Western Union 2009 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; selected Q4 results are included below. Western Union provides consumer money transfers and business-payment services through a global agent network.
Financial performance and liquidity
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Revenue | $5.084 billion | $5.282 billion | Down 4% |
| Operating income | $1.283 billion | $1.355 billion | Down 5% |
| Operating margin | 25% | Approximately 26% | Down about 1 percentage point |
| Net income | $848.8 million | $919.0 million | Down 8% |
| Diluted EPS | $1.21 | $1.24 | Down 2% |
| Operating cash flow | $1.218 billion | $1.254 billion | Down 3% |
Q4 2009: Revenue was $1.314 billion versus $1.292 billion in Q4 2008; net income was $223.7 million versus $239.6 million; diluted EPS was $0.32 versus $0.34.
- Consumer-to-consumer generated $4.301 billion in revenue, down 4%, and $1.176 billion in segment operating income, down 4%. Transactions rose 4% to 196.1 million, while consumer-to-consumer principal transferred fell 3% to $71 billion.
- Global business payments revenue was $691.7 million, down 4%; segment operating income fell 14% to $171.9 million. Transactions increased 1% to 414.8 million.
- Cash and cash equivalents were $1.685 billion. Borrowings were $3.049 billion, down from $3.144 billion. The $1.5 billion revolving credit facility was undrawn; the company reported compliance with debt covenants and a 10:1 interest-coverage ratio against a 2:1 minimum.
- Settlement assets and obligations were each $2.389 billion. These funds support customer and money-order settlement obligations and are not equivalent to unrestricted operating liquidity. Investment securities within settlement assets totaled $1.223 billion.
- Capital expenditures were $98.9 million. Western Union repurchased $400.2 million of shares and paid $41.2 million in dividends during 2009.
Material changes versus the prior year
- Revenue and earnings declined amid weak economic conditions, a stronger U.S. dollar, lower transaction growth, pricing reductions, and a less favorable mix of transactions. Currency movements reduced 2009 revenue by $119.5 million, net of hedges.
- Cost of services fell 7%, partly reflecting lower agent commissions, FEXCO-related savings, and the non-recurrence of 2008 restructuring costs. SG&A rose 11%, including a $71 million Arizona settlement accrual and acquisition-related costs.
- The company acquired FEXCO’s money-transfer business for total consideration of $243.6 million and Custom House for $371.0 million. Custom House contributed $30.8 million of 2009 revenue after acquisition.
- Effective October 1, Western Union took over issuance and settlement obligations for its branded money orders, receiving approximately $860 million in cash and investing the funds to support those liabilities.
Outlook, commentary, risks, and unusual items
- Management cited a weak global economy and softer remittance demand. It expected the remittance market to recover as the economy improved; the World Bank projected 1% growth in cross-border remittances in 2010. Management expected U.S. consumer bill-payment revenue declines in 2010 similar to 2009 and anticipated a growing international and foreign-exchange contribution from Custom House. No company-wide earnings guidance is provided in the supplied filing text.
- The February 2010 Arizona settlement resolved outstanding state claims. The 2009 results include a $71 million accrual; additional border-region compliance investments and monitoring were expected to cost up to $23 million over two to four years.
- The DOJ had subpoenaed a subsidiary in an investigation concerning U.S.-to-Dominican Republic transfers. The company said it could not predict the outcome or any possible loss. The IRS tax dispute involved approximately $114 million of contested additional tax and penalties, plus about $30 million of interest; total unrecognized tax benefits, including accrued interest and penalties, were $522.7 million.
- Approximately $2.0 billion of foreign earnings was indefinitely reinvested abroad without a U.S. tax provision. Repatriation could create additional taxes. Goodwill was $2.143 billion, about 29% of total assets; no impairment was recorded.
- Other material risks include agent credit and fraud exposure, regulatory and anti-money-laundering compliance, fee and foreign-exchange spread pressure, foreign currency and interest-rate exposure, cybersecurity and service interruptions, and integration of acquisitions. The company recorded a $12 million reserve against a remaining $30.6 million receivable from the Reserve International Liquidity Fund.
- Management and the auditor concluded internal control over financial reporting was effective, but the assessment excluded Custom House, acquired in September 2009. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether remittance transaction growth can translate into revenue growth despite lower revenue per transaction, pricing actions, and currency effects.
- The resolution and cash impact of the IRS dispute, the $522.7 million tax contingency, and any potential tax exposure under the First Data separation agreements.
- Final Arizona settlement costs, including the additional compliance and monitoring spending.
- Custom House and FEXCO integration, realized synergies, goodwill and intangible-asset valuations, and related foreign-exchange and counterparty risks.
- Quality and availability of liquidity: distinguish unrestricted cash from settlement assets, and monitor debt maturities, refinancing needs, and regulated-subsidiary dividend restrictions.
- Whether the DOJ investigation, agent compliance issues, or other regulatory matters result in penalties, operating restrictions, or reputational damage.