective tax rate for the year ended December 31, 2022 compared to the prior year was primarily due to the reversal of uncertain tax positions, including from statute of limitations expirations and the completion of the examination of our federal income tax returns for 2017 and 2018, as further discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 11, Income Taxes, as well as tax expense incurred in the prior period related to changes in our permanent reinvestment assertions, partially offset by the sale of the Business Solutions business and our decision to suspend operations in Russia and Belarus.
We have established contingency reserves for a variety of material, known tax exposures. As of December 31, 2022, the total amount of tax contingency reserves was $237.2 million, including accrued interest and penalties, net of related items. Our tax reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve. With respect to these reserves, our income tax expense would include: (i) any changes in tax reserves arising from material changes in facts and circumstances (i.e., new information) surrounding a tax issue during the period, and (ii) any difference from our tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in our consolidated financial statements in future periods and could impact our operating cash flows.
A significant proportion of our profits are foreign-derived. For the years ended December 31, 2022 and 2021, 95% and 106%, respectively, of our pre-tax income was derived from foreign sources. While the income tax imposed by any one foreign country is not material to us, our overall effective tax rate could be adversely affected by changes in foreign tax laws.
Earnings Per Share
During the years ended December 31, 2022 and 2021, basic earnings per share were $2.35 and $1.98, respectively, and diluted earnings per share were $2.34 and $1.97, respectively. Outstanding options to purchase Western Union stock and unvested shares of restricted stock are excluded from basic shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested. As of December 31, 2022 and 2021, there were 8.0 million and 2.3 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding options to purchase shares of Western Union stock and restricted stock units, as the assumed proceeds of the options and restricted stock per unit were above our weighted-average share price during the periods and their effect was anti-dilutive.
Earnings per share for the year ended December 31, 2022 compared to the prior year were impacted by the previously described factors impacting net income and a lower number of shares outstanding. The lower number of shares outstanding for the year ended December 31, 2022 compared to the prior year is due to stock repurchases exceeding stock issuances under our stock compensation programs.
Segment Discussion
We manage our business around the consumers and businesses we serve and the types of services we offer. Each of our segments addresses a different combination of consumer groups, distribution networks, and services offered. Our segments are Consumer-to-Consumer and Business Solutions. On August 4, 2021, we entered into an agreement to sell our Business Solutions business, as discussed above. The operations of the Business Solutions business to be sold in the third closing will continue to be included in Revenues and Operating income after the second closing. However, between the first and third closings, we are required to pay the Buyer a measure of the profits from these operations, while we owned them, adjusted for other charges, and this expense is recognized in Other income/(expense), net in the Consolidated Statements of Income.
During the year ended December 31, 2022, we incurred $10.0 million and $7.7 million of exit costs associated with the suspension of our Russia and Belarus operations and the Business Solutions divestiture, respectively. These exit costs are primarily related to severance and non-cash impairments of property and equipment, an operating lease right-of-use asset, and other intangible assets. During the year ended December 31, 2022, we also incurred $21.8 million of costs associated with our operating expense redeployment program, as described above, primarily related to severance and non-cash impairments of an operating lease right-of-use asset and property and equipment. While certain of the above expenses are identifiable to our segments, the expenses are not included in the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of performance assessment and resource allocation. These expenses are therefore excluded from our segment operating income results.
The business segment measurements provided to, and evaluated by, our CODM are computed in accordance with the following principles:
•The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
•Corporate costs, including overhead expenses, are allocated to the segments primarily based on a percentage of the segments’ revenue compared to total revenue.
•All items not included in operating income are excluded from the segments.
The following table sets forth the components of segment revenues as a percentage of the consolidated totals for the years ended December 31, 2022 and 2021:
Year Ended December 31,
Consumer-to-Consumer
%
%
Business Solutions
%
%
Other
%
%
%
%
Consumer-to-Consumer Segment
The following table sets forth our Consumer-to-Consumer segment results of operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars and transactions in millions)
% Change
Revenues
$
3,993.5
$
4,394.0
(9
)%
Operating income
$
765.1
$
977.6
(22
)%
Operating income margin
%
%
Key indicator:
Consumer-to-Consumer transactions
274.1
305.9
(10
)%
Our Consumer-to-Consumer money transfer service facilitates money transfers sent from our retail agent locations worldwide and our Branded Digital services. The segment includes five geographic regions whose functions are primarily related to generating, managing, and maintaining agent relationships and localized marketing activities. We include Branded Digital transactions in our regions. By means of common processes and systems, these regions, including Branded Digital, create one interconnected global network for consumer transactions, thereby constituting one Consumer-to-Consumer money transfer business and one operating segment.
Transaction volume is the primary generator of revenue in our Consumer-to-Consumer segment. A Consumer-to-Consumer transaction constitutes the transfer of funds to a designated recipient utilizing one of our consumer money transfer services. The geographic split for transactions and revenue in the table that follows is determined based upon the region where the money transfer is initiated. Included in each region’s transaction and revenue percentages in the tables below are Branded Digital transactions for the years ended December 31, 2022 and 2021. Where reported separately in the discussion below, Branded Digital consists of 100% of the transactions conducted and funded through that channel.
The table below sets forth revenue and transaction changes by geographic region compared to the prior year. Additionally, due to the significance of our Consumer-to-Consumer segment to our overall results, we have also provided constant currency results for our Consumer-to-Consumer segment revenues. Consumer-to-Consumer segment constant currency revenue growth/(decline) is a non-GAAP financial measure, as further discussed in Revenues Overview above.
Year Ended December 31, 2022
Constant
Revenue
Currency
Growth /
Foreign
Revenue
(Decline)
Exchange
Growth(a) /
Transaction
as Reported -
Translation
(Decline) -
Growth/
(GAAP)
Impact
(Non-GAAP)
(Decline)
Consumer-to-Consumer regional growth/(decline):
North America (United States & Canada) ("NA")
(4
)%
%
(4
)%
(5
)%
Europe and Russia/CIS ("EU & CIS")
(20
)%
(5
)%
(15
)%
(25
)%
Middle East, Africa, and South Asia ("MEASA")
(4
)%
(2
)%
(2
)%
(1
)%
Latin America and the Caribbean ("LACA")
%
(3
)%
%
%
East Asia and Oceania ("APAC")
(13
)%
(4
)%
(9
)%
(12
)%
Total Consumer-to-Consumer growth:
(9
)%
(3
)%
(6
)%
(10
)%
Branded Digital(b)
(3
)%
(2
)%
(1
)%
%
(a)Constant currency revenue growth/(decline) assumes that revenues denominated in foreign currencies are translated to the United States dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year.
(b)As noted above, Branded Digital revenues are included in the regions.
The table below sets forth regional revenues as a percentage of our Consumer-to-Consumer revenue for the years ended December 31, 2022 and 2021:
Year Ended December 31,
Consumer-to-Consumer revenue as a percentage of segment revenue:
NA
%
%
EU & CIS
%
%
MEASA
%
%
LACA
%
%
APAC
%
%
Branded Digital, which is included in the regional percentages above, represented approximately 22% and 20% of our Consumer-to-Consumer revenues for the years ended December 31, 2022 and 2021, respectively.
Our consumers transferred $93.6 billion and $104.1 billion in Consumer-to-Consumer cross-border principal for the years ended December 31, 2022 and 2021, respectively. The decrease in cross-border principal transferred during the year ended December 31, 2022 compared to the prior year is primarily attributable to a decline in Consumer-to-Consumer transactions, including as a result of the suspension of our operations in Russia and Belarus, as discussed above, as well as fluctuations in exchange rates between the United States dollar and foreign currencies. Consumer-to-Consumer cross-border principal is the amount of consumer funds transferred to a designated recipient in a country or territory that differs from the country or territory from which the transaction was initiated. Consumer-to-Consumer cross-border principal is a metric used by management to monitor and better understand the growth in our underlying business relative to competitors, as well as changes in our market share of global remittances.
Revenues
Consumer-to-Consumer money transfer revenue decreased 9% and transactions decreased 10% for the year ended December 31, 2022 compared to the prior year, due in part to the suspension of our operations in Russia and Belarus, which negatively impacted Consumer-to-Consumer revenues and transactions by 2% and 6%, respectively. Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, negatively impacted revenue by 3% for the year ended December 31, 2022 compared to the prior year. Constant currency revenue decreased 6% for the year ended December 31, 2022.
In our Consumer-to-Consumer regions, the decrease in NA revenue for the year ended December 31, 2022 compared to the prior year was primarily due to decreases in transactions sent from and within the United States. The EU & CIS region experienced transaction volume and revenue declines in Russia and Belarus, France, Germany, and the United Kingdom and was also impacted by promotional pricing. As noted above, our EU & CIS revenues were negatively impacted by our suspension of operations in Russia and Belarus in the year ended December 31, 2022 and will continue to be negatively impacted into 2023.
We have historically implemented price reductions or price increases throughout many of our global corridors. We will likely continue to implement price changes from time to time in response to competition and other factors. Price reductions generally reduce margins and adversely affect financial results in the short term and may also adversely affect financial results in the long term if transaction volumes do not increase sufficiently. Price increases may adversely affect transaction volumes, as consumers may not use our services if we fail to price them appropriately. We believe that revenues could be adversely impacted in connection with promotional pricing we recently implemented for Branded Digital transactions, including those sent from the United States.
Operating Income
Consumer-to-Consumer operating income decreased 22% during the year ended December 31, 2022 compared to the prior year primarily due to the decrease in revenues, as discussed above, and increases in marketing costs and investments in information technology, partially offset by decreases in agent commissions, which generally vary with revenues, and decreased employee-related expenses.
Business Solutions
The following table sets forth our Business Solutions segment results of operations for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars in millions)
% Change
Revenues
$
196.9
$
421.8
(53
)%
Operating income
$
58.5
$
95.5
(39
)%
Operating income margin
%
%
Revenues
Business Solutions revenue decreased 53% for the year ended December 31, 2022 compared to the prior year, primarily due to the first closing of the sale of our Business Solutions business, which occurred on March 1, 2022, as described further above. Fluctuations in the exchange rates between the United States dollar and foreign currencies negatively impacted revenue by 4% for the year ended December 31, 2022 compared to the prior year.
Operating Income
For the year ended December 31, 2022, Business Solutions operating income and operating income margin was impacted by the first closing of the sale of our Business Solutions business, partially offset by a reduction in depreciation and amortization expenses, including as a result of classifying our Business Solutions business as held for sale in August 2021.
Effective January 1, 2022, we stopped allocating corporate costs to our Business Solutions segment, given our agreement to sell this business.
Other
Other primarily consists of our cash-based bill payment businesses in Argentina and the United States, in addition to our money order services.
The following table sets forth Other results for the years ended December 31, 2022 and 2021:
Year Ended December 31,
(dollars in millions)
% Change
Revenues
$
285.1
$
255.0
%
Operating income
$
100.8
$
50.0
(a)
Operating income margin
%
%
(a)Calculation not meaningful.
Revenues
Other revenues increased 12% for the year ended December 31, 2022 compared to the prior year primarily due to transaction growth in our cash-based bill payments services offered at retail locations in Argentina, as well as growth in our business-to-consumer payments, partially offset by the strengthening of the United States dollar against the Argentine peso.
Operating Income
Other operating income increased for the year ended December 31, 2022 compared to the prior year primarily due to increased revenues, the reimbursement of expenses associated with transition services provided after the first closing of the sale of our Business Solutions business, and decreased costs associated with strategic initiatives, including for the review of mergers, acquisitions, and divestitures.
Capital Resources and Liquidity
Our primary source of liquidity has been cash generated from our operating activities, primarily from net income and fluctuations in working capital. Our working capital is affected by the timing of payments for employee and agent incentives, interest payments on our outstanding borrowings, and timing of income tax payments, among other items. Many of our annual employee incentive compensation and agent incentive payments are made in the first quarter following the year they were incurred. The majority of our interest payments are due in the second and fourth quarters, which results in a decrease in the amount of cash provided by operating activities in those quarters and a corresponding increase to the first and third quarters. The annual payments resulting from the United States tax reform legislation enacted in 2017 (the “Tax Act”) include amounts related to the United States taxation of certain previously undistributed earnings of foreign subsidiaries. These payments are due in the second quarter of each year through 2025.
Our future cash flows could be impacted by a variety of factors, some of which are out of our control. These factors include, but are not limited to, changes in economic conditions, especially those impacting migrant populations, changes in income tax laws or the status of income tax audits, including the resolution of outstanding tax matters, and the settlement or resolution of legal contingencies.
Substantially all of our cash flows from operating activities have been generated from subsidiaries. Most of these cash flows are generated from our regulated subsidiaries. Our regulated subsidiaries may transfer all excess cash to the parent company for general corporate use, except for assets subject to legal or regulatory restrictions, including: (i) requirements to maintain cash and other qualifying investment balances, free of any liens or other encumbrances, related to the payment of certain of our money transfer and other payment obligations, (ii) other legal or regulatory restrictions, including statutory or formalized minimum net worth requirements, and (iii) restrictions on transferring assets outside of the countries where these assets are located.
We currently believe we have adequate liquidity to meet our business needs, including payments under our debt and other obligations, through our existing cash balances, our ability to generate cash flows through operations, and our $1.5 billion revolving credit facility (“Revolving Credit Facility”), which expires in January 2025 and supports our commercial paper program. Our commercial paper program enables us to issue unsecured commercial paper notes in an amount not to exceed $1.5 billion outstanding at any time, reduced to the extent of any borrowings outstanding on our Revolving Credit Facility. As of December 31, 2022, we had no outstanding borrowings on our Revolving Credit Facility and $180.0 million of outstanding borrowings on the commercial paper program.
To help ensure availability of our worldwide cash where needed, we utilize a variety of planning and financial strategies, including decisions related to the amounts, timing, and manner by which cash is repatriated or otherwise made available from our international subsidiaries. These decisions can influence our overall tax rate and impact our total liquidity. We regularly evaluate our United States cash requirements, taking tax consequences and other factors into consideration and also the potential uses of cash internationally to determine the appropriate level of dividend repatriations of our foreign source income.
Cash and Investment Securities
As of December 31, 2022 and 2021, we had Cash and cash equivalents of $1,291.1 million and $1,246.0 million, which includes $5.2 million and $37.7 million related to Business Solutions, respectively. As described in Part II, Item 8, Financial Statements and Supplementary Data, Note 5, Divestitures, Investment Activities, and Goodwill, we collected the entire cash consideration related to the sale of our Business Solutions business, subject to regulatory approval and other closing conditions. We invested a portion of these proceeds temporarily in reverse repurchase agreements, as discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 9, Fair Value Measurements.
In many cases, we receive funds from money transfers and certain other payment services before we settle the payment of those transactions. These funds, referred to as Settlement assets on our Consolidated Balance Sheets, are not used to support our operations. However, we earn income from investing these funds. We maintain a portion of these settlement assets in highly liquid investments, classified as Cash and cash equivalents within Settlement assets, to fund settlement obligations.
Investment securities, classified within Settlement assets on the Consolidated Balance Sheets, were $1,333.4 million and $1,398.9 million as of December 31, 2022 and 2021, respectively, and consist primarily of highly-rated state and municipal debt securities. These investment securities are held in order to comply with state licensing requirements in the United States and are required to have credit ratings of “A-” or better from a major credit rating agency. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 8, Settlement Assets and Obligations for more details regarding investment securities.
Investment securities are exposed to market risk due to changes in interest rates and credit risk. We regularly monitor credit risk and attempt to mitigate our exposure by investing in highly-rated securities and diversifying our investment portfolio. Our investment securities are also actively managed with respect to concentration. As of December 31, 2022, all investments with a single issuer and each individual security represented less than 10% of our investment securities portfolio.
Cash Flows from Operating Activities
Cash provided by operating activities for the year ended December 31, 2022 decreased to $581.6 million from $1,045.3 million for the year ended December 31, 2021. Excluding the gain on the sale of the Business Solutions business, as the pre-tax proceeds from this divestiture are reflected in Cash provided by investing activities, net income would have decreased for the year ended December 31, 2022, which resulted in a decrease to cash provided by operating activities. In addition, Cash provided by operating activities for the year ended December 31, 2022 was negatively impacted by higher income taxes paid, including those related to the gain on the sale of the Business Solutions business. Cash provided by operating activities is also impacted by fluctuations in our working capital balances, among other factors.
Financing Resources
As of December 31, 2022, we had the following outstanding borrowings (in millions):
Commercial paper
$
180.0
Notes:
4.250% notes due 2023(a)
300.0
2.850% notes due 2025(a)
500.0
1.350% notes due 2026(a)
600.0
2.750% notes due 2031(a)
300.0
6.200% notes due 2036(a)
500.0
6.200% notes due 2040(a)
250.0
Total borrowings at par value
2,630.0
Debt issuance costs and unamortized discount, net
(13.2
)
Total borrowings at carrying value(b)
$
2,616.8
(a)The difference between the stated interest rate and the effective interest rate is not significant.
(b)As of December 31, 2022, our weighted-average effective rate on total borrowings was approximately 3.9%.
Commercial Paper Program
Pursuant to our commercial paper program, we may issue unsecured commercial paper notes in an amount not to exceed $1.5 billion outstanding at any time, reduced to the extent of borrowings outstanding on our Revolving Credit Facility. Our commercial paper borrowings may have maturities of up to 397 days from date of issuance. Interest rates for borrowings are based on market rates at the time of issuance. As of December 31, 2022 and 2021, we had $180.0 million and $275.0 million in commercial paper borrowings outstanding, respectively. Our commercial paper borrowings as of December 31, 2022 had a weighted-average annual interest rate of approximately 4.6% and a weighted-average term of approximately 3 days. During the years ended December 31, 2022 and 2021, the average commercial paper balance outstanding was $192.9 million and $140.0 million, respectively, and the maximum balance outstanding was $725.0 million and $575.0 million, respectively. Proceeds from our commercial paper borrowings were used for general corporate purposes and working capital needs.
Revolving Credit Facility
On December 18, 2018, we entered into a credit agreement providing for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility, with a final maturity date of January 8, 2025. On October 31, 2022, we amended our Revolving Credit Facility to transition away from the London Interbank Offered Rate and allow us to draw loans payable based upon the Secured Overnight Financing Rate, the Euro Interbank Offered Rate, or the Sterling Overnight Index Average.
Interest due under the Revolving Credit Facility is fixed for the term of each borrowing and is payable according to the terms of that borrowing. Generally, interest is calculated using a selected term benchmark rate plus an interest rate margin of 110 basis points. A facility fee is also payable quarterly at an annual rate of 15 basis points on the total facility, regardless of usage. Both the interest rate margin and facility fee percentage are based on certain of our credit ratings.
The purpose of our Revolving Credit Facility, which is diversified through a group of 19 participating institutions, is to provide general liquidity and to support our commercial paper program, which we believe enhances our short-term credit rating. The largest commitment from any single financial institution within the total committed balance of $1.5 billion is approximately 11%. As of December 31, 2022 and 2021, we had no outstanding borrowings under our Revolving Credit Facility. If the amount available to borrow under the Revolving Credit Facility decreased, or if the Revolving Credit Facility were eliminated, the cost and availability of borrowing under the commercial paper program may be impacted.
Term Loan Facility
On December 18, 2018, we entered into an amended and restated term loan facility providing for up to $950.0 million in borrowings and extending the final maturity of the facility to January 2024 (the "Term Loan Facility"). In the first quarter of 2021, we repaid $650.0 million of the Term Loan Facility. On January 4, 2022, we repaid all remaining borrowings owed under the Term Loan Facility for total consideration of $300.0 million, using proceeds from our commercial paper and cash, including cash generated from operations. We are no longer able to borrow money under this facility.
Notes
For a discussion regarding the terms and maturities of our notes, please refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 16, Borrowings.
Credit Ratings and Debt Covenants
The credit ratings on our debt are an important consideration in our overall business, 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 the overall business.
Our Revolving Credit Facility contains interest rate margins which are determined based on certain of our credit ratings and also contains a facility fee that is based on our credit ratings. In addition, the interest rates payable on our notes due in 2023, 2025, 2026, and 2031 can be impacted by our credit ratings. We are also subject to certain provisions in many
of our notes and certain of our derivative contracts, which could require settlement or collateral posting in the event of a change in control combined with a downgrade below investment grade, as further described below. We do not have any other terms within our debt agreements that are tied to changes in our credit ratings.
The Revolving Credit Facility contains covenants, subject to certain exceptions, that, among other things, limit or restrict our ability to sell or transfer assets or merge or consolidate with another company, grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into sale and leaseback transactions, incur certain subsidiary level indebtedness, or use proceeds in violation of anti-corruption or anti-money laundering laws. Our notes are subject to similar covenants except that only the notes due in 2036 contain covenants limiting or restricting subsidiary indebtedness, and none of our notes are subject to a covenant that limits our ability to impose restrictions on subsidiary dividends. Our Revolving Credit Facility requires us to maintain a consolidated adjusted Earnings before Interest, Taxes, Depreciation, and Amortization ("EBITDA") interest coverage ratio of greater than 3:1 (ratio of consolidated adjusted EBITDA, defined as net income/(loss) plus the sum of (i) interest expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, (v) any other non-cash deductions, losses or charges made in determining net income/(loss) for such period, and (vi) extraordinary, non-recurring, or unusual losses or charges (including costs and expenses of litigation included in operating income), minus extraordinary, non-recurring or unusual gains provided that the amount added back to net income (or net loss) for such extraordinary, non-recurring or unusual losses, expenses or charges may not exceed 10% of adjusted EBITDA, in each case determined in accordance with United States generally accepted accounting principles for such period, to interest expense) for each period comprising the four most recent consecutive fiscal quarters. Our consolidated interest coverage ratio was 11:1 for the year ended December 31, 2022.
For the year ended December 31, 2022, we were in compliance with our debt covenants. A violation of our debt covenants could impair our ability to borrow, and outstanding amounts borrowed could become due, thereby restricting our ability to use our excess cash for other purposes.
Certain of our notes (including our notes due in 2023, 2025, 2026, 2031, and 2040) include a change of control triggering event provision, as defined in the terms of the notes. If a change of control triggering event occurs, holders of the notes may require us to repurchase some or all of their notes at a price equal to 101% of the principal amount of their notes, plus any accrued and unpaid interest. A change of control triggering event will occur when there is a change of control involving us and, among other things, within a specified period in relation to the change of control, the notes are downgraded from an investment grade rating to below an investment grade rating by certain major credit rating agencies.
Cash Priorities
Liquidity
Our objective is to maintain strong liquidity and a capital structure consistent with investment-grade credit ratings. We have existing 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.
