What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-02-20 · 499 added, 582 removed, 1231 unchanged (47% of the section changed)

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Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Income/(Loss) for each of the three years in the period ended December 31, 2019

Consolidated Statements of Comprehensive Income/(Loss) for each of the three years in the period ended December 31, 2019

Consolidated Statements of Income for each of the three years in the period ended December 31, 2020

Consolidated Statements of Comprehensive Income for each of the three years in the period ended December 31, 2020

Consolidated Balance Sheets as of December 31, 2020 and 2019

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The Western Union Company’s (“Western Union” or the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

Western Union’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

Western Union’s internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors;

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In our opinion, The Western Union Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of income/(loss), comprehensive income/(loss), cash flows and stockholders' equity/(deficit) for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 20, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity/(deficit) for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 19, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Western Union Company (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of income/(loss), comprehensive income/(loss), cash flows and stockholders’ equity/(deficit) for each of the three years in the period ended December 31, 2019 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of The Western Union Company (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity/(deficit) for each of the three years in the period ended December 31, 2020 and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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As of October 1, 2020, the Company performed a quantitative assessment of the $532.0 million in goodwill of the Business Solutions reporting unit.

Auditing management’s goodwill impairment assessment for the Business Solutions reporting unit was complex due to the subjective nature of the assumptions used in the model to determine the fair value of the Business Solutions reporting unit and because this reporting unit’s fair value does not significantly exceed its carrying value.

In particular, the estimated fair value of the Business Solutions reporting unit was sensitive to significant assumptions such as projected revenue growth rates, EBITDA margins, and the effects of market and economic conditions and how such conditions may impact subsequent periods’ operations.

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THE WESTERN UNION COMPANY

CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(in millions, except per share amounts)

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Selling, general, and administrative

Goodwill impairment charge

Total expenses (a)

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Income before income taxes

Provision for income taxes (Note 11)

Net income/(loss)

Earnings/(loss) per share:

Provision for income taxes

Earnings per share:

Weighted-average shares outstanding:

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THE WESTERN UNION COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

Year Ended December 31,

Net income/(loss)

Other comprehensive income/(loss), net of reclassifications and tax (Note 14):

Other comprehensive income, net of reclassifications and tax (Note 14):

Unrealized gains/(losses) on investment securities

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Foreign currency translation adjustments

Defined benefit pension plan adjustments

Total other comprehensive income/(loss)

Comprehensive income/(loss)

Defined benefit pension plan adjustments (Note 12)

Total other comprehensive income

Comprehensive income

See Notes to Consolidated Financial Statements.

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Other intangible assets, net of accumulated amortization of $ 1,044.6 and $ 961.5 , respectively

Other assets (Note 10)

Liabilities and stockholders' deficit

Liabilities and stockholders' equity/(deficit)

Accounts payable and accrued liabilities

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Deferred tax liability, net

Other liabilities (Note 10)

Other liabilities

Total liabilities

Commitments and contingencies (Note 6)

Stockholders' deficit:

Stockholders' equity/(deficit):

Preferred stock, $ 1.00 par value;

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Accumulated other comprehensive loss

Total stockholders' deficit

Total liabilities and stockholders' deficit

Total stockholders' equity/(deficit)

Total liabilities and stockholders' equity/(deficit)

See Notes to Consolidated Financial Statements.

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Cash flows from operating activities

Net income/(loss)

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:

Goodwill impairment charge (Note 5)

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

Gain on divestitures of businesses, excluding transaction costs (Note 5)

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Other non-cash items, net

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

Accounts payable and accrued liabilities (Note 6)

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

Accounts payable and accrued liabilities

Income taxes payable (Note 11)

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Purchases of property and equipment

Proceeds from the sale of former corporate headquarters and other property (Note 5)

Proceeds from divestitures of businesses, net of cash divested (Note 5)

Acquisition of business, net

Purchases of non-settlement related investments and other

Proceeds from maturity of non-settlement related investments and other

Purchases of non-settlement related investments

Proceeds from maturity of non-settlement related investments

Purchases of held-to-maturity non-settlement related investments

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

Cash dividends paid

Cash dividends and dividend equivalents paid

Common stock repurchased (Note 14)

Net proceeds from commercial paper

Net (repayments of)/proceeds from commercial paper

Net proceeds from issuance of borrowings

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Net change in cash, cash equivalents, and restricted cash

Cash, cash equivalents, and restricted cash at beginning of year

Cash, cash equivalents, and restricted cash at end of year

Cash, cash equivalents, and restricted cash at beginning of period

Cash, cash equivalents, and restricted cash at end of period

Supplemental cash flow information:

Interest paid

Income taxes paid/(refunded)

Income taxes paid

Cash paid for lease liabilities

Non-cash lease liabilities arising from obtaining right-of-use assets (Note 13)

Restricted cash at end of year (included in Other assets)

Restricted cash at end of period (included in Other assets)

See Notes to Consolidated Financial Statements.

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Balance, December 31, 2017

Adoption of new accounting pronouncements (Note 2)

Stock-based compensation

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Shares issued under stock-based compensation plans

Other comprehensive loss (Note 14)

Other comprehensive income (Note 14)

Balance, December 31, 2018

Adoption of new accounting pronouncements

Stock-based compensation

Common stock dividends declared ($0.76 per share)

Common stock dividends and dividend equivalents declared ($ 0.80 per share)

Repurchase and retirement of common shares

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Balance, December 31, 2019

Adoption of new accounting pronouncement (Note 2)

Stock-based compensation

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The Western Union ® brand is globally recognized.

The Company’s services are primarily available through a network of agent locations in more than 200 countries and territories and through online money transfer transactions conducted and funded through Western Union branded websites and mobile apps (“westernunion.com”).

The Company’s services are primarily available through a network of agent locations in more than 200 countries and territories and through money transfer transactions conducted and funded through websites and mobile applications marketed under the Company’s brands (“westernunion.com”) and transactions initiated on internet and mobile applications hosted by the Company’s third-party white label or co-branded digital partners (together with westernunion.com, “Digital Money Transfer”).

Each location in the Company’s agent network is capable of providing one or more of the Company’s services.

The Western Union business consists of the following segments:

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

The Company’s 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 - The Consumer-to-Consumer operating segment facilitates money transfers, which are sent from retail agent locations worldwide or through websites and mobile devices, including Digital Money Transfer services.

The Company’s money transfer service is provided through one interconnected global network.

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

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

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

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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 bill payments services, as discussed in Note 5.

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.

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

In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 5.

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 18 for further information regarding the Company’s segments.

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All significant intercompany transactions and accounts have been eliminated.

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summary of Significant Accounting Policies

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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 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 the Company’s ability to offer its services, at least temporarily, through a portion of its locations and its retail agent locations, during the year ended December 31, 2020.

Beginning in March 2020 and continuing throughout the remainder of the year, the Company experienced a decrease in transaction volumes from retail locations, and a decrease in foreign exchange and payment services activity, which also negatively impacted revenues in these periods, partially offset by revenue and transaction growth from Digital Money Transfer services.

The Company believes this decrease is mainly due to economic decline and uncertainty resulting from the pandemic.

The extent to which the COVID-19 pandemic 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.

To the extent the pandemic or the related macro-economic consequences continue, the Company could potentially experience changes in estimates, including increased credit losses or intangible asset impairments in future periods.

Principles of Consolidation

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The Company utilizes the equity method of accounting when it is able to exercise significant influence over an entity’s operations, which generally occurs when the Company has an ownership interest between 20% and 50%.

Earnings/(Loss) Per Share

The calculation of basic earnings/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Earnings Per Share

The calculation of basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

Outstanding options to purchase Western Union stock and unvested shares of restricted stock are excluded from basic shares outstanding.

Diluted earnings/(loss) per share reflects the potential dilution that could occur if outstanding stock options at the presented dates are exercised and shares of restricted stock have vested, using the treasury stock method.

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

The treasury stock method assumes proceeds from the exercise price of stock options and the unamortized compensation expense of options and restricted stock are available to acquire shares at an average market price throughout the period, and therefore, reduce the dilutive effect.

For the years ended December 31, 2019, 2018, and 2017, there were 1.9 million, 2.6 million, and 2.8 million, respectively, of shares excluded from the diluted earnings/(loss) 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 the Company’s weighted-average share price during the periods and their effect was anti-dilutive.

Due to the net loss for the year ended December 31, 2017, an additional 3.0 million shares have been excluded from diluted weighted-average shares outstanding, because the effect of including such shares would be anti-dilutive in the calculation of diluted loss per share.

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, were 1.6 million, 1.9 million, and 2.6 million, respectively, of shares for the years ended December 31, 2020, 2019, and 2018.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Diluted weighted-average shares outstanding

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

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Carrying amounts for many of the Company’s financial instruments, including cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and settlement obligations approximate fair value due to their short maturities.

Available-for-sale investment securities and derivative financial instruments are carried at fair value and further discussed in Note 9.

Fixed-rate notes are carried at their original issuance values and adjusted over time to accrete that value to par, except for portions of notes hedged by interest rate swap agreements as disclosed in Note 15.

Available-for-sale investment securities, as further discussed in Notes 8 and 9, and derivative financial instruments, as further discussed in Notes 9 and 15, are carried at fair value.

Fixed-rate notes are carried at their original issuance values and adjusted over time to accrete that value to par, except for portions of notes that were hedged by interest rate swap agreements in prior years, as disclosed in Note 15.

The fair values of fixed-rate notes are disclosed in Note 9 and are based on market quotations.

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The Company accounts for all business combinations where control over another entity is obtained using the acquisition method of accounting, which requires that most assets (both tangible and intangible), liabilities (including contingent consideration), and remaining noncontrolling interests be recognized at fair value at the date of acquisition.

The excess of the purchase price over the fair value of assets less liabilities and noncontrolling interests is recognized as goodwill.

The excess of the purchase price over the fair value of assets less liabilities and noncontrolling interests is recognized as

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Certain adjustments to the assessed fair values of the assets, liabilities, or noncontrolling interests made subsequent to the acquisition date, but within the measurement period, which is one year or less, are recorded as adjustments to goodwill.

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The Company expenses all costs as incurred related to or involved with an acquisition in Selling, general, and administrative expenses.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents

Highly liquid investments (other than those included in settlement assets) with maturities of three months or less at the date of purchase (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates fair value.

Highly liquid investments (other than those included in settlement assets) with maturities of three months or less at the date of purchase (that are readily convertible to cash) are considered cash equivalents and are stated at cost, which approximates fair value.

The Company maintains cash and cash equivalent balances, including a portion in money market funds, with a group of globally diversified banks and financial institutions.

The Company limits the concentration of its cash and cash equivalents with any one institution and regularly reviews investment concentrations and credit worthiness of these institutions.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts when it is probable that the related receivable balance will not be collected based on its history of collection experience, known collection issues, such as agent suspensions and bankruptcies, consumer chargebacks and insufficient funds, and other matters the Company identifies in its routine collection monitoring.

The allowance for doubtful accounts was $ 42.2 million and $ 47.7 million as of December 31, 2019 and 2018, respectively, and is recorded in the same balance sheet captions as the related receivable.

During the years ended December 31, 2019, 2018, and 2017, the provision for doubtful accounts (bad debt expense) reflected in the Consolidated Statements of Income/(Loss) was $ 47.1 million, $ 43.9 million, and $ 60.6 million, respectively.

Allowance for Credit Losses

For the Company’s accounting policies with respect to the allowance for credit losses, refer to Note 8.

Settlement Assets and Obligations

Settlement assets represent funds received or to be received from agents for unsettled money transfers, money orders, and consumer payments.

Settlement assets represent funds received or to be received from agents and others for unsettled money transfers, money orders, and consumer payments.

The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders, and consumer payment service arrangements.

Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment.

Settlement assets consist of cash and cash equivalents, receivables from selling agents and Business Solutions customers, and investment securities.

Settlement assets consist of cash and cash equivalents, receivables from agents, Business Solutions customers, and others, and investment securities.

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

Cash equivalents consist of short-term time deposits, commercial paper, and other highly liquid investments.

Receivables from selling agents represent funds collected by such agents, but in transit to the Company.

Receivables from agents represent funds collected by such agents, but in transit to the Company.

Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent.

In addition, the Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.

See Note 8 for information concerning the Company’s investment securities.

The Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.

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

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

Aside from these receivables, the credit risk associated with spot foreign currency exchange contracts is largely mitigated, as in most cases the Company requires the receipt of funds from customers before releasing the associated cross-currency payment.

Collection of these receivables ordinarily occurs within a few days.

To mitigate risk associated with potential Business Solutions customer defaults, the Company performs credit reviews on an ongoing basis.

Settlement obligations consist of money transfer, money order and payment service payables, and payables to agents.

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Payment service payables represent amounts to be paid to utility companies, auto finance companies, mortgage servicers, financial service providers, government agencies, and others.

