Western Union 2007 Annual Report Download - page 54

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WESTERN UNION 2007 Annual Report
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Notes to Consolidated Financial Statements
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1. Formation of the Entity and
Basis of Presentation
The Western Union Company (“Western Union” or the “Company”)
is a leader in global money transfer, providing people with fast,
reliable and convenient ways to send money around the world
and to pay bills. The Western Union® brand is globally recognized.
The Company’s services are available through a network of agent
locations in more than 200 countries and territories. Each location
in the Company’s agent network is capable of providing one or
more of the Company’s services.
The Western Union business consists of the following
segments:
|| CONSUMER-TO-CONSUMER — money transfer services between
consumers, primarily through a global network of third-party
agents using the Company’s multi-currency, real-time money
transfer processing systems. This service is available for both
international 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.
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CONSUMER-TO-BUSINESS — the processing of payments from
consumers to businesses and other organizations that receive
consumer payments, including utilities, auto fi nance compa-
nies, mortgage servicers, fi nancial service providers and
government agencies, referred to as “billers,” through Western
Union’s network of third-party agents and various electronic
channels. The segment’s revenue was primarily generated
in the United States during all periods presented.
All businesses that have not been classifi ed 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
markets Western Union branded money orders issued by
Integrated Payment Systems Inc. (“IPS”), a subsidiary of First Data
Corporation (“First Data”), to consumers at non-bank retail loca-
tions primarily in the United States and Canada. Western Union
also markets a Western Union branded prepaid MasterCard®
card, a Western Union branded prepaid Visa® card, 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
its spin-off from First Data, as described below, and expenses
incurred in connection with the development of certain new
service offerings, including costs to develop mobile money
transfer and micro-lending services.
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 Servicio Electrónico de
Pago S.A. and its subsidiaries (“SEPSA” or “Pago Fácil”). There
are additional legal entities included in the consolidated fi nancial
statements of The Western Union Company, including First
Financial Management Corporation (“FFMC”), WUFSI’s imme-
diate parent company.
Various aspects of the Company’s services and businesses
are subject to United States federal, state and local regulation,
as well as regulation by foreign jurisdictions, including certain
banking and other fi nancial services regulations. In addition,
there are legal or regulatory limitations on transferring certain
assets of the Company outside of the countries where these
assets are located, or which constitute undistributed earnings
of affi liates of the Company accounted for under the equity
method of accounting. However, there are generally no limita-
tions on the use of these assets within those countries. As of
December 31, 2007, the amount of net assets subject to these
limitations totaled approximately $200 million.
As of December 31, 2007, Western Union has two four-year
labor contracts (both expiring August 6, 2008) with the Communi-
cations Workers of America, AFL-CIO representing approximately
845 employees located primarily in Texas and Missouri. The
Company’s United States-based employees are not otherwise
represented by any labor organization.
Spin-off from First Data
On January 26, 2006, the First Data Board of Directors announced
its intention to pursue the distribution of 100% of 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, through a tax-free distribution to First Data
shareholders (the “Separation” or “Spin-off”). Effective on
September 29, 2006, First Data completed the separation and
the distribution of these businesses by distributing The Western
Union Company common stock to First Data shareholders (the
“Distribution”). Prior to the Distribution, the Company had been
a segment of First Data.
In connection with the Spin-off, the Company reported a $4.1
billion dividend to First Data in the accompanying consolidated
statements of stockholders’ equity/(defi ciency)/net investment
in The Western Union Company, consisting of a promissory note
from FFMC in an aggregate principal amount of $2.4 billion, the
issuance of $1.0 billion in Western Union notes, and a cash
payment to First Data of $100.0 million. The remaining dividend
was comprised of cash, consideration for an ownership interest
held by a First Data subsidiary in a Western Union agent which
had already been refl ected as part of the Company, settlement
of net intercompany receivables (exclusive of certain intercompany
notes as described in the following paragraph), and transfers of
certain liabilities, net of assets. Since the amount of the dividend
exceeded the historical cost of the Company’s net assets at the
time of the Spin-off, a capital defi ciency resulted.
The Company also settled certain intercompany notes receiv-
able 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 infl ow of $724.0 million to the
Company’s cash fl ows from fi nancing 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.