What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-10-29 · 412 added, 654 removed, 848 unchanged (56% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of services

3 unchanged sentences

Other income/(expense):

Gain on divestitures of businesses (Note 4)

Interest income

Interest expense

Other income/(expense), net

Total other income/(expense), net

Other expense, net

Total other expense, net

Income before income taxes

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Other comprehensive income, net of reclassifications and tax (Note 10):

Unrealized gains on investment securities

Unrealized gains/(losses) on hedging activities

Unrealized gains/(losses) on investment securities

Unrealized gains on hedging activities

Defined benefit pension plan adjustments

Total other comprehensive income/(loss)

Total other comprehensive income

Comprehensive income

3 unchanged sentences

(in millions, except per share amounts)

September 30,

Cash and cash equivalents

2 unchanged sentences

Other intangible assets, net of accumulated amortization of $ 1,064.7 and $ 1,044.6 , respectively

Liabilities and stockholders' equity/(deficit)

Liabilities and stockholders' equity

Accounts payable and accrued liabilities

5 unchanged sentences

Commitments and contingencies (Note 7)

Stockholders' equity/(deficit):

Stockholders' equity:

Preferred stock, $ 1.00 par value;

3 unchanged sentences

2,000 shares authorized;

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

409.8 shares and 411.2 shares issued and outstanding as of March 31, 2021 and December 31, 2020 , respectively

Capital surplus

1 unchanged sentence

Accumulated other comprehensive loss

Total stockholders' equity/(deficit)

Total liabilities and stockholders' equity/(deficit)

Total stockholders' equity

Total liabilities and stockholders' equity

See Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(in millions)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

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

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

Other non-cash items, net

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

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

Accounts payable and accrued liabilities

6 unchanged sentences

Purchases of property and equipment

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

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

Proceeds from the sale of former corporate headquarters

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

Other investing activities

3 unchanged sentences

Common stock repurchased (Note 10)

Net (repayments of)/proceeds from commercial paper

Net repayments of commercial paper

Net proceeds from issuance of borrowings

Principal payments on borrowings

8 unchanged sentences

Income taxes paid

Cash paid for lease liabilities

Non-cash lease liabilities arising from obtaining right-of-use assets

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

Internal use software capitalized but not yet paid

See Notes to Condensed Consolidated Financial Statements.

4 unchanged sentences

Stockholders'

Equity/(Deficit)

Balance, December 31, 2020

Adoption of new accounting pronouncement (Note 1)

Stock-based compensation

4 unchanged sentences

Balance, March 31, 2021

Stock-based compensation

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

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive income (Note 11)

Balance, June 30, 2020

Stock-based compensation

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

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive loss (Note 11)

Balance, September 30, 2020

Comprehensive

Stockholders'

Equity/(Deficit)

Balance, December 31, 2019

Adoption of new accounting pronouncement (Note 1)

Stock-based compensation

Common stock dividends ($0.20 per share)

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

Repurchase and retirement of common shares

2 unchanged sentences

Balance, March 31, 2020

Stock-based compensation

Common stock dividends ($0.20 per share)

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive income (Note 11)

Balance, June 30, 2019

Stock-based compensation

Common stock dividends ($0.20 per share)

Repurchase and retirement of common shares

Shares issued under stock-based compensation plans

Other comprehensive income (Note 11)

Balance, September 30, 2019

See Notes to Condensed Consolidated Financial Statements.

5 unchanged sentences

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 websites and mobile apps 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”).

The Company’s services are available through a network of agent locations in more than 200 countries and territories and also through money transfer transactions conducted and funded through websites and mobile applications marketed under the Company’s brands (“westernunion.com”) and transactions initiated on 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.

1 unchanged sentence

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 and the Company’s money order services.

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

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

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

7 unchanged sentences

The accompanying condensed consolidated financial statements are unaudited and were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X.

In compliance with those instructions, certain

In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries.

Results of operations and cash flows

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

The unaudited condensed consolidated financial statements in this quarterly report are presented on a consolidated basis and include the accounts of the Company and its majority-owned subsidiaries.

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

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

In the opinion of management, these condensed consolidated financial statements include all the normal recurring adjustments necessary to fairly present the Company’s condensed consolidated results of operations, financial position, and cash flows as of September 30, 2020 and for all periods presented.

for the interim periods are not necessarily indicative of the results that may be expected for the entire year.

All significant intercompany transactions and accounts were eliminated as of March 31, 2021 and December 31, 2020 and for all periods presented.

These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

3 unchanged sentences

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 nine months ended September 30, 2020.

Beginning in March 2020 and continuing into the second and third quarters of 2020, 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 growth from westernunion.com and other digital transactions.

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

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

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.

Recently Adopted Accounting Pronouncements

2 unchanged sentences

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

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Refer to Note 9 for additional information and the related disclosures.

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

2 unchanged sentences

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 $ 1,214.3 million and $ 1,238.0 million for the three months ended September 30, 2020 and 2019, and $ 3,392.5 million and $ 3,788.4 million for the nine months ended September 30, 2020 and 2019, respectively, in revenues from contracts with customers.

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

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 Company recognized $ 1,166.3 million and $ 1,122.6 million in revenues from contracts with customers for the three months ended March 31, 2021 and 2020, respectively.

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

Under the Company’s loyalty programs, which are primarily offered

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in its money transfer services, the Company must fulfill loyalty program rewards earned by customers.

The loyalty program redemption activity has been and continues to be insignificant to the Company’s results of operations, and the Company has immaterial contract liability balances, which primarily relate to its customer loyalty programs and other services.

2 unchanged sentences

The Company analyzes its different services individually to determine the appropriate basis for revenue recognition, as further described below.

Revenues from consumer money transfers are included in the Company’s Consumer-to- Consumer segment, revenues from foreign exchange and payment services are included in the Company’s Business Solutions segment, and revenues from consumer bill payments and other services are not included in the Company’s segments and are reported as Other.

See Note 15 for further information on the Company’s segments.

Consumer Money Transfers

8 unchanged sentences

Revenues from foreign exchange and payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market.

Consumer Bill Payments and Other

The Company offers bill payments and other services that vary by contractual features, including the types and amounts of fixed charges and with respect to how fees are billed and collected.

The identification of the contract with the customer for revenue recognition purposes is consistent with these features for each of the Company’s bill payment and other services.

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Consumer Bill Payments

The Company offers several different bill payment services that vary by considerations such as:

(i) who pays the fee to the Company (consumer or biller), (ii) whether the service is offered to all potential consumers, or only to those for which the Company has a relationship with the biller, and (iii) whether the service utilizes a physical agent network offered for consumers’ convenience, among other factors.

The determination of which party is the Company’s customer for revenue recognition purposes is based on these considerations for each of the Company’s bill payment services.

For all transactions, the Company’s customers agree to the Company’s terms and conditions, either at the time of initiating a transaction (where the consumer is determined to be the customer for revenue recognition purposes) or upon signing a contract with the Company to provide services on the biller’s behalf (where the biller is determined to be the customer for revenue recognition purposes).

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.

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

Management has determined that the significant majority of the Company’s revenue is recognized at a point in time.

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

Management has determined that the substantial majority of the Company’s revenue is recognized at a point in time.

The following tables represent the disaggregation of revenue earned from contracts with customers by product type and region for the three months ended March 31, 2021 and 2020 (in millions).

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

Three Months Ended September 30, 2020

Bill Payments

North America

Europe and Russia/CIS

Middle East, Africa, and South Asia

Latin America and the Caribbean

East Asia and Oceania

Revenues from contracts with customers

Other revenues (a)

Total revenues (b)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Bill Payments

6 unchanged sentences

Other revenues (a)

Total revenues (b)

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended September 30, 2019

Total revenues

Three Months Ended March 31, 2020

Bill Payments

6 unchanged sentences

Other revenues (a)

Total revenues (b)

Nine Months Ended September 30, 2019

Bill Payments (c)

North America

Europe and Russia/CIS

Middle East, Africa, and South Asia

Latin America and the Caribbean

East Asia and Oceania

Revenues from contracts with customers

Other revenues (a)

Total revenues (b)

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 16 for further information on the Company’s segments.

and ACW Worldwide, Inc.

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

Included within North America revenues are Speedpay revenues of $ 125.4 million for the nine months ended September 30, 2019.

Earnings Per Share

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

restricted stock and options per unit were above the Company’s average share price during the periods and their effect was anti-dilutive, were 1.3 million and 0.5 million for the three months ended September 30, 2020 and 2019, respectively, and 1.7 million and 2.4 million for the nine months ended September 30, 2020 and 2019, respectively.

restricted stock and options per unit were above the Company’s average share price during the periods and their effect was anti-dilutive, were 1.4 million and 1.1 million for the three months ended March 31, 2021 and 2020, respectively.

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

Three Months Ended

Nine Months Ended

September 30,

Basic weighted-average shares outstanding

1 unchanged sentence

Diluted weighted-average shares outstanding

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

and ACW Worldwide, Inc.

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

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

Speedpay revenues and direct operating expenses included in the Company’s results were $ 125.4 million and $ 98.2 million, respectively, for the nine months ended September 30, 2019.

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

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

The Company recorded an immaterial pre-tax gain related to this sale during the nine months ended September 30, 2019.

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

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

Investment Activities

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 Company has agreed to invest up to approximately $ 200 million for up to a 15 % investment in stc pay, and this transaction is expected to close in the second quarter of 2021.

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.

On April 12, 2021, the Company sold a substantial majority of the shares it held as a minority investor in a private company for cash proceeds of $ 50.9 million.

The Company recorded a gain of approximately $ 48 million within Other income/(expense), net in the second quarter of 2021.

The Company will continue to measure the retained portion of this investment at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments.

Restructuring-Related Expenses

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

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

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

During the three months ended March 31, 2020, the Company incurred $ 10.5 million of expenses related to a restructuring initiative approved by the Company’s Board of Directors on August 1, 2019.

All expenses for this initiative had been incurred as of December 31, 2020, and substantially all have been and will continue to be paid in cash.

