Western Union 2008 Annual Report Download - page 18

WESTERN UNION
2008 Annual Report
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You should read the following discussion in conjunction
with the consolidated financial statements and the notes
to those statements included elsewhere in this Annual
Report. This Annual Report contains certain statements
that are forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. Certain state-
ments contained in the Management’s Discussion and
Analysis of Financial Condition and Results of Operations
are forward-looking statements that involve risks and
uncertainties. The forward-looking statements are not his-
torical facts, but rather are based on current expectations,
estimates, assumptions and projections about our industry,
business and future financial results. Our actual results
could differ materially from the results contemplated by
these forward-looking statements due to a number of
factors, including those discussed in other sections of
this Annual Report. See “Forward-Looking Statements.”
Overview
We are a leading provider of money transfer services,
operating in two business segments:
º
Consumer-to-consumer money transfer services, pro-
vided primarily through a global network of third-party
agents using our multicurrency, real-time money trans-
fer processing systems. This service is available for
international cross-border transfers—that is, the transfer
of funds from one country to another—and, in certain
countries, intra-country transfers—that is, money trans-
fers from one location to another in the same country.
º
Consumer-to-business payment services, which allow
consumers to send funds to businesses and other orga-
nizations that receive consumer payments, including
utilities, auto finance companies, mortgage servicers,
financial service providers and government agencies (all
sometimes referred to as “billers”) through our network
of third-party agents and various electronic channels.
While we continue to pursue international expansion of
our offerings in selected markets, as demonstrated by
our December 2006 acquisition of Servicio Electronico
de Pago S.A. and related entities (“SEPSA” or “Pago
Fácil”) in Argentina and our recent offerings of a walk-
in, cash bill payment service in Peru and Panama, the
segment’s revenue was primarily generated in the
United States during all periods presented.
Businesses not considered part of the segments described
above are categorized as “Other” and represented 2%
or less of consolidated revenue during the three years
ended December 31, 2008, 2007 and 2006, and include
Western Union branded money orders available through
a network of third-party agents primarily in the United
States and Canada, and prepaid services. Prepaid services
include a Western Union branded prepaid MasterCard®
card sold through select agents in the United States and
the internet, a Western Union branded prepaid Visa® card
sold on the internet, and top-up services for third parties
that allow consumers to pay in advance for mobile phone
and other services.
Also included in “Other” are expenses incurred in
connection with the development of certain new service
offerings, including costs to develop mobile money transfer
services and new prepaid service offerings. In 2007 and
2006, “Other” included recruiting and relocation expenses
associated with hiring senior 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 loca-
tions that offer Western Union services around the world.
Some of our agent locations only pay out and do not send
money. In addition to our agent locations, we are expand-
ing the ability of consumers to send money through other
channels, such as our internet site, westernunion.com, and
the telephone. Consumer-to-consumer money transfer
service is available through the Western Union®, Orlandi
Valuta® and VigoSM brands. The consumer-to-business
service allows consumers to transfer money to a biller. This
service is available at many of our Western Union agent
locations, primarily in the United States, and through the
internet or by telephone.
Significant Financial and Other Highlights
Significant financial and other highlights for the year ended
December 31, 2008 include:
º
We generated $5,282.0 million in total consolidated
revenues and $1,355.0 million in consolidated operat-
ing income, resulting in year-over-year growth of 8%
and 2% in total consolidated revenues and operating
income, respectively.
º
We incurred $82.9 million of restructuring and related
expenses as described within “Operating expenses
overview.” During the year ended December31, 2007,
we incurred a $22.3 million accelerated stock-based
compensation vesting charge related to an affiliate of
Kohlberg Kravis Roberts & Co’s (“KKR”) acquisition of
First Data Corporation (“First Data”) on September24,
2007 as described within “Operating expenses overview.”
º
Our operating income margin was 26% during the year
ended December 31, 2008 resulting in a year-over-year
decline of 1% due primarily to the restructuring and
related expenses described above.
º
Consolidated net income during 2008 was $919.0mil-
lion, representing an increase of 7% from 2007.
º
We completed 188.1 million consumer-to-consumer
transactions worldwide, an increase of 12% over 2007.
º
Our consumers transferred $74 billion in consumer-
to-consumer transactions, of which $67 billion related
to cross-border transactions, which represented an
increase of 16% in consumer-to-consumer transac-
tions and a 17% increase in cross-border transactions
over prior year.
º
We completed 412.1 million consumer-to-business
transactions, representing an increase of 2% over the
prior year.
º
Consolidated cash flow provided by operating activities
was $1,253.9 million, an increase of 14% over 2007.
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Management’s
Discussion
and Analysis
of Financial
Condition and
Results of
Operations