Our ability to grow the business, make investments in our business, make acquisitions, return capital to shareholders, including through dividends and share repurchases, and service our debt and tax obligations will depend on our ability to continue to generate excess operating cash through our operating subsidiaries and to continue to receive dividends from those operating subsidiaries, our ability to obtain adequate financing, and our ability to identify acquisitions that align with our long-term strategy. For additional information, please refer to Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Capital Expenditures
The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $208.2 million and $214.6 million in 2022 and 2021, respectively. Amounts paid for new and renewed agent contracts vary depending on the terms of existing contracts as well as the timing of new and renewed contract signings. Other capital expenditures during these periods included investments in our information technology infrastructure.
Share Repurchases and Dividends
During the years ended December 31, 2022 and 2021, 22.3 million and 19.5 million shares, respectively, have been repurchased for $351.8 million and $400.0 million, respectively, excluding commissions, at an average cost of $15.81 and $20.56, respectively, under the share repurchase authorizations approved by our Board of Directors, including one which expired on December 31, 2021. On February 10, 2022, our Board of Directors authorized $1.0 billion of common stock repurchases through December 31, 2024. As of December 31, 2022, $648.2 million remained available under this share repurchase program.
Our Board of Directors declared quarterly cash dividends of $0.235 per common share in all four quarters of 2022 and 2021, representing $361.6 million and $380.5 million in total dividends, respectively. These amounts were paid to shareholders of record in the respective quarter the dividend was declared.
On February 7, 2023, the Board of Directors declared a quarterly cash dividend of $0.235 per common share payable on March 31, 2023.
Material Cash Requirements
Debt Service Requirements
Notes with an aggregate principal amount of $300.0 million will mature in June 2023. We may repay this maturity through proceeds from commercial paper issuance and cash, including cash generated from operations, or we may refinance this maturity through the issuance of term debt.
As of December 31, 2022, the total projected interest payments on outstanding borrowings were $845.7 million, of which $83.5 million is expected to be paid in the next 12 months. We have estimated our future interest payments based on the assumption that no debt issuances or renewals will occur upon the maturity dates of our notes. However, we may refinance all or a portion of our borrowings in future periods.
2017 United States Federal Tax Liability
The Tax Act imposed a tax on certain of our previously undistributed foreign earnings. This tax charge, combined with our other 2017 United States taxable income and tax attributes, resulted in a 2017 United States federal tax liability of approximately $800 million, of which approximately $478 million remained as of December 31, 2022. We elected to pay this liability in periodic installments through 2025. Under the terms of the law, we owe 15% of the original liability in 2023, with 20% and 25% of the tax owed in 2024 and 2025, respectively. During the years ended December 31, 2022 and 2021, we made installment payments of $63.7 million and $63.4 million, respectively. These payments have affected and will continue to adversely affect our cash flows and liquidity and may adversely affect future share repurchases.
Operating Leases
We lease real properties for use as administrative and sales offices, in addition to transportation, office, and other equipment. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 13, Leases for details on our leasing arrangements, including future maturities of our operating lease liabilities.
Foreign Currency Derivative Contracts
We use derivatives to minimize our exposures related to changes in foreign currency exchange rates, which fluctuate based on market conditions. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 15, Derivatives. The substantial majority of these derivative contracts relate to our Business Solutions segment, which facilitates cross-currency payments by writing derivatives to customers, and a majority of these derivative contracts have a duration at inception of less than one year.
Purchase Obligations
A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms. As of December 31, 2022, we had approximately $240 million of outstanding purchase obligations, of which approximately $140 million is expected to be paid in the next 12 months. Many of our contracts contain clauses that allow us to terminate the contract with notice and with a termination penalty. Termination penalties are generally an amount less than the original obligation. Obligations under certain contracts are usage-based and are, therefore, estimated in the above amounts. Historically, we have not had any significant defaults on our contractual obligations or incurred significant penalties for termination of our contractual obligations.
We have no material off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.
Pension Plan
On July 22, 2021, our Board of Directors approved a plan to terminate and settle our frozen defined benefit pension plan (the "Plan"). Upon settlement in the fourth quarter of 2021, we transferred Plan assets to an insurance company that will provide for and pay the remaining benefits to participants. We incurred approximately $109.8 million of charges associated with this settlement in the prior year. The pre-tax balance in Accumulated other comprehensive loss associated with the Plan, along with costs related to the settlement, were recorded as a component of Total other income/(expense), net, with the related income tax effects recorded in Provision for income taxes, in the Consolidated Statements of Income.
Other Commercial Commitments
We had approximately $390 million in outstanding letters of credit and bank guarantees as of December 31, 2022 primarily held in connection with regulatory requirements, lease arrangements, and certain agent agreements. We expect to renew many of our letters of credit and bank guarantees prior to expiration.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of results of operations and financial condition is based on our consolidated financial statements that have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities, and other related disclosures. Actual results may or may not differ from these estimates. Our significant accounting policies are discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies.
Our critical accounting policies and estimates, described below, are very important to the portrayal of our financial condition and our results of operations, and applying them requires our management to make difficult, subjective, and complex judgments. We believe that the understanding of these key accounting policies and estimates is essential in achieving more insight into our operating results and financial condition.
Income Taxes
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 the required analyses and judgments.
The determination of our worldwide provision for income taxes requires significant judgment. We routinely receive, and may in the future receive, questions from taxing authorities on various tax-related assertions. In many of these instances, the ultimate tax determination is uncertain, given the complexities in interpreting tax laws and applying our facts and circumstances to these laws in many jurisdictions throughout the world.
We recognize the tax benefit from an uncertain tax position only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
We have established contingency reserves for a variety of material, known tax exposures. Our tax reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve. With respect to these reserves, our income tax expense would include: (i) any changes in tax reserves arising from material changes in facts and circumstances (i.e., new information) surrounding a tax issue during the period and (ii) any difference from our tax position as recorded in the consolidated financial statements and the final resolution of a tax issue during the period.
Our tax contingency reserves for our uncertain tax positions as of December 31, 2022 were $237.2 million, including accrued interest and penalties, net of related items. While we believe that our reserves are adequate to cover reasonably expected tax risks, in the event that the ultimate resolution of our uncertain tax positions differs from our estimates, we may be exposed to material increases in income tax expense, which could materially impact our financial condition, results of operations, and cash flows. Furthermore, the timing of any related cash payments for these tax liabilities is inherently uncertain and is affected by variable factors outside our control.
Derivative Financial Instruments
We have used derivatives to: (i) minimize our exposures related to changes in foreign currency exchange rates and, periodically, interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers. We recognize all derivatives in our Consolidated Balance Sheets at their fair value. Certain of our derivative arrangements are designated as cash flow hedges at the time of inception while those that do not qualify for cash flow hedge accounting are not designated as accounting hedges.
Cash flow hedges consist of foreign currency hedging of forecasted revenues, as well as hedges of the forecasted issuance of fixed-rate debt. Derivative fair value changes that are captured in Accumulated other comprehensive loss
("AOCL") are reclassified to earnings in the same period the hedged item affects earnings when the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged.
The accounting guidance related to derivative accounting is complex and contains strict documentation requirements. The details of each designated hedging relationship must be formally documented at the inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks being hedged, the derivative instrument, and how effectiveness is being assessed. The derivative must be highly effective in offsetting the changes in cash flows of the hedged item, and effectiveness is evaluated quarterly on a retrospective and prospective basis. If the hedge is no longer deemed effective, we discontinue applying hedge accounting to that relationship on a prospective basis.
We have foreign currency and interest rate accounting hedges that are designated as cash flow hedges. If these hedges no longer qualify under hedge accounting, the change in the fair value of these derivatives would be reflected into earnings, which could have a significant impact on our reported results. As of December 31, 2022, the cumulative pre-tax unrealized gain currently classified within AOCL that would be reflected in earnings if these hedges were disqualified from hedge accounting was $26.0 million.
Goodwill
Goodwill represents the excess of purchase price over the fair value of tangible and other intangible assets acquired less liabilities assumed, arising from business combinations. An impairment assessment of goodwill is conducted annually during our fourth quarter at the reporting unit level. This assessment of goodwill is performed more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable. Reporting units are determined by the level at which management reviews segment operating results. In some cases, that level is the operating segment, and in others, it is one level below the operating segment.
Our impairment assessment typically begins with a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. The initial qualitative assessment includes comparing the overall financial performance of the reporting unit against the planned results. Additionally, each reporting unit’s fair value is assessed under certain events and circumstances, including macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity-specific events. Periodically, we perform a quantitative assessment, as described below, for each of our reporting units, regardless of the results of prior qualitative assessments.
If we determine in the qualitative assessment that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then we estimate the fair value of the reporting unit using discounted cash flows and compare the estimated fair value to its carrying value. If the carrying value exceeds the fair value of the reporting unit, then an impairment is recognized for the difference. Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, for further discussion regarding our accounting policies for goodwill and any related impairments.
The determination of the reporting units and which reporting units to include in the qualitative assessment requires significant judgment. Also, all of the assumptions used in the qualitative assessment require judgment. Additionally, for the quantitative goodwill impairment test, we calculate the fair value of reporting units through discounted cash flow analyses which require us to make estimates and assumptions including, among other items, revenue growth rates, operating margins, and capital expenditures based on our budgets and business plans. Development of such estimates and assumptions and the resultant fair value takes into consideration expected regulatory, marketplace, and other economic factors as well as relevant discount rates and terminal values.
We could be required to evaluate the recoverability of goodwill if we experience disruptions to the business, unexpected significant declines in operating results, a divestiture of a significant component of our business, or other triggering events. In addition, as our business or the way we manage our business changes, our reporting units may also change. If an event described above occurs and causes us to recognize a goodwill impairment charge, it would impact our reported earnings in the period such charge occurs.
The carrying value of goodwill as of December 31, 2022 was $2,096.0 million, which represented approximately 25% of our consolidated assets. As of December 31, 2022, goodwill of $1,980.7 million and $61.4 million resides in our Consumer-to-Consumer and Business Solutions reporting units, respectively, while the remaining $53.9 million resides in
Other. For the years ended December 31, 2022 and 2021, we did not record any goodwill impairments. For the reporting units that comprise Consumer-to-Consumer and Other, the fair values of the businesses significantly exceed their carrying amounts. On August 4, 2021, we entered into an agreement to sell our Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC, and this business is expected to be fully divested in the second quarter of 2023, as described in Part II, Item 8, Financial Statements and Supplementary Data, Note 5, Divestitures, Investment Activities, and Goodwill. As of December 31, 2022, the goodwill related to the Business Solutions reporting unit is included in Assets held for sale on the Consolidated Balance Sheets.
Other Intangible Assets
We capitalize acquired intangible assets as well as certain initial payments for new and renewed agent contracts and software. We evaluate such intangible assets for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. In such reviews, estimated undiscounted cash flows associated with these assets or operations are compared with their carrying amounts to determine if a write-down to fair value (normally measured by the present value technique) is required.
The capitalization of initial payments for new and renewed agent contracts is subject to strict accounting policy criteria and requires management judgment as to the amount to capitalize and the related period of benefit. 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 we would receive in the event of early termination of the contract. Additionally, the estimated undiscounted cash flows associated with each asset requires us to make estimates and assumptions, including, among other things, revenue growth rates and operating margins based on our budgets and business plans.
Disruptions to contractual relationships, significant declines in cash flows or transaction volumes associated with contracts, or other issues significantly impacting the future cash flows associated with the contract would cause us to evaluate the recoverability of the asset and could result in an impairment charge. The net carrying value of our other intangible assets as of December 31, 2022 was $459.3 million and includes $1.4 million of other intangibles related to the Business Solutions business, which is classified as held for sale. During the years ended December 31, 2022 and 2021, we recorded immaterial impairments related to other intangible assets.
Recent Accounting Pronouncements
Refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies for further discussion.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from 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 our services primarily through a network of agent locations in more than 200 countries and territories. We manage foreign exchange risk through the structure of the business and an active risk management process. We currently settle with the significant majority of our agents in United States dollars, Mexican pesos, or euros, requiring those agents to obtain local currency to pay recipients, and we generally do not rely on international currency markets to obtain and pay illiquid currencies. However, in certain circumstances, we settle in other currencies. The foreign currency exposure that does exist is limited by the fact that the majority of transactions are paid by the next day after they are initiated, and agent settlements occur within a few days in most instances. To mitigate this risk further, we enter into short duration foreign currency forward contracts, generally with maturities ranging from a few days to one month, to offset foreign exchange rate fluctuations between transaction initiation and settlement. We also have exposure to certain foreign currency denominated cash and other asset and liability positions and may utilize foreign currency forward contracts, typically with maturities of less than one year at inception, to offset foreign exchange rate fluctuations on these positions. In certain consumer money transfer and bill payment transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer or business and a rate available in the wholesale foreign exchange market, helping to provide protection against currency fluctuations. We attempt to promptly buy and sell foreign currencies as necessary to cover our net payables and receivables which are denominated in foreign currencies.
We use longer-term foreign currency forward contracts to help mitigate risks associated with changes in foreign currency exchange rates on revenues denominated primarily in the euro, and, to a lesser degree, the British pound, the Canadian dollar, and other currencies. We use contracts with maturities of up to 36 months at inception to mitigate some of the impact that changes in foreign currency exchange rates could have on forecasted revenues, with a targeted weighted-average maturity of approximately one year. We believe the use of longer-term foreign currency forward contracts provides predictability of future cash flows from our international operations.
As of December 31, 2022, a hypothetical uniform 10% strengthening or weakening in the value of the United States dollar relative to all other currencies in which our net income is generated would have resulted in a decrease/increase to pre-tax annual income of approximately $40 million, based on our forecast of unhedged exposure to foreign currency at that date. There are inherent limitations in this sensitivity analysis, primarily due to the following assumptions: (i) foreign exchange rate movements are linear and instantaneous, (ii) fixed exchange rates between certain currency pairs are retained, (iii) the unhedged exposure is static, and (iv) we would not hedge any additional exposure. As a result, the analysis is unable to reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect income.
Interest Rates
We invest in several types of interest-bearing assets, with a total value as of December 31, 2022 of approximately $2.7 billion. Approximately $1.6 billion of these assets bear interest at floating rates. These assets primarily include cash in banks, money market investments, state and municipal variable-rate securities, and reverse repurchase agreements and are included in our Consolidated Balance Sheets within Cash and cash equivalents, Settlement assets, and Other assets. To the extent these assets are held in connection with money transfers and other related payment services awaiting redemption, they are classified as Settlement assets. Earnings on these investments will increase and decrease with changes in the underlying short-term interest rates.
The remaining interest-bearing assets pay fixed interest rates and primarily consist of highly-rated state and municipal debt securities and asset-backed securities. These investments may include investments made from cash received from our money order services, money transfer business, and other related payment services awaiting redemption and are classified within Settlement assets in the Consolidated Balance Sheets. As interest rates rise, the fair value of these fixed-rate interest-bearing securities will decrease; conversely, a decrease to interest rates would result in an increase to the fair values of the
securities. We have classified these investments as available-for-sale within Settlement assets in the Consolidated Balance Sheets, and accordingly, recorded these instruments at their fair value with the net unrealized gains and losses, net of the applicable deferred income tax effect, being added to or deducted from our Total stockholders' equity in our Consolidated Balance Sheets.
Borrowings under our commercial paper program mature in such a short period that the financing is also effectively floating rate. As of December 31, 2022, there were $180.0 million in outstanding borrowings under our commercial paper program.
We review our overall exposure to floating and fixed rates by evaluating our net asset or liability position and the duration of each individual position. We manage this mix of fixed versus floating exposure in an attempt to minimize risk, reduce costs, and improve returns. Our exposure to interest rates can be modified by changing the mix of our interest-bearing assets as well as adjusting the mix of fixed versus floating rate debt. The latter is accomplished primarily through the use of interest rate swaps and the decision regarding terms of any new debt issuances (i.e., fixed versus floating). From time to time, we use interest rate swaps designated as hedges to vary the percentage of fixed to floating rate debt, subject to market conditions, although there were no such swaps outstanding as of December 31, 2022. As of December 31, 2022, our weighted-average effective rate on total borrowings was approximately 3.9%.
A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to annual pre-tax income of approximately $2 million based on borrowings that are sensitive to interest rate fluctuations, net of the impact of hedges, on December 31, 2022. The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on December 31, 2022 that bear interest at floating rates, would result in an offsetting increase/decrease to annual pre-tax income of approximately $16 million. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumptions that interest rate changes would be instantaneous and consistent across all geographies in which our interest-bearing assets are held and our liabilities are payable. As a result, the analysis is unable to reflect the potential effects of more complex market changes, including changes in credit risk regarding our investments, which may positively or negatively affect income. In addition, the mix of fixed versus floating rate debt and investments and the level of assets and liabilities will change over time, including the impact from commercial paper borrowings that may be outstanding in future periods.
Credit Risk
To manage our exposures to credit risk with respect to investment securities, money market fund investments, derivatives, and other credit risk exposures resulting from our relationships with banks and financial institutions, we regularly review investment concentrations, trading levels, credit spreads, and credit ratings, and we attempt to diversify our investments among global financial institutions.
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. We perform a credit review before each agent signing and conduct periodic analyses of agents and certain other parties we transact with directly. In addition, we are exposed to losses directly from consumer transactions, particularly through our digital channels, where transactions are originated through means other than cash and are therefore subject to “chargebacks,” insufficient funds, or other collection impediments, such as fraud, which are anticipated to increase as digital channels become a greater proportion of our money transfer business.
Our losses have been less than 2% of our consolidated revenues in all periods presented.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. Financial Statements and Supplementary Data
THE WESTERN UNION COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Statements of Income for each of the three years in the period ended December 31, 2022
Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2022
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2022
Consolidated Statements of Stockholders’ Equity/(Deficit) for each of the three years in the period ended December 31, 2022
Notes to Consolidated Financial Statements
Schedule I - Condensed Financial Information of the Registrant (Parent Company Only)
All other financial statement schedules for The Western Union Company have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the respective consolidated financial statements or notes thereto.
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’s (“Western Union” or the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Western Union’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Western Union’s internal control over financial reporting as of December 31, 2022, utilizing the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework). Based on the results of its evaluation, the Company’s management concluded that as of December 31, 2022, the Company’s internal control over financial reporting is effective. Western Union’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, Western Union’s independent registered public accounting firm, as stated in their attestation report included in this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of The Western Union Company
Opinion on Internal Control Over Financial Reporting
We have audited The Western Union Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Western Union Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity/(deficit) for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 23, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Denver, Colorado
February 23, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of The Western Union Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Western Union Company (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity/(deficit) for each of the three years in the period ended December 31, 2022 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 23, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Business Solutions divestiture
Description of the matter
As described in Note 5 to the consolidated financial statements, the Company entered into an agreement in August 2021 to sell its Business Solutions business for cash consideration of $910.0 million. The sale is being completed in multiple closings, with the entire cash consideration collected at the first closing and allocated to the closings on a relative fair value basis. The first closing occurred on March 1, 2022, excluded the operations in the European Union and the United Kingdom, and resulted in a gain of $151.4 million. The second closing, comprising the operations in the United Kingdom, occurred on December 31, 2022, and resulted in a gain of $96.9 million. The remaining assets of the Business Solutions business have been presented as held for sale, along with the associated liabilities, and the proceeds allocated to these operations of approximately $104 million have been classified within Other liabilities in the Consolidated Balance Sheets.
Auditing the Business Solutions divestiture was especially challenging given the judgment required to determine the allocation of proceeds to the multiple closings and the complexity of international tax laws considered in determining the appropriate income tax accounting for the transaction.
How we Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for the Business Solutions divestiture. For example, we tested controls over management's review of the accounting treatment of the transaction and calculating the gain on sale.
Our audit procedures included, among others, inspecting the transaction agreement, assessing the reasonableness of judgments, testing the accuracy of the gain on sale calculation and evaluating the adequacy of the Company's disclosures related to the Business Solutions divestiture. For example, we evaluated the appropriateness of the Company’s methodology and related judgments for allocating proceeds to the multiple closings and performed sensitivity analyses of significant assumptions to evaluate changes in the fair value of the divestiture components resulting from changes in the assumptions. In addition, we tested the Company’s separation of Business Solutions assets and liabilities by inspecting the Company’s accounting records and evaluating for consistency with the terms of the transaction agreement. We also involved our tax professionals, including those with jurisdictional expertise, in evaluating the appropriateness of the Company’s accounting for the income tax effects of the transaction, taking into consideration our knowledge of and experience with the application of international and local income tax laws by the relevant income tax authorities.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Denver, Colorado
February 23, 2023
THE WESTERN UNION COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
Year Ended December 31,
Revenues
$
4,475.5
$
5,070.8
$
4,835.0
Expenses:
Cost of services
2,626.4
2,896.4
2,826.5
Selling, general, and administrative
964.2
1,051.3
1,041.2
Total expenses(a)
3,590.6
3,947.7
3,867.7
Operating income
884.9
1,123.1
967.3
Other income/(expense):
Gain on divestiture of business (Note 5)
248.3
-
-
Gain on sale of noncontrolling interest in a private company (Note 5)
-
47.9
-
Pension settlement charges (Note 12)
-
(109.8
)
-
Interest income
13.9
1.4
3.2
Interest expense
(101.0
)
(105.5
)
(118.5
)
Other income/(expense), net
(37.5
)
(21.7
)
3.1
Total other income/(expense), net
123.7
(187.7
)
(112.2
)
Income before income taxes
1,008.6
935.4
855.1
Provision for income taxes
98.0
129.6
110.8
Net income
$
910.6
$
805.8
$
744.3
Earnings per share:
Basic
$
2.35
$
1.98
$
1.81
Diluted
$
2.34
$
1.97
$
1.79
Weighted-average shares outstanding:
Basic
387.2
406.8
412.3
Diluted
388.4
408.9
415.2
(a)As further described in Note 7, total expenses include amounts incurred with related parties of $48.8 million, $54.7 million, and $54.6 million for the years ended December 31, 2022, 2021, and 2020, respectively.
