Western Union 2008 Annual Report Download - page 31

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$64.4 million and $3.6 million related to our consumer-to-
business segment in the years ended December 31, 2007
and 2006, respectively. Revenue growth for the year ended
December 31, 2007 compared to the same period in 2006,
excluding Pago Fácil, was 4%. Transaction growth, exclud-
ing Pago Fácil, was 1% during the year ended December 31,
2007, compared to the same period in 2006.
Operating income
2008 COMPARED TO 2007
Operating income for the consumer-to-business seg-
ment decreased for the year ended December 31, 2008
compared to 2007 primarily due to operating income
declines in the United States-based bill payments busi-
nesses, partially offset by growth in Pago Fácil payments.
Operating income margins also declined as United States
electronic-based and Pago Fácil payments, which cumu-
latively represented a higher percentage of consumer-
to-business revenues in 2008 compared to 2007, have
lower operating margins than the declining higher mar-
gin United States cash-based bill payments business.
Partially offsetting operating income declines for the year
ended December 31, 2008 compared to 2007 was lower
stock-based compensation expenses as described in the
“consumer-to-consumer” operating income discussion.
2007 COMPARED TO 2006
Operating income for the consumer-to-business segment
was unchanged for the year ended December 31, 2007
compared to the same period in 2006 because of the
impact of Pago Fácil and revenue growth in the segment’s
electronic-based services businesses, and was offset by
incremental public company expenses and the accelerated
stock compensation charge taken in connection with the
change in control of First Data. Operating income for the
period grew at a lower rate than revenues as Pago Fácil
and the electronic-based services have lower operating
margins compared to the higher margin United States
cash-based bill payments business, as well as the incre-
mental public company expenses and accelerated stock
compensation charge noted above.
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Management’s
Discussion and
Analysis of Financial
Condition and
Results of Operations
Other
The following table sets forth other results for the years ended December31, 2008, 2007 and 2006.
Years Ended December 31, % Change
2008 2007
(dollars and transactions in millions) 2008 2007 2006 vs.2007 vs.2006
Revenues $90.6 $87.2 $89.1 4% (2)%
Operating income $15.8 $20.0 $18.4 (21)% 9%
Operating income margin 17% 23% 21%
Revenues
2008 COMPARED TO 2007
Revenue increased for the year ended December 31, 2008
over 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 conjunction with the spin-off. On July 18, 2008,
we entered into an agreement with IPS which modified the
existing business relationship with respect to the issuance
and processing of money orders. Under the terms of that
agreement beginning on October 1, 2009 (the “Transition
Date”), IPS will assign and transfer to us certain operating
assets used by IPS to issue money orders and an amount
of cash sufficient to satisfy all outstanding money order
liabilities. On the Transition Date, we 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 us a fixed return on
the outstanding money order balances (which vary from
day to day but approximate $800 million). Following the
Transition Date, we 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 our United States
originated money transfer principal. In anticipation of our
exposure to fluctuations in interest rates, we have entered
into interest rate swaps on certain of our fixed rate notes.
Through a combination of the revenue generated from
these investment securities and the anticipated interest
expense savings resulting from these interest rate swaps,
we estimate that we should be able to retain subsequent
to the Transition Date, on a pretax income basis through
2011, a comparable rate of return as we are receiving
under our current agreement with IPS. However, revenue
may be lower.
Subsequent to the Transition Date, all revenue gener-
ated from the management of the investment portfolio will
be retained by us and none will be shared with our agents.
IPS will continue to provide to us clearing services neces-
sary for payment of the money orders in exchange for the
payment by us to IPS of a per-item administrative fee. We
will no longer provide to IPS the services required under
the original money order agreement or receive from IPS
the fee for such services.
2007 COMPARED TO 2006
Our money order and prepaid services businesses, includ-
ing prepaid services acquired through our acquisition
of Pago Fácil, accounted for 100% and 94% of “Other”
revenue in 2007 and 2006, respectively. We previously
operated messaging and international prepaid cellular