What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 432 added, 312 removed, 1104 unchanged (40% of the section changed)

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Three Months Ended

Six Months Ended

Cost of services

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Other income/(expense):

Gain on divestitures of businesses (Note 4)

Interest income

Interest expense

Other income, net

Total other expense, net

Other income/(expense), net

Total other income/(expense), net

Income before income taxes

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Three Months Ended

Six Months Ended

Other comprehensive income, net of reclassifications and tax (Note 11):

Unrealized gains on investment securities

Unrealized gains on hedging activities

Unrealized gains/(losses) on hedging activities

Defined benefit pension plan adjustments

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2,000 shares authorized;

410.9 shares and 418.0 shares issued and outstanding as of March 31, 2020 and December 31, 2019 , respectively

411.0 shares and 418.0 shares issued and outstanding as of June 30, 2020 and December 31, 2019 , respectively

Capital surplus

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(in millions)

Three Months Ended

Six Months Ended

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on divestitures of businesses, excluding transaction costs (Note 4)

Other non-cash items, net

Increase/(decrease) in cash resulting from changes in:

Increase/(decrease) in cash, excluding the effects of divestitures, resulting from changes in:

Accounts payable and accrued liabilities

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Proceeds from the sale of former corporate headquarters (Note 4)

Purchases of non-settlement related investments and other

Proceeds from divestitures of businesses, net of cash divested (Note 4)

Purchases of non-settlement related investments

Proceeds from maturity of non-settlement related investments

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Proceeds from held-to-maturity non-settlement related investments

Net cash provided by/(used in) investing activities

Other investing activities

Net cash (used in)/provided by investing activities

Cash flows from financing activities

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Common stock repurchased (Note 11)

Net repayments of commercial paper

Net (repayments of)/proceeds from commercial paper

Principal payments on borrowings

Proceeds from exercise of options

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THE WESTERN UNION COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

(in millions)

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Balance, March 31, 2020

Stock-based compensation

Common stock dividends and dividend equivalents declared ($ 0.225 per share)

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive income (Note 11)

Balance, June 30, 2020

Comprehensive

Stockholders'

Equity/(Deficit)

Balance, December 31, 2018

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Balance, March 31, 2019

Stock-based compensation

Common stock dividends ($ 0.20 per share)

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive income (Note 11)

Balance, June 30, 2019

See Notes to Condensed Consolidated Financial Statements.

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In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments.

All businesses and other services that have not been classified in the above segments are reported as Other, which primarily includes the Company’s cash-based and electronic-based bill payment services which facilitate payments from consumers to businesses and other organizations.

In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4.

The Company’s money order and other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other.

The Company’s other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other.

See Note 16 for further information regarding the Company’s segments.

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Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year.

All significant intercompany transactions and accounts were eliminated as of March 31, 2020 and December 31, 2019 and for all periods presented.

In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position, and cash flows as of March 31, 2020 and for all periods presented.

All significant intercompany transactions and accounts were eliminated as of June 30, 2020 and December 31, 2019 and for all periods presented.

These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Actual results could differ from these estimates.

In March 2020, the World Health Organization declared the outbreak associated with a novel coronavirus (“COVID-19”) a pandemic, and governments throughout the world instituted various actions such as lockdowns, stay-at-home orders, travel restrictions, and closures of non-essential businesses in an effort to reduce the spread of COVID-19.

In March 2020, the World Health Organization declared the outbreak associated with a novel coronavirus a pandemic (“COVID-19”), and governments throughout the world instituted various actions such as lockdowns, stay-at-home orders, travel restrictions, and closures of non-essential businesses in an effort to reduce the spread of COVID-19.

These actions have negatively impacted the Company’s ability to offer its services through a portion of its locations and its retail agent locations, at least temporarily.

The Company has recently experienced a decrease in transaction volumes, which the Company believes is due in part to economic decline and uncertainty resulting from the outbreak.

As a result, the Company’s revenues for the second quarter of 2020 were negatively impacted by the effects of COVID-19.

Beginning in March 2020, the Company experienced a decrease in transaction volumes, which continued into the second quarter of 2020.

The Company believes this decrease is due in part to economic decline and uncertainty resulting from the outbreak.

The extent to which the COVID-19 outbreak continues to impact the Company’s business, financial condition, results of operations or cash flows will depend on future developments, which are highly uncertain and are difficult to predict.

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Refer to Note 10 for additional information on expected credit losses and the related disclosures.

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,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, and speed of service, as applicable.

The Company’s revenues are primarily derived from consideration paid by customers to transfer money.

These revenues vary by transaction based upon factors such as channel, send and receive locations, the principal amount sent, whether the money transfer involves different send and receive currencies, the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market, and speed of service, as applicable.

The Company also offers several other services, including foreign exchange and payment services and other bill payment services, for which revenue is impacted by similar factors.

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Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

The Company recognized $ 1,122.6 million and $ 1,275.4 million in revenues from contracts with customers for the three months ended March 31, 2020 and 2019, respectively.

The Company recognized $ 1,055.6 million and $ 1,275.0 million for the three months ended June 30, 2020 and 2019, and $ 2,178.2 million and $ 2,550.4 million for the six months ended June 30, 2020 and 2019, respectively, in revenues from contracts with customers.

There are no material upfront costs incurred to obtain contracts with customers.

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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 the rate available in the wholesale foreign exchange market.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Consumer Bill Payments

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In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Management has determined that the significant 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 three months ended March 31, 2020 and 2019 (in millions).

The following tables represent the disaggregation of revenue earned from contracts with customers by product type and region for the three and six months ended June 30, 2020 and 2019 (in millions).

The regional split of revenue shown in the tables below is based upon where transactions are initiated.

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Bill Payments

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Total revenues (b)

Three Months Ended March 31, 2019

Bill Payments (c)

Six Months Ended June 30, 2020

Bill Payments

North America

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended June 30, 2019

Bill Payments (c)

North America

Europe and Russia/CIS

Middle East, Africa, and South Asia

Latin America and the Caribbean

East Asia and Oceania

Revenues from contracts with customers

Other revenues (a)

Total revenues (b)

Six Months Ended June 30, 2019

Bill Payments (c)

North America

Europe and Russia/CIS

Middle East, Africa, and South Asia

Latin America and the Caribbean

East Asia and Oceania

Revenues from contracts with customers

Other revenues (a)

Total revenues (b)

(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.

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and ACW Worldwide, Inc.

to sell its United States electronic bill payments business known as “Speedpay,” and closed the transaction on May 9, 2019.

Included within North America revenues are Speedpay revenues of $ 88.2 million for the three months ended March 31, 2019.

to sell its United States based electronic bill payments business known as “Speedpay,” and closed the transaction on May 9, 2019.

Included within North America revenues are Speedpay revenues of $ 37.2 million and $ 125.4 million for the three and six months ended June 30, 2019, respectively.

Earnings Per Share

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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.

For the three months ended March 31, 2020 and 2019, there were 1.1 million and 4.4 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above the Company’s average share price during the periods and their effect was anti-dilutive.

Shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above the Company’s average share price during the periods and their effect was

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

anti-dilutive, were 2.6 million and 2.3 million for the three months ended June 30, 2020 and 2019, respectively, and 1.8 million and 3.4 million for the six months ended June 30, 2020 and 2019, respectively.

The following table provides the calculation of diluted weighted-average shares outstanding (in millions):

Three Months Ended

Six Months Ended

Basic weighted-average shares outstanding

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and ACW Worldwide, Inc.

to sell its United States electronic bill payments business known as “Speedpay,” which had been included as a component of Other in the Company’s segment reporting.

The Company received approximately $ 750 million and recorded a pre-tax gain on the sale of approximately $ 523 million in the second quarter of 2019 in the all-cash transaction that closed on May 9, 2019.

Speedpay revenues and direct operating expenses included in the Company’s results were $ 88.2 million and $ 67.6 million, respectively, for the three months ended March 31, 2019.

to sell its United States based electronic bill payments business known as “Speedpay,” which had been included as a component of Other in the Company’s segment reporting.

The Company received approximately $ 750 million and recorded a pre-tax gain on the sale of approximately $ 523 million, which is included in Gain on divestitures of businesses in the accompanying Condensed Consolidated Statements of Income, in the all-cash transaction that closed on May 9, 2019.

Speedpay revenues and direct operating expenses included in the Company’s results were $ 37.2 million and $ 30.6 million, respectively, for the three months ended June 30, 2019 and $ 125.4 million and $ 98.2 million, respectively, for the six months ended June 30, 2019.

On May 6, 2019, the Company completed the sale of Paymap Inc.

(“Paymap”), which provides electronic mortgage bill payment services, for contingent consideration and immaterial cash proceeds received at closing.

The Company recorded an immaterial pre-tax gain related to this sale in the second quarter of 2019.

The Company recorded an immaterial pre-tax gain related to this sale for the three and six months ended June 30, 2019.

In the first quarter of 2020, the Company sold its former corporate headquarters and recorded an immaterial pre-tax net gain on the sale.

The proceeds from this sale have been included in Cash flows from investing activities within the Company’s Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The proceeds from this sale have been included in Cash flows from investing activities within the Company’s Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020.

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, reducing its headcount, and consolidating various facilities.

The Company expects to incur approximately $ 150 million of total expenses through 2020, with approximately $ 110 million related to severance and employee-related benefits and approximately $ 40 million related to costs associated with the relocation of various operations to other Company facilities, costs related to facility closures, lease terminations, consulting, and other expenses.

The Company expects to incur approximately $ 150 million of total expenses through 2020, with approximately $ 110 million related to severance and employee-related benefits and approximately $ 40 million related to costs associated with the relocation of various operations to other Company facilities, facility closures, lease terminations, consulting, and other expenses.

Substantially all of these expenses are expected to be paid in cash.

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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.

The following table summarizes the activity for the three months ended March 31, 2020 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Condensed Consolidated Balance Sheets as of March 31, 2020, and the total expenses incurred since the inception of the restructuring plan (in millions):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the activity for the six months ended June 30, 2020 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020, and the total expenses incurred since the inception of the restructuring plan (in millions):

Severance and

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Non-cash benefits/(charges) (a)

Balance, March 31, 2020

Balance, June 30, 2020

Total expenses incurred-to-date

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Three Months Ended

March 31, 2020

Six Months Ended

Cost of services

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Total expenses, net of tax

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company leases real properties for use as administrative and sales offices, in addition to automobiles and office equipment.

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The Company’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis.

As of March 31, 2020 and December 31, 2019, total ROU assets were $ 190.4 million and $ 199.7 million, respectively, and operating lease liabilities were $ 229.5 million and $ 242.3 million, respectively.

As of June 30, 2020 and December 31, 2019, total ROU assets were $ 195.0 million and $ 199.7 million, respectively, and operating lease liabilities were $ 234.9 million and $ 242.3 million, respectively.

The ROU assets and operating lease liabilities are included in Other assets and Other liabilities, respectively, in the Company’s Condensed Consolidated Balance Sheets.

Cash paid for operating lease liabilities is recorded as Cash flows from operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.

For the three months ended March 31, 2020 and 2019, operating lease costs were $ 13.2 million and $ 15.0 million, which were included within Operating income in the Company’s Condensed Consolidated Statements of Income.