Due to the agent funding and settlement process, payables to agents represent amounts due to agents for money transfers that have been settled with transferees.

Due to the agent funding

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Settlement assets:

Cash and cash equivalents

Receivables from selling agents and Business Solutions customers

Investment securities

Total settlement assets

Settlement obligations:

Money transfer, money order, and payment service payables

Payables to agents

Total settlement obligations

and settlement process, payables to agents represent amounts due to agents for money transfers that have been settled with transferees.

Refer to Note 8 for additional details on the Company’s settlement assets and obligations.

Property and Equipment

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Furniture and fixtures

Land and improvements

Projects in process

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Property and equipment, net (a)

(a) At December 31, 2019, Property and equipment, net, excludes assets held for sale of $ 49.3 million, which primarily consists of the Company’s former headquarters, which was sold in January 2020, and land.

These assets are included in Other assets in the Company’s Consolidated Balance Sheets.

(a) As of December 31, 2019, Property and equipment, net excluded assets held for sale of $ 49.3 million, which primarily consisted of the Company’s former headquarters and land.

These assets were sold in 2020 and were included in Other assets in the Company’s Consolidated Balance Sheets as of December 31, 2019.

Amounts charged to expense for depreciation of property and equipment were $ 61.3 million, $ 79.6 million, and $ 76.9 million during the years ended December 31, 2020, 2019, and 2018, respectively.

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The Company’s annual impairment assessment did no t identify any goodwill impairment during the years ended December 31, 2020, 2019, and 2018.

For the year ended December 31, 2017, the Company recognized a goodwill impairment charge of $ 464.0 million related to its Business Solutions reporting unit, as disclosed in Note 5.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Intangible Assets

Other intangible assets primarily consist of contract costs (primarily amounts paid to agents in connection with establishing and renewing long-term contracts), acquired contracts, and software.

Other intangible assets are amortized on a straight-line basis over the length of the contract or benefit periods.

Included in the Consolidated Statements of Income/(Loss) is amortization expense of $ 178.1 million, $ 187.8 million, and $ 185.8 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Other intangible assets are generally amortized on a straight-line basis over the length of the contract or benefit periods.

Included in the Consolidated Statements of Income is amortization expense of $ 164.3 million, $ 178.1 million, and $ 187.8 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company capitalizes initial payments for new and renewed agent contracts to the extent recoverable through future operations or penalties in the case of early termination.

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

The Company’s accounting policy is to limit the amount of

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

capitalized costs for a given contract to the lesser of the estimated future cash flows from the contract or the termination fees the Company would receive in the event of early termination of the contract.

Acquired contracts include customer and contractual relationships and networks of subagents that are recognized in connection with the Company’s acquisitions.

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December 31, 2019

Acquired contracts

Capitalized contract costs

Acquired contracts

Internal use software

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The Company recorded immaterial impairments related to other intangible assets during the years ended December 31, 2020, 2019, and 2018.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

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Cost of services primarily consists of agent commissions and expenses for call centers, settlement operations, and related information technology costs.

Expenses within these functions include personnel, software, equipment, telecommunications, bank fees, depreciation, amortization, and other expenses incurred in connection with providing money transfer and other payment services.

Expenses within these functions include personnel, software, equipment, telecommunications, bank fees, credit losses, depreciation, amortization, and other expenses incurred in connection with providing money transfer and other payment services.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Advertising Costs

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The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

The Company accounts for the tax effects of global intangible low-taxed income as a component of income tax expense in the period the tax arises.

The Company accounts for the effects of global intangible low-taxed income taxed in the United States as a component of income tax expense in the period the tax arises.

Foreign Currency Translation

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The effects of foreign exchange gains and losses arising from the translation of assets and liabilities of these businesses are included as a component of Accumulated other comprehensive loss (“AOCL”) in the accompanying Consolidated Balance Sheets.

Foreign currency denominated monetary assets and liabilities of businesses for which the United States dollar is the functional currency are remeasured based on exchange rates at the end of the period, and the resulting remeasurement gains and losses are recognized in Net income/(loss).

Non-monetary assets and liabilities of these operations are remeasured at historical rates in effect when the asset was recognized or the liability was incurred.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The Company has used derivatives to:

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

The Company recognizes all derivatives in the Other assets and Other liabilities captions in the accompanying Consolidated Balance Sheets at their fair value.

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Derivative fair value changes that are captured in AOCL are reclassified to earnings in the same period the hedged item affects earnings when the instrument is effective in offsetting the change in cash flows attributable to the risk being hedged.

On January 1, 2018, the Company early adopted an accounting pronouncement related to hedging activities.

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

For foreign currency cash flow hedges entered into before January 1, 2018, all changes in the fair value of the excluded components are recognized immediately in Revenues for the years ended December 31, 2019 and 2018.

For the year ended December 31, 2017, the changes in fair value of the excluded components were recognized immediately within the Consolidated Statements of Income/(Loss) and are included in Other income, net.

On January 1, 2018, the Company early

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

adopted an accounting pronouncement related to hedging activities.

For foreign currency cash flow hedges entered into before January 1, 2018, all changes in the fair value of the excluded components were recognized immediately in Revenues during the years ended December 31, 2019 and 2018.

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

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The offsetting change in value of the related debt instrument attributable to changes in the benchmark interest rate is also recorded in Interest expense.

At December 31, 2019, there were no fair value hedges outstanding.

● Undesignated - Derivative contracts entered into to reduce the foreign exchange variability related to (i) money transfer settlement assets and obligations, generally with maturities from a few days up to one month , and (ii) certain foreign currency denominated cash and other asset and liability positions, typically with maturities of less than one year at inception, are not designated as hedges for accounting purposes and changes in their fair value are included in Selling, general, and administrative.

There were no fair value hedges outstanding as of December 31, 2020 and 2019.

● Undesignated - Derivative contracts entered into to reduce the foreign exchange variability related to:

(i) money transfer settlement assets and obligations, generally with maturities from a few days up to one month , and (ii) certain foreign currency denominated cash and other asset and liability positions, typically with maturities of less than one year at inception, are not designated as hedges for accounting purposes and changes in their fair value are included in Selling, general, and administrative.

The Company is also exposed to risk from derivative contracts written to its customers arising from its cross-currency Business Solutions payments operations.

The duration of these derivative contracts at inception is generally less than one year .

The significant majority of these derivative contracts have a duration at inception of less than one year .

The Company aggregates its Business Solutions payments foreign currency exposures arising from customer contracts, including the derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties (economic hedge contracts) as part of a broader foreign currency portfolio, including significant spot exchanges of currency in addition to forwards and options.

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The derivative must be highly effective in offsetting the changes in cash flows or fair value of the hedged item, and effectiveness is evaluated quarterly on a retrospective and prospective basis.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Legal Contingencies

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Stock-Based Compensation

The Company currently has a stock-based compensation plan that provides for grants of Western Union stock options, restricted stock awards, and restricted and unrestricted stock units to employees and non-employee directors of the Company.

The Company has a stock-based compensation plan that provides for grants of Western Union stock options, restricted stock awards, and restricted and unrestricted stock units to employees and non-employee directors of the Company.

All stock-based compensation to employees is required to be measured at fair value and expensed over the requisite service period.

The Company recognizes compensation expense on awards on a straight-line basis over the requisite service period for the entire award, with an estimate for forfeitures.

The Company generally recognizes compensation expense on awards on a straight-line basis over the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

requisite service period for the entire award, with an estimate for forfeitures.

Refer to Note 17 for additional discussion regarding details of the Company’s stock-based compensation plans.

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Recently Adopted Accounting Pronouncements

On January 1, 2020 , the Company adopted a new accounting standard that requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts.

Additionally, the standard requires certain credit losses relating to investment securities classified as available-for-sale to be recorded through an allowance for credit losses.

The Company recognized the cumulative effect of the new accounting standard as an adjustment to the January 1, 2020 balance of Accumulated deficit in the Consolidated Balance Sheets, and the adoption of the new accounting standard did not have a material impact on the Company’s January 1, 2020 accumulated deficit.

In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under accounting standards in effect for those periods.

Refer to Note 8 for additional information and the related disclosures.

On January 1, 2019 , the Company adopted a new accounting standard, as amended, that requires the Company to record assets and liabilities on the balance sheet for lease-related rights and obligations and disclose key information about its leasing arrangements.

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Refer to Note 3 for the related additional disclosures.

On January 1, 2018, the Company retrospectively adopted an accounting pronouncement that requires restricted cash, which is recorded in Other assets in the Company’s Consolidated Balance Sheets, to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows.

The adoption of this standard had an immaterial impact on the Company’s historical operating cash flows within the Consolidated Statements of Cash Flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the first quarter of 2018 , the Company adopted a new accounting pronouncement that provides entities the option to reclassify tax effects included within AOCL as a result of the United States tax reform legislation enacted in December 2017 (the “Tax Act”) to retained earnings.

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Refer to Note 14 for additional information.

Accounting Pronouncements Not Yet Adopted

In June 2016 , the Financial Accounting Standards Board issued a new accounting pronouncement regarding credit losses for financial instruments.

The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts.

Additionally, the standard requires certain credit losses relating to investment securities classified as available-for-sale to be recorded through an allowance for credit losses.

The Company is required to adopt the new standard on January 1, 2020.

The Company has completed its analysis of the standard and has concluded that the adoption of the standard will not have a material impact on the Company’s financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On January 1, 2018, the Company adopted a new accounting standard, as amended, regarding revenue from contracts with customers using the modified retrospective approach, which was applied to all contracts with customers.

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The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of Accumulated deficit in the Consolidated Balance Sheet, and the adoption of the new accounting standard did not have a material impact on the Company’s January 1, 2018 accumulated deficit.

In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The adoption of the new revenue standard did not have a material impact to the Company’s revenues or net income on an ongoing basis.

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

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For the substantial majority of the Company’s revenues, the Company acts as the principal in transactions and reports revenue on a gross basis, as the Company controls the service at all times prior to transfer to the customer, is primarily responsible for fulfilling the customer contracts, has the risk of loss, and has the ability to establish transaction prices.

The Company also provides services to financial institutions and other third parties to enable such entities to offer money transfer services to their own customers under their brands.

Generally, in these arrangements, consumers agree to terms and conditions specified by the financial institution or other third party that, among other things, establish pricing paid by the consumer for the service.

The Company recognizes revenue on a net basis under these arrangements.

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

The Company recognized $ 5,033.2 million and $ 5,382.6 million in revenues from contracts with customers for the years ended December 31, 2019 and 2018, respectively.

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

The Company recognized $ 4,625.1 million, $ 5,033.2 million, and $ 5,382.6 million in revenues from contracts with customers for the years ended December 31, 2020, 2019, and 2018, respectively.

There were no material upfront costs incurred to obtain contracts with customers during these same periods.

Under the Company’s loyalty programs, which are primarily offered in its money transfer services, the Company must fulfill loyalty program rewards earned by customers.

The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations, and the Company has immaterial contract liability

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

balances, which primarily relate to its customer loyalty programs and other services.

The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations for the years ended December 31, 2020, 2019, and 2018, and the Company has immaterial contract liability balances as of December 31, 2020 and 2019, which primarily relate to its customer loyalty programs and other services.

Contract asset balances related to customers were also immaterial as of December 31, 2020 and 2019, as the Company typically receives payment of consideration from its customers prior to satisfying performance obligations under the customer contracts.

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In a money transfer, the Company has one performance obligation as the customer engages the Company to perform one integrated service which typically occurs within minutes — collect the customer’s money and make funds available for payment to a designated person in the currency requested.

Therefore, the Company recognizes revenue upon completion of the following:

Therefore, the Company recognizes

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

revenue upon completion of the following:

(i) the customer’s acknowledgment of the Company’s terms and conditions and payment information has been received by the Company, (ii) the Company has agreed to process the money transfer, (iii) the Company has provided the customer a unique transaction identification number, and (iv) funds are available to be picked up by the customer’s designated receiving party.

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As with consumer money transfers, customers engage the Company to perform one integrated service — collect money from the consumer and process the bill payment transaction, thereby providing the billers real-time or near real-time information regarding their customers’ payments and simplifying the billers’ collection efforts.

The significant majority of the Company’s revenues from bill payment services are generated from contracts to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

process transactions at any time during the duration of the contract.

In May 2019, the Company sold a substantial majority of its United States based electronic bill payments services, as discussed in Note 5.

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

Revenues that would have been reported under previous accounting guidance would not have been materially different from the amounts shown below:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended December 31, 2020

Bill Payments (c)

Bill Payments

North America

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Other revenues (a)

Total revenues (b)

Total revenues

Year Ended December 31, 2019

Bill Payments (c)

Bill Payments (b)

North America

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Other revenues (a)

Total revenues (b)

Total revenues

Year Ended December 31, 2018

Bill Payments (b)

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

(a) Includes revenue from the sale of derivative financial instruments, investment income generated on settlement assets primarily related to money transfer and money order services, and other sources.

