Western Union 2008 Annual Report Download

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can one word dene
a company?
2008 Annual Report

Table of contents

  • Page 1
    can one word define a company? 1 2008 Annual Report

  • Page 2
    WESTERN UNION 2008 Annual Report can the money i send reach her in minutes? 2

  • Page 3
    Dear Fellow Shareholders, I am proud to report that in 2008 Western Union grew market share and delivered record levels of revenue and cash ï¬,ow. Revenue was $5.3 billion; we generated $1.25 billion in cash ï¬,ow from operations and handled $67 billion in cross-border consumer-to-consumer (C2C) ...

  • Page 4
    ... Western Union helps drive many national economies. paving the way for long-term growth We also have the advantage of a globally recognized brand and unmatched worldwide distribution. We handle money transfers in more than 15,000 send and receive corridors with no single country Number of Agent...

  • Page 5
    ...only need to transfer cash home, but they will ultimately need other services. Western Union is very well positioned to service the existing and expanding needs of our consumers. Our mobile money transfer initiative, an emerging and longer-term market opportunity that enables customers to send cross...

  • Page 6
    ...up only 7% of Western Union revenue, yet according to the World Bank 2008 Migration and Remittances fact book this market currently represents 19% of the world's crossborder remittance market. 2002 34% 44% In The Americas region we are implementing a new "go-to-market" strategy. Specifically, we...

  • Page 7
    ... to generate cash ï¬,ow from operations in (1) competing in money Transfers: a market Overview, aite, march 2007. (2) World migration 2008: managing Labour mobility in the Evolving Global Economy, international Organization for migration and company estimates based on available data. excess of...

  • Page 8
    ...Union provides a variety of prepaid services at participating agent locations or on the internet for customers who prefer pay-asyou-go wireless or home phone service, internet access, or debit card services. Western Union is also a trusted source for money orders. Management Team Christina A. Gold...

  • Page 9
    ...Forward-Looking statements ...08 selected Financial Data ...09 Our Business ...11 management's Discussion and analysis of Financial condition and results of Operations ...16 Quantitative and Qualitative Disclosures about market risk ...39 management's reports on the Financial statements and internal...

  • Page 10
    ... attract and retain qualified key employees and to manage our workforce successfully; changes in foreign exchange rates, including the impact of the regulation of foreign exchange spreads on money transfers; political conditions and related actions in the United states and abroad which may adversely...

  • Page 11
    ... ("Western Union" or the "company") and its majority-owned subsidiaries. The financial information for the periods presented prior to the spin-off by First Data corporation ("First Data") of its money transfer and consumer payments businesses on september 29, 2006 through a distribution of 100...

  • Page 12
    ... include Quick collect, Western Union convenience pay, speedpay, Equity accelerator, Just in Time EFT and pago Fácil transactions processed by us. amounts include pago Fácil transactions since its acquisition in December 2006. (k) in connection with the spin-off, we reported a $4.1 billion...

  • Page 13
    ... or "Quick collect," providing consumers in the United states with the ability to conveniently pay bills in cash through our agent network. Over the past decade, we have become a leader in the development of a global remittance market. Today, we offer money transfer services under the Western Union...

  • Page 14
    ... accept debit cards to initiate a transaction. We also offer consumers several options to receive a money transfer. While the vast majority of transfers are paid in cash at agent locations, in some places we offer payout directly to the receiver's bank account, to a stored-value card, to a mobile...

  • Page 15
    ...transaction number, which the sender takes to the agent's in-store representative to send the funds. OnLine MOney TranSFer ServiCe - Our internet website, westernunion.com, allows consumers to send funds on-line, using a credit or debit card, for payment at most Western Union branded agent locations...

  • Page 16
    ... in a number of ways, and we market our services directly to consumers using a variety of means, including advertising materials and promotional activities at our agent locations. consumers can also participate in the Western Union Gold card program when using our Quick collect service to make cash...

