Western Union 2007 Annual Report Download - page 38

36
WESTERN UNION 2007 Annual Report
debt covenants. A violation of our debt covenants could impair
our ability to borrow, and outstanding amounts borrowed could
become due, thereby restricting our ability to use our excess
cash for other purposes.
Cash Priorities
Capital Expenditures
Total aggregate amount capitalized for contract costs, purchases
of property and equipment, and purchased and developed
software was $192.1 million in 2007. Amounts capitalized for new
and renewed agent contracts were $80.9 million during the year.
Such contract costs will vary depending on the terms of existing
contracts as well as the timing of when new contracts are signed
or renewed. Other capital expenditures during 2007 included
purchased and developed software costs and purchases of prop-
erty and equipment representing investments in our information
technology infrastructure and the renovation of certain facilities.
Acquisition of businesses, net of cash acquired
In December 2006, we acquired Pago Fácil for a total purchase
price of $69.8 million, less cash acquired of $3.0 million. During
2005, First Data acquired 100% of Vigo, which was later transferred
to us as part of the spin-off, for a total purchase price of $369.2
million, net of cash acquired of $20.1 million resulting in a net
cash outfl ow of $349.1 million.
We expect that we will continue to pursue opportunities to
acquire companies, particularly outside of the United States, that
complement our existing businesses worldwide.
Return Value to Shareholders through
Share Repurchases and Dividends
We have two programs which allow us to repurchase shares. In
September 2006, our Board of Directors authorized the purchase
of up to $1.0 billion of our common stock through December
31, 2008. In December, 2007, our Board of Directors authorized
the purchase of up to an additional $1.0 billion of our common
stock through December 31, 2009. As of December 31, 2007,
35.6 million shares have been repurchased for $746.7 million at
an average cost of $20.98 per share. As of December 31, 2007,
$1.25 billion remains available under these two programs.
During the fourth quarter of 2007, our Board of Directors
declared an annual cash dividend of $0.04 per common share,
representing $30.0 million, which was paid in December 2007.
During the fourth quarter of 2006, our Board of Directors declared
a cash dividend of $0.01 per common share, representing $7.7
million, which was paid in December 2006.
Equity investments in and loans to certain key agents
In October 2007, we entered into agreements totaling $18.3
million to convert our non-participating interest in a joint venture
with our Singapore agent, Hersing Corporation Ltd., into a
fully participating 49% equity interest and extended the agent
relationship at more favorable commission rates to Western
Union. As a result, we will now earn a pro-rata share of profi ts
and will have enhanced voting rights. We also have the right to
add additional agent relationships in Singapore under this agree-
ment. Also in October 2007, we completed an agreement to
acquire a 25% ownership interest in GraceKennedy Money
Services Caribbean SRL (“GraceKennedy”), an agent in Jamaica
(which also acts as our agent in several other Caribbean countries),
and to extend the term of the agent relationship for $29.0 million.
The aggregate consideration paid resulted in $20.2 million of
identifi able intangible assets, which are being amortized over
seven to 10 years.
From time to time, we also make advances and loans to agents.
Most signifi cantly, in the fi rst quarter 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 $30.0 million
and $20.0 million was repaid in the years ended December 31,
2007 and 2006, respectively. The terms of the loan agreement
require that a percentage of commissions earned by the agent
(61% in 2008 and 64% in 2009) be withheld as repayment of the
loan and the agent remains obligated to repay the loan if com-
missions earned are not suffi cient. The remaining loan receivable
balance relating to this agent as of December 31, 2007 and 2006,
net of discount, was $67.5 million and $82.2 million, respectively.
As opportunities arise, we expect we will continue to strategi-
cally invest in agents to further strengthen our business.
Our ability to continue to grow the business, make acquisi-
tions, and return capital to shareholders, primarily through share
repurchases will depend on our ability to continue to generate
excess operating cash through our operating subsidiaries and
to continue to receive dividends from those operating subsidiar-
ies, our ability to obtain adequate fi nancing and our ability to
identify the appropriate acquisitions that will align with our
long-term strategy.
Prior to Spin-Off from First Data
Prior to the spin-off, excess cash generated from our domestic
operations that was not required to meet certain regulatory
requirements was periodically advanced to First Data and was
refl ected as a receivable from First Data. In addition, we periodi-
cally paid dividends to First Data.
First Data and its subsidiaries provided a number of services
on behalf of our business, including shared services, which were
reimbursed periodically. Also, when we were a segment of First
Data, we benefi ted from First Data’s fi nancing resources.
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Off-Balance Sheet Arrangements
Other than facility and equipment leasing arrangements disclosed
in Note 10 to our consolidated fi nancial statements, we have no
material off-balance sheet arrangements that have or are reason-
ably likely to have a material current or future effect on our
fi nancial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
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Pension Plans
We have two frozen defi ned benefi t plans that together were
underfunded by $27.6 million as of December 31, 2007. During
the period from 2005 to 2007, we did not make a contribution
to these plans, and based on current asset return calculations
and minimum funding requirements, no such contribution is
required in 2008.