News Column

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 31, 2014

Item 2. This report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as "expects," "intends," "anticipates," "believes," "estimates," "guides," "provides guidance," "provides outlook" and other similar expressions or future or conditional verbs such as "may," "will," "should," "would," "could," and "might" are intended to identify such forward-looking statements. Readers of the Form 10-Q of The Western Union Company (the "Company," "Western Union," "we," "our" or "us") should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed in the "Risk Factors" section and throughout the Annual Report on Form 10-K for the year ended December 31, 2013. The statements are only as of the date they are made, and the Company undertakes no obligation to update any forward-looking statement. Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: (i) events related to our business and industry, such as: deterioration in consumers' and clients' confidence in our business, or in money transfer and payment service providers generally; changes in general economic conditions and economic conditions in the regions and industries in which we operate, including global economic and trade downturns or significantly slower growth or declines in the money transfer, payment service, and other markets in which we operate, including those related to interruptions in migration patterns; political conditions and related actions in the United States and abroad which may adversely affect our business and economic conditions as a whole; failure to compete effectively in the money transfer and payment service industry with respect to global and niche or corridor money transfer providers, banks and other money transfer and payment service providers, including telecommunications providers, card associations, card-based payment providers, electronic and Internet providers, and digital currencies; the pricing of our services and any pricing reductions, and their impact on consumer demand for our services and our financial results; our ability to adopt technology in response to changing industry and consumer needs or trends; our failure to develop and introduce new services and enhancements, and gain market acceptance of such services; changes in, and failure to manage effectively, exposure to foreign exchange rates, including the impact of the regulation of foreign exchange spreads on money transfers and payment transactions; our ability to maintain our agent network and business relationships under terms consistent with or more advantageous to us than those currently in place; interruptions of United States government relations with countries in which we have or are implementing significant business relationships with agents or clients; mergers, acquisitions and integration of acquired businesses and technologies into our Company, including Travelex Global Business Payments, and the failure to realize anticipated financial benefits from these acquisitions, and events requiring us to write down our goodwill; any material breach of security, including cybersecurity, or safeguards of or interruptions in any of our systems; decisions to change our business mix; failure to manage credit and fraud risks presented by our agents, clients and consumers or non-performance by our banks, lenders, other financial services providers or insurers; increased costs or loss of business due to difficulty for us, our agents or their subagents in establishing or maintaining relationships with banks needed to conduct our services; adverse movements and volatility in capital markets and other events which affect our liquidity, the liquidity of our agents or clients, or the value of, or our ability to recover, our investments or amounts payable to us; adverse rating actions by credit rating agencies; our ability to realize the anticipated benefits from productivity and cost-savings and other related initiatives, which may include decisions to downsize or to transition operating activities from one location to another, and to minimize any disruptions in our workforce that may result from those initiatives; our ability to attract and retain qualified key employees and to manage our workforce successfully; our ability to protect our brands and our other intellectual property rights; our failure to manage the potential both for patent protection and patent liability in the context of a rapidly developing legal framework for intellectual property protection; changes in tax laws and unfavorable resolution of tax contingencies; cessation of or defects in various services provided to us by third-party vendors; material changes in the market value or liquidity of securities that we hold; restrictions imposed by our debt obligations; and changes in industry standards affecting our business; (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 detect and prevent money laundering, terrorist financing, fraud and other illicit activity, and increased costs or loss of business associated with compliance with those laws and regulations; increased costs or loss of business due to regulatory initiatives and changes in laws, regulations and industry practices and standards affecting us, our agents, or their subagents, including related to anti-money laundering regulations, anti-fraud measures, 36



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customer due diligence, or agent and subagent due diligence, registration, and monitoring requirements; liabilities or loss of business and unanticipated developments resulting from governmental investigations and consent agreements with or enforcement actions by regulators, including those associated with compliance with or failure to comply with the settlement agreement with the State of Arizona, as amended; the impact on our business from the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules promulgated there-under, and the actions of the Consumer Financial Protection Bureau and similar legislation and regulations enacted by other government authorities; changes in United States or foreign laws, rules and regulations including the Internal Revenue Code, governmental or judicial interpretations thereof and industry practices and standards, including the impact of the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act; liabilities resulting from litigation, including class-action lawsuits and similar matters, including costs, expenses, settlements and judgments; failure to comply with regulations regarding consumer privacy and data use and security; effects of unclaimed property laws; failure to maintain sufficient amounts or types of regulatory capital to meet the changing requirements of our regulators worldwide; and changes in accounting standards, rules and interpretations; and (iii) other events, such as: adverse tax consequences from our spin-off from First Data Corporation; catastrophic events; and management's ability to identify and manage these and other risks. Overview We are a leading provider of money movement and payment services, operating in three business segments: Consumer-to-Consumer - The Consumer-to-Consumer operating segment facilitates money transfers between two consumers, primarily through a network of third-party agents. Our multi-currency, real-time money



transfer service is viewed by us as one interconnected global network

where a money transfer can be sent from one location to another, around

the world. Our money transfer services are 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 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. The significant majority of the segment's revenue was generated in the United States during all periods presented, with the remainder primarily generated in Argentina.



