What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-20 · 198 added, 191 removed, 366 unchanged (52% of the section changed)

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We are a leading provider of money movement and payment services, operating in two business segments:

● Consumer-to-Consumer - Our Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents .

Our multi-currency money transfer service is provided through one interconnected global network where a money transfer can be sent from one location to another, around the world.

● Consumer-to-Consumer - Our Consumer-to-Consumer operating segment facilitates money transfers, which are sent from our retail agent locations worldwide or through websites and mobile devices, including our fast-growing money transfer transactions conducted and funded through websites and mobile applications marketed under our brands (“westernunion.com”) and transactions initiated on the internet and mobile applications hosted by our third-party white label or co-branded digital partners (together with westernunion.com, “Digital Money Transfer”).

Our money transfer service is provided through one interconnected global network.

This service is available for international cross-border transfers and, in certain countries, intra-country transfers.

This segment also includes money transfer transactions that can be initiated through websites and mobile devices .

● Business Solutions - Our Business Solutions operating segment facilitates payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations and individuals.

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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.

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

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.

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For discussion of our consolidated results of operations and segment results for the year ended December 31, 2019 compared to the same period in 2018, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 20, 2020.

The results of operations should be read in conjunction with the discussion of our segment results of operations, which provide more detailed discussions concerning certain components of the Consolidated Statements of Income/(Loss).

All significant intercompany accounts and transactions between our segments have been eliminated.

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

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 negatively impacted our ability to offer our services, at least temporarily, through a portion of our locations and our retail agent locations during the year ended December 31, 2020.

Beginning in March 2020 and continuing throughout the remainder of the year, we experienced a decrease in transaction volumes from retail locations and a decrease in foreign exchange and payment services activity, which also negatively impacted revenues during this period, partially offset by revenue growth from westernunion.com and other digital transactions, as further described below.

We believe this decrease is mainly due to economic decline and uncertainty resulting from the pandemic.

Our revenues and operating income for the year ended December 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 $238.9 million for the year

ended December 31, 2019 relative to the respective prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $161.2 million for the year ended December 31, 2019 relative to the respective prior year.

Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $63.5 million for the year ended December 31, 2019 relative to the respective prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $43.4 million for the year ended December 31, 2019 relative to the respective prior year.

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 $157.2 million for the year ended December 31, 2020 relative to the prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $138.8 million for the year ended December 31, 2020 relative to the prior year.

Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $44.4 million for the year ended December 31, 2020 relative to the prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $24.5 million for the year ended December 31, 2020 relative to 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 all-cash transaction that closed on May 9, 2019.

Speedpay revenues included in our results were $125.4 and $352.0 million for the years ended December 31, 2019 and 2018, respectively.

Speedpay direct operating expenses were $98.2 million and $251.2 million for the years ended December 31, 2019 and 2018, respectively.

Speedpay revenues and direct operating expenses included in our results were $125.4 million and $98.2 million, respectively, for the year ended December 31, 2019.

The following table sets forth our consolidated results of operations for the years ended December 31, 2020 and 2019:

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Revenues Overview

Transaction volume is the primary generator of revenue in our businesses.

Revenues are primarily derived from consideration paid by customers to transfer money.

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Due to the significance of the effect that foreign exchange fluctuations against the United States dollar can have on our reported revenues, constant currency results have been provided in the table below for consolidated revenues.

We have also disclosed the impact of divestitures on our revenues in the table below.

Additionally, due to the significance of our Consumer-to-Consumer segment to our overall results, we have also provided constant currency results for our Consumer-to-Consumer segment revenues.

Constant currency results assume foreign revenues are translated from foreign currencies to the United States dollar, net of the effect of foreign currency hedges, at rates consistent with those in the prior year.

Constant currency measures are non-GAAP financial measures and are provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates, which is consistent with how management evaluates our revenue results and trends.

We believe that these measures provide management and investors with information about revenue results and trends that eliminates currency volatility and provides greater clarity regarding, and increases the comparability of, our underlying results and trends.

This constant currency disclosure is provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the year ended December 31, 2019 compared to the prior year.

Constant currency measures and measures that exclude the impact of divestitures are non-GAAP financial measures and are provided so that revenue can be viewed without the effect of fluctuations in foreign currency exchange rates and divestitures of our businesses, which is consistent with how management evaluates our revenue results and trends.

We believe that these measures provide management and investors with information about revenue results and trends that eliminates currency volatility and divestitures, thereby providing greater clarity regarding, and increasing the comparability of, our underlying results and trends.

These disclosures are provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the year ended December 31, 2020 compared to the prior year.

Other companies may calculate and define similarly labeled items differently, which may limit the usefulness of this measure for comparative purposes.

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(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 $125.4 million and $352.0 million for the years ended December 31, 2019 and 2018, respectively .

Paymap, which we sold in May 2019, provides electronic mortgage bill payment services, and related revenues included in our results were $5.3 million and $16.2 million for the years ended December 31, 2019 and 2018, respectively.

We have included the impact of these divestitures on our revenues because management believes that presenting the revenue change, as adjusted to exclude divestitures, will provide investors with a more meaningful comparison of results for the periods presented.

For the year ended December 31, 2019, GAAP revenues decreased when compared to the prior year due to fluctuations in the exchange rate between the United States dollar and other currencies, and the divestitures of the Speedpay and Paymap businesses during the second quarter of 2019, partially offset by an increase in transactions in our Consumer-to-Consumer segment.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 4%.

The increase in revenues constant currency adjusted and excluding divestitures (Non-GAAP) of 3% was the result of an increase in local currency revenue per transaction in our Argentine operations, including our cash-based bill payment business, primarily due to inflation, and revenue growth in our Consumer-to-Consumer segment.

Speedpay revenues included in our results were $125.4 million for the year ended December 31, 2019 .

(“Paymap”), which we sold in May 2019, provides electronic mortgage bill payment services, and related revenues included in our results were $5.3 million for the year ended December 31, 2019.

For the year ended December 31, 2020, GAAP revenues decreased when compared to the prior year, including as a result of the impacts from the worldwide actions related to COVID-19.

For the year ended December 31, 2020, we experienced a decrease in transaction volumes from retail locations in our Consumer-to-Consumer segment, which was offset by growth in digital transactions, including from white label partnerships.

For the year ended December 31, 2020, GAAP revenues also decreased when compared to the prior year due to fluctuations between the United States dollar and other currencies and the divestitures of the Speedpay and Paymap businesses during the second quarter of 2019.