Short-term and variable lease costs were not material for the three months ended March 31, 2020 and 2019.

Operating lease costs, which are included in Total expenses in the Company’s Condensed Consolidated Statements of Income, were $ 12.8 million and $ 14.3 million for the three months ended June 30, 2020 and 2019, respectively, and $ 26.0 million and $ 29.3 million for the six months ended

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2020 and 2019, respectively.

Short-term and variable lease costs were not material for the three and six months ended June 30, 2020.

The Company’s leases have remaining terms from less than 1 year to 11 years .

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The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities:

March 31, 2020

June 30, 2020

Weighted-average remaining lease term (in years)

Weighted-average discount rate

The following table represents maturities of operating lease liabilities as of March 31, 2020 (in millions):

The following table represents maturities of operating lease liabilities as of June 30, 2020 (in millions):

Due within 1 year

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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.

For additional information on how the

For additional information on how the Company measures fair value, refer to the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company measures fair value, refer to the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The following tables present the Company’s assets and liabilities which are measured at fair value on a recurring basis, by balance sheet line item (in millions):

Fair Value Measurement Using

March 31, 2020

June 30, 2020

Settlement assets:

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State and municipal variable-rate demand notes

United States government agency mortgage-backed securities

Corporate debt securities

United States government agency mortgage-backed securities

Other assets:

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Total liabilities

No material non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements were recorded during the three months ended March 31, 2020 and 2019.

No material non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements were recorded during the three and six months ended June 30, 2020 and 2019.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Fair Value Measurements

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 Condensed Consolidated Balance Sheets at their original issuance values as adjusted over time to accrete that value to par.

As of March 31, 2020, the carrying value and fair value of the Company’s borrowings were $ 3,070.1 million and $ 3,001.9 million, respectively (see Note 13).

As of June 30, 2020, the carrying value and fair value of the Company’s borrowings were $ 3,085.8 million and $ 3,256.1 million, respectively (see Note 13).

As of December 31, 2019, the carrying value and fair value of the Company’s borrowings were $ 3,229.3 million and $ 3,372.2 million, respectively.

1 unchanged sentence

Letters of Credit and Bank Guarantees

The Company had approximately $ 345 million in outstanding letters of credit and bank guarantees as of March 31, 2020 that are primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

The Company had approximately $ 360 million in outstanding letters of credit and bank guarantees as of June 30, 2020 that are primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

The letters of credit and bank guarantees have expiration dates through 2024 , with many having a one-year renewal option.

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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 loss or additional losses may have been incurred and 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 March 31, 2020.

Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional losses 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 losses 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 June 30, 2020.

For the remaining matters, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons:

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Accordingly, actual losses may be in excess of the established liability or the range of reasonably possible loss.

United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements

In late November 2016, the Company entered into discussions with the United States Department of Justice (the “DOJ”), the United States Attorney’s Office for the Central District of California ("USAO-CDCA"), the United States Attorney’s Office for the Eastern District of Pennsylvania ("USAO-EDPA"), the United States Attorney’s Office for the Middle District of Pennsylvania ("USAO-MDPA"), and the United States Attorney’s Office for the Southern District of Florida (“USAO-SDFL”) to resolve the investigations by the USAO-CDCA, USAO-EDPA, USAO-MDPA, and USAO-

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements

SDFL (collectively, the “USAOs”).

On January 19, 2017, the Company announced that it, or its subsidiary Western Union Financial Services, Inc.

(“WUFSI”), had entered into 1) a Deferred Prosecution Agreement (the “DPA”) with the DOJ and the USAOs;

2) a Stipulated Order for Permanent Injunction and Final Judgment (the “Consent Order”) with the United States Federal Trade Commission (“FTC”) resolving claims by the FTC alleging unfair acts and practices under the Federal Trade Commission Act and for violations of the FTC Telemarketing Sales Rule;

2) a Stipulated Order for Permanent Injunction and Final Judgment (the “FTC Consent Order”) with the United States Federal Trade Commission (“FTC”) resolving claims by the FTC alleging unfair acts and practices under the Federal Trade Commission Act and for violations of the FTC Telemarketing Sales Rule;

and 3) 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”), to resolve the respective investigations of those agencies.

FinCEN provided notice to the Company dated December 16, 2016 of its investigation regarding possible violations of the United States Bank Secrecy Act ("BSA").

FinCEN provided notice to the Company dated December 16, 2016 of its investigation regarding possible violations of the United States Bank Secrecy Act.

On January 31, 2017, the Company entered into assurances of discontinuance/assurances of voluntary compliance with the attorneys general of 49 U.S.

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The agreements with the state attorneys general are collectively referred to herein as the "State AG Agreement."

The DPA, Consent Order, FinCEN Agreement, and State AG Agreement are collectively referred to herein as the "Joint Settlement Agreements."

The DPA, FTC Consent Order, FinCEN Agreement, and State AG Agreement are collectively referred to herein as the "Joint Settlement Agreements."

Pursuant to the DPA, the USAOs filed a two -count criminal information in the United States District Court for the Middle District of Pennsylvania, charging the Company with aiding and abetting wire fraud and willfully failing to implement an effective anti-money laundering ("AML") program.

The USAOs agreed that if the Company fully complies with all of its obligations under the DPA, the USAOs will, at the conclusion of the DPA’s term, seek dismissal with prejudice of the criminal information filed against the Company.

The term of the DPA ended on January 19, 2020, and the agreement has expired.

On March 6, 2020, the DOJ filed an unopposed motion to dismiss the criminal information with prejudice in the United States District Court for the Middle District of Pennsylvania, and on March 9, 2020, the Court granted the motion.

Under the Joint Settlement Agreements, the Company was required to 1) 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 (the “Compensation Payment”);

2) pay an aggregate amount of $ 5 million to the State Attorneys General to reimburse investigative, enforcement, and other costs;

and 3) retain an independent compliance auditor for three years to review and assess actions taken by the Company under the Consent Order to further enhance its oversight of agents and protection of consumers.

and 3) retain an independent compliance auditor for three years to review and assess actions taken by the Company under the FTC Consent Order to further enhance its oversight of agents and protection of consumers.

The FinCEN Agreement also set forth a civil penalty of $ 184 million, the full amount of which was deemed satisfied by the Compensation Payment.

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The Company paid the Compensation Payment and the aggregate amount due to the State Attorneys General during 2017.

The Joint Settlement Agreements also required, among other things, the Company to adopt certain new or enhanced practices with respect to its compliance program relating to consumer reimbursement, agent due diligence, agent training, monitoring, reporting, and record-keeping by the Company and its agents, consumer fraud disclosures, agent suspensions and terminations, and other items.

The ongoing obligations under the Joint Settlement Agreements have had and could continue to have adverse effects on the Company’s business, including additional costs and potential loss of business.

The Company has faced (as described below) additional actions from other regulators as a result of the Joint Settlement

The term of the DPA expired on January 19, 2020.

On May 16, 2020, the term of the Independent Compliance Auditor (“ICA”) under the FTC Consent Order ended.

On that same date, the ICA issued its final report to the FTC, which concluded that Western Union is in full compliance with the requirements of the FTC Consent Order.

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 Joint Settlement Agreements required, among other things, the Company to adopt certain new or enhanced practices with respect to its compliance program relating to consumer reimbursement, agent due diligence, agent training, monitoring, reporting, and record-keeping by the Company and its agents, consumer fraud disclosures, agent suspensions and terminations, and other items.

The ongoing obligations under the FTC Consent Order and the State AG Agreement have had and could continue to have adverse effects on the Company’s business, including additional costs and potential loss of business.

The Company has faced (as described below) additional actions from other regulators as a result of the Joint Settlement Agreements.

Further, if the Company fails to comply with the continuing obligations under the FTC Consent order and the State AG Agreement, it could face criminal prosecution, civil litigation, significant fines, damage

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Further, if the Company fails to comply with the Joint Settlement Agreements, it could face criminal prosecution, civil litigation, significant fines, damage awards or other regulatory consequences.

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.

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Lieblein’s shareholder demand and related request for tolling agreements.

It also includes allegations that the officer defendants declined to ensure that the Company implemented effective anti-fraud and AML compliance programs after receiving red flags that those programs were inadequate, allowed Company agents to willfully ignore anti-fraud and AML recording and reporting requirements for a prolonged period, opposed efforts by various regulators to implement effective anti-fraud and AML complaint programs, caused the Company to fail to comply with its obligations under settlements with regulators, and knowingly exposed the Company to criminal and civil sanctions.

It also includes allegations that the officer defendants declined to ensure that the Company implemented effective anti-fraud and AML compliance programs after receiving red flags that those programs were inadequate, allowed Company agents to willfully ignore anti-fraud and AML recording and reporting requirements for a prolonged period, opposed efforts by various regulators to implement effective anti-fraud and AML compliance programs, caused the Company to fail to comply with its obligations under settlements with regulators, and knowingly exposed the Company to criminal and civil sanctions.

Due to the nature of this matter and the early stage of the proceedings, the Company cannot predict the outcome or potential impact of the matter.

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§ 227, et seq., based on allegations that since 2009, the Company has sent text messages to class members’ wireless telephones without their consent.

During the first quarter of 2015, the Company’s insurance carrier and the plaintiff reached an agreement to create an $ 8.5 million settlement fund that will be used to pay all class member claims, class counsel’s fees and the costs

The agreement has been signed by the parties and, on November 10, 2015, the Court granted preliminary approval to the settlement.

On January 9, 2018, plaintiff filed a motion requesting decisions on its

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of administering the settlement.

The agreement has been signed by the parties and, on November 10, 2015, the Court granted preliminary approval to the settlement.

On January 9, 2018, plaintiff filed a motion requesting decisions on its pending motion to approve the settlement and motion for attorneys’ fees, costs, and incentive award.

pending motion to approve the settlement and motion for attorneys’ fees, costs, and incentive award.

On August 31, 2018, the Court issued an order approving the settlement, in which the Court modified the class definition slightly and ordered the parties to provide additional notice to the class.

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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 currently in the evidentiary stage.

The process for notifying potential class members has been completed and the case proceeded to the evidentiary stage.

On June 4, 2020, the case was stayed because the consumer association that filed the lawsuit no longer had the registration needed to assert its claims on behalf of the alleged class.

The case will be stayed until (i) the Attorney-General instructs the Prosecutor to continue to litigate the claims on behalf of the plaintiff (during the time the registration of Consumidores Financieros before the Secretary of Commerce remains suspended);

or (ii) the parties report to the Court that the plaintiff recovered its legal capacity.

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.

13 unchanged sentences

On February 25, 2020, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of the case.

On February 13, 2017, the Company’s subsidiary, Western Union Payment Services Ireland Limited (“WUPSIL”), was served with a writ of accusation from the National Court of Spain.

The writ charges 98 former Western Union money transfer agents or agent representatives with fraud and money laundering in connection with consumer fraud scams they

Plaintiff’s deadline to file a petition for a writ of certiorari from the Supreme Court of the United States was July 27, 2020.

Plaintiff did not file such a petition, and the case has now concluded.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

allegedly perpetrated using Western Union money transfer transactions.