For the three months ended March 31, 2020, $ 0.9 million and $ 9.6 million of these expenses were included in Cost of services and Selling, general, and administrative, respectively, in the Condensed Consolidated Statements of Income.

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 excluded from the Company’s segment operating income results as they are not included in the measurement of segment operating income provided to the Chief Operating Decision Maker (“CODM”) for purposes of performance assessment and resource allocation.

These expenses are specific to this initiative;

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Severance and

Facility Relocations

and Closures,

Balance, December 31, 2019

Cash payments

Non-cash benefits/(charges) (a)

Balance, September 30, 2020

Total expenses incurred-to-date

(a) Non-cash benefits/(charges) include non-cash write-offs and accelerated depreciation of right-of-use 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 Condensed Consolidated Statements of Income (in millions):

Three Months Ended

Nine Months Ended

September 30,

Cost of services

Selling, general, and administrative

Total expenses, pre-tax

Total expenses, net of tax

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

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

For leases in which the Company is the lessee, leases are classified as either finance or operating, with classification affecting the pattern of expense recognition.

Operating lease right-of-use (“ROU”) assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any.

If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the future lease payments.

Lease and variable non-lease components within the Company’s lease agreements are accounted for separately.

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

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

As of September 30, 2020 and December 31, 2019, total ROU assets were $ 192.8 million and $ 199.7 million, respectively, and operating lease liabilities were $ 236.9 million and $ 242.3 million, respectively.

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

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

Operating lease costs, which are included in Total expenses in the Company’s Condensed Consolidated Statements of Income, were $ 13.2 million and $ 13.6 million for the three months ended September 30, 2020 and 2019, respectively, and $ 39.2 million and $ 42.9 million for the nine months

As of March 31, 2021 and December 31, 2020, the total restructuring-related accrual was $ 14.5 million and $ 26.2 million, respectively.

These amounts are included in Accounts payable and accrued liabilities in the Company’s Condensed Consolidated Balance Sheets.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

ended September 30, 2020 and 2019, respectively.

Short-term and variable lease costs were not material for the three and nine months ended September 30, 2020 and 2019.

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

September 30, 2020

September 30, 2019

Weighted-average remaining lease term (in years)

Weighted-average discount rate

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

Due within 1 year

Due after 1 year through 2 years

Due after 2 years through 3 years

Due after 3 years through 4 years

Due after 4 years through 5 years

Due after 5 years

Total lease payments

Less imputed interest

Total operating lease liabilities

Fair Value Measurements

1 unchanged sentence

For additional information on how the Company measures fair value, refer to the Company’s consolidated financial statements within the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Fair Value Measurement Using

September 30, 2020

Cash and cash equivalents:

Measured at fair value through net income:

Money market funds

March 31, 2021

Settlement assets:

4 unchanged sentences

State and municipal variable-rate demand notes

Corporate and other debt securities

Corporate debt securities

United States government agency mortgage-backed securities

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:

1 unchanged sentence

Total liabilities

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

There were no material, non-recurring fair value adjustments or transfers between Level 1 and Level 2 measurements during the three months ended March 31, 2021 and 2020.

Other Fair Value Measurements

2 unchanged sentences

Fixed-rate notes are carried in the Company’s Condensed Consolidated Balance Sheets at their original issuance values as adjusted over time to accrete that value to par.

As of September 30, 2020, the carrying value and fair value of the Company’s borrowings were $ 3,036.5 million and $ 3,253.7 million, respectively (see Note 13).

As of March 31, 2021, the carrying value and fair value of the Company’s borrowings were $ 3,230.5 million and $ 3,450.6 million, respectively (see Note 12).

As of December 31, 2020, the carrying value and fair value of the Company’s borrowings were $ 3,067.2 million and $ 3,348.0 million, respectively.

1 unchanged sentence

Letters of Credit and Bank Guarantees

The Company had approximately $ 370 million in outstanding letters of credit and bank guarantees as of September 30, 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.

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

The Company had approximately $ 430 million in outstanding letters of credit and bank guarantees as of March 31, 2021 primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

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

Litigation and Related Contingencies

2 unchanged sentences

Furthermore, in determining whether disclosure is appropriate, the Company evaluates each legal matter to assess if there is at least a reasonable possibility that a loss or additional losses may have been incurred and whether an estimate of possible loss or range of loss can be made.

Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional losses may have been incurred for each of the matters described below.

For those matters that the Company believes there is at least a reasonable possibility that a loss or additional losses may have been incurred and can reasonably estimate the loss or potential loss, the reasonably possible potential litigation losses in excess of the Company’s recorded liability for probable and estimable losses was approximately $ 30 million as of September 30, 2020.

Unless otherwise specified below, the Company believes that there is at least a reasonable possibility that a loss or additional loss may have been incurred for each of the matters described below.

For those matters that the Company believes there is at least a reasonable possibility that a loss or additional loss may have been incurred and can reasonably estimate the loss or potential loss, the reasonably possible potential litigation losses in excess of the Company’s recorded liability for probable and estimable losses was approximately $ 30 million as of March 31, 2021.

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

8 unchanged sentences

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

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,

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

which was subsequently consolidated with multiple pending related derivative actions.

Shareholder Derivative Action

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 Company without making a demand on the Company’s Board of Directors.

The consolidated derivative action is described in further detail in Part I, Item I, Financial Statements , Note 8, Commitments and Contingencies in the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019.

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

On August 1, 2019, Mr.

1 unchanged sentence

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 until December 31, 2020, pending completion of the special committee’s investigation.

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 was 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.

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

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

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

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.

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 WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On February 25, 2021, Mr.

Lieblein filed a Stipulation and Proposed Order Regarding Voluntary Dismissal of the Delaware Complaint.

The Delaware Court of Chancery reviewed and entered the Proposed Order on the same day.

The Delaware Complaint and the associated action therefore has been dismissed and is now over.

The dismissal is with prejudice as to Mr.

Lieblein, the named plaintiff, only.

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

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.

An appeal relating to the Court’s order was taken by an objector, and this appeal was dismissed on April 13, 2020.

The Company and its insurance carrier have funded the settlement and, on October 5, 2020, the Court entered the final order and judgment in the case.

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 CONDENSED 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 proceeded to the evidentiary stage.

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

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

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WUFSA intends to defend itself vigorously.

On April 26, 2018, the Company, its subsidiary, Western Union Financial Services, Inc., 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 United States Department of Justice, Federal Trade Commission, Financial Crimes Enforcement Network, and State Attorneys General Settlements, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, 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.

On August 27, 2020, the Court issued an order requiring that the parties indicate whether the case should remain administratively closed, subject to reopening, or that the parties file dismissal papers stating that the case may be terminated from the Court’s docket.

That same day, Plaintiffs filed a Notice of Dismissal, indicating that they had dismissed the action and that the case may be terminated from the Court’s docket.

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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The Company pays these agents commissions for money transfer and other services provided on the Company’s behalf.

Commission expense recognized for these agents for the three months ended September 30, 2020 and 2019 totaled $ 14.5 million for both periods, and $ 40.0 million and $ 41.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Commission expense recognized for these agents for the three months ended March 31, 2021 and 2020 totaled $ 13.2 million and $ 12.6 million, respectively.

THE WESTERN UNION COMPANY

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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.

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

September 30, 2020

March 31, 2021

Settlement assets:

Cash and cash equivalents

Receivables from agents and Business Solutions customers

Receivables from agents, Business Solutions customers, and others

Allowance for credit losses

Receivables from agents and Business Solutions customers, net

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

Investment securities

7 unchanged sentences

Cash and cash equivalents

Receivables from agents and Business Solutions customers, net

Receivables from agents, Business Solutions customers, and others

Allowance for credit losses

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

Investment securities

4 unchanged sentences

Total settlement obligations

Receivables from agents represent funds collected by such agents, but in transit to the Company, and were $ 992.1 million as of September 30, 2020.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 1.

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 $ 1,184.0 million and $ 1,081.2 million as of March 31, 2021 and December 31, 2020, respectively.

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

2 unchanged sentences

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

Business Solutions receivables totaled $ 69.5 million as of September 30, 2020.

Business Solutions receivables totaled $ 85.3 million and $ 53.9 million as of March 31, 2021 and December 31, 2020, respectively.

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

1 unchanged sentence

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

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 1.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company separately establishes and monitors an allowance for credit losses related to receivables from agents 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 loss to be significant.

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

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

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.

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 March 31, 2021.

The following tables summarize the activity in the allowance for credit losses on receivables from agents and others, and Business Solutions customers for the three months ended March 31, 2021 and 2020 (in millions):

Business Solutions

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Impacts of foreign currency exchange rates and other

Allowance for credit losses as of September 30, 2020

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

Allowance for credit losses as of March 31, 2021

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 March 31, 2020

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

For the three months ended March 31, 2021 and 2020, the Company recognized $ 13.7 million and $ 9.2 million, respectively, of losses that were not credit related.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 Condensed Consolidated Balance Sheets.

As of March 31, 2021 and December 31, 2020, amounts advanced to agents were $ 140.0 million and $ 135.9 million, respectively, and the related allowances for credit losses were immaterial.

Investment Securities

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

11 unchanged sentences

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

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

The Company’s provision for credit losses on its available-for-sale securities during the three months ended March 31, 2021 and 2020 and the related allowance for credit losses as of March 31, 2021 and December 31, 2020 were immaterial.

THE WESTERN UNION COMPANY

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

September 30, 2020

March 31, 2021

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

Corporate debt securities

United States government agency mortgage-backed securities

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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 available-for-sale securities

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

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

The following summarizes the contractual maturities of available-for-sale securities within Settlement assets as of March 31, 2021 (in millions):

Due within 1 year

2 unchanged sentences

Due after 10 years

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $ 15.0 million, $ 2.0 million, and $ 695.5 million were included in the categories "Due after 1 year through 5 years,"

Variable-rate demand notes, having a fair value of $ 15.0 million, $ 0.9 million, and $ 215.6 million are included in the "Due after 1 year through 5 years,"

"Due after 5 years through 10 years,"

and "Due after 10 years,"

respectively, in the table above.

