Western Union 2007 Annual Report Download - page 55

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Notes to Consolidated Financial Statements
As part of the Spin-off, the Company also executed several
non-cash transactions, including the issuance of $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 13). The Company did not receive
any proceeds from the subsequent private offering of the notes.
In addition, First Data transferred to the Company its headquarters
in Englewood, Colorado and certain other fi xed 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, and reclassifi ed certain tax and employee-related obliga-
tions from intercompany liabilities totaling $193.8 million. First
Data also distributed 765.3 million shares of Western Union’s
common stock to holders of First Data common stock.
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 the 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 the Company as part of the Spin-off. The assets and liabilities
presented have been refl ected on a historical basis, as prior to
the Distribution such assets and liabilities presented were 100%
owned by First Data. The historical Consolidated Statements of
Income include expense allocations for certain corporate func-
tions historically provided to Western Union by First Data, includ-
ing 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.
However, the fi nancial 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 refl ect
Western Union’s combined results of operations, fi nancial posi-
tion and cash fl ows had Western Union been a stand-alone
company during the periods presented.
All signifi cant intercompany transactions and accounts have
been eliminated.
The accompanying Consolidated Balance Sheets are unclas-
sifi ed 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.
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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 fi nancial
state ments and accompanying notes. Actual results could differ
from these estimates.
Principles of Consolidation
Western Union consolidates fi nancial 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, 2007 and
2006, there were no greater-than-50%-owned affi liates whose
fi nancial statements were not consolidated. Western Union
utilizes the equity method of accounting when it is able to
exercise signifi cant infl uence over the entity’s operations, which
generally occurs when Western Union has an ownership interest
of between 20% and 50% in an entity.
Earnings Per Share
The calculation of basic earnings per share is computed by
dividing net income available to common stockholders by the
weighted-average number of shares of common stock outstanding
for the period. Prior to September 29, 2006, all outstanding shares
of Western Union were owned by First Data. Accordingly, for all
periods prior to the completion of the Distribution on September
29, 2006, basic and diluted earnings per share are computed
using Western Union’s shares outstanding as of that date.
Unvested shares of restricted stock are excluded from basic
shares outstanding. Diluted earnings per share subsequent to
September 29, 2006 refl ects the potential dilution that could
occur if outstanding stock options at the presented date are
exercised and shares of restricted stock have vested and shares
have been transferred in settlement of stock unit awards.
As of December 31, 2007 and 2006, there were 10.4 million
and 4.9 million, respectively, outstanding options to purchase
shares of Western Union stock excluded from the diluted earnings
per share calculation under the treasury stock method as their
effect is anti-dilutive. Prior to the September 29, 2006 spin-off
date, there were no potentially dilutive instruments outstanding.
The treasury stock method assumes proceeds from the exercise
price of stock options, the unamortized compensation expense
and assumed tax benefi ts are available to reduce the dilutive
effect upon exercise. Of the 59.4 million outstanding options to
purchase shares of common stock of the Company, approximately
58% are held by employees of First Data.