The decrease in revenues constant currency adjusted and excluding divestitures (Non-GAAP) 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 NYDFS Consent Order described further in Part II, Item 8, Financial Statements and Supplementary Data , Note 6, 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.

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.

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

For the year ended December 31, 2019, we incurred $115.5 million related to this plan, with a significant majority of these expenses related to severance and employee benefits.

Of this amount, $39.8 million and $75.7 million are included within Cost of services and Selling, general, and administrative, respectively, in the Consolidated Statements of Income/(Loss).

Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 4, Restructuring-Related Expenses and Business Transformation Expenses for further discussion.

For the year ended December 31, 2020, we incurred $36.8 million related to this plan.

Of this amount, $4.5 million and $32.3 million are included within Cost of services and Selling, general, and administrative, respectively, in the Consolidated Statements of Income.

For the year ended December 31, 2019, we incurred $115.5 million of expenses related to this plan, of which $39.8 million and $75.7 million are included within Cost of services and Selling, general, and administrative, respectively, in the Consolidated Statements of Income.

Refer to Part II, Item 8, Financial Statements and Supplementary Data , Note 4, Restructuring-Related Expenses for further discussion.

As of December 31, 2020, all expenses associated with this plan have been incurred and substantially all have been and will continue to be paid in cash.

The plan generated expense savings of more than $50 million in 2020 and we expect to generate approximately $100 million of expense savings in 2021, which is our estimate and subject to change.

These expenses are specific to this initiative;

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

Cost of services decreased for the year ended December 31, 2019 compared to the prior year due to the Speedpay divestiture during the second quarter of 2019, and a decrease in variable costs, including 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.

These decreases were partially offset by an increase in severance and employee benefits related to our restructuring plan, as further discussed above.

Cost of services decreased for the year ended December 31, 2020 compared to 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 between the United States dollar and foreign currencies, the Speedpay divestiture during the second quarter of 2019, a decrease in employee-related expenses, including as a result of reduced hiring, and a decrease in restructuring-related expenses, partially offset by an increase in credit losses.

Selling, General, and Administrative

Selling, general, and administrative expenses increased for the year ended December 31, 2019 compared to the prior year due to restructuring-related expenses, including severance and related employee benefits, costs associated with the relocation of various operations to our other facilities, and costs related to facility closures, lease terminations, and consulting.

In addition, selling, general, and administrative increased due to higher marketing costs compared to the prior year.

Selling, general, and administrative expenses decreased for the year ended December 31, 2020 compared to the prior year due to a decrease in employee-related expenses, including incentive compensation and as a result of savings from our restructuring plan, and a decrease in restructuring-related expenses.

Certain of these reductions in employee-related expenses are a result of delayed hiring and a reduction in travel, which are partially due to COVID-19 and not expected to reoccur.

In addition, Selling, general, and administrative expenses decreased due to a decrease in marketing costs and costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures.

These decreases were partially offset by the strengthening of the United States dollar against certain foreign currencies.

Total Other Income/(Expense), Net

Total other income/expense, net for the year ended December 31, 2019 was favorably impacted by the gain on the sale of Speedpay during the second quarter of 2019 as compared to the prior year, partially offset by foreign exchange gains in the prior year on certain U.S.

dollar-denominated assets in our Argentina cash-based bill payments business which did not recur.

Total other income/(expense), net during the year ended December 31, 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 benefitted from a reduction in interest expense driven by a lower weighted-average interest rate on our outstanding debt during the year ended December 31, 2020 compared to the prior year.

Our effective tax rates on pre-tax income were 12.9% and 19.9% for the years ended December 31, 2020 and 2019, respectively.

The increase in our effective tax rate for the year ended December 31, 2019 compared to the prior year is primarily due to an increase in 2019 domestic pre-tax income due to the net gain on the sales of the Speedpay and Paymap businesses and certain discrete items recognized in the prior year, partially offset by adjustments to our accounting for the implementation of the Tax Act, which increased our effective tax rate by 2.3% for the year ended December 31, 2018.

The decrease in our effective tax rate for the year ended December 31, 2020 compared to the prior year was primarily due to higher prior period domestic pre-tax income associated with the sales of the Speedpay and Paymap businesses, prior period settlements in certain geographies, and discrete tax benefits in the current period.

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

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Diluted earnings per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested.

As of December 31, 2019 and 2018, there were 1.9 million and 2.6 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding options to purchase shares of Western Union stock, as their exercise prices were above our weighted-average share price during the periods and their effect was anti-dilutive.

Earnings per share for the year ended December 31, 2019 compared to the prior year was impacted by the previously described factors impacting net income, including the gain on the sale of Speedpay during the second quarter of 2019 and expenses associated with our restructuring activities, and 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.

As of December 31, 2020 and 2019, there were 1.6 million and 1.9 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 year ended December 31, 2020 compared to the prior year was impacted by the previously described factors impacting net income and a lower number of shares outstanding.

Earnings per share for the year ended December 31, 2019 was impacted by the gain on the sale of Speedpay in the second quarter of 2019.

The lower number of shares outstanding for the year ended December 31, 2020 compared to the prior year is due to stock repurchases exceeding stock issuances related to our stock compensation programs.

Segment Discussion

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● 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.

● As described in Part II, Item 8, Financial Statements and Supplementary Data, Note 4, Restructuring-Related Expenses and Business Transformation Expenses on August 1, 2019, our Board of Directors approved an overall plan to change our operating model and improve our business processes and cost structure by reducing our headcount and consolidating various facilities.

For the year ended December 31, 2019, we incurred $115.5 million related to this plan.

While certain of these expenses may be identifiable to our segments, primarily our Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided

to the CODM for purposes of assessing segment performance and decision making with respect to resource allocation.

● As described in Part II, Item 8, Financial Statements and Supplementary Data, Note 4, Restructuring-Related Expenses on August 1, 2019, our Board of Directors approved an overall plan to change our operating model and improve our business processes and cost structure by reducing our headcount and consolidating various facilities.

For the years ended December 31, 2020 and 2019, we incurred $36.8 million and $115.5 million, respectively, related to this plan.

While certain of these expenses may be identifiable to our segments, primarily our Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided to the CODM for purposes of assessing segment performance and decision making with respect to resource allocation.

● All items not included in operating income are excluded from the segments.

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Business Solutions

Corporate costs, including stock-based compensation and other overhead, continue to be consistently allocated to our segments based on historical practice.