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31,
Net income
$
910.6
$
805.8
$
744.3
Other comprehensive income, net of reclassifications and tax (Note 14):
Unrealized gains/(losses) on investment securities
(99.8
)
(27.9
)
33.6
Unrealized gains/(losses) on hedging activities
1.8
49.2
(26.9
)
Foreign currency translation adjustments
(17.8
)
-
-
Defined benefit pension plan adjustments (Note 12)
-
86.1
42.8
Total other comprehensive income/(loss)
(115.8
)
107.4
49.5
Comprehensive income
$
794.8
$
913.2
$
793.8
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
December 31,
Assets
Cash and cash equivalents
$
1,285.9
$
1,208.3
Settlement assets
3,486.8
2,843.5
Property and equipment, net of accumulated depreciation of $512.8 and $650.4, respectively
109.6
129.4
Goodwill
2,034.6
2,034.6
Other intangible assets, net of accumulated amortization of $616.3 and $731.8, respectively
457.9
417.1
Other assets
859.9
737.7
Assets held for sale (Note 5)
261.6
1,452.9
Total assets
$
8,496.3
$
8,823.5
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities
$
464.0
$
450.2
Settlement obligations
3,486.8
2,843.5
Income taxes payable
725.3
870.7
Deferred tax liability, net
158.5
203.8
Borrowings
2,616.8
3,008.4
Other liabilities
384.6
269.4
Liabilities associated with assets held for sale (Note 5)
182.5
821.9
Total liabilities
8,018.5
8,467.9
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
-
-
Common stock, $0.01 par value; 2,000 shares authorized; 373.5 shares and 393.8 shares issued and outstanding as of December 31, 2022 and 2021, respectively
3.7
3.9
Capital surplus
995.9
941.0
Accumulated deficit
(353.9
)
(537.2
)
Accumulated other comprehensive loss
(167.9
)
(52.1
)
Total stockholders' equity
477.8
355.6
Total liabilities and stockholders' equity
$
8,496.3
$
8,823.5
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31,
Cash flows from operating activities
Net income
$
910.6
$
805.8
$
744.3
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
42.7
49.6
61.3
Amortization
141.1
158.6
164.3
Pension settlement charges (Note 12)
-
109.8
-
Gain on divestiture of business, excluding transaction costs (Note 5)
(254.8
)
-
-
Gain on the sale of noncontrolling interest in a private company (Note 5)
-
(47.9
)
-
Deferred income tax provision/(benefit) (Note 11)
(26.7
)
(2.6
)
13.9
Other non-cash items, net
115.4
149.6
145.8
Increase/(decrease) in cash, excluding the effects of divestitures, resulting from changes in:
Other assets
(209.2
)
(73.0
)
(44.4
)
Accounts payable and accrued liabilities
42.6
(24.8
)
(96.6
)
Income taxes payable (Note 11)
(152.7
)
(56.2
)
(94.4
)
Other liabilities
(27.4
)
(23.6
)
(16.7
)
Net cash provided by operating activities
581.6
1,045.3
877.5
Cash flows from investing activities
Payments for capitalized contract costs
(71.9
)
(107.5
)
(69.1
)
Payments for internal use software
(104.4
)
(69.4
)
(51.2
)
Purchases of property and equipment
(31.9
)
(37.7
)
(36.5
)
Purchases of settlement investments
(1,160.0
)
(433.0
)
(6,421.1
)
Proceeds from the sale of settlement investments
919.3
755.3
5,978.4
Maturities of settlement investments
169.7
229.7
182.6
Proceeds from the sale of former corporate headquarters and other property (Note 5)
-
-
49.4
Proceeds from the sale of noncontrolling interest in a private company (Note 5)
-
50.9
-
Purchase of noncontrolling interest in stc Bank (Note 5)
-
(200.0
)
-
Purchases of non-settlement investments (Note 9)
(400.0
)
-
-
Proceeds from the sale of non-settlement investments (Note 9)
300.0
-
-
Proceeds from divestiture, net of cash divested (Note 5)
887.2
-
-
Other investing activities
17.5
3.7
(6.0
)
Net cash (used in)/provided by investing activities
525.5
192.0
(373.5
)
Cash flows from financing activities
Cash dividends and dividend equivalents paid (Note 14)
(364.2
)
(381.6
)
(370.3
)
Common stock repurchased (Note 14)
(369.9
)
(409.9
)
(239.7
)
Net proceeds from/(repayments of) commercial paper
(95.0
)
195.0
(165.0
)
Net proceeds from issuance of borrowings
-
891.7
-
Principal payments on borrowings
(300.0
)
(1,150.0
)
-
Make-whole premium on early extinguishment of debt (Note 16)
-
(14.3
)
-
Proceeds from exercise of options
9.5
11.6
2.2
Net change in settlement obligations
(56.4
)
(412.2
)
587.6
Other financing activities
(1.3
)
0.2
(0.7
)
Net cash used in financing activities
(1,177.3
)
(1,269.5
)
(185.9
)
Net change in cash and cash equivalents, including settlement, and restricted cash
(70.2
)
(32.2
)
318.1
Cash and cash equivalents, including settlement, and restricted cash at beginning of period
2,110.9
2,143.1
1,825.0
Cash and cash equivalents, including settlement, and restricted cash at end of period
$
2,040.7
$
2,110.9
$
2,143.1
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
SUPPLEMENTAL CASH FLOW INFORMATION
(in millions)
Year Ended December 31,
Reconciliation of balance sheet cash and cash equivalents to cash flows:
Cash and cash equivalents on balance sheet
$
1,285.9
$
1,208.3
$
1,428.2
Settlement cash and cash equivalents (Note 8)
708.1
835.5
695.7
Restricted cash in Other assets
41.5
29.4
19.2
Cash and cash equivalents included in Assets held for sale (Note 5)
5.2
37.7
-
Cash and cash equivalents, including settlement, and restricted cash at end of period
$
2,040.7
$
2,110.9
$
2,143.1
Supplemental cash flow information:
Interest paid
$
97.2
$
101.6
$
109.6
Income taxes paid
$
279.8
$
185.9
$
187.3
Cash paid for lease liabilities
$
40.5
$
46.5
$
65.9
Non-cash lease liabilities arising from obtaining right-of-use assets (Note 13)
$
12.4
$
18.5
$
38.6
Internal use software capitalized but not yet paid
$
-
$
26.4
$
0.2
Accrued and unpaid capitalized contract costs
$
32.3
$
-
$
-
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
(in millions)
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 2)
-
-
-
(0.6
)
-
(0.6
)
Net income
-
-
-
744.3
-
744.3
Stock-based compensation
-
-
41.7
-
-
41.7
Common stock dividends and dividend equivalents declared ($0.90 per share)
-
-
-
(373.2
)
-
(373.2
)
Repurchase and retirement of common shares
(9.4
)
(0.1
)
-
(237.7
)
-
(237.8
)
Shares issued under stock-based compensation plans
2.6
-
2.2
-
-
2.2
Other comprehensive income (Note 14)
-
-
-
-
49.5
49.5
Balance, December 31, 2020
411.2
4.1
885.1
(543.1
)
(159.5
)
186.6
Net income
-
-
-
805.8
-
805.8
Stock-based compensation
-
-
44.3
-
-
44.3
Common stock dividends and dividend equivalents declared ($0.94 per share)
-
-
-
(384.8
)
-
(384.8
)
Repurchase and retirement of common shares
(20.1
)
(0.2
)
-
(415.1
)
-
(415.3
)
Shares issued under stock-based compensation plans
2.7
-
11.6
-
-
11.6
Other comprehensive income (Note 14)
-
-
-
-
107.4
107.4
Balance, December 31, 2021
393.8
3.9
941.0
(537.2
)
(52.1
)
355.6
Net income
-
-
-
910.6
-
910.6
Stock-based compensation
-
-
45.5
-
-
45.5
Common stock dividends and dividend equivalents declared ($0.94 per share)
-
-
-
(363.0
)
-
(363.0
)
Repurchase and retirement of common shares
(23.0
)
(0.3
)
-
(364.3
)
-
(364.6
)
Shares issued under stock-based compensation plans
2.7
0.1
9.4
-
-
9.5
Other comprehensive loss (Note 14)
-
-
-
-
(115.8
)
(115.8
)
Balance, December 31, 2022
373.5
$
3.7
$
995.9
$
(353.9
)
$
(167.9
)
$
477.8
See Notes to Consolidated Financial Statements.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (“Branded Digital”) and transactions initiated on internet and mobile applications hosted by the Company’s third-party white label or co-branded digital partners. 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 primarily sent from retail agent locations worldwide or through websites and mobile devices. 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 significant majority of the Business Solutions business relates to exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, in limited 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 LLC. The first closing occurred on March 1, 2022, the second occurred on December 31, 2022, and the third closing is expected in the second quarter of 2023. See Note 5 for further information regarding this transaction. The Buyer has rebranded the sold operations within a new standalone company (now referred to as "Convera").
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. Certain of the Company's 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 18 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, 2022, the Company's restricted net assets associated with these asset limitations and minimum capital requirements totaled approximately $710 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 financial statements in this Annual Report on Form 10-K are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consistent with industry practice, the accompanying 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.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America (“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.
Principles of Consolidation
The Company consolidates financial results when it has a controlling financial interest in a subsidiary via voting rights or when it has both the power to direct the activities of an entity that most significantly impact the entity’s economic performance and the ability to absorb losses or the right to receive benefits of the entity that could potentially be significant to the entity. The Company utilizes the equity method of accounting when it is able to exercise significant influence over an entity’s operations, which generally occurs when the Company has an ownership interest between 20% and 50%.
Earnings Per Share
The calculation of basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Outstanding options to purchase Western Union stock and unvested shares of restricted stock are excluded from basic shares outstanding. Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested, using the treasury stock method. The treasury stock method assumes proceeds from the exercise price of stock options and the unamortized compensation expense of options and restricted stock are available to acquire shares at an average market price throughout the period, and therefore, reduce the dilutive effect.
Shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding options to purchase shares of Western Union stock and restricted stock units, as the assumed proceeds of the options and restricted stock per unit were above the Company’s average share price during the periods and their effect was anti-dilutive, were 8.0 million, 2.3 million, and 1.6 million, respectively, of shares for the years ended December 31, 2022, 2021, and 2020.
The following table provides the calculation of diluted weighted-average shares outstanding (in millions):
Year Ended December 31,
Basic weighted-average shares outstanding
387.2
406.8
412.3
Common stock equivalents
1.2
2.1
2.9
Diluted weighted-average shares outstanding
388.4
408.9
415.2
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
The Company determines the fair values of its assets and liabilities that are recognized or disclosed at fair value in accordance with the hierarchy described below. The following three levels of inputs may be used to measure fair value:
•Level 1 - Quoted prices in active markets for identical assets or liabilities.
•Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. For most of these assets, the Company utilizes pricing services that use multiple prices as inputs to determine daily market values.
•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation. The Company holds assets classified as Level 3 that are recognized and disclosed at fair value on a non-recurring basis related to the Company’s business combinations, where the values of the intangible assets and goodwill acquired in a purchase are derived utilizing one of the three recognized approaches: 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, and settlement receivables and settlement obligations approximate fair value due to their short maturities. Available-for-sale investment securities, as further discussed in Notes 8 and 9, and derivative financial instruments, as further discussed in Notes 9 and 15, are carried at fair value. Fixed-rate notes are carried at their original issuance values and adjusted over time to amortize or accrete that value to par. The fair values of fixed-rate notes are disclosed in Note 9 and are based on market quotations.
The fair values of non-financial assets and liabilities related to the Company’s business combinations, as applicable, will be disclosed in Note 5.
Business Combinations
The Company accounts for all business combinations where control over another entity is obtained using the acquisition method of accounting, which requires that most assets (both tangible and intangible), liabilities (including contingent consideration), and remaining noncontrolling interests be recognized at fair value at the date of acquisition. The excess of the purchase price over the fair value of assets less liabilities and noncontrolling interests is recognized as goodwill. Certain adjustments to the assessed fair values of the assets, liabilities, or noncontrolling interests made subsequent to the acquisition date, but within the measurement period, which is one year or less, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded within Net income. Any cost or equity method interest that the Company holds in the acquired company prior to the acquisition is remeasured to fair value at acquisition with a resulting gain or loss recognized within Other income/(expense), net for the difference between fair value and existing book 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. The Company expenses all costs as incurred related to or involved with an acquisition in Selling, general, and administrative expenses.
Cash and Cash Equivalents
Highly liquid investments (other than those included in settlement assets) with maturities of three months or less at the date of purchase (that are readily convertible to cash) are considered cash equivalents and are stated at cost, which approximates fair value.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company maintains cash and cash equivalent balances, including a portion in money market funds, with a group of globally diversified banks and financial institutions. The Company limits the concentration of its cash and cash equivalents with any one institution and regularly reviews investment concentrations and credit worthiness of these institutions.
Allowance for Credit Losses
For the Company’s accounting policies with respect to the allowance for credit losses, refer to Note 8.
Settlement Assets and Obligations
Settlement assets represent funds received or to be received from agents and others for unsettled money transfers, money orders, and consumer payments. The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders, and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment. The Company has included the settlement assets and obligations related to the Business Solutions segment in the Assets held for sale and Liabilities associated with assets held for sale lines, respectively, of the Consolidated Balance Sheets.
Settlement assets consist of cash and cash equivalents, receivables from agents, Business Solutions customers, and others, and investment securities. Cash received by Western Union agents generally becomes available to the Company within one week after initial receipt by the agent. Cash equivalents consist of short-term time deposits, commercial paper, and other highly liquid investments. Receivables from agents represent funds collected by such agents, but in transit to the Company. Western Union has a large and diverse agent base, thereby reducing the Company’s credit risk from any one agent. The Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.
Receivables from Business Solutions customers arise from cross-currency payment transactions in the Business Solutions segment. Receivables occur when funds have been paid out to a beneficiary but not yet received from the customer. Collection of these receivables ordinarily occurs within a few days. To mitigate risk associated with potential Business Solutions customer defaults, the Company performs credit reviews on an ongoing basis.
Settlement obligations consist of money transfer, money order and payment service payables, and payables to agents. Money transfer payables represent amounts to be paid to transferees when they request their funds. Most agents typically settle with transferees first and then obtain reimbursement from the Company. Money order payables represent amounts not yet presented for payment. Payment service payables represent amounts to be paid to utility companies, auto finance companies, mortgage servicers, financial service providers, government agencies, and others. Due to the agent funding and settlement process, payables to agents represent amounts due to agents for money transfers that have been settled with transferees.
Refer to Note 8 for additional details on the Company’s settlement assets and obligations.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the lesser of the estimated life of the related assets (generally three to seven years for equipment and furniture and fixtures) or the lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and equipment consisted of the following (in millions):
December 31,
Equipment
$
464.6
$
607.7
Leasehold improvements and other
120.1
151.2
Furniture and fixtures
37.5
46.2
Projects in process
1.9
0.3
Total property and equipment, gross
624.1
805.4
Less accumulated depreciation
(513.8
)
(669.7
)
Property and equipment, net(a)
$
110.3
$
135.7
(a)As of December 31, 2022 and 2021, Property and equipment, net includes Assets held for sale of $0.7 million and $6.3 million, respectively, which consists of property and equipment of the Company's Business Solutions business, as further described in Note 5.
Amounts charged to expense for depreciation of property and equipment were $42.7 million, $49.6 million, and $61.3 million during the years ended December 31, 2022, 2021, and 2020, respectively.
Goodwill
Goodwill represents the excess of purchase price over the fair value of tangible and other intangible assets acquired less liabilities assumed, arising from business combinations. In the event a reporting unit’s carrying amount exceeds its fair value, the Company recognizes an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value. The Company’s annual impairment assessment did not identify any goodwill impairment during the years ended December 31, 2022, 2021, and 2020.
Other Intangible Assets
Other intangible assets primarily consist of contract costs (primarily amounts paid to agents in connection with establishing and renewing long-term contracts), software, and acquired contracts. Other intangible assets are generally amortized on a straight-line basis over the length of the contract or benefit period. Included in the Consolidated Statements of Income is amortization expense of $141.1 million, $158.6 million, and $164.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Acquired contracts include customer and contractual relationships and networks of subagents that are recognized in connection with the Company’s acquisitions.
The Company purchases and develops software that is used in providing services and in performing administrative functions. Internal and external software development costs incurred that are directly related to the chosen design, development, and testing phases of the software are capitalized once the Company has completed all planning and analysis activities. Any other software development related costs are expensed as incurred. Capitalization of costs ceases when the product is available for general use. Software development costs and purchased software are generally amortized over a term of three to seven years.
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 a given contract to the lesser of the estimated future cash flows from the contract or the termination fees the Company would receive in the event of early termination of the contract.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides the components of other intangible assets (in millions):
December 31, 2022
December 31, 2021
Weighted-
Average
Amortization
Net of
Net of
Period
Initial
Accumulated
Initial
Accumulated
(in years)
Cost
Amortization
Cost
Amortization
Capitalized contract costs
5.8
$
524.4
$
252.8
$
532.7
$
242.0
Internal use software
4.4
387.8
155.3
388.7
128.8
Acquired contracts
11.7
87.4
3.0
552.9
50.2
Acquired trademarks
25.4
30.2
9.6
30.1
10.8
Other intangibles
4.5
17.0
-
19.4
-
Projects in process(b)
(a)
38.6
38.6
35.7
35.7
Total other intangible assets(b)
6.3
$
1,085.4
$
459.3
$
1,559.5
$
467.5
(a)Not applicable as the assets have not been placed in service.
(b)Total other intangible assets, net includes Assets held for sale of $1.4 million as of December 31, 2022, and Projects in process and Total other intangible assets, net includes Assets held for sale of $2.3 million and $50.4 million, respectively, as of December 31, 2021, which consists of Other intangible assets associated with the Company's Business Solutions business as further described in Note 5.
The estimated future aggregate amortization expense for existing other intangible assets as of December 31, 2022 is expected to be $135.4 million in 2023, $115.8 million in 2024, $70.7 million in 2025, $43.3 million in 2026, $31.3 million in 2027, and $22.8 million thereafter. Beginning in August 2021, the Company stopped amortizing its held for sale assets over the terms of their useful lives.
Other intangible assets are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. In such reviews, estimated undiscounted cash flows associated with these assets or operations are compared with their carrying values to determine if a write-down to fair value (normally measured by the present value technique) is required. The Company recorded immaterial impairments related to other intangible assets during the years ended December 31, 2022, 2021, and 2020.
Other Investments
Other investments consist of equity investments in privately held companies that do not have readily determinable fair values. For these investments, the Company has less than a 20% interest and does not have control or significant influence. The Company has elected to measure these investments at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment in the same issuer. These investments are reflected in Other assets in the Consolidated Balance Sheets as of December 31, 2022 and 2021. The Company has not recorded any material annual or cumulative impairment losses or valuation adjustments based on observable price changes.
Revenue Recognition
For the Company’s accounting policies with respect to revenue recognition, refer to Note 3.
Cost of Services
Cost of services primarily consists of agent commissions and expenses for call centers, settlement operations, and related information technology costs. Expenses within these functions include personnel, software, equipment, telecommunications, bank fees, credit losses, depreciation, amortization, and other expenses incurred in connection with providing money transfer and other payment services.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising Costs
Advertising costs are charged to operating expenses as incurred. Advertising costs for the years ended December 31, 2022, 2021, and 2020 were $195.4 million, $177.8 million, and $177.0 million, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, which requires that deferred tax assets and liabilities be determined based on the expected future income tax consequences of events that have been recognized in the consolidated financial statements. Deferred tax assets and liabilities are recognized based on temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. The Company routinely assesses the realizability of its deferred tax assets. A valuation allowance must be established when, based upon available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized.
The Company recognizes the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
The Company accounts for the effects of global intangible low-taxed income taxed in the United States as a component of income tax expense in the period the tax arises.
Foreign Currency Translation
The United States dollar is the functional currency for substantially all of the Company’s businesses. Revenues and expenses are translated at average exchange rates prevailing during the period. Foreign currency denominated assets and liabilities for those businesses for which the local currency is the functional currency are translated into United States dollars based on exchange rates at the end of the year. The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of these businesses are included as a component of Accumulated other comprehensive loss ("AOCL") in the accompanying Consolidated Balance Sheets. Foreign currency denominated monetary assets and liabilities of businesses for which the United States dollar is the functional currency are remeasured based on exchange rates at the end of the period, and the resulting remeasurement gains and losses are recognized in net income. Non-monetary assets and liabilities of these operations are remeasured at historical rates in effect when the asset was recognized or the liability was incurred.
The Company has bill payment and other businesses in Argentina for which the local currency is the functional currency. However, as Argentina is currently classified as a highly inflationary economy, all changes in the value of the Argentine peso on these businesses’ monetary assets and liabilities are reflected in net income.
Derivatives
The Company has used derivatives to: (i) minimize its exposures related to changes in foreign currency exchange rates and, periodically, interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers. The Company recognizes all derivatives in the accompanying Consolidated Balance Sheets at their fair value. All cash flows associated with derivatives are included in Cash flows from operating activities in the Consolidated Statements of Cash Flows. Certain of the Company’s derivative arrangements are designated as cash flow hedges at the time of inception, and others are not designated as accounting hedges.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•Cash flow hedges - Cash flow hedges consist of foreign currency hedging of forecasted revenues, as well as hedges of the forecasted issuance of fixed-rate debt. Derivative fair value changes that are captured in AOCL are reclassified to earnings in the same period the hedged item affects earnings when the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged. The Company excludes time value from the assessment of effectiveness, and the initial value of the excluded components in the Company’s foreign currency cash flow hedges is amortized into Revenues within the Consolidated Statements of Income.
•Undesignated - Derivative contracts entered into to reduce the foreign exchange variability related to: (i) money transfer settlement assets and obligations, generally with maturities from a few days up to one month, and (ii) certain foreign currency denominated cash and other asset and liability positions, typically with maturities of less than one year at inception, are not designated as hedges for accounting purposes, and changes in their fair value are included in Selling, general, and administrative. The Company aggregates its Business Solutions payments foreign currency exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with Convera through the end of the third closing of the Business Solutions divestiture. The derivatives written are part of the broader portfolio of foreign currency positions arising from the Company’s cross-currency payment operations, which include spot exchanges of currency in addition to forwards and options. The changes in the fair value related to these contracts are recorded in 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 must be formally documented at the inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks being hedged, the derivative instrument, and how effectiveness is being assessed. The derivative must be highly effective in offsetting the changes in cash flows of the hedged item, and effectiveness is evaluated quarterly on a retrospective and prospective basis.
Legal Contingencies
The Company is a party to certain legal and regulatory proceedings with respect to a variety of matters. The Company records an accrual for these contingencies to the extent that a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than other amounts within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.
Stock-Based Compensation
The Company has a stock-based compensation plan that provides for grants of Western Union stock options, restricted stock awards, restricted stock units, and deferred stock units to employees and non-employee directors of the Company.
All stock-based compensation to employees is required to be measured at fair value and expensed over the requisite service period. The Company generally recognizes compensation expense on awards on a straight-line basis over the requisite service period for the entire award, with an estimate for forfeitures. Refer to Note 17 for additional discussion regarding details of the Company’s stock-based compensation plans.
Severance and Other Related Expenses
The Company records severance-related expenses once they are both probable and estimable in accordance with the provisions of the applicable accounting guidance for severance provided under an ongoing benefit arrangement. One-time involuntary benefit arrangements and other costs are generally recognized when the liability is incurred. The Company
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
also evaluates impairment issues associated with restructuring and other activities when the carrying amount of the related assets may not be fully recoverable, in accordance with the appropriate accounting guidance.