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

We generally owe settlement funds payable to these agents that offset these advances.

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

As of September 30, 2020, amounts advanced to agents were $ 124.4 million, and the related allowance for credit losses was immaterial.

Stockholders’ Equity/(Deficit)

categories, respectively, in the table above.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stockholders’ Equity

Accumulated Other Comprehensive Loss

3 unchanged sentences

Three Months Ended

Nine Months Ended

Income Statement

September 30,

Income for the period (in millions)

9 unchanged sentences

Interest expense

Interest rate contracts

Other expense, net

Income tax expense

3 unchanged sentences

Actuarial loss

Other income/(expense), net

Other expense, net

Income tax benefit

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the components of AOCL, net of tax on the accompanying Condensed Consolidated Balance Sheets were as follows (in millions):

The following tables summarize the components of AOCL, net of tax on the accompanying Condensed Consolidated Balance Sheets (in millions):

Foreign Currency

1 unchanged sentence

As of December 31, 2020

Unrealized gains

Amounts reclassified from AOCL into earnings, net of tax

As of March 31, 2020

Unrealized gains/(losses)

1 unchanged sentence

Amounts reclassified from AOCL into earnings, net of tax

As of June 30, 2020

Unrealized gains/(losses)

Tax benefit/(expense)

Amounts reclassified from AOCL into earnings, net of tax

As of September 30, 2020

As of March 31, 2021

Foreign Currency

2 unchanged sentences

Unrealized gains

Tax benefit/(expense)

Amounts reclassified from AOCL into earnings, net of tax

As of March 31, 2020

Unrealized gains/(losses)

Tax benefit/(expense)

Amounts reclassified from AOCL into earnings, net of tax

As of June 30, 2019

Unrealized gains

Amounts reclassified from AOCL into earnings, net of tax

As of September 30, 2019

Cash Dividends Paid

The Company’s Board of Directors declared quarterly cash dividends of $ 0.225 per common share for each of the first three quarters of 2020, representing $ 277.4 million in total dividends.

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

The Company’s Board of Directors declared quarterly cash dividends of $ 0.20 per common share for each of the first three quarters of 2019, representing $ 257.1 million in total dividends.

Of this amount, $ 84.2 million was paid on September 30, 2019, $ 85.5 million was paid on June 28, 2019, and $ 87.4 million was paid on March 29, 2019.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three months ended March 31, 2021 and 2020, the Company’s Board of Directors declared quarterly cash dividends of $ 0.235 and $ 0.225 per common share, respectively, representing $ 96.6 million and $ 92.4 million in total dividends, which were paid on March 31, 2021 and March 31, 2020, respectively.

Share Repurchases

During the nine months ended September 30, 2020 and 2019, 8.5 million and 24.4 million shares were repurchased for $ 217.4 million and $ 475.2 million, respectively, excluding commissions, at an average cost of $ 25.45 and $ 19.48 , respectively.

During the three months ended March 31, 2021 and 2020, 3.1 million and 8.5 million shares were repurchased for $ 75.0 million and $ 217.4 million, respectively, excluding commissions, at an average cost of $ 24.24 and $ 25.45 , respectively.

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

During the first quarter of 2020, the Company temporarily paused and has not resumed share repurchases, and as of September 30, 2020, $ 782.6 million remains available under the share repurchase authorization approved by the Company’s Board of Directors through December 31, 2021.

As of March 31, 2021, $ 707.6 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 Condensed Consolidated Statements of Cash Flows represent both shares authorized by the Board of Directors for repurchase under publicly announced authorizations and shares withheld from employees to cover tax withholding obligations on restricted stock units that have vested.

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, 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 exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the euro, and, to a lesser degree, the Canadian dollar, the British pound, 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 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 WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company executes derivatives with established financial institutions;

10 unchanged sentences

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

As of September 30, 2020, these foreign currency forward contracts had maturities of a maximum of 24 months with a weighted-average maturity of approximately one year .

As of March 31, 2021, 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.

1 unchanged sentence

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

In addition, forward contracts, typically with maturities of less than one year at inception, are utilized to

In addition, forward contracts, typically with maturities of less than one year at inception, are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability positions.

None of these contracts are designated as accounting hedges.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

offset foreign exchange rate fluctuations on certain foreign currency denominated cash and other asset and liability positions.

None of these contracts are designated as accounting hedges.

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

September 30, 2020

The aggregate equivalent United States dollar notional amounts of foreign currency forward contracts as of March 31, 2021 and December 31, 2020 were as follows (in millions):

March 31, 2021

Contracts designated as hedges:

1 unchanged sentence

British pound

Australian dollar

Contracts not designated as hedges:

1 unchanged sentence

Canadian dollar

Philippine peso

Australian dollar

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Contracts not designated as hedges:

Canadian dollar

British pound

Canadian dollar

Australian dollar

Brazilian real

Philippine peso

Russian ruble

Indonesian rupiah

Swedish krona

(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 derivative contracts described above, and hedges the resulting net currency risks by entering into offsetting contracts

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

with established financial institution counterparties (economic hedge contracts).

Business Solutions Operations

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 $ 76.9 million and $ 88.2 million for the three months ended September 30, 2020 and 2019, respectively, and $ 234.4 million and $ 257.1 million for the nine months ended September 30, 2020 and 2019, respectively.

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

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

Foreign exchange revenues from the total portfolio of positions were $ 84.5 million and $ 87.5 million for the three months ended March 31, 2021 and 2020, respectively, and were included in Revenues in the Company’s Condensed 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 was approximately $ 8.0 billion as of March 31, 2021 and December 31, 2020.

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

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

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

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, 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.

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Interest expense in the Condensed 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 September 30, 2020 and December 31, 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 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.

These treasury locks were terminated in the first quarter of 2021 in conjunction with the issuance of $ 600.0 million of aggregate principal amount of 1.350 % unsecured notes due in 2026 (“2026 Notes”).

The Company received a total of $ 3.3 million upon termination, of which $ 2.6 million was deferred as a component of AOCL and will be amortized to Interest expense in the Condensed Consolidated Statements of Income over the term of the 2026 Notes.

As a portion of the forecasted interest payments on the 2026 Notes will occur outside the time period originally specified at designation of the treasury locks as cash flow hedges, $ 0.7 million was recognized in Other expense, net in the Condensed Consolidated Statements of Income, upon termination.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheet

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

The following table summarizes the fair value of derivatives reported in the Company’s Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (in millions):

Derivative Assets

1 unchanged sentence

Balance Sheet

September 30,

Balance Sheet

September 30,

Derivatives designated as hedges:

1 unchanged sentence

Other liabilities

Interest rate cash flow hedges

Other liabilities

Total derivatives designated as hedges

10 unchanged sentences

This frequently results in changes in the Company’s derivative assets and liabilities that may not directly align with the performance in the underlying derivatives business.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED 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.

The Company’s rights under these agreements generally allow for transactions to be settled on a net basis, including upon early termination, which could occur upon the counterparty’s default, a change in control, or other conditions.

In addition, certain of the Company’s other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction and depending on the circumstances.

In addition, certain of the Company’s other agreements include netting provisions, the enforceability of which may vary from jurisdiction to jurisdiction, depending on the circumstances.

Due to the uncertainty related to the enforceability of these provisions, the derivative balances associated with these agreements are included within "Derivatives that are not or may not be subject to master netting arrangement or similar agreement"

1 unchanged sentence

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 September 30, 2020 and December 31, 2019 (in millions):

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the gross and net fair value of derivative assets and liabilities as of March 31, 2021 and December 31, 2020 (in millions):

Offsetting of Derivative Assets

3 unchanged sentences

in the Condensed

September 30, 2020

March 31, 2021

Balance Sheets

6 unchanged sentences

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Offsetting of Derivative Liabilities

3 unchanged sentences

in the Condensed

September 30, 2020

March 31, 2021

Balance Sheets

6 unchanged sentences

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

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income Statement

2 unchanged sentences

Generally, amounts are recognized in income when the related forecasted transaction affects earnings.

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

Three Months Ended

Nine Months Ended

September 30,

The following table presents the pre-tax amount of unrealized gains/(losses) recognized in other comprehensive income from cash flow hedges for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended March 31,

Foreign currency derivatives (a)

(a) Gains/(losses) of $( 1.6 ) million and $( 0.6 ) million for the three months ended September 30, 2020 and 2019, respectively, and $ 1.2 million and $ 1.1 million for the nine months ended September 30, 2020 and 2019, respectively, represent amounts excluded from the assessment of effectiveness that were recognized in other comprehensive income, for which an amortization approach is applied.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Three Months Ended

September 30,

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

The effects of fair value and cash flow hedging:

Gain/(loss) on fair value hedges:

Interest rate derivatives

Gain/(loss) on cash flow hedges:

Foreign currency derivatives:

Gains/(losses) reclassified from AOCL into earnings

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

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

Interest rate derivatives:

Gains/(losses) reclassified from AOCL into earnings

Nine Months Ended

September 30,

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

(a) For the three months ended March 31, 2021 and 2020, gains/(losses) of $( 0.7 ) million and $ 3.5 million, respectively, represent amounts excluded from the assessment of effectiveness and recognized in other comprehensive income, for which an amortization approach is applied.

The following table presents the location and amounts of pre-tax net gains/(losses) from fair value and cash flow hedging relationships recognized in the Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended March 31,

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:

Gain/(loss) on fair value hedges:

Interest rate derivatives:

Derivatives designated as hedging instruments

Gain/(loss) on cash flow hedges:

2 unchanged sentences

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

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

Interest rate derivatives:

3 unchanged sentences

Undesignated Hedges

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

The following table presents the location and amount of pre-tax net gains/(losses) from undesignated hedges in the Condensed Consolidated Statements of Income on derivatives for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended

Nine Months Ended

September 30,

Derivatives (a)

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Selling, general, and administrative

Foreign currency derivatives

Total gain/(loss)

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 Condensed Consolidated Statements of Income, were $ 1.4 million and $( 23.4 ) million for the three months ended September 30, 2020 and 2019, respectively, and $( 46.6 ) million and $( 38.5 ) million for the nine months ended September 30, 2020 and 2019, respectively.

