| Segments
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• | 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, real-time money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers - that is, the transfer of funds from one country to another - and, in certain countries, intra-country transfers - that is, money transfers from one location to another in the same country. This segment also includes money transfer transactions that can be initiated through the Company's websites and account based money transfers. |
• | Consumer-to-Business - The Consumer-to-Business operating segment facilitates bill payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. This segment primarily consists of United States bill payments, Pago Fácil (bill payments in Argentina), and international bill payments. The significant majority of the segment's revenue was generated in the United States during all periods presented. |
• | Business Solutions - The Business Solutions operating segment facilitates business-to-business payment solutions, primarily cross-border, cross-currency transactions, mainly for small and medium size enterprises and other organizations. The majority of the segment's business relates to exchanges of currency at the spot rate which enables customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments. Travelex Global Business Payments (“TGBP”), which was acquired in November 2011 (see Note 3), is also included in this segment. |
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Travelex Global Business Payments (b) | Finint S.r.l. | Angelo Costa S.r.l. | |||||||||
Assets: | |||||||||||
Cash and cash equivalents | $ | 25.3 | $ | — | $ | — | |||||
Settlement assets | 171.6 | 52.2 | 46.3 | ||||||||
Property and equipment | 5.1 | 0.5 | 3.0 | ||||||||
Goodwill | 715.0 | 153.6 | 174.2 | ||||||||
Other intangible assets | 314.2 | 64.8 | 51.4 | ||||||||
Other assets | 44.9 | 2.0 | 1.5 | ||||||||
Total assets | $ | 1,276.1 | $ | 273.1 | $ | 276.4 | |||||
Liabilities: | |||||||||||
Accounts payable and accrued liabilities | $ | 45.2 | $ | 6.1 | $ | 10.8 | |||||
Settlement obligations | 171.6 | 57.5 | 55.7 | ||||||||
Income taxes payable | 1.1 | 3.1 | 10.3 | ||||||||
Deferred tax liability, net | 75.1 | 15.8 | 15.5 | ||||||||
Other liabilities | 21.8 | 3.5 | 2.2 | ||||||||
Total liabilities | 314.8 | 86.0 | 94.5 | ||||||||
Total consideration (a) | $ | 961.3 | $ | 187.1 | $ | 181.9 |
(a) | Total consideration includes cash consideration transferred and the revaluation of the Company's previous equity interest, if any, to fair value on the acquisition date. |
(b) | Amounts include the impact of the acquisition of the French assets of TGBP on May 4, 2012. |
Travelex Global Business Payments (a) | Finint S.r.l. | Angelo Costa S.r.l. | |||||||||
Customer and other contractual relationships | $ | 264.5 | $ | — | $ | — | |||||
Network of subagents | — | 53.9 | 44.6 | ||||||||
Other | 49.7 | 10.9 | 6.8 | ||||||||
Total identifiable intangible assets | $ | 314.2 | $ | 64.8 | $ | 51.4 |
(a) | Amounts include the impact of the acquisition of the French assets of TGBP on May 4, 2012. |
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Severance, Outplacement and Related Benefits | Other (a) | Total | |||||||||
Balance, December 31, 2011 | $ | 13.7 | $ | 0.2 | $ | 13.9 | |||||
Cash payments | (10.3 | ) | (0.2 | ) | (10.5 | ) | |||||
Balance, September 30, 2012 | $ | 3.4 | $ | — | $ | 3.4 |
(a) | Other expenses related to the relocation of various operations to new and existing Company facilities including expenses for hiring, training, relocation, travel and professional fees. All such expenses were recorded when incurred. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2011 | 2011 | ||||||
Cost of services | $ | 3.2 | $ | 10.6 | |||
Selling, general and administrative | 10.7 | 36.2 | |||||
Total restructuring and related expenses, pre-tax | $ | 13.9 | $ | 46.8 | |||
Total restructuring and related expenses, net of tax | $ | 9.7 | $ | 32.0 |
Consumer-to-Consumer | Consumer-to-Business | Business Solutions | Other | Total | ||||||||||||||||
First quarter 2011 | $ | 19.1 | $ | 3.5 | $ | — | $ | 1.4 | $ | 24.0 | ||||||||||
Second quarter 2011 | 6.8 | 0.9 | 0.9 | 0.3 | 8.9 | |||||||||||||||
Third quarter 2011 | 7.8 | 1.8 | 4.1 | 0.2 | 13.9 | |||||||||||||||
Total restructuring and related expenses | $ | 33.7 | $ | 6.2 | $ | 5.0 | $ | 1.9 | $ | 46.8 |
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Fair Value Measurement Using | Assets/ Liabilities at Fair Value | ||||||||||||||
September 30, 2012 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
State and municipal debt securities | $ | — | $ | 968.3 | $ | — | $ | 968.3 | |||||||
State and municipal variable rate demand notes | — | 870.7 | — | 870.7 | |||||||||||