On February 13, 2017, the Company’s subsidiary, Western Union Payment Services Ireland Limited (“WUPSIL”), was served with a writ of accusation from the National Court of Spain.

The writ charges 98 former Western Union money transfer agents or agent representatives with fraud and money laundering in connection with consumer fraud scams they allegedly perpetrated using Western Union money transfer transactions.

The writ also names WUPSIL as a civil defendant, allegedly responsible under Spanish law to pay any portion of the alleged amount in victim losses that cannot be repaid by any of the criminal defendants who are convicted.

3 unchanged sentences

On November 4, 2019, the Court issued final judgment in this matter consistent with the settlement agreement.

WUPSIL filed a new motion requesting release of the corporate guarantee on December 2, 2019, which is still pending before the Court.

WUPSIL filed a new motion requesting release of the corporate guarantee on December 2, 2019.

On June 19, 2020, the Court released the corporate guarantee.

This decision is now binding and final and cannot be further appealed or modified.

On March 31, 2017, the Company received a request for the production of documents from the New York State Department of Financial Services (the "NYDFS"), following up on a meeting the Company had with the NYDFS on March 7, 2017.

22 unchanged sentences

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 three months ended March 31, 2020 and 2019 totaled $ 12.6 million and $ 13.0 million, respectively.

Commission expense recognized for these agents for the three months ended June 30, 2020 and 2019 totaled $ 12.9 million and $ 14.4 million, respectively, and $ 25.5 million and $ 27.4 million for the six months ended June 30, 2020 and 2019, respectively.

Settlement Assets and Obligations

3 unchanged sentences

Settlement assets and obligations consisted of the following (in millions):

March 31, 2020

June 30, 2020

Settlement assets:

19 unchanged sentences

Total settlement obligations

Receivables from agents represent funds collected by such agents, but in transit to the Company, and were $ 851.0 million as of March 31, 2020.

Receivables from agents represent funds collected by such agents, but in transit to the Company, and were $ 1,171.7 million as of June 30, 2020.

Cash received by Western Union agents generally becomes available to the Company within one week after initial receipt by the agent.

2 unchanged sentences

Receivables from Business Solutions customers arise from cross-currency payment transactions in the Business Solutions segment.

Business Solutions receivables totaled $ 76.3 million at March 31, 2020.

Receivables occur when funds have been paid out to a beneficiary but not yet received from the customer.

Collection of these receivables ordinarily

Business Solutions receivables totaled $ 61.9 million as of June 30, 2020.

Receivables occur when

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

occurs within a few days.

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.

4 unchanged sentences

Given the short-term nature of these receivables, the Company would not expect the impact of forecasted economic conditions on its allowance for credit loss to be significant.

However, during the three months ended March 31, 2020, the Company observed delays in its collections from certain of its agents in connection with COVID-19 agent location closures and other impacts, and the Company believes these delays were largely temporary as certain agents were not able to remit settlement funds during lockdowns or other stay-at-home orders.

Still, some of the Company’s agents are small businesses and may not easily be able to resume operations due to COVID-19.

The Company has estimated credit losses based on information known at March 31, 2020.

However, during the three and six months ended June 30, 2020, the Company experienced delays in its collections from certain of its agents in connection with COVID-19 agent location closures and other impacts, and the Company believes these delays were largely temporary as certain agents were not able to remit settlement funds during lockdowns or other stay-at-home orders.

Still, some of the Company’s agents, such as small businesses, may not easily be able to resume operations due to COVID-19.

The Company has estimated credit losses based on information known as of June 30, 2020.

The following table summarizes activity in the allowance for credit losses on receivables from agents and Business Solutions customers (in millions):

3 unchanged sentences

Write-offs charged against the allowance

Impacts of foreign currency exchange rates and other

Recoveries of amounts previously written off

Allowance for credit losses as of March 31, 2020

Impacts of foreign currency exchange rates and other

Allowance for credit losses as of June 30, 2020

(a) Provision does not include losses from chargebacks or fraud associated with transactions initiated through our electronic channels, as these losses are not credit-related.

7 unchanged sentences

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:

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

earnings performance, (ii) credit rating downgrades, or (iii) adverse changes in in the regulatory or economic environment of the asset.

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 and for the three months ended March 31, 2020, the Company’s allowance for credit losses and provision for credit losses on its available-for-sale securities were immaterial.

As of and for the three and six months ended June 30, 2020, the Company’s allowance for credit losses and provision for credit losses on its available-for-sale securities were immaterial.

The components of investment securities are as follows (in millions):

March 31, 2020

June 30, 2020

Gains/(Losses)

5 unchanged sentences

State and municipal variable-rate demand notes

United States government agency mortgage-backed securities

Corporate debt securities

United States government agency mortgage-backed securities

Total available-for-sale securities

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the contractual maturities of available-for-sale securities within Settlement assets as of March 31, 2020 (in millions):

The following summarizes the contractual maturities of available-for-sale securities within Settlement assets as of June 30, 2020 (in millions):

Due within 1 year

3 unchanged sentences

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 $ 16.0 million and $ 191.5 million were included in the categories "Due after 1 year through 5 years"

Variable-rate demand notes, having a fair value of $ 15.0 million, $ 1.0 million, and $ 425.3 million were included in the categories "Due after 1 year through 5 years,"

"Due after 5 years through 10 years,"

and "Due after 10 years,"

3 unchanged sentences

These amounts advanced to agents are included within Other assets in the accompanying Condensed Consolidated Balance Sheets.

As of March 31, 2020, amounts advanced to agents were $ 108.8 million, and the related allowance for credit losses was immaterial.

As of June 30, 2020, amounts advanced to agents were $ 117.9 million, and the related allowance for credit losses was immaterial.

Stockholders’ Deficit

3 unchanged sentences

Amounts Reclassified from AOCL to Net Income

Three Months Ended

Six Months Ended

Income Statement

15 unchanged sentences

Actuarial loss

Other income, net

Other income/(expense), net

Income tax benefit

11 unchanged sentences

As of March 31, 2020

Unrealized gains/(losses)

Tax benefit/(expense)

Amounts reclassified from AOCL into earnings, net of tax

As of June 30, 2020

Foreign Currency

5 unchanged sentences

As of March 31, 2019

Unrealized gains/(losses)

Tax benefit/(expense)

Amounts reclassified from AOCL into earnings, net of tax

As of June 30, 2019

Cash Dividends Paid

During the first quarter of 2020 and 2019, the Company's Board of Directors declared cash dividends of $ 0.225 and $ 0.20 per common share, respectively, representing $ 92.4 million and $ 87.4 million in total dividends, which were paid on March 31, 2020 and March 29, 2019, respectively.

The Company’s Board of Directors declared quarterly cash dividends of $ 0.225 per common share in the first and second quarters of 2020, representing $ 184.9 million in total dividends.

Of this amount, $ 92.5 million was paid on June 30, 2020 and $ 92.4 million was paid on March 31, 2020.

The Company’s Board of Directors declared quarterly cash dividends of $ 0.20 per common share in the first and second quarters of 2019, representing $ 172.9 million in total dividends.

Of this amount, $ 85.5 million was paid on June 28, 2019 and $ 87.4 million was paid on March 29, 2019.

On July 15, 2020, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.225 per common share payable on September 30, 2020.

Share Repurchases

During the three months ended March 31, 2020 and 2019, 8.5 million and 9.7 million shares were repurchased for $ 217.4 million and $ 175.0 million, respectively, excluding commissions, at an average cost of $ 25.45 and $ 18.06 , respectively.

During the six months ended June 30, 2020 and 2019, 8.5 million and 17.9 million shares were repurchased for $ 217.4 million and $ 335.5 million, respectively, excluding commissions, at an average cost of $ 25.45 and $ 18.73 , respectively.

These amounts represent shares authorized by the Board of Directors for repurchase under publicly announced authorizations.

As of March 31, 2020, the Company has temporarily paused share repurchases, and $ 782.6 million remained available under the share repurchase authorizations approved by the Company’s Board of Directors through December 31, 2021.

During the first quarter of 2020, the Company temporarily paused and has not resumed share repurchases,

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

and as of June 30, 2020, $ 782.6 million remains available under the share repurchase authorization approved by the Company’s Board of Directors through December 31, 2021.

The amounts included in the Common stock repurchased line in the Company’s Condensed 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.

2 unchanged sentences

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 uses 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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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;

10 unchanged sentences

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 March 31, 2020, these foreign currency forward contracts had maturities of a maximum of 24 months with a weighted-average maturity of approximately one year .

As of June 30, 2020, 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.

3 unchanged sentences

None of these contracts are designated as accounting hedges.

The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of March 31, 2020 and December 31, 2019 were as follows (in millions):

March 31, 2020

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of June 30, 2020 and December 31, 2019 were as follows (in millions):

June 30, 2020

Contracts designated as hedges:

4 unchanged sentences

British pound

Brazilian real

(a) Comprised of exposures to various currencies as of March 31, 2020.

Canadian dollar

Australian dollar

(a) Comprised of exposures to various currencies as of June 30, 2020.

None of these individual currency exposures is greater than $ 25 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2019

12 unchanged sentences

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.

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 established financial institution counterparties (economic hedge contracts).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

with established financial institution counterparties (economic hedge contracts).

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 $ 87.5 million and $ 84.7 million for the three months ended March 31, 2020 and 2019, respectively, and included in Revenues in the Company’s Condensed Consolidated Statements of Income.

Foreign exchange revenues from the total portfolio of positions were $ 70.0 million and $ 84.2 million for the three months ended June 30, 2020 and 2019, respectively, and $ 157.5 million and $ 168.9 million for the six months ended June 30, 2020 and 2019, respectively.

None of the derivative contracts used in Business Solutions operations are designated as accounting hedges and the duration of these derivative contracts at inception is generally 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 as of March 31, 2020 and December 31, 2019 was approximately $ 7.5 billion.

The aggregate equivalent United States dollar notional amount of derivative customer contracts held by the Company in its Business Solutions operations as of June 30, 2020 and December 31, 2019 was approximately $ 7.5 billion.

The significant majority of customer contracts are written in the following currencies:

the United States dollar, euro, and the Canadian dollar.

the United States dollar, the Canadian dollar, and the euro.

Interest Rate Hedging

3 unchanged sentences

Interest expense in the Condensed Consolidated Statements of Income has been adjusted to include the effects of interest accrued on the swaps.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On November 15, 2019, the Company terminated its interest rate swaps designated as fair value hedges in connection with the repayment of $ 324.9 million of aggregate principal amount unsecured notes in the fourth quarter of 2019 and received cash of $ 0.9 million.

Therefore, as of March 31, 2020 and December 31, 2019, the Company did not have any interest rate swaps designated as fair value hedges.

Therefore, as of June 30, 2020 and December 31, 2019, the Company did not have any interest rate swaps designated as fair value hedges.

