Western Union 2007 Annual Report Download - page 56

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WESTERN UNION 2007 Annual Report
Fair Value of Financial Instruments
Carrying amounts for Western Union fi nancial instruments, includ-
ing cash and cash equivalents, settlement assets (other than
investment securities), settlement obligations, borrowings under
the commercial paper program, revolving credit facility and other
short-term notes payable, approximate fair value due to their
short maturities. Investment securities, included in settlement
assets, are carried at fair market value and are considered available
for sale (Note 6). Fixed and fl oating rate notes are carried at their
discounted notional amounts, except for portions of notes hedged
by interest rate swap agreements as disclosed in Note 13. The
fair market values of fi xed and fl oating rate notes are also disclosed
in Note 13 and are based on market quotations. For discussion
of foreign currency forward contracts and interest rate swaps,
refer to “Derivative Financial Instruments” within this Note 2.
Cash and Cash Equivalents
Highly liquid investments (other than those included in settle-
ment assets) with maturities of three months or less at the date
of purchase (that are readily convertible to cash), are considered
to be cash equivalents and are stated at cost, which approximates
market value.
Western Union maintains cash and cash equivalent balances
with various fi nancial institutions, including a substantial portion
in money market funds which all have ratings of “AAA” from a
major credit rating agency. Western Union limits the concentra-
tion of its cash and cash equivalents with any one institution;
however, such balances often exceed United States federal
deposit insurance limits. Western Union periodically evaluates
the credit worthiness of these institutions to minimize risk.
Allowance for Doubtful Accounts
Western Union records an allowance for doubtful accounts when
it is probable that the related receivable balance will not be
collected based on its history of collection experience, known
collection issues, such as agent suspensions and bankruptcies,
and other matters the Company identifi es in its routine collection
monitoring. The allowance for doubtful accounts was $13.8 million
and $14.8 million at December 31, 2007 and 2006, respectively.
During the years ended December 31, 2007, 2006 and 2005, the
provision for doubtful accounts refl ected in the Consolidated
Statements of Income was $23.5 million, $24.4 million and $16.1
million, respectively.
Settlement Assets and Obligations
Settlement assets represent funds received or to be received from
agents for unsettled money transfers and consumer payments.
Western Union records corresponding settlement obligations
relating to amounts payable under money transfer and payment
service arrangements. Any difference in the aggregate amount
of settlement assets and obligations is due to cumulative unreal-
ized net investment gains.
Settlement assets are comprised of cash and cash equivalents,
receivables from selling agents and investment securities. Cash
received by Western Union agents generally becomes available
to Western Union within one week after initial receipt by the
agent. Cash equivalents consist of short-term time deposits,
commercial paper and other highly liquid investments. Receiv-
ables from selling agents represent funds collected by such
agents, but in transit to Western Union. Western Union has a large
and diverse agent base, thereby reducing the credit risk of the
Company from any one agent. In addition, Western Union per-
forms ongoing credit evaluations of its agents’ fi nancial condition
and credit worthiness. See Note 6 for information concerning
the Company’s investment securities.
Settlement obligations consist of money transfer and pay-
ment service payables and payables to agents. Money transfer
payables represent amounts to be paid to transferees when they
request their funds. Most agents typically settle with transferees
fi rst and then obtain reimbursement from Western Union. Due
to the agent funding and settlement process, payables to agents
represent amounts due to agents for money transfers that have
been settled with transferees. Payment service payables represent
amounts to be paid to utility companies, collection agencies,
auto fi nance companies, mortgage servicers, fi nancial service
providers, government entities and others.
The following table provides the calculation of diluted weighted-average shares outstanding, and only considers the potential
dilution for stock options, restricted stock awards and restricted stock units for the period subsequent to the spin-off date of
September 29, 2006 (in millions):
For the Year Ended December 31, 2007 2006 2005
Basic weighted-average shares 760.2 764.5 763.9
Common stock equivalents 12.7 4.1 —
Diluted weighted-average shares outstanding 772.9 768.6 763.9