For the year ended December 31, 2019, approximately $51 million of corporate expenses were allocated to the Consumer-to-Consumer segment that would have previously been included in Other prior to the sale of Speedpay on May 9, 2019.

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

In 2019, these costs had been allocated based in part on a percentage of relative transactions.

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.

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

For the year ended December 31, 2019, this change would have decreased Consumer-to-Consumer operating income and increased Other operating income by $49.6 million.

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

Consumer-to-Consumer Segment

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Consumer-to-Consumer transactions

Our Consumer-to-Consumer money transfer service, including our online money transfer transactions conducted and funded through Western Union branded websites and mobile apps (“westernunion.com”), is provided through one interconnected global network where a money transfer can be sent from one location to another, around the world.

Our Consumer-to-Consumer money transfer service facilitates money transfers sent from our retail agent locations worldwide and our Digital Money Transfer services.

The segment includes five geographic regions whose functions are primarily related to generating, managing, and maintaining agent relationships and localized marketing activities.

We include westernunion.com in our regions.

By means of common processes and systems, these regions, including westernunion.com, create an interconnected network for consumer transactions, thereby constituting one global Consumer-to-Consumer money transfer business and one operating segment.

The geographic split for transactions and revenue in the table that follows, including transactions conducted and funded through westernunion.com, 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 transactions conducted and funded through westernunion.com for the years ended December 31, 2019 and 2018, respectively.

Where reported separately in the discussion below, westernunion.com consists of 100% of the transactions that are conducted and funded through westernunion.com and the related revenues.

We include Digital Money Transfer transactions in our regions, including transactions from our arrangements with financial institutions and other third parties, to enable such entities to offer money transfer services to their own customers under their brands.

By means of common processes and systems, these regions, including Digital Money Transfer transactions, create one interconnected global network for consumer transactions, thereby constituting one Consumer-to-Consumer money transfer business and one operating segment.

Transaction volume is the primary generator of revenue in our Consumer-to-Consumer segment.

A Consumer-to-Consumer transaction constitutes the transfer of funds to a designated recipient utilizing one of our consumer money transfer services.

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

Included in each region’s transaction and revenue percentages in the tables below are Digital Money Transfer transactions for the years ended December 31, 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 prior year.

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Year Ended December 31, 2020

Revenue Growth/

Constant Currency

(Decline), as

Revenue Growth/

(Decline) (a) -

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

Digital Money Transfer (c)

westernunion.com (c)

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(b) Our LACA region results were impacted by the strengthening of the United States dollar against the Argentine peso, in addition to an increase in local currency revenue per transaction, primarily due to inflation.

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 years ended December 31, 2020 and 2019:

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

Westernunion.com, which is included in the regional percentages above, represented approximately 14% and 12% of our Consumer-to-Consumer revenues for the years ended December 31, 2019 and 2018, respectively.

Our consumers transferred $87.7 billion in Consumer-to-Consumer principal for the years ended December 31, 2019 and 2018, of which $80.7 billion and $79.9 billion, respectively, related to cross-border principal.

Consumer-to-Consumer money transfer revenue decreased 1% for the year ended December 31, 2019 compared to the prior period, with transaction growth of 1%.

Digital Money Transfer, which is included in the regional percentages above, represented approximately 20% and 14% of our Consumer-to-Consumer revenues for the years ended December 31, 2020 and 2019, respectively.

Our consumers transferred $96.1 billion and $87.7 billion in Consumer-to-Consumer principal for the years ended December 31, 2020 and 2019, of which $90.6 billion and $80.7 billion, respectively, related to cross-border principal.

The increase in principal and cross-border principal transferred during the year ended December 31, 2020 compared to the prior year is attributable to growth in Digital Money Transfer.

Consumer-to-Consumer principal is the amount of consumer funds transferred to the designated recipient.

Cross-border principal is the amount of consumer funds transferred to a designated recipient in a country or territory that differs from the country or territory from which the transaction was initiated.

Consumer-to-Consumer principal and cross-border principal are metrics used by management to monitor and better understand the growth in our underlying business relative to competitors, as well as changes in our market share of global remittances.

Consumer-to-Consumer money transfer revenue decreased 4% and transactions were flat for the year ended December 31, 2020 compared to the prior year, including as a result of the impacts from the worldwide actions related to COVID-19.

Revenues were impacted by a decrease in transaction volumes from retail locations, which were offset by growth in digital transactions, including from white label partnerships.

The spread between transaction volumes and revenue decline was primarily attributable to growth in our digital white label partnerships, which have a lower revenue per transaction than Western Union branded transactions.

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 year ended December 31, 2020 compared to the prior year.

Constant currency revenue increased 1% for the year ended December 31, 2019, primarily due to transaction growth.

Our NA region revenue increased 2% for the year ended December 31, 2019 compared to the prior year, with a transaction decline of 2%.

The increase in revenue was primarily due to net price increases and transaction growth in our United States outbound services, including to Mexico, partially offset by lower revenue generated from money transfers sent and received within the United States.

Our EU & CIS region decreased 2% for the year ended December 31, 2019 compared to the prior year, with transaction growth of 5%.

Fluctuations in the exchange rate between the United States dollar and the euro, the British

pound, and other currencies, net of the impact of foreign currency hedges, negatively impacted revenue by 3% for the year ended December 31, 2019.

Revenue was positively impacted by transaction growth in Spain, France, and Russia for the year ended December 31, 2019.

Our MEASA region revenue decreased 1% for the year ended December 31, 2019 compared to the prior year, with a transaction decline of 1%.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 1% for the year ended December 31, 2019.

Net pricing increases positively affected revenue for the year ended December 31, 2019.

Our LACA region revenue increased 1% for the year ended December 31, 2019 compared to the prior year, with transaction growth of 8%.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 10% for the year ended December 31, 2019.

Revenues were negatively impacted by the strengthening of the United States dollar against the Argentine peso, partially offset by an increase in local currency revenue per transaction, primarily due to inflation.

Our APAC region revenue decreased 13% for the year ended December 31, 2019 compared to the prior year, with a transaction decline of 7%.

Revenue for the year ended December 31, 2019 was negatively impacted by net price decreases and increased competition in certain countries within the region.

Constant currency revenue decreased 3% for the year ended December 31, 2020.

Revenues compared to the prior year were negatively impacted by 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, negatively impacted our ability to offer services, at least temporarily, through some of our retail agent locations across all of our regions.