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. 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, we write foreign currency forward and option contracts for customers to facilitate future payments. All businesses that have not been classified in the above segments are reported as "Other" and include our money order and other businesses and services, in addition to costs for the review and closing of acquisitions. 37



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Table of Contents Results of Operations The following discussion of our consolidated results of operations and segment results refers to the three and six months ended June 30, 2014 compared to the same periods in 2013. 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. All significant intercompany accounts and transactions between our segments were eliminated as of and for the three and six months ended June 30, 2014. For the three and six months ended June 30, 2014 compared to the same periods in 2013, consolidated revenue increased primarily due to transaction growth in our Consumer-to-Consumer segment. Operating income increased slightly for the three months ended June 30, 2014 compared to the same period in 2013, primarily due to revenue increases and benefits from our prior productivity and cost-savings initiatives, partially offset by higher agent commissions in our Consumer-to-Consumer segment, higher bank-related fees resulting from changes in funding in our Consumer-to-Business segment, and negative currency impacts, including the effect of foreign currency hedges. Operating income decreased for the six months ended June 30, 2014 compared to the same period in 2013, despite the increase in revenues, primarily due to higher agent commissions in our Consumer-to-Consumer segment, higher bank-related fees resulting from changes in funding in our Consumer-to-Business segment, and increased compliance program costs, partially offset by benefits from our prior productivity and cost-savings initiatives and decreased integration costs related to the acquisition of Travelex Global Business Payments ("TGBP"). The following table sets forth our results of operations for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, (in millions, except per share amounts) 2014 2013 % Change 2014 2013 % Change Revenues: Transaction fees $ 1,029.0$ 1,016.3 1 % $ 2,016.9$ 1,994.3 1 % Foreign exchange revenues 344.3 338.0 2 % 673.6 650.4 4 % Other revenues 32.3 31.6 2 % 65.9 66.6 (1 )% Total revenues 1,405.6 1,385.9 1 % 2,756.4 2,711.3 2 % Expenses: Cost of services 827.8 811.7 2 % 1,625.0 1,571.1 3 % Selling, general and administrative 299.5 297.4 1 % 581.1 566.5 3 % Total expenses 1,127.3 1,109.1 2 % 2,206.1 2,137.6 3 % Operating income 278.3 276.8 1 % 550.3 573.7 (4 )% Other income/(expense): Interest income 2.9 0.7 * 7.6 1.1 * Interest expense (43.4 ) (48.0 ) (10 )% (91.0 ) (96.9 ) (6 )% Derivative gains/(losses), net (2.0 ) (0.2 ) * (2.6 ) 0.3 * Other income/(expense), net (3.7 ) 2.9 * (4.8 ) 4.2 * Total other expense, net (46.2 ) (44.6 ) 4 % (90.8 ) (91.3 ) (1 )% Income before income taxes 232.1 232.2 0 % 459.5 482.4 (5 )% Provision for income taxes 38.3 33.6 14 % 62.7 71.8 (13 )% Net income $ 193.8$ 198.6 (2 )% $ 396.8$ 410.6 (3 )% Earnings per share: Basic $ 0.36$ 0.36 0 % $ 0.73$ 0.73 0 % Diluted $ 0.36$ 0.36 0 % $ 0.73$ 0.73 0 % Weighted-average shares outstanding: Basic 537.1 555.7 541.5 561.7 Diluted 539.9 558.3 544.6 564.0 ____________________ * Calculation not meaningful 38



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Table of Contents Revenues overview For the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, consolidated revenue increased 1% and 2%, respectively. These increases were primarily due to our Consumer-to-Consumer segment, which experienced transaction growth of 6% and 7%, respectively, partially offset by geographic and product mix and price reductions. The strengthening of the United States dollar compared to certain foreign currencies negatively impacted consolidated revenue growth by approximately 2% for both the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year. For the three and six months ended June 30, 2014 compared to the same periods in the prior year, foreign exchange revenues increased, primarily due to increased amounts of cross-border principal sent in our Consumer-to-Consumer segment and increases in our retail walk-in foreign exchange business due to our acquisition of the Brazilian foreign exchange operations of Fitta DTVM S.A and Fitta Turismo Ltd ("Fitta"). Foreign exchange revenues for the six months ended June 30, 2014 were also impacted by growth in our Business Solutions segment. Fluctuations in the exchange rate between the United States dollar and other currencies, net of the impact of foreign currency hedges, have resulted in a reduction to revenues for the three and six months ended June 30, 2014 of $26.3 million and $58.8 million, respectively, over the same periods in the previous year. Operating expenses overview



