Western Union 2008 Annual Report Download - page 35

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by a rating agency if, in its judgment, circumstances so
warrant. A downgrade or a negative outlook provided by
the rating agencies could result in the following:
º
Our access to the commercial paper market may be
limited, and if we were downgraded below investment
grade, our access to the commercial paper market
would likely be eliminated;
º
Our borrowing costs on certain existing borrowings
would increase;
º
We may be required to pay a higher interest rate in
future financings;
º
Our potential pool of investors and funding sources
may decrease;
º
Regulators may impose additional capital and other
requirements on us, including imposing restrictions
on the ability of our regulated subsidiaries to pay divi-
dends; and
º
Our agent relationships may be adversely impacted,
particularly those agents that are financial institutions
or post offices.
The indenture governing our notes, the Revolving Credit
Facility and the Term Loan all contain covenants which,
among other things, limit or restrict our ability to sell or
transfer assets or enter into a merger or consolidate with
another company, grant certain types of security interests,
incur certain types of liens, impose restrictions on subsid-
iary dividends, enter into sale and leaseback transactions,
or incur certain subsidiary level indebtedness. In addi-
tion, the Revolving Credit Facility and Term Loan require
us to maintain a consolidated adjusted EBITDA interest
coverage ratio of greater than 2:1 and 3:1, respectively,
(ratio of consolidated adjusted EBITDA, defined as net
income plus the sum of (a) interest expense, (b) income
tax expense, (c) depreciation expense, (d) amortization
expense, (e) any other non-cash deductions, losses or
changes made in determining net income for such period
and (f) extraordinary losses or charges, and minus extraor-
dinary gains, in each case determined in accordance with
United States GAAP for such period, to interest expense) for
each period comprising the four most recent consecutive
fiscal quarters. Our consolidated interest coverage ratio
was 10:1 as of December 31, 2008. Prepayments under
the Term Loan are allowed and are required based on
the cash proceeds from other indebtedness, issuance of
equity, or sale of assets over $250 million.
As of December 31, 2008, we are in compliance with
our debt covenants. A violation of our debt covenants could
impair our ability to borrow, and outstanding amounts bor-
rowed could become due, thereby restricting our ability
to use our excess cash for other purposes.
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, 2007 and 2006, respectively.
Amounts capitalized for new and renewed agent contracts
were $82.8 million, $80.9 million and $124.1 million in
2008, 2007 and 2006, respectively. Such contract costs vary
depending on the terms of existing contracts as well as
the timing of new and renewed contract signings. Other
capital expenditures during 2008, 2007 and 2006 included
purchased and developed software costs and purchases
of property and equipment representing investments in
our information technology infrastructure and the renova-
tion of certain facilities.
Acquisition of businesses, net of cash acquired
In December 2008, we acquired 80% of our existing money
transfer agent in Peru for a purchase price of $35.0 million.
The aggregate consideration paid was $29.7 million, net
of a holdback reserve of $3.0 million and cash acquired
of $2.3 million.
On August 1, 2008, we acquired the money transfer
assets from our existing money transfer agent in Panama
for a purchase price of $18.3 million, which is net of cash
acquired. The consideration paid was $14.3 million, net
of a holdback reserve of $4.0 million.
In December 2006, we acquired Pago Fácil for a total
purchase price of $69.8 million, less cash acquired of
$3.0 million. Prior to December 2006, we held a 25%
interest in Pago Fácil, which was treated as an equity
method investment. As a result of acquiring the additional
75% ownership, our entire investment in and results of
operations of Pago Fácil have been included in the con-
solidated financial statements since the acquisition date.
We expect that we will continue to pursue opportu-
nities to acquire companies, particularly outside of the
United States, that complement our existing businesses
worldwide.
Share Repurchases and Dividends
Since September 2006, the Board of Directors has autho-
rized common stock repurchases of up to $3.0 billion
consisting of a $1.0 billion authorization in June 2008 (“2008
Authorization”), 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 authorization in 2006 have been fully utilized. During
the years ended December 31, 2008, 2007 and 2006,
58.1 million, 34.7 million and 0.9 million shares, respec-
tively, were repurchased for $1,313.9 million, $726.5 million
and $19.9 million, respectively, excluding commissions, at
an average cost of $22.60, $20.93 and $22.78 per share,
respectively. As of December 31, 2008, $939.7 million
remains available under the 2008 Authorization for pur-
chases through December 31, 2009.
During the fourth quarter of 2008, our Board of
Directors declared an annual cash dividend of $0.04 per
common share, representing $28.4 million, which was
paid in December 2008. During the fourth quarter of
2007, our Board of Directors declared an annual cash
dividend of $0.04 per common share, representing $30.0
million, which was paid in December 2007. During the
fourth quarter of 2006, our Board of Directors declared a
cash dividend of $0.01 per common share, representing
$7.7 million, which was paid in December 2006.
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Management’s
Discussion and
Analysis of Financial
Condition and
Results of Operations