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 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 8 for additional information and the related disclosures.
3. 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, and the difference between the exchange rate set by the Company to the customer and a rate available in the wholesale foreign exchange market, 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.
The Company recognized $4,254.0 million, $4,865.5 million, and $4,625.1 million in revenues from contracts with customers for the years ended December 31, 2022, 2021, and 2020, respectively. 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 for the years ended December 31, 2022, 2021, and 2020, and the Company has immaterial contract liability balances as of December 31, 2022 and 2021, which primarily relate to its customer loyalty programs and other services. Contract asset balances related to customers were also immaterial as of December 31, 2022 and 2021, as the Company typically receives payment of consideration from its customers prior to satisfying performance obligations under the customer contracts. In addition to revenue generated from contracts with customers, the Company recognizes revenue from other sources, including the sale of derivative financial instruments and investment income generated on settlement assets primarily related to money transfer and money order services.
The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below. Revenues from consumer money transfers are included in the Company’s Consumer-to-Consumer segment, revenues from foreign exchange and payment services are included in the Company’s Business Solutions segment, and revenues from consumer bill payment and other services are not included in the Company’s segments and are reported as Other. See Note 18 for further information on the Company’s segments. On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC. The first closing occurred on March 1, 2022, the second occurred on December 31, 2022, and the third closing is expected in the second quarter of 2023. See Note 5 for further information regarding this transaction.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Consumer Money Transfers
For the Company’s money transfer services, customers agree to the Company’s terms and conditions at the time of initiating a transaction. In a money transfer, the Company has one performance obligation as the customer engages the Company to perform one integrated service which typically occurs within minutes - collect the customer’s money and make funds available for payment to a designated person in the currency requested. Therefore, the Company recognizes revenue upon completion of the following: (i) the customer’s acknowledgment of the Company’s terms and conditions and payment information has been received by the Company, (ii) the Company has agreed to process the money transfer, and (iii) the Company has completed the processing of the money transfer, so that funds are available to be picked up by the customer's designated receiving party in the case of cash payout. The transaction price is comprised of a transaction fee and the difference between the exchange rate set by the Company to the customer and a rate available in the wholesale foreign exchange market, as applicable, both of which are readily determinable at the time the transaction is initiated.
Foreign Exchange and Payment Services
For the Company’s foreign exchange and payment services, customers agree to terms and conditions for all transactions, either at the time of initiating a transaction or signing a contract with the Company to provide payment services on the customer’s behalf. In the majority of the Company’s foreign exchange and payment services, the Company makes payments to the recipient to satisfy its performance obligation to the customer, and therefore, the Company recognizes revenue on foreign exchange and payment services when this performance obligation has been fulfilled. Revenues from foreign exchange and payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and a rate available in the wholesale foreign exchange market.
Consumer Bill Payments and Other
The Company offers bill payment and other services that vary by contractual features, including the types and amounts of fixed charges and with respect to how fees are billed and collected. The identification of the contract with the customer for revenue recognition purposes is consistent with these features for each of the Company’s bill payment and other services. As with consumer money transfers, customers engage the Company to perform one integrated service - collect money from the consumer and process the transaction, thereby providing billers with real-time or near real-time information regarding consumer payments and simplifying the billers’ collection efforts.
Management has determined that the substantial majority of the Company’s revenue is recognized at a point in time. The following tables represent the disaggregation of revenue earned from contracts with customers by product type and region for the years ended December 31, 2022, 2021, and 2020 (in millions). The regional split of revenue shown in the tables below is based upon where transactions are initiated.
Year Ended December 31, 2022
Foreign
Consumer
Exchange
Money
and Payment
Consumer
Other
Transfers
Services (b)
Bill Payments
Services
Total
Regions:
North America
$
1,553.2
$
17.9
$
71.0
$
58.5
$
1,700.6
Europe and Russia/CIS
1,056.0
102.3
21.1
-
1,179.4
Middle East, Africa, and South Asia
630.5
0.4
0.4
-
631.3
Latin America and the Caribbean
388.0
0.5
99.8
8.4
496.7
East Asia and Oceania
233.0
12.5
0.5
-
246.0
Revenues from contracts with customers
$
3,860.7
$
133.6
$
192.8
$
66.9
$
4,254.0
Other revenues(a)
132.8
63.3
5.1
20.3
221.5
Total revenues
$
3,993.5
$
196.9
$
197.9
$
87.2
$
4,475.5
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year Ended December 31, 2021
Foreign
Consumer
Exchange
Money
and Payment
Consumer
Other
Transfers
Services
Bill Payments
Services
Total
Regions:
North America
$
1,625.7
$
101.8
$
73.3
$
57.1
$
1,857.9
Europe and Russia/CIS
1,381.3
145.5
5.8
1.1
1,533.7
Middle East, Africa, and South Asia
660.8
2.2
0.6
-
663.6
Latin America and the Caribbean
376.6
3.4
75.8
7.3
463.1
East Asia and Oceania
276.5
69.6
1.1
-
347.2
Revenues from contracts with customers
$
4,320.9
$
322.5
$
156.6
$
65.5
$
4,865.5
Other revenues(a)
73.1
99.3
13.3
19.6
205.3
Total revenues
$
4,394.0
$
421.8
$
169.9
$
85.1
$
5,070.8
Year Ended December 31, 2020
Foreign
Consumer
Exchange
Money
and Payment
Consumer
Other
Transfers
Services
Bill Payments
Services
Total
Regions:
North America
$
1,605.5
$
83.6
$
75.1
$
57.0
$
1,821.2
Europe and Russia/CIS
1,330.0
121.1
3.6
1.8
1,456.5
Middle East, Africa, and South Asia
630.0
1.5
0.4
-
631.9
Latin America and the Caribbean
310.1
2.4
75.8
7.9
396.2
East Asia and Oceania
257.4
60.5
1.4
-
319.3
Revenues from contracts with customers
$
4,133.0
$
269.1
$
156.3
$
66.7
$
4,625.1
Other revenues(a)
87.0
87.0
14.0
21.9
209.9
Total revenues
$
4,220.0
$
356.1
$
170.3
$
88.6
$
4,835.0
(a)Includes revenue from the sale of derivative financial instruments, investment income generated on settlement assets primarily related to money transfer and money order services, and other sources.
(b)On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC. The sale will be completed in three closings, with the first and second closings occurring on March 1, 2022 and December 31, 2022, respectively. The third is expected in the second quarter of 2023. See Note 5 for further information regarding this transaction.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Restructuring-Related Expenses
On August 1, 2019, the Company’s Board of Directors approved a plan to change the Company’s operating model and improve its business processes and cost structure by reorganizing the Company’s senior management, including those managers reporting to the Chief Executive Officer (“CEO”), reducing its headcount, and consolidating various facilities. While certain of the expenses may be identifiable to the Company’s segments, primarily to the Company’s Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of performance assessment and resource allocation. These expenses are therefore excluded from the Company’s segment operating income results. These expenses are specific to this initiative; however, the types of expenses related to this initiative are similar to expenses that the Company has previously incurred and can reasonably be expected to incur in the future. All expenses for this initiative had been incurred as of December 31, 2020, and substantially all of the liability had been paid in cash as of December 31, 2021.
The following table summarizes the expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Consolidated Balance Sheets, and the total expenses incurred since the inception of the restructuring plan (in millions):
Severance and
Facility
Relocations
Related
and Closures,
Employee
Consulting,
Benefits
and Other
Total
Balance, December 31, 2019
$
71.2
$
2.1
$
73.3
Expenses(a)
11.8
25.0
36.8
Cash payments
(58.7
)
(24.0
)
(82.7
)
Non-cash benefits/(charges)(a)
0.6
(1.8
)
(1.2
)
Balance, December 31, 2020
$
24.9
$
1.3
$
26.2
Total expenses incurred
$
109.8
$
42.5
$
152.3
(a)Non-cash benefits/(charges) include non-cash write-offs and accelerated depreciation of right-of-use ("ROU") assets and leasehold improvements and a non-cash benefit for adjustments to stock compensation for awards forfeited by employees. These amounts have been removed from the liability balance in the table above as they do not impact the restructuring accruals.
The following table presents restructuring-related expenses as reflected in the Consolidated Statements of Income (in millions):
Year Ended December 31,
Cost of services
$
4.5
Selling, general, and administrative
32.3
Total expenses, pre-tax
$
36.8
Total expenses, net of tax
$
31.5
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Divestitures, Investment Activities, and Goodwill
Business Solutions Divestiture
On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC (collectively, the "Buyer") for cash consideration of $910.0 million. The sale is expected to be completed in three closings, with the entire cash consideration collected at that the first closing and allocated to the closings on a relative fair value basis. The first closing occurred on March 1, 2022, excluded the operations in the European Union and the United Kingdom, and resulted in a gain of $151.4 million. In connection with the first closing, the Company reclassified $17.8 million of currency translation gains previously included within AOCL as a component of Gain on divestiture of business in the Consolidated Statements of Income. The second closing, which occurred on December 31, 2022 and included the United Kingdom operations, resulted in a gain of $96.9 million. As of December 31, 2022, the Company has agreed to and paid final working capital adjustments to the Buyer and has classified the proceeds allocated to the European Union operations of approximately $104 million within Other liabilities in the Consolidated Balance Sheets. The third closing, which is currently expected to occur in the second quarter of 2023, pending required regulatory approvals, includes the European Union operations and the gain associated with this closing is subject to regulatory capital adjustments. During the period between the first and third closings, the Company is required to pay the Buyer a measure of profit of the European Union and United Kingdom operations, while owned by the Company, adjusted for the occupancy charges for employees of the Buyer using Company facilities and other items, as contractually agreed, which was $32.0 million for the year ended December 31, 2022, and was included in Other income/(expense), net in the Consolidated Statements of Income. The related income tax expense on this income was also passed to the Buyer.
The Company has presented the remaining assets of its Business Solutions business as held for sale, along with the associated liabilities, as the Company believes the completion of the third close is probable.
Business Solutions revenues included in the Consolidated Statements of Income were $196.9 million, $421.8 million, and $356.1 million, and direct operating expenses, excluding corporate allocations, were $140.3 million, $317.7 million, and $319.5 million for the years ended December 31, 2022, 2021, and 2020, respectively. Costs related to the review and closing of this divestiture were $5.2 million and $14.4 million for the years ended December 31, 2022 and 2021, respectively.
The following table reflects the assets held for sale and associated liabilities of the Business Solutions business in the accompanying Consolidated Balance Sheets (in millions). These balances are subject to regulatory capital requirements which will be finalized upon the third close.
December 31,
December 31,
Cash and cash equivalents
$
5.2
$
37.7
Settlement assets
74.9
566.0
Property and equipment, net of accumulated depreciation of $1.0 and $19.3, respectively
0.7
6.3
Goodwill
61.4
532.0
Other intangible assets, net of accumulated amortization of $9.8 and $360.2, respectively
1.4
50.4
Other assets
118.0
260.5
Total assets
$
261.6
$
1,452.9
Accounts payable and accrued liabilities
$
18.2
$
61.6
Settlement obligations
74.9
566.0
Other liabilities
89.4
194.3
Total liabilities
$
182.5
$
821.9
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Divestitures
In 2020, the Company sold its former corporate headquarters and other property and recorded an immaterial pre-tax net gain on the sales. The proceeds from these sales have been included in Cash flows from investing activities within the Company’s Consolidated Statements of Cash Flows for the year ended December 31, 2020.
Investment Activities
The Company entered into an agreement in November 2020, which was subsequently amended, to acquire an ownership interest in stc Bank (formerly Saudi Digital Payments Company), a subsidiary of Saudi Telecom Company and one of the Company’s Consumer-to-Consumer digital white label partners. Under the terms of the amended agreement, the Company agreed to invest $200.0 million for a 15% ownership in stc Bank (“Investment”), and this transaction closed in October 2021. In conjunction with the Investment, the Company and stc Bank extended and expanded the terms of their commercial agreement. The Company assigned a value of $36.0 million to certain rights under the commercial agreement that are included in Other assets in the Consolidated Balance Sheets and are being amortized over the life of the agreement. The Company is measuring the Investment at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments in stc Bank.
In April 2021, the Company sold a substantial majority of the noncontrolling interest it held in a private company for cash proceeds of $50.9 million. The Company recorded a gain of $47.9 million within Total other income/(expense), net, during the year ended December 31, 2021. The Company retains an immaterial equity interest in this private company.
Goodwill
The following tables present changes to goodwill for the years ended December 31, 2022 and 2021 and the accumulated impairment losses as of December 31, 2022, 2021, and 2020 (in millions):
Consumer-to-
Business
Consumer
Solutions(a)
Other
Total
January 1, 2021 goodwill, net
$
1,980.7
$
532.0
$
53.9
$
2,566.6
Additions
-
-
-
-
December 31, 2021 goodwill, net
$
1,980.7
$
532.0
$
53.9
$
2,566.6
Additions
-
-
-
-
Divestiture(a)
-
(470.6
)
-
(470.6
)
December 31, 2022 goodwill, net
$
1,980.7
$
61.4
$
53.9
$
2,096.0
(a)Related to the Business Solutions divestiture, as described above.
As of December 31,
Goodwill, gross
$
2,125.6
$
3,030.6
$
3,030.6
Accumulated impairment losses
(29.6
)
(464.0
)
(464.0
)
Goodwill, net(a)
$
2,096.0
$
2,566.6
$
2,566.6
(a)As of December 31, 2022 and 2021, Goodwill of $61.4 million and $532.0 million, respectively, related to the Company's Business Solutions business is included in Assets held for sale on the Company's Consolidated Balance Sheets, as further described above. All of the Company's accumulated impairment losses related to the Business Solutions business.
The Company did not record any goodwill impairments during the years ended December 31, 2022, 2021, and 2020.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Commitments and Contingencies
Letters of Credit and Bank Guarantees
The Company had approximately $390 million in outstanding letters of credit and bank guarantees as of December 31, 2022, which were primarily held in connection with regulatory requirements, lease arrangements, and certain agent agreements. The Company expects to renew many of its letters of credit and bank guarantees prior to expiration.
Litigation and Related Contingencies
The Company is subject to certain claims and litigation that could result in losses, including damages, fines, and/or civil penalties, which could be significant, and in some cases, criminal charges. The Company regularly evaluates the status of legal matters to assess whether a loss is probable and reasonably estimable in determining whether an accrual is appropriate. Furthermore, in determining whether disclosure is appropriate, the Company evaluates each legal matter to assess if there is at least a reasonable possibility that a material loss or additional material losses may have been incurred. The Company also evaluates whether an estimate of possible loss or range of loss can be made. Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional loss may have been incurred for each of the matters described below.
For those matters that the Company believes there is at least a reasonable possibility that a loss or additional loss may have been incurred and can reasonably estimate the loss or potential loss, the reasonably possible potential litigation losses in excess of the Company’s recorded liability for probable and estimable losses was approximately $30 million as of December 31, 2022. For the remaining matters, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons: (i) the proceedings are in preliminary stages; (ii) specific damages have not been sought; (iii) damage claims are unsupported and/or unreasonable; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; or (vi) novel legal issues or unsettled legal theories are being asserted.
The outcomes of legal actions are unpredictable and subject to significant uncertainties, and it is inherently difficult to determine whether any loss is probable or even possible. It is also inherently difficult to estimate the amount of any loss, and there may be matters for which a loss is probable or reasonably possible but not currently estimable. Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss.
Legal Matters
In October 2015, Consumidores Financieros Asociación Civil para su Defensa, an Argentinian consumer association, filed a purported class action lawsuit in Argentina’s National Commercial Court No. 19 against the Company’s subsidiary Western Union Financial Services Argentina S.R.L. (“WUFSA”). The lawsuit alleges, among other things, that WUFSA’s fees for money transfers sent from Argentina are excessive and that WUFSA does not provide consumers with adequate information about foreign exchange rates. The plaintiff is seeking, among other things, an order requiring WUFSA to reimburse consumers for the fees they paid and the foreign exchange revenue associated with money transfers sent from Argentina, plus punitive damages. The complaint does not specify a monetary value of the claim or a time period. In November 2015, the Court declared the complaint formally admissible as a class action. The notice of claim was served on WUFSA in May 2016, and in June 2016 WUFSA filed a response to the claim and moved to dismiss it on statute of limitations and standing grounds. In April 2017, the Court deferred ruling on the motion until later in the proceedings. The process for notifying potential class members has been completed, and the case is in the evidentiary stage. Due to the stage of this matter, the Company is unable to predict the outcome or the possible loss or range of loss, if any, associated with this matter. WUFSA intends to defend itself vigorously.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2022, a purported class action complaint was filed against several money transfer business defendants, including the Company, in the United States District Court for the Northern District of California, alleging that these defendants violated the federal Right to Financial Privacy Act and California’s Financial Information Privacy Act. The United States Department of Homeland Security and Immigration and Customs Enforcement are also named as defendants. The operative complaint alleges that the defendants violated plaintiffs’ financial privacy rights by sharing private financial information with law enforcement agencies through a program coordinated by the Transaction Record Analysis Center. On January 24, 2023, an amended complaint was filed naming Western Union Financial Services, Inc. ("WUFSI") as a defendant in place of The Western Union Company. Due to the preliminary stage of this matter, the ultimate outcome and any potential financial impact to the Company cannot be reasonably determined at this time. WUFSI intends to defend itself vigorously in this matter.
In addition to the principal matters described above, the Company is a party to a variety of other legal matters that arise in the normal course of the Company’s business. While the results of these other legal matters cannot be predicted with certainty, management believes that the final outcome of these matters will not have a material adverse effect either individually or in the aggregate on the Company’s financial condition, results of operations, or cash flows.
7. 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 commissions for money transfer and other services provided on the Company’s behalf. Commission expense recognized for these agents for the years ended December 31, 2022, 2021, and 2020 totaled $48.8 million, $54.7 million, and $54.6 million, respectively.
8. Settlement Assets and Obligations
Settlement assets represent funds received or to be received from agents and others for unsettled money transfers, money orders, and consumer payments. The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders, and consumer payment service arrangements. Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Settlement assets and obligations consisted of the following (in millions):
December 31, 2022
Settlement assets:
Cash and cash equivalents
$
708.1
Receivables from agents, Business Solutions customers, and others
1,533.2
Less: Allowance for credit losses
(13.0
)
Receivables from agents, Business Solutions customers, and others, net
1,520.2
Investment securities
1,333.7
Less: Allowance for credit losses
(0.3
)
Investment securities, net
1,333.4
Total settlement assets(a)
$
3,561.7
Settlement obligations:
Money transfer, money order, and payment service payables
$
2,843.3
Payables to agents
718.4
Total settlement obligations(a)
$
3,561.7
December 31, 2021
Settlement assets:
Cash and cash equivalents
$
835.5
Receivables from agents, Business Solutions customers, and others
1,198.8
Less: Allowance for credit losses
(23.7
)
Receivables from agents, Business Solutions customers, and others, net
1,175.1
Investment securities
1,398.9
Total settlement assets(a)
$
3,409.5
Settlement obligations:
Money transfer, money order, and payment service payables
$
2,838.9
Payables to agents
570.6
Total settlement obligations(a)
$
3,409.5
(a)As of December 31, 2022 and 2021, both Settlement assets and Settlement obligations include $74.9 million and $566.0 million, respectively, classified as Assets held for sale and Liabilities associated with assets held for sale (see Note 5).
Allowance for Credit Losses
On January 1, 2020, the Company adopted a new accounting standard related to the estimation of the allowance for credit losses, as discussed in Note 2. However, due to the short-term nature of the Company’s receivables and the Company’s historical and expected collections practice, the adoption did not have a material impact on the Company’s financial position or results of operations.
Receivables from agents and others primarily represent funds collected by such agents, but in transit to the Company, and were $1,508.5 million and $1,125.9 million as of December 31, 2022 and 2021, respectively. Cash received by Western Union agents generally becomes available to the Company within one week after initial receipt by the agent. Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent. The Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.
Receivables from Business Solutions customers arise from cross-currency payment transactions in the Business Solutions segment. Business Solutions receivables totaled $11.7 million and $49.2 million as of December 31, 2022 and 2021, respectively. Receivables occur when funds have been paid out to a beneficiary but not yet received from the customer. Collection of these receivables ordinarily occurs within a few days. To mitigate risk associated with potential Business Solutions customer defaults, the Company performs credit reviews on an ongoing basis.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company establishes and monitors an allowance for credit losses related to receivables from agents and others, and Business Solutions customers. The Company has estimated the allowance based on its historical collections experience, adjusted for current conditions and forecasts of future economic conditions based on information known as of December 31, 2022.
The following tables summarize the activity in the allowance for credit losses on receivables from agents and others, and Business Solutions customers (in millions):
Agents and
Business Solutions
Others
Customers
Allowance for credit losses as of January 1, 2022
$
18.0
$
5.7
Current period provision for expected credit losses(a)
14.1
3.8
Write-offs charged against the allowance
(20.9
)
(1.5
)
Recoveries of amounts previously written off
4.7
-
Impacts of foreign currency exchange rates, divestitures, and other
(4.5
)
(6.4
)
Allowance for credit losses as of December 31, 2022
$
11.4
$
1.6
Agents and
Business Solutions
Others
Customers
Allowance for credit losses as of January 1, 2021
$
49.3
$
3.9
Current period provision for expected credit losses(a)
8.9
4.2
Write-offs charged against the allowance
(44.8
)
(2.1
)
Recoveries of amounts previously written off
6.8
-
Impacts of foreign currency exchange rates and other
(2.2
)
(0.3
)
Allowance for credit losses as of December 31, 2021
$
18.0
$
5.7
Agents and
Business Solutions
Others
Customers
Allowance for credit losses as of January 1, 2020
$
20.4
$
4.5
Current period provision for expected credit losses(a)
39.9
2.0
Write-offs charged against the allowance
(11.9
)
(3.1
)
Recoveries of amounts previously written off
2.3
-
Impacts of foreign currency exchange rates and other
(1.4
)
0.5
Allowance for credit losses as of December 31, 2020
$
49.3
$
3.9
(a)Provision does not include losses from chargebacks or fraud associated with transactions initiated through the Company’s digital channels, as these losses are not credit-related. The Company recognized losses that were not credit-related of $37.5 million, $51.4 million, and $41.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.