Enhanced regulatory compliance

The financial services industry, including money services businesses, continues to be subject to increasingly strict legal and regulatory requirements, and we regularly review our compliance programs. In connection with these reviews, and in light of growing and rapidly evolving regulatory complexity and heightened attention of, and increased dialogue with, governmental and regulatory authorities related to our compliance activities, we have made, and continue to make enhancements to our processes and systems designed to deter and prevent money laundering, terrorist financing, and fraud and other illicit activity, along with enhancements to improve consumer protection related to the Dodd-Frank Act and similar international regulations, and other matters. In coming periods we expect these enhancements will continue to result in changes to certain of our business practices and increased costs. Some of these changes have had, and we believe will continue to have, an adverse effect on our business, financial condition and results of operations. Cost of services Cost of services primarily consists of agent commissions, which represented approximately two-thirds of total cost of services for both the three and six months ended June 30, 2014, and generally fluctuate as revenues fluctuate. Cost of services increased for the three and six months ended June 30, 2014 compared to the same periods in the prior year primarily due to variable costs that generally increase as revenues and transactions increase, such as agent commissions and bank-related fees. Cost of services also increased for the three and six months ended June 30, 2014 compared to the same periods in the prior year due to higher agent commission rates in the walk-in services of our Consumer-to-Consumer segment, primarily from the recent renewal of certain strategic agent agreements, and higher bank-related fees resulting from changes in funding in our Consumer-to-Business segment. These increases were partially offset by the strengthening of the United States dollar compared to certain foreign currencies, which resulted in a positive impact on the translation of our expenses, and benefits from our productivity and cost-savings initiatives. Selling, general and administrative For the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, selling, general and administrative expenses increased. For the three months ended June 30, 2014, selling, general and administrative expenses were impacted by increased legal and certain other expenses. The six months ended June 30, 2014 were also impacted by increased compliance program costs (see "Enhanced Regulatory Compliance" described above). During the three months ended June 30, 2013, we incurred certain costs related to the expected extension of our settlement agreement with the State of Arizona, which was subsequently amended on January 31, 2014. For the three and six months ended June 30, 2014, selling, general and administrative expenses benefited from our productivity and cost-savings initiatives and decreased integration costs related to the acquisition of TGBP on November 7, 2011. 39



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Table of Contents Total other expense, net Total other expenses, net was materially consistent during the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year. Income taxes Our effective tax rates on pre-tax income were 16.5% and 14.5% for the three months ended June 30, 2014 and 2013, respectively. Our effective tax rates on pre-tax income were 13.6% and 14.9% for the six months ended June 30, 2014 and 2013, respectively. The increase in our effective tax rate for the three months ended June 30, 2014 is primarily due to changes in the composition of earnings between foreign and domestic. The decrease in our effective tax rate for the six months ended June 30, 2014 is primarily due to the combined effect of various discrete items, including those related to foreign currency fluctuations on certain income tax attributes, partially offset by changes in the composition of earnings between foreign and domestic. For the year ended December 31, 2013, 103% of our pre-tax income was derived from foreign sources, and we currently expect that approximately 100% of our pre-tax income will be derived from foreign sources for the year ended December 31, 2014. Our foreign pre-tax income is subject to tax in multiple foreign jurisdictions, virtually all of which have statutory income tax rates lower than the United States. While the income tax imposed by any one foreign country is not material to us, our overall effective tax rate could be adversely affected by changes in tax laws, both foreign and domestic. Certain portions of our foreign source income are subject to United States federal and state income tax as earned due to the nature of the income, and dividend repatriations of our foreign source income are generally subject to United States federal and state income tax. We have established contingency reserves for a variety of material, known tax exposures. As of June 30, 2014, the total amount of tax contingency reserves was $121.2 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. While we believe that our reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed our related reserve. With respect to these reserves, our income tax expense would include (i) any changes in tax reserves arising from material changes during the period in facts and circumstances (i.e., new information) surrounding a tax issue and (ii) any difference from our tax position as recorded in the financial statements and the final resolution of a tax issue during the period. Such resolution could materially increase or decrease income tax expense in our consolidated financial statements in future periods and could impact our operating cash flows. Earnings per share During both the three months ended June 30, 2014 and 2013, both basic and diluted earnings per share were $0.36. During both the six months ended June 30, 2014 and 2013, both basic and diluted earnings per share were $0.73. 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 June 30, 2014 and 2013, there were 16.3 million and 26.3 million, respectively, of outstanding options to purchase shares of Western Union stock excluded from the diluted earnings per share calculation under the treasury stock method as their effect was anti-dilutive. For the six months ended June 30, 2014 and 2013, there were 17.3 million and 25.9 million, respectively, of outstanding options to purchase shares of Western Union stock excluded from the diluted earnings per share calculation under the treasury stock method as their effect was anti-dilutive. Earnings per share was flat for both the three and six months ended June 30, 2014 compared to the same periods in the prior year as a result of the previously described factors impacting net income, offset by lower weighted-average shares outstanding. The lower number of shares outstanding was due to stock repurchases exceeding stock option exercises. 40



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Table of Contents Segment Discussion We manage our business around the consumers and businesses we serve and the types of services we offer. Each of our three segments addresses a different combination of consumer groups, distribution networks and services offered. Our segments are Consumer-to-Consumer, Consumer-to-Business and Business Solutions. Businesses not considered part of these segments are categorized as "Other." The following table sets forth the components of segment revenues as a percentage of the consolidated totals for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 Consumer-to-Consumer 81 % 80 % 80 % 80 % Consumer-to-Business 10 % 11 % 11 % 11 % Business Solutions 7 % 7 % 7 % 7 % Other 2 % 2 % 2 % 2 % 100 % 100 % 100 % 100 %



Consumer-to-Consumer Segment The following table sets forth our Consumer-to-Consumer segment results of operations for the three and six months ended June 30, 2014 and 2013.