Balance Sheet

The following table summarizes the fair value of derivatives reported in the Company’s Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019 (in millions):

The following table summarizes the fair value of derivatives reported in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (in millions):

Derivative Assets

17 unchanged sentences

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.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

3 unchanged sentences

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 WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2020 and December 31, 2019 (in millions):

The following tables summarize the gross and net fair value of derivative assets and liabilities as of June 30, 2020 and December 31, 2019 (in millions):

Offsetting of Derivative Assets

3 unchanged sentences

in the Condensed

March 31, 2020

June 30, 2020

Balance Sheets

6 unchanged sentences

Derivatives that are not or may not be subject to master netting arrangement or similar agreement

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Offsetting of Derivative Liabilities

3 unchanged sentences

in the Condensed

March 31, 2020

June 30, 2020

Balance Sheets

6 unchanged sentences

Derivatives that are not or may not be subject to master netting arrangement or similar agreement

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Statement

2 unchanged sentences

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 three months ended March 31, 2020 and 2019 (in millions):

The following table presents the pre-tax amount of unrealized gains/(losses) recognized in other comprehensive income from cash flow hedges for the three and six months ended June 30, 2020 and 2019 (in millions):

Three Months Ended

Six Months Ended

Foreign currency derivatives (a)

(a) For the three months ended March 31, 2020 and 2019, gains/(losses) of $ 3.5 million and $ 0.5 million, respectively, represent the amounts excluded from the assessment of effectiveness that were recognized in other comprehensive income, for which an amortization approach is applied.

The following table presents the location and amounts of pre-tax gains/(losses) from fair value and cash flow hedging relationships recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (in millions):

(a) Gains/(losses) of $( 0.7 ) million and $ 1.2 million, for the three months ended June 30, 2020 and 2019, respectively, and $ 2.8 million and $ 1.7 million for the six months ended June 30, 2020 and 2019, respectively, represent amounts excluded from the assessment of effectiveness that were recognized in other comprehensive income, for which an amortization approach is applied.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended

9 unchanged sentences

Amount excluded from effectiveness testing recognized in earnings based on changes in fair value

Interest rate derivatives:

Gains/(losses) reclassified from AOCL into earnings

The following table presents the location and amounts of pre-tax gains/(losses) from fair value and cash flow hedging relationships recognized in the Condensed Consolidated Statements of Income for the six months ended June 30, 2020 and 2019 (in millions):

Six Months Ended

Total amounts presented in the Condensed Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded

The effects of fair value and cash flow hedging:

Gain/(loss) on fair value hedges:

Interest rate derivatives:

Derivatives designated as hedging instruments

Gain/(loss) on cash flow hedges:

Foreign currency derivatives:

Gains/(losses) reclassified from AOCL into earnings

Amount excluded from effectiveness testing recognized in earnings based on an amortization approach

Amount excluded from effectiveness testing recognized in earnings based on changes in fair value

Interest rate derivatives:

Gains/(losses) reclassified from AOCL into earnings

THE WESTERN UNION COMPANY

1 unchanged sentence

Undesignated Hedges

The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges in the Condensed Consolidated Statements of Income on derivatives for the three months ended March 31, 2020 and 2019 (in millions):

The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges in the Condensed Consolidated Statements of Income on derivatives for the three and six months ended June 30, 2020 and 2019 (in millions):

Three Months Ended

Six Months Ended

Derivatives (a)

7 unchanged sentences

(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 gains/(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 Condensed Consolidated Statements of Income, were $( 51.0 ) million and $( 10.8 ) million for the three months ended March 31, 2020 and 2019, respectively.

Foreign exchange gains/(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 Condensed Consolidated Statements of Income, were $ 3.0 million and $( 4.3 ) million for the three months ended June 30, 2020 and 2019, respectively, and $( 48.0 ) million and $( 15.1 ) million for the six months ended June 30, 2020 and 2019, respectively.

All cash flows associated with derivatives are included in Cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows.

Based on March 31, 2020 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $ 18.3 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

Based on June 30, 2020 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $ 5.1 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

THE WESTERN UNION COMPANY

1 unchanged sentence

The Company’s outstanding borrowings consisted of the following (in millions):

March 31, 2020

June 30, 2020

December 31, 2019

11 unchanged sentences

The commercial paper notes may have maturities of up to 397 days from date of issuance.

The Company’s commercial paper borrowings as of March 31, 2020 had a weighted-average annual interest rate of approximately 3.5 % and a weighted-average term of approximately 1 day .

The Company’s commercial paper borrowings as of June 30, 2020 had a weighted-average annual interest rate of approximately 0.4 % and a weighted-average term of approximately 1 day .

(b) The difference between the stated interest rate and the effective interest rate is not significant.

The following summarizes the Company’s maturities of notes and term loan at par value as of March 31, 2020 (in millions):

The following summarizes the Company’s maturities of notes and term loan at par value as of June 30, 2020 (in millions):

Due within 1 year

5 unchanged sentences

The Company’s obligations with respect to its outstanding borrowings, as described above, rank equally.

The Company’s provision for income taxes for the three months ended March 31, 2020 and 2019 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company’s effective tax rates on pre-tax income were 12.5 % and 19.9 % for the three months ended March 31, 2020 and 2019, respectively.

The decrease in the Company’s effective tax rate for the three months ended March 31, 2020 compared to the prior period is primarily due to an increase in previously forecasted 2019 domestic pre-tax income due to the sales of the Speedpay and Paymap businesses and net discrete benefits in the current period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s provision for income taxes for the three and six months ended June 30, 2020 and 2019 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company’s effective tax rates on pre-tax income were 16.2 % and 17.5 % for the three months ended June 30, 2020 and 2019, respectively, and 14.3 % and 18.1 % for the six months ended June 30, 2020 and 2019, respectively.

The decrease in the Company’s effective tax rate for the three months ended June 30, 2020 compared to the prior period was primarily due to an increase in prior period domestic pre-tax income due to the sales of the Speedpay and Paymap businesses, partially offset by increased discrete expenses in the current period.

The decrease in the Company’s effective tax rate for the six months ended June 30, 2020 compared to the prior period was primarily due to an increase in prior period domestic pre-tax income due to the net gain on the sales of Speedpay and Paymap.

The Company derives its pre-tax income from both foreign and domestic sources.

2 unchanged sentences

The Company has established contingency reserves for a variety of material, known tax exposures.

The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review or other

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

3 unchanged sentences

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 Condensed Consolidated Balance Sheets.

The total amount of unrecognized tax benefits as of March 31, 2020 and December 31, 2019 was $ 290.3 million and $ 293.9 million, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 280.3 million and $ 283.4 million as of March 31, 2020 and December 31, 2019, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits as of June 30, 2020 and December 31, 2019 was $ 292.0 million and $ 293.9 million, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 281.9 million and $ 283.4 million as of June 30, 2020 and December 31, 2019, respectively, excluding interest and penalties.

The Company recognizes interest and penalties with respect to unrecognized tax benefits in Provision for income taxes in its Condensed Consolidated Statements of Income and records the associated liability in Income taxes payable in its Condensed Consolidated Balance Sheets.

The Company recognized ($ 1.2 million) and $ 1.0 million of interest and penalties during the three months ended March 31, 2020 and 2019, respectively.

The Company has accrued $ 25.9 million and $ 27.1 million for the payment of interest and penalties as of March 31, 2020 and December 31, 2019, respectively.

The Company recognized $ 1.9 million and $ 2.5 million of interest and penalties during the three months ended June 30, 2020 and 2019, respectively, and $ 0.7 million and $ 3.4 million during the six months ended June 30, 2020 and 2019.

The Company has accrued $ 27.8 million and $ 27.1 million for the payment of interest and penalties as of June 30, 2020 and December 31, 2019, respectively.

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.

1 unchanged sentence

Stock-Based Compensation Plans

For the three months ended March 31, 2020 and 2019, the Company recognized stock-based compensation expense of $ 12.5 million and $ 13.7 million, respectively, resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units in the Condensed Consolidated Statements of Income.

During the three months ended March 31, 2020, the Company granted 0.5 million options at a weighted-average exercise price of $ 26.50 and 2.4 million performance-based restricted stock units and restricted stock units at a weighted-average grant date fair value of $ 25.99 .

As of March 31, 2020, the Company had 4.9 million outstanding options at a weighted-average exercise price of $ 19.20 , of which 3.8 million options were exercisable at a weighted-average exercise price of $ 18.42 .

The Company had 7.2 million performance-based restricted stock units (based on target performance) and restricted stock units at a weighted-average grant date fair value of $ 20.78 as of March 31, 2020.

For the three months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 5.3 million and $ 11.6 million, respectively, resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units in the Condensed Consolidated Statements of Income.

For the six months

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 17.8 million and $ 25.3 million, respectively.

During the six months ended June 30, 2020, the Company granted 0.5 million options at a weighted-average exercise price of $ 26.20 and 2.4 million performance-based restricted stock units and restricted stock units at a weighted-average grant date fair value of $ 25.93 .

As of June 30, 2020, the Company had 4.9 million outstanding options at a weighted-average exercise price of $ 19.13 , of which 3.8 million options were exercisable at a weighted-average exercise price of $ 18.41 .

The Company had 7.1 million performance-based restricted stock units (based on target performance) and restricted stock units at a weighted-average grant date fair value of $ 20.83 as of June 30, 2020.

As described in Note 1, the Company classifies its business into two segments:

5 unchanged sentences

The Company includes Digital Money Transfer transactions in its regions.

By means of common processes and systems, these

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

regions, including Digital Money Transfer transactions, create an interconnected network for consumer transactions, thereby constituting one global Consumer-to-Consumer money transfer business and one operating segment.

By means of common processes and systems, these regions, including Digital Money Transfer transactions, create an interconnected network for consumer transactions, thereby constituting one global 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.

In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4.

The Company’s money order and other services are also included in Other.

Corporate costs, including stock-based compensation and other overhead, are allocated to the segments primarily based on a percentage of the segments’ revenue compared to total revenue.

The following table presents the Company’s reportable segment results for the three months ended March 31, 2020 and 2019 (in millions):

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the Company’s reportable segment results for the three and six months ended June 30, 2020 and 2019 (in millions):

Three Months Ended

Six Months Ended

Consumer-to-Consumer

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Total consolidated operating income

(a) Other primarily consists of the Company’s electronic-based and cash-based bill payment services which facilitate payments from consumers to businesses and other organizations .

(a) Other primarily includes the Company’s cash-based and electronic-based bill payment services which facilitate payments from consumers to businesses and other organizations and the Company’s money order services .

In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 4.

Speedpay revenues and direct operating expenses included in the Company’s results were $ 88.2 million and $ 67.6 million, respectively, for the three months ended March 31, 2019.

Paymap revenues and direct operating expenses included in the Company’s results were $ 3.7 million and $ 1.7 million, respectively, for the three months ended March 31, 2019.

Paymap revenues and direct operating expenses included in the Company’s results were $ 1.6 million and $ 0.5 million, respectively, for the three months ended June 30, 2019 and $ 5.3 million and $ 2.2 million, respectively, for the six months ended June 30, 2019.

(b) In the first quarter of 2020, the Company changed its expense allocation method so that its corporate data center and network engineering information technology expenses are allocated based on a percentage of relative revenue.

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The Company believes that an allocation method based fully on relative revenue presents a more representative view of segment profitability, as certain of the Company’s services, particularly some of its bill payment services and its money order services, have much lower revenues per transaction than the Company’s other services.

For the three months ended March 31, 2019 , this change would have decreased Consumer-to-Consumer operating income and increased Other operating income by $ 13.1 million.

Further, these technology expenses are becoming increasingly based on data storage utilized and less based on the number of transactions processed.

