Western Union 2006 Annual Report Download - page 70

WESTERN UNION 2006 Annual Report 68
|| 1. Formation of the Entity and
Basis of Presentation
The spin-off by First Data Corporation (“First Data”) of its
money transfer and consumer payments business to The
Western Union Company (“Western Union” or the
“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 a 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. The Company has received
a private letter ruling from the Internal Revenue Service
and an opinion from tax counsel indicating that the spin-
off was tax free to the stockholders, First Data and
Western Union.
The Western Union business consists of the following
segments:
|| CONSUMER-TO-CONSUMER — provides money transfer
services between consumers, primarily through
a global network of third-party agents using its multi-
currency, real-time money transfer processing
systems. This service is available for both
international cross-border transfers—that is, the
transfer of funds from one country to another and
intra-country transfers—that is, money transfers
from one location to another in the same country.
|| CONSUMER-TO-BUSINESS — focuses on payments from
consumers to businesses and other organizations
that receive consumer payments, including utilities,
auto finance companies, mortgage servicers, financial
service providers and government agencies, through
Western Union’s network of third-party agents and
various electronic channels. While the Company
continues to pursue international expansion of its
offerings in select markets, as demonstrated by the
December 2006 acquisition of Servicio Electrónico
de Pago S.A. and related entities (“SEPSA”, see
Note 3), substantially all of the segment’s 2006
revenue was generated in the United States.
All businesses that have not been classified into the
consumer-to-consumer or consumer-to-business segments
are reported as “Other” and include the Company’s money
order and prepaid services businesses. The Company’s
money order business sells Western Union branded money
orders issued by Integrated Payment Systems Inc. (“IPS”),
a subsidiary of First Data, to consumers at non-bank retail
locations primarily in the United States and Canada. Western
Union’s prepaid service business markets a Western Union
branded prepaid card sold through its agent network primar-
ily in the United States and the Internet, and provides
top-up services for third parties that allow consumers to
pay in advance for mobile phone and other services. Also
included in “Other” are certain expenses incurred by
Western Union to effect the spin-off.
The primary entities providing the services described
above are Western Union Financial Services, Inc. and its
subsidiaries (“WUFSI”), Vigo Remittance Corp. (“Vigo”),
Orlandi Valuta, E Commerce Group, Paymap, Inc and SEPSA.
There are additional legal entities included in the
Consolidated Financial Statements of The Western Union
Company, including First Financial Management Corporation
(“FFMC”), WUFSI’s immediate parent company.
Various aspects of the Company’s services and
businesses are subject to U.S. federal, state and local
regulation, as well as regulation by foreign jurisdictions,
including banking regulations in certain foreign countries.
In addition, there are legal or regulatory limitations on
transferring certain assets of the Company outside of the
countries where the respective assets are located, or
because they constitute undistributed earnings of affiliates
of the Company accounted for under the equity method
of accounting. However, there are no limitations on the
use of these assets within those countries. As of December
31, 2006, the amount of assets subject to these limitations
totaled approximately $75 million.
As of December 31, 2006, Western Union has two
four-year labor contracts (both expiring August 6, 2008)
with the Communications Workers of America, AFL-CIO
representing approximately 960 employees.
Spin-off from First Data
In order to effect the spin-off from First Data, on September
27, 2006, prior to being contributed to the Company, FFMC
entered into a $2.4 billion bridge financing facility with a
syndicate of lenders and declared and paid a $2.4 billion
dividend to First Data, as sole stockholder in FFMC, by
execution and delivery of a promissory note to First Data.
On September 29, 2006, FFMC borrowed an aggregate
amount of $2.4 billion under the bridge facility and used
the proceeds to settle the outstanding promissory note
issued to First Data.
On September 27, 2006, the Company entered into
an unsecured, revolving credit facility with a syndicate of
lenders. On September 29, 2006, the Company borrowed
$100 million on such revolving credit facility and transferred
the proceeds to First Data, issued notes to First Data of
$1.0 billion and issued 765.3 million shares of its common
stock to First Data, all in consideration for the contribution
of First Data’s money transfer and consumer payments
businesses and related subsidiaries, including FFMC.
Immediately following completion of the spin-off, First
Data exchanged the $1.0 billion in notes with two financial
institutions for indebtedness of First Data that these
two financial institutions held at that time. The financial
institutions then received the proceeds from the subsequent
sale of the notes in a private offering. Refer to Note 15 for
more information on the borrowings of the Company.
As the money transfer and consumer payments
businesses, which were contributed by First Data to the
Company, have already been reflected in the Company’s
historical financial statements as if such businesses had
always been a part of the Company, the total amount of
the cash and debt securities transferred to First Data of
$3.5 billion, including the $2.4 billion dividend declared by
FFMC, has been reflected as a dividend to First Data in
the consolidated financial statements.