Western Union 2006 Annual Report Download - page 42

WESTERN UNION 2006 Annual Report 40
|| Revenue is also impacted by prices charged to the
consumer, the amount of money sent, and by changes
in the exchange rate between foreign currencies,
particularly the euro, and the United States
dollar. We have made periodic pricing decreases in
response to competition and to implement our brand
investment strategy, which includes better meeting
consumer needs, maximizing market opportunities
and strengthening our overall competitive positioning.
Pricing decreases generally reduce margins, but are
done in anticipation that they will result in increased
transaction volumes. Such pricing decreases have
averaged approximately 3% of our annual revenues
over the last three years, a trend that is expected
to continue.
|| We continue to face robust competition in both our
consumer-to-consumer and consumer-to-business
segments from a variety of money transfer and
consumer payment providers. We believe the most
significant competitive factors in the consumer-to-
consumer segment relate to brand recognition,
distribution network, consumer experience and price
and in the consumer-to-business segment relate to
brand recognition, convenience, variety of payment
methods and price.
|| Regulation of the money transfer industry is
increasing. The number and complexity of regulations
around the world and the pace at which regulation is
changing are factors that pose significant challenges
to our business. We continue to implement policies
and programs and adapt our business practices and
strategies to help us comply with current legal
requirements, as well as with new and changing
legal requirements affecting particular services, or
the conduct of our business in general. Our activities
include dedicated compliance personnel, training
and monitoring programs, government relations and
regulatory outreach efforts and support and guidance
to the agent network on compliance programs.
These efforts increase our costs of doing business.
|| Our consumer-to-business segment continues to
experience a shift in demand in the United States
from cash-based walk-in payment services to
lower margin, higher volume growth electronic
payment services.
Significant Financial and Other Highlights
Our spin-off from First Data was completed on
September 29, 2006. As such, profit and cash flow
comparisons with prior year are and will continue to
be meaningfully impacted by the fact that, up until
September 29, 2006, we were a segment of First
Data, while now we are a stand alone company. In
particular, interest expense and corporate overhead
costs will be higher in the future than they were in the
past. Significant financial and other highlights for the
year ended December 31, 2006 include:
|| We generated $4,470.2 million in total consolidated
revenues and $1,311.4 million in consolidated
operating income, resulting in year-over-year growth
of 12% and 3% in total consolidated revenues and
operating income, respectively.
|| Consolidated net income during 2006 was
$914.0 million, representing a decrease of 1% from
2005. Basic and diluted earnings per share during
2006 were $1.20 and $1.19, respectively, compared
to basic and diluted earnings per share of $1.21
in 2005.
|| We completed 147 million consumer-to-consumer
transactions worldwide, an increase of 24% over
2005. Excluding transactions attributable to Vigo
Remittance Corporation, or “Vigo,” which was acquired
in October 2005, consumer-to-consumer transactions
increased 17% in 2006 compared to 2005.
|| We completed 249 million consumer-to-business
transactions, an increase of 16% over 2005. Excluding
transactions attributable to SEPSA, consumer-
to-business transactions increased 11% in 2006
compared to 2005.
|| Consolidated cash flow provided by operating activities
was $1,108.9 million, representing an increase of
11% from 2005 consolidated cash flows provided
by operating activities of $1,002.8 million.
The Separation of Western Union from First Data
The spin-off by First Data of its money transfer and
consumer payments business to our company became
effective on September 29, 2006 through a distribution
of 100% of the common stock of The Western Union
Company to the holders of record of First Data’s common
stock (the “Distribution”). The Distribution was pursuant
to the separation and distribution agreement by which First
Data contributed to The Western Union Company the
subsidiaries that operated its money transfer and consumer
payments businesses and its interest in a Western Union
money transfer agent, as well as related assets, including
real estate. First Data received a private letter ruling from
the Internal Revenue Service and an opinion from tax
counsel to the effect that the spin-off was tax free to the
stockholders, First Data and Western Union. First Data
distributed all of the shares of Western Union common
stock as a dividend on First Data common stock as of the
record date for the Distribution.