The COVID-19 pandemic and associated public health measures also resulted in a decline in economic activity that negatively impacted our revenues for the year ended December 31, 2020.

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.

The significant majority of agent locations that had been closed as a result of COVID-19 have resumed offering our services as of December 31, 2020, although certain of our retail locations remain closed.

Revenues for all Consumer-to-Consumer regions compared to the prior year were negatively impacted by the COVID-19 pandemic.

The decrease in NA revenue for the year ended December 31, 2020 compared to 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 year ended December 31, 2020 compared to the prior year was driven by transaction declines in retail money transfers, partially offset by transaction growth from digital white label partnerships.

For the year ended December 31, 2020, the decrease in LACA revenue, which generates a higher proportion of revenues from retail locations compared to our other regions, was primarily due to transaction declines caused by continued COVID-19-related government protective measures, including agent location closures in the region.

For the year ended December 31, 2020, westernunion.com revenues, which have been included in the regions as described above, were negatively impacted by net price reductions.

Consumer-to-Consumer revenues in 2021 could 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.

We have historically implemented price reductions or price increases throughout many of our global corridors.

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Consumer-to-Consumer operating income decreased 5% during the year ended December 31, 2020 compared to the prior year.

Results for the year ended December 31, 2019 were negatively impacted by increased allocations of corporate overhead as a result of the Speedpay divestiture, as previously discussed, and higher marketing costs compared to the prior year, partially offset by decreased variable costs, including agent commissions.

Additionally, fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, negatively impacted revenues and favorably impacted expenses for the year ended December 31, 2019.

Results for the year ended December 31, 2020 were negatively impacted by the decrease in revenues, increased allocations of certain information technology expenses, as previously discussed, an increase in credit losses, and the strengthening of the United States dollar against certain foreign currencies, partially offset by decreases in employee-related expenses, as described above, including incentive compensation and as a result of reduced hiring and savings from our restructuring plan, as well as decreases in marketing costs.

Certain of these reductions in employee-related expenses are a result of delayed hiring and a reduction in travel, which are partially due to COVID-19 and not expected to reoccur.

Business Solutions

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Operating income margin

(a) Calculation not meaningful.

Business Solutions revenue was flat for the year ended December 31, 2019 compared to the prior year.

Fluctuations in the exchange rate between the United States dollar and other currencies negatively impacted revenue by 4% for the year ended December 31, 2019.

Business Solutions revenue decreased 8% for the year ended December 31, 2020 compared to 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.

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

Operating Income

For the year ended December 31, 2019, Business Solutions operating income and operating income margin increased when compared to the prior year due to decreased information technology costs and certain other expense reductions, some of which are not expected to recur.

Other primarily consisted of Speedpay and our cash-based bill payments businesses in Argentina, both of which facilitate bill payments from consumers to businesses and other organizations.

For the year ended December 31, 2020, Business Solutions operating income and operating income margin decreased when compared to the prior year due to the impact of revenue declines, as discussed above, and costs associated with the termination of a property lease in the United States, 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 included in our results were $125.4 million and $352.0 million for the years ended December 31, 2019 and 2018, respectively.

Speedpay direct operating expenses were $98.2 million and $251.2 million for the years ended December 31, 2019 and 2018, respectively.

Speedpay revenues and direct operating expenses included in our results were $125.4 million and $98.2 million, respectively, for the year ended December 31, 2019.

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

Paymap revenues included in our results were $5.3 million and $16.2 million for the years ended December 31, 2019 and 2018, respectively.

Paymap direct operating expenses were $2.2 million and $6.7 million for the years ended December 31, 2019 and 2018, respectively.

Paymap revenues and direct operating expenses included in our results were $5.3 million and $2.2 million, respectively, for the year ended December 31, 2019.

The following table sets forth Other results for the years ended December 31, 2020 and 2019:

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Operating income margin

Other revenue decreased 34% for the year ended December 31, 2019 compared to 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 due to the strengthening of the United States dollar against the Argentine peso.

The decrease for the year ended December 31, 2019 was partially offset by an increase in local currency revenue per transaction, primarily due to inflation.

(a) Calculation not meaningful.

Other revenue decreased 48% for the year ended December 31, 2020 compared to the prior year, primarily due to the impact of the sale of Speedpay in the second quarter of 2019 and declines in revenues from our cash-based bill payments services offered at retail locations, including as a result of the strengthening of the United States dollar against the Argentine peso, partially offset by an increase in local currency revenue per transaction, primarily due to inflation.

We believe that Other revenues could 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 decreased for the year ended December 31, 2019 due to a decrease in Speedpay and Paymap revenues, net of a reduction in direct expenses and allocated expenses, as previously discussed.

Other operating income increased for the year ended December 31, 2020 compared to 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

Our primary source of liquidity has been cash generated from our operating activities, primarily from net income and fluctuations in working capital.

Our working capital is affected by the timing of interest payments on our outstanding borrowings and timing of income tax payments, among other items.

The annual payments of our 2017 United States federal tax liability, including amounts related to the United States taxation of certain previously undistributed earnings of foreign subsidiaries, as specified in the Tax Act, are due in the second quarter of each year through 2025.

Our future cash flows could be impacted by a variety of factors, some of which are out of our control, including changes in economic conditions, especially those impacting migrant populations, changes in income tax laws, or the status of income tax audits, including the resolution of outstanding tax matters, and the settlement or resolution of legal contingencies.

Our working capital is affected by the timing of payments for employee and agent incentives, interest payments on our outstanding borrowings and timing of income tax payments, among other items.

Many of our annual employee incentive compensation and agent incentive payments are made in the first quarter following the year they were incurred.

The majority of our interest payments are due in the second and fourth quarters which results in a decrease in the amount of cash provided by operating activities in those quarters and a corresponding increase to the first and third quarters.

The annual payments resulting from the United States tax reform legislation enacted in 2017 (the “Tax Act”) include amounts related to the United States taxation of certain previously undistributed earnings of foreign subsidiaries.

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

Our future cash flows could be impacted by a variety of factors, some of which are out of our control.

These factors include, but are not limited to, changes in economic conditions, especially those impacting migrant populations 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.

The duration and severity of COVID-19 and related impacts are uncertain, but 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 and customers.

Substantially all of our cash flows from operating activities have been generated from subsidiaries.

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Our regulated subsidiaries may transfer all excess cash to the parent company for general corporate use, except for assets subject to legal or regulatory restrictions, including:

(i) requirements to maintain cash and other qualifying investment balances, free of any liens or other encumbrances, related to the payment of certain of our money transfer and other payment obligations, (ii) other legal or regulatory restrictions, including statutory or formalized minimum net worth requirements, and (iii) restrictions on transferring assets outside of the countries where these assets are located.

