Western Union 2006 Annual Report Download - page 78

WESTERN UNION 2006 Annual Report 76
|| 4. Related Party Transactions
Related Party Transactions with First Data
The Consolidated Statements of Income prior to the spin-off
include expense allocations for certain corporate functions
historically provided to Western Union by First Data.
If possible, these allocations were made on a specific
identification basis. Otherwise, the expenses related to
services provided to Western Union by First Data were
allocated to Western Union based on relative percentages,
as compared to First Data’s other businesses, of headcount
or other appropriate methods depending on the nature of
each item or cost to be allocated.
Charges for functions historically provided to Western
Union by First Data are primarily attributable to First Data’s
performance of many shared services that the Company
benefited from prior to the spin-off, of which certain
of these services continue to be provided through a
transition services agreement as described below. In
addition, prior to the spin-off, the Company also
participated in certain First Data insurance, benefit and
incentive plans, and it received services directly related
to the operations of its businesses such as call center
services, credit card processing, printing and mailing.
Services received after September 29, 2006 are discussed
in the following paragraphs addressing the transition
services and the commercial services agreements. Prior
to September 29, 2006, the Consolidated Statements
of Income reflect charges from First Data and its affiliates
for these services of $152.4 million, $166.3 million and
$158.3 million for the years ended December 31, 2006,
2005, and 2004, respectively. Included in the charges above
are amounts recognized for stock-based compensation
expense, as well as net periodic benefit income associated
with the Company’s pension plans.
The Company has entered into a transition services
agreement with First Data pursuant to which First Data
and Western Union are providing each other with a variety
of administrative services for a period of time following
the spin-off. Services provided by First Data to Western
Union include data center hosting, disaster recovery
and monitoring services, call center support, network
connectivity, system support, information security system
support, payroll, benefits and human resources. Services
provided by Western Union to First Data include call center
support, benefits resource support, software development
and support, and network connectivity and fees for such
services are reflected as contra expenses within
the Company’s Consolidated Statements of Income.
Western Union and First Data have agreed to make
each service available to the other on an as-needed basis
for a period of time not to exceed one year following
September 29, 2006, the date of the spin-off. As of
December 31, 2006, Western Union has been charged
$6.9 million and has charged First Data $0.6 million under
this agreement.
Western Union and First Data entered into a number
of commercial services agreements in connection with
the spin-off pursuant to which First Data or its subsidiaries
and Western Union are providing services to each
other. Services provided by First Data to Western Union
include producing and mailing cards and other material on
behalf of Western Union, check printing services, check
clearing and remittance processing services, lockbox and
escheatment services, interactive voice response and
maintenance support, transaction validation services, hosting
and operating banking software in its data center, access
to a risk management application, software development
services and payroll card services. Services provided by
Western Union to First Data include providing bill payment
processing services and payment services and fees for
such services are reflected as contra expenses within the
Company’s Consolidated Statements of Income. These
agreements have terms ranging from one to six
years. Since the date of the spin-off from First Data on
September 29, 2006, Western Union has been charged
$16.8 million relating to these agreements, including
$12.3 million in connection with commercial arrangements
that were in existence prior to the spin-off.
During the years ended December 31, 2006, 2005
and 2004, the Company recognized commission revenues
from IPS in connection with its money order business of
$31.6 million, $29.6 million and $26.3 million, respectively.
First Data and Western Union entered into agreements
beginning on September 29, 2006, the date of the spin-off,
with respect to subleasing certain properties to each other.
All subleases, the majority of which are subject to renewal
within the next two years, are priced at levels reflecting
either market rates or the pro-rata share of square footage
utilized. First Data has subleased property to Western
Union in various states and countries including Georgia,
Japan, New Zealand and Ireland. Western Union has
subleased property to First Data in California, Colorado,
Florida, Georgia, Texas, India, South Africa and United Arab
Emirates. As of December 31, 2006, Western Union incurred
rent expense of $0.2 million and has recognized sublease
income from First Data of $0.5 million in connection with
subleases entered into with First Data.
Other Related Party Transactions
The Company has ownership interests in certain of its
agents, all of which are accounted for under the equity
method of accounting. The Company pays these agents,
as it does its other agents, commissions for money transfer
and other services provided on the Company’s behalf.
Commissions paid to these agents for the years ended
December 31, 2006, 2005, and 2004 totaled $212.2 million,
$177.7 million and $105.1 million, respectively.