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Article by DailyStocks_admin    (02-17-09 09:13 AM)

The Western Union Company. CEO CHRISTINA A GOLD bought 15000 shares on 2-09-2009 at $12.77

BUSINESS OVERVIEW

The Western Union Company (“Western Union” or the “Company”) is a leader in global money transfer, providing people with fast, reliable and convenient ways to send money around the world, pay bills and purchase money orders. The Western Union ® brand is globally recognized. Our services are available through a network of over 335,000 agent locations in more than 200 countries and territories. Each location in our agent network is capable of providing one or more of our services. As of December 31, 2007, approximately 75% of our locations had experienced money transfer activity in the prior 12 months. Our consumer-to-consumer money transfer service enables people to send money around the world in minutes. Our consumer-to-business service provides consumers with flexible and convenient options for making one-time or recurring payments.

In 2007, we generated $4.9 billion in total consolidated revenues and $857.3 million in consolidated net income. Total revenue generated during 2007 consisted of $3,989.8 million of transaction fees, $771.3 million related to foreign exchange revenue derived from the difference between the exchange rate set by Western Union to the consumer and the rate at which we or our agents are able to acquire currency, and $139.1 million related to commission and other revenues. We handled 167.7 million consumer-to-consumer money transfers in 2007, an increase of 14% over 2006. Our 404.5 million consumer-to-business transactions in 2007, including those from our acquired business in Argentina, Servicio Electrónico de Pago S.A. and related entities (“SEPSA” or “Pago Fácil”), represented a 62% increase over 2006.

We believe that brand strength, size and reach of our global network, and convenience and reliability for our consumers have been key to the growth of our business. As we continue to meet the needs of our consumers for fast, reliable and convenient money transfer services, we are also working to enhance our existing services and provide our consumers with access to an expanding portfolio of payment and other financial services.

History and Development

The Western Union Company was incorporated in Delaware as a wholly-owned subsidiary of First Data Corporation, or “First Data,” on February 17, 2006 in anticipation of the spin-off described in “The Separation of Western Union from First Data”.

The Western Union Company has roots back to 1851. Western Union stock was first traded on the New York Stock Exchange in 1865. In 1884, the original Western Union was one of the 11 companies included on the first Dow Jones average listing. Western Union has a long history of providing innovative services, including creating the universal stock ticker and launching the first United States commercial communications satellite service. Western Union introduced our consumer-to-consumer money transfer service in 1871. Western Union began offering consumer-to-business payment services in 1989 when we introduced Western Union Quick Collect ® or “Quick Collect,” providing consumers in the United States with the ability to conveniently pay bills in cash through our agent network.

Over the past decade, we have become a leader in the development of a global remittance market. Today, we offer money transfer services under the Western Union ® , Orlandi Valuta ® , and Vigo SM brands in over 200 countries and territories, and various bill payment services primarily in the United States under several brands like Speedpay ® , Equity Accelerator ® , Just in Time EFT ® , Western Union Quick Collect, Western Union Convenience Pay ® , and in Argentina under our Pago Fácil SM brand.

The Western Union Business

Our revenue is principally generated by money transfer and payment transactions. We derive our revenue primarily from two sources. Most of our revenue comes from fees that consumers pay when they send money. In certain consumer money transfer transactions involving different send and payment currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer and the rate at which we or our agents are able to acquire currency.

In our consumer-to-consumer segment we provide our third-party agents with our multi-currency, real-time money transfer processing systems used to originate and pay money transfers. Our agents provide the physical infrastructure and staff required to complete the transfers. We generally pay our agents a commission based on a percentage of revenue. The commission is shared between the agent that initiated the transaction, the “send agent,” and the agent that paid the transaction, the “receive agent.” For most agents, the costs of providing the physical infrastructure and staff are typically covered by the agent’s primary business (e.g., postal services, banking, check cashing, travel and retail businesses), making the economics of being a Western Union agent attractive to our agents. Western Union’s global reach and loyal consumer base allow us to attract agents we believe to be of high quality.

In our consumer-to-business segment we process electronic and cash payments to a variety of organizations that receive consumer payments, including utilities, auto finance companies, mortgage servicers, financial service providers and governmental agencies, which we sometimes refer to as “billers.” We process electronic payments using the consumer’s credit card, debit card or bank account. We process cash payments much as we process consumer-to-consumer transactions. Our consumers use our Quick Collect service to send guaranteed funds, from over 50,000 Western Union agent locations primarily across the United States, using cash and, in certain locations, a debit card. We believe our billers benefit from their relationship with Western Union as their relationship with us provides them with real time or near real time posting of their customer payments, reduced expenses that the biller would have otherwise incurred for cash and check handling, and in certain circumstances another source of income.

Geographic Presence

Over 80% of our agent locations are outside the United States. Our consumer-to-consumer services are available in almost every country or territory. We have offices in more than 45 countries. In the United States, Costa Rica, Russia, Mexico, Argentina and Philippines, our offices include customer service centers, where our employees answer operational questions from agents and consumers. Our office in Englewood, Colorado serves as our corporate headquarters, and our office in Dublin, Ireland serves as our international headquarters. Other offices, including regional management offices in Miami, Vienna, Buenos Aires and Hong Kong, provide sales, marketing, data processing and other services. Our employees and members of senior management reflect the global nature of our business; natives of many different countries, they speak many languages.

Western Union agents include large networks such as post offices, banks and retailers. We have agreements with postal organizations in Argentina, Australia, China, France, Germany, India, New Zealand, Russia, Spain and elsewhere. Our services are offered through banks such as Agricultural Bank of China, BNP Paribas, Credit Lyonnais, Millennium BCP and the State Bank of India. National and international retailers in the network include Kroger and Publix in the United States and Elektra and Travelex internationally. Many of our agents have multiple locations. Our agents know the markets they serve. They work with our management to develop business plans for their markets, and many of our agents contribute financial resources to assist with marketing the business.

Financial information relating to the Company’s international and domestic revenues and long-lived assets is set forth in Note 15 to the Company’s Consolidated Financial Statements in Item 8.

Our Strengths

We believe our strengths enable us to continue being the provider of choice for millions of consumers when they need to send or receive money and pay bills. Our strengths include our:

Strong relationships with high quality agents and businesses . We interact with millions of consumers around the world, primarily through our global agent network. Our agents facilitate the global distribution and convenience associated with our Western Union brand, which in turn helps create demand for our services and helps us to recruit and retain agents. Our agents tend to be established organizations that provide other consumer products and services. Many are open outside of traditional banking hours, for example on nights and weekends, making it easier for consumers to use our services. Although our agent contracts are generally for 5 year terms, our top 40 agents globally have been with us an average of approximately 13 years, and in 2007, these agents were involved in transactions that generated more than 50% of our consumer-to-consumer revenue. We occasionally acquire equity interests in, and enter into alliances with, certain of our agents to better align our long-term interests. For example, in October 2007, we completed an agreement to acquire a 25% ownership interest in GraceKennedy Money Services Caribbean SRL (“GraceKennedy”), an agent in Jamaica. Additionally, we entered into another agreement to convert our non-participating interest in a joint venture with our Singapore agent, Hersing Corporation Ltd., into a fully participating 49% interest. We also hold a majority interest in an alliance with our agent in France, and we hold minority interests in agents that have a presence in Ireland, the United Kingdom, Spain, Greece, and Italy, among others.

We have relationships with more than 6,000 businesses and other billers, approximately 1,800 of which relate to Pago Fácil, which was acquired in December 2006. These relationships are a core component of our consumer-to-business payment services. In 2007, our top 20 billers represented approximately 40% of our consumer-to-business revenue. On average, we have provided our bill payment services to our top 20 billers for more than 10 years.