See also Part II, Item 8, Financial Statements and Supplementary Data , Note 1, Business and Basis of Presentation, in this Annual Report on Form 10-K.

We currently believe we have adequate liquidity to meet our business needs, including payments under our debt and other obligations, through our existing cash balances, our ability to generate cash flows through operations, and our $1.5 billion revolving credit facility (“Revolving Credit Facility”), which expires in January 2025 and supports our commercial paper program.

or formalized minimum net worth requirements, and (iii) restrictions on transferring assets outside of the countries where these assets are located.

See also Part II, Item 8, Financial Statements and Supplementary Data , Note 1, Business and Basis of Presentation.

Assuming that our operations are not significantly affected by the COVID-19 pandemic for a protracted period, we currently believe we have adequate liquidity to meet our business needs, including payments under our debt and other obligations, through our existing cash balances, our ability to generate cash flows through operations, and our $1.5 billion revolving credit facility (“Revolving Credit Facility”), which expires in January 2025 and supports our commercial paper program.

Our commercial paper program enables us to issue unsecured commercial paper notes in an amount not to exceed $1.5 billion outstanding at any time, reduced to the extent of any borrowings outstanding on our Revolving Credit Facility.

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As of December 31, 2020 and 2019, we had cash and cash equivalents of $1,428.2 million and $1,450.5 million, respectively.

As described in Part II, Item 8, Financial Statements , Note 5, Divestitures, Business Combinations, and Goodwill, we completed the sale of Speedpay during the second quarter of 2019 and received approximately $750 million in cash, a portion of which we used to fund our note maturities, as discussed below, and for ongoing share repurchases.

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, were $1.7 billion and $1.2 billion as of December 31, 2019 and 2018, respectively, 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, were $1,990.6 million and $1,698.4 million as of December 31, 2020 and 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-” or better from a major credit rating agency.

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During the years ended December 31, 2020 and 2019, cash provided by operating activities was $877.5 million and $914.6 million, respectively.

Cash provided by operating activities during the year ended December 31, 2019 increased compared to 2018 due to the timing of significant payments made during 2018, including payments of approximately $120 million related to an agreement with the United States Internal Revenue Service resolving substantially all of the issues

related to our restructuring of our international operations in 2003, as further described in Part II, Item 8, Financial Statements and Supplementary Data , Note 11, Income Taxes, and approximately $60 million related to the NYDFS Consent Order.

This increase was partially offset by taxes resulting from the net gain on the sale of our Speedpay and Paymap businesses and payments made during the year ended December 31, 2019 related to the restructuring plan of approximately $38 million .

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

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4.250% notes due 2023 (a)

2.850% notes due 2025 (effective rate of 3.1%) (b)

2.850% notes due 2025 (a)

6.200% notes due 2036 (a)

6.200% notes due 2040 (a)

Term loan facility borrowing (effective rate of 1.4%)

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Debt issuance costs and unamortized discount, net

Total borrowings at carrying value (c)

Total borrowings at carrying value (b)

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

(b) On November 25, 2019, the Company issued $500.0 million of aggregate principal amount of 2.850% unsecured notes due in 2025, as further described below.

(b) As of December 31, 2020, our weighted-average effective rate on total borrowings was approximately 3.5%.

Commercial Paper Program

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During the years ended December 31, 2020 and 2019, the average commercial paper balance outstanding was $181.6 million and $193.6 million, respectively, and the maximum balance outstanding was $690.0 million and $630.0 million, respectively.

Proceeds from our commercial paper borrowings were used for the repayment of notes, general corporate purposes, and working capital needs.

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

Revolving Credit Facility

On December 18, 2018, we entered into a credit agreement with an original expiration date of January 2024 providing for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility.

On December 18, 2018, we entered into a credit agreement providing for unsecured financing facilities in an aggregate amount of $1.5 billion, including a $250.0 million letter of credit sub-facility.

On December 18, 2019, we extended the final maturity date of the Revolving Credit Facility to January 8, 2025.

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The purpose of our Revolving Credit Facility, which is diversified through a group of 19 participating institutions, is to provide general liquidity and to support our commercial paper program, which we believe enhances our short-term credit rating.

The largest commitment from any single financial institution within the total committed balance of $1.5

billion is approximately 11%.

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

As of December 31, 2020 and 2019, we had no outstanding borrowings under our Revolving Credit Facility.

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The final maturity date of the Term Loan Facility is January 8, 2024.

Under the terms of the prior term loan facility, we were required to make certain amortization payments with respect to the outstanding principal of the prior term loan.

For the year ended December 31, 2018, we made amortization payments of $14.4 million prior to the extension of the term loan agreement.

On November 25, 2019, we issued $500.0 million of aggregate principal amount of unsecured notes due January 10, 2025 (“2025 Notes”).

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On August 22, 2017, we issued an additional $100.0 million of aggregate principal amount of unsecured notes due March 15, 2022, for an aggregate principal total of $500.0 million of 3.600% unsecured notes (“2022 Notes”).

The notes issued on August 22, 2017 are part of the same series and, accordingly, have the same terms and conditions as the notes

issued on March 15, 2017;

The notes issued on August 22, 2017 are part of the same series and, accordingly, have the same terms and conditions as the notes issued on March 15, 2017;

however, the notes issued on August 22, 2017 were issued at a premium of 101.783% and we received $1.57 million of accrued interest upon issuance.

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The interest rate payable on the 2022 Notes may also be adjusted downward for debt rating upgrades subsequent to any debt rating downgrades but may not be adjusted below 3.600% per annum.

We may redeem the 2022 Notes at any time prior to February 15, 2022 at the greater of par or a price based on the applicable treasury rate plus 25 basis points.

We may redeem the 2022 Notes at any time prior to February 15, 2022 at the greater of par or a price based on the

applicable treasury rate plus 25 basis points.

We may redeem the 2022 Notes at any time after February 15, 2022 at a price equal to par, plus accrued interest.

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The 2019 Notes were repaid in May 2019 using proceeds from the Speedpay divestiture, commercial paper, and cash, including cash generated from operations.

On August 22, 2011, we issued $400.0 million of aggregate principal amount of unsecured notes due August 22, 2018 (“2018 Notes”).

In August 2018, the 2018 Notes matured and were repaid.