For the three and six months ended June 30, 2019, this change would have decreased Consumer-to-Consumer operating income and increased Other operating income by $ 11.7 million and $ 24.8 million, respectively.

Business Solutions was not materially impacted by the change in the allocation method.

Subsequent Event

In the later part of March 2020, the Company began experiencing decreases in Consumer-to-Consumer transactions as a result of COVID-19.

For example, although the impacts varied by week and region, the Company experienced a decline of approximately 20 % in transactions, on average, during the second half of March, compared to the same period in the prior year.

This decline was caused by decreases in transactions from the Company’s walk-in retail business and was partially offset by an increase in transactions initiated through westernunion.com.

The Company expects that total revenues in the second quarter of 2020 will be negatively impacted by the effects of COVID-19, which could continue to negatively impact revenue into subsequent periods.

The duration and severity of the pandemic, including the responses of government authorities to the pandemic and the macro economic consequences, are uncertain.

The Company expects that its results will continue to be adversely impacted as long as such factors persist.

THE WESTERN UNION COMPANY

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adverse rating actions by credit rating agencies;

our ability to protect our brands and our other intellectual property rights and to defend ourselves against potential intellectual property

infringement claims;

our ability to protect our brands and our other intellectual property rights and to defend ourselves against potential intellectual property infringement claims;

our ability to attract and retain qualified key employees and to manage our workforce successfully;

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liabilities resulting from litigation, including class-action lawsuits and similar matters, and regulatory enforcement actions, including costs, expenses, settlements, and judgments;

failure to comply with regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation ("GDPR") in the European Union ("EU") and the California Consumer Privacy Act;

failure to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), as well as regulations issued pursuant to it and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other governmental authorities in the United States and abroad related to consumer protection and derivative transactions;

failure to comply with regulations and evolving industry standards regarding consumer privacy and data use and security, including with respect to the General Data Protection Regulation in the European Union ("EU") and the California Consumer Privacy Act;

failure to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as regulations issued pursuant to it and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other governmental authorities in the United States and abroad related to consumer protection and derivative transactions;

effects of unclaimed property laws or their interpretation or the enforcement thereof;

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In addition, in certain countries, we write foreign currency forward and option contracts for customers to facilitate future payments.

All businesses and other services that have not been classified in the above segments are reported as Other, which primarily includes our cash-based and electronic-based bill payment services which facilitate payments from consumers to businesses and other organizations.

Our money order and other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other.

Our other services, in addition to certain corporate costs such as costs related to strategic initiatives, including costs for the review and closing of mergers, acquisitions, and divestitures, are also included in Other.

Additional information on our segments is further described in the Segment Discussion below.

Results of Operations

The following discussion of our consolidated results of operations and segment results refers to the three months ended March 31, 2020 compared to the same period in 2019.

The following discussion of our consolidated results of operations and segment results refers to the three and six months ended June 30, 2020 compared to the same periods in 2019.

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 Condensed Consolidated Statements of Income.

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As a result, the percentage changes and margins disclosed herein may not recalculate precisely using the rounded amounts provided.

These actions have negatively impacted our ability to offer our services through a portion of our locations and our retail agent locations, at least temporarily.

We experienced a significant decline in our Consumer-to-Consumer transactions in the second half of March and similar trends in April, which we believe is due in part to economic decline and uncertainty resulting from the outbreak.

As a result, our revenues for the first quarter of 2020, specifically in the later part of March, were negatively impacted.

And, while the duration and severity of this pandemic and the related impacts are uncertain, we expect that our results of operations in the second quarter of 2020 will be negatively impacted by the effects of COVID-19.

We expect that to the extent the pandemic or the related macro economic consequences continue, we will continue to experience negative impacts on our results of operations, including the potential for increased credit losses or intangible asset impairments in future periods.

Our revenues and operating income for the three months ended March 31, 2020 were negatively 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 reduction to revenues of $47.3 million for the three months ended March 31, 2020, relative to the corresponding period in the prior year.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $36.7 million for the three months ended March 31, 2020, relative to the corresponding period in the prior year.

Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $23.7 million for the three months ended March 31, 2020, relative to the corresponding period in the prior year.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $5.7 million for the three months ended March 31, 2020, relative to the corresponding period in the prior year.

These actions negatively impacted our ability to offer our services through a portion of our locations and our retail agent locations, at least temporarily during the three and six months ended June 30, 2020.

As a result, our revenues for the second quarter of 2020 were negatively impacted by the effects of COVID-19.

We experienced a significant decline in our Consumer-to-Consumer transactions beginning in the second half of March and continuing into the first half of April, which we believe to be due in part to economic decline and uncertainty resulting from the outbreak.

However, since the second half of April, we generally experienced gradually improving transaction trends in our Consumer-to-Consumer segment throughout the remainder of the second quarter, with significant growth in westernunion.com and other digital transactions, as further described below.

While the duration and severity of this pandemic and the related impacts are uncertain, we expect that our results of operations in the second half of 2020 will continue to be negatively impacted by these effects.

Further, we expect that to the extent the pandemic or the related macro-economic consequences continue, we will continue to experience negative impacts on our results of operations, including the potential for increased credit losses or intangible asset impairments in future periods.

Our revenues and operating income for the three and six months ended June 30, 2020 were negatively 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 reduction to revenues of $46.4 million and $93.7 million for the three and six months ended June 30, 2020 relative to the corresponding periods in the prior year.

Included within these amounts are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $31.0 million and $67.7 million for the three and six months ended June 30, 2020 relative to the corresponding periods in the prior year.

Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $4.9 million and $28.6 million for the three and six months ended June 30, 2020 relative to the corresponding periods in the prior year.

Included within these amounts are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $6.6 million and $12.3 million for the three and six months ended June 30, 2020 relative to the corresponding periods in the prior year.

On February 28, 2019, we entered into an agreement with ACI Worldwide Corp.

and ACW Worldwide, Inc.

to sell our United States electronic bill payments business known as “Speedpay,” which had been included as a component of Other in our segment reporting.

to sell our United States based electronic bill payments business known as “Speedpay,” which had been included as a component of Other in our segment reporting.

We received approximately $750 million and recorded a pre-tax gain on the sale of approximately $523 million in the second quarter of 2019 in the all-cash transaction that closed on May 9, 2019.

Speedpay revenues and direct operating expenses included in our results were $88.2 million and $67.6 million, respectively, for the three months ended March 31, 2019.

The following table sets forth our consolidated results of operations for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

Speedpay revenues and direct operating expenses included in our results were $37.2 million and $30.6 million, respectively, for the three months ended June 30, 2019 and $125.4 million and $98.2 million, respectively, for the six months ended June 30, 2019.

The following table sets forth our consolidated results of operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(in millions, except per share amounts)

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Other income/(expense):

Gain on divestitures of businesses

Interest income

Interest expense

Other income, net

Total other expense, net

Other income/(expense), net

Total other income/(expense), net

Income before income taxes

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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 three months ended March 31, 2020 compared to the corresponding period in the prior year.

These disclosures are provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the three and six months ended June 30, 2020 compared to the corresponding periods in 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 three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

The following table sets forth our consolidated revenue results for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions)

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Revenue change, constant currency adjusted and excluding divestitures - (Non-GAAP)

(a) Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a reduction to revenues of $ 47.3 million for the three months ended March 31, 2020 when compared to foreign currency rates in the prior year period.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $ 36.7 million for the three months ended March 31, 2020 , when compared to foreign currency rates in the prior year period.

(a) Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a reduction to revenues of $46.4 million and $93.7 million for the three and six months ended June 30, 2020 when compared to foreign currency rates in the prior year periods.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $31.0 million and $67.7 million for the three and six months ended June 30, 2020 when compared to foreign currency rates in the prior year periods.

(b) In May 2019, we sold a substantial majority of our United States based electronic bill payments services.

Speedpay revenues included in our results were $88.2 million for the three months ended March 31, 2019.

(“Paymap”), which we sold in May 2019, provides electronic mortgage bill payment services, and related revenues included in our results were $3.7 million for the three months ended March 31, 2019.

For the three months ended March 31, 2020, GAAP revenues decreased when compared to the corresponding period in the prior year primarily due to the divestitures of the Speedpay and Paymap businesses during the second quarter of 2019, fluctuations in the exchange rate between the United States dollar and other currencies, and impacts from the worldwide actions related to COVID-19, as discussed above.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 4% for the three months ended March 31, 2020.

The decrease in revenues constant currency adjusted and excluding divestitures (Non-GAAP) for the three months ended March 31, 2020 was primarily the result of the impacts from the worldwide actions related to COVID-19, as discussed above.

Speedpay revenues included in our results were $37.2 million and $125.4 million for the three and six months ended June 30, 2019.

(“Paymap”), which we sold in May 2019, provides electronic mortgage bill payment services, and related revenues included in our results were $1.6 million and $5.3 million for the three and six months ended June 30, 2019.

For the three and six months ended June 30, 2020, GAAP revenues decreased when compared to the corresponding periods in the prior year primarily due to the impacts from the worldwide actions related to COVID-19, as discussed above, divestitures of the Speedpay and Paymap businesses during the second quarter of 2019, and fluctuations in the exchange rates between the United States dollar and foreign currencies.

Fluctuations in the exchange rates between the United States dollar and foreign currencies negatively impacted revenue by 3% and 4% for the three and six months ended June 30, 2020, respectively.

The decrease in revenues constant currency adjusted and excluding divestitures (Non-GAAP) for the six months ended June 30, 2020 was primarily the result of the impacts from the worldwide actions related to COVID-19, as discussed above.

Operating Expenses Overview

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The financial services industry, including money services businesses, continues to be subject to increasingly strict legal and regulatory requirements, and we continue to focus on and regularly review our compliance programs.

In connection with these reviews, and in light of growing and rapidly evolving regulatory complexity and heightened attention of, and increased dialogue with, governmental and regulatory authorities related to our compliance activities, we have made, and continue to make, enhancements to our processes and systems designed to detect and prevent money laundering, terrorist financing, and fraud and other illicit activity.

We also continue to improve consumer protection, including enhancements related to the Joint Settlement Agreements and the New York State Department of Financial Services Consent Order described further in Part I, Item 1, Financial Statements , Note 8, Commitments and Contingencies, and similar regulations outside the United States, and other matters.

Some of these changes have had, and we believe will continue to have, an adverse effect on our business, financial condition, and results of operations.

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On August 1, 2019, our Board of Directors approved a plan to change our operating model and improve our business processes and cost structure by reorganizing our senior management, including those managers reporting to our chief executive officer, reducing our headcount, and consolidating various facilities.

We expect to incur approximately $150 million of total expenses through 2020, with approximately $110 million related to severance and employee-related benefits and approximately $40 million related to costs associated with the relocation of various operations to other Company facilities, costs related to facility closures, lease terminations, consulting, and other expenses.

We expect to incur approximately $150 million of total expenses through 2020, with approximately $110 million related to severance and employee-related benefits and approximately $40 million related to costs associated with the relocation of various operations to other Company facilities, facility closures, lease terminations, consulting, and other expenses.

Substantially all of these expenses are expected to be paid in cash.

We expect the plan to generate expense savings of approximately $50 million in 2020 and approximately $100 million in 2021.