Corporate debt and other | — | 17.1 | — | 17.1 | |||||||||||
Derivatives | — | 130.4 | — | 130.4 | |||||||||||
Total assets | $ | — | $ | 1,986.5 | $ | — | $ | 1,986.5 | |||||||
Liabilities: | |||||||||||||||
Commercial paper | — | 150.0 | — | 150.0 | |||||||||||
Notes and other borrowings | — | 3,694.9 | — | 3,694.9 | |||||||||||
Total borrowings | — | 3,844.9 | — | 3,844.9 | |||||||||||
Derivatives | — | 112.5 | — | 112.5 | |||||||||||
Total liabilities | $ | — | $ | 3,957.4 | $ | — | $ | 3,957.4 | |||||||
Fair Value Measurement Using | Assets/ Liabilities at Fair Value | ||||||||||||||
December 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
State and municipal debt securities | $ | — | $ | 866.5 | $ | — | $ | 866.5 | |||||||
State and municipal variable rate demand notes | — | 376.9 | — | 376.9 | |||||||||||
Corporate debt and other | 0.1 | 88.5 | — | 88.6 | |||||||||||
Derivatives | — | 124.8 | — | 124.8 | |||||||||||
Total assets | $ | 0.1 | $ | 1,456.7 | $ | — | $ | 1,456.8 | |||||||
Liabilities: | |||||||||||||||
Commercial paper | $ | — | $ | 297.0 | $ | — | $ | 297.0 | |||||||
Notes and other borrowings | — | 3,563.5 | — | 3,563.5 | |||||||||||
Total borrowings | — | 3,860.5 | — | 3,860.5 | |||||||||||
Derivatives | — | 86.6 | — | 86.6 | |||||||||||
Total liabilities | $ | — | $ | 3,947.1 | $ | — | $ | 3,947.1 |
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September 30, 2012 | December 31, 2011 | ||||||
Settlement assets: | |||||||
Cash and cash equivalents | $ | 362.3 | $ | 712.5 | |||
Receivables from selling agents and Business Solutions customers | 1,108.2 | 1,046.7 | |||||
Investment securities | 1,856.1 | 1,332.0 | |||||
$ | 3,326.6 | $ | 3,091.2 | ||||
Settlement obligations: | |||||||
Money transfer, money order and payment service payables | $ | 2,394.9 | $ | 2,242.3 | |||
Payables to agents | 931.7 | 848.9 | |||||
$ | 3,326.6 | $ | 3,091.2 |
September 30, 2012 | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Net Unrealized Gains/ (Losses) | ||||||||||||||
State and municipal debt securities (a) | $ | 954.7 | $ | 968.3 | $ | 13.9 | $ | (0.3 | ) | $ | 13.6 | ||||||||
State and municipal variable rate demand notes | 870.7 | 870.7 | — | — | — | ||||||||||||||
Corporate debt and other | 17.2 | 17.1 | — | (0.1 | ) | (0.1 | ) | ||||||||||||
$ | 1,842.6 | $ | 1,856.1 | $ | 13.9 | $ | (0.4 | ) | $ | 13.5 |
December 31, 2011 | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Net Unrealized Gains/ (Losses) | ||||||||||||||
State and municipal debt securities (a) | $ | 858.5 | $ | 866.5 | $ | 10.4 | $ | (2.4 | ) | $ | 8.0 | ||||||||
State and municipal variable rate demand notes | 376.9 | 376.9 | — | — | — | ||||||||||||||
Corporate debt and other | 88.7 | 88.6 | 0.6 | (0.7 | ) | (0.1 | ) | ||||||||||||
$ | 1,324.1 | $ | 1,332.0 | $ | 11.0 | $ | (3.1 | ) | $ | 7.9 |
(a) | The majority of these securities are fixed-rate instruments. |
Fair Value | |||
Due within 1 year | $ | 189.0 | |
Due after 1 year through 5 years | 760.6 | ||
Due after 5 years through 10 years | 79.8 | ||
Due after 10 years | 826.7 | ||
$ | 1,856.1 |
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Interest cost | $ | 3.7 | $ | 4.5 | $ | 11.0 | $ | 13.5 | |||||||
Expected return on plan assets | (5.2 | ) | (5.3 | ) | (15.6 | ) | (16.0 | ) | |||||||
Amortization of actuarial loss | 2.6 | 2.0 | 7.9 | 6.1 | |||||||||||
Net periodic benefit cost | $ | 1.1 | $ | 1.2 | $ | 3.3 | $ | 3.6 |
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Contracts not designated as hedges: | |||
Euro | $ | 175.4 | |
British pound | 48.8 | ||
Canadian dollar | 43.4 | ||
Other | 157.2 | ||
Contracts designated as hedges: | |||
Euro | $ | 502.4 | |
Canadian dollar | 123.4 | ||
British pound | 97.2 | ||
Australian dollar | 48.9 | ||
Other | 80.9 |
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
Fair Value | Fair Value | ||||||||||||||||||
Balance Sheet Location | September 30, 2012 | December 31, 2011 | Balance Sheet Location | September 30, 2012 | December 31, 2011 | ||||||||||||||
Derivatives — hedges: | |||||||||||||||||||
Interest rate fair value hedges — Corporate | Other assets | $ | 4.9 | $ | 4.4 | Other liabilities | $ | — | $ | — | |||||||||
Foreign currency cash flow hedges — Consumer-to-Consumer | Other assets | 21.7 | 37.0 | Other liabilities | 14.7 | 6.6 | |||||||||||||
Total | $ | 26.6 | $ | 41.4 | $ | 14.7 | $ | 6.6 | |||||||||||
Derivatives — undesignated: | |||||||||||||||||||
Foreign currency — Business Solutions | Other assets | $ | 102.6 | $ | 79.8 | Other liabilities | $ | 96.8 | $ | 67.6 | |||||||||
Foreign currency — Consumer-to-Consumer | Other assets | 1.2 | 3.6 | Other liabilities | 1.0 | 12.4 | |||||||||||||
Total | $ | 103.8 | $ | 83.4 | $ | 97.8 | $ | 80.0 | |||||||||||
