| Segments
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1. | Business and Basis of Presentation |
• | Consumer-to-consumer—money transfer services between consumers, primarily through a global network of third-party agents using the Company’s multi-currency, real-time money transfer processing systems. 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. | |
• | Global business payments—the processing of payments from consumers or businesses to other businesses. The Company’s business payments services allow consumers to make payments to a variety of organizations including utilities, auto finance companies, mortgage servicers, financial service providers, government agencies and other businesses. As described further in Note 3, the Company acquired Canada-based Custom House, Ltd. (“Custom House”), a provider of international business-to-business payment services, which is included in this segment. Custom House facilitates cross-border, cross-currency payment transactions. While the Company continues to pursue further international expansion of its offerings in this segment, the significant majority of the segment’s revenue was generated in the United States during all periods presented. |
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3. | Acquisitions |
Assets:
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||||
Cash acquired
|
$ | 2.5 | ||
Settlement assets
|
152.5 | |||
Property and equipment
|
6.7 | |||
Goodwill
|
272.2 | |||
Other intangible assets
|
118.1 | |||
Other assets
|
78.1 | |||
Total assets
|
$ | 630.1 | ||
Liabilities:
|
||||
Accounts payable and accrued liabilities
|
$ | 23.5 | ||
Settlement obligations
|
152.5 | |||
Deferred tax liability, net
|
31.9 | |||
Other liabilities
|
51.2 | |||
Total liabilities
|
259.1 | |||
Total consideration, including cash acquired
|
$ | 371.0 | ||
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4. | Receivable for Securities Sold |
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5. | Fair Value Measurements |
Assets/ |
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Liabilities |
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Fair Value Measurement Using |
at Fair |
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Level 1 | Level 2 | Level 3 | Value | |||||||||||||
Assets:
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||||||||||||||||
State and municipal obligations
|
$ | — | $ | 881.2 | $ | — | $ | 881.2 | ||||||||
State and municipal variable rate demand notes
|
— | 258.1 | — | 258.1 | ||||||||||||
Corporate debt securities
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— | 20.5 | — | 20.5 | ||||||||||||
Other
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0.2 | — | — | 0.2 | ||||||||||||
Derivatives
|
— | 94.3 | 0.1 | 94.4 | ||||||||||||
Total assets
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$ | 0.2 | $ | 1,254.1 | $ | 0.1 | $ | 1,254.4 | ||||||||
Liabilities:
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||||||||||||||||
Derivatives
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$ | — | $ | 70.2 | $ | — | $ | 70.2 | ||||||||
Total liabilities
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$ | — | $ | 70.2 | $ | — | $ | 70.2 | ||||||||
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6. | Commitments and Contingencies |
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7. | Related Party Transactions |
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8. | Settlement Assets and Obligations |
March 31, |
December 31, |
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2010 | 2009 | |||||||
Settlement assets:
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Cash and cash equivalents
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$ | 224.6 | $ | 161.9 | ||||
Receivables from selling agents and
business-to-business
customers
|
903.0 | 1,004.4 | ||||||
Investment securities
|
1,160.0 | 1,222.8 | ||||||
$ | 2,287.6 | $ | 2,389.1 | |||||
Settlement obligations:
|
||||||||
Money transfer, money order and payment service payables
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$ | 1,832.9 | $ | 1,954.8 | ||||
Payables to agents
|
454.7 | 434.3 | ||||||
$ | 2,287.6 | $ | 2,389.1 | |||||
Net |
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Gross |
Gross |
Unrealized |
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Amortized |
Fair |
Unrealized |
Unrealized |
Gains/ |
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March 31, 2010 | Cost | Value | Gains | Losses | (Losses) | |||||||||||||||
State and municipal obligations (a)
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$ | 869.8 | $ | 881.2 | $ | 12.5 | $ | (1.1 | ) | $ | 11.4 | |||||||||
State and municipal variable rate demand notes
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258.1 | 258.1 | — | — | — | |||||||||||||||
Corporate debt securities
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20.2 | 20.5 | 0.3 | — | 0.3 | |||||||||||||||
Other
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0.1 | 0.2 | 0.1 | — | 0.1 | |||||||||||||||
$ | 1,148.2 | $ | 1,160.0 | $ | 12.9 | $ | (1.1 | ) | $ | 11.8 | ||||||||||
Net |
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Gross |
Gross |
Unrealized |
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Amortized |
Fair |
Unrealized |
Unrealized |