We expect the plan to generate expense savings of at least $50 million in 2020 and approximately $100 million in 2021.

The foregoing figures are our estimates and are subject to change.

For the three months ended March 31, 2020, we incurred $10.5 million related to this plan, the majority of which is related to consulting service fees, severance, and other costs.

Of this amount, $0.9 million and $9.6 million are included

within Cost of services and Selling, general, and administrative, respectively, in the Condensed Consolidated Statements of Income.

For the three and six months ended June 30, 2020, we incurred $5.2 million and $15.7 million related to this plan, the majority of which is related to consulting service fees, severance, and other costs.

For the three and six months ended June

30, 2020, $0.8 million and $1.7 million, respectively, is included within Cost of services and $4.4 million and $14.0 million, respectively, is included within Selling, general, and administrative in the Condensed Consolidated Statements of Income.

For the three and six months ended June 30, 2019, we incurred $7.4 million of expenses related to this plan which is included within Selling, general, and administrative.

Refer to Part I, Item 1, Financial Statements , Note 5, Restructuring-Related Expenses for further discussion.

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Cost of Services

Cost of services primarily consists of agent commissions, which represented approximately 60% of total cost of services for the three months ended March 31, 2020.

Cost of services decreased for the three months ended March 31, 2020 compared to the corresponding period in the prior year due to the Speedpay divestiture during the second quarter of 2019 and a decrease in agent commissions in our Consumer-to-Consumer money transfer business, which vary with revenues, including due to fluctuations in the exchange rate between the United States dollar and foreign currencies.

Cost of services primarily consists of agent commissions, which represented approximately 60% of total cost of services for both the three and six months ended June 30, 2020.

Cost of services decreased for the three and six months ended June 30, 2020 compared to the corresponding period in the prior year due to a decrease in agent commissions in our Consumer-to-Consumer money transfer business, which generally vary with revenues, including due to fluctuations in the exchange rate between the United States dollar and foreign currencies, the Speedpay divestiture during the second quarter of 2019, and a decrease in employee-related expense, including as a result of reduced hiring, partially offset by an increase in credit losses.

Selling, General, and Administrative

Selling, general, and administrative expenses decreased for the three months ended March 31, 2020 compared to the corresponding period in the prior year due to a decrease in employee-related expenses, including incentive compensation, a decrease in costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures, and savings from our restructuring plan.

These decreases were partially offset by restructuring-related expenses, including consulting service fees, severance, and other costs, and the impacts of the strengthening of the United States dollar against certain foreign currencies.

Selling, general, and administrative expenses decreased for the three and six months ended June 30, 2020 compared to the corresponding period in the prior year due to decreases in employee-related expenses, including incentive compensation and as a result of reduced hiring and savings from our restructuring plan.

In addition, selling, general, and administrative expenses benefited from decreases in marketing costs and costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures.

For the six months ended June 30, 2020, these decreases were partially offset by the impacts of the strengthening of the United States dollar against foreign currencies.

Total Other Income/Expense, Net

Total other income/expense, net decreased for the three months ended March 31, 2020 compared to the corresponding period in the prior year primarily due to a decrease in interest expense driven by a lower weighted-average interest rate on our outstanding debt.

Our effective tax rates on pre-tax income were 12.5% and 19.9% for the three months ended March 31, 2020 and 2019.

The decrease in our effective tax rate for the three months ended March 31, 2020 compared to the prior period is primarily due to an increase in previously forecasted 2019 domestic pre-tax income due to the sales of the Speedpay and Paymap businesses, and net discrete benefits in the current period.

Total other income/expense, net during the three and six months ended June 30, 2019 was impacted by the non-recurring gain on the sale of our United States based electronic bill payments business, known as Speedpay.

In addition, total other income/expense, net during the three and six months ended June 30, 2020 compared to the corresponding periods benefited from a reduction in interest expense driven by a lower weighted-average interest rate on our outstanding debt.

Our provision for income taxes for the three and six months ended June 30, 2020 and 2019 is based on the estimated annual effective tax rate, in addition to discrete items.

Our effective tax rates on pre-tax income were 16.2% and 17.5% for the three months ended June 30, 2020 and 2019, respectively, and 14.3% and 18.1% for the six months ended June 30, 2020 and 2019, respectively.

The decrease in our effective tax rate for the three months ended June 30, 2020 compared to the prior period was primarily due to an increase in prior period domestic pre-tax income due to the sales of the Speedpay and Paymap businesses, partially offset by increased discrete expenses in the current period.

The decrease in our effective tax rate for the six months ended June 30, 2020 compared to the prior period was primarily due to an increase in prior period domestic pre-tax income due to the net gain on the sales of Speedpay and Paymap.

We have established contingency reserves for a variety of material, known tax exposures.

As of March 31, 2020, the total amount of tax contingency reserves was $304.7 million, including accrued interest and penalties, net of related items.

As of June 30, 2020, the total amount of tax contingency reserves was $308.2 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.

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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.

(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.

Earnings Per Share

During the three months ended March 31, 2020 and 2019, basic earnings per share were $0.43 and $0.40, respectively, and diluted earnings per share were $0.42 and $0.39, respectively.

During the three months ended June 30, 2020 and 2019, basic earnings per share were $0.39 and $1.43, respectively, and diluted earnings per share were $0.39 and $1.42, respectively.

During the six months ended June 30, 2020 and 2019, basic earnings per share were $0.82 and $1.82, respectively, and diluted earnings per share were $0.81 and $1.81, 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.

For the three months ended March 31, 2020 and 2019, there were 1.1 million and 4.4 million,

respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above our weighted-average share price during the periods and their effect was anti-dilutive.

Earnings per share for the three months ended March 31, 2020 compared to the corresponding period in the prior year were impacted by the previously described factors impacting net income and a lower number of shares outstanding.

For the three months ended June 30, 2020 and 2019, there were 2.6 million and 2.3 million, respectively, and for the six months ended June 30, 2020 and 2019, there were 1.8 million and 3.4 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above our weighted-average share price during the periods and their effect was anti-dilutive.

Earnings per share for both the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year were impacted by the previously described factors impacting net income, primarily as a result of the gain on the sale of Speedpay, in addition to a lower number of shares outstanding.

The lower number of shares outstanding is due to stock repurchases exceeding stock issuances related to our stock compensation programs.

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Our segments are Consumer-to-Consumer and Business Solutions.

During the three months ended March 31, 2020, we incurred $10.5 million of restructuring-related expenses, as further discussed above.

During the three and six months ended June 30, 2020, we incurred $5.2 million and $15.7 million, respectively, of restructuring-related expenses, and we incurred $7.4 million during the three and six months ended June 30, 2019, as further discussed above.

While certain of these expenses may be identifiable to our segments, primarily to our Consumer-to-Consumer segment, they have been excluded from the measurement of segment operating income provided to the Chief Operating Decision Maker for purposes of assessing segment performance and decision making with respect to resource allocation.

The following table sets forth the components of segment revenues as a percentage of the consolidated totals for the three months ended March 31, 2020 and 2019:

The following table sets forth the components of segment revenues as a percentage of the consolidated totals for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

Consumer-to-Consumer

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We believe that an allocation method based fully on relative revenue presents a more representative view of segment profitability, as certain of our services, particularly some of our bill payment services and our money order services, have much lower revenues per transaction than our other services.

For the three months ended March 31, 2019, this change would have decreased Consumer-to-Consumer operating income and increased Other operating income by $13.1 million.

Further, these technology expenses are becoming increasingly based on data storage utilized and less based on the number of transactions processed.

For the three and six months ended June 30, 2019, this change would have decreased

Consumer-to-Consumer operating income and increased Other operating income by $11.7 million and $24.8 million, respectively.

Business Solutions was not materially impacted by the change in the allocation method.

Consumer-to-Consumer Segment

The following table sets forth our Consumer-to-Consumer segment results of operations for the three months ended March 31, 2020 and 2019:

The following table sets forth our Consumer-to-Consumer segment results of operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

(dollars and transactions in millions)

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The geographic split for transactions and revenue in the table that follows, including Digital Money Transfer transactions, is determined entirely based upon the region where the money transfer is initiated.

Included in each region’s transaction and revenue percentages in the tables below are Digital Money Transfer transactions for the three months ended March 31, 2020 and 2019, respectively.

Where reported separately in the discussion below, Digital Money Transfer and westernunion.com consist of 100% of the transactions conducted and funded through those respective channels.

Included in each region’s transaction and revenue percentages in the tables below are Digital Money Transfer transactions for the three and six months ended June 30, 2020 and 2019.

Where reported separately in the discussion below, Digital Money Transfer, and its subset westernunion.com, consist of 100% of the transactions conducted and funded through those respective channels.

The table below sets forth revenue and transaction changes by geographic region compared to the same period in the prior year.

Consumer-to-Consumer segment constant currency revenue growth/(decline) is a non-GAAP financial measure, as further discussed in Revenues Overview above.

Three Months Ended March 31, 2020

Revenue Growth/

Constant Currency

Three Months Ended June 30, 2020

Six Months Ended June 30, 2020

(Decline), as

Revenue Growth/

(Decline), as

(Decline) (a) -

Consumer-to-Consumer regional growth/(decline):

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As noted above, westernunion.com is a subset of Digital Money Transfer and is included in the regions and Digital Money Transfer revenues.

The table below sets forth regional revenues as a percentage of our Consumer-to-Consumer revenue for the three months ended March 31, 2020 and 2019:

The table below sets forth regional revenues as a percentage of our Consumer-to-Consumer revenue for the three and six months ended June 30, 2020 and 2019:

Three Months Ended

Six Months Ended

Consumer-to-Consumer revenue as a percentage of segment revenue:

Digital Money Transfer, which is included in the regional percentages above, represented approximately 16% and 13% of our Consumer-to-Consumer revenues for the three months ended March 31, 2020 and 2019, respectively.

Our consumers transferred $20.6 billion and $20.9 billion in Consumer-to-Consumer principal for the three months ended March 31, 2020 and 2019, respectively, of which $19.1 billion related to cross-border principal for each of those periods.

Consumer-to-Consumer money transfer revenue decreased 4% for the three months ended March 31, 2020, primarily due to a transaction decline of 3% in the first quarter of 2020, compared to the corresponding period in the prior year.

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, negatively impacted revenue by 1% for the three months ended March 31, 2020 compared to the corresponding period in the prior year.

Constant currency revenue decreased 3% for the three months ended March 31, 2020.

As discussed further below, the decrease was primarily due to revenue declines from our retail business as a result of COVID-19, partially offset by growth in Digital Money Transfer.

The constant currency revenue declines were driven by a decline in transactions sent from Europe, the U.S., and APAC, partially offset by constant currency revenue growth in the Middle East.

Digital Money Transfer, which is included in the regional percentages above, represented approximately 22% and 13% of our Consumer-to-Consumer revenues for the three months ended June 30, 2020 and 2019, respectively, and 19% and 13% for the six months ended June 30, 2020 and 2019, respectively.

Our consumers transferred $21.9 billion and $22.2 billion in Consumer-to-Consumer principal for the three months ended June 30, 2020 and 2019, of which $20.7 billion and $20.5 billion related to cross-border principal for the same corresponding periods described above, respectively.