In addition, from time to time, the Company has made advances to its agents. The Company generally owes settlement funds payable to these agents that offset these advances. These amounts advanced to agents are included within Other assets in the accompanying Consolidated Balance Sheets. As of December 31, 2022 and 2021, amounts advanced to agents were $154.9 million and $146.9 million, respectively, and the related allowances for credit losses were immaterial.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment Securities
Investment securities included in Settlement assets in the Company’s Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes. Variable-rate demand note securities can be put (sold at par) typically on a daily basis with settlement periods ranging from the same day to one week but have varying maturities through 2052. These securities may be used by the Company for short-term liquidity needs and held for short periods of time. Investment securities are exposed to market risk due to changes in interest rates and credit risk. The Company is required to hold highly-rated, investment grade securities, and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable regulatory requirements.
The Company’s investment securities are classified as available-for-sale and recorded at fair value. Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification.
Unrealized gains on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes. Available-for-sale securities with a fair value below the amortized cost basis are evaluated on an individual basis to determine whether the impairment is due to credit-related factors or noncredit-related factors. Factors that could indicate a credit loss exists include but are not limited to: (i) negative earnings performance, (ii) credit rating downgrades, or (iii) adverse changes in the regulatory or economic environment of the asset. Any impairment that is not credit-related is excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes, unless the Company intends to sell the impaired security or it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. Credit-related impairments are recognized immediately as an adjustment to earnings, regardless of whether the Company has the ability or intent to hold the security to maturity, and are limited to the difference between fair value and the amortized cost basis. As of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021, and 2020, the Company’s allowance for credit losses and provision for credit losses on its available-for-sale securities were immaterial. The Company did not intend to sell and did not expect it would be required to sell investment securities prior to recovering the amortized cost basis of those securities, as of December 31, 2022.
The components of investment securities are as follows (in millions):
Gross
Gross
Net
Amortized
Fair
Unrealized
Unrealized
Unrealized
December 31, 2022
Cost
Value
Gains
Losses (b)
Gains/(Losses)
Settlement assets:
Cash and cash equivalents:
Money market funds
$
11.7
$
11.7
$
-
$
-
$
-
Available-for-sale securities:
State and municipal debt securities(a)
1,010.5
933.3
0.3
(77.5
)
(77.2
)
Asset-backed securities
183.4
184.1
0.8
(0.1
)
0.7
Corporate debt securities
153.5
146.9
0.3
(6.9
)
(6.6
)
State and municipal variable-rate demand notes
48.9
48.9
-
-
-
United States government agency mortgage-backed securities
21.5
20.5
-
(1.0
)
(1.0
)
Total available-for-sale securities
1,417.8
1,333.7
1.4
(85.5
)
(84.1
)
Total investment securities
$
1,429.5
$
1,345.4
$
1.4
$
(85.5
)
$
(84.1
)
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gross
Gross
Net
Amortized
Fair
Unrealized
Unrealized
Unrealized
December 31, 2021
Cost
Value
Gains
Losses
Gains/(Losses)
Settlement assets:
Cash and cash equivalents:
Money market funds
$
7.9
$
7.9
$
-
$
-
$
-
Available-for-sale securities:
State and municipal debt securities(a)
1,182.6
1,219.9
39.8
(2.5
)
37.3
State and municipal variable-rate demand notes
84.8
84.8
-
-
-
Corporate and other debt securities
58.1
57.8
0.2
(0.5
)
(0.3
)
United States government agency mortgage-backed securities
35.6
36.4
0.8
-
0.8
Total available-for-sale securities
1,361.1
1,398.9
40.8
(3.0
)
37.8
Total investment securities
$
1,369.0
$
1,406.8
$
40.8
$
(3.0
)
$
37.8
(a)The majority of these securities are fixed-rate instruments.
(b)As of December 31, 2022, the Company held 432 investment securities that were in an unrealized loss position, 324 of which have a total fair value of $871.9 million and unrealized losses of $57.2 million and have been in a loss position for less than twelve months and 108 of which have a total fair value of $186.6 million and unrealized losses of $28.3 million and have been in a loss position for greater than twelve months. As discussed above, the Company's provision for credit losses on its investment securities for the year ended December 31, 2022, and the related allowance for credit losses as of December 31, 2022 were immaterial, as the increase in unrealized losses was driven by a rise in U.S. Treasury interest rates over the year ended December 31, 2022.
There were no investments with a single issuer or individual securities representing greater than 10% of total investment securities as of December 31, 2022 and 2021.
The following summarizes the contractual maturities of available-for-sale securities within Settlement assets as of December 31, 2022 (in millions):
Fair Value
Due within 1 year
$
116.5
Due after 1 year through 5 years
593.2
Due after 5 years through 10 years
476.8
Due after 10 years
147.2
Total
$
1,333.7
Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay the obligations, or the Company may have the right to put the obligation prior to its contractual maturity, as with variable-rate demand notes. Variable-rate demand notes, having a fair value of $48.9 million are included in the "Due after 10 years" category, respectively, in the table above.
9. Fair Value Measurements
Fair value, as defined 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 date. Refer to Note 2 for additional information on how the Company measures fair value.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following tables present the Company’s assets and liabilities which are measured at fair value on a recurring basis, by balance sheet category (in millions):
Fair Value Measurement Using
Total
December 31, 2022
Level 1
Level 2
Fair Value
Assets:
Settlement assets:
Measured at fair value through net income:
Money market funds
$
11.7
$
-
$
11.7
Measured at fair value through other comprehensive income (net of expected credit losses recorded through net income):
State and municipal debt securities
-
933.3
933.3
Asset-backed securities
-
184.1
184.1
Corporate debt securities
-
146.9
146.9
State and municipal variable-rate demand notes
-
48.9
48.9
United States government agency mortgage-backed securities
-
20.5
20.5
Other assets:
Derivatives
-
126.1
126.1
Total assets
$
11.7
$
1,459.8
$
1,471.5
Liabilities:
Other liabilities:
Derivatives
$
-
$
98.9
$
98.9
Total liabilities
$
-
$
98.9
$
98.9
Fair Value Measurement Using
Total
December 31, 2021
Level 1
Level 2
Fair Value
Assets:
Settlement assets:
Measured at fair value through net income:
Money market funds
$
7.9
$
-
$
7.9
Measured at fair value through other comprehensive income (net of expected credit losses recorded through net income):
State and municipal debt securities
-
1,219.9
1,219.9
State and municipal variable-rate demand notes
-
84.8
84.8
Corporate and other debt securities
-
57.8
57.8
United States government agency mortgage-backed securities
-
36.4
36.4
Other assets:
Derivatives
-
247.7
247.7
Total assets
$
7.9
$
1,646.6
$
1,654.5
Liabilities:
Other liabilities:
Derivatives
$
-
$
183.8
$
183.8
Total liabilities
$
-
$
183.8
$
183.8
There were no material, non-recurring fair value adjustments other than approximately $15 million of operating lease ROU asset, property and equipment, and other intangible asset impairments associated with the Company's suspension of its operations in Russia and Belarus, the first closing of its Business Solutions divestiture, and its operating expense redeployment initiatives for the year ended December 31, 2022, as discussed further in Note 18. There were no material, non-recurring fair value adjustments for the year ended December 31, 2021, or transfers between Level 1 and Level 2 measurements during the years ended December 31, 2022 and 2021.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Fair Value Measurements
The carrying amounts for many of the Company’s financial instruments, including certain cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and obligations approximate fair value due to their short maturities. The Company’s borrowings are classified as Level 2 within the valuation hierarchy, and the aggregate fair value of these borrowings was based on quotes from multiple banks. Fixed-rate notes are carried in the Company’s Consolidated Balance Sheets at their original issuance values as adjusted over time to amortize or accrete that value to par. As of December 31, 2022, the carrying value and fair value of the Company’s borrowings were $2,616.8 million and $2,442.5 million, respectively (see Note 16). As of December 31, 2021, the carrying value and fair value of the Company’s borrowings were $3,008.4 million and $3,217.2 million, respectively.
During the year ended December 31, 2022, the Company entered into reverse repurchase agreements, a form of secured lending, with broker-dealer affiliates of large U.S. banks, using a portion of the proceeds from the sale of the Company's Business Solutions business. These agreements require the counterparties to pledge marketable securities with a value greater than the amount of cash transferred as collateral, which is held and valued by a third-party custodial bank. These investments generate interest income through the date of repurchase, at which point the purchase price together with the interest due will be paid back to the Company. The Company carries these investments at amortized cost, and as of December 31, 2022, the carrying value of these investments, as reported in Other assets in the Company's Consolidated Balance Sheets, was $100.0 million, which approximates fair value due to the creditworthiness of the counterparty, the value of the collateral, and the investments' short-term nature and variable interest rate.
10. Other Assets and Other Liabilities
The following table summarizes the components of Other assets and Other liabilities (in millions):
December 31,
Other assets:
Other investments (Note 5) (a)
$
169.5
$
166.3
Amounts advanced to agents
154.9
146.9
Derivatives
126.1
247.7
ROU assets
122.4
164.5
Reverse repurchase agreements
100.0
-
Prepaid expenses
94.7
85.5
Equity method investments
41.4
38.4
Other
168.9
148.9
Total other assets (b)
$
977.9
$
998.2
Other liabilities:
Operating lease liabilities
$
161.3
$
203.0
Deferred proceeds - Business Solutions divestiture (Note 5)
104.3
-
Derivatives
98.9
183.8
Accrued agent contract costs
37.4
5.4
Other
72.1
71.5
Total other liabilities (b)
$
474.0
$
463.7
(a)Represents equity investments without readily determinable fair values recorded at cost less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment in the same issuer.
(b)As of December 31, 2022 and 2021, Other assets include $118.0 million and $260.5 million, respectively, classified as Assets held for sale, and Other liabilities include $89.4 million and $194.3 million, respectively, classified as Liabilities associated with assets held for sale (see Note 5).
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Income Taxes
The components of pre-tax income, generally based on the jurisdiction of the legal entity, were as follows (in millions):
Year Ended December 31,
Domestic
$
46.8
$
(59.9
)
$
-
Foreign
961.8
995.3
855.1
Total pre-tax income
$
1,008.6
$
935.4
$
855.1
For the years ended December 31, 2022, 2021, and 2020, 95%, 106% and 100% of the Company’s pre-tax income was derived from foreign sources, respectively.
The provision for income taxes was as follows (in millions):
Year Ended December 31,
Federal
$
(34.0
)
$
40.3
$
50.1
State and local
(8.0
)
1.4
1.1
Foreign
140.0
87.9
59.6
Total provision for income taxes
$
98.0
$
129.6
$
110.8
The Company’s effective tax rates differed from statutory rates as follows:
Year Ended December 31,
Federal statutory rate
21.0
%
21.0
%
21.0
%
State income taxes, net of federal income tax benefits
(0.1
)%
0.2
%
0.5
%
Foreign rate differential, net of United States tax paid on foreign earnings (4.6%, 3.3%, and 5.6%, respectively)
(8.3
)%
(9.5
)%
(8.3
)%
Divestitures
5.6
%
-
%
-
%
Change in Business Solutions permanent reinvestment assertion
-
%
1.9
%
-
%
Lapse of statute of limitations
(9.7
)%
(0.5
)%
(0.7
)%
Valuation allowances
0.2
%
-
%
0.2
%
Other
1.0
%
0.8
%
0.2
%
Effective tax rate
9.7
%
13.9
%
12.9
%
The decrease in the Company’s effective tax rate for the year ended December 31, 2022 compared to the prior year was primarily due to the reversal of uncertain tax positions, including from statute of limitations expirations and the completion of the examination of the Company's federal income tax returns for 2017 and 2018 ("IRS Examination"), as well as tax expense incurred in the prior period related to changes in the Company's permanent reinvestment assertions, partially offset by the sale of the Company's Business Solutions business and the Company's decision to suspend its operations in Russia and Belarus. The increase in the Company’s effective tax rate for the year ended December 31, 2021 compared to the prior year was primarily due to deferred taxes from changes in certain of the Company's permanent reinvestment assertions relating to its decision to classify its Business Solutions business as held for sale in 2021, partially offset by tax benefits associated with the pension termination and other items.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s provision for income taxes consisted of the following components (in millions):
Year Ended December 31,
Current:
Federal
$
(17.1
)
$
43.9
$
35.7
State and local
(4.6
)
4.3
1.9
Foreign
146.4
84.0
59.3
Total current taxes
124.7
132.2
96.9
Deferred:
Federal
(16.9
)
(3.6
)
14.4
State and local
(3.4
)
(2.9
)
(0.8
)
Foreign
(6.4
)
3.9
0.3
Total deferred taxes
(26.7
)
(2.6
)
13.9
$
98.0
$
129.6
$
110.8
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book and tax bases of the Company’s assets and liabilities. The following table outlines the principal components of deferred tax items (in millions):
December 31,
Deferred tax assets related to:
Reserves, accrued expenses and employee-related items
$
12.4
$
13.6
Lease liabilities
18.4
21.2
Tax attribute carryovers
24.9
28.0
Intangibles, property and equipment
9.0
11.8
Other
3.7
8.9
Securities and investments
14.7
-
Valuation allowance
(14.1
)
(17.8
)
Total deferred tax assets
69.0
65.7
Deferred tax liabilities related to:
Intangibles, property and equipment
207.7
218.6
Lease right-of-use assets
10.8
13.8
Outside basis difference in Business Solutions
-
17.9
Other
-
7.4
Total deferred tax liabilities
218.5
257.7
Net deferred tax liability(a)
$
149.5
$
192.0
a)As of December 31, 2022 and 2021, deferred tax assets that cannot be fully offset by deferred tax liabilities in the respective tax jurisdictions of $9.0 million and $11.8 million, respectively, are reflected in Other assets in the Consolidated Balance Sheets.
The valuation allowances are primarily the result of uncertainties regarding the Company’s ability to recognize tax benefits associated with certain United States foreign tax credit carryforwards and certain foreign and state net operating losses. Such uncertainties include generating sufficient United States foreign tax credit limitation related to passive income and generating sufficient income. Changes in circumstances, or the identification and implementation of relevant tax planning strategies, could make it foreseeable that the Company will recover these deferred tax assets in the future, which could lead to a reversal of these valuation allowances and a reduction in income tax expense.
Outside tax basis differences of $1.4 billion as of December 31, 2022 primarily relate to undistributed foreign earnings not already subject to United States income tax and additional outside basis difference inherent in certain entities. To the extent such outside basis differences are attributable to undistributed earnings not already subject to United States tax,
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
such undistributed earnings continue to be indefinitely reinvested in foreign operations. Upon the future realization of the Company’s basis difference, the Company could be subject to United States income taxes, state income taxes, and possible withholding taxes payable to various foreign countries. However, determination of this amount of unrecognized deferred tax liability is not practicable because of complexities associated with its hypothetical calculation.
Tax reform legislation enacted into United States law in 2017 ("the Tax Act") imposed a domestic one-time tax on the Company’s previously undistributed earnings of foreign subsidiaries, with certain exceptions. This tax charge, combined with the Company’s other 2017 United States taxable income and tax attributes, resulted in a 2017 United States federal tax liability of approximately $800 million, of which approximately $478 million remained as of December 31, 2022. The Company has elected to pay this liability in periodic installments through 2025. For the years ended December 31, 2022, 2021, and 2020, the Company made installment payments of $63.7 million, $63.4 million, and $64.0 million, respectively.
Uncertain Tax Positions
The Company has established contingency reserves for a variety of material, known tax exposures. As of December 31, 2022, the total amount of tax contingency reserves was $237.2 million, including accrued interest and penalties, net of related items. The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review or other settlement. While the Company believes its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved 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 in facts and circumstances (i.e., new information) surrounding a tax issue during the period and (ii) any difference from the Company’s tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in the Company’s consolidated financial statements in future periods and could impact operating cash flows.
Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company’s consolidated financial statements and are reflected in Income taxes payable in the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties and before offset of related items, is as follows (in millions):
Balance as of January 1
$
344.6
$
340.7
Increase related to current period tax positions(a)
1.6
3.1
Increase related to prior period tax positions
-
7.3
Decrease related to prior period tax positions
(16.5
)
(2.0
)
Decrease due to settlements with taxing authorities
(2.2
)
(0.6
)
Decrease due to lapse of applicable statute of limitations
(55.0
)
(3.4
)
Decrease due to effects of foreign currency exchange rates
(2.0
)
(0.5
)
Balance as of December 31
$
270.5
$
344.6
(a)Includes recurring accruals for issues which initially arose in previous periods.
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $260.1 million and $333.2 million as of December 31, 2022 and 2021, respectively, excluding interest and penalties.
The Company recognizes interest and penalties with respect to unrecognized tax benefits in Provision for income taxes in its Consolidated Statements of Income and records the associated liability in Income taxes payable in its Consolidated Balance Sheets. The Company recognized $(10.9) million, $4.4 million, and $1.9 million in interest and penalties during the years ended December 31, 2022, 2021, and 2020, respectively. The Company has accrued $21.0 million and $32.8 million for the payment of interest and penalties as of December 31, 2022 and 2021, respectively.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The unrecognized tax benefits accrual as of December 31, 2022 consists of federal, state, and foreign tax matters. It is reasonably possible that the Company’s total unrecognized tax benefits will decrease by approximately $4 million during the next 12 months in connection with various matters which may be resolved.
The Company and its subsidiaries file tax returns for the United States, for multiple states and localities, and for various non-United States jurisdictions, and the Company has identified the United States as its major tax jurisdiction, as the income tax imposed by any one foreign country is not material to the Company. The Company's tax filings are subject to examination by U.S. federal, state, and various non-United States jurisdictions. The conclusion of the IRS Examination resulted in both agreed and unagreed adjustments. The agreed adjustments have been reflected in the Company's financial statements for the year ended December 31, 2022. The Company is contesting the unagreed adjustments at the IRS Appeals level and believes its reserves for these proposed adjustments are adequate. The statute of limitations for the U.S. federal income tax returns for 2017 and 2018 has been extended to March 31, 2024. The Company's U.S. federal income tax returns since 2019 are also eligible to be examined.
12. Employee Benefit Plans
Defined Contribution Plans
The Company administers several defined contribution plans in various countries globally, including The Western Union Company Incentive Savings Plan (the “401(k)”), which covers eligible employees on the United States payroll. Such plans have vesting and employer contribution provisions that vary by country. In addition, the Company sponsors a non-qualified deferred compensation plan for a select group of highly compensated United States employees. The plan provides tax-deferred contributions and the restoration of Company contributions otherwise limited under the 401(k). The aggregate amount charged to expense in connection with all of the above plans was $13.6 million, $17.8 million, and $18.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Defined Benefit Plan
On July 22, 2021, the Company’s Board of Directors approved a plan to terminate and settle the Company's frozen defined benefit pension plan (the "Plan"). Upon settlement in the fourth quarter of 2021, the Company transferred Plan assets to an insurance company that will provide for and pay the remaining benefits to participants.
The Company incurred $109.8 million of charges associated with this settlement in the year ended December 31, 2021. The pre-tax balance in AOCL associated with the Plan, along with costs related to the settlement, were recorded as a component of Total other income/(expense), net, with the related income tax effects recorded in Provision for income taxes, in the Consolidated Statements of Income. As of December 31, 2022 and 2021, the Company had $14.6 million and $18.4 million of restricted cash, respectively, and $7.4 million and $11.9 million of investments, respectively, remaining from the settlement, which are included in Other assets in the Consolidated Balance Sheets. These assets have been and will be used to fund contributions to the Company's defined contribution plan in future periods.
The net periodic benefit cost associated with the Plan was $9.4 million and $4.4 million for the years ended December 31, 2021 and 2020, respectively. The Company made no material contributions to the Plan during the years ended December 31, 2021 and 2020.
13. Leases
The Company leases real properties for use as administrative and sales offices, in addition to transportation, office, and other equipment. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Operating lease ROU assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the rate
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease and variable non-lease components within the Company’s lease agreements are accounted for separately. The Company has no material leases in which the Company is the lessor.
The Company’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis. As of December 31, 2022 and 2021, total ROU assets were $122.4 million and $164.5 million, respectively, and operating lease liabilities were $161.3 million and $203.0 million, respectively. The ROU assets and operating lease liabilities are included in Other assets and Other liabilities, respectively, in the Company’s Consolidated Balance Sheets. Cash paid for operating lease liabilities is included in Cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. Operating lease costs, which are included in Total expenses in the Company’s Consolidated Statements of Income, were $40.3 million, $50.6 million, and $59.8 million for the years ended December 31, 2022, 2021, and 2020, respectively. Short-term and variable lease costs were not material for the years ended December 31, 2022, 2021, and 2020.
The Company’s leases have remaining terms from less than 1 year to nearly 9 years. Certain of these leases contain escalation provisions and/or renewal options, giving the Company the right to extend the lease by up to 10 years. However, a substantial majority of these options are not reflected in the calculation of the ROU asset and operating lease liability due to uncertainty surrounding the likelihood of renewal.
The following table summarizes the weighted-average lease terms and discount rates for operating lease liabilities:
December 31, 2022
December 31, 2021
Weighted-average remaining lease term (in years)
6.4
6.8
Weighted-average discount rate
6.1
%
5.4
%
The following table represents maturities of operating lease liabilities as of December 31, 2022 (in millions):
December 31, 2022
Due within 1 year
$
38.1
Due after 1 year through 2 years
32.4
Due after 2 years through 3 years
27.9
Due after 3 years through 4 years
23.2
Due after 4 years through 5 years
18.0
Due after 5 years
50.9
Total lease payments
190.5
Less imputed interest
(29.2
)
Total operating lease liabilities
$
161.3
14. Stockholders’ Equity
Accumulated Other Comprehensive Loss
AOCL includes all changes in equity during a period that have not yet been recognized in income, except those resulting from transactions with shareholders. The components include unrealized gains and losses on investment securities, unrealized gains and losses from cash flow hedging activities, foreign currency translation adjustments, and defined benefit pension plan adjustments.
Unrealized gains and losses on investment securities that are available for sale, primarily state and municipal debt securities, are included in AOCL until the investment is either sold or experiences a credit loss. See Note 8 for further discussion.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effective portion of the change in the fair value of derivatives that qualifies as a cash flow hedge is recorded in AOCL. Generally, amounts are recognized in income when the related forecasted transaction affects earnings. See Note 15 for further discussion.
While the United States dollar is the functional currency for substantially all of the Company’s businesses, the assets and liabilities of foreign subsidiaries whose functional currency is not the 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 these foreign currencies compared to the United States dollar. These gains and losses are accumulated in other comprehensive income/(loss). When a foreign subsidiary is substantially liquidated or sold, the cumulative translation gain or loss is removed from AOCL and recognized as a component of the gain or loss on the liquidation or sale. During the year ended December 31, 2022, the Company reclassified $17.8 million of currency translation gains previously included within AOCL as a component of Gain on divestiture of business in the Consolidated Statements of Income. See Note 5 for further discussion.
