Western Union 2006 Annual Report Download - page 56

WESTERN UNION 2006 Annual Report 54
Capital Expenditures
Total aggregate payments capitalized for purchases of
property and equipment, software development and contract
costs were $202.3 million, $65.0 million, and $49.5 million
in 2006, 2005, and 2004, respectively. Amounts capitalized
for contract costs relate to initial payments for new and
renewed agent contracts and vary depending on the timing
of when new contracts are signed and existing contracts
are renewed. In 2006, we purchased an office building
and made investments in our information technology
infrastructure in connection with being a stand alone com-
pany which contributed to the increase in property and
equipment for the year ended December 31, 2006.
In addition, during 2006, we renewed and entered into
certain large strategic agent contracts for which initial
payments were made that drove the increase in capitalized
contract costs.
The decrease in software development costs during
2005 compared to 2004 relates primarily to the timing of
internally developed software projects. We estimate that
capital expenditures in 2007 will be between $200 million
and $250 million.
Notes Receivable Issued to Agents and
Repayments of Notes Receivable Issued to Agents
From time to time, we make advances and loans to agents.
In 2006, we signed a six year agreement with one of
our existing agents which included a four year loan of
$140.0 million to the agent, of which $20.0 million was
repaid by the agent during 2006. The terms of the loan
agreement require that a percentage of commissions
earned by the agent (52% in 2007, 61% in 2008 and
64% in 2009) be withheld by us as repayment of the loan
and the agent remains obligated to repay the loan if
commissions earned are not sufficient. The loan receivable
was recorded in “Other assets” in our consolidated balance
sheet as of December 31, 2006. We impute interest
on this below-market rate note receivable and have
recorded this note net of a discount of $37.8 million as of
December 31, 2006.
Acquisition of Businesses, Net of Cash Acquired
and Contingent Purchase Consideration Paid
In December 2006, we acquired SEPSA for a total purchase
price of $69.5 million, less cash acquired of $3.0 million
resulting in a net cash outflow of $66.5 million. During
2005, First Data acquired 100% of Vigo for a total purchase
price of $369.2 million, net of cash acquired of $20.1 million
resulting in a net cash outflow of $349.1 million. In 2004,
contingent consideration payments were made by First
Data in connection with the acquisitions of Paymap Inc.,
or “Paymap,” and E Commerce Group, Inc., or “ECG,”
during the second quarter of 2002. First Data contributed
Vigo, Paymap and ECG to us as part of the spin-off.
Cash Received/(Paid ) on Maturity
of Foreign Currency Forwards
Amounts received or paid on maturity of our foreign
currency forward contracts that do not qualify as hedges
in accordance with applicable accounting rules have been
classified in the consolidated statements of cash flows as
investing activities. Prior to September 29, 2006, we did
not have any forward contracts that qualified as hedges,
and accordingly, all realized gains and losses on these
contracts have been reflected in investing activities prior
to that date. On September 29, 2006, we re-established
our foreign currency forward positions to qualify for cash
flow hedge accounting. As a result, on a go-forward basis,
we anticipate the amounts reflected in investing activities
related to foreign currency forwards will be minimal. “Cash
received/(paid) on maturity of foreign currency forwards”
does not include amounts realized on forward contracts
intended to mitigate exposures on settlement activities of
our money transfer business, which along with the realized
gains and losses on the related settlement assets and
obligations, are reflected in operating activities.
Purchase of Equity Method Investments
In 2004, we purchased 30% interests in two of our
international money transfer agents. The aggregate purchase
price paid was $42.0 million, net of $5.4 million of holdback
reserves to cover claims arising from the acquisitions.
The holdback reserves were paid in 2005.
Cash Flows from Investing Activities
Years ended December 31,
Source (use) (in millions) 2006 2005 2004
Capitalization of contract costs $(124.1) $ (22.5) $ (7.3)
Capitalization of software development costs (14.4) (7.7) (15.7)
Purchases of property and equipment (63.8) (34.8) (26.5)
Notes receivable issued to agents (140.0) (8.4) —
Repayments of notes receivable issued to agents 20.0 — —
Acquisition of businesses, net of cash acquired and
contingent purchase consideration paid (66.5) (349.1) (28.7)
Cash received/(paid) on maturity of foreign currency forwards 4.1 (0.5) (23.2)
Purchase of equity method investments — (5.4) (42.0)
Net cash used in investing activities $(384.7) $(428.4) $(143.4)