Three Months Ended Six Months Ended June 30, June 30,



(dollars and transactions in millions) 2014 2013 % Change 2014 2013 % Change Revenues: Transaction fees

$ 867.1$ 848.4 2 % $ 1,692.7$ 1,658.0 2 % Foreign exchange revenues 249.6 246.0 1 % 485.6 471.6 3 % Other revenues 15.4 14.4 7 % 31.3 29.4 6 % Total revenues $ 1,132.1$ 1,108.8 2 % $ 2,209.6$ 2,159.0 2 % Operating income $ 257.5$ 257.3 0 % $ 504.5$ 524.4 (4 )% Operating income margin 23 % 23 % 23 % 24 % Key indicator: Consumer-to-Consumer transactions 63.96 60.26 6 % 124.20 115.70 7 % 41



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The table below sets forth transaction and revenue changes by geographic region and westernunion.com compared to the corresponding period in the prior year and revenues as a percentage of consolidated revenue for the three and six months ended June 30, 2014. Three Months Ended Six Months Ended June 30, June 30, Consumer-to-Consumer transaction growth (a): Europe and CIS 11 % 11 % North America 3 % 3 % Middle East and Africa 6 % 7 % Asia Pacific ("APAC") 3 % 5 % Latin America and the Caribbean ("LACA") 0 % 3 % westernunion.com 46 % 50 % Consumer-to-Consumer revenue growth/(decline) (a): Europe and CIS 3 % 2 % North America 1 % 1 % Middle East and Africa 6 % 5 % APAC 1 % 1 % LACA (13 )% (9 )% westernunion.com 31 % 38 % Consumer-to-Consumer revenue as a percentage of consolidated revenue (a): Europe and CIS 22 % 21 % North America 19 % 19 % Middle East and Africa 16 % 16 % APAC 12 % 12 % LACA 8 % 8 % westernunion.com 4 % 4 % __________________



(a) We view our Consumer-to-Consumer money transfer service as one

interconnected global network where a money transfer can be sent from one

location to another, around the world, including related transactions that

can be initiated through websites and account based money transfers. The segment includes five geographic regions whose functions are limited to



generating, managing and maintaining agent relationships and localized

marketing activities and also includes our online money transfer service

conducted through Western Union branded websites ("westernunion.com"). By

means of common processes and systems, these regions and westernunion.com

create an interconnected network for consumer transactions, thereby constituting one global Consumer-to-Consumer money transfer business and one operating segment. Significant allocations are made in determining the transaction and revenue changes under the regional view in the above table. The geographic split for transactions and revenue is determined based upon the region where the money transfer is initiated and the region where the money transfer is paid. For transactions originated and paid in different regions, we split the transaction count and revenue between the two regions, with each region receiving 50%. For money transfers initiated and paid in the same region, 100% of the revenue and transactions are attributed to that region. For money transfers initiated through our websites, 100% of the revenue and transactions are attributed to westernunion.com. Our consumers transferred $21.8 billion and $42.1 billion in Consumer-to-Consumer principal during the three and six months ended June 30, 2014, respectively, of which $19.7 billion and $38.0 billion related to cross-border principal, respectively. This represented increases of 6% and 7% for Consumer-to-Consumer principal and cross-border principal, respectively, for three months ended June 30, 2014, compared to the corresponding period in the prior year. For the six months ended June 30, 2014, both Consumer-to-Consumer principal and cross-border principal increased 7% compared to the corresponding period in the prior year. 42



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Transaction fees and foreign exchange revenues For both the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, Consumer-to-Consumer money transfer revenue increased 2%, with more than half of this growth contributed by westernunion.com. For the three and six months ended June 30, 2014 compared to the same periods in the prior year, revenue increased primarily due to transaction growth of 6% and 7%, respectively, partially offset by geographic and product mix, price reductions, and the strengthening of the United States dollar compared to certain foreign currencies. The impact of price reductions was 1% and 2% of our Consumer-to-Consumer revenue for the three and six months ended June 30, 2014, respectively. The strengthening of the United States dollar compared to certain foreign currencies negatively impacted revenue growth by 1% for both the three and six months ended June 30, 2014. Our Europe and CIS region experienced revenue growth of 3% and 2% for the three and six months ended June 30, 2014, compared to the corresponding periods in the prior year, respectively, due to transaction growth of 11% for both periods. Revenue was negatively impacted by geographic and product mix and price reductions, partially offset by the weakening of the United States dollar compared to most other foreign currencies in the region. Our North America region experienced revenue growth of 1% for both the three and six months ended June 30, 2014, compared to the corresponding periods in the prior year, primarily due to transaction growth of 3% for both periods. The increase in revenue primarily resulted from transaction growth in our United States outbound and Mexico businesses. The differential between revenue and transaction growth in the region was primarily attributable to transaction growth in lower principal bands, which generate lower revenues per transaction, in our domestic business (transactions between and within the United States and Canada). Our Middle East and Africa region experienced revenue growth of 6% and 5% for the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year on transaction growth of 6% and 7%, respectively. The increase in revenue for the three and six months ended June 30, 2014 was primarily driven by revenue growth in the United Arab Emirates and Saudi Arabia. Revenue was negatively impacted by price reductions for the six months ended June 30, 2014 compared to the same period in the prior year. Our APAC region experienced revenue growth of 1% for both the three and six months ended June 30, 2014 compared to the same periods in the prior year on transaction growth of 3% and 5%, respectively. The increase in revenue for the three and six months ended June 30, 2014 was primarily driven by revenue growth in Japan and the Philippines. The differential between revenue and transaction growth in the region was primarily attributable to price reductions and the strengthening of the United States dollar compared to other foreign currencies in the region. Our LACA region experienced revenue declines of 13% and 9% for the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, respectively, on flat transactions and transaction growth of 3%, respectively. For the three and six months ended June 30, 2014, revenue was negatively impacted by government imposed restrictions on the market in Venezuela and the strengthening of the United States dollar compared to the Argentine peso and other foreign currencies in the region. Westernunion.com experienced revenue growth of 31% and 38% for the three and six months ended June 30, 2014 compared to the same periods in the prior year, respectively, on transaction growth of 46% and 50%, respectively. Foreign exchange revenues increased 1% and 3% for the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, respectively, primarily due to increases in cross-border principal sent of 7% for both periods. Fluctuations in the exchange rate between the United States dollar and other currencies, net of the impact of foreign currency hedges, have resulted in a reduction to revenues for the three and six months ended June 30, 2014 of $7.5 million and $20.0 million over the same periods in the previous year, respectively. We have historically implemented and will likely implement price reductions 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, but are done in anticipation that they will result in increased transaction volumes which may lead to increased revenues and operating income in these certain corridors thereafter. 43