On July 22, 2021, the Company’s Board of Directors approved a plan to terminate and settle the Company’s frozen defined benefit pension plan. As discussed in Note 12, in the fourth quarter of 2021, the Company settled its defined benefit pension plan and incurred approximately $109.8 million of charges associated with this settlement. The pre-tax balance in AOCL was reclassified as a component of Total other income/(expense), net, with the related income tax effects recorded in Provision for income taxes in the Consolidated Statements of Income.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table details reclassifications out of AOCL and into Net income. All amounts reclassified from AOCL affect the line items as indicated below, and the amounts in parentheses indicate decreases to Net income in the Consolidated Statements of Income.
Amounts Reclassified from AOCL to Net Income
Income Statement
Year Ended December 31,
Income for the period (in millions)
Location
Accumulated other comprehensive loss components:
Gains/(losses) on investment securities:
Available-for-sale securities
Revenues
$
(8.9
)
$
3.7
$
0.6
Income tax benefit/(expense)
Provision for income taxes
1.7
(0.8
)
(0.1
)
Total reclassification adjustments related to investment securities, net of tax
(7.2
)
2.9
0.5
Gains/(losses) on cash flow hedges:
Foreign currency contracts
Revenues
47.7
(7.6
)
1.2
Interest rate contracts
Interest expense
-
(0.6
)
(0.6
)
Interest rate contracts
Other income/(expense), net
-
0.7
-
Income tax benefit/(expense)
Provision for income taxes
(0.4
)
-
0.1
Total reclassification adjustments related to cash flow hedges, net of tax
47.3
(7.5
)
0.7
Foreign currency translation adjustments:
Foreign currency translation
Gain on divestiture of business
17.8
-
-
Total reclassification adjustments related to foreign currency translation adjustments, net of tax
17.8
-
-
Effects of 2021 settlement and amortization of components of defined benefit plans:
Settlement charges
Pension settlement charges
-
(109.8
)
-
Actuarial loss
Other income/(expense), net
-
(9.9
)
(12.1
)
Income tax benefit
Provision for income taxes
-
25.7
2.7
Total reclassification adjustments related to defined benefit plans, net of tax
-
(94.0
)
(9.4
)
Total reclassifications, net of tax
$
57.9
$
(98.6
)
$
(8.2
)
The following tables summarize the components of AOCL, net of tax in the accompanying Consolidated Balance Sheets (in millions):
Investment
Hedging
Foreign
Currency
Securities
Activities
Translation
Total
As of December 31, 2021
$
30.4
$
18.7
$
(101.2
)
$
(52.1
)
Unrealized gains/(losses)
(130.8
)
49.5
-
(81.3
)
Tax benefit/(expense)
23.8
(0.4
)
-
23.4
Amounts reclassified from AOCL into earnings, net of tax
7.2
(47.3
)
(17.8
)
(57.9
)
As of December 31, 2022
$
(69.4
)
$
20.5
$
(119.0
)
$
(167.9
)
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investment
Hedging
Foreign
Currency
Defined
Benefit
Securities
Activities
Translation
Pension Plan
Total
As of December 31, 2020
$
58.3
$
(30.5
)
$
(101.2
)
$
(86.1
)
$
(159.5
)
Unrealized gains/(losses)
(31.0
)
42.9
-
(8.7
)
3.2
Tax benefit/(expense)
6.0
(1.2
)
-
0.8
5.6
Amounts reclassified from AOCL into earnings, net of tax
(2.9
)
7.5
-
94.0
98.6
As of December 31, 2021
$
30.4
$
18.7
$
(101.2
)
$
-
$
(52.1
)
Investment
Hedging
Foreign
Currency
Defined
Benefit
Securities
Activities
Translation
Pension Plan
Total
As of December 31, 2019
$
24.7
$
(3.6
)
$
(101.2
)
$
(128.9
)
$
(209.0
)
Unrealized gains/(losses)
41.5
(26.4
)
-
43.5
58.6
Tax benefit/(expense)
(7.4
)
0.2
-
(10.1
)
(17.3
)
Amounts reclassified from AOCL into earnings, net of tax
(0.5
)
(0.7
)
-
9.4
8.2
As of December 31, 2020
$
58.3
$
(30.5
)
$
(101.2
)
$
(86.1
)
$
(159.5
)
Cash Dividends Paid
Cash dividends paid for the years ended December 31, 2022, 2021, and 2020 were $361.6 million, $380.5 million, and $369.9 million, respectively. Dividends per share declared quarterly by the Company’s Board of Directors during the years ended 2022, 2021, and 2020 were as follows:
Year
Q1
Q2
Q3
Q4
$
0.235
$
0.235
$
0.235
$
0.235
$
0.235
$
0.235
$
0.235
$
0.235
$
0.225
$
0.225
$
0.225
$
0.225
On February 7, 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.235 per common share payable on March 31, 2023.
Share Repurchases
During the years ended December 31, 2022, 2021, and 2020, 22.3 million, 19.5 million, and 8.5 million shares, respectively, were repurchased for $351.8 million, $400.0 million, and $217.4 million, respectively, excluding commissions, at an average cost of $15.81, $20.56, and $25.45, respectively, under the share repurchase authorizations approved by the Company's Board of Directors, including one which expired on December 31, 2021. On February 10, 2022, the Company's Board of Directors authorized $1.0 billion of common stock repurchases through December 31, 2024. As of December 31, 2022, $648.2 million remained available under this share repurchase authorization. The amounts included in the Common stock repurchased line in the Company’s Consolidated Statements of Cash Flows represent both shares authorized by the Board of Directors for repurchase under publicly announced authorizations and shares withheld from employees to cover tax withholding obligations on restricted stock units that have vested.
15. Derivatives
The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and, to a lesser degree, the British pound, the Canadian dollar, and other currencies, related to forecasted revenues and settlement assets and obligations, as well as on certain foreign currency denominated cash and other asset and liability
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
positions. The Company is also exposed to risk from derivative contracts, primarily from customer derivatives, arising from its cross-currency Business Solutions payment operations. Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt. The Company has used derivatives to: (i) minimize its exposures related to changes in foreign currency exchange rates and interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers.
The Company executes derivatives with established financial institutions; the substantial majority of these financial institutions have a credit rating of "A-" or higher from a major credit rating agency. Customer derivatives written by the Company’s Business Solutions operations primarily involve small and medium size enterprises. The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. The Company performs a review of the credit risk of these counterparties at the inception of the contract and on an ongoing basis, while also monitoring the concentration of its contracts with any individual counterparty. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements but takes action when doubt arises about the counterparties’ ability to perform. These actions may include requiring Business Solutions customers to post or increase collateral, and for all counterparties, the possible termination of the related contracts. The Company’s hedged foreign currency exposures are in liquid currencies; consequently, there is minimal risk that appropriate derivatives to maintain the hedging program would not be available in the future.
Foreign Currency Derivatives
The Company’s policy is to use longer duration foreign currency forward contracts, with maturities of up to 36 months at inception and a targeted weighted-average maturity of approximately one year, to help mitigate some 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. As of December 31, 2022, these foreign currency forward contracts had maturities of a maximum of 24 months with a weighted-average maturity of approximately one year. These contracts are accounted for as cash flow hedges of forecasted revenue, with effectiveness assessed based on changes in the spot rate of the affected currencies during the period of designation and thus time value is excluded from the assessment of effectiveness. The initial value of the excluded components is amortized into Revenues within the Company’s Consolidated Statements of Income.
The Company also uses short duration foreign currency forward contracts, generally with maturities ranging from a few days to one month, to offset foreign exchange rate fluctuations on settlement assets and obligations between initiation and settlement. In addition, forward contracts, typically with maturities of less than one year at inception, are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability positions. None of these contracts are designated as accounting hedges.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of December 31, 2022 and 2021 were as follows (in millions):
December 31, 2022
Contracts designated as hedges:
Euro
$
321.6
Canadian dollar
117.3
Australian dollar
53.2
Swiss franc
40.4
British pound
40.4
Swedish krona
25.8
Other(a)
22.1
Contracts not designated as hedges:
Euro
$
603.2
Mexican peso
132.9
British pound
115.1
Indian rupee
52.6
Australian dollar
48.7
Canadian dollar
32.2
Japanese yen
30.5
Chinese yuan
30.1
Swiss franc
28.3
Swedish krona
26.7
Philippine peso
26.2
Other(a)
137.0
December 31, 2021
Contracts designated as hedges:
Euro
$
399.9
Canadian dollar
134.0
Australian dollar
58.4
Swiss franc
45.9
British pound
43.8
Swedish krona
30.7
Japanese yen
30.4
Other(a)
0.9
Contracts not designated as hedges:
Euro
$
755.7
British pound
148.1
Canadian dollar
144.2
Australian dollar
98.1
Mexican peso
96.3
Philippine peso
76.2
Indian rupee
63.4
Japanese yen
46.0
Russian ruble
44.4
Chinese yuan
31.6
New Zealand dollar
26.6
Swiss franc
25.1
Swedish krona
25.1
Other(a)
132.7
(a)Comprised of exposures to various currencies; none of these individual currency exposures is greater than $25 million.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Business Solutions Operations
The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises and derives a currency spread from this activity as part of its Business Solutions operations. On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC. The first closing occurred on March 1, 2022, the second occurred on December 31, 2022, and the third closing is expected in the second quarter of 2023. See Note 5 for further information regarding this transaction. The Company aggregates its Business Solutions foreign currency exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with Convera through the end of the third closing of the Business Solutions divestiture. The derivatives written are part of the broader portfolio of foreign currency positions arising from the Company’s cross-currency payments operations, which primarily include spot exchanges of currency, in addition to forwards and options. Foreign exchange revenues from the total portfolio of positions were $177.4 million, $366.8 million, and $311.9 million for the years ended December 31, 2022, 2021, and 2020, respectively, and were included in Revenues in the Company’s Consolidated Statements of Income. None of the derivative contracts used in Business Solutions operations are designated as accounting hedges, and the majority of these derivative contracts have a duration at inception of less than one year.
The aggregate equivalent United States dollar notional amount of derivative customer contracts held by the Company in its Business Solutions operations was approximately $3.0 billion and $8.0 billion as of December 31, 2022 and 2021, respectively. As of December 31, 2022, the significant majority of customer contracts are written in the following currencies: the United States dollar and euro.
Interest Rate Hedging
The Company terminated two of its treasury locks in the first quarter of 2021, which were associated with the issuance of $600.0 million of aggregate principal amount of 1.350% unsecured notes due March 15, 2026 (“2026 Notes”). The Company received a total of $3.3 million upon termination, of which $2.6 million was deferred as a component of AOCL and will be amortized to Interest expense in the Consolidated Statements of Income over the term of the 2026 Notes. As a portion of the forecasted interest payments on the 2026 Notes will occur outside the time period originally specified at designation of the treasury locks as cash flow hedges, $0.7 million was recognized in Other income/(expense), net in the Consolidated Statements of Income, upon termination.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance Sheet
The following table summarizes the fair value of derivatives reported in the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021 (in millions):
Derivative Assets
Derivative Liabilities
Fair Value
Fair Value
Balance Sheet
December 31,
December 31,
Balance Sheet
December 31,
December 31,
Location
Location
Derivatives designated as hedges:
Foreign currency cash flow hedges
Other assets
$
35.2
$
30.6
Other liabilities
$
4.7
$
2.6
Total derivatives designated as hedges
$
35.2
$
30.6
$
4.7
$
2.6
Derivatives not designated as hedges:
Business Solutions operations - foreign currency(a)
Assets held for sale
$
88.6
$
213.1
Liabilities associated with assets held for sale
$
89.5
$
174.1
Foreign currency
Other assets
2.3
4.0
Other liabilities
4.7
7.1
Total derivatives not designated as hedges
$
90.9
$
217.1
$
94.2
$
181.2
Total derivatives
$
126.1
$
247.7
$
98.9
$
183.8
(a)In many circumstances, the Company allows its Business Solutions customers to settle part or all of their derivative contracts prior to maturity. However, the offsetting positions entered into with Convera do not allow for similar settlement. To mitigate this, additional foreign currency contracts are entered into with Convera to offset the original economic hedge contracts. This frequently results in changes in the Company’s derivative assets and liabilities that may not directly align with the performance in the underlying derivatives business.
The fair values of derivative assets and liabilities associated with contracts that include netting language that the Company believes to be enforceable have been netted in the following tables to present the Company’s net exposure with these counterparties. The Company’s rights under these agreements generally allow for transactions to be settled on a net basis, including upon early termination, which could occur upon the counterparty’s default, a change in control, or other conditions.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, certain of the Company’s other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction, depending on the circumstances. Due to the uncertainty related to the enforceability of these provisions, the derivative balances associated with these agreements are included within "Derivatives that are not or may not be subject to master netting arrangement or similar agreement" in the following tables. In certain circumstances, the Company may require its Business Solutions customers to maintain collateral balances, which may mitigate the risk associated with potential customer defaults.
The following tables summarize the gross and net fair value of derivative assets and liabilities as of December 31, 2022 and 2021 (in millions):
Offsetting of Derivative Assets
Gross
Gross
Net Amounts
Derivatives
Amounts of
Amounts Offset
Presented
Not Offset
Recognized
in the Consolidated
in the Consolidated
in the Consolidated
Net
December 31, 2022
Assets
Balance Sheets
Balance Sheets
Balance Sheets
Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
55.8
$
-
$
55.8
$
(26.3
)
$
29.5
Derivatives that are not or may not be subject to master netting arrangement or similar agreement
70.3
Total
$
126.1
December 31, 2021
Derivatives subject to a master netting arrangement or similar agreement
$
163.9
$
-
$
163.9
$
(92.4
)
$
71.5
Derivatives that are not or may not be subject to master netting arrangement or similar agreement
83.8
Total
$
247.7
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Offsetting of Derivative Liabilities
Gross
Gross
Net Amounts
Derivatives
Amounts of
Amounts Offset
Presented
Not Offset
Recognized
in the Consolidated
in the Consolidated
in the Consolidated
Net
December 31, 2022
Liabilities
Balance Sheets
Balance Sheets
Balance Sheets
Amounts
Derivatives subject to a master netting arrangement or similar agreement
$
77.8
$
-
$
77.8
$
(26.3
)
$
51.5
Derivatives that are not or may not be subject to master netting arrangement or similar agreement
21.1
Total
$
98.9
December 31, 2021
Derivatives subject to a master netting arrangement or similar agreement
$
109.6
$
-
$
109.6
$
(92.4
)
$
17.2
Derivatives that are not or may not be subject to master netting arrangement or similar agreement
74.2
Total
$
183.8
Income Statement
Cash Flow Hedges
The effective portion of the change in fair value of derivatives that qualify as cash flow hedges is recorded in AOCL in the Company’s Consolidated Balance Sheets. Generally, amounts are recognized in income when the related forecasted transaction affects earnings.
The following table presents the pre-tax amount of unrealized gains/(losses) recognized in other comprehensive income from cash flow hedges for the years ended December 31, 2022, 2021, and 2020 (in millions):
Year Ended December 31,
Foreign currency derivatives(a)
$
49.5
$
39.5
$
(26.3
)
Interest rate derivatives
-
3.4
(0.1
)
(a)For the years ended December 31, 2022, 2021, and 2020, gains/(losses) of ($1.8) million, ($2.4) million, and $0.3 million, respectively, represent amounts excluded from the assessment of effectiveness and recognized in other comprehensive income, for which an amortization approach is applied.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the location and amounts of pre-tax net gains/(losses) from cash flow hedging relationships recognized in the Consolidated Statements of Income for the years ended December 31, 2022, 2021, and 2020 (in millions):
Year Ended December 31,
Other
Income/
Interest
Interest
(Expense),
Interest
Revenues
Expense
Revenues
Expense
net
Revenues
Expense
Total amounts presented in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded
$
4,475.5
$
(101.0
)
$
5,070.8
$
(105.5
)
$
(21.7
)
$
4,835.0
$
(118.5
)
Gain/(loss) on cash flow hedges:
Foreign currency derivatives:
Gains/(losses) reclassified from AOCL into earnings
47.7
-
(7.6
)
-
-
1.2
-
Amount excluded from effectiveness testing recognized in earnings based on an amortization approach
5.6
-
6.1
-
-
10.4
-
Interest rate derivatives:
Gains/(losses) reclassified from AOCL into earnings
-
-
-
(0.6
)
0.7
-
(0.6
)
Undesignated Hedges
The following table presents the location and amount of pre-tax net gains from undesignated hedges in the Consolidated Statements of Income on derivatives for the years ended December 31, 2022, 2021, and 2020 (in millions):
Year Ended December 31,
Derivatives(a)
Location
Foreign currency derivatives(b)
Selling, general, and administrative
$
66.5
$
52.0
$
15.9
Total gain
$
66.5
$
52.0
$
15.9
(a)The Company uses foreign currency forward and option contracts as part of its Business Solutions payments operations. These derivative contracts are excluded from this table as they are managed as part of a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed above.
(b)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 losses on settlement assets and obligations, cash balances, and other assets and liabilities, not including amounts related to derivative activity as displayed above, and included in Selling, general, and administrative in the Consolidated Statements of Income, were $62.2 million, $56.1 million, and $37.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.
All cash flows associated with derivatives are included in Cash flows from operating activities in the Consolidated Statements of Cash Flows.
Based on December 31, 2022 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $24.3 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Borrowings
The Company’s outstanding borrowings consisted of the following (in millions):
December 31, 2022
December 31, 2021
Commercial paper
$
180.0
$
275.0
Notes:
4.250% notes due 2023(a)
300.0
300.0
2.850% notes due 2025(a)
500.0
500.0
1.350% notes due 2026(a)
600.0
600.0
2.750% notes due 2031(a)
300.0
300.0
6.200% notes due 2036(a)
500.0
500.0
6.200% notes due 2040(a)
250.0
250.0
Term loan facility borrowing(b)
-
300.0
Total borrowings at par value
2,630.0
3,025.0
Debt issuance costs and unamortized discount, net
(13.2
)
(16.6
)
Total borrowings at carrying value(c)
$
2,616.8
$
3,008.4
(a)The difference between the stated interest rate and the effective interest rate is not significant.
(b)See the Term Loan Facility section below for further discussion of the repayment of the term loan made in 2022.
(c)As of December 31, 2022, the Company’s weighted-average effective rate on total borrowings was approximately 3.9%.
The following summarizes the Company’s maturities of notes at par value as of December 31, 2022 (in millions):
Due within 1 year
$
300.0
Due after 1 year through 2 years
-
Due after 2 years through 3 years
500.0
Due after 3 years through 4 years
600.0
Due after 4 years through 5 years
-
Due after 5 years
1,050.0
Total
$
2,450.0
The Company’s obligations with respect to its outstanding borrowings, as described below, rank equally.
Commercial Paper Program
Pursuant to the Company’s commercial paper program, the Company may issue unsecured commercial paper notes in an amount not to exceed $1.5 billion outstanding at any time, reduced to the extent of borrowings outstanding on the Company’s Revolving Credit Facility as defined below. 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, 2022 had a weighted-average annual interest rate of approximately 4.6% and a weighted-average term of approximately 3 days. As of December 31, 2022 and 2021, the Company had $180.0 million and $275.0 million in commercial paper borrowings outstanding, respectively.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revolving Credit Facility
On December 18, 2018, the Company entered into a credit agreement providing for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility, with a final maturity date of January 8, 2025 (“Revolving Credit Facility”). The Company is required to maintain compliance with a consolidated adjusted Earnings before Interest, Taxes, Depreciation and Amortization interest coverage ratio covenant of greater than 3:1 for each period of four consecutive fiscal quarters. The Revolving Credit Facility supports borrowings under the Company’s commercial paper program. On October 31, 2022, the Company amended the Revolving Credit Facility to transition away from London Interbank Offered Rate ("LIBOR") and to now draw loans payable based upon the Secured Overnight Financing Rate, the Euro Interbank Offered Rate, or the Sterling Overnight Index Average.
Interest due under the Revolving Credit Facility is fixed for the term of each borrowing and is payable according to the terms of that borrowing. Generally, interest is calculated using a selected term benchmark rate plus an interest rate margin of 110 basis points. A facility fee is also payable quarterly at an annual rate of 15 basis points on the total facility, regardless of usage. Both the interest rate margin and facility fee percentage are based on certain of the Company's credit ratings.
As of December 31, 2022 and 2021, the Company had no outstanding borrowings under its Revolving Credit Facility.
Term Loan Facility
On December 18, 2018, the Company entered into an amended and restated term loan facility providing for up to $950.0 million in borrowings and extending the final maturity of the facility to January 2024 (the "Term Loan Facility"). In October 2016, the Company borrowed $575.0 million under the prior term loan facility. In December 2018, the Company borrowed the remaining amount available under the Term Loan Facility. In the first quarter of 2021, proceeds from the 2026 Notes (as defined in Note 15) and the 2031 Notes (as defined below), and cash, including cash generated from operations, were used to repay $650.0 million of the Term Loan Facility. On January 4, 2022, the Company repaid all remaining borrowings owed under the Term Loan Facility for total consideration of $300.0 million, using proceeds from commercial paper and cash, including cash generated from operations. The Company is no longer able to borrow money under this facility.
Notes
On March 9, 2021, the Company issued $600.0 million of the 2026 Notes and $300.0 million of aggregate principal amount of 2.750% unsecured notes due March 15, 2031 (“2031 Notes”). Interest with respect to these notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Company may redeem the 2026 Notes and the 2031 Notes, in whole or in part, at any time prior to February 15, 2026 and December 15, 2030, respectively, at the greater of par or a price based on the applicable treasury rate plus 15 and 25 basis points, respectively. The Company may redeem the 2026 Notes and the 2031 Notes at any time after February 15, 2026 and December 15, 2030, respectively, at a price equal to par, plus accrued interest.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On November 25, 2019, the Company issued $500.0 million of aggregate principal amount of unsecured notes due January 10, 2025 (“2025 Notes”). Interest with respect to the 2025 Notes is payable semi-annually in arrears on January 10 and July 10 of each year, beginning on July 10, 2020, based on the per annum rate of 2.850%. The interest rate payable on the 2025 Notes will be increased if the debt rating assigned to these notes is downgraded by an applicable credit rating agency, beginning at a downgrade below investment grade. However, in no event will the interest rate on the 2025 Notes exceed 4.850% per annum. The interest rate payable on the 2025 Notes may also be adjusted downward for debt rating upgrades subsequent to any debt rating downgrades but may not be adjusted below 2.850% per annum. The Company may redeem the 2025 Notes, in whole or in part, at any time prior to December 10, 2024 at the greater of par or a price based on the applicable treasury rate plus 20 basis points. The Company may redeem the 2025 Notes at any time after December 10, 2024 at a price equal to par, plus accrued interest.