(b) Revenues from “Consumer money transfers” are included in the Company’s Consumer-to-Consumer segment, revenues from “Foreign exchange and payment services” are included in the Company’s Business Solutions segment, and revenues from “Consumer bill payments” and “Other services” are not included in the Company’s segments and are reported as Other.

See Note 18 for further information on the Company’s segments .

(b) On February 28, 2019, the Company entered into an agreement with ACI Worldwide Corp.

and ACW Worldwide, Inc.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring-Related Expenses and Business Transformation Expenses

Restructuring-Related Expenses

On August 1, 2019, the Company’s Board of Directors approved a plan to change the Company’s operating model and improve its business processes and cost structure by reorganizing the Company’s senior management, including those managers reporting to the Chief Executive Officer (“CEO”), reducing its headcount, and consolidating various facilities.

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.

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

The foregoing figures are the Company’s estimates and are subject to change as the plan is anticipated to be completed by the end of 2020.

While certain of the expenses may be identifiable to the Company’s segments, primarily to the Company’s Consumer-to-Consumer segment, the expenses are not included in the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of performance assessment and resource allocation.

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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 year ended December 31, 2019 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Consolidated Balance Sheets as of December 31, 2019 (in millions):

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 following table summarizes the activity for the years ended December 31, 2020 and 2019 for expenses related to the restructuring accruals, which are included in Accounts payable and accrued liabilities in the Company’s Consolidated Balance Sheets as of December 31, 2020 and 2019, and the total expenses incurred since the inception of the restructuring plan (in millions):

Severance and

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Balance, December 31, 2019

Cash payments

Non-cash benefits/(charges) (a)

Balance, December 31, 2020

Total expenses incurred

(a) Non-cash benefits/(charges) include non-cash write-offs and accelerated depreciation of ROU assets and leasehold improvements and a non-cash benefit for adjustments to stock compensation for awards forfeited by employees.

These amounts have been removed from the liability balance in the table above as they do not impact the restructuring accruals.

The following table presents restructuring-related expenses as reflected in the Consolidated Statements of Income/(Loss) (in millions):

The following table presents restructuring-related expenses as reflected in the Consolidated Statements of Income (in millions):

Year Ended December 31,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Business Transformation Expenses

In the second quarter of 2016, the Company began incurring expenses related to a business transformation initiative (“WU Way”).

As of December 31, 2017, expenses associated with the WU Way initiative were effectively complete.

Although the expenses related to the WU Way are specific to that initiative, the types of expenses related to the WU Way initiative are similar to expenses that the Company has previously incurred and can reasonably be expected to incur in the future.

The cash payments related to the WU Way for the years ended December 31, 2018 and 2017 were $ 32.3 million and $ 77.3 million, respectively.

The business transformation liability was not material as of December 31, 2018.

The following table presents expenses related to business transformation initiatives as reflected in the Consolidated Statements of Income/(Loss) (in millions):

Year Ended December 31, 2017

Cost of services

Selling, general, and administrative

Total expenses, pre-tax

Total expenses, net of tax

While certain of the business transformation expenses were identifiable to the Company’s segments, primarily to the Company’s Consumer-to-Consumer segment, the expenses were not included in the measurement of segment operating income provided to the CODM for purposes of performance assessment and resource allocation.

These expenses were therefore excluded from the Company’s segment operating income results.

Divestitures, Business Combinations, and Goodwill

Divestitures, Acquisitions, and Goodwill

Divestitures of Businesses

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(together, “ACI”) 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, which is included in Gain on divestitures of businesses in the accompanying Consolidated Statements of Income/(Loss), in the all-cash transaction that closed on May 9, 2019.

Speedpay revenues included in the Company’s results were $ 125.4 million, $ 352.0 million, and $ 368.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Speedpay direct operating expenses were $ 98.2 million, $ 251.2 million, and $ 246.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

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 Consolidated Statements of Income, in the all-cash transaction that closed on May 9, 2019.

Speedpay revenues included in the Company’s 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.

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

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The Company recorded an immaterial pre-tax gain related to this sale during 2019.

Business Solutions Goodwill Impairment Charge

During the year ended December 31, 2017, the Company recognized a goodwill impairment charge of $ 464.0 million related to its Business Solutions reporting unit, as the estimated fair value of the reporting unit declined below its carrying value.

The reduction in estimated fair value primarily resulted from a decrease in projected revenue growth rates and Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) margins and the impact of the Tax Act.

Revenue and EBITDA projections were reevaluated during the year ended December 31, 2017 due to the declines in revenues and operating results recognized in the fourth quarter of 2017, which were significantly below management’s expectations.

Additionally, as disclosed in prior Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

total estimated fair value of the Business Solutions reporting unit previously included value derived from strategies to optimize United States cash flow management and global liquidity by utilizing international cash balances (including balances generated by other operating segments) to initially fund global principal payouts for Business Solutions transactions initiated in the United States (“Cash Management Strategies”) that would have been available to certain market participants.

However, the Tax Act, which imposed a tax on certain previously undistributed foreign earnings and established minimum taxes on certain future payments and foreign earnings, eliminated any fair value associated with the Cash Management Strategies.

The Company estimated the fair value of its Business Solutions reporting unit using the income approach.

The estimated fair value was derived primarily using unobservable Level 3 inputs, including projections of revenue growth rates and EBITDA margins, which require significant management judgment and estimation.

The Company did no t record any goodwill impairments during the years ended December 31, 2019 and 2018.

Business Combinations

On November 6, 2017, the Company completed the purchase of Opus Software Technologies Private Limited and the assets of its affiliate for total consideration of approximately $ 25.3 million.

The Company believes that the acquisition has assisted and will continue to assist in enhancing and centralizing the Company’s information technology expertise through a newly established information technology development and maintenance center located in India, which was an integral part of the Company’s WU Way transformation efforts.

The acquisition does not and will not impact the Company’s revenues.

During the first quarter of 2018, the Company finalized the valuation of the acquisition, for which it has recognized approximately $ 22.0 million of goodwill.

The valuation of the acquisition was derived primarily using unobservable Level 3 inputs, which require significant management judgment and estimation.

In 2020, the Company sold its former corporate headquarters and other property and recorded an immaterial pre-tax net gain on the sales.

The proceeds from these sales have been included in Cash flows from investing activities within the Company’s Consolidated Statements of Cash Flows for the year ended December 31, 2020.

Investment in Saudi Digital Payments Company

On November 21, 2020, the Company 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 the Company’s 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, the Company agreed to invest approximately $ 133 million for a 10 % investment in stc pay, and, in the second tranche, the Company 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.

In conjunction with the transaction, the Company and stc pay have also agreed to extend and expand the terms of their commercial agreement.

The Company expects to measure this investment at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments in stc pay.

The following table presents changes to goodwill for the years ended December 31, 2020 and 2019 (in millions):

January 1, 2019 goodwill, net

Purchase accounting adjustments

Currency translation

December 31, 2018 goodwill, net

Divestitures (a)

December 31, 2019 goodwill, net

December 31, 2020 goodwill, net

(a) Related to the Speedpay and Paymap divestitures, as described above.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents accumulated impairment losses as of December 31, 2020, 2019, and 2018 (in millions):

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Goodwill, net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company did not record any goodwill impairments during the years ended December 31, 2020, 2019, and 2018.

Commitments and Contingencies

Letters of Credit and Bank Guarantees

The Company 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.

The Company expects to renew the letters of credit and bank guarantees prior to expiration in most circumstances.

These letters of credit and bank guarantees exclude guarantees that the Company may provide as part of its legal matters, as described below.

The Company 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 the Company’s letters of credit and bank guarantees have a one-year renewal option, and the Company expects to renew prior to expiration in most circumstances.

Litigation and Related Contingencies

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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-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;

and 3) a Consent to the Assessment of Civil Money Penalty with the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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”).

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

states and the District of Columbia named therein to resolve investigations by the state attorneys general, which sought information and documents relating to money transfers sent from the United States to certain countries, consumer fraud complaints that the Company had received and the Company’s procedures to help identify and prevent fraudulent transfers.

On April 12, 2017, the Company settled with the one remaining state attorney general under effectively the same terms as the January 31, 2017 agreement with no additional monetary payment required.

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.”

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.

Under the DPA, to close out this matter, the DOJ has 90 days from the expiration to file for dismissal of the charges.

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.

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

No separate payment to the FTC was required under the Joint Settlement Agreements.

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 Agreements.

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.

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.

Shareholder Derivative Action

On January 16, 2020, Stanley Lieblein filed a shareholder derivative complaint in the Court of Chancery of the State of Delaware naming the Company’s President and Chief Executive Officer, certain current and former directors, and a former executive officer as individual defendants and the Company as a nominal defendant.

Lieblein had previously filed a shareholder derivative action asserting related claims in the United States District Court for the District of Colorado, which was subsequently consolidated with multiple pending related derivative actions.

Following the filing of multiple amended complaints, the United States Court of Appeals for the Tenth Circuit affirmed dismissal of the consolidated derivative action on April 16, 2019 on the ground that the plaintiffs did not have standing to proceed on behalf of the

Lieblein had previously filed a shareholder derivative action asserting related claims in the United States District Court

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company without making a demand on the Company’s board of directors.

for the District of Colorado, which was subsequently consolidated with multiple pending related derivative actions.

The consolidated derivative action is described in further detail in the Company’s prior disclosures.

On August 1, 2019, Mr.

Lieblein made a written demand on the Company’s board of directors to investigate and address alleged misconduct related to the Company’s anti-fraud and AML compliance programs, including certain alleged misconduct at issue in the consolidated derivative action.

Lieblein made a written demand on the Company’s Board of Directors to investigate and address alleged misconduct related to the Company’s anti-fraud and anti-money laundering (“AML”) compliance programs, including certain alleged misconduct at issue in the consolidated derivative action.

The Company’s Board of Directors formed a special committee to evaluate Mr.

Lieblein’s demand together with a related shareholder demand.

The special committee’s investigation is ongoing.

Lieblein alleges that he filed the January 16, 2020 complaint prior to the completion of the special committee’s investigation because of concerns regarding the statute of limitations on some of the claims asserted.

Lieblein has agreed to stay the action pending completion of the special committee’s investigation, or until September 30, 2020, whichever occurs earlier.

The complaint filed by Mr.

Lieblein’s demand together with a related shareholder demand (the “Demand Letters”), and the special committee’s investigation was still ongoing at the time Mr.

Lieblein filed the Delaware Complaint.

Lieblein alleges that he filed the Delaware Complaint prior to the completion of the special committee’s investigation because of concerns regarding the statute of limitations on some of the claims asserted.

Lieblein agreed to stay the action until December 31, 2020, pending completion of the special committee’s investigation.

Within 60 days after December 31, 2020, Mr.

Lieblein is required either to specify whether the Delaware Complaint will serve as the operative complaint in the action or file an amended complaint.

The Delaware Complaint filed by Mr.

Lieblein on January 16, 2020 includes allegations that the director and officer defendants declined to implement effective anti-fraud and AML compliance systems after receiving numerous red flags indicating prolonged willful illegality, condoned executive officers’ obstruction of efforts by various regulators to impose an effective compliance system on the Company, approved executive compensation packages for management that were not aligned with development of effective anti-fraud and AML compliance programs, allowed management to fail to timely report known or likely impropriety by Company employees or agents to regulatory authorities, failed to require management to adopt a risk assessment for all very high risk areas, refused to remedy the board’s oversight of executive officers, and, in effect, refused Mr.

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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.

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.

The special committee completed its investigation in early December 2020 and, on the basis of its findings, recommended that the Company’s Board of Directors reject the Demand Letters and direct the Company to oppose any effort to assert claims based on or related to the Demand Letters on behalf of the Company, that no action on behalf of the Company should be brought or pursued against any of the current or former officers or directors of the Company based on the Demand Letters, and that none of the corporate governance reforms raised in the Demand Letters is necessary or appropriate.

On December 16, 2020, the Board of Directors resolved to adopt the recommendations of the special committee.

The Board of Directors further resolved, among other things, that none of the asserted claims has factual or legal merit.

The Company thereafter informed Mr.

Lieblein and the other shareholders who sent the Demand Letters that their demands have been rejected.

On February 12, 2021, one of the shareholders who sent a Demand Letter sent the Company a request to inspect books and records related to the consideration of the Demand Letters pursuant to Section 220 of the Delaware General Corporation Law.

The Company intends to oppose any effort by Mr.

Lieblein to continue his action.

The Company believes the action is without merit.

The Company will likewise oppose any future action by the other shareholders who sent the Demand Letters.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Matters

On March 12, 2014, Jason Douglas filed a purported class action complaint in the United States District Court for the Northern District of Illinois asserting a claim under the Telephone Consumer Protection Act, 47 U.S.C.

§ 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 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.

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.

In 2014, the Company accrued an amount equal to the retention under its insurance policy and believes that any amounts in excess of this accrual will be covered by the insurer.