Foreign exchange gains/(losses) on settlement assets and obligations, cash balances, and other assets and liabilities, not including amounts related to derivative activity as displayed above and included in Selling, general, and administrative in the Condensed Consolidated Statements of Income, were $( 21.8 ) million and $( 51.0 ) million for the three months ended March 31, 2021 and 2020, respectively.

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

Based on September 30, 2020 foreign exchange rates, an accumulated other comprehensive pre-tax loss of $ 8.8 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

Based on March 31, 2021 foreign exchange rates, an accumulated other comprehensive pre-tax loss of $ 3.0 million related to the foreign currency forward contracts is expected to be reclassified into Revenues within the next 12 months.

THE WESTERN UNION COMPANY

1 unchanged sentence

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

September 30, 2020

March 31, 2021

December 31, 2020

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2.850 % notes due 2025 (b)

1.350 % notes due 2026 (effective rate of 1.5 %) (c)

2.750 % notes due 2031 (effective rate of 2.9 %) (d)

6.200 % notes due 2036 (b)

6.200 % notes due 2040 (b)

Term loan facility borrowing (effective rate of 1.4 %)

Term loan facility borrowing (effective rate of 1.5 %) (e)

Total borrowings at par value

Debt issuance costs and unamortized discount, net

Total borrowings at carrying value (c)

Total borrowings at carrying value (f)

(a) 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.

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

The Company’s commercial paper borrowings as of September 30, 2020 had a weighted-average annual interest rate of approximately 0.3 % and a weighted-average term of approximately 1 day .

As of March 31, 2021, the Company had no commercial paper borrowings.

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

(c) As of September 30, 2020, the Company’s weighted-average effective rate on total borrowings was approximately 3.6 % .

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

(d) On March 9, 2021, the Company issued $ 300.0 million of aggregate principal amount of 2.750 % unsecured notes due in 2031 (“2031 Notes”).

(e) Proceeds from the 2026 Notes and 2031 Notes and cash, including cash generated from operations, were used to repay $ 650.0 million of the term loan facility in the first quarter of 2021.

(f) As of March 31, 2021, the Company’s weighted-average effective rate on total borrowings was approximately 3.6 % .

The following summarizes the Company’s maturities of notes and term loan at par value as of March 31, 2021 (in millions):

Due within 1 year

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

On April 1, 2021, the Company repaid the 3.6 % unsecured notes due in 2022 for total consideration of $ 514.3 million, excluding accrued interest, using proceeds from the 2026 Notes and 2031 Notes and cash, including cash generated from operations.

The cost associated with the repayment was recorded to Other income/(expense), net, in the second quarter of 2021.

On March 9, 2021, the Company issued $ 600.0 million and $ 300.0 million of aggregate principal amounts of 1.350 % and 2.750 % unsecured notes due March 15, 2026 and March 15, 2031, respectively.

Interest with respect to these notes is

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The Company’s effective tax rates on pre-tax income were 12.4 % and 16.8 % for the three months ended September 30, 2020 and 2019, respectively, and 13.5 % and 17.9 % for the nine months ended September 30, 2020 and 2019, respectively.

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

payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021.

If a change of control triggering event occurs, holders of the 2026 Notes and 2031 Notes may require the Company to repurchase some or all of their notes at a price equal to 101 % of the principal amount of their notes, plus any accrued and unpaid interest.

The Company may redeem the 2026 Notes and the 2031 Notes, in whole or in part, at any time prior to February 15, 2026 and December 15, 2030, respectively, at the greater of par or a price based on the applicable treasury rate plus 15 and 25 basis points, respectively.

The Company may redeem the 2026 Notes and the 2031 Notes at any time after February 15, 2026 and December 15, 2030, respectively, at a price equal to par, plus accrued interest.

The Company’s provision for income taxes for the three months ended March 31, 2021 and 2020 is based on the estimated annual effective tax rate, in addition to discrete items.

The Company’s effective tax rates on pre-tax income were 10.4 % and 12.5 % for the three months ended March 31, 2021 and 2020, respectively.

The decrease in the Company’s effective tax rate for the three months ended March 31, 2021 compared to the prior period was primarily due to changes in the composition between higher-taxed and lower-taxed foreign earnings and an increase in discrete tax benefits.

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

8 unchanged sentences

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

The total amount of unrecognized tax benefits as of September 30, 2020 and December 31, 2019 was $ 294.4 million and $ 293.9 million, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 283.9 million and $ 283.4 million as of September 30, 2020 and December 31, 2019, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits as of March 31, 2021 and December 31, 2020 was $ 338.2 million and $ 340.7 million, respectively, excluding interest and penalties.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $ 327.3 million and $ 329.2 million as of March 31, 2021 and December 31, 2020, respectively, excluding interest and penalties.

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

The Company recognized $ 0.8 million and $ 1.2 million of interest and penalties during the three months ended September 30, 2020 and 2019, respectively, and $ 1.5 million and $ 4.5 million during the nine months ended September 30, 2020 and 2019, respectively.

The Company has accrued $ 28.6 million and $ 27.1 million for the payment of interest and penalties as of September 30, 2020 and December 31, 2019, respectively.

The Company recognized immaterial amounts of interest and penalties during both the three months ended March 31, 2021 and 2020.

The Company has accrued $ 27.6 million and $ 28.6 million for the payment of interest and penalties as of March 31, 2021 and December 31, 2020, respectively.

The Company and its subsidiaries file tax returns for the United States, for multiple states and localities, and for various non-United States jurisdictions, and the Company has identified the United States as its major tax jurisdiction, as the income tax imposed by any one foreign country is not material to the Company.

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

The Internal Revenue Service commenced an examination of the Company’s U.S.

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

The anticipated completion date of the examination cannot be estimated at this time.

Stock-Based Compensation Plans

For the three months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 14.2 million and $ 9.7 million, respectively, resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units in the Condensed Consolidated Statements of Income.

The Internal Revenue Service (“IRS”) commenced an examination of the Company’s United States consolidated income tax returns for 2017 and 2018 during 2020.

The IRS anticipates completion of the examination phase in 2022.

THE WESTERN UNION COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

months ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of $ 32.0 million and $ 35.0 million, respectively.

During the nine months ended September 30, 2020, the Company granted 0.5 million options at a weighted-average exercise price of $ 26.20 and 2.5 million performance-based restricted stock units and restricted stock units at a weighted-average grant date fair value of $ 25.87 .

As of September 30, 2020, the Company had 4.9 million outstanding options at a weighted-average exercise price of $ 19.13 , of which 3.8 million options were exercisable at a weighted-average exercise price of $ 18.40 .

The Company had 6.9 million outstanding performance-based restricted stock units (based on target performance) and restricted stock units at a weighted-average grant date fair value of $ 20.86 as of September 30, 2020.

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

Stock-Based Compensation Plans

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $ 10.8 million and $ 12.5 million, respectively, resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units in the Condensed Consolidated Statements of Income.

During the three months ended March 31, 2021, the Company granted 0.5 million options at a weighted-average exercise price of $ 23.91 and 2.7 million performance-based restricted stock units and restricted stock units at a weighted-average grant date fair value of $ 23.63 .

As of March 31, 2021, the Company had 5.0 million outstanding options at a weighted-average exercise price of $ 19.46 , of which 3.8 million options were exercisable at a weighted-average exercise price of $ 18.42 .

The Company had 7.3 million outstanding performance-based restricted stock units (based on target performance) and restricted stock units at a weighted-average grant date fair value of $ 22.26 as of March 31, 2021.

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

Consumer-to-Consumer and Business Solutions.

1 unchanged sentence

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 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 an interconnected network for consumer transactions, thereby constituting one global Consumer-to-Consumer money transfer business and one operating segment.

By means of common processes and systems, these regions, including Digital Money Transfer transactions, create 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 4.

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

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The following table presents the Company’s segment results for the three months ended March 31, 2021 and 2020 (in millions):

Three Months Ended

Nine Months Ended

September 30,

Consumer-to-Consumer

4 unchanged sentences

Business Solutions

Total segment operating income (b)

Total segment operating income

Restructuring-related expenses (Note 5)

Total consolidated operating income

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

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

Speedpay revenues and direct operating expenses included in the Company’s results were $ 125.4 million and $ 98.2 million, respectively, for the nine months ended September 30, 2019.

Paymap revenues and direct operating expenses included in the Company’s results were $ 5.3 million and $ 2.2 million, respectively, for the nine months ended September 30, 2019.

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

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 three and nine months ended September 30, 2019, this change would have decreased Consumer-to-Consumer operating income and increased Other operating income by $ 13.0 million and $ 37.8 million, respectively.