  • Page 17
    ... annual report. We market Western Union branded money orders, issued by a third-party, to consumers at non-bank retail locations primarily in the United states and canada. On July 18, 2008, an agreement was executed with integrated payment systems inc. ("ips"), a subsidiary of First Data, whereby...

  • Page 18
    ... management positions new to our company and consulting costs used to develop ongoing processes in connection with completing the spin-off. The consumer-to-consumer money transfer service is available through an extensive network of agent locations that offer Western Union services around the world...

  • Page 19
    ... 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...

  • Page 20
    ...accounting policies" in our consolidated financial statements. Tr anSaC TiOn FeeS-Transaction fees are charged for sending money transfers and consumer-to-business payments. consumer-to-consumer transaction fees generally vary according to the principal amount of the money transfer and the locations...

  • Page 21
    ... of Financial Condition and Results of Operations are sent. Transaction fees represented 80% of Western Union's total consolidated revenues for the year ended December 31, 2008. FOreiGn exCHanGe revenUe- in certain consumer money transfer transactions involving different send and receive currencies...

  • Page 22
    ...in our money transfer business to india, and in the Gulf states, which offset slower growth in certain European markets for the year ended 2008 compared to 2007. However, during the fourth quarter of 2008, revenue was impacted by the weakening global economy and its effect on Western Union customers...

  • Page 23
    ... of other currencies most notably the euro, against the United states dollar. We have historically implemented and will likely implement future strategic fee reductions and actions to reduce foreign exchange spreads, where appropriate, taking into account growth opportunities and competitive...

  • Page 24
    ... other marketing related expenditures together with opportunities for fee adjustments and other initiatives in order to best maximize the return on these investments. such fee decreases and foreign exchange actions have impacted our annual consolidated revenue on average approximately 3% during 2006...

  • Page 25
    ..., we established our foreign currency forward positions to qualify for cash flow hedge accounting. Foreign exchange effect on notes receivable from First Data, net all euro denominated notes receivable with First Data, and related foreign currency swap agreements were settled in connection with the...

  • Page 26
    ... 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. The treasury stock method assumes proceeds from the exercise price of stock options, the unamortized compensation expense and assumed tax...

  • Page 27
    ... December 31, 2008, 2007 and 2006. Years Ended December 31, (dollars and transactions in millions) % Change 2008 2007 2006 2008 vs. 2007 2007 vs. 2006 REVENUES: Transaction fees Foreign exchange revenue Other revenues Total revenues Operating income Operating margin KEY INDICATORS: $3,532...

  • Page 28
    ... earnings per share. Transactions in the euro, which represent the majority of the company's foreign currency denominated business, benefited revenue by $82 million and operating income by $19 million during the year. if exchange rates between the United states dollar and other currencies remain...

  • Page 29
    ... by Western Union, card issuing banks and card associations in response to credit and debit card fraud in the United states. These tightened controls have directly impacted our consumers' ability to use their debit and credit cards to send money on our website and through the telephone, decreasing...

  • Page 30
    ... include salaries, benefits, equipment, supplies and other costs incurred in connection with operating as a separate public company. in addition, we recognized an accelerated non-cash stock compensation charge of $22.3 million taken in connection with the change in control of First Data, of which...

  • Page 31
    ... the same period in 2007 due to revenue growth in our prepaid services business generated outside of the United states. First Data, through its subsidiary integrated payment systems inc. ("ips"), issues our Western Union branded money orders, pursuant to a five-year agreement that was executed in...

  • Page 32
    ... obtain new financing under similar conditions as historically reported. Taking into account our projected share repurchases, dividends, our pending acquisition, capital expenditures, and debt service during 2009, we believe our cash flows generated from operating activities and available financing...

  • Page 33
    ... securities are also actively managed with respect to concentration. as of December 31, 2008, there were no investments with a single issuer or individual securities representing more than 10% of our investment securities portfolio. ips, our third-party issuer of Western Union money orders...