Our consumers transferred $42.5 billion and $43.1 billion in

Consumer-to-Consumer principal for the six months ended June 30, 2020 and 2019, of which $39.8 billion and $39.6 billion related to cross-border principal for the same corresponding periods described above, respectively.

Consumer-to-Consumer money transfer revenue decreased 12% and 8% for the three and six months ended June 30, 2020, primarily due to a transaction decline of 8% and 5% for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year.

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, negatively impacted revenue by 1% for both the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year.

Constant currency revenue decreased 11% and 7% for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year.

As discussed further below, these decreases were primarily due to revenue declines from our retail business as a result of COVID-19, partially offset by growth in Digital Money Transfer.

The decline in transactions compared to the prior year was primarily a result of COVID-19, which caused governments around the world to institute various protective measures in an effort to slow the spread of the virus.

These measures, which include lockdowns, stay-at-home orders, travel restrictions, and closures of non-essential businesses, have negatively impacted our ability to offer services through some of our retail agent locations across all of our regions.

The COVID-19 outbreak and associated public health measures have also resulted in a decline in economic activity that has recently negatively impacted our transaction volumes.

The COVID-19 outbreak and associated public health measures have also resulted in a decline in economic activity that has negatively impacted our transaction volumes for the three and six months ended June 30, 2020.

In the later part of March 2020, we started to experience a decrease in Consumer-to-Consumer transactions as a result of COVID-19.

For example, although the impacts varied by week and region, we experienced a decline of approximately 20% in transactions, on average, during the second half of March, compared to the same period in the prior year.

This decline was caused by decreases in transactions from our retail business and was partially offset by an increase in transactions initiated through westernunion.com.

We expect that total Consumer-to-Consumer revenues in the second quarter of 2020 will continue to be negatively impacted by the effects of COVID-19, which could continue to negatively impact revenue into subsequent periods.

The duration and severity of the pandemic, including the responses of government authorities to the pandemic and the macro economic consequences, are uncertain.

This decline was caused by decreases in transactions from our retail business and was partially offset by growth in Digital Money Transfer transactions, including transactions initiated through westernunion.com.

We believe that our growth in Digital Money Transfer transactions was due, in part, to shifts in consumer behavior to send money through digital channels, including as a result of COVID-19.

Since the second half of April, we generally experienced gradually improving transaction trends throughout the remainder of the second quarter.

In our Consumer-to-Consumer regions, the decrease in NA revenue for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year was primarily the result of declines in money transfers sent and received in the United States.

The decrease in EU & CIS and MEASA revenues for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year was driven by transaction declines in retail money transfers, partially offset by transaction growth from digital white label partnerships.

Finally, the decrease in LACA revenue for the three and six months ended June 30, 2020, compared to the corresponding periods in the prior year, was primarily due to transaction declines caused by COVID-19-related government protective measures, including agent location closures, in the region.

We expect that total Consumer-to-Consumer revenues in the second half of 2020 will continue to be negatively impacted by the effects of COVID-19.

The duration and severity of the pandemic as well as the responses of government authorities to the pandemic, the macro economic consequences, and the impacts on consumer behavior are uncertain.

We expect that our results will continue to be adversely impacted as long as such factors persist.

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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 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.

Operating Income

Consumer-to-Consumer operating income decreased 10% for the three months ended March 31, 2020 compared to the corresponding period in the prior year.

Results for the three months ended March 31, 2020 were negatively impacted by the decrease in revenues, the strengthening of the United States dollar against certain foreign currencies, and increased allocations of certain information technology expenses, as previously discussed above, partially offset by decreases in employee-related expenses, including incentive compensation and as a result of savings from our restructuring plan.

Consumer-to-Consumer operating income decreased 15% and 13% for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year.

Results for the three and six months ended June 30, 2020 were negatively impacted by the decrease in revenues and increased allocations of certain information technology expenses, as previously discussed above, partially offset by decreases in employee-related expenses, including incentive compensation and as a result of reduced hiring and savings from our restructuring plan, as well as decreases in marketing costs.

six months ended June 30, 2020 compared to the corresponding period, Consumer-to-Consumer operating income was negatively impacted by the strengthening of the United States dollar against certain foreign currencies.

Business Solutions

The following table sets forth our Business Solutions segment results of operations for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

The following table sets forth our Business Solutions segment results of operations for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions)

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Operating income margin

(a) Calculation not meaningful.

Business Solutions revenue increased 3% for the three months ended March 31, 2020 compared to the corresponding period in the prior year primarily due to strong hedging activity, which generally varies with currency volatility.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 2% for the three months ended March 31, 2020.

While we believe revenues from hedging activity were aided by currency volatility, including as a result of COVID-19, we expect that the resulting downturn in economic conditions and trade could cause a decline in our cross-currency payments and result in an overall reduction to segment revenues in the second quarter of 2020, and potentially subsequent periods.

Business Solutions revenue decreased 17% and 7% for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year primarily due to a decline in payment services activity, generally across all geographic regions.

We believe this decrease was due to a downturn in economic conditions and trade, which primarily resulted from the effects of COVID-19.

Fluctuations in the exchange rates between the United States dollar and foreign currencies negatively impacted revenue by 2% for both the three and six months ended June 30, 2020.

For the six months ended June 30, 2020, this decrease was partially offset by hedging activity, which generally varies with currency volatility.

We expect that to the extent the COVID-19 pandemic or the related macro-economic consequences continue, we will continue to experience declines in cross-currency payments and reductions to segment revenues in future periods.

Operating Income

For the three months ended March 31, 2020, operating income and operating income margin increased when compared to the corresponding period in the prior year due to the impact of revenue growth, as discussed above, and a reduction in employee-related expenses.

For the three and six months ended June 30, 2020, operating income and operating income margin decreased when compared to the corresponding periods in the prior year due to the impact of revenue declines, as discussed above, partially offset by a reduction in employee-related expenses.

Other primarily consists of our cash-based bill payments businesses in Argentina and the United States, in addition to our money order services.

As previously described, we entered into an agreement on February 28, 2019 to sell Speedpay and closed the transaction on May 9, 2019.

Speedpay revenues and direct operating expenses included in our results were $88.2 million and $67.6 million, respectively, for the three months ended March 31, 2019.

Speedpay revenues and direct operating expenses included in our results were $37.2 million and $30.6 million, respectively, for the three months ended June 30, 2019.

Speedpay revenues and direct operating expenses included in our results were $125.4 million and $98.2 million, respectively, for the six months ended June 30, 2019.

On May 6, 2019, we completed the sale of Paymap for contingent consideration and immaterial cash proceeds received at closing.

Paymap revenues and direct operating expenses included in our results were $3.7 million and $1.7 million, respectively, for the three months ended March 31, 2019.

The following table sets forth Other results for the three months ended March 31, 2020 and 2019:

Three Months Ended March 31,

Paymap revenues and direct operating expenses included in our results were $1.6 million and $0.5 million, respectively, for the three months ended June 30, 2019.

Paymap revenues and direct operating expenses included in our results were $5.3 million and $2.2 million, respectively, for the six months ended June 30, 2019.

The following table sets forth Other results for the three and six months ended June 30, 2020 and 2019:

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions)

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(a) Calculation not meaningful.

Other revenue decreased 59% for the three months ended March 31, 2020 compared to the corresponding period in the prior year primarily due to the impact of the sale of Speedpay.

In addition, the decrease in revenues was also due to a decrease in our Argentine bill payments business primarily due to the strengthening of the United States dollar against the Argentine peso.

The decrease for the three months ended March 31, 2020 was partially offset by an increase in local currency revenue per transaction, primarily due to inflation.

As discussed in the Consumer-to-Consumer Revenues section above, we believe that Other revenues will also be negatively impacted by COVID-19 and its related impacts in the second quarter of 2020, and potentially subsequent periods, due primarily to decreases in our cash-based bill payments services offered at retail locations.

Other revenue decreased 56% and 57% for the three and six months ended June 30, 2020, compared to the corresponding periods in the prior year primarily due to the impact of the sale of Speedpay, declines in our cash-based bill payments services offered at retail locations, and the strengthening of the United States dollar against the Argentine peso.

The decrease for the three and six months ended June 30, 2020 was partially offset by an increase in local currency revenue per transaction, primarily due to inflation.

We believe that Other revenues will continue to be negatively impacted by the effects of COVID-19 to the extent the pandemic or the related macro-economic consequences continue, as we may continue to experience decreases in our cash-based bill payments services.

Operating Income

Other operating income increased for the three months ended March 31, 2020 compared to the corresponding period in the prior year due to the change in allocated information technology expenses, as previously discussed, and a decrease in costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures, partially offset by a decrease in revenues, net of a reduction in direct expenses, from the Speedpay and Paymap divestitures.

Other operating income increased for the three and six months ended June 30, 2020 compared to the corresponding periods in the prior year due to the change in allocated information technology expenses, as previously discussed, and a decrease in costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures, partially offset by a decrease in revenues, net of a reduction in direct expenses from the Speedpay and Paymap divestitures, and a decrease in revenues from our cash-based bill payments services.

Capital Resources and Liquidity

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These payments are typically due in the second quarter of each year through 2025;

however, due to the Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020, the due date for the 2020 payment has been extended to July 2020.

however, due to the Coronavirus Aid, Relief, and Economic Security Act signed into law on March 27, 2020, the due date for the 2020 payment was extended and paid in July 2020.

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 and including as a result of COVID-19 related impacts, 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.

During the three months ended March 31, 2020, we observed some delays in collections of agent receivables due to COVID-19 agent location closures and other impacts.

We believe these delays were largely temporary as certain agents were not able to remit settlement funds to us during lockdowns or other stay-at-home orders;

however, some of our agents are small businesses and may not easily be able to resume operations due to COVID-19.

During the six months ended June 30, 2020, we experienced some delays in collections of agent receivables due to COVID-19 agent location closures and other impacts.

These delays have been largely temporary as certain agents were not able to remit settlement funds to us during lockdowns or other stay-at-home orders;

however, some of our agents, such as small businesses, may not easily be able to resume operations due to COVID-19.

These delays, along with a potential reduction in cash generated from our operating activities, may have a negative impact on our liquidity in future periods.

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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 March 31, 2020, we had no outstanding borrowings on our Revolving Credit Facility and $85.0 million of outstanding borrowings on the commercial paper program.

As of June 30, 2020, we had no outstanding borrowings on our Revolving Credit Facility and $100.0 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 made available from our international subsidiaries.

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Cash and Investment Securities

As of March 31, 2020 and December 31, 2019, we had cash and cash equivalents of $1,072.8 million and $1,450.5 million, respectively.

As of June 30, 2020 and December 31, 2019, we had cash and cash equivalents of $1,181.6 million and $1,450.5 million, respectively.

In many cases, we receive funds from money transfers and certain other payment services before we settle the payment of those transactions.

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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 Condensed Consolidated Balance Sheets, were $1.7 billion as of March 31, 2020 and December 31, 2019, and consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes.

Investment securities, classified within Settlement assets on the Condensed Consolidated Balance Sheets, were $1.9 billion and $1.7 billion as of June 30, 2020 and December 31, 2019, respectively, and consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes.