Gains/ |
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December 31, 2009 | Cost | Value | Gains | Losses | (Losses) | |||||||||||||||
State and municipal obligations (a)
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$ | 686.4 | $ | 696.4 | $ | 10.6 | $ | (0.6 | ) | $ | 10.0 | |||||||||
State and municipal variable rate demand notes
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513.8 | 513.8 | — | — | — | |||||||||||||||
Corporate debt securities
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12.2 | 12.4 | 0.2 | — | 0.2 | |||||||||||||||
Other
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0.1 | 0.2 | 0.1 | — | 0.1 | |||||||||||||||
$ | 1,212.5 | $ | 1,222.8 | $ | 10.9 | $ | (0.6 | ) | $ | 10.3 | ||||||||||
(a) | The majority of these securities are fixed rate instruments. |
Fair |
||||
Value | ||||
Due within 1 year
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$ | 107.5 | ||
Due after 1 year through 5 years
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721.7 | |||
Due after 5 years through 10 years
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61.3 | |||
Due after 10 years
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269.5 | |||
$ | 1,160.0 | |||
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9. | Comprehensive Income |
Three Months Ended |
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March 31, | ||||||||
2010 | 2009 | |||||||
Net income
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$ | 207.9 | $ | 223.9 | ||||
Unrealized gains/losses on investments securities:
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Unrealized gains
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2.4 | 2.0 | ||||||
Tax expense
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(0.9 | ) | (0.7 | ) | ||||
Reclassification of gains into earnings
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(0.9 | ) | (1.7 | ) | ||||
Tax expense
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0.4 | 0.6 | ||||||
Net unrealized gains on investment securities
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1.0 | 0.2 | ||||||
Unrealized gains/losses on hedging activities:
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Unrealized gains
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35.0 | 32.1 | ||||||
Tax expense
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(4.2 | ) | (4.6 | ) | ||||
Reclassification of losses/(gains) into earnings
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0.4 | (17.4 | ) | |||||
Tax (expense)/benefit
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(0.4 | ) | 2.7 | |||||
Net unrealized gains on hedging activities
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30.8 | 12.8 | ||||||
Foreign currency translation adjustments:
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Foreign currency translation adjustments
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10.7 | (20.3 | ) | |||||
Tax expense/(benefit)
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(2.4 | ) | 7.1 | |||||
Reclassification of gains into earnings (a)
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— | (23.1 | ) | |||||
Tax expense
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— | 8.1 | ||||||
Net foreign currency translation adjustments
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8.3 | (28.2 | ) | |||||
Pension liability adjustments:
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Reclassification of losses into earnings
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1.6 | 0.9 | ||||||
Tax benefit
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(0.7 | ) | (0.4 | ) | ||||
Net pension liability adjustments
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0.9 | 0.5 | ||||||
Total other comprehensive income
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$ | 248.9 | $ | 209.2 | ||||
(a) | The three months ended March 31, 2009 include the impact to the foreign currency translation account of the surrender of the Company’s interest in FEXCO Group. See Note 3. |
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10. | Employee Benefit Plans |
Three Months Ended |
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March 31, | ||||||||
2010 | 2009 | |||||||
Interest cost
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$ | 5.0 | $ | 5.9 | ||||
Expected return on plan assets
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(5.1 | ) | (6.2 | ) | ||||
Amortization of actuarial loss
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1.6 | 0.9 | ||||||
Net periodic benefit cost
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$ | 1.5 | $ | 0.6 | ||||
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11. | Derivatives |
Contracts not designated as hedges:
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Euro
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$ | 242.3 | ||
British pound
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37.8 | |||
Other
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49.7 | |||
Contracts designated as hedges:
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Euro
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$ | 529.4 | ||
Canadian dollar
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99.9 | |||
British pound