However, if the Company’s insurer is unable to or refuses to satisfy its obligations under the policy or the parties are unable to reach a definitive agreement or otherwise agree on a resolution, the Company’s financial condition, results of operations, and cash flows could be adversely impacted.

As the parties have reached an agreement in this matter, the Company believes that the potential for additional loss in excess of amounts already accrued is remote.

In October 2015, Consumidores Financieros Asociación Civil para su Defensa, an Argentinian consumer association, filed a purported class action lawsuit in Argentina’s National Commercial Court No.

19 against the Company’s subsidiary Western Union Financial Services Argentina S.R.L.

The lawsuit alleges, among other things, that WUFSA’s

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

fees for money transfers sent from Argentina are excessive and that WUFSA does not provide consumers with adequate information about foreign exchange rates.

The lawsuit alleges, among other things, that WUFSA’s fees for money transfers sent from Argentina are excessive and that WUFSA does not provide consumers with adequate information about foreign exchange rates.

The plaintiff is seeking, among other things, an order requiring WUFSA to reimburse consumers for the fees they paid and the foreign exchange revenue associated with money transfers sent from Argentina, plus punitive damages.

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The process for notifying potential class members has been completed and the case is currently in the evidentiary stage.

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.

WUFSA intends to defend itself vigorously.

On February 22, 2017, the Company, its President and Chief Executive Officer, its Chief Financial Officer, and a former executive officer of the Company were named as defendants in two purported class action lawsuits, both of which asserted claims under section 10(b) of the Exchange Act and Securities and Exchange Commission rule 10b-5 and section 20(a) of the Exchange Act.

On May 3, 2017, the two cases were consolidated by the United States District Court for the District of Colorado under the caption Lawrence Henry Smallen and Laura Anne Smallen Revocable Living Trust et al.

The Western Union Company et al.

, Civil Action No.

1:17-cv-00474-KLM (D.

On September 6, 2017, the Court appointed Lawrence Henry Smallen and Laura Anne Smallen Revocable Living Trust as the lead plaintiff.

On November 6, 2017, the plaintiffs filed a consolidated amended complaint (“Amended Complaint”) that, among other things, added two other former executive officers as defendants, one of whom subsequently was voluntarily dismissed by the plaintiffs.

The Amended Complaint asserts claims under section 10(b) of the Exchange Act and Securities and Exchange Commission rule 10b-5 and section 20(a) of the Exchange Act, and alleges that, during the purported class period of February 24, 2012, through May 2, 2017, the defendants made false or misleading statements or failed to disclose purported adverse material facts regarding, among other things, the Company’s compliance with AML and anti-fraud regulations, the status and likely outcome of certain governmental investigations targeting the Company, the reasons behind the Company’s decisions to make certain regulatory enhancements, and the Company’s premium pricing.

The defendants filed a motion to dismiss the complaint on January 16, 2018, and on March 27, 2019, the Court dismissed the action in its entirety with prejudice and entered final judgment in the defendants’ favor on March 28, 2019.

On April 26, 2019, plaintiffs filed a notice of appeal to the U.S.

Court of Appeals for the Tenth Circuit.

On June 24, 2019, plaintiffs filed their opening brief on appeal and oral argument was held on January 22, 2020.

Plaintiffs did not appeal the dismissal of one former executive officer and only appealed the district court’s conclusion that the remaining defendants did not make statements concerning the Company’s compliance programs with the requisite intent.

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, which could be associated with it.

The Company and the individual defendants intend to vigorously defend themselves in this matter.

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.

In accordance with Spanish law, on January 4, 2018, the Company, through its subsidiary Western Union International Limited, provided a corporate guaranty in an amount of approximately € 23 million to cover any liability that could theoretically attach to WUPSIL.

On October 3, 2019, WUPSIL reached a settlement agreement with the Spanish prosecutor that extinguishes WUPSIL’s civil liability for the fraud scams at issue by stating that the liability has already been covered by the Compensation Payment under the DPA.

On October 8, 2019, WUPSIL filed a motion requesting release of the corporate guarantee.

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.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The requests pertain to the Company’s oversight of one current and two former Western Union agents located in New York state.

The two former agents were identified in the DPA described in the United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements section above, and were terminated as agents by the Company prior to 2013.

On July 28, 2017, the NYDFS informed the Company that the facts set forth in the DPA regarding the Company’s anti-money laundering programs over the 2004 through 2012 period gave the NYDFS a basis to take additional enforcement action.

On January 4, 2018, the Company’s subsidiary, WUFSI, and the NYDFS agreed to a consent order (the “NYDFS Consent Order”), which resolved the NYDFS investigation into these matters.

Under the NYDFS Consent Order, the Company was required, among other things, to pay to the NYDFS a civil monetary penalty of $ 60 million, which the Company paid on January 12, 2018.

On April 26, 2018, the Company, its WUFSI subsidiary, its President and Chief Executive Officer, and various “Doe Defendants” (purportedly including Western Union officers, directors, and agents) were named as defendants in a purported class action lawsuit asserting claims for alleged violations of civil Racketeer Influenced and Corrupt Organizations Act and the Colorado Organized Crime Act, civil theft, negligence, unjust enrichment, and conversion under the caption Frazier et al.

The Western Union Company et al., Civil Action No.

1:18-cv-00998-KLM (D.

The complaint alleges that, during the purported class period of January 1, 2004 to the present, and based largely on the admissions and allegations relating to the DPA, the FTC Consent Order, and the NYDFS Consent Order, the defendants engaged in a scheme to defraud customers through Western Union’s money transfer system.

The plaintiffs filed an amended complaint on July 17, 2018.

The amended complaint is similar to the original complaint, although it adds additional named plaintiffs and additional counts, including claims on behalf of putative California, Florida, Georgia, Illinois, and New Jersey subclasses for alleged violations of the California Unfair Competition Law, the Florida Deceptive and Unfair Trade Practices Act, the Georgia Fair Business Practices Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the New Jersey Consumer Fraud Act.

On August 28, 2018, the Company and the other defendants moved to stay the action in favor of individual arbitrations with the named plaintiffs, which defendants contend are contractually required.

On March 27, 2019, the Court granted that motion and stayed the action pending individual arbitrations with the named plaintiffs.

To date, no such individual arbitration requests have been filed.

Due to the stage of the matter, the Company is unable to predict the outcome, or the possible loss or range of loss, if any, which could be associated with it.

The Company and the other defendants intend to vigorously defend themselves in this matter.

In addition to the principal matters described above, the Company is a party to a variety of other legal matters that arise in the normal course of the Company’s business.

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Commission expense recognized for these agents for the years ended December 31, 2020, 2019, and 2018 totaled $ 54.6 million, $ 57.1 million, and $ 57.6 million, respectively.

Settlement Assets and Obligations

Settlement assets represent funds received or to be received from agents and others for unsettled money transfers, money orders, and consumer payments.

The Company records corresponding settlement obligations relating to amounts payable under money transfers, money orders, and consumer payment service arrangements.

Settlement assets and obligations also include amounts receivable from, and payable to, customers for the value of their cross-currency payment transactions related to the Business Solutions segment.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

December 31, 2020

Settlement assets:

Cash and cash equivalents

Receivables from agents, Business Solutions customers, and others

Allowance for credit losses

Receivables from agents, Business Solutions customers, and others, net

Investment securities

Total settlement assets

Settlement obligations:

Money transfer, money order, and payment service payables

Payables to agents

Total settlement obligations

December 31, 2019

Settlement assets:

Cash and cash equivalents

Receivables from agents, Business Solutions customers, and others

Investment securities

Total settlement assets

Settlement obligations:

Money transfer, money order, and payment service payables

Payables to agents

Total settlement obligations

Allowance for Credit Losses

On January 1, 2020, the Company adopted a new accounting standard related to the estimation of the allowance for credit losses, as discussed in Note 2.

However, due to the short-term nature of the Company’s receivables and the Company’s historical and expected collections practice, the adoption did not have a material impact on the Company’s financial position or results of operations.

Receivables from agents and others primarily represent funds collected by such agents, but in transit to the Company, and were $ 1,081.2 million as of December 31, 2020.

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

Western Union has a large and diverse agent base, thereby reducing the credit risk of the Company from any one agent.

The Company performs ongoing credit evaluations of its agents’ financial condition and credit worthiness.

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

Business Solutions receivables totaled $ 53.9 million as of December 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 occurs within a few days.

To mitigate risk associated with potential Business Solutions customer defaults, the Company performs credit reviews on an ongoing basis.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company establishes and monitors an allowance for credit losses related to receivables from agents and others, and Business Solutions customers.

The Company estimates the allowance based on its historical collections experience, adjusted for current conditions and forecasts of future economic conditions, including those related to COVID-19.

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

The Company has estimated credit losses based on information known as of December 31, 2020.

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

Business Solutions

Allowance for credit losses as of January 1, 2020

Current period provision for expected credit losses (a)

Write-offs charged against the allowance

Recoveries of amounts previously written off

Impacts of foreign currency exchange rates and other

Allowance for credit losses as of December 31, 2020

Provision does not include losses from chargebacks or fraud associated with transactions initiated through the Company’s digital channels, as these losses are not credit-related.

For the year ended December 31, 2020, the Company recognized $ 41.3 million of losses that were not credit-related.

Prior to the adoption of the new accounting standard discussed above, the Company recorded an allowance for doubtful accounts when it was probable that the related receivable balance would not be collected based on its history of collection experience, known collection issues, such as agent suspensions and bankruptcies, consumer chargebacks and insufficient funds, and other matters the Company identified in its routine collection monitoring.

The allowance for doubtful accounts was $ 42.2 million as of December 31, 2019 and is recorded in the same balance sheet captions as the related receivable.

During the years ended December 31, 2019 and 2018, the provision for doubtful accounts (bad debt expense) reflected in the Consolidated Statements of Income was $ 47.1 million and $ 43.9 million, respectively.

In addition, from time to time, the Company has made advances to its agents.

The Company generally owes settlement funds payable to these agents that offset these advances.

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

As of December 31, 2020, amounts advanced to agents were $ 135.9 million, and the related allowance for credit losses was immaterial.

Investment Securities

Investment securities included in Settlement assets in the Company’s Consolidated Balance Sheets consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes.

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These securities may be used by the Company for short-term liquidity needs and held for short periods of time.

The Company is required to hold highly-rated, investment grade securities and such investments are restricted to satisfy outstanding settlement obligations in accordance with applicable regulatory requirements.

Substantially all of the Company’s investment securities are classified as available-for-sale and recorded at fair value.

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

The Company’s investment securities are classified as available-for-sale and recorded at fair value.

Western Union regularly monitors credit risk and attempts to mitigate its exposure by investing in highly-rated securities and through investment diversification.

Unrealized gains and losses on available-for-sale securities are excluded from earnings and presented as a component of Accumulated other comprehensive loss, net of related deferred taxes.

Proceeds from the sale and maturity of available-for-sale securities during the years ended December 31, 2019, 2018, and 2017 were $ 5.4 billion, $ 7.7 billion, and $ 7.9 billion, respectively.

Gains and losses on investment securities are calculated using the specific-identification method and are recognized in earnings during the period in which the investment is sold or when an investment experiences an other-than-temporary decline in value.

Factors that could indicate an impairment exists include, but are not limited to:

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

If potential impairment exists, the Company assesses (i) whether it has the intent to sell the investment security, (ii) will more likely than not be required to sell the investment security before its anticipated recovery, or (iii) expects that some of the contractual cash flows will not be received.

The Company had no material, other-than-temporary impairments during the periods presented.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Unrealized gains on available-for-sale securities are excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes.

Available-for-sale securities with a fair value below the amortized cost basis are evaluated on an individual basis to determine whether the impairment is due to credit-related factors or noncredit-related factors.

Factors that could indicate a credit loss exists include but are not limited to:

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

Any impairment that is not credit-related is excluded from earnings and presented as a component of accumulated other comprehensive loss, net of related deferred taxes, unless the Company intends to sell the impaired security or it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis.

Credit-related impairments are recognized immediately as an adjustment to earnings, regardless of whether the Company has the ability or intent to hold the security to maturity, and are limited to the difference between fair value and the amortized cost basis.

As of and for the year ended December 31, 2020, the Company’s allowance for credit losses and provision for credit losses on its available-for-sale securities were immaterial.

Proceeds from the sale and maturity of available-for-sale securities during the years ended December 31, 2020, 2019, and 2018 were $ 6.2 billion, $ 5.4 billion, and $ 7.7 billion.