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

THE WESTERN UNION COMPANY

29 unchanged sentences

changes in general economic conditions and economic conditions in the regions and industries in which we operate, including global economic downturns and trade disruptions, or significantly slower growth or declines in the money transfer, payment service, and other markets in which we operate, including downturns or declines related to interruptions in migration patterns or other events, such as public health emergencies, epidemics, or pandemics such as COVID-19, civil unrest, war, terrorism, or natural disasters, or non-performance by our banks, lenders, insurers, or other financial services providers;

failure to compete effectively in the money transfer and payment service industry, including among other things, with respect to price, with global and niche or corridor money transfer providers, banks and other money transfer and payment service providers, including electronic, mobile and internet-based services, card associations, and card-based payment providers, and with digital currencies and related protocols, and other innovations in technology and business models;

political conditions and related actions, including trade restrictions and government sanctions, in the United States and abroad, which may adversely affect our business and economic conditions as a whole, including interruptions of United States or other government relations with countries in which we have or are implementing significant business relationships with agents or clients;

failure to compete effectively in the money transfer and payment service industry, including among other things, with respect to price, with global and niche or corridor money transfer providers, banks and other money transfer and payment service providers, including digital, mobile and internet-based services, card associations, and card-based payment providers, and with digital currencies and related protocols, and other innovations in technology and business models;

deterioration in customer confidence in our business, or in money transfer and payment service providers generally;

failure to maintain our agent network and business relationships under terms consistent with or more advantageous to us than those currently in place;

our ability to adopt new technology and develop and gain market acceptance of new and enhanced services in response to changing industry and consumer needs or trends;

6 unchanged sentences

failure to manage credit and fraud risks presented by our agents, clients, and consumers;

failure to maintain our agent network and business relationships under terms consistent with or more advantageous to us than those currently in place, including due to increased costs or loss of business as a result of increased compliance requirements or difficulty for us, our agents, or their subagents in establishing or maintaining relationships with banks needed to conduct our services;

changes in tax laws or their interpretation, any subsequent regulation, and potential related state income tax impacts, and unfavorable resolution of tax contingencies;

adverse rating actions by credit rating agencies;

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

our ability to protect our trademarks, patents, copyrights, and other intellectual property rights and to defend ourselves against potential intellectual property infringement claims;

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

2 unchanged sentences

(ii) events related to our regulatory and litigation environment, such as:

liabilities or loss of business resulting from a failure by us, our agents, or their subagents to comply with laws and regulations and regulatory or judicial interpretations thereof, including laws and regulations designed to protect consumers, or detect and prevent money laundering, terrorist financing, fraud, and other illicit activity;

increased costs or loss of business due to regulatory initiatives and changes in laws, regulations and industry practices and standards, including changes in interpretations, in the United States and abroad, affecting us, our agents, or their subagents, or the banks with which we or our agents maintain bank accounts needed to provide our services, including related to anti-money laundering regulations, anti-fraud measures, our licensing arrangements, customer due diligence, agent and subagent due diligence, registration and monitoring requirements, consumer protection requirements, remittances, and immigration;

liabilities or loss of business resulting from a failure by us, our agents, or their subagents to comply with laws and regulations and

regulatory or judicial interpretations thereof, including laws and regulations designed to protect consumers, or detect and prevent money laundering, terrorist financing, fraud, and other illicit activity;

increased costs, operational burden or loss of business due to regulatory initiatives and changes in laws, including changes in interpretations, resulting in increasing regulations and industry practices and standards in the United States and abroad, affecting us, our agents, or their subagents, our external business partners such as financial institutions, or the banks with which we or our agents maintain bank accounts needed to provide our services, including related to anti-money laundering regulations, anti-fraud measures, our licensing arrangements, customer due diligence, agent and subagent due diligence, registration and monitoring requirements, consumer protection requirements, remittances, and immigration;

liabilities, increased costs or loss of business and unanticipated developments resulting from governmental investigations and consent agreements with or enforcement actions by regulators;

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

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

failure to comply with regulations and evolving industry standards regarding consumer privacy, data use, the transfer of personal data between jurisdictions, and information security, including with respect to the General Data Protection Regulation in the European Union and the California Consumer Privacy Act;

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

6 unchanged sentences

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

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

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

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

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

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

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

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

1 unchanged sentence

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

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

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

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

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

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

Results of Operations

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

The following discussion of our consolidated results of operations and segment results refers to the three months ended March 31, 2021 compared to the same period in 2020.

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

4 unchanged sentences

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

Beginning in March 2020 and continuing into the second and third quarters of 2020, we experienced a decrease in transaction volumes from retail locations and a decrease in foreign exchange and payment services activity, which also negatively impacted revenues in these periods, partially offset by revenue growth from westernunion.com and other digital transactions, as further described below.

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

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

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

Our revenues and operating income for the three and nine months ended September 30, 2020 were negatively impacted by fluctuations in the United States dollar compared to foreign currencies.

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a reduction to revenues of $41.1 million and $134.8 million for the three and nine months ended September 30, 2020, respectively, relative to the corresponding periods in the prior year.

Included within these amounts are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $39.2 million and $106.9 million for the three and nine months ended September 30, 2020, respectively, relative to the corresponding periods in the prior year.

Fluctuations in the United States dollar compared to foreign currencies negatively impacted operating income by $10.1 million and $38.7 million for the three and nine months ended September 30, 2020, respectively, relative to the corresponding periods in the prior year.

Included within these amounts are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $7.6 million and $19.9 million for the three and nine months ended September 30, 2020, respectively, relative to the corresponding periods in the prior year.

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

and ACW Worldwide, Inc.

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

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

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

However, since March 2020, we have also experienced significant revenue growth from westernunion.com and other digital transactions, as further described below.

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

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

Our revenues and operating income for the three months ended March 31, 2021 were impacted by fluctuations in the United States dollar compared to foreign currencies.

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in an increase to revenues of $0.9 million for the three months ended March 31, 2021, relative to the corresponding period in the prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $19.3 million for the three months ended March 31, 2021, relative to the corresponding period in the prior year.

Fluctuations in the United States dollar compared to foreign currencies positively impacted operating income by $11.8 million for the three months ended March 31, 2021, relative to the corresponding period in the prior year.

Included within this amount are impacts related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to operating income of $3.2 million for the three months ended March 31, 2021, relative to the corresponding period in the prior year.

The following table sets forth our consolidated results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(in millions, except per share amounts)

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Other income/(expense):

Gain on divestitures of businesses

Interest income

Interest expense

Other income/(expense), net

Total other income/(expense), net

Other expense, net

Total other expense, net

Income before income taxes

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Revenues Overview

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

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

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

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

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

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

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

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

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

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

These disclosures are provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year.

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

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

These disclosures are provided in addition to, and not as a substitute for, the percentage change in revenue on a GAAP basis for the three months ended March 31, 2021 compared to the corresponding period in the prior year.

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth our consolidated revenue results for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars in millions)

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Foreign currency impact (a)

Divestitures impact (b)

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

(a) Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in a reduction to revenues of $41.1 million and $134.8 million for the three and nine months ended September 30, 2020, respectively, when compared to foreign currency rates in the prior year periods.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $39.2 million and $106.9 million for the three and nine months ended September 30, 2020, respectively, when compared to foreign currency rates in the prior year periods.

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

Speedpay revenues included in our results were $125.4 million for the nine months ended September 30, 2019.

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

For the three and nine months ended September 30, 2020, GAAP revenues decreased when compared to the corresponding periods in the prior year, including as a result of the impacts from the worldwide actions related to COVID-19.

For the three and nine months ended September 30, 2020, we experienced a decrease in transaction volumes from retail locations in our Consumer-to-Consumer segment, partially offset by growth in digital transactions, including from white label partnerships.

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

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

Additionally, GAAP revenues decreased for the nine months ended September 30, 2020, when compared to the corresponding period in the prior year, due to the divestitures of the Speedpay and Paymap businesses during the second quarter of 2019.

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

Revenue change, constant currency adjusted - (Non-GAAP)

(a) Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, resulted in an increase to revenues of $0.9 million for the three months ended March 31, 2021 when compared to foreign currency rates in the corresponding period in the prior year.

Included within this amount is an impact related to the strengthening of the dollar against the Argentine peso, which resulted in a reduction to revenues of $19.3 million for the three months ended March 31, 2021 when compared to foreign currency rates in the corresponding period in the prior year.

For the three months ended March 31, 2021 GAAP revenues increased when compared to the corresponding period in the prior year due to transaction growth from Digital Money Transfer, including from white label partnerships, partially offset by a decrease in transactions from retail locations in our Consumer-to-Consumer segment.

Fluctuations in the exchange rates between the United States dollar and foreign currencies did not significantly impact revenue for the three months ended March 31, 2021, compared to the corresponding period in the prior year.

Operating Expenses Overview

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

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

Substantially all of these expenses

are expected to be paid in cash.

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

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

For the three and nine months ended September 30, 2020, we incurred $9.1 million and $24.8 million, respectively, of expenses related to this plan.

For the three and nine months ended September 30, 2020, $0.8 million and $2.5 million, respectively, are included within Cost of services and $8.3 million and $22.3 million, respectively, are included within Selling, general, and administrative in the Condensed Consolidated Statements of Income.

For the three and nine months ended September 30, 2019, we incurred $91.5 million and $98.9 million, respectively, of expenses related to this plan.

For the three and nine months ended September 30, 2019, $33.9 million is included within Cost of services, and $57.6 million and $65.0 million, respectively, are included within Selling, general, and administrative in the Condensed Consolidated Statements of Income.

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

We incurred approximately $150 million of total expenses through December 31, 2020, with approximately $110 million related to severance and employee-related benefits and approximately $40 million related to costs associated with the relocation of various operations to other Company facilities, facility closures, lease terminations, consulting, and other expenses.

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.

We expect the plan to generate expense savings of approximately $100 million in 2021, which is our estimate and subject to change.

For the three months ended March 31, 2020, we incurred $10.5 million of expenses related to this plan, of which $0.9 million and $9.6 million were included within Cost of services and Selling, general, and administrative, respectively, in the Condensed Consolidated Statements of Income.

These expenses are specific to this initiative;

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Cost of Services

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

Cost of services decreased for the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year due to a decrease in agent commissions in our Consumer-to-Consumer money transfer business, which generally vary with revenues, including due to fluctuations in the exchange rate between the United States dollar and foreign currencies, a decrease in restructuring-related expenses, and a decrease in employee-related expenses, including as a result of reduced hiring, partially offset by an increase in credit losses.

For the nine months ended September 30, 2020 when compared to the corresponding period in the prior year, the decrease in Cost of services was also due to the Speedpay divestiture during the second quarter of 2019.

Cost of services primarily consists of agent commissions, which represented approximately 60% of total cost of services for the three months ended March 31, 2021.

Cost of services increased for the three months ended

March 31, 2021 compared to the corresponding period in the prior year due to an increase in information technology costs and bank fees associated with digital transactions.

Selling, General, and Administrative

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

In addition, for the nine months ended September 30, 2020, Selling, general, and administrative expenses also decreased due to reduced marketing costs and decreases in costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures, partially offset by the strengthening of the United States dollar against foreign currencies.