Global distribution network . The Western Union, Orlandi Valuta and Vigo agent networks are the foundation of our international presence. We have more than 335,000 agent locations worldwide offering at least one of our consumer-to-consumer money transfer services, with the vast majority offering Western Union branded service. Our global footprint results from more than a decade of building relationships with agents worldwide.

Success in the consumer-to-consumer money transfer business depends in large part on providing quality service at convenient send and receive locations. Our global network, extending to over 200 countries and territories, provides that convenience. Over the last five years, we have emphasized the development of our receive network around the world to align the supply of agent locations in the markets that primarily send transactions with those that pay them. Today, we believe we are well-positioned to meet consumer demand in key receive markets, such as China, India, Mexico and the Philippines.

To complement the convenience offered by our network’s global physical locations, in certain countries we have made our services available through other channels, such as our internet service, westernunion.com (which allows consumers to send funds through our website), our telephone money transfer service, and our direct-to-bank money transfer service (which allows consumers to send money directly to a bank account). These services represent approximately 3% of our consolidated revenues. For financial information regarding our foreign and United States operations, see Item 7 of Part II and our historical financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K.

Established brands. Our Western Union brand is built on a foundation of more than 150 years of history and consumer-focused service. The Western Union brand represents speed, reliability, trust, value and convenience. The international expansion of our agent network over the past decade has taken the Western Union brand nearly everywhere consumers send and receive money. As people move and travel around the world, they are able to find a well recognized service to send funds to others.

We also offer money transfer services under the Orlandi Valuta and Vigo brands. Over the past three years, Western Union branded transactions have grown the fastest of the three consumer money transfer brands.

Through our Western Union Quick Collect, Western Union Convenience Pay, Pago Fácil, Speedpay, Just in Time EFT and Equity Accelerator brands, we offer cash-based and electronic consumer-to-business payment services.

Our operating results over the past several years have allowed us to invest significantly each year to support our brands. In 2007, we invested approximately $295 million to market, advertise and promote our services, and many of our agents have contributed significant financial resources to assist with marketing the business.

Consumer relationships. One of our strengths has been our focus on our consumers and offering them fast, reliable money transfer and payment services. Our global loyalty card program is available in a growing number of countries. We launched our Western Union Gold Card, the principal vehicle of the program, in the United States in 2002. As of December 31, 2007, the loyalty program was available in 65 countries and had approximately 9.5 million active cards. The Gold Card offers consumers faster service at the point-of-sale, service fee reductions on future Western Union branded transactions and other benefits such as a rechargeable prepaid phone card embedded within the loyalty card. On average, a Gold Card consumer initiates more transactions and has a higher rate of retention than a non-carded consumer. In the United States, approximately 50% of Western Union branded consumer-to-consumer transactions are initiated using a Gold Card. We have also seen increases in usage in Europe and Asia where we began offering the Gold Card in 2004. The global loyalty program is one component of our consumer relationship management, or “CRM,” program designed to support and enhance long-term relationships with our consumers. Consumer databases supplement these efforts by providing insight on consumer preferences so that we can selectively target consumer communications and marketing.

Operational excellence. An important part of operational excellence is reliable technology. Our systems enable us to provide worldwide, multi-currency and real-time money transfer processing with a high degree of reliability. We provide many of our largest agents and billers dynamic computer host-to-host interfaces that enable them to offer money transfer and payment services within their own computer environment. We also provide settlement and reconciliation software to our agents and billers with reporting and analysis tools to help them monitor many aspects of their money transfer business, including transactions, profitability and cash flow. Behind the scenes, our settlement systems facilitate the periodic settlement of accounts between our company and our agents and billers. Our systems and processes enable our agents to pay money transfers in more than 120 currencies worldwide. Many of our agents can pay in multiple currencies at a single location.

Flexibility is another important component of operational excellence. We continue to work to implement consumer focused enhancements to our services, like telephone and internet services, and money transfers paid directly to a bank account or to a stored-value card.

Global compliance programs . We have developed and continue to enhance global compliance programs to monitor and address various aspects of the legal and regulatory requirements of our business, including the monitoring of money laundering and terrorist financing risks. At present, we have approximately 300 employees in a number of our offices around the world fully dedicated to these efforts and we spent over $40 million on these efforts during 2007.

Attractive financial profile . Our revenue and net cash flow have provided us with opportunities to invest in our core business growth, new services and new markets. In 2007, we generated $4.9 billion in revenues, had an operating profit margin of 27% and generated over $1.1 billion in net cash provided by operating activities.

Experienced management team . Our management has significant experience in money transfers and payment services. During 2007, we further strengthened the team with the addition of two executives. Many of our business leaders at the senior management level and below were involved in Western Union’s global expansion and creating and implementing our long-term strategy. Collectively, members of our executive team have an average of eight years with us or First Data.

Our Strategy

We believe that our strengths position us well to continue to pursue global markets and remain focused on our consumers and agents, and their needs. To do so, we developed a number of strategies, including:

Expand and diversify global distribution . We are focused on selectively expanding our agent network and relationships with billers. Examples of this strategy and our recent success in implementing it include:


•

Expanding our network in key receive markets, such as China and India. Combined, China and India represented about 5% of our total revenue in 2007, up from 4% in 2006.


•

Adding or enhancing services allowing consumers in many countries to send and receive money transfers within the same country. In 2007, we grew our non-domestic intra-country money transfer transactions by over 30%, which generated in excess of $80 million in revenues.


•

Launching our internet service internationally. As of December 31, 2007, we were providing service in 11 countries outside of the United States.

We intend to continue to identify and create opportunities to generate new revenue from our existing distribution channels. For example, during 2008 we plan to expand our service offerings under our Vigo brand to new countries in Europe.

Our strategy is to align the number of send and receive agent locations in our markets to correspond to the send and receive demands of our consumers in each market. We have focused on building receive networks in countries with large inbound remittance markets, particularly in Latin America, Africa and eastern Europe, as well as key countries in Asia like China and India. This increased presence in receive markets provides consumers from these countries confidence that money they send home will be delivered to a convenient location they are familiar with. In the United States, western Europe and other predominantly send markets, we add agent locations in markets that tend to attract immigrants.

We offer bill payment services primarily in the United States. We intend to pursue continued global expansion of consumer-to-business payments services through our existing agent network and through acquisitions and alliances. Examples of this strategy include our recent initiative to provide certain advertising payments on behalf of Google through our Quick Cash ® service, and our acquisition in December 2006 of the remaining 75% interest in Pago Fácil, an Argentina-based provider of consumer-to-business payments and prepaid mobile phone top-up services to a variety of organizations including utilities and government agencies.

Build our brands and enhance the consumer experience. We remain focused on our brands and make sizable investments to build our brands and enhance our consumers’ experience. In the years ended December 31, 2007, 2006 and 2005, we spent approximately 6.0%, 6.5% and 6.9%, respectively, of our revenue on marketing, including advertising, events, loyalty programs, and employees dedicated to marketing activities. Building our brands and enhancing the consumer experience are strategies that are grounded in our global CRM programs, which emphasize building a lifetime relationship with our consumers and their families. The Western Union Gold Card is a key part of this strategy. The Gold Card program helps build loyalty by offering consumer recognition, added convenience at the point-of-sale and rewards for transactions. As we continue to introduce the Gold Card in additional countries, we expect to combine the benefits of increased usage with enhanced consumer relationships.