  • Page 34
    ... an interest rate calculation using the one-month LiBOr plus a 2% applicable margin (3.875% at December 31, 2008). a loan fee is also payable These ratings are not a recommendation to buy, sell or hold any of our securities. Our credit ratings may be subject to revision or withdrawal at any time by...

  • Page 35
    ... share, representing $7.7 million, which was paid in December 2006. Cash Priorities Capital Expenditures The total aggregate amount capitalized for contract costs, purchases of property and equipment, and purchased and developed software was $153.7 million, $192.1 million and $202.3 million in 2008...

  • Page 36
    ... on market conditions at the time such re-financing occurs, we may not be able to obtain new financings under similar conditions as historically reported. Our ability to continue to grow the business, make acquisitions, return capital to shareholders, primarily through share repurchases, and service...

  • Page 37
    ...termination of our contractual obligations. (c) represents the liability position of our foreign currency forward contracts as of December 31, 2008, which will fluctuate based on market conditions. (d) The timing of cash payments on unrecognized tax benefits, including accrued interest and penalties...

  • Page 38
    ...-to-foreign money transfer transactions has been taxed at relatively low foreign tax rates compared to our combined federal and state tax rates in the United states. The internal revenue service ("irs") has completed audits of the United states federal consolidated income tax returns of First Data...

  • Page 39
    .... The capitalization of initial payments for new and renewed contracts is subject to strict accounting policy criteria and requires management judgment as to the appropriate time to initiate capitalization. Our accounting policy is to limit the amount of capitalized costs for a given contract to...

  • Page 40
    ... and peer group historical volatility. Our peer group historical volatility was determined using companies in similar industries and/or market capitalization. Our implied volatility was calculated using the market prices of traded options on our common stock. prior to 2008, our volatility was...

  • Page 41
    ... utilize foreign currency forward contracts, typically with terms of less than one year at inception, to offset foreign exchange rate fluctuations on certain foreign currency denominated cash positions. in certain consumer money transfer transactions involving different send and receive currencies...

  • Page 42
    ... made from cash received from our money transfer business and other related payment services awaiting redemption classified within "settlement assets" in the consolidated balance sheets. as interest rates rise, the fair market value of these fixed rate interest-bearing securities will decrease...

  • Page 43
    ... security. Our services also are subject to an increasingly strict set of legal and regulatory requirements intended to help detect and prevent money laundering, terrorist financing and other illicit activity. Failure to comply with any of these requirements-by either Western Union or its agents...

  • Page 44
    ... become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. management assessed the effectiveness of Western Union's internal control over financial reporting as of December 31, 2008, utilizing the criteria set forth by the...

  • Page 45
    ... registered public accounting Firm The Board of Directors and Stockholders of the Western Union Company We have audited The Western Union company's internal control over financial reporting as of December 31, 2008, based on criteria established in internal control-integrated Framework issued by the...

  • Page 46
    ... in income Taxes." We also have audited, in accordance with the standards of the public company accounting Oversight Board (United states), The Western Union company's internal control over financial reporting as of December 31, 2008, based on criteria established in internal control-integrated...

  • Page 47
    ... per share amounts) 2008 2007 2006 REVENUES: Transaction fees $4,240.8 896.3 144.9 5,282.0 $3,989.8 771.3 139.1 4,900.2 $3,696.6 653.9 119.7 4,470.2 Consolidated Financial Statements Foreign exchange revenue commission and other revenues Total revenues EXPENSES: cost of services selling...

  • Page 48
    WESTERN UNION 2008 Annual Report Consolidated Balance Sheets December 31, (in millions, except per share amounts) 2008 2007 ASSETS cash and cash equivalents settlement assets property and equipment, net of accumulated depreciation of $284.0 and $251.5, respectively Goodwill Other intangible ...

  • Page 49
    ...of notes receivable issued to agents acquisition of businesses, net of cash acquired increase in receivable for securities sold cash received on maturity of foreign currency forwards purchase of equity method investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES (82...