Total Other Income/Expense, Net

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

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

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

Our effective tax rates on pre-tax income were 12.4% and 16.8% for the three months ended September 30, 2020 and 2019, respectively, and 13.5% and 17.9% for the nine months ended September 30, 2020 and 2019, respectively.

The decrease in our effective tax rate for the three and nine months ended September 30, 2020 compared to the prior periods was primarily due to higher prior period domestic pre-tax income

due to the sales of the Speedpay and Paymap businesses, partially offset by increased discrete expenses in the current period.

Selling, general, and administrative expenses decreased for the three months ended March 31, 2021 compared to the corresponding period in the prior year due to fluctuations between the United States dollar and foreign currencies and a reduction in restructuring-related expenses, partially offset by increases in employee-related expenses, including incentive compensation, and marketing costs.

Total Other Expense, Net

Total other expense, net during the three months ended March 31, 2021 when compared to the prior period benefited from a reduction in interest expense driven by a lower weighted-average interest rate on our outstanding debt.

In the second quarter of 2021, we recorded a gain from the sale of an investment and the costs associated with the repayment of our 2022 Notes in Other income/(expense), net, as discussed in Capital Resources and Liquidity below.

Our provision for income taxes for the three months ended March 31, 2021 and 2020 is based on the estimated annual effective tax rate, in addition to discrete items.

Our effective tax rates on pre-tax income were 10.4% and 12.5% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in our effective tax rate for the three months ended March 31, 2021 compared to the prior period was primarily due to changes in the composition between higher-taxed and lower-taxed foreign earnings and an increase in discrete tax benefits.

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

As of September 30, 2020, the total amount of tax contingency reserves was $310.9 million, including accrued interest and penalties, net of related items.

As of March 31, 2021, the total amount of tax contingency reserves was $307.7 million, including accrued interest and penalties, net of related items.

Our tax reserves reflect our judgment as to the resolution of the issues involved if subject to judicial review or other settlement.

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Earnings Per Share

During the three months ended September 30, 2020 and 2019, basic earnings per share were $0.56 and $0.32, respectively, and diluted earnings per share were $0.55 and $0.32, respectively.

During the nine months ended September 30, 2020 and 2019, basic earnings per share were $1.38 and $2.14, respectively, and diluted earnings per share were $1.37 and $2.13, respectively.

During the three months ended March 31, 2021 and 2020 basic earnings per share were $0.44 and $0.43, respectively, and diluted earnings per share were $0.44 and $0.42, respectively.

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

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

For the three months ended September 30, 2020 and 2019, there were 1.3 million and 0.5 million, respectively, and for the nine months ended September 30, 2020 and 2019, there were 1.7 million and 2.4 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above our weighted-average share price during the periods and their effect was anti-dilutive.

Earnings per share for the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year were impacted by the previously described factors impacting net income and a lower number of shares outstanding.

Earnings per share for the nine months ended September 30, 2019 were impacted by the gain on the sale of Speedpay in the second quarter of 2019.

For the three months ended March 31, 2021 and 2020, there were 1.4 million and 1.1 million, respectively, of shares excluded from the diluted earnings per share calculation under the treasury stock method, primarily due to outstanding restricted stock units and options to purchase shares of Western Union stock, as the assumed proceeds of the restricted stock and options per unit were above our weighted-average share price during the periods and their effect was anti-dilutive.

Earnings per share for the three months ended March 31, 2021 compared to the corresponding period in the prior year were impacted by the previously described factors impacting net income and a lower number of shares outstanding.

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

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

During the three and nine months ended September 30, 2020, we incurred $9.1 million and $24.8 million, respectively, of restructuring-related expenses, and we incurred $91.5 million and $98.9 million, respectively, during the three and nine months ended September 30, 2019, as further discussed above.

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

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

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

The following table sets forth the components of segment revenues as a percentage of the consolidated totals for the three months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

September 30,

Consumer-to-Consumer

Business Solutions

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

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

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

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

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

Consumer-to-Consumer Segment

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

Three Months Ended

Nine Months Ended

September 30,

The following table sets forth our Consumer-to-Consumer segment results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars and transactions in millions)

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Consumer-to-Consumer transactions

Our Consumer-to-Consumer money transfer service, including our online money transfer transactions conducted and funded through websites and mobile apps marketed under our brands (“westernunion.com”) and transactions initiated on internet and mobile applications hosted by our third-party white label or co-branded digital partners (together with westernunion.com, “Digital Money Transfer”) is provided through one interconnected global network where a money transfer can be sent from one location to another around the world.

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

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

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

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

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

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

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

Included in each region’s transaction and revenue percentages in the tables below are Digital Money Transfer transactions for the three months ended March 31, 2021 and 2020.

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

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

Three Months Ended September 30, 2020

Nine Months Ended September 30, 2020

(Decline), as

(Decline) (a) -

Three Months Ended March 31, 2021

as Reported -

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

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East Asia and Oceania ("APAC")

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

Total Consumer-to-Consumer growth:

Digital Money Transfer (c)

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

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

The table below sets forth regional revenues as a percentage of our Consumer-to-Consumer revenue for the three months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

September 30,

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

Digital Money Transfer, which is included in the regional percentages above, represented approximately 21% and 14% of our Consumer-to-Consumer revenues for the three months ended September 30, 2020 and 2019, respectively, and 20% and 13% for the nine months ended September 30, 2020 and 2019, respectively.

Our consumers transferred $26.9 billion and $22.4 billion in Consumer-to-Consumer principal for the three months ended September 30, 2020 and 2019 of which $25.5 billion and $20.6 billion related to cross-border principal for the same corresponding periods described above, respectively.

Our consumers transferred $69.4 billion and $65.5 billion in Consumer-to-Consumer principal for the nine months ended September 30, 2020 and 2019, of which $65.3 billion and $60.2 billion related to cross-border principal for the same corresponding periods described above, respectively.

Consumer-to-Consumer money transfer revenue decreased 1% and transactions increased 6% for the three months ended September 30, 2020 compared to the corresponding period in the prior year, and revenue decreased 6% and transactions declined 2% for the nine months ended September 30, 2020 compared to the corresponding period in the prior year, including as a result of the impacts from the worldwide actions related to COVID-19.

For both periods, revenues were impacted by a decrease in transaction volumes from retail locations, partially offset by growth in digital transactions, including from white label partnerships.

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

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, negatively impacted revenue by 1% and 2% for the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods in the prior year.

Constant currency revenue was flat and decreased 4% for the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods in the prior year.

Revenues compared to the prior year were negatively impacted by COVID-19, which caused governments around the world to institute various protective measures in an effort to slow the spread of the virus.

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

The COVID-19 outbreak and associated public health measures also resulted in a decline in economic activity that negatively impacted our revenues for the three and nine months ended September 30, 2020.

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

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

Digital Money Transfer, which is included in the regional percentages above, represented approximately 23% and 16% of our Consumer-to-Consumer revenues for the three months ended March 31, 2021 and 2020, respectively.

Our consumers transferred $25.7 billion and $20.6 billion in Consumer-to-Consumer principal for the three months ended March 31, 2021 and 2020 of which $24.5 billion and $19.1 billion related to cross-border principal for the same corresponding periods described above, respectively.

The increase in principal and cross-border principal transferred during the three months ended March 31, 2021 compared to the corresponding period in the prior year was primarily attributable to growth in Digital Money Transfer.

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

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

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

Consumer-to-Consumer money transfer revenue increased 4% and transactions increased 9% for the three months ended March 31, 2021 compared to the corresponding period in the prior year.

Revenues increased due to transaction growth from Digital Money Transfer, including from white label partnerships, partially offset by a decrease in transactions from retail locations in our Consumer-to-Consumer segment.

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

The significant majority of agent locations that had been closed as a result of COVID-19 have resumed offering our services as of September 30, 2020, although certain of our retail locations remain closed.

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

Revenues in the EU & CIS and MEASA regions for the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year were impacted by transaction declines in retail money transfers, partially offset by transaction growth from Digital Money Transfer, including white label partnerships.

For the three and nine months ended September 30, 2020, the revenue decreases in LACA, which generates a higher proportion of revenues from retail locations compared to our other regions, were primarily due to transaction declines caused by continued COVID-19-related government protective measures, including agent location closures in the region.

For the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year, westernunion.com revenues, which have been included in the regions as described above, were negatively impacted by net price reductions.

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

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

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

Fluctuations in the United States dollar compared to foreign currencies, net of the impact of foreign currency hedges, positively impacted revenue by 2% for the three months ended March 31, 2021 compared to the corresponding period in the prior year.

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

In our Consumer-to-Consumer regions, NA revenue was flat for the three months ended March 31, 2021 compared to the corresponding period in the prior year, as transaction growth in our United States outbound services was offset by declines in transactions sent within the United States and in transactions sent from the United States to Cuba, as these money transfer services were suspended in October 2020.

For the three months ended March 31, 2021 compared to the corresponding period in the prior year, the EU & CIS region experienced strong revenue growth in France and Russia, and transaction volumes for both the EU & CIS and MEASA regions continued to benefit from growth in Digital Money Transfer, including white label partnerships.

The revenue growth in the LACA region was primarily due to an increase in principal transferred during the three months ended March 31, 2021 compared to the corresponding period in the prior year.

Digital Money Transfer revenue, including westernunion.com, increased during the three months ended March 31, 2021 compared to the corresponding period in the prior year due to an increase in digital transaction volumes, partially offset by price reductions.

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

We will likely continue to implement price changes from time to time in response to competition and other factors.

Price reductions generally reduce margins and adversely affect financial results in the short term and may also adversely affect

financial results in the long term if transaction volumes do not increase sufficiently.

Price reductions generally reduce margins and adversely affect financial results in the short term and may also adversely affect financial results in the long term if transaction volumes do not increase sufficiently.

Price increases may adversely affect transaction volumes, as consumers may not use our services if we fail to price them appropriately.

Operating Income

Consumer-to-Consumer operating income increased 3% for the three months ended September 30, 2020 compared to the corresponding period in the prior year due to decreases in employee-related expenses, including incentive compensation and as a result of reduced hiring and savings from our restructuring plan, partially offset by increased allocations of certain information technology expenses, as previously discussed, and an increase in credit losses.