On June 21, 2010, we issued $250.0 million of aggregate principal amount of unsecured notes due June 21, 2040 (“2040 Notes”).

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On March 30, 2010, we exchanged $303.7 million of aggregate principal amount of unsecured notes due November 17, 2011 for unsecured notes due April 1, 2020 (“2020 Notes”).

Interest with respect to the 2020 Notes is payable semi-annually on April 1 and October 1 each year based on the fixed per annum rate of 5.253%.

Interest with respect to the 2020 Notes was payable semi-annually on April 1 and October 1 each year based on the fixed per annum rate of 5.253%.

In connection with the exchange, note holders were given a 7% premium ($21.2 million), which approximated market value at the exchange date, as additional principal.

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Our notes are subject to similar covenants except that only the 2036 Notes contain covenants limiting or restricting subsidiary indebtedness and none of our notes are subject to a covenant that limits our ability to impose restrictions on subsidiary dividends.

Our Revolving Credit Facility and Term Loan Facility require us to maintain a consolidated adjusted EBITDA interest coverage ratio of greater than 3:1 (ratio of consolidated adjusted EBITDA, defined as net income/(loss) plus the sum of (i) interest expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, (v) any other non-cash deductions, losses or charges made in determining net income/(loss) for such period, and (vi) extraordinary, non-recurring, or unusual losses or charges (including costs and expenses of litigation included in operating income), minus extraordinary, non-recurring or unusual gains provided that the amount added back to net income (or net loss) for such extraordinary, non-recurring or unusual losses, expenses or charges may not exceed 10% of adjusted EBITDA, in each case determined in accordance with United States generally accepted accounting principles for such period, to interest expense) for each period comprising the four most recent consecutive fiscal quarters.

to net income (or net loss) for such extraordinary, non-recurring or unusual losses, expenses or charges may not exceed 10% of adjusted EBITDA, in each case determined in accordance with United States generally accepted accounting principles for such period, to interest expense) for each period comprising the four most recent consecutive fiscal quarters.

Our consolidated interest coverage ratio was 11:1 for the year ended December 31, 2020.

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We have existing cash balances, cash flows from operating activities, access to the commercial paper markets, and our Revolving Credit Facility available to support the needs of our business.

Our ability to grow the business, make investments in our business, make acquisitions, return capital to shareholders, including through dividends and share repurchases, and service our debt and tax obligations will depend on our ability to continue to generate excess operating cash through our operating subsidiaries and to continue to receive dividends from those operating subsidiaries, our ability to obtain adequate financing and our ability to identify acquisitions that align with our long-term strategy.

For additional information, please refer to Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

Investment in Saudi Digital Payments Company

On November 21, 2020, we entered into an agreement to acquire an ownership interest in Saudi Digital Payments Company (“stc pay”), a subsidiary of Saudi Telecom Company and one of our Consumer-to-Consumer digital white label partners.

Under the terms of the agreement, the transaction is intended to occur in two tranches.

In the first tranche, we agreed to invest approximately $133 million for a 10% investment in stc pay, and, in the second tranche, we agreed to invest an additional approximately $67 million for an additional 5% investment in stc pay.

The first tranche is expected to close in the first quarter of 2021 and the closing of the second tranche is contingent upon stc pay satisfying certain conditions.

Capital Expenditures

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Amounts paid for new and renewed agent contracts vary depending on the terms of existing contracts as well as the timing of new and renewed contract signings.

Other capital expenditures during these periods included investments in our information technology infrastructure, purchased and developed software, and, primarily in 2018, leasehold improvements related to our corporate headquarters.

Other capital expenditures during these periods included investments in our information technology infrastructure and purchased and developed software.

Share Repurchases and Dividends

During the years ended December 31, 2019 and 2018, 26.9 million and 20.2 million shares, respectively, were repurchased for $540.0 million and $399.2 million, respectively, excluding commissions, at an average cost of $20.07 and $19.81 per share, respectively.

As of December 31, 2019, $1.0 billion remained available under a share repurchase authorization approved by our Board of Directors through December 31, 2021.

During the years ended December 31, 2020 and 2019, 8.5 million and 26.9 million shares, respectively, have been repurchased for $217.4 million and $540.0 million, respectively, excluding commissions, at an average cost of $25.45 and $20.07, respectively.

During the first quarter of 2020, we temporarily paused and did not resume share repurchases under

a publicly announced authorization through December 31, 2020.

However, we have resumed share repurchases in the first quarter of 2021.

As of December 31, 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 all four quarters of 2020, representing $369.9 million in total dividends.

Our Board of Directors declared quarterly cash dividends of $0.19 per

common share in all four quarters of 2018, representing $341.7 million in total dividends.

Our Board of Directors declared quarterly cash dividends of $0.20 per common share in all four quarters of 2019, representing $340.8 million in total dividends.

These amounts were paid to shareholders of record in the respective quarter the dividend was declared.

On February 10, 2021, the Board of Directors declared a quarterly cash dividend of $0.235 per common share payable on March 31, 2021.

Material Cash Requirements

Debt Service Requirements

Our 2021 and future debt service requirements will include payments on all outstanding indebtedness, including any borrowings under our commercial paper program.

Refer to Part II, Item 8, Financial and Supplemental Data, Note 16, Borrowings for details on our outstanding borrowings, including future principal payments on our notes, term loan, and commercial paper.

As of December 31, 2020, the total projected interest payments on our borrowings were $960.9 million, of which $104.5 million is expected to be paid in the next 12 months.

We have estimated our future interest payments based on the assumption that no debt issuances or renewals will occur upon the maturity dates of our notes.

However, we may refinance all or a portion of our borrowings in future periods.

Estimated interest payments on floating-rate debt are calculated by utilizing the effective rate and forward rates as of December 31, 2020 for our current and future interest rates, respectively.

2017 United States Federal Tax Liability

As previously discussed, the Tax Act imposed a tax on certain of our previously undistributed foreign earnings.

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 $604 million remained as of December 31, 2020.

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

During both the years ended December 31, 2019 and 2018, we made installment payments of $64.0 million.

Under the terms of the law, we are required to pay the remaining installment payments as summarized in Contractual Obligations located in Part II, Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations .

Under the terms of the law, we owe 8% of the original liability in both 2021 and 2022, with 15%, 20%, and 25% of the tax owed in 2023, 2024, and 2025, respectively.

During each of the years ended December 31, 2020 and 2019, we made installment payments of $64.0 million.