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

7 unchanged sentences

State and municipal variable-rate demand notes

Corporate and other debt securities

United States government agency mortgage-backed securities

Corporate debt securities

Other United States government agency debt securities

United States Treasury securities

Total investment securities within Settlement assets

Total available-for-sale securities

Total investment securities

1 unchanged sentence

Gains/(Losses)

Cash and cash equivalents:

Money market funds

Settlement assets:

4 unchanged sentences

State and municipal variable-rate demand notes

Corporate and other debt securities

United States government agency mortgage-backed securities

Corporate debt securities

Other United States government agency debt securities

United States Treasury securities

Total investment securities within Settlement assets

Other assets:

Held-to-maturity securities:

Foreign corporate debt securities

Total available-for-sale securities

Total investment securities

(a) The majority of these securities are fixed-rate instruments.

There were no investments with a single issuer or individual securities representing greater than 10% of total investment securities as of December 31, 2019 and 2018.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following summarizes the contractual maturities of investment securities within Settlement assets as of December 31, 2019 (in millions):

There were no investments with a single issuer or individual securities representing greater than 10% of total investment securities as of December 31, 2020 and 2019.

The following summarizes the contractual maturities of available-for-sale securities within Settlement assets as of December 31, 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 $ 7.6 million, $ 17.9 million, $ 11.0 million, and $ 239.6 million are included in the “Due within 1 year,” “Due after 1 years through 5 years,” “Due after 5 years through 10 years,” and “Due after 10 years” categories, respectively, in the table above.

Variable-rate demand notes, having a fair value of $ 15.0 million, $ 0.9 million, and $ 546.2 million are included in the “Due after 1 year through 5 years,” “Due after 5 years through 10 years,” and “Due after 10 years” categories, respectively, in the table above.

Fair Value Measurements

7 unchanged sentences

Money market funds

Measured at fair value through other comprehensive income:

Measured at fair value through other comprehensive income (net of expected credit losses recorded through net income):

State and municipal debt securities

State and municipal variable-rate demand notes

Corporate and other debt securities

United States government agency mortgage-backed securities

Corporate debt securities

Other United States government agency debt securities

United States Treasury securities

Other assets:

5 unchanged sentences

December 31, 2019

Cash and cash equivalents:

Measured at fair value through net income:

Money market funds

Settlement assets:

4 unchanged sentences

State and municipal variable-rate demand notes

Corporate and other debt securities

United States government agency mortgage-backed securities

Corporate debt securities

Other United States government agency debt securities

United States Treasury securities

2 unchanged sentences

Total liabilities

No material, non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements were recorded during the years ended December 31, 2019 and 2018.

There were no material, non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements during the years ended December 31, 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 settlement obligations approximate fair value due to their short maturities.

The carrying amounts for many of the Company’s financial instruments, including certain cash and cash equivalents, settlement cash and cash equivalents, and settlement receivables and obligations approximate fair value due to their short maturities.

The Company’s borrowings are classified as Level 2 within the valuation hierarchy, and the aggregate fair value of these borrowings was based on quotes from multiple banks.

2 unchanged sentences

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.

As of December 31, 2018, the Company held investments in foreign corporate debt securities deemed to be held-to-maturity and classified as Level 2 within the valuation hierarchy.

These investments were recorded at amortized cost in Other assets in the Company’s Consolidated Balance Sheets.

As of December 31, 2018 , both the carrying value and fair value of the Company’s foreign corporate debt securities were $ 32.9 million.

These investments matured in 2019.

THE WESTERN UNION COMPANY

3 unchanged sentences

Other assets:

ROU assets (Note 13)

Prepaid expenses

Amounts advanced to agents

Prepaid expenses

Prepaid pension costs (Note 12)

Equity method investments

1 unchanged sentence

Other liabilities:

Operating lease liabilities (Note 13)

Pension obligations

Operating lease liabilities

Accrued agent contract costs (b)

Pension obligations (Note 12)

Total other liabilities

(a) Property, equipment, and land of $ 49.3 million, which is primarily related to the Company’s former headquarters, is included in Other as of December 31, 2019 and is classified as held for sale.

In the first quarter of 2020, the Company sold its former corporate headquarters and expects to record an immaterial gain on the sale.

(a) Property, equipment, and land of $ 49.3 million, primarily related to the Company’s former headquarters, was included in Other as of December 31, 2019 and classified as held for sale.

In 2020, the Company sold its former corporate headquarters and other property and recorded an immaterial gain on the sales.

(b) Represents accrued and unpaid contract costs for new and renewed agent contracts.

The majority of the balance as of December 31, 2020 was paid in January 2021 .

The components of pre-tax income, generally based on the jurisdiction of the legal entity, were as follows (in millions):

2 unchanged sentences

For the years ended December 31, 2020, 2019, and 2018, 100 %, 67 % and 101 % of the Company’s pre-tax income was derived from foreign sources, respectively.

During the year ended December 31, 2019, the Company’s domestic pre-tax income increased due to the net gain on the sales of the Speedpay and Paymap businesses, as discussed in Note 5.

For the year ended December 31, 2017, domestic pre-tax loss was primarily the result of the domestic portion of the goodwill impairment charge related to the Company’s Business Solutions reporting unit, described further in Note 5, the NYDFS Consent Order accrual, as discussed in Note 6, and business transformation expenses.

For the year ended December 31, 2019, the Company’s domestic pre-tax income increased due to the net gain on the sales of the Speedpay and Paymap businesses, as discussed in Note 5.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The provision for income taxes was as follows (in millions):

2 unchanged sentences

Total provision for income taxes

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In 2020, the Company’s federal, state, and foreign tax provisions decreased due to lower pre-tax income and discrete tax benefits in the current period.

In 2019, the Company’s federal and state and local tax provisions increased due to the net gain on the sales of the Speedpay and Paymap businesses.

In 2017, the Tax Act was enacted into United States law, and a domestic one-time tax was imposed under the Tax Act on the Company’s previously undistributed earnings of foreign subsidiaries, with certain exceptions, partially offset by the remeasurement of deferred tax assets and liabilities and other tax balances to reflect the lower federal income tax rate.

No tax benefit was recorded in 2017 for the $ 60 million NYDFS Consent Order accrual.

In addition, certain portions of the Company’s foreign source income are subject to ongoing United States federal and state income tax as earned due to the nature of the income, and dividend repatriations of the Company’s foreign source income may be subject to state income tax.

Accordingly, the percentage obtained by dividing the total federal, state and local tax provision by the domestic pre-tax income, all as shown in the preceding tables, is higher than the statutory tax rates in the United States.

The Company’s effective tax rates differed from statutory rates as follows:

4 unchanged sentences

Tax Act impact

NYDFS Consent Order impact

Goodwill impairment

Base erosion anti-abuse tax (BEAT)

2 unchanged sentences

Effective tax rate

The decrease in the Company’s effective tax rate for the year ended December 31, 2020 compared to the prior year is primarily due to a reduction in domestic pre-tax income, prior period settlements in certain geographies, and discrete tax benefits in the current period.

The increase in the Company’s 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 the Company's accounting for the implementation of the Tax Act, as finalized in the fourth quarter of 2018.

The decrease in the Company’s effective tax rate for the year ended December 31, 2018, compared to the prior year, is due to the enactment of the Tax Act into United States law in December 2017 which significantly impacted the Company’s effective tax rate for the year ended December 31, 2017, primarily due to a tax on certain previously undistributed earnings of foreign subsidiaries, partially offset by the remeasurement of the Company’s deferred tax assets and liabilities and other tax balances to reflect the lower federal income tax rate, among other effects, as discussed above.

The Company’s effective tax rate for year ended December 31, 2018 compared to 2017 was also impacted by the goodwill impairment in the Company’s Business Solutions reporting unit and the NYDFS Consent Order accrual, both recorded during 2017.

THE WESTERN UNION COMPANY

19 unchanged sentences

Lease right-of-use assets

Prepaid pension costs

Total deferred tax liabilities

4 unchanged sentences

Changes in circumstances, or the identification and implementation of relevant tax planning strategies, could make it foreseeable that the Company will recover these deferred tax assets in the future, which could lead to a reversal of these valuation allowances and a reduction in income tax expense.

Outside tax basis differences of approximately $ 493 million as of December 31, 2019 primarily relate to remaining undistributed foreign earnings not subject to the tax on certain previously undistributed earnings of foreign subsidiaries

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

pursuant to the Tax Act and additional outside basis difference inherent in certain entities.

Outside tax basis differences of approximately $ 550 million as of December 31, 2020 primarily relate to remaining undistributed foreign earnings not subject to the tax on certain previously undistributed earnings of foreign subsidiaries pursuant to the Tax Act, discussed further below, and additional outside basis difference inherent in certain entities.

To the extent such outside basis differences are attributable to undistributed earnings not already subject to United States tax, such undistributed earnings continue to be indefinitely reinvested in foreign operations.

1 unchanged sentence

However, determination of this amount of unrecognized deferred tax liability is not practicable because of complexities associated with its hypothetical calculation.

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

This tax charge, combined with the Company’s other 2017 United States taxable income and tax attributes, resulted in a 2017 United States federal tax liability of approximately $ 800 million, of which approximately $ 604 million remained as of December 31, 2020.

The Company has elected to pay this liability in periodic installments through 2025.

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

For each of the years ended December 31, 2020, 2019, and 2018, the Company made installment payments of $ 64.0 million.

Uncertain Tax Positions

3 unchanged sentences

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

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

With respect to these reserves, the Company’s income tax expense would include:

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

Such resolution could materially increase or decrease income tax expense in the Company’s consolidated financial statements in future periods and could impact operating cash flows.

Unrecognized tax benefits represent the aggregate tax effect of differences between tax return positions and the amounts otherwise recognized in the Company’s consolidated financial statements and are reflected in Income taxes payable in the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows (in millions):

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties and before offset of related items, is as follows (in millions):

Balance as of January 1

Increase related to current period tax positions (a)

Increase related to prior period tax positions

Increase related to prior period tax positions (b)

Decrease related to prior period tax positions

Decrease due to lapse of applicable statute of limitations

Increase/(decrease) due to effects of foreign currency exchange rates

Decrease due to effects of foreign currency exchange rates

Balance as of December 31

(a) Includes recurring accruals for issues which initially arose in previous periods.

(b) Includes gross accrual for tax positions associated with current audits.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 329.2 million and $ 283.4 million as of December 31, 2020 and 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 Consolidated Statements of Income/(Loss), and records the associated liability in Income taxes payable in its Consolidated Balance Sheets.

The Company recognized $ 6.0 million, $( 0.7 ) million, and $ 2.2 million in interest and

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

penalties during the years ended December 31, 2019, 2018, and 2017, respectively.

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

The Company recognized $ 1.9 million, $ 6.0 million, and $( 0.7 ) million in interest and penalties during the years ended December 31, 2020, 2019, and 2018, respectively.

The Company has accrued $ 28.6 million and $ 27.1 million for the payment of interest and penalties as of December 31, 2020 and 2019, respectively.

3 unchanged sentences

The Company’s United States federal income tax returns since 2017 are eligible to be examined.

The Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S.

consolidated income tax returns for 2017 and 2018 in the current year.

The IRS anticipates completion of the examination phase in 2022.

The United States Internal Revenue Service (“IRS”) completed its examination of the 2003 and 2004 United States federal consolidated income tax returns of First Data Corporation, from which the Company was spun out in September 2006, and issued a Notice of Deficiency in December 2008.

8 unchanged sentences

The plan provides tax-deferred contributions and the restoration of Company matching contributions otherwise limited under the 401(k).

The aggregate amount charged to expense in connection with all of the above plans was $ 20.0 million for both the years ended December 31, 2019 and 2018, and $ 19.2 million for the year ended December 31, 2017.

The aggregate amount charged to expense in connection with all of the above plans was $ 18.4 million for the year ended December 31, 2020 and $ 20.0 million for both the years ended December 31, 2019 and 2018.

Defined Benefit Plan

The Company has a frozen defined benefit pension plan (the “Plan”) and recognizes its funded status, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in Other liabilities in the Consolidated Balance Sheets.

Plan assets, which are managed in a third-party trust, primarily consist of a diversified blend of approximately 60 % fixed income, 20 % equity investments, and 20 % alternative investments (e.g., hedge funds, royalty rights and private equity funds) and had a total fair value of $ 237.1 million and $ 234.8 million as of December 31, 2019 and 2018, respectively.

The significant majority of plan assets are classified as either Level 1 or Level 2 within the valuation hierarchy or are valued at net asset value, which is not quoted on an active market;

The Company has a frozen defined benefit pension plan (the “Plan”), for which the funded status is reported in the Consolidated Balance Sheets and measured as the difference between the fair value of the plan assets and the projected benefit obligation.

Plan assets, which are managed in a third-party trust, primarily consist of fixed income and equity investments, and had a total fair value of $ 280.6 million and $ 237.1 million as of December 31, 2020 and 2019, respectively.

Given the overfunded status of the Plan, the Company is 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 substantial majority of plan assets are classified as either Level 1 or Level 2 within the valuation hierarchy or are valued at net asset value, which is not quoted on an active market;

however, the unit price is based on underlying investments which are traded on an active market.

