Western Union 2006 Annual Report Download - page 71

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Notes to Consolidated Financial Statements 69
The remaining approximately $602 million reflected
as a dividend to First Data was comprised of cash,
consideration for an ownership interest held by a First Data
subsidiary in one of the Company’s agents which had
already been reflected as part of the Company, settlement
of net intercompany receivables (exclusive of certain
intercompany notes discussed in the following paragraph),
and transfers of certain liabilities, net of assets.
The Company also settled certain intercompany notes
receivable and payable with First Data along with related
interest and currency swap agreements associated with
such notes as part of the spin-off. The net settlement
of the principal and related swaps resulted in a net cash
inflow of $724.0 million to the Company’s cash flows from
financing activities. The net settlement of interest on such
notes receivable and payable of $40.7 million was reflected
in cash flows from operating activities in the Company’s
Consolidated Statement of Cash Flows.
Amounts included in “Retained earnings” reflect the
Company’s earnings subsequent to the spin-off date of
September 29, 2006.
Significant Non-Cash Financing and Investing
Activities Related to Spin-off
In connection with the spin-off, the Company executed
the following transactions which involved no cash:
|| The Company issued $1.0 billion in notes to
First Data in partial consideration for the
contribution by First Data to the Company of
its money transfer and consumer payments
businesses (Note 15). The Company did not
receive any proceeds from the subsequent
private offering of the notes.
|| First Data transferred to the Company its
headquarters in Englewood, Colorado
and certain other fixed assets with a net
book value of $66.5 million.
|| The Company transferred to First Data
certain investments with a net book value
of $20.9 million.
|| The Company reclassified certain tax and
employee-related obligations from intercompany
liabilities totaling $193.8 million.
|| First Data distributed 765.3 million shares
of Western Union’s common stock to holders
of First Data common stock.
Basis of Presentation
The financial statements in this Annual Report for periods
ending on or after the Distribution are presented on a
consolidated basis and include the accounts of the Company
and its majority-owned subsidiaries. The financial statements
for the periods presented prior to the Distribution are
presented on a combined basis and represent those entities
that were ultimately transferred to the Company as part of
the spin-off. The assets and liabilities presented have been
reflected on a historical basis, as prior to the Distribution
such assets and liabilities presented were 100% owned
by First Data. However, the financial statements for the
periods presented prior to the Distribution do not include
all of the actual expenses that would have been incurred
had Western Union been a stand-alone entity during the
periods presented and do not reflect Western Union’s
combined results of operations, financial position and cash
flows had Western Union been a stand-alone company
during the periods presented.
All significant intercompany transactions and accounts
have been eliminated.
The accompanying Consolidated Balance Sheets are
unclassified consistent with industry practice and due
to the short-term nature of Western Union’s settlement
obligations, contrasted with its ability to invest cash awaiting
settlement in long-term investment securities.
|| 2. Summary of Significant
Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United
States of America (“GAAP”) requires management to make
estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from these estimates.
Principles of Consolidation
Western Union consolidates financial results when it will
absorb a majority of an entity’s expected losses or residual
returns or when it has the ability to exert control over the
entity. Control is normally established when ownership
interests exceed 50% in an entity. However, when Western
Union does not have the ability to exercise control over a
majority-owned entity as a result of other investors having
contractual rights over the management and operations
of the entity, it accounts for the entity under the equity
method. As of December 31, 2006 and 2005, there were
no greater-than-50%-owned affiliates whose financial
statements were not consolidated. Western Union utilizes
the equity method of accounting when it has an ownership
interest of between 20% and 50% in an entity, provided
it is able to exercise significant influence over the
entity’s operations.