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Table of Contents Operating income Consumer-to-Consumer operating income was flat and declined 4% during the three and six months ended June 30, 2014 compared to the same periods in 2013, respectively. Results for the three and six months ended June 30, 2014 were primarily due to higher agent commissions, which generally increase as revenue increases, including increases in agent commission rates in our walk-in services primarily due to the recent renewal of certain strategic agent agreements. For the three and six months ended June 30, 2014, these results were also due to negative currency impacts, including the effect of foreign currency hedges, partially offset by the revenue increases described above, and benefits from our productivity and cost-savings initiatives. Consumer-to-Consumer operating income for the six months ended June 30, 2014 was also impacted by increased compliance program costs. During the three months ended June 30, 2013, we incurred certain costs related to the expected extension of our settlement agreement with the State of Arizona, which was subsequently amended on January 31, 2014. The change in operating margins in the segment is due to these same factors. Consumer-to-Business Segment The following table sets forth our Consumer-to-Business segment results of operations for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 % Change 2014 2013 % Change Revenues: Transaction fees $ 139.4$ 145.1 (4 )% $ 280.1$ 290.9 (4 )% Foreign exchange and other revenues 6.5 7.9 (18 )% 13.0 15.8 (18 )% Total revenues $ 145.9$ 153.0 (5 )% $ 293.1$ 306.7 (4 )% Operating income $ 23.6$ 31.4 (25 )% $ 53.4$ 69.3 (23 )% Operating income margin 16 % 21 % 18 % 23 % Revenues For the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, Consumer-to-Business revenue decreased 5% and 4%, respectively, primarily due to the strengthening of the United States dollar against the Argentine peso, which negatively impacted our Consumer-to-Business revenue growth by 13% and 11%, respectively. Revenue was also negatively impacted by declines in our United States cash-based bill payments business, partially offset by growth in our United States electronic bill payments business. Operating income For the three and six months ended June 30, 2014, operating income decreased compared to the same period in the prior year primarily due to higher bank-related fees resulting from changes in funding in our growing United States electronic business as a result of increased credit card usage from our customers and larger principal transactions, in addition to the items which impacted revenues described earlier. The changes in operating margins in the segment are due to these same factors. 44



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Business Solutions Segment The following table sets forth our Business Solutions segment results of operations for the three and six months ended June 30, 2014 and 2013.

Three Months Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 % Change 2014 2013 % Change Revenues: Foreign exchange revenues $ 87.7$ 88.7 (1 )% $ 178.1$ 172.7 3 % Transaction fees and other revenues 10.5 9.6 9 % 19.5 18.4 6 % Total revenues $ 98.2$ 98.3 0 % $ 197.6$ 191.1 3 % Operating loss $ (3.3 )$ (7.3 ) * $ (6.9 )$ (13.5 ) * Operating loss margin (3 )% (7 )% (3 )% (7 )% ____________________



* Calculation not meaningful

Revenues

For the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, Business Solutions revenue was flat and grew 3%, respectively. Revenue increased for the six months ended June 30, 2014 due to increased use of hedging products by our customers, partially offset by the strengthening of the United States dollar against certain foreign currencies, which negatively impacted revenue growth by 2%. We believe that revenue for the three months ended June 30, 2014 was negatively impacted by lower currency volatility compared to the same period in the prior year as well as some sales execution challenges. Operating loss For the three and six months ended June 30, 2014, operating loss decreased compared to the same periods in the prior year due to decreased TGBP integration expenses. Operating loss for the six months ended June 30, 2014 also declined due to the revenue increase described above. The changes in operating loss margins in the segment are due to these same factors. Other The following table sets forth Other results for the three and six months ended June 30, 2014 and 2013. Three Months Ended Six Months Ended June 30, June 30, (dollars in millions) 2014 2013 % Change 2014 2013 % Change Revenues $ 29.4$ 25.8 14 % $ 56.1$ 54.5 3 % Operating income/(loss) $ 0.5$ (4.6 ) * $ (0.7 )$ (6.5 ) * ____________________ * Calculation not meaningful Revenues Other revenue increased for the three and six months ended June 30, 2014 compared to the same periods in the prior year due to increases in our retail walk-in foreign exchange business resulting from our acquisition of Fitta, partially offset by declines in our prepaid business. Operating income/(loss) During the three and six months ended June 30, 2014 compared to the corresponding periods in the prior year, operating loss decreased due to benefits from our productivity and cost-savings initiatives, and the revenue increases described above. 45