For the nine months ended September 30, 2020, Consumer-to-Consumer operating income decreased 7% compared to the corresponding period in the prior year due to the decrease in revenues, increased allocations of certain information technology expenses, an increase in credit losses, and the strengthening of the United States dollar against certain foreign currencies, partially offset by decreases in employee-related expenses, as described above, and a decrease in marketing costs.

Consumer-to-Consumer operating income decreased 2% for the three months ended March 31, 2021 compared to the corresponding period in the prior year primarily due to increases in information technology costs, marketing costs, and employee-related expenses, including incentive compensation, partially offset by fluctuations in the United States dollar compared to foreign currencies.

Business Solutions

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth our Business Solutions segment results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars in millions)

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Operating income margin

Business Solutions revenue decreased 11% and 9% for the three and nine months ended September 30, 2020, respectively, compared to the corresponding periods in the prior year, primarily due to a decline in payment services activity, generally across all geographic regions.

For the three months ended September 30, 2020, revenues also decreased due to a decline in hedging activity.

We believe these decreases were due to a downturn in economic conditions and trade, which primarily resulted from the effects of COVID-19.

Fluctuations in the exchange rates between the United States dollar and foreign currencies positively impacted revenue by 2% and negatively impacted revenue by 1% for the three and nine months ended September 30, 2020, respectively.

We expect that Business Solutions revenues in the fourth quarter of 2020 will continue to be negatively impacted by the effects of COVID-19, and to the extent the COVID-19 pandemic or the related macro-economic consequences continue, our results will continue to be adversely impacted.

Business Solutions revenue decreased 2% for the three months ended March 31, 2021 compared to the corresponding period in the prior year primarily due to a decline in hedging activity.

Fluctuations in the exchange rates between the United States dollar and foreign currencies positively impacted revenue by 6% for the three months ended March 31, 2021.

Operating Income

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

For the three months ended March 31, 2021 operating income and operating income margin decreased when compared to the corresponding period in the prior year due to an increase in employee-related expenses.

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

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

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

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth Other results for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars in millions)

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Operating income margin

Other revenue decreased 33% and 52% for the three and nine months ended September 30, 2020, compared to the corresponding periods in the prior year due to declines in our cash-based bill payments services offered at retail locations and the strengthening of the United States dollar against the Argentine peso.

For the nine months ended September 30, 2020 when compared to the corresponding period in the prior year, the decrease in other revenue was primarily due to the impact of the sale of Speedpay in the second quarter of 2019.

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

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

Other revenue decreased 18% for the three months ended March 31, 2021 compared to the corresponding period in the prior year due to declines in our cash-based bill payments services offered at retail locations and the strengthening of the United States dollar against the Argentine peso.

Operating Income

Other operating income increased for the three and nine months ended September 30, 2020 compared to the corresponding periods in the prior year due to the change in allocated information technology expenses, as previously discussed, partially offset by a decrease in revenues from our cash-based bill payments services.

For the nine months ended September 30, 2020 compared to the corresponding period in the prior year, Other operating income was also impacted by a decrease in revenues, net of a reduction in direct expenses from the Speedpay and Paymap divestitures, and a decrease in costs related to strategic initiatives, including for the review and closing of mergers, acquisitions, and divestitures.

Other operating income decreased for the three months ended March 31, 2021 compared to the corresponding period in the prior year due to a decrease in revenues, as discussed above.

Capital Resources and Liquidity

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

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

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

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

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

The majority of our interest payments are due in the second and fourth quarters.

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

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

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

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

These factors include, but are not limited to, changes in economic conditions, especially those impacting migrant populations and including as a result of COVID-19 related impacts, changes in income tax laws or the status of income tax audits, including the resolution of outstanding tax matters, and the settlement or resolution of legal contingencies.

The duration and severity of COVID-19 and related impacts are uncertain, but we believe we are taking appropriate measures to attempt to address liquidity-related considerations by evaluating, monitoring, and assessing the creditworthiness and credit risk ratings of our agents and customers.

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

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

(i) requirements

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

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

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

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

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

As of September 30, 2020, we had no outstanding borrowings on our Revolving Credit Facility and $50.0 million of outstanding borrowings on the commercial paper program.

As of March 31, 2021, we had no outstanding borrowings on our Revolving Credit Facility and no outstanding borrowings on the commercial paper program.

To help ensure availability of our worldwide cash where needed, we utilize a variety of planning and financial strategies, including decisions related to the amounts, timing, and manner by which cash is made available from our international subsidiaries.

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Cash and Investment Securities

As of September 30, 2020 and December 31, 2019, we had cash and cash equivalents of $1,251.4 million and $1,450.5 million, respectively.

As of March 31, 2021 and December 31, 2020, we had cash and cash equivalents of $1,502.6 million and $1,428.2 million, respectively.

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

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We maintain a portion of these settlement assets in highly liquid investments, classified as Cash and cash equivalents within Settlement assets, to fund settlement obligations.

Investment securities, classified within Settlement assets on the Condensed Consolidated Balance Sheets, were $2.2 billion and $1.7 billion as of September 30, 2020 and December 31, 2019, respectively, and consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes.

Investment securities, classified within Settlement assets on the Condensed Consolidated Balance Sheets, were $1,604.9 million and $1,990.6 million as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of highly-rated state and municipal debt securities, including fixed-rate term notes and variable-rate demand notes.

The substantial majority of our investment securities are held in order to comply with state licensing requirements in the United States and are required to have credit ratings of "A-"

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Our investment securities are also actively managed with respect to concentration.

As of September 30, 2020, all investments with a single issuer and each individual security represented less than 10% of our investment securities portfolio.

As of March 31, 2021, all investments with a single issuer and each individual security represented less than 10% of our investment securities portfolio.

Subsequent to March 31, 2021, we repaid our 3.6% unsecured notes due in 2022, as further described below.

Cash Flows from Operating Activities

Cash provided by operating activities decreased to $585.6 million during the nine months ended September 30, 2020, from $665.3 million in the corresponding period in the prior year, primarily as a result of the timing of accruals and payments related to our restructuring plan, increased incentive and other employee benefit payments, and timing of payments to our vendors, partially offset by lower income tax payments and an increase in operating income.

Cash provided by operating activities increased to $175.8 million during the three months ended March 31, 2021, from $112.4 million in the corresponding period in the prior year, primarily as a result of decreased employee incentive and restructuring payments.

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

Financing Resources

As of September 30, 2020, we have outstanding borrowings at par value of $3,050.0 million.

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

On March 9, 2021, we issued $600.0 million and $300.0 million of aggregate principal amount of 1.350% and 2.750% unsecured notes due March 15, 2026 (“2026 Notes”) and March 15, 2031 (“2031 Notes”), respectively.

Interest with respect to these notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021.

If a change of control triggering event occurs, holders of the 2026 Notes and 2031 Notes may require us to repurchase some or all of their notes at a price equal to 101% of the principal amount of their notes, plus any accrued and unpaid interest.

We may redeem the 2026 Notes and the 2031 Notes, in whole or in part, at any time prior to February 15, 2026 and December 15, 2030, respectively, at the greater of par or a price based on the applicable treasury rate plus 15

and 25 basis points, respectively.

We may redeem the 2026 Notes and the 2031 Notes at any time after February 15, 2026 and December 15, 2030, respectively, at a price equal to par, plus accrued interest.

Proceeds from the 2026 Notes and 2031 Notes and cash, including cash generated from operations, were used to repay $650.0 million of the term loan facility in the first quarter of 2021.

As of March 31, 2021, we have outstanding borrowings at par value of $3,250.0 million.

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

Our borrowings also include our floating rate term loan.

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

As of September 30, 2020, we had no outstanding borrowings under our Revolving Credit Facility.

As of March 31, 2021, we had no outstanding borrowings under our Revolving Credit Facility.

If the amount available to borrow under the Revolving Credit Facility decreased, or if the Revolving Credit Facility were eliminated, the cost and availability of borrowing under the commercial paper program may be impacted.

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

We had $50.0 million of commercial paper borrowings outstanding as of September 30, 2020.

Our commercial paper borrowings as of September 30, 2020 had a weighted-average annual interest rate of approximately 0.3% and a weighted-average term of approximately 1 day.

During the nine months ended September 30, 2020, the average commercial paper balance outstanding was $229.3 million, and the maximum balance outstanding was $690.0 million.

We had no commercial paper borrowings outstanding as of March 31, 2021.

During the three months ended March 31, 2021, the average commercial paper balance outstanding was $25.7 million, and the maximum balance outstanding was $220.0 million.

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

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For additional information, please refer to Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in our Annual Report on Form 10-K for the year ended December 31, 2020.

Investment in Saudi Digital Payments Company

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

Under the terms of the agreement, we have agreed to invest up to approximately $200 million for up to a 15% investment in stc pay, and this transaction is expected to close in the second quarter of 2021.

Sale of Investment

On April 12, 2021, we sold a substantial majority of the shares we held as a minority investor in a private company for cash proceeds of $50.9 million.

We recorded a gain of approximately $48 million within Other income/(expense), net in the second quarter of 2021.

We will continue to measure the retained portion of this investment at cost, less any impairment, adjusted for any changes resulting from observable price changes in orderly transactions for identical or similar investments.

Capital Expenditures

The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $106.3 million and $93.5 million for the nine months ended September 30, 2020 and 2019, respectively.

The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $96.9 million and $35.7 million for the three months ended March 31, 2021 and 2020, respectively.

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

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

During the first quarter of 2021, we transitioned a majority of our money transfer settlement processes to our new global platform.

This project has been and will continue to be complex, as we have defined, created, and implemented new settlement solutions that are specific to the needs of our agents and other partners, who span a number of countries and regulatory regimes.

In future periods, we will transition the remaining processes, primarily including money transfers sent from the United States and Canada, to the new platform.

We expect that this will require the continued assistance of our third-party software provider, with whom we have worked on this project over the past several years.