On June 11, 2018, the Company issued $300.0 million of aggregate principal amount of unsecured notes due June 9, 2023 (“2023 Notes”). Interest with respect to the 2023 Notes is payable semi-annually in arrears on June 9 and December 9 of each year, beginning on December 9, 2018, based on the per annum rate of 4.250%. The interest rate payable on the 2023 Notes will be increased if the debt rating assigned to these notes is downgraded by an applicable credit rating agency, beginning at a downgrade below investment grade. However, in no event will the interest rate on the 2023 Notes exceed 6.250% per annum. The interest rate payable on the 2023 Notes may also be adjusted downward for debt rating upgrades subsequent to any debt rating downgrades but may not be adjusted below 4.250% per annum. The Company may redeem the 2023 Notes, in whole or in part, at any time prior to May 9, 2023 at the greater of par or a price based on the applicable treasury rate plus 25 basis points. The Company may redeem the 2023 Notes at any time after May 9, 2023 at a price equal to par, plus accrued interest.
On March 15, 2017, the Company issued $400.0 million of aggregate principal amount of unsecured notes due March 15, 2022. On August 22, 2017, the Company issued an additional $100.0 million of aggregate principal amount of unsecured notes due March 15, 2022 for an aggregate principal total of $500.0 million of 3.600% unsecured notes (“2022 Notes”). The 2022 Notes were repaid in April 2021 using proceeds from the 2026 Notes and the 2031 Notes. The cost associated with the early termination of the 2022 Notes, including the make-whole premium of $14.3 million, was recorded to Other income/(expense), net, during the year ended December 31, 2021.
On June 21, 2010, the Company issued $250.0 million of aggregate principal amount of unsecured notes due June 21, 2040 (“2040 Notes”). Interest with respect to the 2040 Notes is payable semi-annually on June 21 and December 21 each year based on the fixed per annum rate of 6.200%. 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 November 17, 2006, the Company issued $500.0 million of aggregate principal amount of unsecured notes due November 17, 2036 (“2036 Notes”). Interest with respect to the 2036 Notes is payable semi-annually on May 17 and November 17 each year based on the fixed per annum rate of 6.200%. The Company may redeem the 2036 Notes at any time prior to maturity at the greater of par or a price based on the applicable treasury rate plus 25 basis points.
The Revolving Credit Facility contains covenants, subject to certain exceptions, that, among other things, limit or restrict the Company’s ability to sell or transfer assets or merge or consolidate with another company, grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into sale and leaseback transactions, incur certain subsidiary level indebtedness, or use proceeds in violation of anti-corruption or anti-money laundering laws. The Company’s notes are subject to similar covenants except that only the 2036 Notes contain covenants limiting or restricting subsidiary indebtedness, and none of the Company’s notes are subject to a covenant that limits the Company’s ability to impose restrictions on subsidiary dividends.
Certain of the Company’s notes (including the 2023 Notes, 2025 Notes, 2026 Notes, 2031 Notes, and 2040 Notes) include a change of control triggering event provision, as defined in the terms of the notes. If a change of control triggering event occurs, holders of the notes may require the Company to repurchase some or all of their notes at a price equal to 101% of the principal amount of their notes, plus any accrued and unpaid interest. A change of control triggering event will occur when there is a change of control involving the Company and among other things, within a specified period in
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
relation to the change of control, the notes are downgraded from an investment grade rating to below an investment grade rating by certain major credit rating agencies.
17. Stock-Based Compensation Plans
The Western Union Company 2015 Long-Term Incentive Plan
The Western Union Company 2015 Long-Term Incentive Plan (“2015 LTIP”), approved on May 15, 2015, provides for the granting of stock options, restricted stock awards and units, unrestricted stock awards and units, and other equity-based awards to employees and non-employee directors of the Company. Shares available for grant under the 2015 LTIP were 14.1 million as of December 31, 2022.
Stock options granted to employees under the 2015 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 one year after the grant date. Stock options granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. Compensation expense related to stock options is recognized over the requisite service period, which is the same as the vesting period.
Restricted stock units granted to employees typically vest three years after the grant date or vest over three or four equal annual increments beginning one year after the grant date. Restricted stock units granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. The fair value of restricted stock units is measured based on the Company’s stock price on the grant date. Restricted stock units accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest. Compensation expense related to restricted stock units is recognized over the requisite service period, which is the same as the vesting period.
In 2022, the Compensation and Benefits Committee of the Company’s Board of Directors ("the CBC") granted the Company’s executive officers and certain other key employees, excluding the CEO, long-term incentive awards under the 2015 LTIP, which consisted of 60% Financial PSUs with a TSR modifier (as defined below) and 40% restricted stock unit awards. In 2022, the CEO received long-term incentive awards under the 2015 LTIP consisting of 60% Financial PSUs with a TSR modifier, 20% stock option awards, and 20% restricted stock unit awards. The CBC granted other executive management of the Company awards under the 2015 LTIP, which consisted of 50% Financial PSUs with a TSR modifier and 50% restricted stock unit awards. In 2021, the CBC granted the Company’s executive officers and certain other key employees, excluding the CEO, long-term incentive awards under the 2015 LTIP, which consisted of 50% Financial PSUs (as defined below), 30% restricted stock unit awards, and 20% TSR PSUs (as defined below). The former CEO received long-term incentive awards under the 2015 LTIP consisting of 50% Financial PSUs, 20% TSR PSUs, 20% stock option awards, and 10% restricted stock unit awards. The CBC granted other executive management of the Company awards under the 2015 LTIP, which consisted of 50% Financial PSUs and 50% restricted stock unit awards. Additionally, the CBC granted certain other non-executive employees of the Company participating in the 2015 LTIP annual equity grants consisting of restricted stock unit awards in 2022 and 2021.
In December 2021, the Company granted its new CEO restricted stock units and stock options on the date of hire. The terms of these awards are consistent with the restricted stock units and stock options discussed above, with the exception of the vesting period of the restricted stock units, which vested over two equal increments in August 2022 and February 2023.
The performance-based restricted stock units granted to the Company’s executives in 2022 are restricted stock units that include a financial performance condition and a market condition ("Financial PSUs with a TSR modifier"). The financial metric requires the Company to meet certain financial objectives over three individual, annual performance periods (2022 through 2024). The market condition consists of a modifier tied to the Company’s total shareholder return in relation to the S&P 500 Index as calculated over a three-year performance period (2022 through 2024).
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The performance-based restricted stock units granted to the Company’s executives in 2021 are restricted stock units and consist of two separate awards. The first award consists of performance-based restricted stock units, which require the Company to meet certain annual financial objectives over a three-year performance period (2021 through 2023) (“Financial PSUs”). Financial PSUs accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest. The second award consists of performance-based restricted stock units with a market condition tied to the Company’s total shareholder return in relation to the S&P 500 Index as calculated over a three-year performance period (2021 through 2023) (“TSR PSUs”).
All PSUs discussed above will vest 100% on the third anniversary of the grant date, contingent upon threshold financial and market performance metrics being met. The actual number of performance-based restricted stock units that the recipients will receive for awards in 2022 and 2021 range from 0% up to 200% of the target number of stock units granted, contingent upon actual financial and total shareholder return performance results. The grant date fair value of all performance based restricted stock units is fixed, and the amount of restricted stock units that will ultimately vest depends upon the level of achievement of the performance and market conditions over the performance period. All awards granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. The fair value of the Financial PSUs is measured with a methodology similar to that used to value the restricted stock units discussed above, while the fair value of the TSR PSUs and the Financial PSUs with a TSR modifier are determined using the Monte-Carlo simulation model. Unlike the Financial PSUs and the Financial PSUs with a TSR modifier, compensation costs related to the TSR PSUs are recognized regardless of whether the market condition is satisfied, provided that the requisite service period has been completed.
The Company has also granted restricted stock units and options under the 2015 LTIP to the non-employee directors of the Company. The fair value of these restricted stock units is measured based on the fair value of the shares on the grant date and may be settled upon vesting unless the participant elects to defer the receipt of common shares under the applicable plan rules. Options have 10-year terms and are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date. Both of these awards vest one year after the grant date and on a prorated basis upon a qualifying departure. Compensation expense for these awards is recognized over the requisite service period, which is the same as the vesting period.
Stock Option Activity
A summary of stock option activity for the year ended December 31, 2022 was as follows (options and aggregate intrinsic value in millions):
Weighted-
Average
Exercise
Weighted-Average
Remaining
Contractual Term
Aggregate
Intrinsic
Options
Price
(Years)
Value
Outstanding as of January 1
7.0
$
18.98
Granted
0.5
$
18.62
Exercised
(0.6
)
$
17.56
Cancelled/forfeited
(0.5
)
$
23.64
Outstanding as of December 31
6.4
$
18.68
6.6
$
-
Options exercisable as of December 31
4.1
$
18.97
5.3
$
-
The Company received $9.5 million, $11.6 million, and $2.2 million in cash proceeds related to the exercise of stock options during the years ended December 31, 2022, 2021, and 2020, respectively. Upon the exercise of stock options, shares of common stock are issued from authorized common shares.
The Company realized total tax benefits during the years ended December 31, 2022, 2021, and 2020 from stock option exercises of $0.2 million, $0.6 million, and $0.2 million, respectively.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The total intrinsic value of stock options exercised during the years ended December 31, 2022, 2021, and 2020 was $0.8 million, $2.8 million, and $0.8 million, respectively.
Restricted Stock Activity
A summary of activity for restricted stock units and performance-based restricted stock units for the year ended December 31, 2022 was as follows (units in millions):
Weighted-Average
Units
Grant-Date Fair Value
Non-vested as of January 1
7.5
$
21.91
Granted
4.0
$
19.45
Vested
(2.2
)
$
21.11
Forfeited
(2.9
)
$
21.17
Non-vested as of December 31
6.4
$
21.01
Stock-Based Compensation Expense
The following table sets forth the total impact on earnings for stock-based compensation expense recognized in the Consolidated Statements of Income resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units for the years ended December 31, 2022, 2021, and 2020 (in millions, except per share data):
Stock-based compensation expense
$
(45.5
)
$
(44.3
)
$
(41.7
)
Income tax benefit from stock-based compensation expense
8.1
7.5
6.9
Net income impact
$
(37.4
)
$
(36.8
)
$
(34.8
)
Earnings per share impact:
Basic and diluted
$
(0.10
)
$
(0.09
)
$
(0.08
)
As of December 31, 2022, there was $4.1 million of total unrecognized compensation cost, net of assumed forfeitures, related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.0 years, and there was $40.4 million of total unrecognized compensation cost, net of assumed forfeitures, related to non-vested restricted stock units and performance-based restricted stock units, which is expected to be recognized over a weighted-average period of 2.0 years.
Fair Value Assumptions
The Company used the following assumptions for the Black-Scholes option pricing model to determine the value of Western Union options granted for the years ended December 31, 2022, 2021, and 2020:
Stock options granted:
Weighted-average risk-free interest rate
1.9
%
1.3%
1.5%
Weighted-average dividend yield
4.3
%
4.2%
4.0%
Volatility
29.9
%
29.1%
25.2%
Expected term (in years)
7.28
7.03
7.12
Weighted-average grant date fair value
$
3.47
$
3.26
$
3.96
Risk-free interest rate - The risk-free rate for stock options granted during all periods presented was determined by using a United States Treasury rate for the period that coincided with the expected terms listed above.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Expected dividend yield - The Company’s expected annual dividend yield for all periods presented was the calculation of the annualized Western Union dividend divided by an average Western Union stock price on each respective grant date.
Expected volatility - For the Company’s CEO and non-employee directors, the Company used a blend of implied and historical volatility, which was calculated using the market price of traded options on Western Union’s common stock and the historical volatility of Western Union stock data. There were no options granted to non-executive employees in 2022, 2021, or 2020.
Expected term - For 2022, 2021, and 2020, the expected term for the CEO and non-employee director grants was approximately seven years and eight years, respectively. The Company’s expected term for options was based upon, among other things, historical exercises, the vesting term of the Company’s options, and the options’ contractual term of 10 years.
The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s historical experience and future expectations. The calculated fair value is recognized as compensation cost in the Company’s consolidated financial statements over the requisite service period of the entire award. Compensation cost is recognized only for those options expected to vest, with forfeitures estimated at the date of grant and evaluated and adjusted periodically to reflect the Company’s historical experience and future expectations. Any change in the forfeiture assumption is accounted for as a change in estimate, with the cumulative effect of the change on periods previously reported being reflected in the consolidated financial statements of the period in which the change is made.
18. Segments
As further described in Note 1, the Company classifies its business into two segments: Consumer-to-Consumer and Business Solutions. Operating segments are defined as components of an enterprise that engage in business activities, about which separate financial information is available that is evaluated regularly by the Company’s CODM in allocating resources and assessing performance.
The Consumer-to-Consumer operating segment facilitates money transfers between two consumers. The segment includes five geographic regions whose functions are primarily related to generating, managing, and maintaining agent relationships and localized marketing activities. The Company includes Branded Digital transactions in its regions. By means of common processes and systems, these regions, including Branded Digital, create one interconnected global network for consumer transactions, thereby constituting one Consumer-to-Consumer money transfer business and one operating segment.
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. On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC. The first closing occurred on March 1, 2022, the second occurred on December 31, 2022, and the third closing is expected in the second quarter of 2023. See Note 5 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 WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company’s segments are reviewed separately below because each segment represents a strategic business unit that offers different products and serves different markets. The business segment measurements provided to, and evaluated by, the Company’s CODM are computed in accordance with the following principles:
•The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
•Corporate costs, including overhead expenses, are allocated to the segments primarily based on a percentage of the segments’ revenue compared to total revenue. Effective January 1, 2022, the Company stopped allocating corporate costs to its Business Solutions segment, given its agreement to sell this business, as discussed further in Note 5.
•The CODM does not review total assets by segment for purposes of assessing segment performance and allocating resources. As such, the disclosure of total assets by segment has not been included below.
•All items not included in operating income are excluded from the segments.
The following tables present the Company’s segment results for the years ended December 31, 2022, 2021, and 2020 (in millions):
Year Ended December 31,
Revenues:
Consumer-to-Consumer
$
3,993.5
$
4,394.0
$
4,220.0
Business Solutions(a)
196.9
421.8
356.1
Other
285.1
255.0
258.9
Total consolidated revenues
$
4,475.5
$
5,070.8
$
4,835.0
Operating income:
Consumer-to-Consumer
$
765.1
$
977.6
$
924.7
Business Solutions(a)
58.5
95.5
24.4
Other
100.8
50.0
55.0
Total segment operating income
924.4
1,123.1
1,004.1
Restructuring-related expenses (Note 4)(b)
-
-
(36.8
)
Russia/Belarus exit costs(c)
(10.0
)
-
-
Business Solutions exit costs(c)
(7.7
)
-
-
Operating expense redeployment program costs(d)
(21.8
)
-
-
Total consolidated operating income
$
884.9
$
1,123.1
$
967.3
(a)On August 4, 2021, the Company entered into an agreement to sell its Business Solutions business to the Buyer, which will be completed in three closings, the first of which occurred on March 1, 2022. The second occurred on December 31, 2022, with the third expected to occur in the second quarter of 2023. The operations of the Business Solutions business to be sold in the third closing will continue to be included in Revenues and Operating income after the second closing. However, between the first and third closings, the Company is required to pay the Buyer a measure of profit from these operations, while owned by the Company, adjusted for other charges, and this expense is recognized in Other income/(expense), net in the Consolidated Statements of Income.
(b)As described in Note 4, on August 1, 2019, the Company’s Board of Directors approved an overall plan to change the Company’s operating model and improve its business processes and cost structure by reducing its headcount and consolidating various facilities. For the year ended December 31, 2020, the Company incurred $36.8 million of expenses related to this plan. While certain of these expenses may be identifiable to the Company’s segments, primarily the Company’s Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided to the CODM for purposes of assessing segment performance and decision making with respect to resource allocation.
(c)Represents the exit costs incurred in connection with the Company's suspension of its operations in Russia and Belarus and the divestiture of the Business Solutions business, primarily related to severance and non-cash impairments of property and equipment, an operating lease ROU asset, and other intangible assets. While certain of the expenses are identifiable to the Company's segments, the expenses are not included in the measurement of segment operating income provided to the CODM for purposes of performance assessment and resource allocation. These expenses are therefore excluded from the Company's segment operating income results.
THE WESTERN UNION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(d)Represents severance, non-cash impairments of operating lease right-of-use assets and property and equipment, and other expenses associated with the Company's program to redeploy expenses in its cost base through optimizations in vendor management, real estate, marketing, and people costs. The expenses are not included in the measurement of segment operating income provided to the CODM for purposes of performance assessment and resource allocation. These expenses are therefore excluded from the Company’s segment operating income results.
Year Ended December 31,
Depreciation and amortization:
Consumer-to-Consumer
$
176.6
$
181.6
$
178.5
Business Solutions
-
16.1
36.1
Other
7.2
10.5
11.0
Total consolidated depreciation and amortization
$
183.8
$
208.2
$
225.6
Capital expenditures:
Consumer-to-Consumer
$
198.8
$
192.3
$
133.5
Business Solutions
0.2
5.2
10.3
Other
9.2
17.1
13.0
Total consolidated capital expenditures
$
208.2
$
214.6
$
156.8
The geographic split of revenue below for the Consumer-to-Consumer and Business Solutions segments and Other 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 the assets.
Based on the method used to attribute revenue between countries described in the paragraph above, each individual country outside the United States accounted for less than 10% of consolidated revenue for the years ended December 31, 2022, 2021, and 2020, respectively. In addition, each individual agent or Business Solutions customer accounted for less than 10% of consolidated revenue during these periods.
Information concerning principal geographic areas was as follows (in millions):
Year Ended December 31,
Revenue:
United States
$
1,575.1
$
1,702.0
$
1,678.4
International
2,900.4
3,368.8
3,156.6
Total
$
4,475.5
$
5,070.8
$
4,835.0
Long-lived assets:
United States
$
69.7
$
82.0
$
100.4
International
40.6
53.7
50.0
Total(a)
$
110.3
$
135.7
$
150.4
(a)As of December 31, 2022 and 2021, Long-lived assets in International include Assets held for sale of $0.7 million and $4.9 million, respectively, and as of December 31, 2021, Long-lived assets in the United States include Assets held for sale of $1.4 million. These assets related to the Company's Business Solutions business, as further discussed in Note 5.
THE WESTERN UNION COMPANY
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
The following lists the condensed financial information for the parent company as of December 31, 2022 and 2021 and Condensed Statements of Income and Comprehensive Income and Condensed Statements of Cash Flows for each of the three years in the period ended December 31, 2022.
THE WESTERN UNION COMPANY
CONDENSED BALANCE SHEETS
(PARENT COMPANY ONLY)
(in millions, except per share amounts)
December 31,
Assets
Cash and cash equivalents
$
1.6
$
2.1
Property and equipment, net of accumulated depreciation of $59.5 and $50.1, respectively
29.6
41.4
Other assets
191.1
90.0
Investment in subsidiaries
4,806.4
5,450.0
Total assets
$
5,028.7
$
5,583.5
Liabilities and stockholders' equity
Liabilities:
Accounts payable and accrued liabilities
$
45.7
$
58.0
Income taxes payable
417.8
477.4
Payable to subsidiaries, net
1,283.4
1,590.3
Borrowings
2,616.8
3,008.4
Other liabilities
187.2
93.8
Total liabilities
4,550.9
5,227.9
Stockholders' equity:
Preferred stock, $1.00 par value; 10 shares authorized; no shares issued
-
-
Common stock, $0.01 par value; 2,000 shares authorized; 373.5 shares and 393.8 shares issued and outstanding as of December 31, 2022 and 2021, respectively
3.7
3.9
Capital surplus
995.9
941.0
Accumulated deficit
(353.9
)
(537.2
)
Accumulated other comprehensive loss
(167.9
)
(52.1
)
Total stockholders' equity
477.8
355.6
Total liabilities and stockholders' equity
$
5,028.7
$
5,583.5
See Notes to Condensed Financial Statements.
THE WESTERN UNION COMPANY
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(PARENT COMPANY ONLY)
(in millions)
Year Ended December 31,
Revenues
$
-
$
-
$
-
Expenses
-
-
-
Operating income
-
-
-
Gain on sale of noncontrolling interest in a private company (Note 4)
-
47.9
-
Interest income
8.3
-
-
Interest expense
(105.7
)
(115.9
)
(158.5
)
Other income/(expense), net
3.1
(14.7
)
3.6
Loss before equity earnings of affiliates and income taxes
(94.3
)
(82.7
)
(154.9
)
Equity in earnings of affiliates, net of tax
981.1
869.1
861.7
Income tax benefit
23.8
19.4
37.5
Net income
910.6
805.8
744.3
Other comprehensive income, net of tax
-
2.5
0.4
Other comprehensive income/(loss) of affiliates, net of tax
(115.8
)
104.9
49.1
Comprehensive income
$
794.8
$
913.2
$
793.8
See Notes to Condensed Financial Statements.
THE WESTERN UNION COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT COMPANY ONLY)
(in millions)
Year Ended December 31,
Cash flows from operating activities
Net cash provided by/(used in) operating activities
$
(108.3
)
$
510.4
$
(79.0
)
Cash flows from investing activities
Purchases of property and equipment
(1.7
)
(0.5
)
(1.0
)
Proceeds from the sale of former corporate headquarters (Note 4)
-
-
43.6
Proceeds from the sale of noncontrolling interest in a private company (Note 4)
-
50.9
-
Purchases of non-settlement investments
(400.0
)
-
-
Proceeds from the sale of non-settlement investments
300.0
-
-
Proceeds from divestiture, net of cash divested (Note 4)
887.2
-
-
Distributions received from/(capital contributed to) subsidiaries, net
424.6
6.5
(329.4
)
Other investing activities
1.7
0.5
(2.1
)
Net cash provided by/(used in) investing activities
1,211.8
57.4
(288.9
)
Cash flows from financing activities
Advances from subsidiaries, net
15.6
289.5
1,139.5
Net proceeds from/(repayments of) commercial paper
(95.0
)
195.0
(165.0
)
Net proceeds from issuance of borrowings
-
891.7
-
Principal payments on borrowings
(300.0
)
(1,150.0
)
-
Proceeds from exercise of options
9.5
11.6
2.2
Cash dividends and dividend equivalents paid
(364.2
)
(381.6
)
(370.3
)
Common stock repurchased
(369.9
)
(409.9
)
(239.7
)
Make-whole premium on early extinguishment of debt
-
(14.3
)
-
Other financing activities
-
0.2
(0.7
)
Net cash provided by/(used in) financing activities
(1,104.0
)
(567.8
)
366.0
Net change in cash and cash equivalents
(0.5
)
-
(1.9
)
Cash and cash equivalents at beginning of year
2.1
2.1
4.0
Cash and cash equivalents at end of year
$
1.6
$
2.1
$
2.1
Supplemental cash flow information:
Non-cash financing activity, distribution of note from subsidiary (Note 3)
$
325.0
$
556.1
$
1,364.4
Cash paid for lease liabilities
$
15.3
$
14.6
$
20.7
Non-cash lease liabilities arising from obtaining right-of-use assets (Note 6)
$
-
$
0.9
$
1.5
See Notes to Condensed Financial Statements.