Total derivatives | $ | 130.4 | $ | 124.8 | $ | 112.5 | $ | 86.6 |
Gain/(Loss) Recognized in Income on Derivatives | Gain/(Loss) Recognized in Income on Related Hedged Item (a) | |||||||||||||||||||||
Income Statement Location | Amount | Income Statement Location | Amount | |||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | Hedged Item | September 30, 2012 | September 30, 2011 | |||||||||||||||||
Interest rate contracts | Interest expense | $ | 1.1 | $ | 3.4 | Fixed-rate debt | Interest expense | $ | 0.7 | $ | 3.0 | |||||||||||
Total gain | $ | 1.1 | $ | 3.4 | $ | 0.7 | $ | 3.0 |
Gain/(Loss) Recognized in Income on Derivatives | Gain/(Loss) Recognized in Income on Related Hedged Item (a) | |||||||||||||||||||||
Income Statement Location | Amount | Income Statement Location | Amount | |||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | Hedged Item | September 30, 2012 | September 30, 2011 | |||||||||||||||||
Interest rate contracts | Interest expense | $ | 3.5 | $ | 11.6 | Fixed-rate debt | Interest expense | $ | 2.2 | $ | 8.7 | |||||||||||
Total gain | $ | 3.5 | $ | 11.6 | $ | 2.2 | $ | 8.7 |
Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) | Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b) | ||||||||||||||||||||||||||
Amount | Income Statement Location | Amount | Income Statement Location | Amount | ||||||||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||||||
Foreign currency contracts | $ | (16.7 | ) | $ | 60.6 | Revenue | $ | 5.8 | $ | (11.8 | ) | Derivative gains/(losses), net | $ | 0.5 | $ | (8.0 | ) | |||||||||||
Interest rate contracts (c) | — | (19.2 | ) | Interest expense | (0.9 | ) | (0.9 | ) | Interest expense | — | — | |||||||||||||||||
Total gain/(loss) | $ | (16.7 | ) | $ | 41.4 | $ | 4.9 | $ | (12.7 | ) | $ | 0.5 | $ | (8.0 | ) |
Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) | Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b) | ||||||||||||||||||||||||||
Amount | Income Statement Location | Amount | Income Statement Location | Amount | ||||||||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||||||
Foreign currency contracts | $ | (7.2 | ) | $ | 5.4 | Revenue | $ | 11.6 | $ | (32.2 | ) | Derivative gains/(losses), net | $ | 0.1 | $ | (7.5 | ) | |||||||||||
Interest rate contracts (c) | — | (21.6 | ) | Interest expense | (2.7 | ) | (1.7 | ) | Interest expense | — | — | |||||||||||||||||
Total gain/(loss) | $ | (7.2 | ) | $ | (16.2 | ) | $ | 8.9 | $ | (33.9 | ) | $ | 0.1 | $ | (7.5 | ) |
Gain/(Loss) Recognized in Income on Derivatives (d) | |||||||||||||||||
Income Statement Location | Amount | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
Derivatives | 2012 | 2011 | 2012 | 2011 | |||||||||||||
Foreign currency contracts (e) | Selling, general and administrative | $ | (5.8 | ) | $ | 44.8 | $ | (6.1 | ) | $ | 11.5 | ||||||
Foreign currency contracts (f) | Derivative gains/(losses), net | (0.4 | ) | 3.6 | 0.9 | 0.5 | |||||||||||
Total gain/(loss) | $ | (6.2 | ) | $ | 48.4 | $ | (5.2 | ) | $ | 12.0 |
(a) | The gain of $0.7 million and $3.0 million in the three months ended September 30, 2012 and 2011, respectively, was comprised of a loss in value on the debt of $1.1 million and $3.4 million, respectively, and amortization of hedge accounting adjustments of $1.8 million and $6.4 million, respectively. The gain of $2.2 million and $8.7 million in the nine months ended September 30, 2012 and 2011, respectively, was comprised of a loss in value on the debt of $3.5 million and $11.6 million, respectively, and amortization of hedge accounting adjustments of $5.7 million and $20.3 million, respectively. |
(b) | The portion of the change in fair value of a derivative excluded from the effectiveness assessment for foreign currency forward contracts designated as cash flow hedges represents the difference between changes in forward rates and spot rates. |
(c) | The Company uses derivatives to hedge the forecasted issuance of fixed-rate debt and records the effective portion of the derivative’s fair value in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. These amounts are reclassified to “Interest expense” in the Condensed Consolidated Statements of Income over the life of the related notes. |
(d) | The Company uses foreign currency forward and option contracts as part of its business-to-business payments operations. These derivative contracts are excluded from this table as they are managed as part of a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed above. |
(e) | 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 gain on settlement assets and obligations and cash balances for the three and nine months ended September 30, 2012 was $6.1 million and $4.3 million, respectively. Foreign exchange loss on settlement assets and obligations and cash balances for the three and nine months ended September 30, 2011 was $46.5 million and $20.9 million, respectively. |