In each of the past three years, we have reduced consumer fees and foreign exchange spreads in selected corridors or markets in response to consumer demand and in order to maximize market opportunities and strengthen our overall competitive position. Pricing decreases and foreign exchange actions generally reduce margins, but are done in anticipation that they will result in increased transaction volumes. In most instances the impact of each pricing decrease and any offsetting increase in volume is shared with our agents through commissions.

In the United States, we offer consumers the ability to send payments to billers through a variety of channels, including walk-in locations, telephone and the internet. In order to pay their bills through these channels, consumers can use various means of payment—cash, checks, payments using a bank account through the automated clearing house (“ACH”), credit cards, or debit cards. We intend to increase our consumer payments business in the United States by pursuing existing and emerging electronic payments services and technologies. Equally important, we plan to expand this business outside the United States, as demonstrated by our acquisition of Pago Fácil in Argentina.

Develop technologies and new service offerings. Western Union is exploring new ways to bring additional services to our consumers around the world. For example, our Western Union International Bank has the ability to establish branches and offer money transfer and other financial services directly to consumers in each of the 27 member states of the European Union and the three additional states of the European Economic Area. We continue to explore new services—either offered by our company directly or through third parties.

Developing new technologies through innovation is a key focus area. We have, or will have, a number of pilots in the market and although they are not contributing meaningfully to revenue currently, we will continue to learn from and evaluate the viability of each pilot test to ensure we are investing appropriately to drive future growth, including attracting new customers to Western Union. Our current pilot programs and new service offerings we are exploring include:

(a) Represents transactions between and within foreign countries (excluding Canada and Mexico), transactions originated in the United States or Canada and paid elsewhere, and transactions originated outside the Untied States or Canada and paid in the United States or Canada. Excludes all transactions between or within the United States and Canada and all transactions to and from Mexico as reflected in (b) and (c) below.
(b) Represents all transactions between and within the United States and Canada.
(c) Represents all transactions to and from Mexico.

Consumer-to-Consumer Segment

Individual money transfers from one consumer to another are the core of our business, representing 83% of our total consolidated revenues for 2007. We offer consumers a variety of ways to send money. Although most remittances are sent in cash at one of our more than 335,000 agent locations worldwide, in some countries we offer the ability to send money over the internet or the telephone, using a credit or debit card. Some agent locations accept debit cards to initiate a transaction. We also offer consumers several options to receive a money transfer. While the vast majority of transfers are paid in cash at agent locations, in some places we offer payments directly to the receiver’s bank account or on a stored-value card.

Operations

Our revenue is derived primarily from transaction fees charged to consumers to transfer money, and in certain money transfer transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by Western Union to the consumer and the rate at which we or our agents are able to acquire currency.

In a typical money transfer transaction, a consumer goes to one of our agent locations, completes a form specifying, among other things, the name and address of the recipient, and delivers it, along with the principal amount of the money transfer and the fee, to the agent. This sending agent enters the transaction information into our data processing system and the funds are made available for payment, usually within minutes. The recipient enters any agent location in the designated receiving area or country, presents identification and is paid the transferred amount. Recipients do not pay a fee (although in limited circumstances, a tax may be imposed on the payment of the remittance). We determine the fee paid by the sender, which generally is based on the principal amount of the transaction and the locations to and from which the funds are sent and are to be transferred.

Over 85% of our consumer-to-consumer transactions involve at least one non-United States location. No individual country outside the United States accounted for more than 10% of the segment’s revenue for the years ended December 31, 2007, 2006 and 2005. Certain of our agents facilitate a large number of transactions; however, no individual agent accounted for greater than 10% of the segment’s revenue during these periods.

Seasonality

Consumer-to-consumer segment revenue typically increases sequentially from the first quarter to the fourth quarter each year and declines from the fourth quarter to the first quarter of the following year. This seasonal fluctuation is related to the holiday season in various countries during the fourth quarter.

Services

We offer money transfer services worldwide. In 2007, over 90% of our consumer-to-consumer transactions were traditional cash money transfers involving our walk-in agent locations around the world. In order to enhance the convenience of our services, we offer a number of options for sending and receiving funds; however, historically, demand for in-person, cash money transfers has been the strongest. The different ways consumers can send or receive money include the following:

Walk-in money transfer service. The majority of our remittances constitute transactions in which cash is collected by the agent and payment (usually cash) is available for pick-up at another agent location in the designated receive country, usually within minutes.

We continue to develop new services that enhance consumer convenience and choice and are customized to meet the needs of consumers in the regions where these services are offered. In the United States, consumers can use a debit card to send transactions from many agent locations. In some United States outbound corridors and in select international corridors, we provide a “Direct to Bank” service, enabling a consumer to send a transaction from an agent location directly to a bank account in another country. In certain countries, we offer payout options through a debit or stored-value card, or through a money order. In certain countries, our agents offer a bank deposit service, in which the paying agent provides the receiver the option to direct funds to a bank account or to a stored-value card. Also, under our Vigo brand, we offer Direct to Bank service in certain receive countries.

Our “Next Day” delivery option is a money transfer that is available for payment the morning after the money transfer is sent. This option is available in certain markets for domestic service within the United States, and in select United States outbound and international corridors, including Mexico. The Next Day Delivery service gives our consumers a lower-priced option for money transfers that do not need to be received within minutes, while still offering the convenience, reliability and ease-of-use that our consumers expect.

Our “Money Transfer by Phone” service is available in select agent locations in the United States. In a Money Transfer by Phone transaction, the consumer is able to use a telephone in the agent location to speak to a Company representative in one of several languages. Typically the sender provides the information necessary to complete the transaction to the Company operator on the phone and is given a transaction number, which the sender takes to the agent’s in-store representative to send the funds.

Online money transfer service. Our internet website, westernunion.com, allows consumers to send funds on-line, using a credit or debit card, for pay-out at most Western Union-branded agent locations around the world. Transaction capability at westernunion.com was launched in the United States in 2000. As of December 31, 2007, we are now providing service in 11 countries outside the United States.

Telephone money transfer service. Our Telephone Money Transfer service allows Western Union consumers to send funds by telephone without visiting an agent location. Consumers call a toll-free number in the United States, Canada, Ireland or the United Kingdom and use a debit card or credit card to initiate a transaction. The money transfer is then available for pay-out at an agent location.

Cash to card. Our service that provides consumers an option to direct funds to a stored-value card in certain locations.

Home delivery. Our home delivery service, available in certain locations, allows funds to be delivered to the recipient rather than picked up at an agent location.

Distribution and Marketing Channels

We offer our consumer-to-consumer service through our global network of third-party agents and the other initiation and payment methods discussed above. Western Union provides central operating functions such as transaction processing, marketing support and customer relationship management to our agents.

Some of our Western Union agents outside the United States manage subagents, which we refer to as superagents. We have approximately 700 superagents located throughout the world. Although our subagents are under contract with these superagents (and not with Western Union directly), the subagent locations have access to the same technology and services that our other agent locations do.

Our international agents are able to customize services as appropriate for their geographic markets. In some markets, individual agents are independently offering specific services such as stored-value payout options and Direct to Bank service. Our marketing relies on feedback from our agents and consumers, and in many of our markets, our agents invest in their own marketing activities.

In February 2005, Western Union International Bank began operations. We chartered the bank in order to adapt to the challenges presented by the growing trend among the member states of the European Union to regulate the money transfer business, and to give us a regulatory platform for new products and services. Western Union International Bank holds a full credit institution license, allowing it to offer a range of financial services throughout the 27 member states of the European Union and the three additional states of the European Economic Area. Today, the bank offers retail service in approximately 35 locations in three countries.