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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 significant 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 future cash flows could be impacted by a variety of factors, some of which are out of our control, including changes in economic conditions, especially those impacting migrant populations and changes in income tax laws or the status of income tax audits, including the resolution of outstanding tax matters. A significant portion of our cash flows from operating activities has been generated from subsidiaries, some of which are regulated entities. 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: 1) 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; and 2) other legal or regulatory restrictions, including statutory or formalized net worth requirements. We believe we have adequate liquidity to meet our business needs through our existing cash balances and our ability to generate cash flows through operations. These business needs include approximately $100 million of remaining tax payments, plus additional accrued interest, we expect to make as a result of the IRS Agreement, which we anticipate paying in 2015 and beyond. In addition, we also believe we have adequate liquidity to pay dividends and make anticipated share repurchases. We have capacity to borrow up to $1.65 billion in the aggregate under our revolving credit facility ("Revolving Credit Facility"), which supports borrowings under our $1.5 billion commercial paper program and expires in January 2017. As of June 30, 2014, we had no outstanding borrowings under our Revolving Credit Facility and had $35.0 million of commercial paper borrowings outstanding, which left $1,615.0 million remaining that was available to borrow on the Revolving Credit Facility for other purposes. Cash and Investment Securities As of June 30, 2014, we had cash and cash equivalents of $1.6 billion, of which approximately $1.2 billion was held by our foreign entities. Our ongoing cash management strategies to fund our business needs could cause United States and foreign cash balances to fluctuate. Repatriating foreign funds to the United States would, in many cases, result in significant tax obligations because most of these funds have been taxed at relatively low foreign tax rates compared to our combined federal and state tax rate in the United States. We have used and expect to continue to use foreign funds to expand and fund our international operations and to acquire businesses internationally. We regularly evaluate, taking tax consequences and other factors into consideration, our United States cash requirements and also the potential uses of cash internationally to determine the appropriate level of dividend repatriations of our foreign source income. In many cases, we receive funds from money transfers and certain other payment services before we settle the payment of those transactions. These funds, referred to as "Settlement assets" on our Condensed Consolidated Balance Sheets, are not used to support our operations. However, we earn income from investing these funds. 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," were $1.2 billion as of June 30, 2014. Substantially all of these investments are highly-rated state and municipal debt securities, including variable rate demand notes. Most state regulators in the United States require us to maintain specific highly-rated, investment grade securities and such investments are intended to secure relevant outstanding settlement obligations in accordance with applicable regulations. Investment securities are exposed to market risk due to changes in interest rates and credit risk. We regularly monitor credit risk and attempt to mitigate our exposure by investing in highly-rated securities and diversifying our investment portfolio. As of June 30, 2014, the majority of our investment securities had credit ratings of "AA-" or better from a major credit rating agency. Our investment securities are also actively managed with respect to concentration. As of June 30, 2014, all investments with a single issuer and each individual security were less than 10% of our investment securities portfolio. 46



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Cash Flows from Operating Activities Cash provided by operating activities decreased to $450.1 million during the six months ended June 30, 2014, from $477.5 million in the comparable period in the prior year. Financing Resources As of June 30, 2014, we have outstanding borrowings at par value of $3,765.6 million. The substantial majority of these outstanding borrowings consists of unsecured fixed-rate notes and associated swaps with maturities ranging from 2015 to 2040, and our borrowings also include our floating rate notes due in 2015. Our Revolving Credit Facility expires in January 2017 and provides for unsecured financing facilities in an aggregate amount of $1.65 billion, including a $250.0 million letter of credit sub-facility and a $150.0 million swing line sub-facility. The purpose of our Revolving Credit Facility, which is diversified through a group of 17 participating institutions, is to provide general liquidity and to support our commercial paper program, which we believe enhances our short term credit rating. The largest commitment from any single financial institution within the total committed balance of $1.65 billion is approximately 12%. As of and during the six months ended June 30, 2014, 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. Pursuant to our commercial paper program, we 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 our Revolving Credit Facility in excess of $150 million. Our commercial paper borrowings may have maturities of up to 397 days from date of issuance. Interest rates for borrowings are based on market rates at the time of issuance. During the three and six months ended June 30, 2014, the average commercial paper balance outstanding was $9.8 million and $21.2 million, respectively, and the maximum balance outstanding was $150.0 million and $200.0 million, respectively. We had $35.0 million of commercial paper borrowings outstanding as of June 30, 2014. We had no commercial paper borrowings outstanding as of June 30, 2013. Proceeds from our commercial paper borrowings were used for general corporate purposes. Cash Priorities Liquidity Our objective is to maintain strong liquidity and a capital structure consistent with investment-grade credit ratings. We have existing cash balances, cash flows from operating activities, access to the commercial paper markets and our Revolving Credit Facility available to support the needs of our business. Capital Expenditures The total aggregate amount paid for contract costs, purchases of property and equipment, and purchased and developed software was $96.3 million and $106.7 million for the six months ended June 30, 2014 and 2013, 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. 47