(f) | The derivative contracts used in the Company’s revenue hedging program are not designated as hedges in the final month of the contract. |
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September 30, 2012 | December 31, 2011 | ||||||
Due in less than one year: | |||||||
Commercial paper | $ | 150.0 | $ | 297.0 | |||
Floating rate notes (effective rate of 1.0%) due 2013 | 300.0 | 300.0 | |||||
Due in greater than one year (a): | |||||||
6.500% notes (effective rate of 5.6%) due 2014 | 500.0 | 500.0 | |||||
5.930% notes due 2016 (b) | 1,000.0 | 1,000.0 | |||||
3.650% notes (effective rate of 4.4%) due 2018 | 400.0 | 400.0 | |||||
5.253% notes due 2020 (b) | 324.9 | 324.9 | |||||
6.200% notes due 2036 (b) | 500.0 | 500.0 | |||||
6.200% notes due 2040 (b) | 250.0 | 250.0 | |||||
Other borrowings | 5.8 | 8.8 | |||||
Total borrowings at par value | 3,430.7 | 3,580.7 | |||||
Fair value hedge accounting adjustments, net (a) | 21.7 | 23.9 | |||||
Unamortized discount, net | (19.4 | ) | (21.4 | ) | |||
Total borrowings at carrying value (c) | $ | 3,433.0 | $ | 3,583.2 |
(a) | The Company utilizes interest rate swaps designated as fair value hedges to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term LIBOR-based variable rate payments in order to manage its overall exposure to interest rates. The changes in fair value of these interest rate swaps result in an offsetting hedge accounting adjustment recorded to the carrying value of the related note. These hedge accounting adjustments will be reclassified as reductions to or increases in “Interest expense” in the Condensed Consolidated Statements of Income over the life of the related notes, and cause the effective rate of interest to differ from the notes’ stated rate. |
(b) | The difference between the stated interest rate and the effective interest rate is not significant. |
(c) | As of September 30, 2012, the Company's weighted-average effective rate on total borrowings was approximately 5.0%. |
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Stock options granted: | |||
Weighted-average risk-free interest rate | 1.2 | % | |
Weighted-average dividend yield | 1.8 | % | |
Volatility | 33.2 | % | |
Expected term (in years) | 6.09 | ||
Weighted-average grant date fair value | $ | 4.91 |
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues: | |||||||||||||||
Consumer-to-Consumer: | |||||||||||||||
Transaction fees | $ | 889.6 | $ | 922.2 | $ | 2,655.2 | $ | 2,660.0 | |||||||
Foreign exchange revenues | 249.6 | 257.2 | 737.9 | 730.0 | |||||||||||
Other revenues | 12.3 | 13.9 | 38.0 | 36.5 | |||||||||||
1,151.5 | 1,193.3 | 3,431.1 | 3,426.5 | ||||||||||||
Consumer-to-Business: | |||||||||||||||
Transaction fees | 139.7 | 146.7 | 429.5 | 435.5 | |||||||||||
Foreign exchange revenues | 0.8 | 1.5 | 2.5 | 4.7 | |||||||||||
Other revenues | 6.8 | 7.1 | 19.8 | 21.8 | |||||||||||
147.3 | 155.3 | 451.8 | 462.0 | ||||||||||||
Business Solutions: | |||||||||||||||
Transaction fees | 9.5 | 1.1 | 26.0 | 3.1 | |||||||||||
Foreign exchange revenues | 85.9 | 32.5 | 248.5 | 89.4 | |||||||||||
Other revenues | — | — | 0.3 | 0.4 | |||||||||||
95.4 | 33.6 | 274.8 | 92.9 | ||||||||||||
Other: | |||||||||||||||
Total revenues | 27.4 | 28.6 | 82.4 | 78.7 | |||||||||||
27.4 | 28.6 | 82.4 | 78.7 | ||||||||||||
Total consolidated revenues | $ | 1,421.6 | $ | 1,410.8 | $ | 4,240.1 | $ | 4,060.1 | |||||||
Operating income/(loss): | |||||||||||||||
Consumer-to-Consumer | $ | 338.8 | $ | 346.3 | $ | 979.0 | $ | 984.7 | |||||||
Consumer-to-Business | 37.2 | 32.6 | 111.8 | 104.9 | |||||||||||
Business Solutions (a) | (7.5 | ) | (1.6 | ) | (36.8 | ) | (7.7 | ) | |||||||
Other | (2.9 | ) | (0.4 | ) | (10.0 | ) | (8.5 | ) | |||||||
Total segment operating income | 365.6 | 376.9 | 1,044.0 | 1,073.4 | |||||||||||
Restructuring and related expenses (Note 4) | — | (13.9 | ) | — | (46.8 | ) | |||||||||
Total consolidated operating income | $ | 365.6 | $ | 363.0 | $ | 1,044.0 | $ | 1,026.6 |
(a) | During the three and nine months ended September 30, 2012, the Company incurred $10.3 million and $31.2 million, respectively, of integration expenses related to the acquisition of TGBP. There were no integration expenses incurred during the three and nine months ended September 30, 2011. TGBP integration expense consists primarily of severance and other benefits, retention, direct and incremental expense consisting of facility relocation, consolidation and closures; IT systems integration; amortization of a transitional trademark license; and other expenses such as training, travel and professional fees. Integration expense does not include costs related to the completion of the TGBP acquisition, which are included in Other. |