These payments have affected and will continue to adversely affect our cash flows and liquidity and may adversely affect future share repurchases.

Restructuring Activities

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 December 31, 2019, the accrual balance related to our restructuring plan was approximately $73 million.

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

Off-Balance Sheet Arrangements

Operating Leases

We lease real properties for use as administrative and sales offices, in addition to transportation, office, and other equipment.

Refer to Part II, Item 8, Financial Statements and Supplemental Data , Note 13, Leases for details on our leasing arrangements, including future maturities of our operating lease liabilities.

Foreign Currency Derivative Contracts

We use derivatives to minimize our exposures related to changes in foreign currency exchange rates, which fluctuate based on market conditions.

Refer to Part II, Item 8, Financial Statements and Supplemental Data , Note 15, Derivatives.

The substantial majority of these derivative contracts relate to our Business Solutions segment, which facilitates cross-currency payments by writing derivatives to customers, and a significant majority of these Business Solutions derivative contracts have a duration at inception of less than one year.

Purchase Obligations

A purchase obligation is an agreement to purchase goods or services that is enforceable, legally binding, and specifies all significant terms.

As of December 31, 2020, we had approximately $170 million of outstanding purchase obligations, of which approximately $120 million is expected to be paid in the next 12 months.

Many of our contracts contain clauses that allow us to terminate the contract with notice and with a termination penalty.

Termination penalties are generally an amount less than the original obligation.

Obligations under certain contracts are usage-based and are, therefore, estimated in the above amounts.

Historically, we have not had any significant defaults on our contractual obligations or incurred significant penalties for termination of our contractual obligations.

We have no material off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

We have a frozen defined benefit pension plan (“Plan”), for which we had a recorded unfunded pension obligation of $11.4 million and $16.0 million as of December 31, 2019 and 2018, respectively.

We were not required to and did not make a contribution to the Plan during the years ended December 31, 2019 and 2018, and we are not required to make any contributions to the Plan in 2020.

We have a frozen defined benefit pension plan (the “Plan”), for which the funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation.

As of December 31, 2020, the fair value of the plan assets was $280.6 million, which exceeded the projected benefit obligation of $240.7 million and resulted in prepaid pension costs of $39.9 million.

As of December 31, 2019, the projected benefit obligation exceeded the fair value of the plan assets, which resulted in an unfunded pension obligation of $11.4 million.

We were not required to and did not make a contribution to the Plan in 2020 and 2019, and we are not required to make any contributions to the Plan in 2021.

Our most recent measurement date for our pension plan was December 31, 2020.

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(i) expected long-term return on plan assets, (ii) discount rate, and (iii) life expectancy trends.

Given the overfunded status of the Plan, we are in the process of moving towards a full allocation of fixed income investments to more closely match the Plan’s assets to its liabilities.

The expected long-term return on plan assets is 2.00% for 2021.

As of our December 31, 2019 measurement date, pension plan target allocations were approximately 60% in fixed income, 20% in equity investments, and 20% in alternative investment strategies (e.g., hedge funds, royalty rights, and private equity funds).

Hedge fund strategy types include equity long/short, commodities/currencies, relative value, event driven, and multi-strategy.

Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset and liability studies.

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We utilize a mortality table that we believe best aligns with the underlying demographics and census data of the Plan participants.

Contractual Obligations

The following table summarizes our contractual obligations to third parties as of December 31, 2019 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in millions):

Payments Due by Period

Less than 1 Year

After 5 Years

Items related to amounts included on our balance sheet:

Borrowings, including interest (a)

2017 United States federal income taxes (including Tax Act taxes on certain previously undistributed foreign earnings) (b)

Unrecognized tax benefits (c)

Operating leases

Foreign currency derivative contracts (d)

Other contractual obligations:

Purchase obligations (e)

(a) We have estimated our interest payments based on the assumption that no debt issuances or renewals will occur upon the maturity dates of our notes.

However, we may refinance all or a portion of our borrowings in future periods.

Estimated interest payments on floating-rate debt are calculated by utilizing the effective rate and forward rates as of December 31, 2019 for our current and future interest payments, respectively.

(b) Represents the remaining 2017 United States federal tax liability resulting from the Tax Act, which imposed United States tax on certain of our previously undistributed foreign earnings.

Under the terms of the law, we have elected to pay this liability in periodic installments through 2025.

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

(d) Represents the liability position of our foreign currency derivative contracts as of December 31, 2019, which will fluctuate based on market conditions.

(e) Many of our contracts contain clauses that allow us to terminate the contract with notice and with a termination penalty.

Termination penalties are generally an amount less than the original obligation.

Obligations under certain contracts are usage-based and are, therefore, estimated in the above amounts.

Historically, we have not had any significant defaults on our contractual obligations or incurred significant penalties for termination of our contractual obligations.

Other Commercial Commitments

We had approximately $335 million in outstanding letters of credit and bank guarantees as of December 31, 2019 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.

We expect to renew the letters of credit and bank guarantees prior to expiration in most circumstances.

We had approximately $390 million in outstanding letters of credit and bank guarantees as of December 31, 2020 primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

The significant majority of our letters of credit and bank guarantees have a one-year renewal option, and we expect to renew prior to expiration in most circumstances.

Critical Accounting Policies and Estimates

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While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve.

With respect to these reserves, our income tax expense would include (i) any changes in tax reserves arising from material changes in facts and circumstances (i.e., new information) surrounding a tax issue during the period and (ii) any difference from our tax position as recorded in the consolidated financial statements and the final resolution of a tax issue during the period.

With respect to these reserves, our income tax expense would include:

(i) any changes in tax reserves arising from material changes in facts and circumstances (i.e., new information) surrounding a tax issue during the period and (ii) any difference from our tax position as recorded in the consolidated financial statements and the final resolution of a tax issue during the period.

Our tax contingency reserves for our uncertain tax positions as of December 31, 2020 were $310.5 million, including accrued interest and penalties, net of related items.

While we believe that our reserves are adequate to cover reasonably expected tax risks, in the event that the ultimate resolution of our uncertain tax positions differs from our estimates, we may be exposed to material increases in income tax expense, which could materially impact our financial condition, results of operations, and cash flows.

Furthermore, the timing of related cash payments for these tax liabilities is inherently uncertain and is affected by variable factors outside our control.

Derivative Financial Instruments

We use derivatives to (i) minimize our exposures related to changes in foreign currency exchange rates and, from time to time, interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers.

