Western Union 2007 Annual Report Download - page 24

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WESTERN UNION 2007 Annual Report
Basis of Presentation
The fi nancial statements in this Annual Report for periods ending
on or after the Distribution are presented on a consolidated basis
and include the accounts of our company and its majority-owned
subsidiaries. The fi nancial statements for the periods presented
prior to the Distribution are presented on a combined basis and
represent those entities that were ultimately transferred to our
company in connection with the spin-off. All signifi cant intercom-
pany accounts and transactions between our company’s segments
have been eliminated. The historical consolidated statements
of income include expense allocations for certain corporate
functions historically provided to Western Union by First Data,
including treasury, tax, accounting and reporting, mergers and
acquisitions, risk management, legal, internal audit, procurement,
human resources, investor relations and information technology.
If possible, these allocations were made on a specifi c identifi ca-
tion basis. Otherwise, the expenses related to services provided
to Western Union by First Data were allocated to Western Union
based on the relative percentages, as compared to First Data’s
other businesses, of headcount or other appropriate methods
depending on the nature of each item of cost to be allocated.
Pursuant to a transition services agreement we entered into with
First Data prior to the spin-off, First Data provided Western Union
with certain of these services at prices agreed upon by First
Data and Western Union. The transition services agreement
expired on September 29, 2007. The costs historically allocated
to us by First Data for the services provided to us were lower
than the costs we have incurred and will continue to incur fol-
lowing the spin-off.
Certain expenses related to being a stand-alone company,
refl ected in the consolidated statements of income, are higher
than the historical amounts prior to the spin-off. The fi nancial
information presented in this Annual Report prior to the spin-off
date of September 29, 2006 does not refl ect what our consoli-
dated fi nancial position, results of operations or cash fl ows would
have been as a stand-alone company during the periods presented
and is not necessarily indicative of our future consolidated fi nancial
position, results of operations or cash fl ows.
Adoption of FIN 48
We adopted the provisions of the Financial Accounting Standards
Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 addresses
the determination of how tax benefi ts claimed or expected to
be claimed on a tax return should be recorded in the consolidated
fi nancial statements. Under FIN 48, we recognize the tax benefi ts
from an uncertain tax position only when it is more likely than
not, based on the technical merits of the position, that the tax
position will be sustained upon examination, including the
resolution of any related appeals or litigation. The tax benefi ts
recognized in the consolidated fi nancial statements from such
a position are measured as the largest benefi t that has a greater
than fi fty percent likelihood of being realized upon ultimate
resolution. As a result of the implementation of FIN 48, we rec-
ognized an increase in our liability for unrecognized tax benefi ts
plus associated accrued interest and penalties of $0.6 million,
which was accounted for as a reduction to the January 1, 2007
balance of retained earnings.
Refer to “Note 8 — Income Taxes” in our historical consolidated
fi nancial statements for a more detailed discussion of the adoption
of FIN 48.
Adoption of FAS 123R
We adopted Statement of Financial Accounting Standards (“SFAS”)
No. 123R, “Share-Based Payment,” (“SFAS No. 123R”), following
the modifi ed prospective method effective January 1, 2006. SFAS
No. 123R requires all stock-based payments to employees to
be recognized in the income statement based on their respective
grant date fair market values over the corresponding service
periods and also requires an estimation of forfeitures when
calculating compensation expense. Stock-based compensation
expense, including stock compensation expense allocated by
First Data prior to the spin-off on September 29, 2006 and the
impact of adopting SFAS No. 123R, was $50.2 million and $30.1
million during the years ended December 31, 2007 and 2006,
respectively. Stock compensation expense during the year ended
December 31, 2007 included a $22.3 million accelerated non-cash
stock compensation charge taken in connection with the change
in control of First Data.
In December 2005, First Data accelerated vesting of all out-
standing unvested stock options granted to its offi cers and
employees under its 2002 Long-Term Incentive Plan. The decision
to accelerate the vesting of these stock options was made primar-
ily to reduce stock — based compensation expense that otherwise
likely would have been recorded in future periods following First
Data’s adoption of SFAS No. 123R. We recognized compensation
expense of $1.8 million during the fourth quarter of 2005 related
to this accelerated vesting.
Refer to Note 14 —“Stock Compensation Plans” in our historical
consolidated fi nancial statements for a more detailed discussion
of First Data’s and our stock-based compensation plans and the
adoption of SFAS No. 123R.
Components of Revenue and Expenses
The following briefl y describes the components of revenue and
expenses as presented in the consolidated statements of income.
Descriptions of our revenue recognition policies are included in
Note 2 —“Summary of Signifi cant Accounting Policies” in our
consolidated fi nancial statements.