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• | 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, real-time money transfer service is viewed by the Company as one interconnected global network where a money transfer can be sent from one location to another, around the world. This service is available for international cross-border transfers - that is, the transfer of funds from one country to another - and, in certain countries, intra-country transfers - that is, money transfers from one location to another in the same country. This segment also includes money transfer transactions that can be initiated through the Company's websites and account based money transfers. |
• | Consumer-to-Business - The Consumer-to-Business operating segment facilitates bill payments from consumers to businesses and other organizations, including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. This segment primarily consists of United States bill payments, Pago Fácil (bill payments in Argentina), and international bill payments. The significant majority of the segment's revenue was generated in the United States during all periods presented. |
• | Business Solutions - The Business Solutions operating segment facilitates business-to-business payment solutions, primarily cross-border, cross-currency transactions, mainly for small and medium size enterprises and other organizations. The majority of the segment's business relates to exchanges of currency at the spot rate which enables customers to make cross-currency payments. In addition, in certain countries, the Company writes foreign currency forward and option contracts for customers to facilitate future payments. Travelex Global Business Payments (“TGBP”), which was acquired in November 2011 (see Note 3), is also included in this segment. |
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Travelex Global Business Payments (b) | Finint S.r.l. | Angelo Costa S.r.l. | |||||||||
Assets: | |||||||||||
Cash and cash equivalents | $ | 25.3 | $ | — | $ | — | |||||
Settlement assets | 171.6 | 52.2 | 46.3 | ||||||||
Property and equipment | 5.1 | 0.5 | 3.0 | ||||||||
Goodwill | 715.0 | 153.6 | 174.2 | ||||||||
Other intangible assets | 314.2 | 64.8 | 51.4 | ||||||||
Other assets | 44.9 | 2.0 | 1.5 | ||||||||
Total assets | $ | 1,276.1 | $ | 273.1 | $ | 276.4 | |||||
Liabilities: | |||||||||||
Accounts payable and accrued liabilities | $ | 45.2 | $ | 6.1 | $ | 10.8 | |||||
Settlement obligations | 171.6 | 57.5 | 55.7 | ||||||||
Income taxes payable | 1.1 | 3.1 | 10.3 | ||||||||
Deferred tax liability, net | 75.1 | 15.8 | 15.5 | ||||||||
Other liabilities | 21.8 | 3.5 | 2.2 | ||||||||
Total liabilities | 314.8 | 86.0 | 94.5 | ||||||||
Total consideration (a) | $ | 961.3 | $ | 187.1 | $ | 181.9 |
(a) | Total consideration includes cash consideration transferred and the revaluation of the Company's previous equity interest, if any, to fair value on the acquisition date. |
(b) | Amounts include the impact of the acquisition of the French assets of TGBP on May 4, 2012. |
Travelex Global Business Payments (a) | Finint S.r.l. | Angelo Costa S.r.l. | |||||||||
Customer and other contractual relationships | $ | 264.5 | $ | — | $ | — | |||||
Network of subagents | — | 53.9 | 44.6 | ||||||||
Other | 49.7 | 10.9 | 6.8 | ||||||||
Total identifiable intangible assets | $ | 314.2 | $ | 64.8 | $ | 51.4 |
(a) | Amounts include the impact of the acquisition of the French assets of TGBP on May 4, 2012. |
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Severance, Outplacement and Related Benefits | Other (a) | Total | |||||||||
Balance, December 31, 2011 | $ | 13.7 | $ | 0.2 | $ | 13.9 | |||||
Cash payments | (10.3 | ) | (0.2 | ) | (10.5 | ) | |||||
Balance, September 30, 2012 | $ | 3.4 | $ | — | $ | 3.4 |
(a) | Other expenses related to the relocation of various operations to new and existing Company facilities including expenses for hiring, training, relocation, travel and professional fees. All such expenses were recorded when incurred. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2011 | 2011 | ||||||
Cost of services | $ | 3.2 | $ | 10.6 | |||
Selling, general and administrative | 10.7 | 36.2 | |||||
Total restructuring and related expenses, pre-tax | $ | 13.9 | $ | 46.8 | |||
Total restructuring and related expenses, net of tax | $ | 9.7 | $ | 32.0 |
Consumer-to-Consumer | Consumer-to-Business | Business Solutions | Other | Total | ||||||||||||||||
First quarter 2011 | $ | 19.1 | $ | 3.5 | $ | — | $ | 1.4 | $ | 24.0 | ||||||||||
Second quarter 2011 | 6.8 | 0.9 | 0.9 | 0.3 | 8.9 | |||||||||||||||
Third quarter 2011 | 7.8 | 1.8 | 4.1 | 0.2 | 13.9 | |||||||||||||||