Industry Trends

We participate in a large and growing market for money transfer. Growth in the money transfer business tends to correlate to immigration and related employment rates worldwide. Therefore, an indicator for future growth is the size of the international migrant population, which to a certain extent follows economic opportunity worldwide. According to The World Bank, the number of worldwide immigrants is nearly 200 million or approximately 3% of the world’s population. The top three remittance markets in the world, the countries of India, China and Mexico, each receive $25 billion or more annually according to The World Bank. We anticipate that demand for money transfer services will continue to grow as people continue to migrate from their country of origin.

In 2007, consumers transferred $64 billion in consumer-to-consumer transactions through our company in both cross-border and intra-country transactions, of which $57 billion related to cross-border transactions. Funds transferred through our agent network have increased at a compound annual growth rate of 23% from 2005 to 2007, with cross-border money transfers increasing at a compound annual growth rate of 27% during the same period.

Another significant trend impacting the money transfer industry is the increase in regulation in recent years. Regulation in the United States and elsewhere focuses, in part, on anti-money laundering and anti-terrorist activities. Regulations require money transfer providers, banks and other financial institutions, to develop systems to monitor and report appropriately on certain transactions.


CEO BACKGROUND

In accordance with applicable Delaware law, the business of the Company is managed under the direction of its Board of Directors. Pursuant to the Company’s Amended and Restated Certificate of Incorporation, the Board of Directors is to consist of not less than one nor more than 15 directors. Directors are divided into three classes and directors in each class are elected for a three-year term. During 2007, the Board of Directors met six times (not including committee meetings). Each of the directors attended at least 75% of the aggregate number of meetings of the Board and Board committees on which they served during 2007.

Board of Directors Members




Name and Age


Principal Occupation, Business

Experience and Directorships
Director
Since

Dinyar S. Devitre

Age 60
Senior Vice President and Chief Financial Officer of Altria Group, Inc. since March 2002. From 2001 to 2002, Mr. Devitre acted as a private business consultant and from 1998 to 2001, he was Executive Vice President at Citibank in Europe. He started with the Altria Group companies in 1970 and served in a variety of positions, serving as President Philip Morris, Asia, Chairman and Chief Executive Officer Philip Morris, Japan, and Senior Vice President, Corporate Planning, Philip Morris Companies, Inc. from 1995 to 1998. Mr. Devitre was a director of Kraft Foods Inc. from September 2002 to May 2007, and began serving as a director of SABMiller plc in May 2007. Mr. Devitre’s term expires in 2010. 2006


Christina A. Gold

Age 60
President and Chief Executive Officer of the Company since September 2006. Prior to taking these positions in September 2006, she was a Senior Executive Vice President of First Data and President of Western Union from May 2002. From October 1999 to May 2002, she was Chairman, President and Chief Executive Officer of Excel Communications, Inc. Ms. Gold served as President and Chief Executive Officer of The Beaconsfield Group from March 1998 to October 1999. In 1970, she joined Avon Products, Inc., serving as President of Avon Canada from 1989 to 1993, President of Avon North America from 1993 to 1997 and Executive Vice President of Global Development from 1997 to 1998. Ms. Gold is a director of ITT Corporation and New York Life Insurance Company. Ms. Gold’s term expires in 2010. 2006


Jack M. Greenberg

Age 65
Non-Executive Chairman of the Board of Directors. He was Chairman (from May 1999) and Chief Executive Officer (from August 1998) of McDonald’s Corporation until December 2002. Mr. Greenberg joined McDonald’s Corporation as Executive Vice President and Chief Finance Officer and as a member of the Board of Directors in 1982. He served as a director of First Data from 2003 to 2006. Mr. Greenberg is a director of The Allstate Corporation, Hasbro, Inc., Innerworkings, Inc. and Manpower Inc. Mr. Greenberg’s term expires in 2008. 2006



MANAGEMENT DISCUSSION FROM LATEST 10K

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 on Form 10-K. This Annual Report on Form 10-K contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements 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 historical 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 on Form 10-K. See “Risk Factors” and “Forward-looking Statements.”

Overview

We are a leading provider of money transfer services, operating in two business segments:


•

Consumer-to-consumer money transfer services, provided primarily through a global network of third-party agents using our multi-currency, real-time money transfer processing systems. This service is available for both international transactions—that is, the transfer of funds from one country to another—and intra-country transfers—that is, money transfers from one location to another in the same country.


•

Consumer-to-business payment services, which allow consumers to send funds to businesses and other organizations 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, 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 3% or less of consolidated revenue during the three years ended December 31, 2007, 2006 and 2005, 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 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; and expenses incurred in connection with the development of certain new service offerings, including costs to develop mobile money transfer and micro-lending services.

The consumer-to-consumer money transfer service is available through an extensive network of agent locations 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 expanding 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 Vigo SM 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.

Factors that we believe are important to our long-term success include international growth by expanding and diversifying our global distribution network, building our brands and enhancing the consumer experience, expanding the channels by which consumers can send or receive money, and diversifying our consumer-to-consumer and consumer-to-business service offerings through new technologies and new services. Significant factors affecting our financial position and results of operations include:


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Transaction volume is the primary generator of revenue in our businesses. Transaction volume in our consumer-to-consumer segment is affected by, among other things, the size of the international migrant population and individual needs to transfer funds in emergency situations. We believe that the demand for money transfer services will be strong as people continue to migrate to other countries for economic and other reasons. As noted elsewhere in this Annual Report on Form 10-K, a reduction in the size of the migrant population, interruptions in migration patterns or reduced employment opportunities including those resulting from any changes in immigration laws, economic development patterns or political events, could adversely affect our transaction volume. For discussion on how these factors have impacted us in recent periods, refer to the consumer-to-consumer segment discussion below.


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Revenue is also impacted by changes in the fees we charge consumers, the amount of money sent, and by the foreign exchange spreads we set. We intend to continue to implement strategic pricing reductions, including actions to reduce foreign exchange spreads, where appropriate, taking into account growth opportunities and competitive factors. Decreases in our fees or foreign exchange spreads generally reduce margins, but are done in anticipation that they will result in increased transaction volumes and increased revenues over time.


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We continue to face robust competition in both our consumer-to-consumer and consumer-to-business segments from a variety of money transfer and consumer payment providers. We believe the most significant competitive factors in the consumer-to-consumer segment relate to brand recognition, distribution network, consumer experience and price and in the consumer-to-business segment relate to brand recognition, convenience, speed, variety of payment methods and price.


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Regulation of the money transfer industry is increasing. The number and complexity of regulations around the world and the pace at which regulation is changing are factors that pose significant challenges to our business. We continue to implement policies and programs and adapt our business practices and strategies to help us comply with current legal requirements, as well as with new and changing legal requirements affecting particular services, or the conduct of our business in general. Our activities include dedicated compliance personnel, training and monitoring programs, government relations and regulatory outreach efforts and support and guidance to the agent network on compliance programs. These efforts increase our costs of doing business.


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Our consumer-to-business segment continues to experience a shift in demand in the United States from cash-based walk-in payment services to lower margin, higher volume growth electronic payment services.