We use derivatives to:

(i) minimize our exposures related to changes in foreign currency exchange rates and, periodically, interest rates and (ii) facilitate cross-currency Business Solutions payments by writing derivatives to customers.

We recognize all derivatives in Other assets and Other liabilities in our Consolidated Balance Sheets at their fair value.

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Derivative fair value changes that are captured in Accumulated other comprehensive loss (“AOCL”) are reclassified to earnings in the same period the hedged item affects earnings when the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged.

As discussed in Part II, Item 8, Financial Statements and Supplementary Data, Note 2, Summary of Significant Accounting Policies, we early adopted an accounting pronouncement related to hedging activities as of January 1, 2018.

As a result of the new accounting pronouncement, for foreign currency cash flow hedges entered into on or after January 1, 2018, we exclude time value from the assessment of effectiveness, and the initial value of the excluded components is amortized into Revenues within our Consolidated Statements of Income/(Loss).

● Fair value hedges - Fair value hedges consist of hedges of fixed-rate debt, through interest rate swaps.

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If the hedge is no longer deemed effective, we discontinue applying hedge accounting to that relationship on a prospective basis.

We have foreign currency derivative instruments that qualify for hedge accounting and are designated as cash flow hedges.

We have foreign currency and interest rate derivative instruments that qualify for hedge accounting and are designated as cash flow hedges.

If these hedges no longer qualify under hedge accounting, the change in the fair value of these derivatives would be reflected into earnings, which could have a significant impact on our reported results.

As of December 31, 2019, the cumulative pre-tax unrealized gains currently classified within AOCL was $4.7 million and would be reflected in earnings if these hedges were disqualified from hedge accounting.

Other Intangible Assets

We capitalize acquired intangible assets as well as certain initial payments for new and renewed agent contracts and software.

We evaluate such intangible assets for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

In such reviews, estimated undiscounted cash flows associated with these assets or operations are compared with their carrying amounts to determine if a write-down to fair value (normally measured by the present value technique) is required.

The capitalization of initial payments for new and renewed agent contracts is subject to strict accounting policy criteria and requires management judgment as to the amount to capitalize and the related period of benefit.

Our accounting policy is to limit the amount of capitalized costs for a given agent contract to the lesser of the estimated future cash flows from the contract or the termination fees we would receive in the event of early termination of the contract.

Additionally, the estimated undiscounted cash flows associated with each asset requires us to make estimates and assumptions, including, among other things, revenue growth rates and operating margins based on our budgets and business plans.

Disruptions to contractual relationships, significant declines in cash flows or transaction volumes associated with contracts, or other issues significantly impacting the future cash flows associated with the contract would cause us to

evaluate the recoverability of the asset and could result in an impairment charge.

The net carrying value of our other intangible assets as of December 31, 2019 was $494.9 million.

During the years ended December 31, 2019 and 2018, we recorded immaterial impairments related to other intangible assets.

As of December 31, 2020, the cumulative pre-tax unrealized loss currently classified within AOCL that would be reflected in earnings if these hedges were disqualified from hedge accounting was $22.9 million.

Goodwill represents the excess of purchase price over the fair value of tangible and other intangible assets acquired less liabilities assumed, arising from business combinations.

An impairment assessment of goodwill is conducted annually during the Company’s fourth quarter at the reporting unit level.

An impairment assessment of goodwill is conducted annually during our fourth quarter at the reporting unit level.

This assessment of goodwill is performed more frequently if events or changes in circumstances indicate that the carrying value of the goodwill may not be recoverable.

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For the years ended December 31, 2020 and 2019, we did not record any goodwill impairments.

For the reporting units that comprise Consumer-to-Consumer and Other, the fair value of the businesses significantly exceed their carrying amounts.

For the reporting units that comprise Consumer-to-Consumer and Other, the fair values of the businesses significantly exceed their carrying amounts.

The fair value of the Business Solutions reporting unit continues to be sensitive to changes in projections for revenue growth rates and EBITDA margins.

Our current expectation is for Business Solutions to average low to mid-single digit annual revenue growth over the 10-year forecast period, with EBITDA margins dependent on revenue growth.

Our ability to achieve the projected revenue growth and EBITDA margins may be affected by, amongst other factors, (i) pricing and product competition from direct competitors, banks and new market entrants;

Our ability to achieve the projected revenue growth and EBITDA margins may be affected by, amongst other factors:

(i) pricing and product competition from direct competitors, banks and new market entrants;

(ii) our success and speed to market in developing new products;

(iii) the foreign exchange impact from revenues generated in currencies other than the United

States dollar;

(iii) the foreign exchange impact from revenues generated in currencies other than the United States dollar;

(iv) increased regulatory compliance requirements;

(v) our ability to enter relationships with partners that can accelerate our time to market;

(vi) failure of long-term import growth rates returning to historic levels;

(vi) failure of long-term import growth rates returning to historic levels, including as a result of COVID-19;

(vii) our ability to continue to maintain our payment network and bank account infrastructure;

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and (ix) continued opportunities for cost reduction.

Based on assumptions used within the Business Solutions reporting unit valuation, we believe a decrease of 100 basis points in the ten-year compound annual growth rate of revenue (also reflecting the assumed impact such a reduction would have on EBITDA margins) would result in a reduction in the fair value of the Business Solutions reporting unit of approximately $250 million.

Based on assumptions used within the Business Solutions reporting unit valuation, we believe an approximate 100 basis point decrease in the ten-year compound annual growth rate of revenue (also reflecting the assumed impact such a reduction would have on EBITDA margins) would result in a reduction in the fair value of the Business Solutions reporting unit of approximately $175 million.

Such a reduction would result in the fair value approximating the carrying value of the reporting unit.

Other Intangible Assets

We capitalize acquired intangible assets as well as certain initial payments for new and renewed agent contracts and software.

We evaluate such intangible assets for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

The net carrying value of our other intangible assets as of December 31, 2020 was $505.0 million.

During the years ended December 31, 2020 and 2019, we recorded immaterial impairments related to other intangible assets.

Legal Contingencies

We are subject to certain claims and litigation that could result in losses, including damages, fines, and/or civil penalties, which could be significant, and in some cases, criminal charges.

We regularly evaluate the status of legal matters to assess whether a loss is probable and reasonably estimable in determining whether an accrual is appropriate.

We regularly evaluate the status of legal matters

to assess whether a loss is probable and reasonably estimable in determining whether an accrual is appropriate.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.

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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-K

Item 7. Management’s Discussion and Analysis