The substantial majority of our 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-"

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Investment securities are exposed to market risk due to changes in interest rates and credit risk.

We experienced an overall increase in the volatility of the value of our investment securities in the later part of the first quarter of 2020, which we believe was primarily related to impacts of COVID-19.

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 March 31, 2020, all investments with a single issuer and each individual security represented less than 10% of our investment securities portfolio.

As of June 30, 2020, 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 decreased to $112.4 million during the three months ended March 31, 2020, from $239.6 million in the corresponding period in the prior year, primarily as a result of increased incentive and other employee benefit payments, payments related to our restructuring plan, and timing of payments to our agents and vendors.

Cash provided by operating activities decreased to $347.8 million during the six months ended June 30, 2020, from $402.6 million in the corresponding period in the prior year, primarily as a result of increased incentive and other employee benefit payments, payments related to our restructuring plan, and timing of payments to our agents and vendors.

Cash provided by operating activities can be impacted by changes to our consolidated net income, in addition to fluctuations in our working capital balances, among other factors.

Financing Resources

As of March 31, 2020, we have outstanding borrowings at par value of $3,085.0 million.

As of June 30, 2020, we have outstanding borrowings at par value of $3,100.0 million.

The majority of these outstanding borrowings consist of unsecured fixed-rate notes with maturities ranging from 2022 to 2040.

Our borrowings also include our floating rate term loan.

Our Revolving Credit Facility expires in January 2025 and provides for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility.

Our Revolving Credit Facility provides for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility.

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 LIBOR rate plus an interest rate margin of 110 basis points.

Generally, interest is calculated using a selected

LIBOR 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.

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The largest commitment from any single financial institution within the total committed balance of $1.5 billion is approximately 11%.

As of March 31, 2020, we had no outstanding borrowings under our Revolving Credit Facility.

As of June 30, 2020, 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.

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Interest rates for borrowings are based on market rates at the time of issuance.

We had $85.0 million of commercial paper borrowings outstanding as of March 31, 2020.

Our commercial paper borrowings as of March 31, 2020 had a weighted-average annual interest rate of approximately 3.5% and a weighted-average term of approximately 1 day.

During the three months ended March 31, 2020, the average commercial paper balance outstanding was $177.1 million and the maximum balance outstanding was $498.1 million.

We had $100.0 million of commercial paper borrowings outstanding as of June 30, 2020.

Our commercial paper borrowings as of June 30, 2020 had a weighted-average annual interest rate of approximately 0.4% and a weighted-average term of approximately 1 day.

During the six months ended June 30, 2020, the average commercial paper balance outstanding was $224.8 million, and the maximum balance outstanding was $690.0 million.

Proceeds from our commercial paper borrowings were used for general corporate purposes and working capital needs.

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Capital Expenditures

The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $35.7 million and $37.6 million for the three months ended March 31, 2020 and 2019, respectively.

The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $84.2 million and $75.0 million for the six months ended June 30, 2020 and 2019, 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.

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Share Repurchases and Dividends

During the three months ended March 31, 2020 and 2019, 8.5 million and 9.7 million shares were repurchased for $217.4 million and $175.0 million, respectively, excluding commissions, at an average cost of $25.45 and $18.06, respectively.

As of March 31, 2020, we have temporarily paused share repurchases, and $782.6 million remained available under a share repurchase authorization approved by our Board of Directors through December 31, 2021.

Our Board of Directors declared quarterly cash dividends of $0.225 per common share in the first quarter of 2020, representing $92.4 million in total dividends.

During the six months ended June 30, 2020 and 2019, 8.5 million and 17.9 million shares were repurchased for $217.4 million and $335.5 million, respectively, excluding commissions, at an average cost of $25.45 and $18.73, respectively.

During the first quarter of 2020, we temporarily paused and have not resumed share repurchases, and as of June 30, 2020, $782.6 million remains available under the share repurchase authorization approved by our Board of Directors through December 31, 2021.

Our Board of Directors declared quarterly cash dividends of $0.225 per common share in the first and second quarters of 2020, representing $184.9 million in total dividends.

On July 15, 2020, our Board of Directors declared a quarterly cash dividend of $0.225 per common share payable on September 30, 2020.

Debt Service Requirements

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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 $668 million remained as of March 31, 2020.

We have elected to pay this liability in periodic installments through 2025.

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As previously discussed, on August 1, 2019, our Board of Directors approved a plan to change our operating model and improve our business processes and cost structure by reorganizing our senior management, including those managers reporting to our Chief Executive Officer, reducing our headcount, and consolidating various facilities.

As of March 31, 2020, the accrual balance related to our restructuring plan was approximately $59 million.

As of June 30, 2020, the accrual balance related to our restructuring plan was approximately $44 million.

We plan to pay these restructuring accruals, and any additional restructuring accruals, using our existing cash balances and cash generated from operations.

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Other Commercial Commitments

We had approximately $345 million in outstanding letters of credit and bank guarantees as of March 31, 2020 that are primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

We had approximately $360 million in outstanding letters of credit and bank guarantees as of June 30, 2020 primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

The letters of credit and bank guarantees have expiration dates through 2024, with many having a one-year renewal option.

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These letters of credit and bank guarantees exclude guarantees that we may provide as part of our legal matters described in Part I, Item 1, Financial Statements , Note 8, Commitments and Contingencies.

As of March 31, 2020, our total amount of unrecognized income tax benefits was $314.7 million, including associated interest and penalties.

As of June 30, 2020, our total amount of unrecognized income tax benefits was $318.3 million, including associated interest and penalties.

The timing of related cash payments for substantially all of these liabilities is inherently uncertain because the ultimate amount and timing of such liabilities are affected by factors which are variable and outside our control.

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Actual results could differ from those estimates.

Our Critical Accounting Policies and Estimates disclosed in 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, 2019, for which there were no material changes, included:

Our Critical Accounting Policies and Estimates disclosed in 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, 2019, for which there were no material changes, included:

● Income taxes, including income tax contingencies

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The reporting unit's fair value continues to be sensitive to changes in projected revenue growth rates and EBITDA margins, which are impacted by these same factors.

As of March 31, 2020, the Business Solutions reporting unit had goodwill of $532.0 million.

As of June 30, 2020, the Business Solutions reporting unit had goodwill of $532.0 million.

Recent Accounting Pronouncements

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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, bill payment and Business Solutions 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 the 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 Canadian dollar, British pound, 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 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.

We have bill payment, money transfer, and other operations in Argentina, which together represented less than 5% of our total consolidated revenues for the three months ended March 31, 2020 and 2019.

We have bill payment, money transfer, and other operations in Argentina, which together represented less than 5% of our total consolidated revenues for the three and six months ended June 30, 2020 and 2019.

The strengthening of the United States dollar against the Argentine peso has had adverse impacts on our historical results of operations and cash flows, as our Argentine peso-denominated revenue and operating income have been reduced when translated into United States dollars for inclusion in our financial statements.

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As of December 31, 2019, 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 $45 million based on our 2020 forecast of unhedged exposure to foreign currency at that date.

As of March 31, 2020, we were continuing to evaluate our foreign currency denominated revenues and expenses for the next twelve months, which we expect could change materially due to the effects of COVID-19.

As of June 30, 2020, we were continuing to evaluate our foreign currency denominated revenues and expenses for the next twelve months, which we expect could change materially due to the effects of COVID-19.

There are inherent limitations in this sensitivity analysis, primarily due to the following assumptions:

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Interest Rates

We invest in several types of interest-bearing assets, with a total value as of March 31, 2020 of approximately $2.7 billion.

We invest in several types of interest-bearing assets, with a total value as of June 30, 2020 of approximately $2.8 billion.

Approximately $1.5 billion of these assets bear interest at floating rates and are therefore sensitive to changes in interest rates.

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The remainder of our interest-bearing assets primarily consists of highly-rated state and municipal debt securities, which are fixed rate term notes.

These investments may include investments made from cash received from our money order services, money transfer business, and other related payment services awaiting redemption classified within

Settlement assets in the Condensed Consolidated Balance Sheets.

These investments may include investments made from cash received from our money order services, money transfer business, and other related payment services awaiting redemption classified within Settlement assets in the Condensed Consolidated Balance Sheets.

As interest rates rise, the fair value of these fixed-rate interest-bearing securities will decrease;

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We have classified these investments as available-for-sale within Settlement assets in the Condensed 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’ deficit on our Condensed Consolidated Balance Sheets.

As of March 31, 2020, we had a total of approximately $1.0 billion of borrowings subject to floating interest rates.

As of June 30, 2020, we had a total of approximately $1.1 billion of borrowings subject to floating interest rates.

Interest on $950.0 million borrowed under our Term Loan Facility is calculated using a selected LIBOR rate plus an interest rate margin of 125 basis points.

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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.

As of March 31, 2020, our weighted-average effective rate on total borrowings was approximately 3.9%.

As of June 30, 2020, our weighted-average effective rate on total borrowings was approximately 3.5%.

For further detail on our variable rate borrowings, see risk factor “ We have substantial debt and other obligations that could restrict our operations ” in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019.

A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to pre-tax income for the next twelve months of approximately $10 million based on borrowings that are sensitive to interest rate fluctuations, net of the impact of hedges, on March 31, 2020.

The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on March 31, 2020 that are sensitive to interest rate fluctuations, would result in an offsetting increase/decrease to pre-tax income for the next twelve months of approximately $13 million.

A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to pre-tax income for the next twelve months of approximately $11 million based on borrowings that are sensitive to interest rate fluctuations, net of the impact of hedges, on June 30, 2020.

The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on June 30, 2020 that are sensitive to interest rate fluctuations, would result in an offsetting increase/decrease to pre-tax income for the next twelve months of approximately $15 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.

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We perform a credit review before each agent signing and conduct periodic analyses of agents and certain other parties we transact with directly.

While we have observed some delays in our collections from agents in connection with COVID-19 agent location closures and other impacts, we believe we are taking appropriate measures to attempt to address liquidity-related considerations by evaluating, monitoring, and assessing the creditworthiness and credit risk ratings of our agents.

We believe these delays were largely temporary as certain agents were not able to remit settlement funds to us during lockdowns or other stay-at-home orders;

however, some of our agents are small businesses and may not easily be able to resume operations due to COVID-19.

While we have experienced some delays in our collections from agents in connection with COVID-19 agent location closures and other impacts, we believe we are taking appropriate measures to attempt to address liquidity-related considerations by evaluating, monitoring, and assessing the creditworthiness and credit risk ratings of our agents.

These delays have been largely temporary as certain agents were not able to remit settlement funds to us during lockdowns or other stay-at-home orders;

however, some of our agents, such as small businesses, may not easily be able to resume operations due to COVID-19.

In addition, we are exposed to losses directly from consumer transactions, particularly through our electronic channels, where transactions are originated through means other than cash and are therefore subject to "chargebacks,"

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The credit risk associated with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to deliver currency to us or to maintain appropriate collateral with us.

For those receivables where we have extended trade credit, collection ordinarily occurs within a few days.

For those receivables where we have extended trade credit, collection ordinarily occurs

within a few days.

However, the collection of our derivative assets and receivables may be affected by COVID-19 as a result of restrictions on the operations of our customers and any financial impacts our customers may face.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements