Western Union 2008 Annual Report Download - page 61

5959
Notes to Consolidated
Financial Statements
to change after the valuation of identifiable assets and
certain other assets and liabilities is finalized. In addition,
the Company has the option to acquire the remaining 20%
of the money transfer agent and the money transfer agent
has the option to sell the remaining 20% to the Company
within 12 months after December 2013 at fair value.
On August 1, 2008, the Company acquired the money
transfer assets from its existing money transfer agent in
Panama for a purchase price of $18.3 million. The consid-
eration paid was $14.3 million, net of a holdback reserve
of $4.0 million. The $4.0 million holdback reserve is sched-
uled to be paid $0.5 million, $1.2 million, $1.2 million and
$1.1 million in February 2009, August 2009, August 2010
and August 2011, respectively, subject to the terms of the
agreement. The results of operations of the acquiree have
been included in the Company’s consolidated financial
statements since the acquisition date. The preliminary
purchase price allocation resulted in $5.6 million of identifi-
able intangible assets, a significant portion of which were
attributable to the acquiree’s network of subagents. The
identifiable intangible assets are being amortized over
three to seven years and goodwill of $14.2 million was
recorded, which is not expected to be deductible for
income tax purposes. The purchase price allocation is
preliminary and subject to change after the valuation of
identifiable assets and certain other assets and liabilities
is finalized.
In October 2007, the Company entered into agree-
ments totaling $18.3 million to convert its non-participating
interest in an agent in Singapore to a fully participating
49% equity interest and to extend the agent relationship
at more favorable commission rates to Western Union. As
a result, the Company earns a pro-rata share of profits and
has enhanced voting rights. The Company also has the
right to add additional agent relationships in Singapore.
In addition, in October 2007, the Company completed
an agreement to acquire a 25% ownership interest in an
agent in Jamaica and to extend the term of the agent rela-
tionship for $29.0 million. The aggregate consideration
paid resulted in $20.2 million of identifiable intangible
assets, including capitalized contract costs, which are
being amortized over seven to 10 years. Western Union’s
investments in these agents are accounted for under the
equity method of accounting.
In December 2006, the Company acquired Servicio
Electronico de Pago S.A. and related entities (“SEPSA”),
which operates under the brand name Pago Fácil
SM
, for
a total purchase price of $69.8 million, less cash acquired
of $3.0 million. Pago Fácil provides consumer-to-business
payments and prepaid mobile phone top-up services in
Argentina. Previously, the Company held a 25% interest
in Pago Fácil, which was treated as an equity method
investment. As a result of acquiring the additional 75%
ownership, the Company’s entire investment in and results
of operations of Pago Fácil have been included in the
consolidated financial statements since the acquisition
date. The purchase price allocation resulted in
$28.1 million of identifiable intangible assets, a signifi-
cant portion of which were attributable to the Pago Fácil
service mark and acquired agent and biller relationships.
The identifiable intangible assets were calculated based
on the additional 75% ownership interest acquired, and
are being amortized over two to 25 years. After adjusting
the additional acquired net assets to fair value, goodwill
of $44.5 million was recorded, substantially all of which is
eligible for amortization for tax purposes across various
jurisdictions.
The pro forma impact of all acquisitions on net income
in 2008, 2007 and 2006 was immaterial.
The following table presents changes to goodwill for the years ended December 31, 2008 and 2007 (in millions):
Consumer-to- Consumer-to-
Consumer Business Other Total
January1, 2007 balance $1,392.0 $243.1 $12.9 $1,648.0
Purchase price adjustments (3.0) (5.9) 1.7 (7.2)
Currency translation — (1.3) — (1.3)
December31, 2007 balance $1,389.0 $235.9 $14.6 $1,639.5
Acquisitions 39.0 — — 39.0
Purchase price adjustments (1.0) — — (1.0)
Currency translation — (3.2) (0.1) (3.3)
December31, 2008 balance $1,427.0 $232.7 $14.5 $1,674.2
5. Related Party Transactions
Related Party Transactions with First Data
The Consolidated Statement of Income for the year ended
December 31, 2006 prior to the Spin-off includes expense
allocations for certain corporate functions historically pro-
vided to Western Union by First Data. If possible, these
allocations were made on a specific identification basis.
Otherwise, the expenses related to services provided to
Western Union by First Data were allocated to Western
Union based on relative percentages, as compared to First
Data’s other businesses, of headcount or other appropri-
ate methods depending on the nature of each item or
cost to be allocated.
Charges for functions historically provided to Western
Union by First Data are primarily attributable to First Data’s
performance of many shared services that the Company
utilized prior to the Spin-off. First Data continued to provide
certain of these services subsequent to the Spin-off through
a transition services agreement until September 29, 2007.
In addition, prior to the Spin-off, the Company participated
in certain First Data insurance, benefit and incentive plans,
and it received services directly related to the operations
of its businesses such as call center services, credit card
processing, printing and mailing. The Consolidated