Significant Financial and Other Highlights

Significant financial and other highlights for the year ended December 31, 2007 include:


•

We generated $4,900.2 million in total consolidated revenues and $1,322.0 million in consolidated operating income, resulting in year-over-year growth of 10% and 1% in total consolidated revenues and operating income, respectively. Our operating income margin was 27% during the year ended December 31, 2007 compared to 29% during the year ended December 31, 2006. Operating income and operating income margin were impacted by the shift in business mix reflecting stronger growth in the international business, which carries a lower margin than the United States originated businesses, the $22.3 million accelerated non-cash stock compensation charge taken in connection with the change in control of First Data as further described in “Results of Operations,” and $59.1 million of incremental independent public company expenses compared to $25.1 million in 2006.

The Separation of Western Union from First Data

On January 26, 2006, the First Data Corporation (“First Data”) Board of Directors announced its intention to pursue the distribution of 100% of its money transfer and consumer payments businesses related assets, through a tax-free distribution to First Data shareholders. Effective on September 29, 2006, First Data completed the separation and the distribution of these businesses (the “Distribution”). Prior to the Distribution, our company had been a segment of First Data.

In connection with the spin-off, we reported a $4.1 billion dividend to First Data in our consolidated statements of stockholders’ equity/(deficiency)/net investment in The Western Union Company, consisting of a promissory note from our subsidiary, First Financial Management Corporation, or “FFMC,” in an aggregate principal amount of $2.4 billion, the issuance of $1.0 billion in Western Union notes and a cash payment to First Data of $100.0 million. The remaining dividend was comprised of cash, consideration for an ownership interest held by a First Data subsidiary in one of our agents which had already been reflected as part of our company, settlement of net intercompany receivables (exclusive of certain intercompany notes as described in the following paragraph), and transfers of certain liabilities, net of assets.

We also settled as part of the spin-off, certain intercompany notes receivable and payable with First Data along with related interest and currency swap agreements associated with these notes. The net settlement of the principal and related swaps resulted in a net cash inflow to our cash flows from financing activities of $724.0 million. The net settlement of interest on these notes receivable and payable of $40.7 million was reflected in cash flows from operating activities in our consolidated statement of cash flows.

Basis of Presentation

The financial statements in this Annual Report on Form 10-K for periods ending on or after the Distribution are presented on a consolidated basis and include the accounts of our company and its majority-owned subsidiaries. The financial statements for the periods presented prior to the Distribution are presented on a combined basis and represent those entities that were ultimately transferred to our company in connection with the spin-off. All significant intercompany accounts and transactions between our company’s segments have been eliminated. The historical consolidated statements of income include expense allocations for certain corporate functions historically provided to Western Union by First Data, including treasury, tax, accounting and reporting, mergers and acquisitions, risk management, legal, internal audit, procurement, human resources, investor relations and information technology. 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 the relative percentages, as compared to First Data’s other businesses, of headcount or other appropriate methods depending on the nature of each item of cost to be allocated. Pursuant to a transition services agreement we entered into with First Data prior to the spin-off, First Data provided Western Union with certain of these services at prices agreed upon by First Data and Western Union. The transition services agreement expired on September 29, 2007. The costs historically allocated to us by First Data for the services provided to us were lower than the costs we have incurred and will continue to incur following the spin-off.

Certain expenses related to being a stand-alone company, reflected in the consolidated statements of income, are higher than the historical amounts prior to the spin-off. The financial information presented in this Annual Report on Form 10-K prior to the spin-off date of September 29, 2006 does not reflect what our consolidated financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented and is not necessarily indicative of our future consolidated financial position, results of operations or cash flows.

Adoption of FIN 48

We adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under FIN 48, we recognize the tax benefits from an uncertain tax position only when it is more likely than not, based on the technical merits of the position, that the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. As a result of the implementation of FIN 48, we recognized an increase in our liability for unrecognized tax benefits plus associated accrued interest and penalties of $0.6 million, which was accounted for as a reduction to the January 1, 2007 balance of retained earnings.

Refer to “Note 8—Income Taxes” in our historical consolidated financial statements for a more detailed discussion of the adoption of FIN 48.

Adoption of FAS 123R

We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, “ Share-Based Payment ,” (“SFAS No. 123R”), following the modified prospective method effective January 1, 2006. SFAS No. 123R requires all stock-based payments to employees to be recognized in the income statement based on their respective grant date fair market values over the corresponding service periods and also requires an estimation of forfeitures when calculating compensation expense. Stock-based compensation expense, including stock compensation expense allocated by First Data prior to the spin-off on September 29, 2006 and the impact of adopting SFAS No. 123R, was $50.2 million and $30.1 million during the years ended December 31, 2007 and 2006, respectively. Stock compensation expense during the year ended December 31, 2007 included a $22.3 million accelerated non-cash stock compensation charge taken in connection with the change in control of First Data.

In December 2005, First Data accelerated vesting of all outstanding unvested stock options granted to its officers and employees under its 2002 Long-Term Incentive Plan. The decision to accelerate the vesting of these stock options was made primarily to reduce stock—based compensation expense that otherwise likely would have been recorded in future periods following First Data’s adoption of SFAS No. 123R. We recognized compensation expense of $1.8 million during the fourth quarter of 2005 related to this accelerated vesting.

Refer to Note 14—“Stock Compensation Plans” in our historical consolidated financial statements for a more detailed discussion of First Data’s and our stock-based compensation plans and the adoption of SFAS No. 123R.

Components of Revenue and Expenses

The following briefly describes the components of revenue and expenses as presented in the consolidated statements of income. Descriptions of our revenue recognition policies are included in Note 2—“Summary of Significant Accounting Policies” in our consolidated financial statements.

Transaction fees —Transaction fees are charged to consumers for sending money transfers and consumer-to-business payments. Consumer-to-consumer transaction fees generally vary according to the principal amount of the money transfer and the locations from and to which the funds are sent. Transaction fees represented 81% of Western Union’s total consolidated revenues for the year ended December 31, 2007, and are most reflective of our performance.

Foreign exchange revenue —In certain consumer money transfer transactions involving different send and receive currencies, we generate revenue based on the difference between the exchange rate set by us to the consumer and the rate at which we or our agents are able to acquire currency. Foreign exchange revenue growth has historically been driven principally by growth in international cross-currency transactions. Foreign exchange revenue represented approximately 16% of Western Union’s total consolidated revenues for the year ended December 31, 2007.

Commission and other revenues —Commission and other revenues represented approximately 3% of our total consolidated revenue for the year ended December 31, 2007. Commission and other revenues consist of commissions we receive in connection with the sale of money orders, enrollment fees received when consumers enroll in our Equity Accelerator ® program (a recurring mortgage payment service program), revenue recorded for reimbursable costs incurred to operate payment services programs and investment income primarily derived from interest generated on money transfer and payment services settlement assets as well as realized net gains and losses from such assets.

Cost of services —Cost of services includes the costs directly associated with providing services to consumers, including commissions paid to agents and billers, personnel expenses, software maintenance costs, equipment, telecommunications costs, bank fees, infrastructure costs to provide the resources and materials necessary to offer money transfer and other payment services (including reimbursable costs), depreciation and amortization expense, and other operating expenses.

Selling, general and administrative —Selling, general and administrative, or “SG&A,” primarily consists of salaries, wages and related expenses paid to sales and administrative personnel, as well as certain advertising and promotional costs and other selling and administrative expenses. Prior to September 29, 2006, the date of the spin-off, SG&A also included allocations of general corporate overhead costs from First Data.

Interest expense —Interest expense represents interest incurred in connection with outstanding borrowings payable to third parties.

Interest income —Interest income consists of interest earned on cash balances not required to satisfy settlement obligations and in connection with loans made to several agents.

Interest income from First Data, net —Interest income from First Data, net consists of interest income earned on notes receivable from First Data, net of interest expense incurred on notes payable to First Data. All notes receivable and payable were settled in connection with the spin-off on September 29, 2006.