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83.2 | |||
Other
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94.0 |
Derivative Assets | Derivative Liabilities | |||||||||||||||||||
Fair Value | Fair Value | |||||||||||||||||||
Balance Sheet |
March 31, |
December 31, |
Balance Sheet |
March 31, |
December 31, |
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Location | 2010 | 2009 | Location | 2010 | 2009 | |||||||||||||||
Derivatives—hedges:
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Interest rate fair value hedges –
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Corporate (b)
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Other assets | $ | — | $ | 31.0 | Other liabilities | $ | — | $ | — | ||||||||||
Foreign currency cash flow hedges –
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Consumer-to-consumer
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Other assets | 33.2 | 15.1 | Other liabilities | 17.3 | 31.0 | ||||||||||||||
Total
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$ | 33.2 | $ | 46.1 | $ | 17.3 | $ | 31.0 | ||||||||||||
Derivatives—undesignated:
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Foreign currency –
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Global business payments
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Other assets | $ | 58.0 | $ | 58.9 | Other liabilities | $ | 50.6 | $ | 48.2 | ||||||||||
Foreign currency –
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Consumer-to-consumer
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Other assets | 3.2 | 4.9 | Other liabilities | 2.3 | 1.4 | ||||||||||||||
Total
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$ | 61.2 | $ | 63.8 | $ | 52.9 | $ | 49.6 | ||||||||||||
Total derivatives
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$ | 94.4 | $ | 109.9 | $ | 70.2 | $ | 80.6 | ||||||||||||
Gain/(Loss) Recognized in Income on |
Gain/(Loss) Recognized in Income on |
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Derivatives | Related Hedged Item(c) | |||||||||||||||||||||
Income Statement |
Income Statement |
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Location | Amount | Location | Amount | |||||||||||||||||||
March 31, |
March 31, |
March 31, |
March 31, |
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Derivatives | 2010 | 2009 | Hedged Items | 2010 | 2009 | |||||||||||||||||
Interest rate contracts
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Interest expense | $ | 6.2 | $ | 2.1 | Fixed-rate debt | Interest expense | $ | 0.7 | $ | 1.1 | |||||||||||
Total gain
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$ | 6.2 | $ | 2.1 | $ | 0.7 | $ | 1.1 | ||||||||||||||
Gain/(Loss) Reclassified from |
Gain/(Loss) Recognized in Income on |
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Amount of Gain/(Loss) |
Accumulated OCI into Income |
Derivatives (Ineffective Portion and Amount |
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Recognized in OCI on |
(Effective Portion) | Excluded from Effectiveness Testing) (d) | ||||||||||||||||||||||||||
Derivatives (Effective |
Income Statement |
Income Statement |
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Portion) | Location | Amount | Location | Amount | ||||||||||||||||||||||||
March 31, |
March 31, |
March 31, |
March 31, |
March 31, |
March 31, |
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Derivatives | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||
Foreign currency contracts
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$ | 31.7 | $ | 32.1 | Revenue | $ | — | $ | 17.8 |
Derivative gains/(losses), net |
$ | (1.3 | ) | $ | (4.1 | ) | ||||||||||||
Interest rate contracts (e)
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3.3 | — | Interest expense | (0.4 | ) | (0.4 | ) |
Derivative gains/(losses), net |
— | — | ||||||||||||||||||
Total gain/(loss)
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$ | 35.0 | $ | 32.1 | $ | (0.4 | ) | $ | 17.4 | $ | (1.3 | ) | $ | (4.1 | ) | |||||||||||||
Gain/(Loss) Recognized in Income on Derivatives | ||||||||||
Amount | ||||||||||
Three Months Ended |
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Income Statement Location | March 31, | |||||||||
Derivatives | 2010 | 2009 | ||||||||
Foreign currency contracts (f)
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Foreign exchange revenues | $ | 4.8 | $ | — | |||||
Foreign currency contracts (a)
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Selling, general and administrative | 11.2 | 12.0 | |||||||
Foreign currency contracts (g)
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Derivative gains/(losses), net | 1.6 | 1.6 | |||||||
Total gain/(loss)
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$ | 17.6 | $ | 13.6 | ||||||
(a) | 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. The gain of $11.2 million generated by the undesignated foreign currency contracts for the three months ended March 31, 2010, was offset by a foreign exchange loss on settlement assets and obligations and cash balances of $11.6 million. The foreign exchange gain of $12.0 million generated by the undesignated foreign currency contracts for the three months ended March 31, 2009, was offset by a foreign exchange loss on settlement assets and obligations and cash balances of $15.4 million. | |