The benefit obligation associated with the Plan will vary over time only as a result of changes in market interest rates, the life expectancy of the plan participants, and benefit payments, since the accrual of benefits was suspended when the Plan was frozen in 1988.

The benefit obligation was $ 248.5 million and $ 250.8 million, and the discount rate assumption used in the measurement of this obligation was 2.66 % and 3.79 % for the years ended December 31, 2019 and 2018, respectively.

The Company’s unfunded pension obligation was $ 11.4 million and $ 16.0 million as of December 31, 2019 and 2018, respectively.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Plan was frozen in 1988.

The benefit obligation was $ 240.7 million and $ 248.5 million, and the discount rate assumption used in the measurement of this obligation was 1.66 % and 2.66 % for the years ended December 31, 2020 and 2019, respectively.

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

The Plan’s overfunded status as of December 31, 2020 is primarily due to favorable investment returns relative to the expected return on plan assets during the year then ended.

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 reported in Other liabilities.

The net periodic benefit cost associated with the Plan was $ 4.4 million, $ 4.1 million, and $ 3.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

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The estimated undiscounted future benefit payments are expected to be $ 25.9 million in 2021, $ 24.2 million in 2022, $ 22.5 million in 2023, $ 20.9 million in 2024, $ 19.3 million in 2025, and $ 73.9 million in 2026 through 2030.

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

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

The Company determines if a contract contains a lease arrangement at the inception of the contract.

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The Company has no material leases in which the Company is the lessor.

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

As of December 31, 2019, the total ROU asset and operating lease liability were $ 199.7 million and $ 242.3 million, respectively, and were included in Other assets and Other liabilities , respectively, in the Company’s Consolidated Balance Sheets.

The Company’s finance leases were not material as of December 31, 2019.

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

As of December 31, 2020 and 2019, total ROU assets were $ 189.1 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 Consolidated Balance Sheets.

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

For the year ended December 31, 2019, operating lease costs were $ 56.7 million, which were included within Operating income in the Company’s Consolidated Statements of Income/(Loss).

Short-term and variable lease costs were not material for the year ended December 31, 2019.

Operating lease costs, which are included in Total expenses in the Company’s Consolidated Statements of Income, were $ 59.8 million and $ 56.7 million for the years ended December 31, 2020 and 2019, respectively.

Short-term and variable lease costs were not material for the years ended December 31, 2020 and 2019.

The Company’s leases have remaining terms from less than 1 year to 10 years .

Certain of these leases contain escalation provisions and/or renewal options, giving the Company the right to extend the lease by up to 10 years .

However, a substantial majority of these options are not reflected in the calculation of the ROU asset and operating lease liability due to uncertainty surrounding the likelihood of renewal.

The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities as of December 31, 2019:

However, a significant majority of these options are not reflected in the calculation of the ROU asset and operating lease liability due to uncertainty surrounding the likelihood of renewal.

The following table summarizes the weighted-average lease terms and discount rates for operating lease liabilities:

December 31, 2020

December 31, 2019

Weighted-average remaining lease term (in years)

Weighted-average discount rate

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Total operating lease liabilities

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2018 and 2017, total rent expense, net of sublease income, was $ 59.5 million and $ 51.1 million, respectively, as recorded under accounting standards in effect in these periods.

As of December 31, 2018, the minimum aggregate rental commitments under all non-cancelable operating leases, as determined under accounting standards in effect in this period, were as follows (in millions):

Year Ending December 31,

Total future minimum lease payments

For the year ended December 31, 2018, total rent expense, net of sublease income, was $ 59.5 million as recorded under accounting standards in effect in that period.

Stockholders’ Equity/(Deficit)

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The components include unrealized gains and losses on investment securities, unrealized gains and losses from cash flow hedging activities, foreign currency translation adjustments, and defined benefit pension plan adjustments.

Unrealized gains and losses on investment securities that are available for sale, primarily state and municipal debt securities, are included in AOCL until the investment is either sold or deemed other-than-temporarily impaired.

See Note 8 for further discussion.

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These gains and losses are accumulated in other comprehensive income/(loss).

When a foreign subsidiary is substantially liquidated, the cumulative translation gain or loss is removed from AOCL and recognized as a component of the gain or loss on the sale of the subsidiary.

When a foreign subsidiary is substantially liquidated or sold, the cumulative translation gain or loss is removed from AOCL and recognized as a component of the gain or loss on the liquidation or sale.

The defined benefit pension plan adjustment is recognized for the difference between estimated assumptions (e.g., asset returns, discount rates, mortality) and actual results.

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The following table details reclassifications out of AOCL and into Net income.

All amounts reclassified from AOCL affect the line items as indicated below and the amounts in parentheses indicate decreases to Net income in the Consolidated Statements of Income/(Loss).

All amounts reclassified from AOCL affect the line items as indicated below and the amounts in parentheses indicate decreases to Net income in the Consolidated Statements of Income.

Amounts Reclassified from AOCL to Net Income

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Available-for-sale securities

Income tax (expense)/benefit

Income tax benefit/(expense)

Provision for income taxes

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Interest expense

Income tax (expense)/benefit

Income tax benefit/(expense)

Provision for income taxes

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Amounts reclassified from AOCL into earnings, net of tax

Foreign currency translation adjustments (a)

Reclassification of Tax Act effects into Accumulated deficit (b)

As of December 31, 2019

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Foreign currency translation adjustments (a)

Reclassification of Tax Act effects into Accumulated deficit (b)

As of December 31, 2018

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Share Repurchases

During the years ended December 31, 2019, 2018, and 2017, 26.9 million, 20.2 million, and 24.9 million shares, respectively, have been repurchased for $ 540.0 million, $ 399.2 million, and $ 487.0 million, respectively, excluding commissions, at an average cost of $ 20.07 , $ 19.81 , and $ 19.55 per share, respectively.

During the years ended December 31, 2020, 2019, and 2018, 8.5 million, 26.9 million, and 20.2 million shares, respectively, have been repurchased for $ 217.4 million, $ 540.0 million, and $ 399.2 million, respectively, excluding commissions, at an average cost of $ 25.45 , $ 20.07 , and $ 19.81 , respectively.

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

As of December 31, 2019, $ 1.0 billion remained available under the share repurchase authorization approved by the Company’s Board of Directors through December 31, 2021.

During the first quarter 2020, the Company temporarily paused and did not resume share repurchases under a publicly announced authorization through December 31, 2020.

However, the Company has resumed share repurchases in the first quarter of 2021.

As of December 31, 2020, $ 782.6 million remained 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 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.

The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and, to a lesser degree, the Canadian dollar, British pound, Australian dollar, and other currencies, related to forecasted revenues and settlement assets and obligations, as well as on certain foreign currency denominated cash and other asset and liability positions.

The Company is also exposed to risk from derivative contracts, primarily from customer derivatives, arising from its cross-currency Business Solutions payment operations.

Additionally, the Company is exposed

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt.

The Company is exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and, to a lesser degree, the British pound, the Canadian dollar, and other currencies, related to forecasted revenues and settlement assets and obligations, as well as on certain foreign currency denominated cash and other asset and liability positions.

The Company is also exposed to risk from derivative contracts, primarily from customer derivatives, arising from its cross-currency Business Solutions payment operations.

Additionally, the Company is exposed to interest rate risk related to changes in market rates both prior to and subsequent to the issuance of debt.

The Company has used derivatives to:

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

The Company executes derivatives with established financial institutions;

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Foreign Currency Derivatives

The Company’s policy is to use long 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.

The Company’s policy is to use longer duration foreign currency forward contracts, with maturities of up to 36 months at inception and a targeted weighted-average maturity of approximately one year , to help mitigate some of the risk that changes in foreign currency exchange rates compared to the United States dollar could have on forecasted revenues denominated in other currencies related to its business.

As of December 31, 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.

As described in Note 2, foreign currency cash flow hedges entered into on or after January 1, 2018 exclude time value from the assessment of effectiveness, and the initial value of the excluded components is amortized into Revenues within the Company’s Consolidated Statements of Income/(Loss).

For foreign currency cash flow hedges entered into before January 1, 2018, all changes in the fair value of the excluded components are recognized immediately in Revenues.

For foreign currency cash flow hedges entered into before January 1, 2018, all changes in the fair value of the excluded components were recognized immediately in Revenues.

The Company also uses short duration foreign currency forward contracts, generally with maturities ranging from a few days to one month , to offset foreign exchange rate fluctuations on settlement assets and obligations between initiation and settlement.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of December 31, 2019 and December 31, 2018 were as follows (in millions):

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

December 31, 2020

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Contracts not designated as hedges:

Canadian dollar

British pound

Canadian dollar

Australian dollar

Brazilian real

(a) Comprised of exposures to various currencies as of December 31, 2019.

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

Philippine peso

Russian ruble

Indonesian rupiah

Swedish krona

December 31, 2019

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Contracts not designated as hedges:

British pound

Canadian dollar

British pound

Australian dollar

Brazilian real

(a) Comprised of exposures to various currencies as of December 31, 2018.

(a) Comprised of exposures to various currencies;

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

Business Solutions Operations

The Company writes derivatives, primarily foreign currency forward contracts and option contracts, mostly with small and medium size enterprises and derives a currency spread from this activity as part of its Business Solutions operations.

The Company aggregates its Business Solutions foreign currency exposures arising from customer contracts, including

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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).

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).

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 $ 343.1 million, $ 342.3 million, and $ 341.0 million for the years ended December 31, 2019, 2018, and 2017, respectively, and were included in Revenues in the Company’s Consolidated Statements of Income/(Loss).

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 December 31, 2019 and December 31, 2018 was approximately $ 7.5 billion and $ 6.0 billion, respectively.

Foreign exchange revenues from the total portfolio of positions were $ 311.9 million, $ 343.1 million, and $ 342.3 million for the years ended December 31, 2020, 2019, and 2018, respectively, and were included in Revenues in the Company’s Consolidated Statements of Income.

None of the derivative contracts used in Business Solutions operations are designated as accounting hedges and the significant majority of these derivative contracts have a duration at inception of less than one year .

The aggregate equivalent United States dollar notional amount of derivative customer contracts held by the Company in its Business Solutions operations for December 31, 2020 and 2019 was approximately $ 8.0 billion and $ 7.5 billion, respectively.

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

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Interest Rate Hedging

From time to time, the Company utilizes interest rate swaps to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term, LIBOR-based, variable rate payments in order to manage its overall exposure to interest rate fluctuations.

Periodically, the Company utilizes interest rate swaps to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term, variable-rate payments in order to manage its overall exposure to interest rate fluctuations.

The Company designates these derivatives as fair value hedges.

The change in fair value of the interest rate swaps is offset by a change in the carrying value of the debt being hedged within Borrowings in the Consolidated Balance Sheets.

Interest expense in the Consolidated Statements of Income/(Loss) has been adjusted to include the effects of interest accrued on the swaps.

As of December 31, 2018, the Company held interest rate swaps designated as fair value hedges, with an aggregate notional amount of $ 175.0 million, related to its unsecured notes that were due on April 1, 2020 (“2020 Notes”).

On November 15, 2019, the Company terminated these swaps in connection with the repayment of the 2020 Notes and received cash of $ 0.9 million.

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

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

During the fourth quarter of 2020, the Company entered into two treasury locks to partially fix the treasury yield component associated with the refinance of unsecured senior notes set to expire in 2022.

The notional amounts of these treasury locks were $ 100.0 million and $ 150.0 million and were designated as cash flow hedges at the time the agreements were executed.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheet

The following table summarizes the fair value of derivatives reported in the Company’s Consolidated Balance Sheets as of December 31, 2019 and December 31, 2018 (in millions):

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

Derivative Assets

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Derivatives designated as hedges:

Interest rate fair value hedges

Other liabilities

Foreign currency cash flow hedges

Other liabilities

Interest rate cash flow hedges

Other liabilities

Total derivatives designated as hedges

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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 WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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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In certain circumstances, the Company may require its Business Solutions customers to maintain collateral balances which may mitigate the risk associated with potential customer defaults.

The following tables summarize the gross and net fair value of derivative assets and liabilities as of December 31, 2019 and December 31, 2018 (in millions):

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Offsetting of Derivative Assets

Offset in the

Amounts Offset

December 31, 2020

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Offsetting of Derivative Liabilities

Offset in the

Amounts Offset

December 31, 2020

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Statement

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The following table presents the pre-tax amount of unrealized gains/(losses) recognized in other comprehensive income from cash flow hedges for the years ended December 31, 2020, 2019, and 2018 (in millions):

Year Ended December 31,

Foreign currency derivatives (a)

(a) For the years ended December 31, 2019 and 2018, gains of $ 1.5 million and $ 0.1 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.

