Western Union 2008 Annual Report Download - page 36

WESTERN UNION
2008 Annual Report
34
Equity Investments In and Loans to
Certain Key Agents
In October 2007, we entered into agreements totaling
$18.3 million to convert our non-participating interest
in a joint venture with our Singapore agent, Hersing
Corporation Ltd., into a fully participating 49% equity
interest and extended the agent relationship at more
favorable commission rates to Western Union. As a result,
we earn a pro-rata share of profits and have enhanced
voting rights. We also have the right to add additional
agent relationships in Singapore under this agreement. In
October 2007, we completed an agreement to acquire a
25% ownership interest in GraceKennedy Money Services
Caribbean SRL (“GraceKennedy”), an agent in Jamaica
(which also acts as our agent in several other Caribbean
countries), and to extend the term of the agent relation-
ship for $29.0 million. The aggregate consideration paid
resulted in $20.2 million of identifiable intangible assets,
including capitalized contract costs, which are being amor-
tized over seven to 10 years.
From time to time, we also make advances and loans
to agents. Most significantly, in the first quarter 2006,
we signed a six year agreement with one of our existing
agents which included a four year loan of $140.0 million
to the agent, of which $40.0 million, $30.0 million and
$20.0 million were repaid in the years ended December 31,
2008, 2007 and 2006, respectively. The terms of the loan
agreement require that a percentage of commissions
earned by the agent (64% in 2009) be withheld as repay-
ment of the loan and the agent remains obligated to repay
the loan if commissions earned are not sufficient. The
remaining loan receivable balance relating to this agent
as of December 31, 2008 and 2007, net of discount, was
$47.0 million and $67.5 million, respectively.
As opportunities arise, we expect we will continue to
strategically invest in agents to further strengthen our
business.
Debt Service Requirements
Our 2009 debt service requirements will include the
$500 million Term Loan principal balance, payments on
existing borrowings and any future borrowings under our
commercial paper program and interest payments on
all outstanding indebtedness. We have the ability to use
existing financing sources, such as our Revolving Credit
Facility and commercial paper program, to meet debt
obligations as they arise. As market conditions allow, we
intend to refinance our Term Loan with new financing
sources. Based 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 our debt will
depend on our ability to continue to generate excess
operating cash through our operating subsidiaries and
to continue to receive dividends from those operating
subsidiaries, our ability to obtain adequate financing and
our ability to identify the appropriate acquisitions that will
align with our long-term strategy.
Prior to Spin-Off from First Data
Prior to the spin-off, excess cash generated from our
domestic operations that was not required to meet cer-
tain regulatory requirements was periodically advanced to
First Data and was reflected as a receivable from First Data.
In addition, we periodically paid dividends to First Data.
First Data and its subsidiaries provided a number of
services on behalf of our business, including shared ser-
vices, which were reimbursed periodically. Also, when
we were a segment of First Data, we benefited from First
Data’s financing resources.
Off-Balance Sheet Arrangements
Other than facility and equipment leasing arrangements
disclosed in Note 12 to our consolidated financial state-
ments, we have no material off-balance sheet arrangements
that have or are reasonably likely to have a material current
or future effect on our financial condition, revenues or
expenses, results of operations, liquidity, capital expen-
ditures or capital resources.
Pension Plans
We have two frozen defined benefit plans that together
had a recorded unfunded pension obligation of $107.1 million
as of December 31, 2008. During the period from 2006
to 2008, we did not make contributions to these plans.
Due to the impact of recent legislation enacted, we will
not be required to contribute to these plans during 2009,
but estimate we will be required to fund approximately
$20 to $25 million in 2010.
Our most recent measurement date for our pension
plans is December 31, 2008. The calculation of the funded
status and net periodic benefit income is dependent upon
two primary assumptions: (1) expected long-term return
on plan assets; and (2) discount rate. Our expected long-
term return on plan assets was 7.50% for 2008 and 2007.
If actual asset returns exceed the expected return on
plan assets by 100 basis points, the plans’ funded status
would improve by $3 million. The discount rate assumption
for the company’s benefit obligation was 6.26% and 6.02%
for 2008 and 2007, respectively. A 100 basis point change
in the discount rate would change the funded status
by $30 million. Due to the frozen status of our plans, a
100 basis point change in these assumptions would not be
significant to the net periodic benefit income or expense
of our plans.
34