(b) | The interest rate swaps held at December 31, 2009, were settled in connection with the note exchange, discussed further in Note 12, and replaced with new interest rate swaps at the end of March 2010. The unamortized gain associated with the settled interest rate swaps remains in the carrying value of the related notes. | |
(c) | The net gain of $0.7 million and $1.1 million in the three months ended March 31, 2010 and 2009, respectively, was comprised of a loss in value on the debt of $6.2 million and $2.1 million, respectively, and amortization of hedge accounting adjustments of $6.9 million and $3.2 million, respectively. | |
(d) | The portion of the change in fair value of a derivative excluded from the effectiveness assessment for foreign currency forward contracts designated as cash flow hedges represents the difference between changes in forward rates and spot rates. | |
(e) | The Company uses derivatives to hedge the forecasted issuance of fixed rate debt and records the effective portion of the derivative’s fair value in “Accumulated other comprehensive loss” in the Condensed Consolidated Balance Sheets. These amounts are reclassified to “Interest expense” over the life of the related notes. | |
(f) | The Company uses foreign currency forward and option contracts as part of its international business-to-business payments operation. The derivative contracts are managed as part of a broader currency portfolio that includes non-derivative currency exposures. | |
(g) | The derivative contracts used in the Company’s revenue hedging program are not designated as hedges in the final month of the contract. |
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12. | Borrowings |
March 31, 2010 | December 31, 2009 | |||||||
Due in greater than one year (a):
|
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5.400% notes (effective rate of 2.7%) due 2011 (b) (e)
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$ | 696.3 | $ | 1,000.0 | ||||
6.500% notes due 2014 (c)
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500.0 | 500.0 | ||||||
5.930% notes due 2016 (c)
|
1,000.0 | 1,000.0 | ||||||
5.253% notes (effective rate of 5.7%) due 2020 (b)
|
324.9 | — | ||||||
6.200% notes due 2036 (c)
|
500.0 | 500.0 | ||||||
Other borrowings
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6.0 | 6.0 | ||||||
Total borrowings at par value
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3,027.2 | 3,006.0 | ||||||
Fair value hedge accounting adjustments, net (a)
|
46.3 | 47.1 | ||||||
Unamortized discount, net (b)
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(25.5 | ) | (4.6 | ) | ||||
Total borrowings at carrying value (d)
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$ | 3,048.0 | $ | 3,048.5 | ||||
(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 “Interest expense” over the life of the related notes, and cause the effective rate of interest to differ from the notes’ stated rate. | |
(b) | On March 30, 2010, the Company exchanged $303.7 million of aggregate principal amount of the 5.400% notes due 2011 (“2011 Notes”) for 5.253% notes due 2020 (“2020 Notes”). The effective interest rate of the 2020 Notes differs from the stated rate as the notes have a par value of $324.9 million. The $21.2 million premium is being accreted over the life of the 2020 Notes. See below for additional detail relating to the note exchange. | |
(c) | The difference between the stated interest rate and the effective interest rate is not significant. | |
(d) | At March 31, 2010, the Company’s weighted average effective rate on total borrowings was 5.2%. | |
(e) | The effective interest rate related to the 2011 Notes includes the impact of the interest rate swaps entered into in conjunction with the assumption of the money order investments from IPS (see Note 15). |
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13. | Income Taxes |
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14. | Stock Compensation Plans |
Stock options granted:
|
||||
Weighted-average risk-free interest rate
|
2.7 | % | ||
Weighted-average dividend yield
|
1.3 | % | ||
Volatility
|
34.0 | % | ||
Expected term (in years)
|
5.7 | |||
Weighted-average grant date fair value
|
$ | 5.08 |
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15. | Segments |
Three Months Ended |
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March 31, | ||||||||
2010 | 2009 | |||||||
Revenues:
|
||||||||
Consumer-to-consumer:
|
||||||||
Transaction fees
|
$ | 807.0 | $ | 785.6 | ||||
Foreign exchange revenues
|
211.9 | 204.3 | ||||||
Other revenues
|
11.3 | 13.8 | ||||||
1,030.2 | 1,003.7 | |||||||
Global business payments:
|
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Transaction fees
|
148.0 | 163.0 | ||||||
Foreign exchange revenues
|
26.2 | 0.8 | ||||||
Other revenues
|
7.6 | 10.4 | ||||||
181.8 | 174.2 | |||||||
Other:
|
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Transaction fees
|
10.7 | 9.9 | ||||||
Commission and other revenues
|
10.0 | 13.4 | ||||||
20.7 | 23.3 | |||||||
Total consolidated revenues
|
$ | 1,232.7 | $ | 1,201.2 | ||||
Operating income/(loss):
|
||||||||
Consumer-to-consumer
|
$ | 282.7 | $ | 286.7 | ||||
Global business payments
|
37.6 | 50.5 | ||||||
Other
|
(4.5 | ) | 3.7 | |||||
Total consolidated operating income
|
$ | 315.8 | $ | 340.9 | ||||