Total restructuring and related expenses | $ | 33.7 | $ | 6.2 | $ | 5.0 | $ | 1.9 | $ | 46.8 |
|
Fair Value Measurement Using | Assets/ Liabilities at Fair Value | ||||||||||||||
September 30, 2012 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
State and municipal debt securities | $ | — | $ | 968.3 | $ | — | $ | 968.3 | |||||||
State and municipal variable rate demand notes | — | 870.7 | — | 870.7 | |||||||||||
Corporate debt and other | — | 17.1 | — | 17.1 | |||||||||||
Derivatives | — | 130.4 | — | 130.4 | |||||||||||
Total assets | $ | — | $ | 1,986.5 | $ | — | $ | 1,986.5 | |||||||
Liabilities: | |||||||||||||||
Commercial paper | — | 150.0 | — | 150.0 | |||||||||||
Notes and other borrowings | — | 3,694.9 | — | 3,694.9 | |||||||||||
Total borrowings | — | 3,844.9 | — | 3,844.9 | |||||||||||
Derivatives | — | 112.5 | — | 112.5 | |||||||||||
Total liabilities | $ | — | $ | 3,957.4 | $ | — | $ | 3,957.4 | |||||||
Fair Value Measurement Using | Assets/ Liabilities at Fair Value | ||||||||||||||
December 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Assets: | |||||||||||||||
State and municipal debt securities | $ | — | $ | 866.5 | $ | — | $ | 866.5 | |||||||
State and municipal variable rate demand notes | — | 376.9 | — | 376.9 | |||||||||||
Corporate debt and other | 0.1 | 88.5 | — | 88.6 | |||||||||||
Derivatives | — | 124.8 | — | 124.8 | |||||||||||
Total assets | $ | 0.1 | $ | 1,456.7 | $ | — | $ | 1,456.8 | |||||||
Liabilities: | |||||||||||||||
Commercial paper | $ | — | $ | 297.0 | $ | — | $ | 297.0 | |||||||
Notes and other borrowings | — | 3,563.5 | — | 3,563.5 | |||||||||||
Total borrowings | — | 3,860.5 | — | 3,860.5 | |||||||||||
Derivatives | — | 86.6 | — | 86.6 | |||||||||||
Total liabilities | $ | — | $ | 3,947.1 | $ | — | $ | 3,947.1 |
|
September 30, 2012 | December 31, 2011 | ||||||
Settlement assets: | |||||||
Cash and cash equivalents | $ | 362.3 | $ | 712.5 | |||
Receivables from selling agents and Business Solutions customers | 1,108.2 | 1,046.7 | |||||
Investment securities | 1,856.1 | 1,332.0 | |||||
$ | 3,326.6 | $ | 3,091.2 | ||||
Settlement obligations: | |||||||
Money transfer, money order and payment service payables | $ | 2,394.9 | $ | 2,242.3 | |||
Payables to agents | 931.7 | 848.9 | |||||
$ | 3,326.6 | $ | 3,091.2 |
September 30, 2012 | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Net Unrealized Gains/ (Losses) | ||||||||||||||
State and municipal debt securities (a) | $ | 954.7 | $ | 968.3 | $ | 13.9 | $ | (0.3 | ) | $ | 13.6 | ||||||||
State and municipal variable rate demand notes | 870.7 | 870.7 | — | — | — | ||||||||||||||
Corporate debt and other | 17.2 | 17.1 | — | (0.1 | ) | (0.1 | ) | ||||||||||||
$ | 1,842.6 | $ | 1,856.1 | $ | 13.9 | $ | (0.4 | ) | $ | 13.5 |
December 31, 2011 | Amortized Cost | Fair Value | Gross Unrealized Gains | Gross Unrealized Losses | Net Unrealized Gains/ (Losses) | ||||||||||||||
State and municipal debt securities (a) | $ | 858.5 | $ | 866.5 | $ | 10.4 | $ | (2.4 | ) | $ | 8.0 | ||||||||
State and municipal variable rate demand notes | 376.9 | 376.9 | — | — | — | ||||||||||||||
Corporate debt and other | 88.7 | 88.6 | 0.6 | (0.7 | ) | (0.1 | ) | ||||||||||||
$ | 1,324.1 | $ | 1,332.0 | $ | 11.0 | $ | (3.1 | ) | $ | 7.9 |
(a) | The majority of these securities are fixed-rate instruments. |
Fair Value | |||
Due within 1 year | $ | 189.0 | |
Due after 1 year through 5 years | 760.6 | ||
Due after 5 years through 10 years | 79.8 | ||
Due after 10 years | 826.7 | ||
$ | 1,856.1 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Interest cost | $ | 3.7 | $ | 4.5 | $ | 11.0 | $ | 13.5 | |||||||
Expected return on plan assets | (5.2 | ) | (5.3 | ) | (15.6 | ) | (16.0 | ) | |||||||
Amortization of actuarial loss | 2.6 | 2.0 | 7.9 | 6.1 | |||||||||||
Net periodic benefit cost | $ | 1.1 | $ | 1.2 | $ | 3.3 | $ | 3.6 |
|
Contracts not designated as hedges: | |||
Euro | $ | 175.4 | |
British pound | 48.8 | ||
Canadian dollar | 43.4 | ||
Other | 157.2 | ||
Contracts designated as hedges: | |||
Euro | $ | 502.4 | |
Canadian dollar | 123.4 | ||
British pound | 97.2 | ||
Australian dollar | 48.9 | ||
Other | 80.9 |
Derivative Assets | Derivative Liabilities | ||||||||||||||||||
Fair Value | Fair Value | ||||||||||||||||||
Balance Sheet Location | September 30, 2012 | December 31, 2011 | Balance Sheet Location | September 30, 2012 | December 31, 2011 | ||||||||||||||
Derivatives — hedges: | |||||||||||||||||||
Interest rate fair value hedges — Corporate | Other assets | $ | 4.9 | $ | 4.4 | Other liabilities | $ | — | $ | — | |||||||||
Foreign currency cash flow hedges — Consumer-to-Consumer | Other assets | 21.7 | 37.0 | Other liabilities | 14.7 | 6.6 | |||||||||||||
Total | $ | 26.6 | $ | 41.4 | $ | 14.7 | $ | 6.6 | |||||||||||
Derivatives — undesignated: | |||||||||||||||||||