CONDENSED FINANCIAL INFORMATION OF 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 Parent’s investments in its consolidated subsidiaries are presented under the equity method of accounting, and the condensed financial statements do not present the financial statements of the Parent and its subsidiaries on a consolidated basis. These financial statements should be read in conjunction with The Western Union Company’s consolidated financial statements.
2. Restricted Net Assets
Certain assets of the Parent’s subsidiaries totaling approximately $710 million as of December 31, 2022 constitute restricted net assets, as there are legal or regulatory limitations on transferring such assets outside of the countries where the respective assets are located. Additionally, certain of the Parent’s subsidiaries must meet minimum capital requirements in some countries in order to maintain operating licenses.
3. Related Party Transactions
The Parent enters into contracts with third-party vendors on behalf of its subsidiaries. Because the Parent is a holding company, as noted above, these corporate costs are incurred by the Parent, and the expenses are then allocated to its subsidiaries based primarily on the subsidiaries’ percentage of revenues compared to total revenues.
All transactions described below are with subsidiaries of the Parent. The Parent has issued multiple promissory notes payable to its 100% owned subsidiary, First Financial Management Corporation, in exchange for funds distributed to the Parent. All notes pay interest at a fixed rate, may be repaid at any time without penalty, and are included within Payable to subsidiaries, net in the Condensed Balance Sheets. These promissory notes are as follows:
Amount
Interest Rate
Date Issued
(in millions)
Due Date
(per annum)
December 1, 2020 (a)
$
93.3
August 31, 2023
0.15
%
January 1, 2021 (a)
$
289.0
September 30, 2023
0.14
%
March 1, 2021 (a)
$
244.3
November 30, 2023
0.12
%
July 1, 2022 (a)
$
170.4
March 31, 2025
2.21
%
September 1, 2022 (a)
$
70.3
May 31, 2025
2.88
%
December 31, 2022 (b)
$
210.9
May 31, 2023
2.40
%
(a)This note refinanced a note originally issued on a prior date.
(b)Note is payable to the Parent's 100% owned indirect subsidiary, Western Union International Bank.
On November 8, 2015, the Parent entered into a Revolving Credit Facility agreement (the “Revolver”) with its 100% owned subsidiary, RII Holdings, Inc., providing for unsecured financing facilities in an aggregate amount of $3.0 billion. On March 1, 2022, the Parent terminated this agreement in connection with the sale of the Business Solutions business, as further discussed in Note 4. As of December 31, 2021, borrowings outstanding under the Revolver were $370.0 million and the interest rate applicable for outstanding borrowings using the six-month LIBOR set on the first day of the calendar year was 0.34%. Outstanding borrowings under the Revolver were included within Payable to subsidiaries, net in the Condensed Balance Sheets as of December 31, 2021 and during the year ended December 31, 2021, portions of the outstanding balance were repaid by means of non-cash distributions by the Parent’s subsidiaries.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
THE WESTERN UNION COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
The Parent files its United States federal consolidated income tax return on its and certain of its affiliates’ behalf. Accordingly, the Parent has recorded income taxes payable on behalf of its subsidiaries, and these income taxes payable are significant due to the enactment of the Tax Act into United States law.
Excess cash generated from operations of the Parent’s subsidiaries that is not required to meet certain regulatory requirements may be periodically distributed to the Parent in the form of a distribution, although the amounts of such distributions may vary from year to year.
The Parent files a consolidated United States federal income tax return and also a number of consolidated state income tax returns on behalf of its subsidiaries. In these circumstances, the Parent is responsible for remitting income tax payments on behalf of the consolidated group. The Parent’s provision for income taxes has been computed as if it were a separate tax-paying entity.
4. Divestitures and Investment Activities
Divestitures
On August 4, 2021, the Parent entered into an agreement to sell its Business Solutions business to Goldfinch Partners LLC and The Baupost Group LLC (collectively, "the Buyer") for cash consideration of $910.0 million. The sale is expected to be completed in three closings, with the entire cash consideration collected at the first closing and allocated to the closings on a relative fair value basis. The first closing occurred on March 1, 2022 and excluded the operations in the European Union and the United Kingdom. The second closing occurred on December 31, 2022 and included the United Kingdom operations, while the third closing is expected in the second quarter of 2023 and includes the European Union operations. As of December 31, 2022, the Parent has agreed to and paid final working capital adjustments to the Buyer and has classified the proceeds allocated to the European Union operations of approximately $104 million within Other liabilities in the Parent's Consolidated Balance Sheets. The gain on the sale from the first and second closings was recognized by the Parent's subsidiaries, and portions of the proceeds payable to the Parent's subsidiaries were settled by means of non-cash distributions by those subsidiaries.
In 2020, the Parent sold its former corporate headquarters and recorded an immaterial pre-tax gain on the sale. The proceeds from this sale have been included in Cash flows from investing activities within the Parent’s Condensed Statements of Cash Flows for the year ended December 31, 2020.
Investment Activities
In April 2021, the Parent sold a substantial majority of the noncontrolling interest it held in a private company for cash proceeds of $50.9 million. The Parent recorded a gain of $47.9 million within Loss before equity earnings of affiliates and income taxes, during the year ended December 31, 2021. The Parent retains an immaterial equity interest in this private company.
5. Commitments, Contingencies, and Guarantees
The Parent had approximately $370 million in outstanding letters of credit and bank guarantees as of December 31, 2022 primarily held in connection with regulatory requirements, certain agent agreements, and the Parent's guarantees of its subsidiaries' performance under these letters of credit and bank guarantees. In 2022, the Parent provided a $200 million guarantee to an underwriter of a surety bond, payable in the event the Parent's subsidiary defaults on its obligation.
CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
THE WESTERN UNION COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
6. Leases
The Parent leases real properties primarily for use as administrative and sales offices, in addition to transportation and other equipment. The Parent determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Parent is the lessee, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition. Operating lease ROU assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any. If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the present value of future lease payments. Lease and variable non-lease components within the Parent’s lease agreements are accounted for separately. The Parent has no material leases in which the Parent is the lessor.
The Parent’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis. As of December 31, 2022 and 2021, the total ROU assets were $44.1 million and $56.9 million, respectively, and lease liabilities were $80.4 million and $91.3 million, respectively. The ROU assets and operating lease liabilities were included in Other assets and Other liabilities, respectively, in the Parent’s Condensed Balance Sheets. Cash paid for operating lease liabilities is recorded as Cash flows from operating activities in the Parent’s Condensed Statements of Cash Flows. Short-term and variable lease costs were not material for the years ended December 31, 2022, 2021, and 2020.
The Parent’s leases have remaining terms from less than 1 year to nearly 9 years. Certain of these leases contain escalation provisions and/or renewal options, giving the Parent the right to extend the lease by up to 10 years. However, these options are not reflected in the calculation of the ROU asset and lease liability due to uncertainty surrounding the likelihood of renewal.
The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities as of December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
Weighted-average remaining lease term (in years)
7.9
8.6
Weighted-average discount rate
5.5
%
5.3
%
The following table represents maturities of operating lease liabilities as of December 31, 2022 (in millions):
December 31, 2022
Due within 1 year
$
13.9
Due after 1 year through 2 years
12.8
Due after 2 years through 3 years
12.5
Due after 3 years through 4 years
10.9
Due after 4 years through 5 years
11.1
Due after 5 years
39.1
Total lease payments
100.3
Less imputed interest
(19.9
)
Total operating lease liabilities
$
80.4

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our controls and procedures related to our reporting and disclosure obligations (as defined by Rules 13a-15(e) and 15d-15(e) within the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2022, which is the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, as of December 31, 2022, the disclosure controls and procedures were effective to ensure that information required to be disclosed by us, including our consolidated subsidiaries, in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported, as applicable, within the time periods specified in the rules and forms of the Securities and Exchange Commission, and are designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to our management, including our Principal 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 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934), and the related Report of Independent Registered Public Accounting Firm, are set forth under Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes that occurred during our most recently completed fiscal quarter covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
On February 22, 2023, the Compensation Committee of our Board of Directors amended and restated The Western Union Company Severance/Change in Control Policy (Executive Committee Level) (the “Amended and Restated Policy”), effective May 1, 2023, to revise the severance provisions and make certain other administrative changes, including the elimination of the legacy tax gross-up provision with respect to change in control benefits. Under the Amended and Restated Policy, in the event of an involuntary termination of employment by the Company prior to or more than 24 months following a Change in Control and other than due to death, disability or for cause, the eligible executive will receive (i) an amount equal to a severance multiple times the eligible executive’s base salary, with the severance multiple equal to 1.5 in the case of the Chief Executive Officer, 1.0 in the case of other eligible executives and 0.5 in the case of an eligible executive who has been employed with the Company for six months or less, (ii) a pro-rated bonus for the year of termination based on actual performance and days employed during the year, (iii) a payment ranging from $3,000 to $18,000 for healthcare continuation coverage if the eligible executive was enrolled in coverage and (iv) pro-rata vesting of equity awards, with such awards to be settled in accordance with the terms of the equity award agreements. In the event of an involuntary termination of employment by the Company other than due to death, disability or for cause or by the eligible executive due to good reason, in each case, within 24 months following a change in control of the Company, then in lieu of the benefits set forth in clauses (i) and (iv) of the preceding sentence, an eligible executive will receive a severance payment equal to two times the sum of the eligible executive’s base salary and target bonus and outstanding equity awards will become fully vested and exercisable, with any applicable performance goals achieved based on the greater of (x) actual performance through the date of termination and (y) target performance. Severance benefits payable under the Amended and Restated Policy are subject to the eligible executive’s execution and non-revocation of a release of claims.
Eligible executives under the Amended and Restated Policy consist of any individual who is 1) designated by the Company as an insider for purposes of Section 16 of the Exchange Act and who is the Chief Executive Officer, 2) an officer of the Company who reports directly to the Chief Executive Officer on the earlier of his or her termination date or the occurrence of a change in control of the Company, or 3) selected by the Compensation Committee to participate in the Amended and Restated Policy. Accordingly, Messrs. McGranahan and Farah and Ms. Fitzgerald are eligible executives under the Amended and Restated Policy.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers, and Corporate Governance
Except for the information required by this item with respect to our executive officers included in Item 1 of Part I of this Annual Report on Form 10-K and our Code of Ethics, the information required by this Item 10 is incorporated herein by reference to the discussion in “Proposal 1-Election of Directors,” “Board of Directors Information,” and “Corporate Governance-Committees of the Board of Directors” of our definitive proxy statement for the 2023 annual meeting of stockholders.
Code of Ethics
The Company’s Directors’ Code of Conduct, Code of Ethics for Senior Financial Officers, Reporting Procedure for Accounting and Auditing Concerns, Attorneys’ Professional Conduct Policy, 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, 7001 East Belleview Avenue, Denver, Colorado 80237. In the event of an amendment to, or a waiver from, the Company’s Code of Ethics for Senior Financial Officers, the Company intends to post such information on its website, www.westernunion.com.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference to the discussion in “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation of Directors,” and “Compensation and Benefits Committee Report” of our definitive proxy statement for the 2023 annual meeting of stockholders, provided that the Compensation and Benefits Committee Report shall not be deemed filed in this Form 10-K.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated herein by reference to the discussion in “Stock Beneficially Owned by Directors, Executive Officers and Our Largest Stockholders,” and “Equity Compensation Plan Information” of our definitive proxy statement for the 2023 annual meeting of stockholders.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated herein by reference to the discussion of “Corporate Governance-Independence of Directors” and “Certain Transactions and Other Matters” of our definitive proxy statement for the 2023 annual meeting of stockholders.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 is incorporated herein by reference to the discussion in “Proposal 4-Ratification of Selection of Auditors” of our definitive proxy statement for the 2023 annual meeting of stockholders.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a)The following documents are filed as part of this report:
1.Financial Statements (See Index to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K);
2.Financial Statement Schedule (See Index to Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K);
3.The exhibits listed in the “Exhibit Index” attached to this Annual Report on Form 10-K.
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 reference thereto).
3.1
Amended and Restated Certificate of Incorporation of The Western Union Company, as amended on May 18, 2018 (filed as Exhibit 3.1 to the Company’s Current Report on form 8-K filed on May 22, 2018 and incorporated herein by reference thereto).
3.2
Amended and Restated By-laws of The Western Union Company adopted on December 8, 2022 (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 9, 2022 and incorporated herein by reference thereto).
4.1
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities and Exchange Act of 1934 (filed as Exhibit 4.1 to the Company’s Annual Report on Form 10-K filed on February 20, 2020 and incorporated herein by reference thereto).
4.2
Indenture, dated as of November 17, 2006, between The Western Union Company and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 20, 2006 and incorporated herein by reference thereto).
4.3
Supplemental Indenture, dated as of September 6, 2007, among 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).
4.4
Second Supplemental Indenture, dated as of May 3, 2019, between The Western Union Company and Wells Fargo Bank, National Association, as trustee (filed as Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q filed on May 7, 2019 and incorporated herein by reference thereto).
4.5
Form of 6.200% Note due 2036 (filed as Exhibit 4.14 to the Company’s Registration Statement on Form S-4 filed on December 22, 2006 and incorporated herein by reference thereto).
4.6
Form of 6.200% Note due 2040 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 21, 2010 and incorporated herein by reference thereto).
4.7
Form of 4.250% Note due 2023 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 11, 2018 and incorporated herein by reference thereto).
4.8
Form of 2.850% Note due 2025 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 25, 2019 and incorporated herein by reference thereto).
4.9
Form of 1.350% Note due 2026 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 10, 2021 and incorporated herein by reference thereto).
4.10
Form of 2.750% Note due 2031 (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 10, 2021 and incorporated herein by reference thereto).
10.1
Amended and Restated Credit Agreement, dated as of December 18, 2018, among The Western Union Company, the banks named therein, as lenders, Citibank, N.A., Bank of America, N.A. and Wells Fargo Bank, National Association, in their respective capacities as Issuing Lenders, Bank of America, N.A. and Wells Fargo Bank, National Association, as Syndication Agents, Barclays Bank PLC, JPMorgan Chase Bank, N.A. and U.S. Bank National Association, as Documentation Agents, and Citibank, N.A., as Administrative Agent for the banks thereunder (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2018 and incorporated herein by reference thereto).
10.2
Letter Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of May 11, 2020, among The Western Union Company, the banks, financial institutions and other institutional lenders party thereto as Banks, and Citibank, N.A., as administrative agent for the Banks (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 4, 2020 and incorporated herein by reference thereto).
10.3
Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of October 31, 2022, between The Western Union Company and Citibank, N.A. as administrative agent for the Banks (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 1, 2022 and incorporated herein by reference thereto).
10.4
Form of Director Indemnification Agreement (filed as Exhibit 10.10 to Amendment No. 2 to the Company’s Registration Statement on Form 10 (file no. 001-32903) filed on August 28, 2006 and incorporated herein by reference thereto).*
10.5
The Western Union Company Severance/Change in Control Policy (Executive Committee Level), as Amended and Restated on February 22, 2023, effective May 1, 2023.*,**
10.6
The Western Union Company 2006 Long-Term Incentive Plan, as Amended and Restated on January 31, 2014 (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on February 24, 2014 and incorporated herein by reference thereto).*
10.7
The Western Union Company 2006 Non-Employee Director Equity Compensation Plan, as Amended and Restated Effective January 31, 2014 (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on February 24, 2014 and incorporated herein by reference thereto).*
10.8
The Western Union Company Non-Employee Director Deferred Compensation Plan, as Amended and Restated Effective December 31, 2008 (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on February 19, 2009 and incorporated herein by reference thereto).*
10.9
The Western Union Company Senior Executive Performance Incentive Plan, Established February 20, 2019 (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.10
Form of Unrestricted Stock Unit Award Agreement Under The Western Union Company 2006 Non-Employee Director Equity Compensation Plan, as Amended and Restated Effective February 17, 2009 (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed on February 26, 2010 and incorporated herein by reference thereto).*
10.11
Form of Unrestricted Stock Unit Award Agreement for Non-Employee Directors Residing in the United States Under The Western Union Company 2006 Non-Employee Director Equity Compensation Plan (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010 and incorporated herein by reference thereto).*
10.12
Form of Nonqualified Stock Option Award Agreement for Non-Employee Directors Residing in the United States Under The Western Union Company 2006 Non-Employee Director Equity Compensation Plan (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on May 6, 2010 and incorporated herein by reference thereto).*
10.13
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (U.S.) Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on February 25, 2011 and incorporated herein by reference thereto).*
10.14
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (Non - U.S.) Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on February 25, 2011 and incorporated herein by reference thereto).*
10.15
Form of Bonus Stock Unit Award Agreement for Non-Employee Directors Residing in the United States Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2012 and incorporated herein by reference thereto).*
10.16
Form of Nonqualified Stock Option Award Agreement for Non-Employee Directors Residing in the United States Under The Western Union Company 2006 Long-Term Incentive Plan (filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K filed on February 24, 2014 and incorporated herein by reference thereto).*
10.17
Form of Award Agreement Under The Western Union Company Senior Executive Performance Incentive Plan (filed as Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.18
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (Non - U.S.) Under The Western Union Company 2006 Long-Term Incentive Plan For Awards Granted in 2014 and Thereafter (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2014 and incorporated herein by reference thereto).*
10.19
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (U.S.) Under The Western Union Company 2006 Long-Term Incentive Plan For Awards Granted in 2014 and Thereafter (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2014 and incorporated herein by reference thereto).*
10.20
The Western Union Company 2015 Long-Term Incentive Plan, as Amended and Restated on February 21, 2018 (filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K filed on February 22, 2018 and incorporated herein by reference thereto).*
10.21
Form of Deferred Stock Unit Award Agreement for U.S. Non-Employee Directors Under The Western Union Company 2015 Long-Term Incentive Plan, Effective May 15, 2015 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on July 30, 2015 and incorporated herein by reference thereto).*
10.22
Form of Nonqualified Stock Option Award Agreement for U.S. Non-Employee Directors Under The Western Union Company 2015 Long-Term Incentive Plan, Effective May 15, 2015 (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on July 30, 2015 and incorporated herein by reference thereto).*
10.23
The Western Union Company Supplemental Incentive Savings Plan, as Amended and Restated Effective January 1, 2022 (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on February 24, 2022, and incorporated herein by reference thereto).*
10.24
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (Non - U.S.) Under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q filed on May 3, 2016 and incorporated herein by reference thereto).*
10.25
Form of Nonqualified Stock Option Award Agreement for Section 16 Officers (Non - U.S.) Under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on May 2, 2017 and incorporated herein by reference thereto).*
10.26
Deferred Prosecution Agreement dated January 19, 2017 by and between The Western Union Company, the United States Department of Justice, and the United States Attorney’s Offices for the Eastern and Middle Districts of Pennsylvania, the Central District of California, and the Southern District of Florida (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 20, 2017 and incorporated herein by reference thereto).
10.27
Stipulated Order for Permanent Injunction and Final Judgment dated January 19, 2017 by and between The Western Union Company and the United States Federal Trade Commission (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 20, 2017 and incorporated herein by reference thereto).
10.28
Consent to the Assessment of Civil Money Penalty dated January 19, 2017 by and between Western Union Financial Services, Inc. and the Financial Crimes Enforcement Network of the United States Department of Treasury (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 20, 2017 and incorporated herein by reference thereto).
10.29
Form of Nonqualified Stock Option Grant Award Agreement for Non-U.S. Section 16 Officer under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.65 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.30
Form of Restricted Stock Unit Award Agreement for U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.66 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.31
Form of Financial Performance-Based Restricted Stock Unit Award Agreement for U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.67 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.32
Form of Total Shareholder Return Performance-Based Restricted Stock Unit Award Agreement for U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.68 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.33
Form of Restricted Stock Unit Award Agreement for Non-U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.69 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.34
Form of Financial Performance-Based Restricted Stock Unit Award Agreement for Non-U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.70 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.35
Form of Total Shareholder Return Performance-Based Restricted Stock Unit Award Agreement for Non-U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit
10.71 to the Company’s Annual Report on Form 10-K filed on February 21, 2019 and incorporated herein by reference thereto).*
10.36
Form of Restricted Stock Unit Award Agreement for U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 1, 2019 and incorporated herein by reference thereto).*
10.37
Form of Financial Performance-Based Restricted Stock Unit Award Agreement for U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 1, 2019 and incorporated herein by reference thereto).*
10.38
Form of Restricted Stock Unit Award Agreement for Non-U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 1, 2019 and incorporated herein by reference thereto).*
10.39
Form of Financial Performance-Based Restricted Stock Unit Award Agreement for Non-U.S. Section 16 Officers under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on August 1, 2019 and incorporated herein by reference thereto).*
10.40
Form of Restricted Stock Unit Award Agreement for Non-Employee Directors Under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2021 and incorporated herein by reference thereto).*
10.41
Form of Nonqualified Stock Option Award Agreement for Non-Employee Directors Residing in the United States Under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on May 4, 2021 and incorporated herein by reference thereto).*
10.42
Restricted Stock Unit Award Agreement for Devin B. McGranahan under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.41 to the Company’s Annual Report on Form 10-K filed on February 24, 2022, and incorporated herein by reference thereto).*
10.43
Nonqualified Stock Option Grant Agreement for Devin B. McGranahan under The Western Union Company 2015 Long-Term Incentive Plan (filed as Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on February 24, 2022, and incorporated herein by reference thereto).*
10.44
Offer Letter dated November 12, 2021, between Devin McGranahan and Western Union, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 15, 2021, and incorporated herein by reference thereto).*
10.45
Offer Letter dated May 7, 2022, between Benjamin Adams and Western Union, LLC.*,**
10.46
The Western Union Company Severance Policy (Tier I Employees), as Amended and Restated Effective August 24, 2018.*,**
10.47
Offer Letter dated June 4, 2022, between Matt Cagwin and Western Union, LLC.*,**
10.48
Offer Letter dated January 20, 2023, between Matt Cagwin and Western Union, LLC.*,**
Subsidiaries of The Western Union Company**
Consent of Independent Registered Public Accounting Firm**
31.1
Certification of Chief Executive Officer of The Western Union Company Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934**
31.2
Certification of Chief Financial Officer of The Western Union Company Pursuant to Rule 13a-14(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***
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)**
101.SCH
Inline XBRL Taxonomy Extension Schema Document**
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document**
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.
** Filed herewith.
*** Furnished herewith.