  • Page 50
    ..., January 1, 2006 Net income Dividends to First Data conversion of net investment in The Western Union company into capital stock-based compensation common stock dividends purchase of treasury shares shares issued under stock-based compensation plans Tax benefits from employee stock option plans...

  • Page 51
    Treasury stock shares amount Net investment in The Western Union company capital Deficiency retained Earnings accumulated Other comprehensive Loss Total stockholders' (Deficiency)/Equity/ Net investment in The Western Union company comprehensive income (Loss) 0.9 $ 19.9 $ 2,873.9 ...

  • Page 52
    ... is a leader in global money transfer, providing people with fast, reliable and convenient ways to send money around the world. 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...

  • Page 53
    ... 31, 2006 includes 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...

  • Page 54
    WESTERN UNION 2008 Annual Report 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 ...

  • Page 55
    ... 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, auto finance companies, mortgage servicers...

  • Page 56
    ... 2006, respectively. The company capitalizes initial payments for new and renewed agent contracts to the extent recoverable through future operations, contractual minimums and/or penalties in the case of early termination. The company's accounting policy is to limit the amount of capitalized costs...

  • Page 57
    ... customer relationship, including interest rates, refinance activity and trends in consumer behavior. The company sells money orders issued by ips under the Western Union brand and manages the agent network through which such money orders are sold. Western Union recognizes monthly commissions...

  • Page 58
    ... in cash along with the related notes receivable in connection with the spin-off. The fair value of the company's derivatives is derived from standardized models that use market based inputs (e.g., forward prices for foreign currency). Stock-Based Compensation Derivatives Western Union utilizes...

  • Page 59
    ... union and certain affected management employees, facility closure expenses and other expenses associated with the relocation of these operations to existing company facilities and third-party providers, including costs related to hiring, training, relocation, travel and professional fees. included...

  • Page 60
    ...company facilities and third-party providers include hiring, training, relocation, travel and professional fees. (f) stock compensation charges represent costs associated with the modification of stock options and restricted stock awards and units for terminated employees. restructuring and related...

  • Page 61
    ... years. Western Union's investments in these agents are accounted for under the equity method of accounting. in December 2006, the company acquired servicio Electronico de pago s.a. and related entities ("sEpsa"), which operates under the brand name pago Fácil sm, for a total purchase price of $69...

  • Page 62
    ... agents accounted for under the equity method of accounting. The company pays these agents, as it does its other agents, commissions for money transfer and other services provided on the company's behalf. commissions paid to these agents for the years ended December 31, 2008, 2007 and 2006 totaled...

  • Page 63
    ... of cash sufficient to satisfy all outstanding money order liabilities. On the Transition Date, the company will assume ips's role as issuer of the money orders, including its obligation to pay outstanding money orders, and will terminate the existing agreement whereby ips pays Western Union a fixed...

  • Page 64
    WESTERN UNION 2008 Annual Report Union will invest the cash received from ips in high-quality, investment grade securities in accordance with applicable regulations, which are the same as those currently governing the investment of the company's United states originated money transfer principal. ...

  • Page 65
    ...for securities sold On september 15, 2008, Western Union requested redemption of its shares in the reserve international Liquidity Fund, Ltd., a money market fund, (the "Fund") totaling $298.1 million. The company had not received any portion of the redemption payment prior to December 31, 2008, and...

  • Page 66
    WESTERN UNION Western Union's provision for income taxes consists of the following components (in millions): Year Ended December 31, 2008 Annual Report 2008 2007 2006 current: Federal state and local Foreign Total current taxes Deferred: Federal state and local Foreign Total deferred taxes 15.2 ...

  • Page 67
    ...income tax returns of First Data, which include the company, are eligible to be examined for the years 2002 through 2006. The company's United states federal income tax returns since the spin-off are also eligible to be examined. The United states internal revenue service ("irs") has issued a report...