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Share Repurchases and Dividends During the six months ended June 30, 2014 and 2013, 19.7 million and 21.1 million shares, respectively, were repurchased for $323.1 million and $314.5 million, respectively, excluding commissions, at an average cost of $16.39 and $14.90 per share, respectively. As of June 30, 2014, $176.9 million remains available under a share repurchase authorization approved by our Board of Directors through June 30, 2015. Our Board of Directors declared quarterly cash dividends of $0.125 per common share in both the first and second quarters of 2014, representing $134.4 million in total dividends. On July 15, 2014, our Board of Directors declared a quarterly cash dividend of $0.125 per common share payable on September 30, 2014. Debt Service Requirements Our 2014 and future debt service requirements will include payments on existing and future borrowings under our commercial paper program and interest payments on all outstanding indebtedness. In February 2014, $500.0 million of our notes matured and were repaid from our cash balances. Overall, we have the ability to use cash, including cash generated from operations, and our Revolving Credit Facility, and could also access commercial paper and other financing sources to meet our debt obligations as they come due. Our ability to continue to grow the business, make investments in our business, make acquisitions, return capital to shareholders, including through dividends and share repurchases, and service our debt will depend on our ability to continue to generate excess operating cash through our operating subsidiaries and to continue to receive dividends from those operating subsidiaries, and our ability to obtain adequate financing. Off-Balance Sheet Arrangements Other than facility and equipment leasing arrangements, 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Pension Plan We have a frozen defined benefit pension plan (the "Plan") for which we had a recorded unfunded pension obligation of $59.9 million as of June 30, 2014. We are required to fund approximately $13 million to the Plan in 2014, of which approximately $7 million was contributed during the six months ended June 30, 2014. Other Commercial Commitments We had approximately $235 million in outstanding letters of credit and bank guarantees as of June 30, 2014. The letters of credit and bank guarantees are primarily held in connection with lease arrangements, certain agent agreements, and in relation to an uncertain tax position. The letters of credit and bank guarantees have expiration dates through 2018, with the majority having a one-year renewal option, except for the bank guarantee related to the uncertain tax position, which will expire upon resolution of this matter. We expect to renew the letters of credit and bank guarantees prior to expiration in most circumstances. As of June 30, 2014, our total amount of unrecognized income tax benefits was $133.8 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 is affected by factors which are variable and outside our control. 48



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Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. Our Critical Accounting Policies and Estimates disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our 2013 Annual Report on Form 10-K, for which there were no material changes, included: Income taxes



Derivative financial instruments

Other intangible assets Goodwill Risk Management We are exposed to market risks arising from changes in market rates and prices, including changes in foreign currency exchange rates and interest rates and credit risk related to our agents and customers. A risk management program is in place to manage these risks. Foreign Currency Exchange Rates We provide Consumer-to-Consumer money transfer services in more than 200 countries and territories. We manage foreign exchange risk through the structure of the business and an active risk management process. We settle with the vast majority of our agents in United States dollars or euros. However, in certain circumstances, we settle in other currencies. We typically require the agent to obtain local currency to pay recipients; thus, we generally are not reliant on international currency markets to obtain and pay illiquid currencies. The foreign currency exposure that does exist is limited by the fact that the majority of transactions are paid by the next day after they are initiated. To mitigate this risk further, we enter into short duration foreign currency forward contracts, generally with maturities from a few days up to approximately one month, to offset foreign exchange rate fluctuations between transaction initiation and settlement. We also have exposure to certain foreign currency denominated cash and other asset 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 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 at which we or our agents are able to acquire the currency, helping to provide protection against currency fluctuations. We 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 mitigate risks associated with changes in foreign currency exchange rates on Consumer-to-Consumer revenues denominated primarily in the euro, and to a lesser degree the Canadian dollar, British pound, Australian dollar, Swiss franc, 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 Consumer-to-Consumer operations. We have operations in countries where government-imposed restrictions limit the transfer of cash outside the country. In Argentina, our money transfer and bill payment operations together represent less than 5% of our total consolidated revenues for the three and six months ended June 30, 2014. However, as of June 30, 2014, approximately $45 million in cash and cash equivalents denominated in the Argentine peso continues to be held in Argentina. The impact of changes in the official Argentine peso exchange rate on our cash and cash equivalents is immediately reflected in net income for our money transfer operations, whereas this impact is reflected in other comprehensive income for our bill payment operations. The continued devaluation of the Argentine peso and additional limits on returning excess cash balances could further adversely affect future distributions or their value and our results of operations. 49