Foreign currency — Business Solutions | Other assets | $ | 102.6 | $ | 79.8 | Other liabilities | $ | 96.8 | $ | 67.6 | |||||||||
Foreign currency — Consumer-to-Consumer | Other assets | 1.2 | 3.6 | Other liabilities | 1.0 | 12.4 | |||||||||||||
Total | $ | 103.8 | $ | 83.4 | $ | 97.8 | $ | 80.0 | |||||||||||
Total derivatives | $ | 130.4 | $ | 124.8 | $ | 112.5 | $ | 86.6 |
Gain/(Loss) Recognized in Income on Derivatives | Gain/(Loss) Recognized in Income on Related Hedged Item (a) | |||||||||||||||||||||
Income Statement Location | Amount | Income Statement Location | Amount | |||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | Hedged Item | September 30, 2012 | September 30, 2011 | |||||||||||||||||
Interest rate contracts | Interest expense | $ | 1.1 | $ | 3.4 | Fixed-rate debt | Interest expense | $ | 0.7 | $ | 3.0 | |||||||||||
Total gain | $ | 1.1 | $ | 3.4 | $ | 0.7 | $ | 3.0 |
Gain/(Loss) Recognized in Income on Derivatives | Gain/(Loss) Recognized in Income on Related Hedged Item (a) | |||||||||||||||||||||
Income Statement Location | Amount | Income Statement Location | Amount | |||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | Hedged Item | September 30, 2012 | September 30, 2011 | |||||||||||||||||
Interest rate contracts | Interest expense | $ | 3.5 | $ | 11.6 | Fixed-rate debt | Interest expense | $ | 2.2 | $ | 8.7 | |||||||||||
Total gain | $ | 3.5 | $ | 11.6 | $ | 2.2 | $ | 8.7 |
Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) | Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b) | ||||||||||||||||||||||||||
Amount | Income Statement Location | Amount | Income Statement Location | Amount | ||||||||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||||||
Foreign currency contracts | $ | (16.7 | ) | $ | 60.6 | Revenue | $ | 5.8 | $ | (11.8 | ) | Derivative gains/(losses), net | $ | 0.5 | $ | (8.0 | ) | |||||||||||
Interest rate contracts (c) | — | (19.2 | ) | Interest expense | (0.9 | ) | (0.9 | ) | Interest expense | — | — | |||||||||||||||||
Total gain/(loss) | $ | (16.7 | ) | $ | 41.4 | $ | 4.9 | $ | (12.7 | ) | $ | 0.5 | $ | (8.0 | ) |
Gain/(Loss) Recognized in OCI on Derivatives (Effective Portion) | Gain/(Loss) Reclassified from Accumulated OCI into Income (Effective Portion) | Gain/(Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing) (b) | ||||||||||||||||||||||||||
Amount | Income Statement Location | Amount | Income Statement Location | Amount | ||||||||||||||||||||||||
Derivatives | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | September 30, 2012 | September 30, 2011 | ||||||||||||||||||||||
Foreign currency contracts | $ | (7.2 | ) | $ | 5.4 | Revenue | $ | 11.6 | $ | (32.2 | ) | Derivative gains/(losses), net | $ | 0.1 | $ | (7.5 | ) | |||||||||||
Interest rate contracts (c) | — | (21.6 | ) | Interest expense | (2.7 | ) | (1.7 | ) | Interest expense | — | — | |||||||||||||||||
Total gain/(loss) | $ | (7.2 | ) | $ | (16.2 | ) | $ | 8.9 | $ | (33.9 | ) | $ | 0.1 | $ | (7.5 | ) |
Gain/(Loss) Recognized in Income on Derivatives (d) | |||||||||||||||||
Income Statement Location | Amount | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
Derivatives | 2012 | 2011 | 2012 | 2011 | |||||||||||||
Foreign currency contracts (e) | Selling, general and administrative | $ | (5.8 | ) | $ | 44.8 | $ | (6.1 | ) | $ | 11.5 | ||||||
Foreign currency contracts (f) | Derivative gains/(losses), net | (0.4 | ) | 3.6 | 0.9 | 0.5 | |||||||||||
Total gain/(loss) | $ | (6.2 | ) | $ | 48.4 | $ | (5.2 | ) | $ | 12.0 |
(a) | The gain of $0.7 million and $3.0 million in the three months ended September 30, 2012 and 2011, respectively, was comprised of a loss in value on the debt of $1.1 million and $3.4 million, respectively, and amortization of hedge accounting adjustments of $1.8 million and $6.4 million, respectively. The gain of $2.2 million and $8.7 million in the nine months ended September 30, 2012 and 2011, respectively, was comprised of a loss in value on the debt of $3.5 million and $11.6 million, respectively, and amortization of hedge accounting adjustments of $5.7 million and $20.3 million, respectively. |
(b) | The portion of the change in fair value of a derivative excluded from the effectiveness assessment for foreign currency forward contracts designated as cash flow hedges represents the difference between changes in forward rates and spot rates. |
(c) | The Company uses derivatives to hedge the forecasted issuance of fixed-rate debt and records the effective portion of the derivative’s fair value in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. These amounts are reclassified to “Interest expense” in the Condensed Consolidated Statements of Income over the life of the related notes. |