Derivative gains/(losses), net —Derivative gains and losses include realized and unrealized gains and losses associated with certain foreign currency forward contracts that did not qualify as hedges under derivative accounting rules prior to September 29, 2006, and the portion of the change in fair value that is considered ineffective or is excluded from the measure of effectiveness related to contracts designated as accounting hedges entered into on or after September 29, 2006. Derivative gains and losses do not include fluctuations in foreign currency forward contracts intended to mitigate exposures on settlement activities of our money transfer business or on certain foreign currency denominated cash positions. Gains and losses associated with those foreign currency forward contracts are included in operating expenses, consistent with exchange rate fluctuations on the related settlement assets, obligations and cash positions.

Foreign exchange effect on notes receivable from First Data, net —Certain of the notes receivable from First Data in our consolidated balance sheets prior to September 29, 2006, the spin-off date, were repayable in euros, and certain of those euro denominated notes also had foreign currency swap agreements associated with them. These notes receivable were translated based on current exchange rates between the euro and the United States dollar, and changes in fair value of the related foreign currency swap agreements were recorded based on current market valuations. The effect of translation adjustments and recording the foreign currency swaps to market is reflected in our consolidated statements of income as foreign exchange effect on notes receivable from First Data. All notes receivable and payable with First Data were settled in connection with the spin-off on September 29, 2006.

Other income, net —Other income, net is comprised primarily of equity earnings from equity investments and other income and expenses.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

* These amounts represent both shares authorized by the Board of Directors for repurchase under a publicly announced plan, as described below, as well as shares withheld from employees to cover tax withholding obligations on restricted stock awards and units that have vested.


** Since September 2006, the Board of Directors has authorized 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”), both of which expire on December 31, 2009, and a $1.0 billion authorization in September 2006 which has been fully utilized. As of September 30, 2008, $1,048.7 million remains available under the 2007 and 2008 Authorizations. Management has and may continue to establish prearranged written plans pursuant to Rule 10b5-1 to facilitate the repurchase of our shares. A Rule 10b5-1 plan permits the Company to repurchase shares at times when we may otherwise be prevented from doing so, provided the plan is adopted when the Company is not aware of material non-public information.

CONF CALL

Gary Kohn

Welcome to the Western Union fourth quarter 2008 earnings conference call. Thank you for joining us today. As we indicated in our press release we have prepared slides to accompany this call and webcast. These slides are available at www.westernunion.com under the Investor Relations tab and will remain available after the call for your convenience.

Before turning the call over to Christina, I will take a moment to remind you that today’s call is being recorded and that our comments include forward looking statements. I ask that you refer to the cautionary language in the earnings release and in Western Union's filings with the SEC including the 2007 Form 10-K for additional information concerning factors that could cause actual results to differ materially from forward-looking statements.

During the call, we will discuss items that do not conform to generally accepted accounting principles. We have reconciled those measures to GAAP measures on our website www.westernunion.com under the Investor Relations section.

All statements made by Western Union officers on this call are the property of The Western Union Company and subject to copyright protection. Other than the replay, Western Union does not authorize and disclaims responsibility for any recording, replay, or distribution of any transcription of this call.

With that it is my great pleasure to introduce our President and CEO, Christina Gold.

Christina Gold

Welcome to our first quarter call. Looking at the fourth quarter, demand for money transfers softened as consumer confidence, unemployment, and economic headwinds deepened across the world. However, our fourth quarter earnings per share, excluding restructuring charges, were $0.37, up 16% year-over-year on revenue of $1.3 billion.

Full year earnings per share, excluding items affecting comparability, were also up 16% to $1.31. This was in line with our previously guided range and that is something we are very proud of.

Our operating margin for 2008 rivals our peers in the money transfer space and nearly all peers in the payment space, at 27% excluding restructuring expenses. This margin was consistent with 2007’s operating margin.

We generated $1.25 billion of cash flow from operations with minimal capex. Cash flow is a key metric for 2009. We believe our overall financial strength has Western Union positioned to continue creating long-term shareholder value.

Our 2008 results, characterized by 120 basis points of market share gains, were a reflection of our team executing on our four key strategies. In the current environment we are rationalizing expenses and putting an extra filter on investments.

Despite that, 2009 is a time of opportunity for Western Union, a period where we will prudently invest to create further market share gains. Within the C2C business we handled 49.0 million transactions this quarter compared to 45.0 million in the prior year. Transaction growth moderated from the third quarter and the average amount of money sent per transaction declined. These factors impacted C2C revenue growth in the fourth quarter. Pricing has remained stable. 2008 reductions totaled 1% of consolidated revenue.

Now let me take you through our three C2C regions:

Europe, Middle East, Africa, and South Asia [EMEASA] represent 44% of our total revenue for the quarter and posted a revenue increase of 1% on 16% transactions growth. Full year operating margin in the regions improved to 28%. Europe continues to present a challenge as we experienced a sequential decline in transaction growth from the third quarter into the fourth quarter.

Offsetting some of the weakness in Europe, the Gulf States and India continue to do well and remain among our fastest growers. In India, revenue growth was 29% with transaction growth of 50%. Across EMEASA we are directing investments to meet market share opportunities, including making intra-transfers available in more geographies and adding new types of agents to the network.

The upcoming implementation of the Payment Service Directive in late 2009 in the European Union presents an exciting opportunity for us. The regulatory change will make it possible to operate in 27 countries under a single license. This also allows us to expand the classes of trade that can offer money transfer services in certain countries.

Because this is such a unique opportunity, we believe that it is imperative that we act now and the centerpiece of our effort is the agent acquisition we are finalizing. By acquiring one of our largest agents we will have more direct management control over our brand and the sub-agent network and we are better positioned in several key geographies that will benefit from the Payment Services Directive.

Additionally, we have established a dedicated sales force that is targeting agents in different classes of trade. We look to PSD as a significant growth opportunity for us long term and the steps we are taking have us poised and ready.

In the fourth quarter the Americas region represented one-third of consolidated revenue and experienced a revenue decline of 5% year-over-year on flat transactions. The full year Americas margins decline 100 basis points to 27% as a result of the revenue decline in the higher-margin domestic money transfer business.

In this region our domestic business saw 5% revenue and 4% transaction declines for the quarter. And as we sit here today, we anticipate that these trends will continue throughout 2009.

In terms of Mexico, our transaction performance again outpaced the market as reported by the Banco de Mexico, however, our revenue and transactions were weaker than expected, declining 10% and 3% respectively in the quarter.

Under Stewart Stockdale’s leadership we are implementing a new go-to-market strategy in the Americas that we believe enhances efficiency and effectiveness. Specifically, we have combined our U.S. and Latin American organizations, including the Western Union Vigo and Orlandi Valuta sales forces. We are looking to open new distribution points and are making progress in the U.S. banking channels.

We have also aligned our marketing activities and put in place a new structure and added several new senior leaders, all designed to maximize the opportunity and to continue to make financial and strategic progress.

Asia Pacific grew 7% on a 30% increase in transactions. The revenue growth slowed in part due to headwinds in China where revenue declined 8% on 3% transaction growth. Asia Pacific’s full year margin improved to 25%.

For our China business, the sequential revenue and transaction trends in the third to the fourth quarter have continued as China, unlike other countries we serve, relies heavily on transactions conducted by entrepreneurs, usually exceeding $1,000.

The Philippines is another market where Western Union’s extensive network and high brand awareness are driving market share gains. Our 2008 growth rates in this market have outpaced the 15% impound market growth as reported by the Central Bank of the Philippines.