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Table of Contents We have additional foreign exchange risk and associated foreign exchange risk management due to the nature of our Business Solutions business. The majority of this business' revenue is from exchanges of currency at the spot rate enabling customers to make cross-currency payments. In certain countries, this business also writes foreign currency forward and option contracts for our customers to facilitate future payments. The duration of these derivative contracts at inception is generally 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. The foreign exchange risk is actively managed. As of December 31, 2013, a hypothetical uniform 10% strengthening or weakening in the value of the United States dollar relative to all other currencies in which our profits are generated would have resulted in a decrease/increase to pre-tax annual income of approximately $41 million based on our 2014 forecast of Consumer-to-Consumer unhedged exposure to foreign currency. The exposure as of June 30, 2014 is not materially different based on our forecast of unhedged exposure to foreign currency through June 30, 2014. There are inherent limitations in this sensitivity analysis, primarily due to the assumption that foreign exchange rate movements are linear and instantaneous, that the unhedged exposure is static, and that we would not hedge any additional exposure. As a result, the analysis is unable to reflect the potential effects of more complex market changes that could arise, which may positively or negatively affect income. Interest Rates We invest in several types of interest bearing assets, with a total value as of June 30, 2014 of $2.9 billion. Approximately $1.8 billion of these assets bear interest at floating rates and are therefore sensitive to changes in interest 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." 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." Earnings on these investments will increase and decrease with changes in the underlying short-term interest rates. The significant majority of the remainder of our interest bearing assets consist of highly-rated state and municipal debt securities which are fixed-rate instruments. These investments may include investments made from cash received from our money transfer business and other related payment services awaiting redemption 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" on our Condensed Consolidated Balance Sheets. As of June 30, 2014, we had $250.0 million of floating rate notes, which had an effective interest rate of 1.2% or 1% above three-month LIBOR. Additionally, $1,050.0 million of our fixed-rate borrowings at par value are effectively floating rate debt through interest rate swap agreements, changing this fixed-rate debt to LIBOR-based floating rate debt, with weighted-average spreads of approximately 200 basis points above LIBOR. Borrowings under our commercial paper program have a short maturity and, therefore, are effectively considered floating rate borrowings. Commercial paper borrowings of $35.0 million were outstanding as of June 30, 2014. We review our overall exposure to floating and fixed rates by evaluating our net asset or liability position in each, also considering the duration of the individual positions. We manage this mix of fixed versus floating exposure in an attempt to minimize risk, reduce costs and improve returns. Our exposure to interest rates can be modified by changing the mix of our interest-bearing assets as well as adjusting the mix of fixed versus floating rate debt. The latter is accomplished primarily through the use of interest rate swaps and the decision regarding terms of any new debt issuances (i.e., fixed versus floating). We use interest rate swaps designated as hedges to increase the percentage of floating rate debt, subject to market conditions. As of June 30, 2014, our weighted-average effective rate on total borrowings was approximately 4.4%. 50



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Table of Contents A hypothetical 100 basis point increase/decrease in interest rates would result in a decrease/increase to pre-tax income of approximately $13 million annually based on borrowings on June 30, 2014 that are sensitive to interest rate fluctuations. The same 100 basis point increase/decrease in interest rates, if applied to our cash and investment balances on June 30, 2014 that are sensitive to interest rate fluctuations, would result in an offsetting benefit/reduction to pre-tax income of approximately $18 million annually. There are inherent limitations in the sensitivity analysis presented, primarily due to the assumption that interest rate changes would be instantaneous. As a result, the analysis is unable to reflect the potential effects of more complex market changes, including changes in credit risk regarding our investments, which may positively or negatively affect income. In addition, the current mix of fixed versus floating rate debt and investments and the level of assets and liabilities will change over time. We will also be further impacted by changes to future interest rates as we refinance our debt or by reinvesting proceeds from the sale or maturity of our investments. Credit Risk As of June 30, 2014, the majority of our investment securities had credit ratings of "AA-" or better from a major credit rating agency. To manage our exposures to credit risk with respect to investment securities, money market fund investments, derivatives and other credit risk exposures resulting from our relationships with banks and financial institutions, we regularly review investment concentrations, trading levels, credit spreads and credit ratings, and we attempt to diversify our investments among global financial institutions. We also limit our investment level in any individual non-government money market fund to no more than $100 million. We are also exposed to credit risk related to receivable balances from agents in the money transfer, walk-in bill payment and money order settlement process. We perform a credit review before each agent signing and conduct periodic analyses. In addition, we are exposed to credit risk directly from consumer transactions particularly through our online services and electronic channels, where transactions are originated through means other than cash, and therefore are subject to "chargebacks," insufficient funds or other collection impediments, such as fraud, which are anticipated to increase as online services and electronic channels become a greater proportion of our money transfer business. We are exposed to credit risk in our Business Solutions business relating to: (a) derivatives written by us to our customers and (b) receivables from certain customers for which beneficiaries are paid prior to receiving cleared funds from the customer, where we have offered "trade credit." For the derivatives, the duration of these contracts at inception is generally less than one year. The credit risk associated with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to deliver currency to us or to maintain appropriate collateral with us. For those receivables where we have offered trade credit, collection ordinarily occurs within a few days. To mitigate the risk associated with potential customer defaults, we perform credit reviews of the customer on an ongoing basis, and, for our derivatives, we may require certain customers to post or increase collateral. Our losses associated with bad debts have been approximately 1% or less of our consolidated revenues in all periods presented. New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued a new accounting pronouncement regarding revenue from contracts with customers. This new standard provides guidance on recognizing revenue, including a five step model to determine when revenue recognition is appropriate. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Adoption of the new standard is effective for reporting periods beginning after December 15, 2016, with early adoption not permitted. We are currently evaluating the potential impact that the adoption of this standard will have on our financial position, results of operations, and related disclosures, and will adopt the provisions of this new standard in the first quarter of 2017. 51



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