  • Page 68
    ... First Data, eligible full-time non-union employees of the company were covered under a First Data sponsored defined contribution incentive savings plan. Employees who made voluntary contributions to this plan, received up to a 3% Western Union matching contribution, service related contributions...

  • Page 69
    .... Western Union employs a building block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market...

  • Page 70
    ... certain real properties for use as customer service centers and administrative and sales offices. Western Union also leases data communications terminals, computers and office equipment. certain of these leases contain renewal options and escalation provisions. Total rent expense under operating...

  • Page 71
    ... or losses from cash flow hedging activities. The assets and liabilities of foreign subsidiaries whose functional currency is not the United states dollar are translated using the appropriate exchange rate as of the end of the year. Foreign currency translation adjustments represent unrealized gains...

  • Page 72
    ...at any point in time, to mitigate some of the risk that changes in foreign currency exchange rates compared to the United states dollar could have on forecasted revenues denominated in other currencies. at December 31, 2008, the company's longer-term foreign currency forward contracts had maturities...

  • Page 73
    ...are utilized to offset foreign exchange rate fluctuations on certain foreign currency denominated cash positions. None of these contracts are designated as hedges pursuant to sFas No. 133. The aggregate United states dollar notional amount of foreign currency forward contracts held by the company as...

  • Page 74
    ... assessment for foreign currency forward contracts designated as cash flow hedges represents the difference between changes in forward rates and spot rates. The ineffectiveness recognized in interest rate contracts is attributable to certain forecasted debt hedges and the timing of the related debt...

  • Page 75
    ... the revolving credit Facility is fixed for the term of each borrowing and is payable according to the terms of that borrowing. Generally, interest is calculated using a selected LiBOr rate plus an interest rate margin of 19 basis points. a facility fee of 6 basis points on the total facility is...

  • Page 76
    ... 37.3 million shares are available as of December 31, 2008. Options granted under the 2006 LTip are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date, have 10-year terms, and vest over four equal annual increments beginning 12 months after the...

  • Page 77
    ...-off, Western Union participated in the First Data plans that provided for the granting of stock options to employees and other key individuals who performed services for the company. Options granted under the First Data plans were issued with exercise prices equivalent to the fair market value of...

  • Page 78
    WESTERN UNION 2008 Annual Report Stock Option Activity a summary of Western Union stock option activity relating to Western Union and First Data employees for the year ended December 31, 2008 is as follows (options and aggregate intrinsic value in millions): Year Ended December 31, 2008 Weighted-...

  • Page 79
    ... using the market price of traded options on First Data's common stock. expeC TeD DiviDenD yieLD-The company's expected annual dividend yield is the calculation of the annualized Western Union dividend of $0.04 per common share divided by a rolling 12 month average Western Union stock price...

  • Page 80
    ... the change on periods previously reported being reflected in the financial statements of the period in which the change is made. in the future, as more historical data is available to calculate the volatility of Western Union stock and the actual terms Western Union employees hold options, expected...

  • Page 81
    ... Financial Statements The following table presents the company's reportable segment results for the years ended December 31, 2008, 2007 and 2006, respectively (in millions): Years Ended December 31, 2008 2007 2006 revenues: consumer-to-consumer: Transaction fees Foreign exchange revenue...

  • Page 82
    WESTERN UNION 2008 Annual Report The geographic split of revenue above has been determined based upon the country where a money transfer is initiated and the country where a money transfer is paid with revenue being split 50% between the two countries. Long-lived assets, consisting of "property ...

  • Page 83
    ...-5012 Stock Prices The Western Union company common stock is traded on the New York stock Exchange under the symbol "WU." The high and low prices for our common stock during 2008 and 2007 were as follows: Common Stock Market Price High Low Transfer Agent and Registrar stockholders with questions...

  • Page 84
    can i give her every chance in the world? Western union 12500 east Belford avenue engleWood, co 80112, usa westernunion.com