To that point, we see the broader Asia Pacific region as a meaningful contributor to our future growth, as it contains not only China and the Philippines, but countries where we have been expanding our presence, like Thailand, Viet Name, Indonesia, and Malaysia.

The opportunity is tremendous as today our Asia Pacific region makes up only 7% of our revenue, yet according to the World Bank this market is estimated to be 19% of the world’s cross-border remittance market.

We are extremely focused on achieving more growth throughout Asia Pacific. We have realigned the teams, including expanding Hikmet Ersek’s ability to include this region. He brings a depth of knowledge and proven strategies that have our teams energized and set to capture the opportunity.

Moving to our consumer-to-business segment [C2B] we generate nearly 90% of the segments revenue in the United States and we are certainly feeling the impact of the recession as the American consumer remains under pressure and those likely to use our service are conducting fewer payment transactions both sequentially and year-over-year.

In an effort to diversify, we are pushing hard on international expansion and have introduced bill payment in Peru and Panama. We are also currently working on obtaining our license in Brazil. The Pago Fácil business continues to perform ahead of our expectations with full year revenue growth exceeding 30% and the team making this happen is the same team executing on the international expansion.

Additionally, we are constantly evaluating acquisition targets that will diversify our payments offering and geographic mix.

So to sum up the C2C and C2B discussion, we generated revenue in 200 countries with no single country outside of the United States contributing more than 7% of our top line. We serve 15,000 corridors and have the ability to shift investments across our portfolio to maximize effectiveness and we believe this is a very good position to be, given today’s global economy.

Now I would like to turn the call over to Scott.

Scott Scheirman

Fourth quarter revenue of $1.3 billion was down 1% on a reported basis. On a Euro-adjusted basis revenue was flat year-over-year. Full year revenue growth was 8% reported and 6% on a Euro-adjusted basis. Euro translations benefitted revenue for the year by $82.0 million and operating profit by $19.0 million.

Revenue growth rates, on a calendar and currency-adjusted basis, were generally consistent for each month of the fourth quarter.

Transaction fee revenue for the fourth quarter, which makes up 81% of company revenue, declined 2% due to slowing transaction growth within C2C, and to a lesser extent, consumers sending less cash per transaction for the period.

Year-over-year C2C principal per transaction declined 4% in the fourth quarter.

Foreign exchange revenue is 17% company revenue and is generated from the difference between the exchange rate we make available to our customers and the rate at which we or our agents are able to acquire foreign currencies. This revenue stream is primarily driven by our international C2C business. Foreign exchange revenue this quarter was flat year-over-year due to slowing growth in transactions and lower principal per transaction.

Breaking fourth quarter revenue down further, reported revenue in the C2C segment, which was 85% of total revenue, declined 1% and was flat Euro-adjusted. Revenue in this segment was driven by a transaction growth of 9% in the fourth quarter.

In a broader sense, an increasing number of corridors experienced the impact of the global economic slowdown. Our international C2C business saw a revenue growth of 2% on a Euro-adjusted basis, or 1% as reported. Transactions grew 12%.

The portion of the international business that does not touch the U.S. saw a revenue growth of 4% Euro-adjusted, or 2% reported, while transactions grew 18%.

As Slide 17 details, the spread between C2C revenue and transaction growths widened in the fourth quarter, the largest factor in the reported revenue number, accounting for 4% of the 10% difference, was currency.

Also impacting the spread was: first, geographic mix—transactions carry a different revenue per transaction based on originating geography and destination; second, product mix—inter-transfers are a lower revenue per transaction than our cross-border transaction. The geographic and product mix impact for 2008 were consistent with 2007; and third, pricing—in 2008 pricing declined a total of 1% of revenue compared to 3% in 2007.

After adjusting for currency, the transaction revenue growth spread difference in the fourth quarter was generally consistent with all of 2008. For 2009 the spread may continue to widen from currency translation and our global initiatives to drive our intra-country money transfer business. We expect price decreases in 2009 to be similar to 2008 at around 1% of total revenue.

Fourth quarter C2C operating margin was 28.9% compared to 27.5% in last year’s fourth quarter. Operating margin for the year was 27.3%, up from last year’s 26.8%, excluding the stock compensation charge.

Contributing to the overall C2C margin improvement this year were the relocation of call centers to lower cost geographies, workforce reductions, leveraging of our marketing spend, and tight management of expenses.

The [C2B] segment, which is 13% of our revenue, saw a revenue decline of 5% on flat transactions in the fourth quarter.

Operating income for the segment was down 16% and this quarter’s operating margin of 27% is down 350 basis points compared to fourth quarter of 2007. We have taken costs out and will continue to evaluate additional cost savings initiatives.

We do not foresee improvements in the U.S. C2B business in 2009, while the U.S. consumer remains under pressure. This makes our international expansion and product diversification, including acquisition, all the more important.

One final note, consistent with previous quarters, restructuring expenses were not included in these segment results I just mentioned.

Moving down the P&L, let’s go to cost of services and SG&A. To get meaningful comparison compared to 2007, we excluded the stock compensation expense from 2007 results and restructuring expenses from 2008 results. The dollar amounts are detailed in the earnings release.

On an apples-to-apples basis, in the fourth quarter, cost of services declined 3% to 56.5% of revenue versus 57.5% in the fourth quarter of 2007. And for 2008 cost of services was 57% of revenues, consistent with 2007. In terms of SG&A in the quarter, and for 2008, it was 15% of revenue, consistent with the fourth quarter and full year 2007.

Fourth quarter consolidated operating margin was 25.9% as reported and excluding restructuring expenses it was 28.4%. This is a 50 basis point improvement from 27.9% in the fourth quarter of 2007. Our full year 2008 operating margin was 25.7% reported, or 27.2% excluding restructuring expenses. This compares to last year’s reported margin of 27.0%, or 27.4% excluding the stock compensation charge.

The tax rate this quarter, which benefitted from the favorable resolution of certain U.S. tax matters, was 22.8% excluding restructuring expenses. This compares to 27.4% in the fourth quarter of 2007. The 2008 GAAP tax rate was 25.8%, an improvement from 29.9% in 2007. The effective non-GAAP tax rate for 2008, which excludes restructuring expenses, was 26.6%.

Our tax rate continues to benefit from increased foreign derived profits, which are taxed at lower rates compared to U.S. derived profits, and the finalization and implementation of foreign tax planning strategies. We expect these items to drive sustainable cash benefits on a go-forward basis.

In 2008 cash flow from operations was $1.25 billion and capital expenditures were $154.0 million. This implies a net income to cash flow conversion of 120% and it is a very important metric to our liquidity, giving us a competitive advantage as we invest cash to grow the business.

We finished the year with $1.3 billion of cash on hand, with $700.0 million in the U.S. and $600.0 million internationally.

We had outstanding debt of $3.1 billion, including about $100.0 million of commercial paper. This program is fully backed by a $1.5 billion revolving credit facility that expires in 2012. Excluding commercial paper, maturities are $500.0 million in late 2009, $1.0 billion each in 2011 and 2016, and the last $500.0 million in 2036.

In November we paid off a maturing $500.0 million note with cash and commercial paper, which we then replaced with a short-term syndicated loan with an estimated cost of around 5% to 6%.

During 2008 we had nearly $300.0 million of our surplus international cash invested with a reserved international liquidity fund. So far we have received $194.0 million in cash from the fund and we expect the remainder to be returned.

We feel good about our financial strength in an environment where liquidity is critical.

