Western Union 2008 Annual Report Download - page 12

WESTERN UNION
2008 Annual Report
1010
Year ended December 31, 2008 2007 2006 2005 2004
(in millions, except per share data)
STATEMENTS OF INCOME DATA:
Revenues $5,282.0 $4,900.2 $4,470.2 $3,987.9 $3,547.6
Operating expenses (a) (b) 3,927.0 3,578.2 3,158.8 2,718.7 2,435.5
Operating income (a) (b) 1,355.0 1,322.0 1,311.4 1,269.2 1,112.1
Interest income (c) 45.2 79.4 40.1 7.6 1.8
Interest expense (d) (171.2) (189.0) (53.4) (1.7) (1.7)
Other income/(expense), net, excluding
interest income and interest expense (e) 9.7 10.0 37.0 69.0 (13.6)
Income before income taxes (a) (b) (c) (d) (e) 1,238.7 1,222.4 1,335.1 1,344.1 1,098.6
Net income (a) (b) (c) (d) (e) 919.0 857.3 914.0 927.4 751.6
Depreciation and amortization 144.0 123.9 103.5 79.5 79.2
CASH FLOW DATA:
Net cash provided by operating activities 1,253.9 1,103.5 1,108.9 1,002.8 930.2
Capital expenditures (f) (153.7) (192.1) (202.3) (65.0) (49.5)
Shares repurchased (g) (1,314.5) (726.8) (19.9) — —
Dividends to First Data — — 2,953.9 417.2 659.8
EARNINGS PER SHARE DATA:
Basic (a) (b) (c) (d) (e) (h) $ 1.26 $ 1.13 $ 1.20 $ 1.21 $ 0.98
Diluted (a) (b) (c) (d) (e) (h) $ 1.24 $ 1.11 $ 1.19 $ 1.21 $ 0.98
Cash dividends to public stockholders per common share $ 0.04 $ 0.04 $ 0.01 — —
KEY INDICATORS (UNAUDITED):
Consumer-to-consumer transactions (i) 188.1 167.7 147.1 118.5 96.7
Consumer-to-business transactions (j) 412.1 404.5 249.4 215.1 192.6
As of December 31, 2008 2007 2006 2005 2004
BALANCE SHEET DATA:
Settlement assets $ 1,207.5 $ 1,319.2 $ 1,284.2 $ 914.4 $ 702.5
Total assets 5,578.3 5,784.2 5,321.1 4,591.7 3,315.8
Settlement obligations 1,207.5 1,319.2 1,282.5 912.0 696.6
Total borrowings (k) 3,143.5 3,338.0 3,323.5 — —
Total liabilities 5,586.4 5,733.5 5,635.9 1,779.9 1,381.3
Total stockholders’ (deficiency)/equity/
Net Investment in The Western Union Company (k) (8.1) 50.7 (314.8) 2,811.8 1,934.5
(a) We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” or “SFAS No. 123R,” following the modified prospective method
effective January 1, 2006. SFAS No. 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant
date fair values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. Stock-based compensa-
tion expense, including stock compensation expense allocated by First Data prior to the spin-off on September 29, 2006 and the impact of adopting SFAS No. 123R,
was $26.3 million, $50.2 million and $30.1 million for the years ended December 31, 2008, 2007 and 2006, respectively. Our stock-based compensation expense in
2007 included a non-recurring charge of $22.3 million related to the vesting of the remaining converted unvested Western Union stock-based awards upon the comple-
tion of the acquisition of First Data on September 24, 2007 by an affiliate of Kohlberg Kravis Roberts & Co. (“KKR”).
(b) Operating expenses for the year ended December 31, 2008 included $82.9 million of restructuring and related expenses associated with the closure of our facilities
in Missouri and Texas and other reorganization plans.
(c) Interest income is attributed primarily to international cash balances and loans made to several agents. On the spin-off date, the Company received cash in connection
with the settlement of intercompany notes with First Data (net of certain other payments made to First Data) which significantly increased our international cash
balances.
(d) Interest expense primarily relates to debt incurred in connection with the spin-off from First Data and the refinancing of such debt. Interest expense has been significantly
higher since September 29, 2006 due to higher borrowings balances.
(e) Amounts were primarily recognized prior to the spin-off and include derivative gains and losses, net, interest income due from First Data, and the net foreign exchange
effect on notes receivable from First Data and related foreign currency swaps with First Data. Prior to the spin-off, we did not have any forward contracts that qualified
as hedges, and therefore, the gains and losses on these contracts were reflected in income prior to that date. On September 29, 2006, we entered into foreign currency
forward positions to qualify for cash flow hedge accounting. During the years ended December 31, 2008, 2007, 2006, 2005, and 2004, the pretax derivative (loss)/gain
was $(6.9) million, $8.3 million, $(21.2) million, $45.8 million, and $(30.2) million, respectively. Notes receivable from First Data affiliates and related foreign currency
swap agreements were settled in cash in connection with the spin-off. During the years ended December 31, 2006, 2005 and 2004, the interest income, net recognized
from First Data, including the impact of foreign exchange translation of the underlying notes, was $45.8 million, $18.4 million and $16.6 million, respectively.
(f) Capital expenditures include capitalization of contract costs, capitalization of purchased and developed software and purchases of property and equipment.
(g) Since September 2006, the Board of Directors has authorized common stock repurchases of up to $3.0 billion consisting of a $1.0 billion authorization in June 2008,
a $1.0 billion authorization in December 2007 (“2007 Authorization”) and a $1.0 billion authorization in September 2006. Both the 2007 Authorization and the authoriza-
tion in 2006 have been fully utilized. During the years ended December 31, 2008 and 2007 and the period from September 29, 2006 through December 31, 2006, we
repurchased 58.1 million, 34.7 million and 0.9 million shares, respectively, pursuant to these authorizations.
(h) For all periods prior to September 29, 2006 (the date of our spin-off from First Data), basic and diluted earnings per share were computed utilizing the basic shares
outstanding at September 29, 2006.
(i) Consumer-to-consumer transactions include consumer-to-consumer money transfer services worldwide. Amounts include Vigo Remittance Corp. transactions since
the acquisition date of October 21, 2005.
(j) Consumer-to-business transactions 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 dividend to First Data in the consolidated statements of stockholders’ (deficiency)/equity/net investment in
The Western Union Company, consisting of notes issued to First Data of $3.4 billion 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, settlement of net intercompany receivables, and
transfers of certain liabilities, net of assets. Subsequent to the spin-off date, the Company had no outstanding borrowings to First Data. Since the amount of the dividend
exceeded the historical cost of our net assets as of September 29, 2006, a capital deficiency resulted.