For the year ended December 31, 2017, there were no amounts recorded in other comprehensive income for amounts excluded from the measurement of effectiveness.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the location and amount of pre-tax net gains/(losses) from fair value and cash flow hedging relationships recognized in the Consolidated Statements of Income/(Loss) for the years ended December 31, 2019, 2018, and 2017 (in millions):

Total amounts presented in the Consolidated Statements of Income/(Loss) in which the effects of fair value or cash flow hedges are recorded

Interest rate derivatives

(a) For the years ended December 31, 2020, 2019, and 2018, gains/(losses) of $ 0.3 million, $ 1.5 million, and $ 0.1 million, respectively, represent 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 amount of pre-tax net gains/(losses) from fair value and cash flow hedging relationships recognized in the Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018 (in millions):

Total amounts presented in the 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:

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

Losses reclassified from AOCL into income resulting from forecasted transactions no longer probable of occurring

Interest rate derivatives:

Losses reclassified from AOCL into earnings

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Undesignated Hedges

The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges for the years ended December 31, 2019, 2018, and 2017 (in millions):

Gain/(Loss) Recognized in the Consolidated Statements of Income/(Loss) on Derivatives (a)

The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges in the Consolidated Statements of Income on derivatives for the years ended December 31, 2020, 2019, and 2018 (in millions):

Derivatives (a)

Foreign currency derivatives (b)

Selling, general, and administrative

Foreign currency derivatives (c)

Foreign currency derivatives

Foreign currency derivatives (c)

Other income, net

Total gain/(loss)

(a) The Company uses foreign currency forward and option contracts as part of its Business Solutions payments operations.

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(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 Consolidated Statements of Income/(Loss), were $( 33.1 ) million, $( 52.3 ) million, and $ 17.5 million for the years ended December 31, 2019, 2018, and 2017, 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 Consolidated Statements of Income, were $( 37.0 ) million, $( 33.1 ) million, and $( 52.3 ) million for the years ended December 31, 2020, 2019, and 2018, respectively.

(c) All derivative contracts executed in the Company’s revenue hedging program prior to January 1, 2018 are not designated as hedges in the final month of the contract.

The change in fair value in this final month was recorded to Revenues for the year ended December 31, 2018 and Other income, net for the year ended December 31, 2017.

The change in fair value in this final month was recorded to Revenues for the year ended December 31, 2018.

The amount recorded to Other income, net for the year ended December 31, 2018 relates to losses on certain undesignated foreign currency derivative contracts that were recognized after the Company determined that certain forecasted transactions were no longer probable of occurring.

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

Based on December 31, 2019 foreign exchange rates, an accumulated other comprehensive pre-tax gain of $ 5.7 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based on December 31, 2020 foreign exchange rates, an accumulated other comprehensive pre-tax loss of $ 18.9 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

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

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3.600 % notes due 2022 (a)

Floating rate notes due 2019 (a)

5.253 % notes due 2020 (b)

3.600 % notes due 2022 (c)

4.250 % notes due 2023 (c)

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

6.200 % notes due 2036 (c)

6.200 % notes due 2040 (c)

4.250 % notes due 2023 (a)

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 %)

Total borrowings at par value

Fair value hedge accounting adjustments, net (e)

Debt issuance costs and unamortized discount, net

Total borrowings at carrying value (f)

(a) Proceeds from the Speedpay divestiture, commercial paper, and cash, including cash generated from operations, were used to repay the May 2019 maturities of the $ 250.0 million of aggregate principal amount unsecured notes and $ 250.0 million of aggregate principal amount unsecured floating rate notes.

(b) Proceeds from the 2.850 % unsecured notes due in 2025 were used to repay the 2020 Notes of $ 324.9 million of aggregate principal amount unsecured notes, as further described below.

(d) 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.

(e) From time to time, the Company utilizes interest rate swaps designated as fair value hedges to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term LIBOR-based variable-rate payments in order to manage its overall exposure to interest rates.

The changes in fair value of these interest rate swaps result in an offsetting hedge accounting adjustment recorded to the carrying value of the related note.

These hedge accounting adjustments will be reclassified as reductions to or increases in Interest expense in the Consolidated Statements of Income/(Loss) over the life of the related notes and cause the effective rate of interest to differ from the notes’ stated rate.

On November 15, 2019, the Company terminated these fair value hedges in connection with its repayment of the 2020 Notes and received cash of $ 0.9 million.

(f) As of December 31, 2019, the Company’s weighted-average effective rate on total borrowings was approximately 4.0 % .

Total borrowings at carrying value (b)

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

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commercial Paper Program

Pursuant to the Company’s commercial paper program, the Company may issue unsecured commercial paper notes in an amount not to exceed $ 1.5 billion outstanding at any time, reduced to the extent of borrowings outstanding on the Company’s Revolving Credit Facility as defined below.

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

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

The Company’s commercial paper borrowings as of December 31, 2020 had a weighted-average annual interest rate of approximately 0.3 % and a weighted-average term of approximately 5 days .

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Revolving Credit Facility

On December 18, 2018, the Company 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 (“Revolving Credit Facility”).

Consistent with the prior facility, and the Term Loan Facility, as described below, the Company is required to maintain compliance with a consolidated adjusted EBITDA interest coverage ratio covenant of greater than 3 :1 for each period of four consecutive fiscal quarters.

On December 18, 2018, the Company entered into a credit agreement providing for unsecured financing facilities in an aggregate amount of $ 1.5 billion, including a $ 250.0 million letter of credit sub-facility (“Revolving Credit Facility”).

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

Consistent with the prior facility, and the Term Loan Facility, as described below, the Company is required to maintain compliance with a consolidated adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) interest coverage ratio covenant of greater than 3 :1 for each period of four consecutive fiscal quarters.

The Revolving Credit Facility supports borrowings under the Company’s commercial paper program.

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As of December 31, 2020 and 2019, the Company had no outstanding borrowings under its Revolving Credit Facility.

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

Term Loan Facility

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The Term Loan Facility also contains customary representations, warranties and events of default.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Generally, interest under the Term Loan Facility is calculated using a selected LIBOR rate plus an interest rate margin of 125 basis points.

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The Company used the net proceeds from the sale of the 2025 Notes to redeem the Company’s 2020 Notes and for general corporate purposes.

The Company used the net proceeds from the sale of the 2025 Notes to redeem the Company’s unsecured notes that were due on April 1, 2020 and for general corporate purposes.

Interest with respect to the 2025 Notes is payable semi-annually in arrears on January 10 and July 10 of each year, beginning on July 10, 2020, based on the per annum rate of 2.850 %.

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On March 15, 2017, the Company issued $ 400.0 million of aggregate principal amount of unsecured notes due March 15, 2022.

On August 22, 2017, the Company issued an additional $ 100.0 million of aggregate principal amount of unsecured notes due March 15, 2022 (“2022 Notes”).

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

The 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;

1 unchanged sentence

Interest with respect to the 2022 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2017, based on the per annum rate of 3.600 %.

The interest rate payable on the 2022 Notes will be increased if the debt rating assigned to the note is downgraded by an applicable credit rating agency, beginning at a downgrade below investment grade.

The interest rate payable on the 2022 Notes will be increased if the debt rating assigned to the note is downgraded by an applicable credit rating agency, beginning at a downgrade below investment

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

However, in no event will the interest rate on the 2022 Notes exceed 5.60 % per annum.

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The 2019 Notes were repaid in May 2019 using proceeds from the Speedpay divestiture (see Note 5), commercial paper, and cash, including cash generated from operations.

On December 10, 2012, the Company issued $ 500.0 million of aggregate principal amount of unsecured notes due December 10, 2017 (“2017 Notes”).

In December 2017, the 2017 Notes matured and were repaid.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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The Company may redeem the 2040 Notes at any time prior to maturity at the greater of par or a price based on the applicable treasury rate plus 30 basis points.

On March 30, 2010, the Company exchanged $ 303.7 million of aggregate principal amount of unsecured notes due November 17, 2011 for the 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 %.

On March 30, 2010, the Company 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 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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A change of control triggering event will occur when there is a change of control involving the Company and among other things, within a specified period in relation to the change of control, the notes are downgraded from an investment grade rating to below an investment grade rating by certain major credit rating agencies.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation Plans

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Shares available for grant under the 2015 LTIP were 21.1 million as of December 31, 2020.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Options granted under the 2015 LTIP and the 2006 LTIP are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date, have 10-year terms, and typically vest over four equal annual increments beginning 12 months after the date of grant, with the exception of options granted to retirement eligible employees, which generally will vest on a prorated basis, upon termination, and options granted to non-employee directors, which are fully vested at grant.

Compensation expense related to stock options is recognized over the requisite service period, which is the same as the vesting period.

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The compensation committee granted Senior Vice Presidents of the Company awards under the 2015 LTIP, which consisted of 50 % Financial PSUs and 50 % restricted stock unit awards in 2020 and 2019.

The compensation committee granted the remaining non-executive employees of the Company participating in the 2015 LTIP (other than those non-executive employees receiving the performance-based restricted stock units described above) annual equity grants consisting solely of restricted stock unit awards in 2019 and 2018.

The compensation committee granted certain other non-executive employees of the Company participating in the 2015 LTIP annual equity grants consisting of restricted stock unit awards in 2020 and 2019 as well as Financial PSUs in 2020.

The performance-based restricted stock units granted to the Company’s executives in 2020 are restricted stock units and consist of two separate awards.

The first award consists of performance-based restricted stock units, which require the Company to meet certain financial objectives over a three-year cumulative performance period (2020 through 2022) (“Financial PSUs”).

Beginning with awards granted in February 2019, Financial PSUs will accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest.

Beginning with awards granted in February 2019, Financial PSUs accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest.

The second award consists of performance-based restricted stock units with a market condition tied to the Company’s total shareholder return in relation to the S&P 500 Index as calculated over a three-year performance period (2020 through 2022) (“TSR PSUs”).

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The grant date fair value of all performance-based restricted stock units is fixed and the amount of restricted stock units that will ultimately vest depends upon the level of achievement of the performance and market conditions over the performance period.

The fair value of the Financial PSUs is measured with a methodology similar to that used to value the restricted stock units discussed above, while the fair value of the TSR PSUs is determined using the Monte-Carlo simulation model.

The fair value of the Financial PSUs is measured with a

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

methodology similar to that used to value the restricted stock units discussed above, while the fair value of the TSR PSUs is determined using the Monte-Carlo simulation model.

Unlike the Financial PSUs, compensation costs related to the TSR PSUs are recognized regardless of whether the market condition is satisfied, provided that the requisite service period has been completed.

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These awards may be settled immediately unless the participant elects to defer the receipt of common shares under the applicable plan rules.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Option Activity

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Stock-Based Compensation Expense

The following table sets forth the total impact on earnings for stock-based compensation expense recognized in the Consolidated Statements of Income/(Loss) resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units for the years ended December 31, 2019, 2018, and 2017 (in millions, except per share data):

Year Ended December 31,

The following table sets forth the total impact on earnings for stock-based compensation expense recognized in the Consolidated Statements of Income resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units for the years ended December 31, 2020, 2019, and 2018 (in millions, except per share data):

Stock-based compensation expense

Income tax benefit from stock-based compensation expense

Net income/(loss) impact

Earnings/(loss) per share impact:

Net income impact

Earnings per share impact:

Basic and diluted

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Fair Value Assumptions

The Company used the following assumptions for the Black-Scholes option pricing model to determine the value of Western Union options granted:

Year Ended December 31,

The Company used the following assumptions for the Black-Scholes option pricing model to determine the value of Western Union options granted for the years ended December 31, 2020, 2019, and 2018:

Stock options granted:

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There were no options granted to non-executive employees in 2020, 2019, or 2018.

Expected term - For 2019, the Company’s expected terms for the CEO grant and the non-employee director grants were seven years and approximately eight years , respectively.

For 2018 and 2017, the Company’s expected terms for the CEO grant and the non-employee director grants were six years and approximately seven years , respectively.

Expected term - For both 2020 and 2019, the expected term for the CEO and non-employee director grants was approximately seven years and eight years , respectively.

For 2018, the expected term for the CEO and non-employee director grants was approximately six years and seven years , respectively.

The Company’s expected term for options was based upon, among other things, historical exercises, the vesting term of the Company’s options, and the options’ contractual term of 10 years .

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The Consumer-to-Consumer operating segment facilitates money transfers between two consumers.

The Company’s 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.

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

The Company includes westernunion.com in its 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 Company includes Digital Money Transfer transactions in its regions, including transactions from the Company’s 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.

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 5.

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

The Company’s segments are reviewed separately below because each segment represents a strategic business unit that offers different products and serves different markets.

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● As described in Note 4, on August 1, 2019, the Company’s Board of Directors approved an overall plan to change the Company’s operating model and improve its business processes and cost structure by reducing its headcount and consolidating various facilities.

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

● As described in Note 5, during the year ended December 31, 2017, the Company recognized a goodwill impairment charge of $ 464.0 million related to its Business Solutions reporting unit.

While the impairment was identifiable to the Business Solutions segment, it was not allocated to the segment, as it was 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 Note 6, during the year ended December 31, 2017, the Company incurred $ 60.0 million of expenses related to the NYDFS Consent Order and $ 8.0 million of expenses related to the Joint Settlement Agreements.