Before addressing our 2009 outlook I want to update you on our pending agent acquisition. This acquisition positions us to better gain market share and improve margins across key European geographies, especially in light of the upcoming implementation of the Payment Services Directive throughout the European community.

The benefits are clear. We will have a closer relationship with the network agents and we can run the country or region more profitably by utilizing our scale and operating expertise. This acquisition, including integration expenses, will utilize less than $200.0 million of international cash, impacts 2009 operating margin by about 40 basis points and will be $0.02 dilutive to earnings.

Beginning in 2009 we will provide revenue and EPS on a reported and constant-currency basis. The Euro is the majority of our foreign currencies but as the international business continues to grow other currencies may become more meaningful to Western Union’s business.

For comparative purposes, 2008 revenue growth was 6% on both a Euro-adjusted and constant-currency basis. Fourth quarter revenue growth was 2% constant currency. In 2008 there was an operating income benefit on a constant-currency basis that is offset by derivative losses so netted out there was no EPS impact from foreign currencies in 2008.

Looking at our outlook for 2009, we expect constant currency revenue to be down 2% to 5% and reported revenue to be down 5% to 8%. Our revenue forecast is based on many drivers, including we anticipate the world’s cross-border remitted principal to grow less in 2009 compared to 2008, we expect single digit growth in our total cross-border principal handled. We expect this growth to be faster than the overall market growth and therefore, again, increase market share.

We expect mid- to high-single digit growth in C2C transactions with transactions likely to be weakest in the higher-margin U.S. business. We expect principal per transaction to decline. C2C price decreases are expected to be consistent with 2008 at approximately 1% of consolidated revenue.

And finally, for the C2B segment, we expect the fourth quarter of 2008 revenue and profit trends to continue into 2009. C2B margins will likely decline but not to the same degree as in 2008.

Our outlook for constant currency EPS is $1.16 to $1.26. Our outlook for reported EPS is $1.18 to $1.28. Our EPS range assumes $0.02 dilution from the Asian acquisition, net other expenses of approximately $150.0 million due to less interest income. This adversely impacts 2009 EPS by $0.03 compared to 2008. A tax rate of approximately 26% and buyback of $400.0 million.

We provided a wide EPS range to reflect the uncertainty we see across our 15,000 corridors and the factors that will impact profitability. We are trying to hold margins in 2009 but recognize that variables exist, such as revenue performance, product mix, the pending Asian acquisition, and investments that may impede margin stability.

We expect revenue and EPS to be slightly stronger in the second half of 2009. In addition, we have historically and planned to achieve higher operating margins in the back half of the year.

During 2008 we improved our cost structure by relocating operations to Costa Rica at outsourcers, eliminating positions, and selectively reducing agent commissions. And had the global economy not changed so significantly, the business model would have delivered margin expansion in 2009.

About 65% of our costs are variable. These costs should move as revenue moves. In addition, we will closely manage expenses in 2009, including marketing and other expenses. The cost reduction steps we have taken, and our leveragable business model, should allow us to drive margin expansion as the market improves and revenue reaccelerates.

In addition to our revenue and EPS outlook we expect to generate cash flow from operations in excess of $1.1 billion and to make capital expenditures of less than $150.0 million.

The $400.0 million buyback target stems from several factors. First, in today’s environment we believe that liquidity is very important and we need to be conservative until the market stabilizes. Second, we believe it is important to maintain our A-minus credit rating. And finally, we believe that the acquisition landscape will be increasingly more favorable in 2009. This is simply a prudent strategy in the current environment. We will monitor this throughout the year and align our cash priorities accordingly.

Christina Gold

Before closing, I want to provide some insight into January. In January this year we saw similar patterns to Q4 for C2C transactions. Across our geographies we continued to see softness in places like Europe and the United States while other regions, like the Gulf States, India, and the Philippines remained strong.

January results are consistent with our expectations relative to our 2009 outlook. We believe we are entering an era where the strong will get stronger. In 2008 Western Union delivered record levels of revenue and cash flow. Revenue was $5.3 billion and we generated $1.25 billion in cash flow from operations. We handled $67.0 billion in cross-border C2C remittances and while we are very proud again to have grown our market share in 2008, we know that with 17% global share, we have opportunity to capture additional market share.

We remain a leader in the money transfer industry and by the end of 2009 we will have a global agent base that exceeds 400,000 locations. It is our business model, and how it translates into financial performance, that I believe creates such an advantage for us.

Specifically, we generate significant levels of cash flow and yet the ongoing cash needs of the business are relatively modest. And in terms of expenses, about 65% are variable, allowing us to respond to the economic environment quickly.

In terms of our core business, we will invest in our most important assets: our brand, our network, our technology, and our people. We believe that this will allow us to gain market share faster than those that may not have the ability to invest at this time.

Specifically on the marketing front, we plan to spend roughly 5% of revenues on marketing, although we have some flexibility here. Our research shows that this is time to go out with a more efficient global campaign. Our focal point is the recently launched Yes! campaign designed to support consistent global messaging. We believe it will enhance awareness and trust, aiding us over time in entering more markets and new businesses.

Our network expansion has, and will continue to drive growth. Take India for example, since 2003 we have grown the network in India by 3.5 times to more than 50,000 agent locations, driving revenue growth of more than 6 times. This has been a great success and as I mentioned earlier, we look to replicate the India success in markets like Indonesia, Thailand, Viet Nam, and Malaysia. Again, the opportunity here is very large. Asia Pacific is only 7% of our revenue and yet it makes up an estimated 19% of the global cross-border principal market.

We are increasing our investment in technology and systems in 2009. In fact, we continue to evolve our systems that allow us to move money from virtually anywhere in the world and not only in a compliant manner, but in minutes.

The rules on money transfer and global payments are becoming more complicated and in some cases more onerous. We are fortunate that we have the financial strength and infrastructure to enable us to respond to these developments.

Additional technology enhancements are designed to support new products, additional distribution channels and to perform deeper analytics on our customer relationship program.

On the mobile front, our many capabilities, like physical agent locations, brand recognition, technologies, and compliance, are helping us make progress and ensure we are positioned to succeed over the next three to five years as consumer acceptance evolves.

We offer money transfer services in almost every region where mobile operators exist and have partnered with top operators and associations including Vodafone, Orascom Telecom, Bardi Artel, Globe Telecom, Smart Communications, and the GSM Association.

On the C2B side, we are investing in international expansion and broadening our product offerings. We will also be evaluating acquisitions. We are optimistic about the landscape and we believe we can participate in consolidation with the goal of strengthening money transfer, diversifying further into payments, and adding value to the company through technology. And finally, I am confident that we can accomplish all this and still return capital to shareholders in 2009.

Longer term, we are very, very confident in our future. We have a proven business model with talented and committed employees. We have an unrivaled network which is distinctive in its competitive advantage. We serve a large market which will grow when the economy improves. In fact, the World Bank sees remittances to developing countries growing 6% in 2010.

The mobile workforce will continue seeking employment opportunities throughout the world. There are an estimated 200.0 million cross-border migrants, as well as an estimated 300.0 million people who have migrated within a country. This population will not only need to transfer cash home, but they will ultimately need other services at the point of sale. We are very well positioned to service the existing and expanding needs.

So in closing, I will revisit what I talked about in my opening remarks. Although 2009 will be a challenging year for Western Union and many other companies around the world, it is an opportunity to make smart choices by deploying capital to extend our industry leadership and positions us for continued share gains in the money transfer market and other global opportunities that leverage our network, our brand, and customer relationships.

With that, we are now ready for our first question.

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