(d) | The Company uses foreign currency forward and option contracts as part of its business-to-business payments operations. These derivative contracts are excluded from this table as they are managed as part of a broader currency portfolio that includes non-derivative currency exposures. The gains and losses on these derivatives are included as part of the broader disclosure of portfolio revenue for this business discussed above. |
(e) | 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 gain on settlement assets and obligations and cash balances for the three and nine months ended September 30, 2012 was $6.1 million and $4.3 million, respectively. Foreign exchange loss on settlement assets and obligations and cash balances for the three and nine months ended September 30, 2011 was $46.5 million and $20.9 million, respectively. |
(f) | The derivative contracts used in the Company’s revenue hedging program are not designated as hedges in the final month of the contract. |
|
September 30, 2012 | December 31, 2011 | ||||||
Due in less than one year: | |||||||
Commercial paper | $ | 150.0 | $ | 297.0 | |||
Floating rate notes (effective rate of 1.0%) due 2013 | 300.0 | 300.0 | |||||
Due in greater than one year (a): | |||||||
6.500% notes (effective rate of 5.6%) due 2014 | 500.0 | 500.0 | |||||
5.930% notes due 2016 (b) | 1,000.0 | 1,000.0 | |||||
3.650% notes (effective rate of 4.4%) due 2018 | 400.0 | 400.0 | |||||
5.253% notes due 2020 (b) | 324.9 | 324.9 | |||||
6.200% notes due 2036 (b) | 500.0 | 500.0 | |||||
6.200% notes due 2040 (b) | 250.0 | 250.0 | |||||
Other borrowings | 5.8 | 8.8 | |||||
Total borrowings at par value | 3,430.7 | 3,580.7 | |||||
Fair value hedge accounting adjustments, net (a) | 21.7 | 23.9 | |||||
Unamortized discount, net | (19.4 | ) | (21.4 | ) | |||
Total borrowings at carrying value (c) | $ | 3,433.0 | $ | 3,583.2 |
(a) | The Company utilizes interest rate swaps designated as fair value hedges to effectively change the interest rate payments on a portion of its notes from fixed-rate payments to short-term LIBOR-based variable rate payments in order to manage its overall exposure to interest rates. The changes in fair value of these interest rate swaps result in an offsetting hedge accounting adjustment recorded to the carrying value of the related note. These hedge accounting adjustments will be reclassified as reductions to or increases in “Interest expense” in the Condensed Consolidated Statements of Income over the life of the related notes, and cause the effective rate of interest to differ from the notes’ stated rate. |
(b) | The difference between the stated interest rate and the effective interest rate is not significant. |
(c) | As of September 30, 2012, the Company's weighted-average effective rate on total borrowings was approximately 5.0%. |
|
Stock options granted: | |||
Weighted-average risk-free interest rate | 1.2 | % | |
Weighted-average dividend yield | 1.8 | % | |
Volatility | 33.2 | % | |
Expected term (in years) | 6.09 | ||
Weighted-average grant date fair value | $ | 4.91 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Revenues: | |||||||||||||||
Consumer-to-Consumer: | |||||||||||||||
Transaction fees | $ | 889.6 | $ | 922.2 | $ | 2,655.2 | $ | 2,660.0 | |||||||
Foreign exchange revenues | 249.6 | 257.2 | 737.9 | 730.0 | |||||||||||
Other revenues | 12.3 | 13.9 | 38.0 | 36.5 | |||||||||||
1,151.5 | 1,193.3 | 3,431.1 | 3,426.5 | ||||||||||||
Consumer-to-Business: | |||||||||||||||
Transaction fees | 139.7 | 146.7 | 429.5 | 435.5 | |||||||||||
Foreign exchange revenues | 0.8 | 1.5 | 2.5 | 4.7 | |||||||||||
Other revenues | 6.8 | 7.1 | 19.8 | 21.8 | |||||||||||
147.3 | 155.3 | 451.8 | 462.0 | ||||||||||||
Business Solutions: | |||||||||||||||
Transaction fees | 9.5 | 1.1 | 26.0 | 3.1 | |||||||||||
Foreign exchange revenues | 85.9 | 32.5 | 248.5 | 89.4 | |||||||||||
Other revenues | — | — | 0.3 | 0.4 | |||||||||||
95.4 | 33.6 | 274.8 | 92.9 | ||||||||||||
Other: | |||||||||||||||
Total revenues | 27.4 | 28.6 | 82.4 | 78.7 | |||||||||||
27.4 | 28.6 | 82.4 | 78.7 | ||||||||||||
Total consolidated revenues | $ | 1,421.6 | $ | 1,410.8 | $ | 4,240.1 | $ | 4,060.1 | |||||||
Operating income/(loss): | |||||||||||||||
Consumer-to-Consumer | $ | 338.8 | $ | 346.3 | $ | 979.0 | $ | 984.7 | |||||||
Consumer-to-Business | 37.2 | 32.6 | 111.8 | 104.9 | |||||||||||
Business Solutions (a) | (7.5 | ) | (1.6 | ) | (36.8 | ) | (7.7 | ) | |||||||
Other | (2.9 | ) | (0.4 | ) | (10.0 | ) | (8.5 | ) | |||||||
Total segment operating income | 365.6 | 376.9 | 1,044.0 | 1,073.4 | |||||||||||
Restructuring and related expenses (Note 4) | — | (13.9 | ) | — | (46.8 | ) | |||||||||
Total consolidated operating income | $ | 365.6 | $ | 363.0 | $ | 1,044.0 | $ | 1,026.6 |
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