While these expenses were identifiable to the Company’s Consumer-to-Consumer segment, they were not allocated to the segment, as they were 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 of December 31, 2017, expenses associated with the WU Way initiative were effectively complete.

The Company incurred expenses related to the WU Way of $ 94.4 million during the year ended December 31, 2017.

While certain items related to the initiative were identifiable to the Company’s segments, they were 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.

For additional information on this business transformation initiative, see Note 4.

● The CODM does not review total assets by segment for purposes of assessing segment performance and allocating resources.

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

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the Company’s segment results for the years ended December 31, 2020, 2019, and 2018 (in millions):

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Business Solutions

Total segment operating income

Goodwill impairment charge (Note 5)

NYDFS Consent Order (Note 6)

Joint Settlement Agreements (Note 6)

Restructuring-related expenses and business transformation expenses (Note 4)

Total segment operating income (b)

Restructuring-related expenses (Note 4)

Total consolidated operating income

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

(a) Other primarily consists of the Company’s 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 5.

Speedpay revenues included in the Company’s results were $ 125.4 million, $ 352.0 million, and $ 368.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Speedpay direct operating expenses were $ 98.2 million, $ 251.2 million, and $ 246.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Paymap revenues included in the Company’s results were $ 5.3 million, $ 16.2 million, and $ 19.0 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Paymap direct operating expenses were $ 2.2 million, $ 6.7 million, and $ 6.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Speedpay revenues included in the Company’s 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.

Paymap revenues included in the Company’s 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.

(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.

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

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.

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.

Year Ended December 31,

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Total capital expenditures

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The geographic split of revenue below for the Consumer-to-Consumer and Business Solutions segments and Other is based upon the country where the transaction is initiated with 100 % of the revenue allocated to that country.

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In addition, each individual agent or Business Solutions customer accounted for less than 10% of consolidated revenue during these periods.

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information concerning principal geographic areas was as follows (in millions):

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International

(a) Assets held for sale of $ 49.3 million, which primarily consists of the Company’s former headquarters, are included in Other assets as of December 31, 2019 in the Company’s Consolidated Balance Sheets.

Quarterly Financial Information (Unaudited)

Summarized quarterly results for the years ended December 31, 2019 and 2018 were as follows (in millions, except per share data):

2019 by Quarter:

Operating income

Other income/(expense), net (b)

Income before income taxes

Provision for income taxes

Earnings per share:

Weighted-average shares outstanding:

THE WESTERN UNION COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2018 by Quarter:

Operating income

Other income/(expense), net

Income before income taxes

Provision for income taxes (c)

Earnings per share:

Weighted-average shares outstanding:

(a) Includes $ 7.4 million, $ 91.5 million, and $ 16.6 million in the second, third, and fourth quarters, respectively, of restructuring-related expenses.

For more information, see Note 4.

(b) Includes a gain on the sale of Speedpay of approximately $ 523 million in the second quarter.

For more information, see Note 5.

(c) Includes $( 6.0 ) million, $( 6.2 ) million, $ 26.6 million, and $ 8.1 million in the first, second, third, and fourth quarters, respectively, of adjustments related to the Tax Act, as further described in Note 11.

(a) Assets held for sale of $ 49.3 million, which primarily consisted of the Company’s former headquarters, were included in Other assets as of December 31, 2019 in the Company’s Consolidated Balance Sheets.

In 2020, the Company sold its former corporate headquarters and other property and recorded an immaterial gain on the sales.

THE WESTERN UNION COMPANY

SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

The following lists the condensed financial information for the parent company as of December 31, 2019 and 2018 and Condensed Statements of Income/(Loss) and Comprehensive Income/(Loss) and Condensed Statements of Cash Flows for each of the three years in the period ended December 31, 2019.

The following lists the condensed financial information for the parent company as of December 31, 2020 and 2019 and Condensed Statements of Income and Comprehensive Income and Condensed Statements of Cash Flows for each of the three years in the period ended December 31, 2020.

THE WESTERN UNION COMPANY

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Property and equipment, net of accumulated depreciation of $ 37.0 and $ 24.8 , respectively

Other assets (Note 6)

Investment in subsidiaries

Liabilities and stockholders’ deficit

Liabilities and stockholders’ equity/(deficit)

Accounts payable and accrued liabilities

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Payable to subsidiaries, net

Other liabilities (Note 6)

Other liabilities

Total liabilities

Stockholders’ deficit:

Stockholders’ equity/(deficit):

Preferred stock, $ 1.00 par value;

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Accumulated other comprehensive loss

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

Total stockholders’ equity/(deficit)

Total liabilities and stockholders’ equity/(deficit)

See Notes to Condensed Financial Statements.

THE WESTERN UNION COMPANY

CONDENSED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(PARENT COMPANY ONLY)

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Other income/(expense)

Income/(loss) before equity in earnings/(losses) of affiliates and income taxes

Equity in earnings/(losses) of affiliates, net of tax

Income/(loss) before equity in earnings of affiliates and income taxes

Equity in earnings of affiliates, net of tax

Income tax (expense)/benefit

Net income/(loss)

Other comprehensive income, net of tax

Other comprehensive income/(loss) of affiliates, net of tax

Comprehensive income/(loss)

Other comprehensive income of affiliates, net of tax

Comprehensive income

See Notes to Condensed Financial Statements.

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(in millions)

For the Years Ended December 31,

Year Ended December 31,

Cash flows from operating activities

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Purchases of property and equipment and other

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

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

Distributions received from/(capital contributed to) subsidiaries, net

Other investing activities

Net cash provided by/(used in) investing activities

1 unchanged sentence

Advances from subsidiaries, net

Net proceeds from commercial paper

Net (repayments of)/proceeds from commercial paper

Net proceeds from issuance of borrowings

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Proceeds from exercise of options and other

Cash dividends paid

Cash dividends and dividend equivalents paid

Common stock repurchased

Other financing activities

Net cash provided by/(used in) financing activities

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Supplemental cash flow information:

Non-cash investing activity, capital contribution to subsidiary (Note 3)

Non-cash financing activity, distribution of note from subsidiary (Note 3)

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Restricted Net Assets

Certain assets of the Parent’s subsidiaries totaling approximately $ 610 million constitute restricted net assets, as there are legal or regulatory limitations on transferring such assets outside of the countries where the respective assets are located.

Certain assets of the Parent’s subsidiaries totaling approximately $ 680 million as of December 31, 2020 constitute restricted net assets, as there are legal or regulatory limitations on transferring such assets outside of the countries where the respective assets are located.

Additionally, certain of the Parent’s subsidiaries must meet minimum capital requirements in some countries in order to maintain operating licenses.

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All transactions described below are with subsidiaries of the Parent.

The Parent has issued multiple promissory notes payable to its 100% owned subsidiary, First Financial Management Corporation (“FFMC”) in exchange for funds distributed to the Parent.

The Parent has issued multiple promissory notes payable to its 100% owned subsidiary, First Financial Management Corporation, in exchange for funds distributed to the Parent.

All notes pay interest at a fixed rate, may be repaid at any time without penalty, and are included within Payable to subsidiaries, net in the Condensed Balance Sheets.

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(in millions)

March 1, 2018 (a)

November 30, 2020

April 1, 2018 (a)

December 31, 2020

June 1, 2018 (a)

June 1, 2018 (b)

February 28, 2021

October 1, 2019 (a)

October 1, 2019 (b)

June 30, 2022

December 1, 2019 (a)

December 1, 2019 (b)

August 31, 2022

(a) This note refinanced a note originally issued on a prior date.

December 1, 2020 (b)

August 31, 2023

(a) On January 1, 2021, this note was refinanced for a note payable in the amount of $ 289.0 million that is due September 30, 2023 and bears interest at a rate of 0.14 % per annum.

(b) This note refinanced a note originally issued on a prior date.

On November 8, 2015, the Parent entered into a Revolving Credit Facility agreement (the “Revolver”) with its 100% owned subsidiary, RII Holdings, Inc., which expires on November 8, 2035, providing for unsecured financing facilities in an aggregate amount of $ 3.0 billion.

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Outstanding borrowings under the Revolver are included within Payable to subsidiaries, net in the Condensed Balance Sheets as of December 31, 2020 and 2019.

During the years ended December 31, 2020 and 2018, a portion of the outstanding balances were repaid by means of non-cash distributions by the Parent’s subsidiaries.

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

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Accordingly, the Parent has recorded income taxes payable on behalf of its subsidiaries, and these income taxes payable were significant due to the enactment of the Tax Act into United States law.

During 2017, the Parent made a non-cash capital contribution of $ 916.0 million to a subsidiary that was subject to the taxation of certain previously undistributed earnings of its foreign subsidiaries under the Tax Act, and this contribution is reflected as a non-cash investing activity in the Condensed Statements of Cash Flows.

The Parent agreed to fund certain payments related to the Joint Settlement Agreements on behalf of its subsidiaries of $ 591.0 million.

As of and during the year ended December 31, 2017, these amounts were paid and are reflected in the Parent’s operating activities in the Condensed Statements of Cash Flows.

On November 30, 2017, FFMC distributed a promissory note owed by the Parent in the amount of $ 80.3 million.

This distribution to the Parent is reflected as a non-cash financing activity in the Condensed Statements of Cash Flows for the year ended December 31, 2017.

Excess cash generated from operations of the Parent’s subsidiaries that is not required to meet certain regulatory requirements may be periodically distributed to the Parent in the form of a distribution, although the amounts of such distributions may vary from year to year.

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On February 28, 2019, the Parent entered into an agreement with ACI to sell its United States electronic bill payments business known as Speedpay.

The Parent 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 Condensed Statements of Income/(Loss) and Comprehensive Income/(Loss), in the all-cash transaction that closed on May 9, 2019.

The Parent 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 Condensed Statements of Income and Comprehensive Income, in the all-cash transaction that closed on May 9, 2019.

On May 6, 2019, the Parent completed the sale of Paymap, which provides electronic mortgage bill payment services, for contingent consideration and immaterial cash proceeds received at closing.

The Parent recorded an immaterial pre-tax gain related to this sale during 2019.

In 2020, the Parent sold its former corporate headquarters and recorded an immaterial pre-tax gain on the sale.

The proceeds from this sale have been included in Cash flows from investing activities within the Parent’s Condensed Statements of Cash Flows for the year ended December 31, 2020.

Commitments and Contingencies

The Parent had approximately $ 110 million in outstanding letters of credit and bank guarantees as of December 31, 2019 with expiration dates through 2021.

The letters of credit and bank guarantees are primarily held in connection with certain agent agreements.

The Company expects to renew the letters of credit and bank guarantees prior to expiration in most circumstances.

The Parent had approximately $ 180 million in outstanding letters of credit and bank guarantees as of December 31, 2020 primarily held in connection with certain agent agreements.

The significant majority of the Parent’s letters of credit and bank guarantees have a one-year renewal option, which the Parent expects to renew prior to expiration in most circumstances.

CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT

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NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)

The Parent leases real properties primarily for use as administrative and sales offices.

The Parent leases real properties primarily for use as administrative and sales offices, in addition to transportation and other equipment.

The Parent determines if a contract contains a lease arrangement at the inception of the contract.

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The Parent has no material leases in which the Parent is the lessor.

Substantially all of the Parent’s leasing arrangements are classified as operating leases, for which expense is recognized on a straight-line basis.

As of December 31, 2019, the total ROU asset and lease liability were $ 66.5 million and $ 105.7 million, respectively, and were included in Other assets and Other liabilities , respectively, in the Parent’s Condensed Balance Sheets.

The Parent’s finance leases were not material as of December 31, 2019.

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

As of December 31, 2020 and 2019, the total ROU assets were $ 63.1 million and $ 66.5 million, respectively, and lease liabilities were $ 100.1 million and $ 105.7 million, respectively.

The ROU assets and operating lease liabilities were included in Other assets and Other liabilities, respectively, in the Parent’s Condensed Balance Sheets.

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

Short-term and variable lease costs were not material for the year ended December 31, 2019.

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

Short-term and variable lease costs were no t material for the years ended December 31, 2020 and 2019.

The Parent’s leases have remaining terms from 3 years to 10 years .

Certain of these leases contain escalation provisions and/or renewal options, giving the Parent the right to extend the lease by up to 10 years .

However, a substantial majority of these options are not reflected in the calculation of the ROU asset and lease liability due to uncertainty surrounding the likelihood of renewal.

The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities as of December 31, 2019:

However, these options are not reflected in the calculation of the ROU asset and lease liability due to uncertainty surrounding the likelihood of renewal.

The following table summarizes the weighted-average lease term and discount rate for operating lease liabilities as of December 31, 2020 and 2019:

December 31, 2020

December 31, 2019

Weighted-average remaining lease term (in years)

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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 8. Financial Statements and Supplementary Data