For further discussion of the risks associated with interruptions in our systems, see risk factor, “ Interruptions in our systems, including as a result of cyber attacks, or disruptions in our workforce may have a significant adverse effect on our business” in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020.

Share Repurchases and Dividends

During the nine months ended September 30, 2020 and 2019, 8.5 million and 24.4 million shares were repurchased for $217.4 million and $475.2 million, respectively, excluding commissions, at an average cost of $25.45 and $19.48, respectively.

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

Our Board of Directors declared quarterly cash dividends of $0.225 per common share in each of the first three quarters of 2020, representing $277.4 million in total dividends.

During the three months ended March 31, 2021 and 2020, 3.1 million and 8.5 million shares were repurchased for $75.0 million and $217.4 million, respectively, excluding commissions, at an average cost of $24.24 and $25.45, respectively.

As of March 31, 2021, $707.6 million remained available under the share repurchase authorization approved by our Board of Directors through December 31, 2021.

Our Board of Directors declared a quarterly cash dividend of $0.235 per common share in the first quarter of 2021, representing $96.6 million in total dividends.

Material Cash Requirements

Debt Service Requirements

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

On April 1, 2021, we repaid the 3.6% unsecured notes due in 2022 for total consideration of $514.3 million, excluding accrued interest, using proceeds from the 2026 Notes and 2031 Notes and cash, including cash generated from operations.

The cost associated with the repayment was recorded to Other income/(expense), net, in the second quarter of 2021.

2017 United States Federal Tax Liability

The Tax Act imposed a tax on certain of our previously undistributed foreign earnings.

This tax charge, combined with our other 2017 United States taxable income and tax attributes, resulted in a 2017 United States federal tax liability of approximately $800 million, of which approximately $604 million remained as of September 30, 2020.

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

Under the terms of the law, we are required to pay the remaining installment payments as summarized in Contractual Obligations located in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

Under the terms of the law, we are required to pay the remaining installment payments as summarized in the Capital Resources and Liquidity discussion located in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on

Form 10-K for the year ended December 31, 2020.

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

Restructuring Activities

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

As of September 30, 2020, the accrual balance related to our restructuring plan was approximately $34 million.

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

Off-Balance Sheet Arrangements

Operating Leases

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

Refer to Part II, Item 8, Financial Statements and Supplemental Data , Note 13, Leases, in our Annual Report on Form 10-K for the year ended December 31, 2020 for details on our leasing arrangements, including future maturities of our operating lease liabilities.

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

Other Commercial Commitments

We had approximately $370 million in outstanding letters of credit and bank guarantees as of September 30, 2020 primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

The significant majority of our letters of credit and bank guarantees have a one-year renewal option.

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

As of September 30, 2020, our total amount of unrecognized income tax benefits was $321.5 million, including associated interest and penalties.

We had approximately $430 million in outstanding letters of credit and bank guarantees as of March 31, 2021 primarily held in connection with safeguarding consumer funds, lease arrangements, and certain agent agreements.

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

As of March 31, 2021, our total amount of unrecognized income tax benefits was $364.6 million, including associated interest and penalties.

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

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In our Annual Report on Form 10-K for the year ended December 31, 2020, we disclosed that the fair value of the Business Solutions reporting unit was sensitive to changes in projections for revenue growth rates and EBITDA margins, quantified the decrease in the projected revenue growth rate that would result in the fair value of the reporting unit approximating its carrying value, and described key factors impacting our ability to achieve the projected revenue growth and EBITDA margins.

In addition, we are monitoring the development of COVID-19 and evaluating the impact it may have on our Business Solutions reporting unit’s fair value.

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

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

As of March 31, 2021, the Business Solutions reporting unit had goodwill of $532.0 million.

Recent Accounting Pronouncements

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We also have exposure to certain foreign currency denominated cash and other asset and liability positions and may utilize foreign currency forward contracts, typically with maturities of less than one year at inception, to offset foreign exchange rate fluctuations on these positions.

In certain consumer money transfer, bill payment and Business Solutions transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer or business and the rate available in the wholesale foreign exchange market, helping to provide protection against currency

fluctuations.

In certain consumer money transfer, bill payment, and Business Solutions transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer or business and the rate available in the wholesale foreign exchange market, helping to provide protection against currency fluctuations.

We attempt to promptly buy and sell foreign currencies as necessary to cover our net payables and receivables which are denominated in foreign currencies.

We use longer-term foreign currency forward contracts to help mitigate risks associated with changes in foreign currency exchange rates on revenues denominated primarily in the euro, and to a lesser degree, the British pound, Canadian dollar, and other currencies.

We use longer-term foreign currency forward contracts to help mitigate risks associated with changes in foreign currency exchange rates on revenues denominated primarily in the euro, and to a lesser degree, the Canadian dollar, the British pound, and other currencies.

We use contracts with maturities of up to 36 months at inception to mitigate some of the impact that changes in foreign currency exchange rates could have on forecasted revenues, with a targeted weighted-average maturity of approximately one year.

We believe the use of longer-term foreign currency forward contracts provides predictability of future cash flows from our international operations.

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

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

During the third quarter of 2019, the Argentine government imposed restrictions that limit the transfer of cash outside of the country.

While we manage our working capital balances to have minimal net monetary assets denominated in the Argentine peso, further policy restrictions could cause our cash and cash equivalents held in the Argentine peso to increase in future periods, including as a result of cash flows generated by our operations.

Therefore, the continued devaluation of the Argentine peso could adversely affect our results of operations, and limits on repatriating excess cash balances could adversely affect future distributions of excess cash from Argentina or increase the costs of these repatriations.

We have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature of our Business Solutions business.

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In certain countries, this business also writes foreign currency forward and option contracts for our customers to facilitate future payments.

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

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

Business Solutions aggregates its foreign exchange 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.

As of December 31, 2019, a hypothetical uniform 10% strengthening or weakening in the value of the United States dollar relative to all other currencies in which our net income is generated would have resulted in a decrease/increase to pre-tax annual income of approximately $45 million, based on our forecast of unhedged exposure to foreign currency at that date.

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

As of March 31, 2021, a hypothetical uniform 10% strengthening or weakening in the value of the United States dollar relative to all other currencies in which our net income is generated would have resulted in a decrease/increase to pre-tax annual income of approximately $35 million, based on our forecast of unhedged exposure to foreign currency at that date.

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

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Interest Rates

We invest in several types of interest-bearing assets, with a total value as of September 30, 2020 of approximately $3.1 billion.

We invest in several types of interest-bearing assets, with a total value as of March 31, 2021 of approximately $3.3 billion.

Approximately $2.0 billion of these assets bear interest at floating rates.

These assets primarily include cash in banks, money market instruments, and state and municipal variable rate securities and are included in our Condensed Consolidated Balance Sheets within Cash and cash equivalents and Settlement assets.

These assets primarily include cash in banks, money market instruments, and state and municipal variable rate securities and are included in our Condensed

Consolidated Balance Sheets within Cash and cash equivalents and Settlement assets.

To the extent these assets are held in connection with money transfers and other related payment services awaiting redemption, they are classified as Settlement assets.

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

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

Settlement assets in the Condensed Consolidated Balance Sheets.

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

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

conversely, a decrease to interest rates would result in an increase to the fair values of the securities.

We have classified these investments as available-for-sale within Settlement assets in the Condensed Consolidated Balance Sheets, and accordingly, recorded these instruments at their fair value with the net unrealized gains and losses, net of the applicable deferred income tax effect, being added to or deducted from our Total stockholders’ equity/(deficit) on our Condensed Consolidated Balance Sheets.

As of September 30, 2020, we had a total of approximately $1.0 billion of borrowings subject to floating interest rates.

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

Borrowings of $50.0 million under our commercial paper program mature in such a short period that the financing is also effectively floating rate.

As of March 31, 2021, we had a total of $300.0 million of borrowings under our term loan that are subject to floating interest rates.

The interest on these borrowings is calculated using a selected LIBOR rate plus an interest rate margin of 125 basis points.

Borrowings under our commercial paper program mature in such a short period that the financing is also effectively floating rate.

As of March 31, 2021, there were no outstanding borrowings under our commercial paper program.

We review our overall exposure to floating and fixed rates by evaluating our net asset or liability position and the duration of each individual position.

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From time to time, we use interest rate swaps designated as hedges to vary the percentage of fixed to floating rate debt, subject to market conditions.

As of September 30, 2020, our weighted-average effective rate on total borrowings was approximately 3.6%.

As of March 31, 2021, our weighted-average effective rate on total borrowings was approximately 3.6%.

For further detail on our variable rate borrowings, see risk factor “ We have substantial debt and other obligations that could restrict our operations ” in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020.

A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to pre-tax income for the next twelve months of approximately $10 million based on borrowings that are sensitive to interest rate fluctuations, net of the impact of hedges, on September 30, 2020.

The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on September 30, 2020 that bear interest at floating rates, would result in an offsetting increase/decrease to pre-tax income for the next twelve months of approximately $17 million.

A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to pre-tax income for the next twelve months of approximately $3 million based on borrowings that are sensitive to interest rate fluctuations, net of the impact of hedges, on March 31, 2021.

The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on March 31, 2021 that bear interest at floating rates, would result in an offsetting increase/decrease to pre-tax income for the next twelve months of approximately $20 million.

There are inherent limitations in the sensitivity analysis presented, primarily due to the assumptions that interest rate changes would be instantaneous and consistent across all geographies in which our interest-bearing assets are held and our liabilities are payable.

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

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

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

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

insufficient funds or other collection impediments, such as fraud, which are anticipated to increase as electronic channels become a greater proportion of our money transfer business.

In addition, we are exposed to losses directly from

consumer transactions, particularly through our digital channels, where transactions are originated through means other than cash and are therefore subject to "chargebacks,"

insufficient funds or other collection impediments, such as fraud, which are anticipated to increase as digital channels become a greater proportion of our money transfer business.

We are exposed to credit risk in our Business Solutions business relating to:

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

What changed 10-Q

Item 1. Financial Statements